As filed with the Securities and Exchange Commission on May 25, 1995
Registration No. 33-91644
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Hardinge Inc.
(formerly Hardinge Brothers, Inc.)
(Exact name of Registrant as specified in its charter)
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New York 3541 16-0470200
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
One Hardinge Drive, Elmira, New York 14902-1507, (607) 734-2281
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
MALCOLM L. GIBSON
Senior Vice President and Chief Financial Officer, Hardinge Inc.
One Hardinge Drive, Elmira, New York 14902-1507, (607) 734-2281
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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JONATHAN JEWETT LEONARD M. LEIMAN
Shearman & Sterling Fulbright & Jaworski L.L.P.
599 Lexington Avenue 666 Fifth Avenue
New York, New York 10022-6069 New York, New York 10103-3198
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the date on which this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |B(
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. |B(
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
HARDINGE BROTHERS, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
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Form S-2 Caption or Location
Item Number and Heading in Prospectus
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front Cover Page; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; The Company; Investment
Considerations; Selected Financial Data
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Not Applicable
7. Selling Security Holders Principal and Selling Shareholders
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Description of Securities to Be Registered Outside Front Cover Page; Prospectus Summary;
Description of Capital Stock
10. Interests of Named Experts and Counsel Management; Legal Matters
11. Information with Respect to the Registrant Outside Front Cover Page; Prospectus Summary; The
Company; Common Stock Market Information;
Dividend Policy; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Description of Capital Stock;
Consolidated Financial Statements
12. Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
The Registrant's name was formerly Hardinge Brothers, Inc. On May 19,
1995, the Registrant changed its name to Hardinge Inc.
<PAGE>
2,282,000 Shares
[HARDINGE LOGO]
Common Stock
($.01 par value)
Of the 2,282,000 shares of Common Stock offered hereby, 2,250,000 shares
are being sold by Hardinge Inc. and 32,000 shares are being sold by the
Selling Shareholder. The Company will not receive any proceeds from the sale
of Common Stock by the Selling Shareholder. See "Principal and Selling
Shareholders." See "Underwriting" for information relating to the method of
determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq Stock
Market's National Market under the symbol "HDNG." See "Common Stock Market
Information."
For information concerning certain factors relating to this offering, see
"Investment Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Shareholders
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Per Share $ 19.00 $ 1.33 $ 17.67 $ 17.67
Total (3) $43,358,000 $3,035,060 $39,757,500 $565,440
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting estimated expenses of $1,107,500 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to an additional 342,300 shares of Common Stock at the Price to
Public, less the Underwriting Discounts and Commissions shown above,
solely to cover over-allotments, if any. If this option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $49,861,700, $3,490,320 and $45,805,940,
respectively. See "Underwriting."
The shares of Common Stock offered hereby are being offered by the
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that the Common Stock will be available for delivery on
or about June 2, 1995 at the offices of Wertheim Schroder & Co. Incorporated,
New York, New York.
WERTHEIM SCHRODER & CO. PRUDENTIAL SECURITIES INCORPORATED
Incorporated
May 25, 1995
<PAGE>
PHOTOS FOR INSIDE FRONT COVER INSIDE-RIGHT
HAND PAGE OF FOLD-OUT TO S-2/A
UPPER ONE-THIRD OF PAGE
AERIAL VIEW OF HARDINGE'S MANUFACTURING FACILITY
Hardinge Worldwide Headquarters, Elmira, New York
LEFT-HAND CENTER
ASSEMBLY LINE FOR T42 LATHES
The CONQUEST(R) T42 Lathe assembly line.
BOTTOM RIGHT-HAND CORNER
VARIOUS PARTS MACHINED ON HARDINGE MACHINE TOOLS
Parts for many industries produced on Hardinge machine tools.
PHOTOS FOR INSIDE FRONT COVER INSIDE
LEFT-HAND PAGE OF FOLD-OUT TO S-2/A
UPPER CENTER
HORIZONTAL CNC LATHE
CONQUEST(R) T42SP SUPER-PRECISION(R)
Lathe
LEFT-HAND CENTER
VERTICAL CNC MACHINING CENTER
CONQUEST(R) VMC 700 Vertical
Machining Center
MIDDLE CENTER
COLLAGE OF HARDINGE SUPER-PRECISION(R) LOGO,
THE ASSOCIATION FOR MANUFACTURING
TECHNOLOGY LOGO AND THE FLAG OF
THE UNITED STATES OF AMERICA
Made in USA
RIGHT-HAND CENTER
HORIZONTAL CNC LATHE
CONQUEST(R) VT200 Vertical Lathe
BOTTOM LEFT-HAND CORNER
VARIOUS COLLETS AND WORKHOLDING DEVICES
Collets and workholding devices
BOTTOM RIGHT-HAND CORNER
CONQUEST(R) GT SUPER-PRECISION(R) Lathe
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offering made hereby and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, the Selling Shareholders or any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any security other than the securities covered by this
Prospectus, nor does it constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized, or in
which the person making such an offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the dates as of which
information is furnished or the date hereof.
TABLE OF CONTENTS
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Page
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Prospectus Summary 3
Investment Considerations 6
The Company 9
Common Stock Market Information 9
Dividend Policy 10
Use of Proceeds 10
Capitalization 11
Selected Financial Data 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
Business 21
Management 31
Principal and Selling Shareholders 35
Description of Capital Stock 37
Underwriting 40
Legal Matters 41
Experts 41
Available Information 41
Incorporation of Certain
Documents by Reference 42
Index to Consolidated Financial
Statements F-1
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Company owns or otherwise has rights to trademarks and trade names
that it uses in conjunction with the sale of its products. The following
trademarks mentioned in this Prospectus are owned by the Company:
HARDINGE(R), SUPER PRECISION(R), CONQUEST(R) and HARCRETE(R).
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Prospective investors are urged to read this Prospectus in its entirety. All
of the information in this Prospectus with regard to shares and per share
amounts pertaining to the Company's Common Stock has been adjusted to give
effect to the conversion of the Company's Class A Common Stock and Class B
Common Stock into Common Stock effective immediately prior to the date
hereof. As of April 10, 1995, after giving effect to this conversion, the
Company would have had 3,859,751 shares of Common Stock outstanding. Unless
otherwise indicated, this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. For a discussion of certain matters
that should be considered by prospective investors, see "Investment
Considerations."
THE COMPANY
Hardinge Inc., founded over 100 years ago, is a leading machine tool
manufacturer, which designs, manufactures and distributes metal cutting
lathes and related tooling and accessories of the highest precision and
reliability generally available in the market. A lathe, or turning machine,
is one of the most commonly used machine tools and produces a part or
finished product, usually round, by moving a cutting tool against a metal bar
or other workpiece that is rotating at a very high speed in a spindle
mechanism. The Company offers a broad line of general and higher precision
small and medium power computer numerically controlled ("CNC") lathes, a
vertical CNC machining center, higher precision manually controlled lathes
and a wide assortment of workholding and toolholding devices and other
non-machine products and services.
The Company currently manufactures 18 machine tool models, including 12
horizontal CNC lathes, two vertical CNC lathes, a vertical CNC machining
center and three manual lathes. The Company markets its machine tools under
the well-known Hardinge and Hardinge Super Precision names directly to
manufacturers in the automotive, medical equipment, aerospace and electronics
industries, as well as in the defense, recreational equipment, farm
equipment, construction equipment, energy and transportation industries, and
to independent job shops serving these and other industries. The Company also
offers option packages with each of its machines to meet specific customer
requirements and turnkey services through which it will engineer complete CNC
machine systems for customers.
The Company's large base of installed equipment, coupled with the
extensive tooling required to operate a lathe at close tolerances and the
need to periodically replace worn-out tooling, have provided a source of
significant demand for the Company's non-machine products and services.
Non-machine products include over 30,000 different collets, chucks, feed
fingers, pads and other workholding devices for its own machines and those
produced by other manufacturers, as well as toolholding devices and
accessories for its own machines. As part of its commitment to customer
service, the Company offers over 45,000 replacement parts, representing
substantially all of the spare parts required for the Company's machines
currently in service, and such services as equipment installation, operation
and maintenance training, machine maintenance and in-field repair. The
Company's non-machine products and services have typically provided higher
margins than its machine products and, for each of the past five years, have
accounted for between 44% and 50% of its net sales.
The Company seeks to design machines capable of consistently and
cost-effectively producing very high precision parts. The Company has
incorporated a number of technological advances in its machines, including
the use of its proprietary Harcrete machine bases and a patented real-time
thermal compensation system. The Company believes that Harcrete machine
bases, which are made of a polymer composite, offer technological advantages
over traditional cast iron bases, including better vibration dampening and
increased thermal stability, thereby increasing precision levels and tooling
life. Higher precision is also achieved through the Company's real-time
thermal compensation system, which automatically adjusts the location of a
machine's cutting tool to compensate for thermal expansion during the
machining process.
In response to customer requirements, the Company has reduced its product
development cycle in recent years and has regularly upgraded its machines and
introduced new machine tools to broaden its line. As a result, in 1994 and
the first quarter of 1995, over 45% of the Company's net sales of machine
tools were derived from products introduced or substantially modified since
the beginning of 1993. Most recently, in late 1994, the Company introduced
its first vertical CNC lathes and vertical CNC machining center, marking its
entry into two metal cutting markets with combined U.S. sales of over
$575,000,000 in 1994.
3
<PAGE>
Although it operates in a highly cyclical industry, the Company has been
profitable for over 50 years, except for a loss recorded in 1992 resulting
from its implementation of Statement of Financial Accounting Standards
("SFAS") No. 106. Factors that have contributed to the Company's
profitability in recent years include its significant sales of non-machine
products and services, its regular introduction of new and upgraded machine
models, its ability to control costs and its high degree of vertical
integration.
The Company's operating strategy is to further increase sales through the
expansion of existing product offerings and the development of new product
lines. It will seek this growth through a combination of internal
development, licensing arrangements with other producers and acquisitions.
The Company also intends to continue to focus on its non-machine products and
services, which have been less cyclical than its machines sales and have
increased the stability of its operating results. Further, the Company will
continue its commitment to Total Quality Management ("TQM"), which the
Company believes has helped it to decrease waste, improve manufacturing
efficiency, increase product reliability, better control costs and meet
customer requirements.
Plant Expansion
As a result of the Company's launch of 14 new machine tool models since
1991 and the recent upturn in the machine tool market, the Company's Elmira,
New York manufacturing facility is currently operating near full capacity,
and the Company expects this facility will continue to operate near full
capacity for the balance of 1995. 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, most of which will be funded with a portion
of the proceeds of this offering.
THE OFFERING
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Common Stock offered by:
The Company 2,250,000 shares
The Selling Shareholder 32,000 shares
Common Stock to be outstanding after this
offering 6,109,751 shares (1)
Use of proceeds To repay indebtedness and to expand plant capacity.
Dividend policy The Company currently intends to pay regular quarterly cash
dividends on its Common Stock at the annual rate of $.60 per
share. See "Dividend Policy."
Nasdaq National Market symbol HDNG
</TABLE>
(1) Does not include 14,250 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and 128,000 shares of Common Stock
reserved for issuance under the Company's 1993 Incentive Stock Plan. See
"Management--Incentive Stock Plan."
4
<PAGE>
Summary Consolidated Financial Information
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<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1990 1991 1992 1993 1994 1994 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Income Data:
Net sales $
$102,859 $82,595 84,797 $98,437 $117,336 $27,479 $40,687
Gross profit 35,686 28,893 28,892 35,268 40,399 9,549 13,913
Income from operations 7,052 2,914 2,942 9,464 12,517 2,977 5,498
Interest expense 1,309 1,332 1,380 1,343 1,479 371 476
Interest (income) (1,494) (1,590) (1,160) (763) (453) (134) (121)
Income before income taxes 7,237 3,770 2,722 8,884 11,933 2,740 5,469
Cumulative effect of
changes in accounting
methods (1) -- -- (2,754) -- -- -- --
Net income (loss) 4,632 2,707 (1,184) 5,154 6,719 1,612 3,304
Per Share Data:
Income before cumulative
effect of changes in
accounting methods $ 1.28 $ .77 $ .45 $ 1.45 $ 1.88 $ .45 $ .92
Cumulative effect of
changes in accounting
methods (1) -- -- (.79) -- -- -- --
Net income (loss) $ 1.28 $ .77 $ (.34) $ 1.45 $ 1.88 $ .45 $ .92
Pro forma net income (2) -- -- -- -- $ 1.28 $ .31 $ .61
Cash dividends declared per
share $ .82 $ .80 $ .74 $ .79 $ .84 $ .15 $ .15
Weighted average number of
shares of Common Stock
outstanding (3) 3,621 3,535 3,513 3,565 3,573 3,545 3,584
Other Financial Data:
Gross margin (4) 34.7% 35.0% 34.1% 35.8% 34.4% 34.8% 34.2%
Operating margin (5) 6.9% 3.5% 3.5% 9.6% 10.7% 10.8% 13.5%
Capital expenditures $4,563 $6,128 $4,429 $3,873 $8,046 $749 $1,141
Research and development
expenditures 4,449 4,786 4,420 4,216 5,218 1,200 1,233
Depreciation and
amortization 3,920 4,054 3,801 3,939 4,354 1,305 1,349
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995
Actual As Adjusted (6)
(in thousands, except per share data)
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Balance Sheet Data:
Working capital $ 68,544 $ 73,017
Long-term portion of notes receivable 8,899 8,899
Total assets 132,491 148,464
Short-term debt 4,214 714
Long-term debt 21,245 2,143
Shareholders' equity 82,595 121,245
Book value per share (7) 21.40 19.84
Ratio of total debt to total capitalization
plus short-term debt 23.6% 2.3%
</TABLE>
(1) Includes the cumulative effect of changes in accounting principles for
the year ended December 31, 1992 representing the adoption, as of January
1, 1992, of (a) SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," resulting in a $2,867,000 decrease in net
income (net of income tax benefit of $1,683,000), and (b) SFAS No. 109,
"Accounting for Income Taxes," resulting in a $113,000 increase in net
income. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations ('Management's Discussion and
Analysis')--Accounting Changes."
(2) Gives effect to the (i) reduction in interest expense resulting from the
application of the estimated net proceeds to the Company from this
offering to reduce long- and short-term debt (see "Use of Proceeds") and
(ii) recording of income tax expense based on the estimated effective
income tax rate, assuming this offering had been consummated on January
1, 1994. Does not give effect to the Company's increased machine making
capacity that will result from the expansion of its Elmira, New York
manufacturing facility. See "Business--Property." Weighted average number
of shares of Common Stock outstanding for the year ended December 31,
1994 and the three months ended March 31, 1994 and 1995 would have been
5,823,000, 5,795,000 and 5,834,000, respectively, assuming this offering
had been consummated on January 1, 1994.
(3) Excludes shares of restricted Common Stock that had not yet vested,
issued to officers and employees under the Company's 1988 and 1993
Incentive Stock Plans.
(4) Gross margin is gross profit as a percent of net sales.
(5) Operating margin is income from operations as a percent of net sales.
(6) Gives effect to the sale by the Company of its shares of Common Stock in
this offering and the application of the estimated net proceeds therefrom
as set forth under "Use of Proceeds."
(7) Based on 3,859,751 shares of Common Stock outstanding at March 31, 1995
(including 293,581 shares of restricted Common Stock that have not yet
vested) and 6,109,751 shares of Common Stock outstanding as adjusted.
5
<PAGE>
INVESTMENT CONSIDERATIONS
Potential purchasers of the Common Stock should carefully consider the
following factors, as well as the other information contained in this
Prospectus, before deciding to purchase shares of the Common Stock offered
hereby:
Cyclical Industry
Machine tools are purchased predominately by industrial companies or by
independent job shops that, in turn, sell machined parts to industrial
companies. As a result, machine tool producers are subject to the long-term
cyclical nature of the industrial sector in the United States and in
important markets abroad. The level of demand for machine tools can also be
affected by factors influencing industrial production, such as interest
rates, the availability of skilled laborers and governmental tax policies
(such as investment tax credits or accelerated depreciation of capital
goods), as well as by the need for manufacturers to improve their efficiency
(independent of their need to increase their capacity). Generally, when
industrial production has increased, the Company has benefited from increased
demand for its products. On the other hand, during periods of economic
contraction, the Company has generally been adversely affected by declining
demand for its products. The Company's results are expected to continue to be
significantly affected by changes in the level of industrial production in
its primary markets. See "Business--Machine Tool Industry Overview."
Dependence on Foreign Electronics Supplier
The computer and related electronics package used in the Company's CNC
machines are supplied by Fanuc Limited, a large Japanese electronics company.
The Company's purchases from this supplier are not made pursuant to a long-
term contract and are subject to the additional risks associated with
purchasing products internationally, including risks associated with
potential import restrictions and exchange rate fluctuations, as well as
changes in tax laws, import/export regulations, tariffs and freight rates.
Although the Company believes its relationship with this supplier is
excellent, there can be no assurance that the Company will be able to obtain
these products from this supplier on satisfactory terms indefinitely. While
the Company believes that design changes could be made to its machines to
allow sourcing from several other suppliers, a disruption in the supply of
the Fanuc components could cause the Company to experience a substantial
disruption of its operations, depending on the circumstances at the time. Any
prolonged disruption in the supply of computer and related electronics
packages would materially adversely affect the Company. See
"Business--Manufacturing and Supply."
Competition
The markets in which the Company's machine and non-machine products are
sold are extremely competitive and highly fragmented. In marketing its
products, the Company competes with other manufacturers primarily on quality,
reliability, price, value, delivery time, service and technological
characteristics. The Company competes with a number of U.S., European and
Asian competitors, many of which are larger, and have substantially greater
financial resources, than the Company. While the Company believes its product
lines compete effectively in their markets, there can be no assurance that
they will continue to do so. See "Business--Competition."
Technological Change
The machine tool industry is subject to technological change, evolving
industry standards, changing customer requirements and improvements in and
expansion of product offerings, especially with respect to CNC products. The
Company's ability to anticipate changes in technology, industry standards,
customer requirements and product offerings by competitors, and to develop
and introduce new and enhanced products on a timely basis that are accepted
in the market, will be significant factors in the Company's competitive
position and prospects for growth. Moreover, if technologies or standards
used in the Company's products become obsolete or fail to gain widespread
commercial acceptance, the Company's business would be materially adversely
affected. Although the Company believes that it has the technological
capabilities to remain competitive, there can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or noncompetitive. Failure to effectively introduce new products or
product enhancements on a timely basis could materially adversely affect the
Company's business, operating results and financial condition. See
"Business--Company Strategy."
International Operations
In 1994, 21.6% of the Company's net sales were outside of the United
States, principally in the United Kingdom, Canada and China. The Company's
Western European operations generated operating losses in recent years
primarily as a result of a general economic downturn, losses incurred in
connection with discounts resulting from a competitive market, and write-offs
of discontinued products and obsolete inventory, particularly in France. The
Company's international operations have generated lower operating margins
than its U.S. operations. See Note 5
6
<PAGE>
to the Consolidated Financial Statements. While the Company has taken several
actions to improve the operating results of its Western European operations,
there can be no assurance that these actions will be successful. The Company
expects that its international operations will continue to realize lower
operating margins than its U.S. operations, primarily because of the higher
distribution costs incurred on foreign sales and competitive conditions in a
number of foreign markets that it serves. See "Management's Discussion and
Analysis."
The Company expects that international sales will continue to account for
a significant portion of its net sales in future periods. International sales
are subject to fluctuations in exchange rates and, particularly in emerging
economies, are subject to inherent risks, including potential political
instability, regional conflicts, unexpected changes in regulatory
requirements and tariffs, longer payment cycles, greater difficulty in
receivables collection, potentially adverse tax consequences and trade or
currency restrictions. These factors could have a material adverse effect on
the Company's international operations. See "Management's Discussion and
Analysis."
Foreign Exchange Risk
The Company's international operations generate sales in a number of
foreign currencies, particularly English pounds sterling, Canadian dollars
and Deutsche marks, and it conducts sales and service operations in the
United Kingdom, Canada and Germany. Therefore, the Company's results of
operations and financial condition are affected by fluctuations in exchange
rates between these currencies and the U.S. dollar. See Notes 1 and 5 to the
Consolidated Financial Statements. In addition, the Company's purchases of
computers and electronics packages from a supplier in Japan in transactions
denominated in Japanese yen are affected by fluctuations in the exchange rate
between the Japanese yen and the U.S. dollar. Any prolonged devaluation of
the U.S dollar against the Japanese yen could materially increase the cost of
the computers and related electronics packages used in the Company's CNC
machines. See "Management's Discussion and Analysis."
Dependence on Skilled Labor
The Company conducts substantially all of its operations at its factory in
Elmira, New York. The Company's continued success depends on its ability to
attract and retain a skilled labor force at this location. While the Company
has had little difficulty in attracting and retaining skilled employees in
the past, there can be no assurance that the Company will continue to be
successful in attracting and retaining the personnel it requires to develop,
manufacture and market its products and expand its operations. See
"Business--Employees."
Capacity Constraints
The Company's Elmira, New York manufacturing facility is currently
operating near full capacity, and the Company expects this facility to
operate near full capacity for the balance of 1995. 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.
There can be no assurance that the Company will be able to complete its plant
expansion on a timely basis or that production will commence on schedule
during early 1996. Any delay in expansion of this facility will likely
require the Company to stretch out delivery times or turn down business,
which could adversely affect the Company's results of operations and growth.
See "Business--Manufacturing and Supply."
Fluctuations in Quarterly Results
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. See
"Management's Discussion and Analysis--General" and Note 7 to the
Consolidated Financial Statements for information with respect to the
Company's quarterly results.
Environmental Matters
The Company's operations are subject to extensive federal and state
legislation and regulation relating to environmental matters. Company
activities on its properties have resulted in environmental impacts and
activities by others on adjacent properties have had environmental impacts on
the Company's properties. Financial responsibility for the remediation of
contaminated property can be imposed on the Company regardless of fault or
the lawfulness of the original activity or disposal. Although the Company
believes, based upon information currently available, that it will not have
material liabilities in this regard, there can be no assurance that future
remedial requirements or changes in the enforcement of existing laws and
regulations, which are often subject to extensive regulatory dis-
7
<PAGE>
cretion, will not result in material liabilities. In addition, future
environmental regulations, including those under the Clean Air Act, are
expected to impose stricter compliance requirements on the machine tool
industry in general. While the Company does not believe that these
anticipated future requirements are likely to have a material adverse effect
upon the Company, there can be no assurance that future capital expenditures
and costs for environmental compliance will not have a material adverse
effect on the Company's financial condition, results of operations or
competitive position. See "Management's Discussion and
Analysis--Environmental Expenditures" and "Business--Environmental Matters."
Control by Current Shareholders
Upon completion of this offering, the Company's existing executive
officers, directors and 5% shareholders will beneficially own approximately
34.9% of the Company's outstanding shares of Common Stock. As a result, these
shareholders will have a significant influence over, and may in fact control,
matters requiring approval by the shareholders of the Company, including the
election of directors. The voting power of these shareholders under certain
circumstances may have the effect of delaying or preventing a change in
control of the Company. See "Management" and "Principal and Selling
Shareholders."
Limited Prior Public Market; Possible Volatility of Stock Price
Prior to this offering, the Company's capital stock consisted of Class A
Common Stock and Class B Common Stock, which were quoted through the National
Quotation Bureau "pink sheet" service and the OTC Bulletin Board and traded
in small amounts on a limited and sporadic basis. See "Common Stock Market
Information." Although the Common Stock has been approved for quotation on
the Nasdaq Stock Market's National Market (the "Nasdaq National Market"),
there can be no assurance that an active trading market for the Common Stock
will develop or, if it does develop, that such trading market will be
sustained after the completion of this offering. The initial public offering
price was determined by negotiations among the Company, the Selling
Shareholder and representatives of the Underwriters, and may not be
indicative of prices that will prevail in the trading market. See
"Underwriting" for information relating to the factors considered in
determining the initial public offering price of the Common Stock. The market
price of the Common Stock could be subject to significant fluctuations in
response to variations in quarterly operating results and other factors. In
addition, general market price declines or market volatility in the future
could affect the market price of the Common Stock.
Shares Available for Future Sale
At April 10, 1995, the Company had 3,859,751 shares of Common Stock
outstanding and an additional 2,250,000 shares (or 2,592,300 shares if the
Underwriters' over-allotment option is exercised in full) will be sold by the
Company in this offering. Substantially all of these shares that are held by
persons other than "affiliates" of the Company will be freely transferable
without further restriction under the Securities Act of 1933. The Company, as
well as holders of 3,234,432 shares of Common Stock, including the Selling
Shareholder and all officers and directors of the Company, have agreed not to
offer, sell or otherwise dispose of any shares of Common Stock, subject to
certain exceptions, for a period of 180 days following the date of the
Prospectus, without the prior written consent of Wertheim Schroder & Co.
Incorporated. Prior to this offering, the Company believes that the limited
nature of the public trading market for the Common Stock may have caused
certain holders of the Common Stock to refrain from disposing of all or a
portion of their shares. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock.
Certain Anti-takeover Provisions
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws may have the effect of discouraging a third party from making an
acquisition proposal for the Company and may thereby inhibit a change in
control of the Company under circumstances that could give the shareholders
the opportunity to realize a premium over the then-prevailing market prices.
In addition, under certain circumstances, Section 912 of the New York
Business Corporation Law makes it more difficult for an offeror to acquire
and exercise control over a corporation pursuant to a tender offer or request
or invitation for tenders. See "Description of Capital Stock--Certain
Anti-takeover Provisions."
8
<PAGE>
THE COMPANY
The Company, founded over 100 years ago, is a leading machine tool
manufacturer, which designs, manufactures and distributes metal cutting
lathes and related tooling and accessories of the highest precision and
reliability generally available in the market. A lathe, or turning machine,
is one of the most commonly used machine tools and produces a part or
finished product, usually round, by moving a cutting tool against a metal bar
or other workpiece that is rotating at a very high speed in a spindle
mechanism. The Company offers a broad line of general and higher precision
small and medium power CNC lathes, a vertical CNC machining center, higher
precision manually controlled lathes and a wide assortment of workholding and
toolholding devices and other non-machine products and services.
The Company currently manufactures 18 machine tool models, including 12
horizontal CNC lathes, two vertical CNC lathes, a vertical CNC machining
center and three manual lathes. The Company markets its machine tools under
the well-known Hardinge and Hardinge Super Precision names directly to
manufacturers in the automotive, medical equipment, aerospace and electronics
industries, as well as in the defense, recreational equipment, farm
equipment, construction equipment, energy and transportation industries, and
to independent job shops serving these and other industries. The Company also
offers option packages with each of its machines to meet specific customer
requirements and turnkey services through which it will engineer complete CNC
machine systems for customers.
The Company's large base of installed equipment, coupled with the
extensive tooling required to operate a lathe at close tolerances and the
need to periodically replace worn-out tooling, have provided a source of
significant demand for the Company's non-machine products and services.
Non-machine products include over 30,000 different collets, chucks, feed
fingers, pads and other workholding devices for its own machines and those
produced by other manufacturers, as well as toolholding devices and
accessories for its own machines. As part of its commitment to customer
service, the Company offers over 45,000 replacement parts, representing
substantially all of the spare parts required for the Company's machines
currently in service, and such services as equipment installation, operation
and maintenance training, machine maintenance and in-field repair. The
Company's non-machine products and services have typically provided higher
margins than its machine products and, for each of the past five years, have
accounted for between 44% and 50% of its net sales.
The Company's business was founded by Franklin and Henry Hardinge in 1890
in Chicago, Illinois to produce high quality lathes that were used by local
watch manufacturers. In 1931, the Company was merged with Morrison Machine
Products, Inc., an Elmira, New York-based maker of workholding devices for
lathes that had been organized during World War I. The businesses were
combined under the name Hardinge Brothers, Inc. and their operations were
consolidated in Elmira under the leadership of Douglas G. Anderson and Leigh
R. Evans. On May 16, 1995, it is expected that the Company's name will be
changed to Hardinge Inc.
Unless the context otherwise requires, the term "Company" refers to
Hardinge Inc., a New York corporation, its subsidiaries and predecessors. The
principal executive offices of the Company are located at One Hardinge Drive,
Elmira, New York 14902-1507 and its telephone number is (607) 734-2281.
COMMON STOCK MARKET INFORMATION
Prior to this offering, the Company's Class A Common Stock and Class B
Common Stock were quoted through the National Quotation Bureau "pink sheet"
service and the OTC Bulletin Board under the symbols "HDNGA" and "HDNGB,"
respectively, and traded in small amounts on a limited and sporadic basis.
The Company believes that the prior sales prices and quotations for the Class
A and Class B Common Stock do not provide a meaningful indication of the
value of the Common Stock. Prior to the initial filing of this offering, such
sales prices and quotations were below the initial public offering price for
this offering. The initial public offering price of the Common Stock offered
hereby has been determined through negotiations among the Company, the
Selling Shareholder and the representatives of the Underwriters and may not
be indicative of the market price of the Common Stock after this offering.
See "Underwriting." The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol "HDNG."
At April 10, 1995, there were 432 record holders of the Company's Common
Stock.
9
<PAGE>
DIVIDEND POLICY
The Company has paid regular cash dividends for over 50 consecutive years.
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 dividend in
January of the following year. The Board has determined to discontinue the
payment of a fifth dividend upon completion of this offering. The Company
paid total dividends (including the fifth dividend for the prior year) of
$.74 per share in 1993, $.79 per share in 1994 and $.39 per share during the
first quarter of 1995. The Company has declared a dividend of $.15 per share
payable on June 9, 1995 to shareholders of record on June 1, 1995. Investors
in this offering will not receive the June 1995 dividend. The Company has
also declared a dividend of $.15 per share payable on September 8, 1995 to
shareholders of record on August 25, 1995.
The Board of Directors currently intends to pay quarterly dividends at the
annual rate of $.60 per share. There can be no assurance, however, as to the
payment or amount of future dividends, since they will depend on the
Company's earnings and financial condition, upon the prospects for its
business and upon other factors the Board of Directors may deem relevant. The
payment of dividends will also be subject to compliance with the provisions
of New York law and with the financial covenants contained in the Company's
debt agreements. Although the Company's existing debt agreements limit the
payment of dividends, after giving effect to this offering, these agreements
would not currently limit the Company's payment of dividends to a material
extent. See "Management's Discussion and Analysis--Liquidity and Capital
Resources."
USE OF PROCEEDS
The net proceeds to be received by the Company in this offering are
estimated to be $38,650,000 (or $44,698,000 if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and estimated expenses of this offering payable by
the Company. The net proceeds will be used as follows:
(i) To repay all of the borrowings outstanding under the Company's
revolving credit facility, which totaled $14,102,000 at March 31,
1995 and are expected to total approximately $20,000,000 at the
time of the closing of this offering. The revolving credit facility
bore interest at the rate of 7.124% on March 31, 1995 and provides
for borrowings through August 1, 1997. The revolving credit
facility is required to be repaid beginning September 30, 1997 in
16 consecutive quarterly installments of equal amounts.
(ii) To repay in full the $5,000,000 principal amount of its 9.52% Term
Loan due 1995. In connection with the repayment of its Term Loan,
the Company will pay approximately $75,000 in prepayment premiums.
(iii) To repay in full the $3,500,000 of borrowings outstanding under the
line of credit that matures on April 30, 1996. These borrowings
bore interest at the rate of 6.125% per annum on March 31, 1995.
(iv) To finance the planned expansion of the Company's manufacturing
facility, which is scheduled to be completed by early 1996 and is
estimated to cost $15,000,000. The Company intends to use cash flow
from operations or borrowings under its revolving credit facility to
fund the balance of the cost of the expansion project. See
"Business--Property."
Pending the uses outlined above, the net proceeds will be invested in
short-term, interest-bearing instruments. The Company will not receive any of
the proceeds from the sale of the Common Stock offered by the Selling
Shareholder.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1995 and as adjusted to give effect to the sale by the Company of
its shares of Common Stock in this offering and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1995
Actual As Adjusted
(in thousands)
<S> <C> <C>
Short-term debt (1):
Notes payable to bank $ 3,500 $ --
Current portion of long-term debt 714 714
Total short-term debt $ 4,214 $ 714
Long-term debt, less current maturities (1):
9.38% Amortizing Note due 1998 $ 2,143 $ 2,143
9.52% Term Loan due 1995 5,000 --
Revolving Credit Facility 14,102 --
Total long-term debt 21,245 2,143
Shareholders' equity:
Preferred Stock, par value $.01 per share:
2,000,000 shares authorized; none issued -- --
Common Stock, par value $.01 per share: 20,000,000 shares authorized;
3,918,790 shares issued; 6,168,790 shares issued, as adjusted (2) 39 62
Additional paid-in capital 11,439 50,066
Retained earnings 77,633 77,633
Cost of treasury shares (740) (740)
Cumulative foreign currency translation adjustment (1,739) (1,739)
Deferred employee benefits (4,037) (4,037)
Total shareholders' equity 82,595 121,245
Total capitalization $103,840 $123,388
</TABLE>
(1) See Note 2 to the Consolidated Financial Statements for information
concerning the Company's outstanding debt.
(2) Includes 59,039 shares of Common Stock held in the Company's treasury and
293,581 shares of Common Stock that have been issued under the Company's
1988 and 1993 Incentive Stock Plans, but which have not yet vested. Does
not include 14,250 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and 128,000 shares of Common Stock
reserved for issuance under the Company's 1993 Incentive Stock Plan. See
"Management--Incentive Stock Plan" and Note 6 to the Consolidated
Financial Statements.
11
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data (except pro forma data) of the
Company with respect to each of the years in the five-year period ended
December 31, 1994 are derived from the Consolidated Financial Statements of
the Company, which have been audited by Ernst & Young LLP, independent
auditors. The Consolidated Financial Statements of the Company for each of
the three years in the period ended December 31, 1994 appear elsewhere in
this Prospectus. The selected financial data of the Company for the three
months ended March 31, 1994 and March 31, 1995 are derived from unaudited
interim consolidated financial statements of the Company, and reflect, in
management's opinion, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods. Results of operations for interim
periods are not necessarily indicative of results expected for the full year.
The data should be read in conjunction with the Consolidated Financial
Statements, related notes and other financial information included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
1990 1991 1992 1993 1994 1994 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Income
Data:
Net sales $102,859 $82,595 $84,797 $98,437 $117,336 $27,479 $40,687
Cost of sales 67,173 53,702 55,905 63,169 76,937 17,930 26,774
Gross profit 35,686 28,893 28,892 35,268 40,399 9,549 13,913
Selling, general and
administrative
expenses 28,634 25,979 24,864 25,804 27,882 6,572 8,415
Restructuring costs (1) -- -- 1,086 -- -- -- --
Income from operations 7,052 2,914 2,942 9,464 12,517 2,977 5,498
Interest expense 1,309 1,332 1,380 1,343 1,479 371 476
Interest (income) (1,494) (1,590) (1,160) (763) (453) (134) (121)
(Gain) on sale of
assets -- (598) -- -- (442) -- (326)
Income before income
taxes 7,237 3,770 2,722 8,884 11,933 2,740 5,469
Income taxes (2) 2,605 1,063 1,152 3,730 5,214 1,128 2,165
Income before
cumulative effect of
changes in accounting
methods 4,632 2,707 1,570 5,154 6,719 1,612 3,304
Cumulative effect of
changes in accounting
methods (3) -- -- (2,754) -- -- -- --
Net income (loss) $ 4,632 $ 2,707 $(1,184) $ 5,154 $ 6,719 $ 1,612 $ 3,304
Per Share Data:
Income before
cumulative effect of
changes in accounting
methods $ 1.28 $ .77 $ .45 $ 1.45 $ 1.88 $ .45 $ .92
Cumulative effect of
changes in accounting
methods (3) -- -- (.79) -- -- -- --
Net income (loss) $ 1.28 $ .77 $ (.34) $ 1.45 $ 1.88 $ .45 $ .92
Pro forma net income
(4) -- -- -- -- $ 1.28 $ .31 $ .61
Cash dividends declared
per share $ .82 $ .80 $ .74 $ .79 $ .84 $ .15 $ .15
Weighted average number
of shares of Common
Stock outstanding (5) 3,621 3,535 3,513 3,565 3,573 3,545 3,584
Other Financial Data:
Gross margin (6) 34.7% 35.0% 34.1% 35.8% 34.4% 34.8% 34.2%
Operating margin (7) 6.9% 3.5% 3.5% 9.6% 10.7% 10.8% 13.5%
Capital expenditures $ 4,563 $ 6,128 $ 4,429 $ 3,873 $ 8,046 $ 749 $ 1,141
Research and
development
expenditures 4,449 4,786 4,420 4,216 5,218 1,200 1,233
Depreciation and
amortization 3,920 4,054 3,801 3,939 4,354 1,305 1,349
</TABLE>
(Continued on next page.)
12
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
1990 1991 1992 1993 1994 1994 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 59,621 $57,295 $54,035 $ 58,455 $ 60,520 $ 58,978 $ 68,544
Long-term portion of
notes receivable 11,979 7,018 9,536 12,460 7,744 10,694 8,899
Total assets 105,936 98,536 98,461 111,169 121,726 109,456 132,491
Short-term debt 1,277 1,590 1,449 1,390 4,214 955 4,214
Long-term debt 14,000 10,223 11,571 18,357 15,164 15,857 21,245
Shareholders' equity 79,263 78,188 73,067 75,462 79,776 76,620 82,595
Book value per
share (8) 21.34 20.97 19.87 19.99 21.05 20.13 21.40
Ratio of total debt to
total capitalization
plus short-term debt 16.2% 13.1% 15.1% 20.7% 19.5% 18.0% 23.6%
</TABLE>
(1) The restructuring charge in 1992 represented nonrecurring costs
consisting primarily of severance payments to terminated employees in
Canada and the United Kingdom.
(2) Income taxes for 1991 were reduced by the effects of eliminating income
taxes provided in periods prior to December 31, 1990, which were no
longer required.
(3) The cumulative effect of changes in accounting principles for the year
ended December 31, 1992 represent the adoption, as of January 1, 1992, of
(a) SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," resulting in a $2,867,000 decrease in net income
(net of income tax benefit of $1,683,000), and (b) SFAS No. 109,
"Accounting for Income Taxes," resulting in a $113,000 increase in net
income. See "Management's Discussion and Analysis--Accounting Changes."
(4) Gives effect to the (i) reduction in interest expense resulting from the
application of the estimated net proceeds to the Company from this
offering to reduce long- and short-term debt (see "Use of Proceeds") and
(ii) recording of income tax expense based on the estimated effective
income tax rate, assuming this offering had been consummated on January
1, 1994. Does not give effect to the Company's increased machine making
capacity that will result from the expansion of its Elmira, New York
manufacturing facility. See "Business--Property." Weighted average number
of shares of Common Stock outstanding for the year ended December 31,
1994 and the three months ended March 31, 1994 and 1995 would have been
5,823,000, 5,795,000 and 5,834,000, respectively, assuming this offering
had been consummated on January 1, 1994.
(5) Excludes shares of restricted Common Stock that had not yet vested,
issued to officers and employees under the Company's 1988 and 1993
Incentive Stock Plans.
(6) Gross margin is gross profit as a percent of net sales.
(7) Operating margin is income from operations as a percent of net sales.
(8) Based on 3,714,946 shares of Common Stock outstanding at December 31,
1990, 3,728,558 shares at December 31, 1991, 3,677,884 shares at December
31, 1992, 3,774,543 shares at December 31, 1993, 3,790,057 shares at
December 31, 1994, 3,806,802 shares at March 31, 1994 and 3,859,751
shares at March 31, 1995.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes and the other financial
information included in this Prospectus.
General
The United States is the principal market for the Company's products
(78.4% of the Company's net sales for 1994). The U.S. market for machine
tools historically has been highly cyclical. During periods of economic
expansion, particularly when industrial production has increased, the Company
generally has benefitted from increased demand for its products. During
periods of economic contraction, the Company generally has been adversely
affected by declining demand for its products. However, the Company has been
profitable for over 50 years, except for a loss recorded in 1992 resulting
from its implementation of SFAS No. 106. Factors that have contributed to the
Company's profitability in recent years include its significant sales of
non-machine products and services, its regular introduction of new and
upgraded machine models, its ability to control costs and its high degree of
vertical integration.
The Company's Western European operations generated 10.5% of its net sales
for 1994. These operations incurred operating losses of $1,281,000, $617,000
and $875,000 for 1992, 1993 and 1994, respectively, primarily as a result of
a general economic downturn and losses incurred in connection with discounts
resulting from a competitive market and write-offs of discontinued and
obsolete inventory, particularly in France. During the first quarter of 1995,
the Company's Western European operations generated $314,000 of income from
operations, compared to an operating loss of $72,000 during the same period
of 1994. The Company changed its distribution channels in France in late 1994
and believes that this action, together with increased net sales primarily in
the United Kingdom, contributed to improved operating results in Western
Europe. The Company's international operations have generated lower operating
margins than its U.S. operations. See Note 5 to the Consolidated Financial
Statements. The Company expects that its international operations will
continue to realize lower operating margins than its U.S. operations,
primarily because of the higher distribution costs incurred on foreign sales
and competitive conditions in a number of the foreign markets that it serves.
The computer and related electronics package for the Company's CNC
machines are supplied by Fanuc Limited, a large Japanese electronics company.
The purchase price is denominated in yen and therefore subject to
fluctuation. The Company has, from time to time, engaged in hedging
transactions between the Japanese yen and the U.S. dollar solely for the
purpose of reducing its exposure on its yen-denominated purchases of
components from Fanuc and other Japanese suppliers. At March 31, 1995, the
Company's exposure on hedging transactions was not material. While the
Company believes that its exposure to the yen/dollar exchange rate is offset
to a degree by the fact that its Japanese competitors import finished
machines into the United States from Japan (or import a substantially larger
proportion of their components from Japan), any prolonged devaluation of the
U.S. dollar against the Japanese yen could materially increase the cost of
the computers and related electronics packages used in the Company's CNC
machines.
Results of Operations
The following table sets forth the items in the Company's consolidated
statements of income as percentages of its net sales for the periods
indicated:
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.9 64.2 65.6 65.2 65.8
Gross profit 34.1 35.8 34.4 34.8 34.2
Selling, general and administrative
expenses 29.3 26.2 23.8 24.0 20.7
Restructuring costs 1.3 -- -- -- --
Income from operations 3.5 9.6 10.6 10.8 13.5
Interest expense 1.6 1.4 1.3 1.3 1.2
Interest (income) (1.3) (0.8) (0.4) (0.5) (0.3)
Gain on sale of assets -- -- (0.4) -- (0.8)
Income before income taxes 3.2 9.0 10.1 10.0 13.4
Income taxes 1.4 3.8 4.4 4.1 5.3
Income before cumulative effect of
changes in accounting methods 1.8 5.2 5.7 5.9 8.1
Cumulative effect of changes in
accounting methods (3.2) -- -- -- --
Net (loss) income (1.4)% 5.2% 5.7% 5.9% 8.1%
</TABLE>
14
<PAGE>
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31, 1994
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.
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.
15
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net Sales. Net sales increased 19.2% to $117,336,000 in 1994 from
$98,437,000 in 1993. Unit volumes increased in 1994 across the Company's
entire line of machine tools and, in particular, in its new Conquest ST
Swiss-style CNC lathe introduced in late 1993. The increase in net sales
largely was related to improved general economic conditions and increased
capital expenditures by the Company's industrial customers. Lathes and other
machine tool equipment accounted for $65,829,000 of the Company's net sales
in 1994, an increase of 21.7% from $54,112,000 in 1993. Net sales of
non-machine products and services increased 16.1% to $51,507,000 in 1994 from
$44,325,000 in 1993. Net sales in the United States increased 13.1% to
$92,027,000 in 1994 from $81,338,000 in 1993. Net sales in Western Europe
increased 41.8% to $12,329,000 in 1994 from $8,696,000 in 1993 with increased
sales volumes in the United Kingdom more than offsetting continued depressed
net sales in continental Western Europe. Net sales in the Company's other
international markets increased 54.5% to $12,980,000 in 1994 from $8,403,000
in 1993, led by improved net sales in Eastern Asia and Canada.
Gross Profit. Gross profit increased 14.5% to $40,399,000 in 1994, from
$35,268,000 in 1993. This increase in gross profit primarily was a result of
increased volume and selective price increases. Gross margin was 34.4% for
1994 compared to 35.8% in 1993. Gross margin declined slightly as a result of
price discounting of certain discontinued models of machine tools in Western
Europe, a write-off of obsolete inventory in France resulting from changes in
the Company's distribution channels, competitive market conditions in Western
Europe and the increase in the cost of electronic components due to the
relative weakness of the U.S. dollar against the Japanese yen in 1994,
compared to 1993. The decrease in gross margin was partially offset by an
increase in unit volumes that distributed fixed costs over a greater number
of units.
Selling, General and Administrative Expenses. SG&A expenses increased 8.1%
to $27,882,000 in 1994 from $25,804,000 in 1993 primarily as a result of a
$1,400,000 increase in sales commissions resulting from increased net sales
and an increase of $500,000 in advertising and trade show expenses in 1994.
SG&A expenses decreased as a percentage of net sales to 23.8% in 1994 from
26.2% in 1993, 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 32.3% to
$12,517,000 in 1994 from $9,464,000 in 1993. Income from operations as a
percentage of net sales increased to 10.6% in 1994 from 9.6% in 1993.
Interest Expense. Interest expense increased 10.1% to $1,479,000 in 1994
from $1,343,000 in 1993 due to an increase in average interest rates on the
Company's outstanding borrowings from 1993 to 1994. Average monthly borrowing
under such facilities remained fairly constant from 1993 to 1994.
Interest Income. Interest income, primarily consisting of interest on
customer notes receivable, decreased 40.6% to $453,000 in 1994 from $763,000
in 1993, primarily as a result of an increase in sales incentives in the form
of reduced interest charges.
Income Taxes. The provision for income taxes was $5,214,000 in 1994
compared to $3,730,000 in 1993. The Company's tax rate increased to 43.7% of
income in 1994 from 42.0% of income in 1993, primarily as a result of
operating losses in Western Europe that the Company was unable to offset
against income from prior years and also as a result of a provision for U.S.
taxes on a deemed distribution of earnings from a foreign subsidiary.
Net Income. Net income increased 30.4% to $6,719,000 in 1994 from
$5,154,000 in 1993 as a result of the factors discussed above.
Geographically, performance in North American operations showed significant
improvements in profitability while Western European operations continued to
generate losses despite the substantial sales increase, as overall unit
volumes failed to reach levels sufficient to cover operating costs.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Net Sales. Net sales increased 16.1% to $98,437,000 in 1993 from
$84,797,000 in 1992. Unit volumes increased for the majority of the Company's
product lines led by increases in the Conquest 51 CNC lathe line that was
introduced in late 1991 and the Conquest T42 CNC lathe line that was
technologically updated at the beginning of 1993. The increase in unit
volumes was largely related to improved general economic conditions and
increased capital expenditures by the Company's industrial customers. Lathes
and other machine tool equipment accounted for $54,112,000 of the Company's
net sales in 1993, an increase of 27.2% from $42,537,000 in 1992. Net sales
of non-machine products and services increased 4.9% to $44,325,000 in 1993
from $42,260,000 in 1992. Net sales in the United States increased 15.3% to
$81,338,000 in 1993 from $70,540,000 in 1992, more than offsetting a decrease
in Western European net sales of 7.0% to $8,696,000 in 1993 from $9,354,000
in 1992. Net sales in the Company's other international markets increased
71.4% to $8,403,000 in 1993 from $4,903,000 in 1992, led by improved net
sales in Eastern Asia and Canada.
16
<PAGE>
Gross Profit. Gross profit increased 22.1% to $35,268,000 in 1993 from
$28,892,000 in 1992. Gross profit increased as a result of increased sales
volume. Gross margin was 35.8% in 1993 compared to 34.1% in 1992. Gross
margin increased as a result of the implementation of cost cutting efforts in
the fourth quarter of 1992 that began to generate results in 1993 and the
increase in unit sales in 1993 which distributed fixed costs over a greater
number of units. These positive impacts were partially offset by an increase
in the cost of electronic components due to the relative weakness of the U.S.
dollar against the Japanese yen in 1993 compared to 1992, as well as reduced
margins in the Company's international sales.
Selling, General and Administrative Expenses. SG&A expenses increased 3.8%
to $25,804,000 in 1993 from $24,864,000 in 1992, primarily as a result of a
$1,300,000 increase in sales commissions related to the increase in net sales
which was partially offset by a decrease in administrative expenses in the
Company's Western European and Canadian subsidiaries. SG&A expenses decreased
as a percentage of net sales to 26.2% in 1993 from 29.3% in 1992 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 to $9,464,000 in
1993 from $2,942,000 in 1992. Income from operations in 1992 was reduced by a
$1,086,000 nonrecurring charge ($641,000 after tax) primarily consisting of
severance payments to terminated employees in Canada and the United Kingdom.
Excluding this nonrecurring charge, income from operations as a percentage of
net sales increased to 9.6% in 1993 from 4.8% in 1992.
Interest Expense. Interest expense remained relatively unchanged from 1992
to 1993 with average monthly debt outstanding and interest rates remaining
substantially unchanged.
Interest Income. Interest income decreased 34.2% to $763,000 in 1993 from
$1,160,000 in 1992, primarily as a result of an increase in sales incentives
in the form of reduced interest charges, as well as the higher level of sales
of customer notes to financial institutions in 1993.
Income Taxes. The provision for income taxes was $3,730,000 in 1993
compared to $1,152,000 in 1992. Income tax expense, as a percentage of income
before taxes, was 42.0% in 1993 and 42.3% 1992. The rate in both years was
affected by the inability to record tax benefits against losses in foreign
subsidiaries which could not be carried back to prior years.
Net Income. Net income increased to $5,154,000 in 1993 from a loss of
$1,184,000 in 1992. These amounts reflect two cumulative changes in
accounting methods, as discussed below, as well as the nonrecurring charge
for the Company's European operations discussed above. Excluding these
nonrecurring items, net income increased 133.1% to $5,154,000 in 1993 from
$2,211,000 in 1992 as a result of the various factors discussed above.
Accounting Changes
In December 1990, the Financial Accounting Standards Board issued new
rules (SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions") requiring that the projected future cost of providing
postretirement benefits such as health care be recognized as expense when
employees render services instead of when the benefits are paid. Effective
January 1, 1992, the initial liability representing amounts payable to
current retirees and amounts earned by active employees to date was
recognized as a one-time charge against income as permitted by the provisions
of the Statement. Accordingly, the Consolidated Statements of Income and
Retained Earnings reflect a cumulative effect of a change in accounting
method of $2,867,000, which is net of a deferred tax benefit. The charge did
not affect the Company's cash flow, as it is a change in how retiree benefits
were accounted for rather than a cost that must be paid out of cash
immediately. A more thorough discussion of the components of the liability
can be found in Note 6 to the Consolidated Financial Statements.
Management also chose to adopt SFAS No. 109, Accounting for Income Taxes,
effective January 1, 1992. Under these rules, income taxes are recorded using
the liability method instead of the deferral method. The liability method
requires companies to recognize deferred income tax assets and liabilities
reflecting the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The only significant change for the
Company was to revalue assets and liabilities that had been recorded at
higher rates in the past to the current tax rate. The impact of that
revaluation was an increase in net income of $113,000. The application of the
Statement allowed for recording a deferred tax asset on the liability created
by SFAS 106, but did not have any impact on the income tax expense recorded
on normal operations for 1992.
Inflation
Foreign competition, particularly from Japanese companies, limits the
amount of inflationary cost increases that the Company can recover through
price increases. To counteract inflationary pressures, management focuses on
improving operating efficiencies and selectively increases prices, where
practical.
17
<PAGE>
Quarterly Information
The following table sets forth certain quarterly financial data included
in the Company's unaudited consolidated statements of operations for each of
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March June Sept. Dec. March June Sept. Dec. March
31, 30, 30, 31, 31, 30, 30, 31, 31,
1993 1993 1993 1993 1994 1994 1994 1994 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $24,588 $25,113 $22,511 $26,225 $27,479 $29,023 $29,449 $31,385 $40,687
Gross profit 9,015 8,791 7,939 9,523 9,549 10,010 10,394 10,446 13,913
Income from
operations 2,638 2,315 1,633 2,878 2,977 3,358 2,975 3,207 5,498
Net income 1,494 1,259 928 1,473 1,612 1,819 1,608 1,680 3,304
Net income
per share .43 .35 .26 .41 .45 .51 .45 .47 .92
</TABLE>
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. In addition, the Company believes that its results in
the third quarter of 1995 may not exceed its results for the same quarter of
1994 because of certain large shipments made in the 1994 quarter, 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
5.96:1 at March 31, 1994. At December 31, 1994, the current ratio was 3.92:1
compared to 5.77:1 at December 31, 1993. 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 1994, inventory increased by $6,408,000 or 14% reflecting increased
production levels and purchases for the start-up of production of the
Company's new vertical CNC machines. Accounts receivable increased by
$4,474,000 due to the increase in net sales. Accounts payable increased by
$2,164,000 reflecting the higher inventory purchases. Although notes payable
to bank increased $2,824,000 as the Company began to use a short-term line of
credit providing lower interest rates than the Company's other sources of
borrowing, this increase was more than offset by a $3,193,000 decrease in
long-term debt.
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.
18
<PAGE>
In 1994, operating activities provided net cash of $11,290,000, while
operating activities used $241,000 of cash in 1993 and provided $5,448,000 of
cash in 1992. Operating activities provided a high level of cash in 1994,
notwithstanding the increases in accounts receivable and inventories,
primarily because of the Company's substantial sales of long-term customer
notes receivable, an increase in accrued expenses and accounts payable and
the Company's higher level of net income. Operating activities used cash in
1993, primarily because of increases in inventories and customer notes, as
well as increases in accounts receivable and other assets. In 1994, the
Company funded its capital expenditures and dividend requirements from the
cash provided by its operations, while in 1993 the Company used its cash flow
from operations and additional long-term borrowings to finance an increase in
the customer notes, its capital expenditures program and dividend payments.
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 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.
During 1992, 1993 and 1994, customer notes totaling $6,900,000, $19,800,000
and $30,000,000, respectively, were sold. 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.
See Note 2 to the Consolidated Financial Statements. 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 declined from $12,460,000 at December 31, 1993 to $7,744,000 at
December 31, 1994, because of the high level of sales of these notes to
financial institutions during 1994. The amount of these receivables held by
the Company increased to $8,899,000 at March 31, 1995.
Capital expenditures amounted to $4,429,000 in 1992, $3,873,000 in 1993
and $8,046,000 in 1994. The majority of these expenditures was concentrated
on assets used to improve operating efficiencies in manufacturing and to
increase capacity. Capital expenditures rose sharply in 1994 primarily
because of several large purchases of equipment for its Elmira, New York
manufacturing facility. 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, most of which will be funded with a portion of the proceeds
of this offering. See "Business--Property." 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 upon completion of this offering.
The Company paid total dividends of $2,746,000, $2,676,000, $2,864,000 and
$1,483,000 during 1992, 1993, 1994 and the first quarter of 1995,
respectively. The Board of Directors currently intends to pay quarterly
dividends in the future at the annual rate of $.60 per share. Assuming no
change in the Company's outstanding Common Stock after April 10, 1995 (other
than the sale of shares of Common Stock in this offering), dividends at that
rate would require $3,666,000 of cash per year. See "Dividend Policy."
19
<PAGE>
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 this offering, will provide sufficient
financial resources for ongoing operations for at least the next two years.
Environmental Expenditures
The Company has incurred and, in the future, will continue to incur
capital and operating expenditures for matters related to environmental
issues, including environmental control, monitoring and remediation. During
the past three years, the Company's expenditures for environmental matters
have not been material. The Company currently anticipates that capital
expenditures for environmental control facilities for the remainder of the
current fiscal year and for the next two succeeding years will have no
material adverse effect upon the Company's financial condition, results of
operations or competitive position. The Company also anticipates that there
will be no material adverse effect on its financial position from other
environmental expenditures, including remediation costs, during these years.
The Company has made and will continue to make the necessary capital
expenditures for compliance with environmental laws and regulations.
Environmental laws and regulations can change rapidly and the Company may
become subject to more stringent environmental laws and regulations in the
future. Compliance with more stringent environmental laws and regulations
could have a material adverse effect on the Company's financial condition,
results of operations or competitive position. See "Business--Environmental
Matters."
20
<PAGE>
BUSINESS
The Company, founded over 100 years ago, is a leading machine tool
manufacturer, which designs, manufactures and distributes metal cutting
lathes and related tooling and accessories of the highest precision and
reliability generally available in the market. A lathe, or turning machine,
is one of the most commonly used machine tools and produces a part or
finished product, usually round, by moving a cutting tool against a metal bar
or other workpiece that is rotating at a very high speed in a spindle
mechanism. The Company offers a broad line of general and higher precision
small and medium power CNC lathes, a vertical CNC machining center, higher
precision manually controlled lathes and a wide assortment of workholding and
toolholding devices and other non-machine products and services.
The Company currently manufactures 18 machine tool models, including 12
horizontal CNC lathes, two vertical CNC lathes, a vertical CNC machining
center and three manual lathes. The Company markets its machine tools under
the well-known Hardinge and Hardinge Super Precision names directly to
manufacturers in the automotive, medical equipment, aerospace and electronics
industries, as well as in the defense, recreational equipment, farm
equipment, construction equipment, energy and transportation industries, and
to independent job shops serving these and other industries. The Company also
offers option packages with each of its machines to meet specific customer
requirements, as well as turnkey services through which it will engineer
complete CNC machine systems. The Company's non-machine products include over
30,000 different collets, chucks, feed fingers, pads and other workholding
devices for its own machines and those produced by other manufacturers, as
well as toolholding devices and accessories for its own machines.
Company Strategy
The key elements of the Company's strategy are:
o Product Line Expansion. The Company has regularly upgraded its machines
and introduced new machine tools to broaden its line. As a result, in
1994 and the first quarter of 1995, over 45% of the Company's net sales
of machine tools were derived from products introduced or substantially
modified since the beginning of 1993. In late 1994, the Company
introduced its first vertical CNC lathes and vertical CNC machining
center, marking its entry into two metal cutting markets that had
combined U.S. sales of over $575,000,000 in 1994. The Company will seek
to continue to expand by broadening its product lines and entering
additional metal cutting markets. The Company believes that, as the
consolidation of the machine tool industry continues and the
technological capacity of machine tools improves, an increasing number
of machine tool customers will prefer to deal with manufacturers that
can supply a broad range of products.
o Non-Machine Products and Services. The Company's large base of installed
equipment, coupled with the extensive tooling required to operate a
lathe at close tolerances and the need to periodically replace worn-out
tooling, have provided a source of significant demand for the Company's
non-machine products and services. The Company's non-machine products
and services have typically provided higher margins than its machine
products and, for each of the past five years, have accounted for
between 44% and 50% of its net sales. The Company believes that its
extensive line of workholding devices, which may be used on both its
machines and those produced by others, give the Company an important
competitive advantage for its machine tool sales, by providing it with
opportunities to sell its machines and other products to a wide group of
customers.
o Technology. The Company strives to be an industry leader in the use of
the advanced technologies necessary to deliver higher precision machine
tools in the markets in which it competes. The Company employs
significant resources in the design and engineering of its products as
part of its product development program. For example, the Company
utilizes its proprietary Harcrete machine bases on all but two of its
current horizontal CNC lathes, which bases offer technological
advantages over traditional cast iron bases. Additionally, the Company
has introduced a real-time thermal compensation system on its Super
Precision machines, which automatically adjusts the location of a
machine's cutting tool to compensate for thermal expansion during the
machining processing, thereby achieving higher precision.
o TQM. Since 1987, the Company has been committed to Total Quality
Management as a process for all of its operations. The Company's TQM
process utilizes training and education of employees, along with
steering, standing and work teams, in a formalized approach to continued
quality improvement. The Company believes that TQM has helped decrease
waste, improve manufacturing efficiency, increase product reliability,
better control costs and meet customer requirements.
21
<PAGE>
o Acquisitions. As the machine tool industry continues to consolidate, the
Company expects to have opportunities for strategic acquisitions. The
Company will pursue acquisitions where it believes it can expand its
product lines or improve its manufacturing capacity. Although the
Company is presently evaluating, as it does on a regular basis, related
businesses for possible acquisition, it is not engaged in negotiations
for any specific acquisition.
Machine Tool Industry Overview
There are two principal methods for producing a metal part or finished
product: metal cutting and metal forming. All of the machines produced by the
Company are metal cutting machines. Based on preliminary data provided by the
Association for Manufacturing Technology ("AMT"), an industry trade
association, and data provided by the U.S. Department of Commerce, sales of
machine tools in the United States totaled $5.2 billion in 1994 of which $3.6
billion, or 69%, were in the metal cutting category and $1.6 billion, or 31%,
were in the metal forming category.
The machine tool business traditionally has been highly cyclical. Machine
tools are predominately purchased by industrial companies or by independent
job shops that, in turn, sell to industrial companies. As a result, machine
tool producers are dependent on conditions in the industrial sector in their
primary markets and are subject to the long-term cyclical nature of the
industrial sector in the United States and in important markets abroad. Over
the shorter term, the level of demand for machine tools can be affected by a
number of other factors influencing industrial production, such as interest
rates; the availability of skilled laborers; and governmental tax policies
(such as investment tax credits or accelerated depreciation of capital goods)
and by manufacturers' desires to improve their efficiencies (independent of
their need to increase their capacity).
Early metal working machines were either manually operated or specifically
engineered for a production application. The advent of numerical control
devices in 1952 further automated the operation of a machine tool and
increased its efficiency, but had the drawback of requiring support from
off-site data processing technicians. In 1976, microprocessors were
integrated with numerical controls resulting in CNC machine tool systems,
which allowed personnel on the shop floor to program and perform
sophisticated metal cutting tasks without central office support. Because of
this ability, as well as superior speed of operation, a CNC machine is able
to produce the same amount of work as several manual machines with fewer
operators. Since the introduction of CNC turning machines, continued advances
in computer control technology have allowed for easier programming and
additional machine capabilities.
Since the development of CNC machine tools in the 1970s, the U.S. machine
tool industry has been subject to substantially increased competition from
foreign machine tool makers. During the 1970s, Japanese manufacturers
introduced lines of CNC machine tools, including general precision horizontal
CNC lathes, into the U.S. market, which captured substantial market share
from U.S. machine tool manufacturers, including the Company. Japanese
producers have been the most important entrants into the U.S. market,
although European and other Asian manufacturers have also increased their
U.S. market share. By 1986, foreign machine tool manufacturers had captured
over 66% of the U.S. market for horizontal CNC lathes. The U.S. Government
negotiated Voluntary Restraint Agreements ("VRAs") with Japan and Taiwan,
which went into effect in January 1987 and limited Japanese and Taiwanese
manufacturers to their 1981 market share levels of various machine tools. In
the case of lathes, these shares were 57% and 3%, respectively. These VRAs
expired in December 1993. While the VRAs were in effect, imports accounted
for between 59% and 67% of the U.S. market for horizontal CNC lathes. Based
on preliminary AMT data, in 1994 imports accounted for an estimated 66% of
U.S. sales of horizontal CNC lathes, 51% of CNC machining centers, 79% of
vertical CNC lathes, 69% of manual lathes and 55% of grinding machines.
As a result of the substantial increase in imported machine tools and the
success of CNC machine tools in the market, there has been a substantial
consolidation of the U.S. machine tool industry over the past 15 years. Based
on data from the U.S. Census Bureau, in 1982 there were 865 metal cutting
machine tool companies in the United States operating 942 manufacturing
facilities. By 1992, the number of these companies had declined to 393
operating 423 manufacturing facilities.
The largest small metal cutting machine tools markets are for lathes,
milling machines and grinders. A lathe, or turning machine, is one of the
most commonly used machine tools and produces a part or finished product by
moving a cutting tool against a metal bar or other workpiece that is rotating
at a very high speed in a spindle mechanism. Because of the nature of the
operation, virtually all parts made on a lathe are round. By varying the
speed of rotation of the workpiece, the type of tool used and the depth to
which the tool is inserted into the workpiece, lathes can create parts with a
wide array of shapes and finishes. Typical parts produced on a lathe include
valve stems, flywheels and input shafts for the automotive industry, bone
screws and artificial knee joints for the medical
22
<PAGE>
industry, gears for inboard/outboard motors and computer hard drive
components. Lathes are most frequently used to shape metal workpieces;
however, they can also produce parts from plastics, composites and other
exotic materials.
CNC lathes are classified as either "horizontal" or "vertical." In a
horizontal lathe, the workpiece and the spindle mechanism on which the
workpiece rotates are aligned parallel to the floor. This alignment permits
the use of a barfeeder to automatically feed up to 12 feet of bar stock into
the machine. In a vertical lathe, the workpiece and the spindle mechanism are
perpendicular to the floor, with the various cutting tools located above
them. This alignment permits the customer to produce larger, heavier and more
oddly shaped parts on a machine that uses less floor space than a horizontal
lathe. Because of the spindle's orientation, gravity aids in seating the
workpiece properly in the workholding device. Parts are loaded manually or
with a robotic or robotic-like materials handling device.
Horizontal CNC lathes are further categorized by the U.S. Department of
Commerce into three categories depending on the horsepower of the main
spindle: small (less than 25 horsepower); medium (between 25 and 50
horsepower); and large (over 50 horsepower). Based on preliminary AMT data,
in 1994 sales in the United States of small power CNC horizontal lathes
totaled $460,900,000 and sales of vertical CNC lathes totaled $49,000,000.
Based on preliminary AMT data, unit sales in the small power lathe market
averaged 82% of the total horizontal CNC lathe market in the United States
during the period 1992 through 1994.
In addition, lathes are categorized as either "general precision" or
"higher precision" machines based on the precision levels that they are
capable of achieving. Currently, in the machine tool industry generally,
higher precision lathes are capable of producing parts within machining
tolerances on the order of two ten-thousandths of an inch (2/10,000") or
better, and general precision lathes are capable of producing parts within
machining tolerances on the order of five ten-thousandths of an inch
(5/10,000") or better. The aerospace, medical equipment and electronics
industries have traditionally been important buyers of higher precision
lathes, while automobile manufacturers and their suppliers have traditionally
been important buyers of general precision lathes.
A milling machine produces a part by moving a rotating cutting tool
against a stationary workpiece. Because of the nature of the operation, mills
are generally used to make parts that are flat-sided (prismatic) and, like
lathes, can create parts with a wide array of shapes and finishes. Some CNC
milling machines, referred to as machining centers, are equipped with
automatic tool changers that allow several different functions (milling,
drilling, tapping, reaming and routing) to be performed in a programmed
sequence on the same workpiece, without having to remove the workpiece from
the machine. Based on preliminary AMT data, in 1994 sales in the United
States of vertical machining centers totaled $527,400,000.
Grinding is a machining process where a surface is shaped with a rotating
abrasive wheel or tool and is similar to milling in terms of the shapes that
can be generated. Grinding often follows the lathing or milling of a
workpiece in order to produce a desired surface finish. Parts may also be
produced directly on a grinding machine. However, although grinding machines
are necessary in a number of applications, CNC lathes and milling machines
are currently capable of obtaining the desired surface finish in a number of
other applications without the need for separate grinding. The Company does
not currently produce grinding machines.
Products
The following table sets forth the Company's net sales by product line for
each of the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1990 1991 1992 1993 1994 1994 1995
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Lathes and other
machine tool $
equipment $ 54,573 $41,306 $42,537 54,112 $ 65,829 $15,496 $24,584
Non-machine products
and services 48,286 41,289 42,260 44,325 51,507 11,983 16,103
Total $102,859 $82,595 $84,797 $98,437 $117,336 $27,479 $40,687
</TABLE>
Lathes and Other Machine Tool Equipment
General. The Company offers a broad line of general and higher precision
small and medium power CNC lathes, a vertical CNC machining center and higher
precision manually controlled lathes. The Company seeks to build machines
capable of consistently and cost-effectively producing very high precision
parts. The Company's
23
<PAGE>
general precision and Super Precision lathes are capable of producing parts
within machining tolerances on the order of 2/10,000" and 5/10,000" or
better, respectively. In addition, the Company's Super Precision models are
capable of producing parts to within a roundness tolerance of fifteen one
millionths of an inch (15/1,000,000").
All of the Company's CNC and manual lathes can be equipped with adjustable
chucks that permit the processing of workpieces of large diameters (generally
up to 6 to 8 inches and even larger in some cases), although the degree of
precision attained generally is reduced as the size of the workpiece
increases.
Manually controlled lathes, on which an operator uses hand wheels and
switches to manipulate the cutting tools and control the rotational speed of
the workpiece, anchored the Company's product line until the late 1970s. In
the late 1970s, the Company began offering CNC lathes, which use a computer
to control the machine's cutting operations. The Company currently
manufactures 18 machine models, including 12 horizontal CNC lathes, four of
which are Super Precision machines and eight of which are general precision
machines, two vertical CNC lathes and a vertical CNC machining center, while
continuing to offer three models of higher precision manually controlled
lathes. Nine of the Company's horizontal CNC lathes compete in the small
power lathe market and three models compete in the medium power market. These
two markets represent the vast majority of all horizontal CNC lathes sold.
Horizontal CNC Lathes. The Company offers 12 models of horizontal CNC
lathes, all of which have been recently introduced or upgraded. These CNC
models are sold with various option packages, at prices generally ranging
between $78,000 and $159,000. Set forth below is additional information with
respect to the Company's horizontal CNC lathes:
<TABLE>
<CAPTION>
Diameter of Bar
Stock
Processed
Year Without Special
Introduced/ Super Precision/ Adapters:
Model Type Upgraded General Precision Inches (Millimeters)
<S> <C> <C> <C> <C>
Conquest T65 Slant bed 1992/1993 General Precision 2-1/2" (65mm)
Conquest T51SP 1991/1993 Super Precision Model 2" (51mm)
Conquest T51 1991/1993 General Precision 2" (51mm)
Conquest T42SP 1989/1993 Super Precision Model 1-5/8" (42mm)
Conquest T42 1988/1993 General Precision 1-5/8" (42mm)
Conquest T42 BB 1993 General Precision 2" (51mm)
CHNC III SP Flat bed 1984/1993 Super Precision Model 1-1/16" (32mm)
CHNC III 1984/1993 General Precision 1-1/16" (32mm)
Conquest GT Flat bed, gang tooling 1990 Super Precision Model 1-1/16" (32mm)
Conquest ST25 Swiss turn 1993 General Precision 1" (25mm)
Conquest ST20 1993 General Precision 3/4" (20mm)
Conquest ST16 1993 General Precision 5/8" (16mm)
</TABLE>
The Company produces both flat bed and slant bed CNC lathes. The Company's
first CNC lathes, introduced in the early 1980s, were flat bed models. Since
that time, the Company has introduced slant bed CNC lathes, which allow for
easier removal of metal shavings and have better ergonomics for machine tool
operators. Currently, the majority of horizontal CNC lathes produced by the
Company are slant bed models, which reflects the production mix for the
industry as a whole.
The Company also offers a gang tooling lathe, which provides advantages in
certain applications. In a gang tooling lathe, the various cutting tools are
laid out on a long flat plate, which slides back and forth to bring different
tools into contact with the rotating workpiece. This layout saves time when
multiple tools must be used to shape a single workpiece, because the tools
can be brought to bear on the workpiece more rapidly than when they are held
in a conventional turret, a mechanism that positions tools. More importantly,
if a lathe is used to make a variety of different parts requiring frequent
changes in the tools available for use, it is quicker for an operator to
switch tooling plates in a gang tooling machine than to replace individual
tools in a turret assembly.
The Company's Swiss-turn lathes are designed to handle long, thin
workpieces so that all cutting is done very close to the spindle, thereby
minimizing workpiece deflection. Swiss-style machines generally incorporate a
sliding headstock and spindle, which progressively pushes the bar through the
spindle. Swiss-style machines have tradi
24
<PAGE>
tionally been used by medical equipment, electronics and precision instrument
makers; however, other industries have recently adapted them and they have
become more prevalent in the markets served by traditional CNC lathes.
The Company offers a number of option packages with each of its CNC
lathes, the most important of which are live tooling, a sub-spindle and
tailstock. If a lathe has live tooling, several of the tools in the turret
are powered, rather than stationary. Power tools would typically include
drills and milling cutters. A sub-spindle is a second spindle on the opposite
side of the cutting tools from the main spindle, permitting a short workpiece
to be machined on both ends. The first end of a workpiece is machined while
held by the main spindle, then the workpiece is automatically transferred to
the sub-spindle and the other end is machined while held by the sub-spindle.
A tailstock is used to hold longer workpieces to minimize deflection.
Vertical CNC Lathes. In late 1994, the Company introduced two models of
vertical CNC lathes, the Conquest VT 100 and VT 200, both of which are
general precision machines. Depending on the options selected by the
customer, the Company's vertical CNC lathes generally are priced between
$157,000 and $185,000. The Company's vertical CNC lathes use less floor space
than comparable horizontal lathes and are easier to use when working with
heavy workpieces because they allow an operator to use gravity to help set
the workpiece in the spindle. Additionally, parts requiring a chuck size of
up to 17-3/4 inches can be machined on the Company's vertical CNC machines,
while the maximum chuck size on its horizontal machines is 10 inches.
Vertical CNC Machining Centers. In late 1994, the Company entered a new
market with the introduction of a general precision vertical CNC machining
center, the Conquest VMC 700. A machining center is a milling machine and is
used to machine prismatic, as opposed to round, parts. Prices for the
Conquest VMC 700 are generally between $99,000 and $120,000, depending on the
configuration.
Turnkey Systems. Since the late 1980s, the Company has offered its turnkey
services through which it engineers complete systems for customers who desire
one or more CNC machines to produce a specific part. In configuring complete
systems, the Company will provide, in addition to the machines, the necessary
computer programming and tooling, as well as robotics and other parts
handling equipment manufactured by it or by others.
Manual Lathes. The Company offers three models of manual lathes. These
machines are sold with various options, at prices generally ranging between
$5,000 and $38,000. The Company has shipped more than 40,000 manual lathes
since the first of these models was introduced in the late 1930s. Since the
introduction of CNC lathes in 1976, purchases of manual lathes have steadily
declined in the industry. The Company's sales of manual machines have
conformed to this industry trend and, in 1994, accounted for 4.2% of the
Company's net sales.
Non-Machine Products and Services
The Company's large base of installed equipment, coupled with the
extensive tooling required to operate a lathe at close tolerances and the
need to periodically replace worn-out tooling, have provided a source of
significant demand for the Company's non-machine products and services. The
Company's non-machine products and services have typically provided higher
margins than its machine products and, for each of the past five years, have
accounted for between 44% and 50% of its net sales.
The Company offers an extensive line of non-machine products:
o Workholding Devices. Workholding devices are used to hold a workpiece in
the rotating spindle, include collets, chucks, feed fingers and pads.
The Company currently offers over 30,000 different workholding devices,
which may be used on both its lathes and those produced by others, as
well as on automatic screw machines. Most of these workholding devices
are carried in stock.
o Toolholding Devices and Accessories. Toolholding devices and accessories
are used primarily for the Company's machines. Toolholding devices
attach to the turret or gang and hold the drills and other tools that
are brought into contact with the rotating workpiece. The Company's
accessories include a complete line of the Company's and other
manufacturers' bar feed systems for its CNC horizontal lathes (which
automatically feed bar stock into the spindle and permit a lathe to run
for longer periods between restocking); part slides (which remove the
finished part from the lathe); chip conveyors (which remove metal
shavings from the work area); mist collectors (which remove excess water
coolant vapor from the machine) and tool slides (which hold the tools in
a gang tooling lathe).
o Replacement Parts. The Company offers over 45,000 replacement parts,
most of which are carried in stock, representing substantially all of
the spare parts required for the Company's machines currently in
service. If a customer requests a spare part not carried in stock, where
practicable the Company will make the part for the customer.
25
<PAGE>
The Company provides a wide variety of after-sale services for customers,
including equipment installation, operation and maintenance training, machine
maintenance and in-field repair. The Company offers equipment installation
and in-field repair services in the United States primarily through employees
located at its headquarters in Elmira, New York and in many industrial areas
of the country. These service personnel generally operate from fully equipped
vans. The Company provides similar services in Canada, the United Kingdom
and, to a lesser extent, Germany. The Company operates training centers in
Elmira, Los Angeles and the United Kingdom. When a machine is sold, the
customer's operators are offered two weeks of training as part of the
purchase price of the machine. The Company will also provide training for a
customer's personnel at other times for a fee.
Technological Features
The Company has incorporated a number of technological advances in its
machine tools and non-machine products. In 1987, the Company introduced
Harcrete machine bases, which it now uses on all but two of its horizontal
CNC lathes. These proprietary bases are made of a polymer composite, which
was adapted by the Company for use on its machine tools. The Company believes
that Harcrete bases offer several technological advantages over the cast iron
bases traditionally used by machine tool makers, including better heat
dissipation and increased stability, thereby increasing precision levels and
tooling life. The Company manufactures its own Harcrete bases, thus allowing
it to avoid the substantial delays sometimes experienced by other machine
tool companies that purchase cast iron bases from outside suppliers.
The Company has also introduced a real time thermal compensation system on
its Super Precision machines. Higher precision is achieved through this
patented system, which automatically adjusts the location of a machine's
cutting tool to compensate for thermal expansion during the machining
process.
Sales and Marketing
The Company sells directly to manufacturers in the automotive, medical
equipment, aerospace and electronic industries, as well as in the defense,
recreational equipment, farm equipment, construction equipment, energy and
transportation industries, and to independent job shops serving these and
other industries. At December 31, 1994, the Company had over 12,000 accounts
that purchased products in 1993 or 1994. Sales of the Company's products are
broadly distributed throughout the manufacturing sector and, during 1992,
1993 and 1994, no single customer accounted for more than 4.0% of the
Company's net sales and the Company's three largest customers accounted for
an aggregate of between 4.4% and 6.6% of its net sales. In the first quarter
of 1995, three major customers in the automobile industry accounted for 21.1%
of the Company's net sales.
The Company primarily markets its machine tools through its direct sales
force and through distributors and manufacturers' representatives in the
United States and abroad. The Company uses a similar system of employee sales
personnel and independent distributors in the United Kingdom and Canada. In
other countries, the Company primarily sells through distributors. At March
31, 1995, the Company employed 25 sales personnel in the United States, three
in Ontario and Quebec, Canada, five in the United Kingdom and one in Germany.
At that date, the Company had ten distributors in the United States, two in
Canada, 13 in Western Europe and 23 covering 16 other countries. As is
typical in the industry, the Company's U.S. sales personnel reside in many
different parts of the country and, with the exception of a Company
demonstration facility in Los Angeles, are responsible for arranging for
their own offices and transportation.
Iverson & Company is the Company's exclusive distributor in Illinois and
certain parts of Indiana and Wisconsin. In the past three years, Iverson has
generated up to 12.3% of the Company's net sales. Under the terms of the
current distribution agreement, three months after the Company notifies
Iverson of a problem, either party may terminate the agreement upon three
months notice if the problem has not been corrected to the Company's
satisfaction. Iverson has been a Company distributor for over 50 years. If
the distribution arrangement were terminated for any reason, the Company
could experience a disruption in the distribution of its products to these
areas. The Company believes any such disruption would be short-term; however,
depending on the circumstances at the time, its operations could be adversely
affected.
One of the Company's U.S. distributors has the exclusive right to sell its
products to the U.S. Government. The Company's eight other U.S. distributors
have the exclusive right to distribute its products in particular markets,
although these markets are located in less industrialized areas of the
country. Each of these nine distribution arrangements is terminable by either
party on 45 days notice. In 1994, none of the Company's distributors (other
than Iverson) generated in excess of 3.5% of the Company's net sales and, as
a group, they generated less than 9.0% thereof.
The Company's sales personnel earn a fixed salary plus commission based
upon a percentage of net sales. Certain of the Company's distributors operate
independent businesses, purchase machine tools and non-machine
26
<PAGE>
products from the Company and maintain inventories of these products and
spare parts for their customers, while other distributors merely sell machine
tools on behalf of the Company. The Company's commission schedule is adjusted
to reflect the level of aftermarket support offered by its distributors.
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 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. See "Management's Discussion and Analysis--Liquidity and Capital
Resources."
The Company's non-machine products mainly are sold in the United States
through telephone orders to a toll- free "800" telephone number, which is
linked to an on-line computer order entry system maintained by the Company at
its Elmira headquarters. In most cases, the Company is able to package and
ship in-stock tooling and repair parts within 24 hours of receiving orders.
In the case of some popular items, the Company can package and ship within
several hours.
The Company promotes recognition of its products in the marketplace
through advertising in trade publications and participation in industry trade
shows. In addition, the Company markets its non-machine products through
publication of a general catalogue and other targeted catalogues, which it
distributes to existing and prospective customers.
In April 1995, General Motors Corporation named the Company a "Supplier of
the Year" for 1994 in the category of lathes and machining centers.
Service and Support
The Company offers one, two and three-year warranties on new equipment
purchases and provides after-sale services for customers, including equipment
installation, operation and maintenance training, machine maintenance and
in-field repair. The Company also stocks over 45,000 replacement parts,
representing substantially all of the spare parts required for the Company's
machines currently in service. Because of the high cost to its customers of
down-time for repair, the Company believes that after-sale service and
support are important factors in ensuring repeat sales of its equipment.
Backlog
The Company's order backlog at March 31, 1994 and 1995 was $22,975,000 and
$42,502,000, respectively. The Company expects to ship substantially all of
its March 31, 1995 backlog by the end of 1995. Of the March 31, 1995 backlog,
26.2% represented orders from the automobile industry, substantially all of
which are scheduled to be shipped by the end of the fourth quarter of 1995.
Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year will
be materially affected by the timing of the Company's receipt of orders and
the speed with which those orders are filled. Accordingly, the Company's
backlog at March 31, 1995 is not necessarily indicative of actual shipments
or sales for any future period, and period-to-period comparisons from 1994 to
1995 may not be meaningful.
Manufacturing and Supply
The Company manufactures and assembles its products at its Elmira, New
York plant. Products are manufactured by the Company from various raw
materials, including cast iron, sheet metal, bar steel and bearings. Although
the Company's operations are highly integrated, it purchases a number of
components from outside suppliers, including the computer and electronic
components for its CNC machine tools, electric motors and hydraulic
assemblies. There are multiple suppliers for virtually all of the Company's
raw materials and components and the Company has not experienced a supply
interruption in recent years.
A major component of the Company's CNC machines is the computer and
related electronics package. For the past six years, the Company has
purchased these components exclusively from Fanuc Limited, a large Japanese
electronics company. While the Company believes that design changes could be
made to its machines to allow sourcing from several other existing suppliers,
a disruption in the supply of the Fanuc components could cause the Company to
experience a substantial disruption of its operations, depending on the
circumstances at the time. See "Investment Considerations--Dependence on
Foreign Electronics Supplier."
27
<PAGE>
The Company utilizes several quality and process control programs,
including Total Quality Management. The Company believes that it operates its
quality system to the requirements of the ISO 9000 Quality System of the
International Standards Organization. The ISO 9000 Quality System is an
internationally accepted quality standard for commercial operations, such as
product design verification, reviewing the quality of suppliers, imperfection
and testing requirements and maintaining quality records. The Company
believes that these initiatives have helped it maintain the quality and
reliability of its products.
Research and Development
The Company's ongoing research and development program has involved
primarily the development of new products and the modification of existing
products to meet market demands and the redesigning of existing products to
reduce the cost of manufacturing. The cost of research and development, all
of which has been charged to operations, amounted to $4,420,000, $4,216,000,
$5,218,000, $1,200,000 and $1,233,000 in 1992, 1993, 1994 and the three
months ended March 31, 1994 and 1995, respectively.
Patents and Trademarks
The Company believes that the growth of its businesses will be dependent
upon the quality of its products and its relationships with its customers,
rather than the extent of its patent or trademark protection. While the
Company believes that its patents and trademarks have significant value, the
loss of any single patent or trademark would not have a material adverse
effect on the Company.
Competition
The small and medium power machine tool industry is very competitive and
highly fragmented and consists of a number of U.S., European and Asian
competitors, none of which has a dominant market share. In 1994, over 78% of
the Company's net sales were in the United States, with substantially all of
the balance in the United Kingdom, Canada and China. The Company competes
primarily in the small and medium power CNC lathe business and in the sale of
non-machine products for lathes. In terms of sales, the Company believes that
it is the largest U.S.-based manufacturer of small horizontal CNC lathes and
has the fourth largest overall market share in the United States behind three
Japanese producers. Many of the Company's competitors are larger, and have
substantially greater financial resources, than the Company.
CNC Lathes. The Company produces Super Precision and high performance
general precision lathes for sale in the United States and abroad. Both
markets are extremely competitive. In the higher precision part of the
market, the Company primarily competes in the United States with two Japanese
producers. Several German manufacturers also compete with the Company
primarily in Europe. In the general precision part of the market, the Company
competes with a number of U.S., European and Asian manufacturers. In both
parts of the lathe business, the Company competes on the basis that the
superior quality, reliability, value and technological characteristics of its
machines justify a somewhat higher price than for a competing machine. In
both markets, availability, rapid delivery and customer support are important
competitive factors, as is, increasingly, the ability of the manufacturer to
offer a broad line of products. While the Company's higher quality products
have traditionally generated somewhat higher prices, price is nevertheless an
important competitive factor, particularly in the larger general precision
market.
The Company believes that the competitive situation for its new machining
center will be similar to that for general precision CNC lathes.
Non-Machine Products. The principal competitive factors in the market for
non-machine products are rapid delivery time, quality and value. The Company
believes that it is a major worldwide supplier of workholding devices.
28
<PAGE>
Property
The following table sets forth certain information as of March 31, 1995
relating to the Company's principal facilities.
<TABLE>
<CAPTION>
Approximate Lease Expiration
Location Type of Facility Square Feet Owned/Leased Date
<S> <C> <C> <C> <C>
Elmira, NY Manufacturing, engineering, 430,000
turnkey systems, marketing,
sales, demonstration,
service and administration Owned --
Elmira, NY Warehouse 176,000 Owned --
Los Angeles, CA Sales, demonstration 14,500 Leased December 31, 1997
Exeter, England Sales, marketing, service, 20,000
turnkey systems and
administration Leased June 30, 1997
Krefeld, Germany Sales, service 1,500 Leased December 31, 1995
Toronto, Canada Sales, service 4,600 Leased June 30, 1996
</TABLE>
As a result of the Company's launch of 14 new machine tool models since
1991 and the recent upturn in the machine tool market, the Company's Elmira,
New York manufacturing facility is currently operating near full capacity and
the Company expects this facility will continue to operate near full capacity
for the balance of 1995. In April 1995, the Company began construction of
three additions to its manufacturing facility, which, when completed, will
increase the size of the facility from 430,000 square feet to 500,000 square
feet and 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, most of which will be funded with a portion
of the proceeds of this offering.
The Company believes that, upon completion of the planned expansion of its
principal facility, its existing facilities will be sufficient to meet its
current needs and believes that such facility will accommodate further
expansion if additional capacity is required in the future.
In general, the Company believes that its operating facilities are in good
operating condition.
Employees
As of March 31, 1995, the Company employed 965 people, 936 of whom were
located in the United States. Of its employees, 680 were employed in
manufacturing and distribution operations, 80 were engaged in research and
development, 167 were employed in sales and marketing, service and training
and 38 were employed in administration and other areas. All of the Company's
employees, who average over 14 years of tenure with the Company, are full
time and none of the Company's employees belong to a labor union. The Company
has never had a strike at any of its facilities and the Company believes that
its relations with its employees are good.
Environmental Matters
The Company's operations are subject to extensive federal and state
legislation and regulation relating to environmental matters. The Company
believes it is currently in material compliance with applicable environmental
laws and regulations.
Future regulations, under the Clean Air Act and otherwise, are expected to
impose stricter emission requirements on the metal working industry. While
the Company believes that current pollution control measures at most of the
emission sources at its New York manufacturing facility will meet these
anticipated future requirements, additional measures at some sources may be
required. The Company does not believe that these anticipated future
requirements are likely to have a material adverse effect upon its financial
condition, results of operations or competitive position.
Certain environmental laws can impose joint and several liability for
releases or threatened releases of hazardous substances upon certain
statutorily defined parties regardless of fault or the lawfulness of the
original activity or disposal. Activities at properties owned by the Company
and on adjacent areas have resulted in environmental impacts.
In particular, the Company's Elmira, New York manufacturing facility is
located within the Kentucky Avenue Well Field site, which is listed on the
National Priorities List of sites designated for cleanup by the United States
Environmental Protection Agency ("EPA") because of groundwater contamination
of an underlying aquifer. The
29
<PAGE>
Kentucky Avenue Well Field site encompasses an area of approximately three
square miles, which includes sections of the Town of Horseheads, the Village
of Horseheads and the Village of Elmira Heights, New York. The Company,
however, has never been named as a potentially responsible party at the site.
Environmental sampling on the Company's property within the site conducted
under the supervision of regulatory authorities found no evidence that the
Company's property is the source of the groundwater contamination in the
aquifer. Based on this sampling and on other studies conducted within the
aquifer region, off-site sources for the groundwater contamination have been
identified by the regulatory authorities.
The Company has received a request for information from EPA in connection
with the Tri-Cities Barrel site, a barrel recycling facility in Broome
County, New York, which is also listed on the National Priorities List. The
Company responded to EPA's request in August of 1994 and has not been
notified to date by EPA that it is a potentially responsible party at this
site. The Company's information indicates that the Company sent only 261
empty drums to Tri-Cities for recycling, a quantity that is minimal according
to information the Company has received from the group of parties that have
been named as potentially responsible by EPA (the "PRP Group"). The PRP Group
has informally discussed offering a de minimis settlement to parties with
less than 5,000 drums. The Company may consider such a settlement, if
formally offered. Otherwise the Company will vigorously defend inclusion as a
potentially responsible party at the site. As a result, the Company does not
expect that it will incur any material liabilities in connection with this
site.
Environmental sampling following the removal of an underground storage
tank at the Company's Elmira warehouse disclosed the presence of hydrocarbon
contamination in surrounding soils. An environmental consultant retained by
the Company prepared a site assessment and remedial action plan, which were
approved by the New York State Department of Environmental Conservation
("DEC"). The Company has entered into an agreed Stipulation with DEC to
remediate the site in accordance with the remedial action plan. Pursuant to
the timetable set forth in the remedial action plan, the Company anticipates
being able to complete the construction phase of the cleanup work at the site
by the end of 1995. The Company has reserved $500,000 for the construction
work, which amount was charged to 1994 operations. The Company anticipates
that ongoing operation and maintenance expenses for the cleanup will be less
than $100,000 annually.
Although the Company believes, based upon information currently available
to management, that it will not have material liabilities for environmental
remediation, there can be no assurance that future remedial requirements or
changes in the enforcement of existing laws and regulations, which are
subject to extensive regulatory discretion, will not result in material
liabilities.
Litigation
The Company is from time to time involved in routine litigation incidental
to its operations. None of the litigation in which the Company is currently
involved, individually or in the aggregate, is material to its financial
condition or results of operations.
30
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company, and their ages as of
March 31, 1995, are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert E. Agan 56 President and Chief Executive Officer and director
Malcolm L. Gibson 54 Senior Vice President and Chief Financial Officer
J. Allan Krul 52 Senior Vice President and Chief Operating Officer
Douglas A. Greenlee 47 Vice President and director
Douglas C. Tifft 40 Vice President
J. Philip Hunter 52 Secretary and director
Richard J. Cole 63 Director
John W. Bennett 61 Director
James L. Flynn 60 Director
E. Martin Gibson 57 Director
Dr. Eve L. Menger 52 Director
Whitney S. Powers 71 Director
</TABLE>
Robert E. Agan has been the President and Chief Executive Officer of the
Company since 1983 and has been a director of the Company since 1980. He is a
director of Chemung Financial Corporation, a bank holding company ("Chemung
Financial").
Malcolm L. Gibson has been Senior Vice President and, Chief Financial
Officer of the Company since 1994. From 1985 to 1994, he was Vice
President--Finance and Treasurer of the Company.
J. Allan Krul has been Senior Vice President and Chief Operating Officer
of the Company since 1994. From 1991 to 1994, he was Vice President--General
Manager Machine Operations of the Company and, from 1988 to 1991, he was Vice
President--Engineering of the Company.
Douglas A. Greenlee has been Vice President--Business Development of the
Company since 1992 and has been a director of the Company since 1979. From
1974 to 1992, he was an attorney with the law firm of Hazel & Thomas, P.C.,
Winchester, Virginia.
Douglas C. Tifft has been Vice President--Personnel of the Company since
1988.
J. Philip Hunter has been Secretary of the Company since 1993 and has been
a director of the Company since 1992. He has been a partner with the law firm
of Sayles, Evans, Brayton, Palmer & Tifft, Elmira, New York since 1972.
Richard J. Cole has been a director of the Company since 1991. Since 1991,
he has been a vice president of Meritus Consulting Services, a management
consulting firm and, from 1988 to 1991, he was a division vice president of
IBM Corporation.
John W. Bennett has been a director of the Company since 1993. Since 1991
he has been president and chief executive officer of Chemung Financial and
president and chief executive officer of Chemung Canal Trust Company
("Chemung"). From 1988 to 1991 he was president and chief operating officer
of Chemung. He is a director of Chemung Financial.
James L. Flynn has been a director of the Company since 1984. Mr. Flynn
has been retired since 1994. From 1990 to 1994, he was senior vice
president--investment services of Corning Incorporated ("Corning"), a
manufacturer of specialty glass and ceramic products and provider of clinical
laboratory services.
E. Martin Gibson has been a director of the Company since 1981. Since
April 1995, he has been chairman (non-executive) of International Technology
Corp., a provider of environmental services. From 1990 to 1994, he was
chairman and chief executive officer of Corning Lab Services, Inc., a
provider of clinical laboratory services, and a subsidiary of Corning and,
from 1983 to 1990, he was a group president of Corning. He is a director of
Novacare, Inc., a provider of healthcare services.
Dr. Eve L. Menger has been a director of the Company since February 1995.
She has been director of characterization science of Corning since 1991 and
from 1987 to 1991, was vice provost for University--Industry Relations and
Professor of Chemistry at the University of Virginia.
31
<PAGE>
Whitney S. Powers has been a director of the Company since 1980. He has
been the president of Black Boxes Co., a mechanical design consulting firm,
since 1990. He is a director of Chemung.
There are no family relationships between any directors or executive
officers.
Terms of Directors
The Company's Restated Certificate of Incorporation and By-laws provide
that the directors of the Company are divided into three classes, each class
consisting of three directors. The directors in each class serve for
three-year terms and until their successors are elected. In the event that
the number of directors on the Board of Directors is changed, the number of
directors assigned to each class will be adjusted so that each class is as
nearly equal in number as possible. Messrs. Agan, Cole and E.M. Gibson are
Class I directors whose terms expire at the annual meeting of shareholders
(the "Annual Meeting") in either 1996 or 1997, at the Annual Meeting in 1998
and at every third Annual Meeting thereafter. Messrs. Hunter and Powers and
Dr. Menger are Class II directors whose terms expire at the Annual Meeting in
either 1996 or 1997, at the Annual Meeting in 1999 and at every third Annual
Meeting thereafter. Messrs. Bennett, Flynn and Greenlee are Class III
directors whose terms expire at the Annual Meeting in 1996 or 1997, at the
Annual Meeting in 1997 and at every third Annual Meeting thereafter.
Executive Compensation
The following table presents information concerning compensation paid for
services to the Company during the periods indicated to the President and
Chief Executive Officer and the four other most highly compensated executive
officers of the Company in 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Restricted
Name and Stock All Other
Principal Position Year Salary Bonus Awards (1) Compensation (2)
<S> <C> <C> <C> <C> <C>
Robert E. Agan 1994 $225,000 $150,000 $375,000 $591
President and Chief 1993 202,083 95,000 480,000 508
Executive Officer 1992 165,600 12,377 -0- 400
J. Allan Krul
Senior Vice
President 1994 142,000 85,000 200,000 419
and Chief Operating 1993 130,998 55,000 192,000 338
Officer 1992 110,700 8,882 -0- 308
Malcolm L. Gibson
Senior Vice
President 1994 117,000 42,000 -0- 571
and Chief Financial 1993 112,875 27,000 120,000 495
Officer 1992 101,250 8,241 -0- 382
Thomas T. Connelly 1994 124,000 38,000 -0- 548
Treasurer 1993 120,333 25,000 120,000 475
1992 108,000 9,231 -0- 373
Douglas A. Greenlee 1994 104,000 36,000 -0- 306
Vice President 1993 100,333 24,000 192,000 200
</TABLE>
(1) As of December 31, 1994, Messrs. Agan, Krul, M.L. Gibson, Connelly and
Greenlee held 120,950, 61,500, 37,925, 42,025 and 16,400 restricted
shares of Common Stock, respectively, having an aggregate value on that
date of $1,711,000, $870,000, $536,500, $594,500 and $232,000,
respectively, based upon an appraisal by Crestar Securities Corporation
("Crestar"). The restrictions on these shares lapse on a scheduled time
basis or upon the earlier death of the holder. The officers are entitled
to receive any and all dividends paid on the stock.
(2) Represents the value as of December 31, 1994, based upon an appraisal by
Crestar, of shares of the Company's stock allocated to each individual in
accordance with provisions of the Company's Employee Stock Ownership and
Savings Plan.
32
<PAGE>
Pension Plan
The Company maintains a non-contributory defined benefit Pension Plan (the
"Employee Pension Plan") for all employees. Normal retirement is at age 65;
however, an employee may elect to retire before age 65 under certain
conditions. Annual pensions are computed on the basis of adjusted career
average compensation, excluding bonuses. The adjusted career average
compensation formula is determined by taking the sum of (a) for service prior
to December 1, 1993, 1.25% of the annual compensation rate as of December 1,
1993, times the number of years of service prior to December 1, 1993, plus
(b) 1.5% of compensation on or after December 1, 1993. Pension amounts are
not subject to reductions for Social Security benefits or offset amounts but
are subject to federal law limitations on pensions payable under tax
qualified plans.
The Company also maintains a non-qualified, unfunded benefit plan called
the Executive Supplemental Pension Plan ("Supplemental Plan") currently
covering Messrs. Agan, M.L. Gibson and Krul. The annual benefits under the
Supplemental Plan are determined on the basis of the average of the three
highest years' base salary of the final five years of employment plus cash
bonuses times 1.25% for each year of service, except that in the case of Mr.
Krul, the percentages are 1.5% of each of his first five years of service,
2.0% of each of the next ten years and 2.2% for each additional year,
contingent on Mr. Krul's continued employment with the Company until age 62
terminable by the Company upon the occurrence of certain stated events. A
minimum benefit is provided under the Supplemental Plan for all covered
executives equal to 1.2 times the benefit earned under the Employee Pension
Plan. Benefits under the Supplemental Plan are reduced by benefits payable
under the Employee Pension Plan.
If the executive officers remain continuously employed at current
compensations levels until retirement at the normal retirement age of 65, the
estimated annual pension amounts payable under the Employee Pension Plan and
Supplemental Plans for Messrs. Agan, Krul, M.L. Gibson, Connelly and Greenlee
would be $196,500, $76,200, $79,700, $51,800 and $32,400, respectively.
Pensions described are straight-life annuity amounts not reduced by joint and
survivorship provisions which are available to all retirees through
reductions in pensions otherwise payable.
Directors' Compensation
Each director who is not an employee of the Company receives from the
Company $5,000 per year, a meeting fee of $800 for each Board of Directors or
committee meeting attended and is reimbursed for expenses incurred in
attending meetings. In addition, in March of each year, each director
receives 860 shares of Common Stock. The Company has in place a Deferred
Directors Fee Plan that allows a director at his election to defer receiving
up to 100% of his fees, exclusive of the supplemental stock payment, until
the later of separation or age 70.
Employment Agreements
The Company has entered into written employment contracts with Messrs.
Agan, Krul, M.L. Gibson, Greenlee and Douglas C. Tifft (the "officers")
effective January 1, 1995. The term of each employment agreement is two
years, with automatic, successive one-year extensions unless either party
provides the other with 60 days' prior notice of termination. In the case of
a change of control (as such term is defined in the employment agreements),
the term of each officer's employment agreement will be automatically
extended for a period of two years following the date of the change of
control. With the exception of Mr. Agan, no officers previously had
employment agreements with the Company. Mr. Agan has agreed that his prior
four-year employment agreement will be superseded by his new agreement,
except that certain provisions regarding death benefits are retained in his
new agreement. Under the employment agreements, each officer will have the
same position in the Company and annual base salary as immediately prior to
entering into his respective employment agreement. The employment agreements
provide for initial annual base salaries of $238,000, $156,000, $125,000,
$109,000 and $89,000 to be paid to Messrs. Agan, Krul, M.L. Gibson, Greenlee
and Tifft, respectively. Officers' bonuses shall be determined in accordance
with an annual bonus policy. See "Incentive Cash Bonuses" below.
If an officer is terminated without cause, or resigns for good reason (as
such term is defined in the employment agreements), such officer will be
entitled to continued payment of his base salary for the greater of six
months or the remainder of the current term with the exception of Messrs.
Agan's and Krul's agreements, which provide for the greater of 12 months of
base salary or the remainder of the current term in this situation. If an
officer is terminated without cause or resigns for good reason (as such term
is defined in the employment agreements) on or after a change of control, or
resigns for any reason at any time six months or more following a change of
control, such officer will be entitled (i) to receive a lump sum cash payment
equal to one and one-half times the sum of his base salary in effect
immediately prior to his termination or resignation (or as in effect
immediately prior to the change of control, if higher) and his average annual
bonus for the three years preceding the change of control, and (ii) to
participate, at the Company's expense, in the Company's welfare benefit plans
for a period of three years following his resignation or termination. Such
lump
33
<PAGE>
sum cash payments shall be subject to reduction to the extent necessary to
prevent any amounts or benefits due from being deemed "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code.
Incentive Cash Bonuses
The Salary, Bonus and Incentive Stock Committee (the "Committee") of the
Board of Directors administers the Company's incentive cash bonus program.
The program provides the Committee with flexibility from year to year to meet
the ever-changing business environment and provides competitive
profit-focused cash incentives for the corporate officers. The program allows
the President to establish specific individual objectives for all officers
other than himself, the achievement of which is rewarded by year-end cash
bonuses if the Company is sufficiently profitable. Under the program the
Committee establishes levels of bonus pools tied to specific per share
corporate earnings targets with the President, then recommends the allocation
of the bonus pool among officers based upon individual performance and
achievement during the year and competitive data. The Committee's
determination of Mr. Agan's cash bonus is more subjective and not subject to
specific criteria. The amount fixed for 1994 was based upon the Company's
improved financial performance, continued introduction of high quality and
competitive products and increased plant productivity and customer
satisfaction.
Incentive Stock Plan
In early 1993 the Committee determined that the former practice of
awarding stock options did not produce the desired long-term incentives for
corporate executives and that restricted stock is a more appropriate vehicle
to assist the Company in attracting and retaining top executives. Under the
1993 Incentive Stock Plan adopted by the Board of Directors, 405,000 shares
of Common Stock have been set aside for grants to key employees of restricted
stock and performance share awards. Under the 1993 Incentive Stock Plan, only
restricted stock grants have been selected by the Committee for award to key
executives with the resulting emphasis on increased executive ownership of
Company stock, long-term corporate results and a substantial portion of
executive pay and financial incentive linked to increases in shareholder
value. Individual grant awards are based upon an executive's responsibilities
and role in increasing shareholder value and the Committee's subjective
evaluation of individual performance with no consideration given to the
number of shares directly or indirectly owned. Restrictions on shares awarded
lapse upon passage of time as established by the Committee on the date of the
award, subject to earlier forfeiture. Under the 1993 Incentive Stock Plan,
for the year ended December 31, 1994, Messrs. Agan and Krul were awarded
30,750 and 16,000, respectively, restricted shares of Common Stock subject to
forfeiture and restrictions on transfer. Total unconditional vesting will
occur only upon the completion of four to eight years of continuous service
or, earlier, upon death, retirement after age 60, retirement prior to age 60
for reasons of total and permanent disability or retirement for other medical
or health reasons which render an employee unable to perform his duties and
responsibilities or termination in other limited circumstances. Partial
vesting will occur if the employee is terminated during a period of one to
eight years for reasons other than gross deviation from his duties and
responsibilities. The recipients of Common Stock under the 1993 Incentive
Stock Plan are entitled to vote the Common Stock and to receive dividends
thereon from the date of grant. The 1993 Incentive Stock Plan provides that
restricted shares shall no longer be subject to forfeiture and the Company
shall deliver to the employee or his personal representative, free of any
restrictions, certificates representing the shares of restricted stock in the
event of a termination of the employee's employment with the Company or a
subsidiary within four years following a change of control as defined in the
agreements entered into pursuant to the 1993 Incentive Stock Plan.
Salary, Bonus and Incentive Stock Committee Interlocks and Insider
Participation
The members of the Committee are Mr. E.M. Gibson, as chairman, and Messrs.
Hunter and Cole. Mr. Gibson has been a director of the Company since 1981.
Mr. Hunter is the Secretary of the Company and has been a director of the
Company since 1992. Mr. Hunter is also a partner with the law firm of Sayles,
Evans, Brayton, Palmer & Tifft, which is retained by the Company for the
performance of legal services. Mr. Cole has been a director of the Company
since 1991.
Certain Transactions
The Company in the normal course of business has retained Sayles, Evans,
Brayton, Palmer & Tifft, of which Mr. Hunter is a partner, for legal services
and expects to do so during the current year.
Chemung, beneficial owner of 873,690 shares of Common Stock prior to the
offering, of which Messrs. Agan and Powers are directors and Mr. Bennett is
the president and chief executive officer and a director, provides various
banking services, is trustee of the Pension Plan and is one of the trustees
of the Employee Stock Ownership and Savings Plan. The Company has a
$5,000,000 short-term line of credit with Chemung under which it had borrowed
$3,500,000 at March 31, 1995. This line of credit was most recently renewed
on May 10, 1995 and matures on April 30, 1996. The line bore interest at the
rate of 6.125% per annum on March 31, 1995 and the loan under the line of
credit will be repaid with the proceeds of this offering. See "Use of
Proceeds."
The Company sold customer notes to Chemung totaling approximately
$3,000,000 in 1994 and $3,000,000 in the first quarter of 1995. See
"Management's Discussion and Analysis--Liquidity and Capital Resources."
34
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
Security Ownership of Principal Shareholders
The following table sets forth information with respect to beneficial
ownership of shares of Common Stock, both as of April 25, 1995 and as
adjusted to give effect to this offering, of all shareholders known by the
Company to be the beneficial owners of more than 5% of its outstanding Common
Stock:
<TABLE>
<CAPTION>
Percent of Ownership
Number of
Shares
Beneficially Prior to After
Name Owned Offering Offering
<S> <C> <C> <C>
Chemung Canal Trust Company (1) 873,690 22.6% 14.3%
1 Chemung Canal Plaza
Elmira, NY 14902
Douglas A. Greenlee (2) 337,817 8.8 5.5
205 Kennedy Drive
Horseheads, NY 14845
Jeanne W. Ward (3) 309,163 8.0 5.1
5357 Lockmead Terrace
Zephyrhills, FL 33541
Joan A. Sutantyo (4) 290,991 7.5 4.8
670 Allen Street
San Marino, CA 91108
Robert E. Agan and Malcolm L. Gibson, 392,278 10.2 6.4
as trustees of the Hardinge Brothers, Inc.
Employee Stock Ownership and Savings Plan (5)
One Hardinge Drive
Elmira, NY 14902
Robert E. Agan (6) 345,250 8.9 5.7
One Hardinge Drive
Elmira, NY 14902
Malcolm L. Gibson (7) 217,381 5.6 3.6
One Hardinge Drive
Elmira, NY 14902
</TABLE>
(1) Held by Chemung Canal Trust Company ("Chemung") in various fiduciary
capacities either alone or with others. It alone holds in its fiduciary
capacity sole voting and dispositive powers as to 454,993 shares of
Common Stock and sole voting (but not dispositive) powers as to an
additional 275,857 shares of Common Stock. Chemung shares with others the
voting and dispositive powers as to 142,840 shares of Common Stock.
(2) Sole beneficial owner of 24,109 shares of Common Stock and shares as
trustee with Jeanne W. Ward (see footnote 3) and Joan A. Sutantyo (see
footnote 4) of a trust for the benefit of himself and others the voting
and dispositive powers as to 271,966 shares of Common Stock. Shares as
attorney-in-fact with others the voting and dispositive powers as to
41,742 shares of Common Stock. Not included are 220,871 shares of Common
Stock held in trust by Chemung (see footnote 1) as trustee for the
benefit of himself and others, nor 12,000 shares of Common Stock held in
trust by another under which Mr. Greenlee is a contingent remainderman.
(3) Shares as trustee with Douglas A. Greenlee (see footnote 2) and Joan S.
Sutantyo (see footnote 4) of a trust for the benefit of herself and
others the voting and dispositive powers as to 271,966 shares of Common
Stock. Shares as trustee with another of two trusts for the benefit of
others the voting and dispositive powers as to 37,197 shares of Common
Stock. Not included are 220,871 shares of Common Stock held in trust by
Chemung (see footnote 1) as trustee for the benefit of herself and
others, nor 12,000 shares of Common Stock held in trust by another under
which Ms. Ward is a contingent remainderman.
(4) Sole beneficial owner of 19,025 shares of Common Stock and shares as
trustee with Douglas A. Greenlee (see footnote 2) and Jeanne W. Ward (see
footnote 3) of a trust for the benefit of herself and others the voting
and dispositive powers as to 271,966 shares of Common Stock. Not included
are 220,871 shares of Common Stock held in trust by Chemung (see footnote
1) as trustee for the benefit of herself and others.
(5) Robert E. Agan and Malcolm L. Gibson, as trustees, share with the
employee participants the power to vote and dispose of the shares of
Common Stock pursuant to the terms of the Company's Employee Stock
Ownership and Savings Plan. The power to dispose of the shares of Common
Stock is restricted by the terms of the Plan.
(6) Sole beneficial owner of 163,142 shares of Common Stock and shares as
trustee with Malcolm L. Gibson (see footnote 7) voting and dispositive
powers as to 165,924 shares of Common Stock owned by the Company's
Employee Pension Plan. Includes 16,184 shares of Common Stock held in
trust by Mr. Agan as the sole trustee for the benefit of his children.
Excludes 392,278 shares of Common Stock for which Robert E. Agan and
Malcolm L. Gibson share voting and dispositive power as trustees of the
Company's Employee Stock Ownership and Savings Plan (see footnote 5).
(7) Sole beneficial owner of 51,457 shares of Common Stock and shares as
trustee with Robert A. Agan (see footnote 6) voting and dispositive
powers as to 165,924 shares of Common Stock owned by the Company's
Employee Pension Plan. Excludes 392,278 shares of Common Stock for which
Malcolm L. Gibson and Robert E. Agan share voting and dispositive power
as trustees of the Company's Employee Stock Ownership and Savings Plan
(see footnote 5).
35
<PAGE>
Security Ownership of Management
The following table sets forth information with respect to beneficial
ownership of shares of Common Stock, both as of April 25, 1995 and as
adjusted to give effect to this offering, by the directors and executive
officers of the Company and by the directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Percent of Ownership
Number of
Shares
Beneficially Prior to After
Name Owned (1) Offering Offering
<S> <C> <C> <C>
Robert E. Agan (2) 345,250 8.9% 5.7%
John W. Bennett 2,159 * *
Richard J. Cole 2,109 * *
Thomas T. Connelly 49,043 1.3 *
James L. Flynn 7,519 * *
E. Martin Gibson 9,198 * *
Malcolm L. Gibson (3) 217,381 5.6 3.6
Douglas A. Greenlee (4) 337,817 8.8 5.5
J. Philip Hunter 2,322 * *
J. Allan Krul 74,738 1.9 1.2
Dr. Eve L. Menger 861 * *
Whitney S. Powers 9,667 * *
All executive officers and directors
as a group (14 persons including the above) (5) 944,444 24.5 15.5
</TABLE>
* Less than one percent.
(1) Includes shares which may be purchased pursuant to stock options held by
directors that were exercisable within 60 days as of April 10, 1995.
Messrs. Flynn, E.M. Gibson and Powers each held 4,075, 4,075 and 3,050,
respectively, of such options to purchase Common Stock. Also includes all
shares held by the Trustees of the Company's Employee Stock Ownership and
Savings Plan allocated to members of the group who have shared voting and
dispositive power with respect to such shares. The Trustees hold 6,797
shares of Common Stock for the benefit of Mr. Agan, 3,303 shares for Mr.
Connelly, 301 shares for Mr. M.L. Gibson, 494 shares for Mr. Greenlee,
3,623 shares for Mr. Krul and 14,807 shares for all executive officers
and directors as a group. Also includes shares of Common Stock subject to
forfeiture and restrictions on transfer granted pursuant to the Company's
1988 and 1993 Incentive Stock Plans.
(2) Sole beneficial owner of 163,142 shares of Common Stock and shares as
trustee with Malcolm L. Gibson (see footnote 3) voting and dispositive
powers as to 165,924 shares of Common Stock owned by the Company's
Employee Pension Plan. Includes 16,184 shares of Common Stock held in
trust by Mr. Agan as the sole trustee for the benefit of his children.
Excludes 392,278 shares of Common Stock for which Robert E. Agan and
Malcolm L. Gibson share voting and dispositive power as trustees of the
Company's Employee Stock Ownership and Savings Plan. See "Security
Ownership of Principal Shareholders" above.
(3) Sole beneficial owner of 51,457 shares of Common Stock and shares as
trustee with Robert A. Agan (see footnote 2) voting and dispositive
powers as to 165,924 shares of Common Stock owned by the Company's
Employee Pension Plan. Excludes 392,278 shares of Common Stock for which
Malcolm L. Gibson and Robert E. Agan share voting and dispositive power
as trustees of the Company's Employee Stock Ownership and Savings Plan.
See "Security Ownership of Principal Shareholders" above.
(4) Sole beneficial owner of 24,109 shares of Common Stock and shares as
co-trustee of a trust for the benefit of himself and others the voting
and dispositive powers as to 271,966 shares of Common Stock. Shares as
attorney-in-fact with others the voting and dispositive powers as to
41,742 shares of Common Stock. Not included are 220,871 shares of Common
Stock held in trust by Chemung as trustee for the benefit of himself and
others, nor 12,000 shares of Common Stock held in trust by another under
which Mr. Greenlee is a contingent remainderman. See "Security Ownership
of Principal Shareholders" above.
(5) Includes 165,924 shares of Common Stock owned by the Company's Employee
Pension Plan as to which Messrs. Agan and M.L. Gibson share, as trustees,
voting and dispositive powers.
Selling Shareholder
The Selling Shareholder listed in the table below has indicated its
intention to sell the number of shares of Common Stock set forth opposite its
name. The table sets forth information, as of April 25, 1995, and as adjusted
to give effect to this offering, with respect to the beneficial ownership of
the Common Stock by the Selling Shareholder. All information with respect to
beneficial ownership prior to this offering has been furnished by the Selling
Shareholder.
<TABLE>
<CAPTION>
Ownership of Common
Stock after Offering
Number of Shares
Beneficially Shares Number
Owned prior to to of Percentage
Name Offering be Sold Shares of Ownership
<S> <C> <C> <C> <C>
Marine Midland Bank, N.A., Joseph C.
Littleton, Robert G. Prochnow and
William J. Gunnell III,
as Trustees (1) 108,650 32,000 76,650 1.2%
</TABLE>
(1) The Trustees share voting and dispositive powers for these shares of
Common Stock, which are held in two trusts for the benefit of the issue
of William J. Gunnell and Josephine G. Prochnow, respectively. Mr.
Littleton was an outside director of the Company, who retired from the
Board of Directors in 1992. Mr. Prochnow was an employee of the Company,
who retired in 1987.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The Company's authorized capital stock consists of (a) 20,000,000 shares
of Common Stock, par value $.01 per share, and (b) 2,000,000 shares of
Preferred Stock, par value $.01 per share. At April 10, 1995, there were
3,859,751 shares of Common Stock outstanding, including 293,581 shares of
restricted Common Stock, which have been issued to officers and employees
under the Company's 1988 and 1993 Incentive Stock Plans, but which had not
yet vested. See "Management--Incentive Stock Plan."
Preferred Stock
As of the date of this Prospectus, the Company has not issued any
Preferred Stock. The Board of Directors of the Company is authorized, without
action by the shareholders, to fix the number of shares, to determine the
designation of any series of the authorized shares of the Company's Preferred
Stock and to determine or alter the rights, preferences, privileges and
restrictions granted to, or imposed upon, any unissued series of Preferred
Stock. Beginning May 30, 1995, a right to purchase shares of Series A
Preferred Stock will be attached to each share of Common Stock. A maximum of
250,000 shares of Series A Preferred Stock has been reserved for issuance
upon exercise of such rights. The rights of holders of Common Stock, as
described below, will be subject to, and may be adversely affected by, the
rights of holders of any Preferred Stock that may be issued in the future.
See "Certain Anti-takeover Provisions--Shareholder Rights Plan" below.
Common Stock
Voting. The holders of Common Stock are entitled to one vote on all
corporate matters submitted to a vote of the holders of Common Stock for each
share of Common Stock held. The Company's Restated Certificate of
Incorporation, as amended, contains so-called supermajority provisions, which
provide (i) that a director of the Company may be removed only for cause and
upon the affirmative vote of the holders of 75% of the securities entitled to
vote at an election of directors, and (ii) (a) at least 75% of all of the
securities of the Company entitled to vote and (b) at least 75% of other than
Majority Shareholders (defined as 10% beneficial holders) are required in
order to effect certain mergers, sales of assets or other business
combinations involving the Company. See "Certain Anti-takeover Provisions"
below.
Dividends. Subject to the rights, if any, of holders of Preferred Stock,
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of the assets of the Company lawfully
available therefor. There can be no assurance that dividends will be paid.
See "Dividend Policy."
Liquidation. Subject to the rights, if any, of holders of Preferred Stock,
in the event of any liquidation, dissolution or winding up of the affairs of
the Company, the holders of Common Stock will be entitled to share ratably in
any liquidating distribution remaining after payment of all debts and other
liabilities of the Company.
Other. The holders of Common Stock do not have preemptive rights. The
shares of Common Stock offered hereby, when issued, will be fully paid and
non-assessable.
Listing. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "HDNG." See "Common Stock Market
Information."
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Stock is American Stock
Transfer & Trust Company.
Certain Anti-takeover Provisions
Special Provisions Under the Certificate and By-laws
The Restated Certificate of Incorporation and the By-laws of the Company
contain certain provisions that could make the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise difficult. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of
Directors. The Company believes that the benefits of these provisions
outweigh the potential disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals might result in an
improvement of their terms. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the Restated
Certificate of Incorporation and the By-laws of the Company, which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
37
<PAGE>
Staggered Board of Directors. The Restated Certificate of Incorporation
and the By-laws of the Company provide that the Board of Directors will be
divided into three classes of directors, each class constituting one-third of
the total number of directors and with the classes serving staggered
three-year terms beginning in 1997. The classification of the directors will
have the effect of making it more difficult for shareholders, including those
holding a majority of the outstanding shares, to force an immediate change in
the composition of the Board of Directors. The Board of Directors believes
that the longer time required to elect a majority of a classified Board of
Directors helps to ensure the continuity and stability of the Company's
management and policies since a majority of the directors at any given time
will have had prior experience as directors of the Company.
Removal of Directors and Filling of Vacancies. The Restated Certificate of
Incorporation provides that a director of the Company may be removed only for
cause and upon the affirmative vote of the holders of 75% of the securities
entitled to vote at an election of directors. Newly created directorships and
Board of Director vacancies resulting from death, removal or other causes may
be filled only be a majority vote of the then remaining directors.
Accordingly, it will be more difficult for shareholders, including those
holding a majority of the outstanding shares, to force an immediate change in
the composition of the Board of Directors.
Supermajority Voting Provisions for Certain Business Combinations. The
Restated Certificate of Incorporation requires the affirmative vote of (a) at
least 75% of all of the securities of the Company entitled to vote and (b) at
least 75% of other than Majority Shareholders (defined as 10% beneficial
holders) in order to effect certain mergers, sales of assets or other
business combinations involving the Company. These provisions could have the
effect of delaying, deferring or preventing a change of control of the
Company.
Discretion to Consider Non-Price Issues. Under Section 717 of the New York
Business Corporation Law ("NYBCL") and pursuant to the Restated Certificate
of Incorporation, the Board of Directors may consider issues other than price
in a proposed business combination. The considerations may include, but are
not limited to, social and economic effects of the transaction upon the
Company, its shareholders, customers, vendors, suppliers and other
constituencies.
Shareholder Rights Plan
On May 16, 1995, the Company adopted a shareholder rights plan and entered
into a rights agreement (the "Rights Agreement") in connection therewith. The
Rights Agreement provides that attached to each share of Common Stock
outstanding at the close of business on May 30, 1995 and each share of Common
Stock issued thereafter is one right (a "Right") that, when exercisable,
entitles the holder of the Right to purchase one one-hundredth of a share of
Series A Preferred Stock (a "Unit") at a purchase price (the "Purchase
Price") of $80.00 per Unit, subject to adjustment. The Rights will become
exercisable ten business days after any person or group (other than the
Company, any subsidiary of the Company, any employee benefit plan of the
Company or any such subsidiary, or, under certain circumstances, Chemung)
becomes the beneficial owner of 20% or more of the Common Stock or commences
a tender or exchange offer upon consummation of which such person or group
would, if successful, own 30% or more of the Common Stock. In certain events
(such as a person or group (other than the excluded group referred to above)
becoming the beneficial owner of 20% or more of the Common Stock or a merger
or other transaction with an entity controlled by such an acquiring person or
group), exercise of the Rights would entitle the holders thereof (other than
the acquiring person or group) to receive Units (or in certain circumstances
Common Stock or common stock of the surviving corporation, or cash, property
or other securities) with a market value equal to twice the Purchase Price.
Exercise of the Rights may cause substantial dilution to a person who
attempts to acquire the Company. No monetary value is expected to be assigned
to the Rights, and they will not trade separately from the Common Stock
unless and until they become exercisable. The Rights, which will expire ten
years from the date of issuance, may be redeemed by the Board of Directors,
at $.01 per Right, at any time prior to the expiration of ten business days
after the acquisition by a person or group of affiliated or associated
persons of beneficial ownership (other than the excluded group referred to
above) of 20% or more of the outstanding Common Stock, except as the Rights
Agreement may otherwise provide. The terms of the Rights Agreement provide
for amendment thereof by the Board of Directors without the consent of the
holders of the Rights. The Rights Agreement may have certain anti-takeover
effects, although it is not intended to preclude any acquisition or business
combination that is at a fair price and otherwise in the best interests of
the Company and its shareholders as determined by the Board of Directors.
However, a shareholder could potentially disagree with the Board of
Directors' determination of what constitutes a fair price or the best
interests of the Company and its shareholders.
38
<PAGE>
Certain Potential Disadvantages of the Anti-Takeover Measures
The above anti-takeover provisions may make more difficult and discourage
an attempt to acquire control of the Company by a potential bidder who does
not wish to negotiate with the Board of Directors or who is unable to reach
an agreement with the Board of Directors. In such a situation, these
provisions could discourage a transaction that a majority of the Company's
shareholders favor or in which shareholders could receive a significant
premium over then-current market prices. Because these provisions could
discourage or render more difficult a takeover attempt, there may be a
reduced possibility of large temporary fluctuations in the market price of
the Company's Common Stock resulting from actual or rumored takeover
attempts.
Shareholders should also note that, in situations such as unsolicited
tender offers, the personal interest of members of management and the Board
of Directors in retaining their salaries and positions may conflict with the
interests of the shareholders in selling their shares at an attractive price.
Anti-takeover measures of this type have generally been criticized as efforts
of corporations' managements to entrench themselves without regard to the
needs and desires of shareholders. Management and the Board of Directors
believe, however, that such potential conflicts of interest will not affect
the proper exercise of their fiduciary duty to use their best judgment on
behalf of the Company and all of its shareholders.
Anti-takeover Legislation
Section 912 of the NYBCL provides in essence that in the event a person
acquires 20% or more of the voting stock of a New York corporation (an
"Interested Shareholder"), the corporation and the Interested Shareholder, or
any affiliated entity, may not engage in certain business combinations for a
period of five years following the date the person became an Interested
Shareholder unless the board of directors of such corporation approves such
share acquisition or business combination before the Interested Shareholder
acquires 20% or more of the corporation's voting stock. Business combinations
for this purpose include, among other things, (a) a merger or consolidation,
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of the assets of the corporation where the assets have an
aggregate market value equal to 10% or more of (i) the aggregate market value
of the corporation's assets determined on a consolidated basis, (ii) the
market value of outstanding capital stock or (iii) the earning power or net
income of the corporation determined on a consolidated basis and (c) certain
transactions that result in the issuance of capital stock of the corporation
to the Interested Shareholder. Under certain circumstances, Section 912 of
the NYBCL makes it more difficult for an Interested Shareholder to effect
various business combinations with a corporation for a five-year period.
In addition, a shareholder dissatisfied with the form or amount of
consideration received in a merger transaction may have statutory dissenters'
rights under Section 910 of the NYBCL. Such shareholder also could bring suit
against the Board of Directors and the majority shareholder of the Company
alleging breach of fiduciary duty. New York courts have held that a majority
shareholder of a corporation involved in a merger has a fiduciary duty with
respect to the other shareholders.
39
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to certain
conditions, to purchase from the Company and the Selling Shareholder the
aggregate number of shares of Common Stock set forth opposite their
respective names.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
<S> <C> <C>
Wertheim Schroder & Co. Incorporated 578,500
Prudential Securities Incorporated 578,500
Bear, Stearns & Co. Inc. 50,000
Alex. Brown & Sons Incorporated 50,000
Dean Witter Reynolds Inc. 50,000
Dillon, Read & Co. Inc. 50,000
Donaldson, Lufkin & Jenrette Securities Corporation 50,000
A.G. Edwards & Sons, Inc. 50,000
Goldman, Sachs & Co. 50,000
Lazard Freres & Co. LLC 50,000
Lehman Brothers Inc. 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 50,000
Morgan Stanley & Co. Incorporated 50,000
NatWest Securities Limited 50,000
Oppenheimer & Co., Inc. 50,000
PaineWebber Incorporated 50,000
Salomon Brothers Inc 50,000
Smith Barney Inc. 50,000
Advest, Inc. 25,000
Arnhold and S. Bleichroeder, Inc. 25,000
Robert W. Baird & Co. Incorporated 25,000
William Blair & Company 25,000
The Chicago Corporation 25,000
Dain Bosworth Incorporated 25,000
Fahnestock & Co. Inc. 25,000
McDonald & Company Securities, Inc. 25,000
Piper Jaffray Inc. 25,000
The Robinson-Humphrey Company, Inc. 25,000
Wheat, First Securities, Inc. 25,000
Brean Murray, Foster Securities Inc. 10,000
First Albany Corporation 10,000
C. L. King & Associates, Inc. 10,000
Robotti & Eng Incorporated 10,000
The Seidler Companies Incorporated 10,000
Total 2,282,000
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all the 2,282,000 shares of Common Stock offered
hereby, if any are purchased. Wertheim Schroder & Co. Incorporated and
Prudential Securities Incorporated, as representatives of the several
Underwriters (the "Representatives"), have advised the Company that the
Underwriters propose to offer the shares to the public initially at the
public offering price set forth on the cover page of this Prospectus; that
the Underwriters propose initially to allow a concession not in excess of
$0.78 per share to certain dealers, including the Underwriters; that the
Underwriters and such dealers may initially allow a discount of not in excess
$0.10 per share to other dealers; and that the initial public offering price
and the concession and discount to dealers may be changed by the
Representatives after the initial public offering.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of the Underwriting
Agreement, to purchase up to an additional 342,300 shares of Common Stock, at
the initial public offering price less underwriting discounts and
commissions, all as set forth on the cover page of this Prospectus. The
Underwriters may exercise the option only to cover over allotments, if any,
in the sale of
40
<PAGE>
shares of Common Stock in this offering. To the extent that the Underwriters
exercise this option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of additional shares proportionate to such
Underwriter's initial commitment.
The Company, the Selling Shareholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, its directors and officers, the Selling Shareholder and
certain other shareholders have agreed not to offer to sell, sell, grant any
option to purchase or otherwise dispose of any shares of Common Stock held by
them for a period of 180 days after the date of this Prospectus without the
prior written consent of Wertheim Schroder & Co. Incorporated, subject to
certain exceptions.
Wertheim Schroder & Co. Incorporated has from time to time provided
financial advisory services to the Company, for which it has received
customary fees.
Prior to this offering, the Company's Class A Common Stock and Class B
Common Stock were traded in small amounts and on a limited and sporadic
basis. The Company believes that the prior sales prices and quotations for
the Common Stock do not provide a meaningful indication of the value of the
Common Stock. The initial public offering price of the Common Stock has been
determined by negotiations among the Company, the Selling Shareholder and the
Representatives. Among the factors considered in such negotiations were the
Company's results of operations and financial condition, the prospects for
the Company and for the industry in which the Company operates, the Company's
capital structure and prevailing market conditions in the securities market.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Sayles, Evans, Brayton, Palmer & Tifft, Elmira, New York
and Shearman & Sterling, New York, New York and for the Underwriters by
Fulbright & Jaworski L.L.P., New York, New York.
J. Philip Hunter, Secretary and a director of the Company and, at April
25, 1995, beneficial owner of 2,322 shares of Common Stock of the Company, is
a partner of Sayles, Evans, Brayton, Palmer & Tifft.
EXPERTS
The consolidated financial statements of the Company at December 31, 1993
and 1994, and for each of the three years in the period ended December 31,
1994, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, is
required to file reports and other information with the Securities Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected at and obtained from the Commission at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
public reference facilities of the Commission's Regional Offices: Chicago
Regional Office, Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661, Suite 1400; and New York Regional Office, Seven World Trade
Center, New York, New York 10048, 13th Floor. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates.
The Common Stock has been approved for quotation on the Nasdaq National
Market and reports, proxy statements and other information concerning the
Company will be available for inspection at the office of the Nasdaq National
Market at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-2 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement"), of which this Prospectus forms a
part, covering the Common Stock to be sold pursuant to this offering. This
Prospectus does not contain all information set forth in the Registration
Statement and the exhibits thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete.
41
<PAGE>
With respect to such contracts, agreement, or other document filed as an
exhibit to the Registration Statement, reference is made to such exhibit.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1994.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
Any statement contained in a document incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owners, to whom this Prospectus is delivered, on the request of
such person, a copy (without exhibits, other than exhibits specifically
incorporated by reference) of any or all of the documents incorporated by
reference in this Prospectus. Written or oral requests for such copies should
be directed to Elizabeth Tranter, at One Hardinge Drive, Elmira, New York
14902, telephone number (607) 734-2281.
42
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Report of the Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and March 31, 1995 F-3
Consolidated Statements of Income and Retained Earnings for the years ended December 31,
1992, 1993 and 1994 and the three months ended March 31, 1994 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994
and the three months ended March 31, 1994 and 1995 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Hardinge Inc.
We have audited the accompanying consolidated balance sheets of Hardinge Inc.
(formerly Hardinge Brothers, Inc.) and subsidiaries as of December 31, 1993
and 1994, and the related consolidated statements of income and retained
earnings and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hardinge Inc.
and subsidiaries at December 31, 1993 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Notes 3 and 6 to the financial statements, in 1992 the
Company changed its method of accounting for income taxes and for
postretirement benefits other than pensions.
ERNST & YOUNG LLP
Syracuse, New York
January 25, 1995, except for Note 8, as
to which the date is May 24, 1995
F-2
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994 1995
(Unaudited)
(in thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 3,354 $ 3,783 $ 2,869
Accounts receivable 15,763 20,237 26,896
Notes receivable 5,768 4,935 5,442
Inventories (Note 1) 44,290 50,698 54,079
Deferred income taxes (Note 3) 646 981 981
Prepaid expenses 877 630 863
Total current assets 70,698 81,264 91,130
Property, plant and equipment:
Land and buildings 20,078 20,695 20,501
Machinery, equipment and fixtures 46,115 52,132 53,089
Office furniture, equipment and vehicles 3,455 3,251 3,239
69,648 76,078 76,829
Accumulated depreciation 43,538 45,812 46,634
26,110 30,266 30,195
Other assets:
Notes receivable 12,460 7,744 8,899
Deferred income taxes (Note 3) 980 1,439 1,373
Other 921 1,013 894
14,361 10,196 11,166
Total assets $111,169 $121,726 $132,491
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 6,801 $ 9,415 $ 10,472
Notes payable to bank 676 3,500 3,500
Accrued expenses 2,465 4,571 5,672
Accrued pension plan expense 816 339 514
Dividends payable 752 959 --
Accrued income taxes 19 1,246 1,714
Current portion of long-term debt (Note 2) 714 714 714
Total current liabilities 12,243 20,744 22,586
Other liabilities:
Long-term debt (Note 2) 18,357 15,164 21,245
Employee benefit obligation (Note 6) 350 150 100
Accrued pension plan expense -- 1,055 1,101
Accrued postretirement benefits (Note 6) 4,757 4,837 4,864
23,464 21,206 27,310
Shareholders' equity (Notes 4 and 8):
Common stock, $5 par value:
Class A:
Authorized shares--3,000,000
Issued shares--975,912 4,880 4,880
Class B:
Authorized shares--3,000,000
Issued shares--912,910 4,564 4,564
Common stock, $.01 par value:
Authorized shares--20,000,000
Issued shares--3,918,790 39
Additional paid-in capital 619 655 11,439
Retained earnings 71,206 74,853 77,633
Treasury shares (565) (361) (740)
Cumulative foreign currency translation adjustment (1,866) (1,874) (1,739)
Deferred employee benefits (Note 6) (3,376) (2,941) (4,037)
Total shareholders' equity 75,462 79,776 82,595
Total liabilities and shareholders' equity $111,169 $121,726 $132,491
</TABLE>
See accompanying notes.
F-3
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
(Unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $84,797 $98,437 $117,336 $27,479 $40,687
Cost of sales 55,905 63,169 76,937 17,930 26,774
Gross profit 28,892 35,268 40,399 9,549 13,913
Selling, general and administrative
expenses 24,864 25,804 27,882 6,572 8,415
Restructuring costs 1,086 -- -- -- --
Income from operations 2,942 9,464 12,517 2,977 5,498
Interest expense 1,380 1,343 1,479 371 476
Interest (income) (1,160) (763) (453) (134) (121)
(Gain) on sale of assets -- -- (442) -- (326)
Income before income taxes 2,722 8,884 11,933 2,740 5,469
Income taxes (Note 3) 1,152 3,730 5,214 1,128 2,165
Income before cumulative effect of
changes in accounting methods 1,570 5,154 6,719 1,612 3,304
Cumulative effect of changes in
accounting methods
(Notes 3 and 6) (2,754) -- -- -- --
Net (loss) income (1,184) 5,154 6,719 1,612 3,304
Retained earnings at beginning of
period 72,857 68,935 71,206 71,206 74,853
Less dividends declared 2,738 2,883 3,072 564 524
Retained earnings at end of period $68,935 $ 71,206 $ 74,853 $72,254 $77,633
Per share data (Note 8):
Income before cumulative effect of
changes in accounting methods $ .45 $ 1.45 $ 1.88 $ .45 $ .92
Cumulative effect of changes in
accounting methods (.79) -- -- -- --
Net (loss) income $ (.34) $ 1.45 $ 1.88 $ .45 $ .92
</TABLE>
See accompanying notes.
F-4
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Income from continuing operations $ 1,570 $ 5,154 $ 6,719 $ 1,612 $ 3,304
Less: Cumulative effect of changes in accounting
methods (2,754) -- -- -- --
Net (loss) income (1,184) 5,154 6,719 1,612 3,304
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 3,801 3,939 4,354 1,305 1,349
Provision for deferred income taxes (2,275) (40) (786) (183) 66
(Gain) on sale of assets (73 ) (44) (442) (63) (326)
Foreign currency transaction loss (gain) 282 68 (147) 5 (129)
Changes in operating assets and liabilities:
Accounts receivable (2,916) (1,659) (4,340) (186) (6,508)
Notes receivable (1,658) (3,892) 5,467 1,667 (1,645)
Inventories 4,344 (6,364) (6,249) 186 (3,301)
Other assets 265 (1,014) 109 (417) (124)
Accounts payable (520) 2,824 2,603 (864) 1,043
Accrued expenses 731 680 3,922 1,716 1,773
Accrued postretirement benefits 4,651 107 80 20 27
Net cash provided by (used in) operating activities 5,448 (241) 11,290 4,798 (4,471)
Investing activities
Capital expenditures--net (4,429) (3,873) (8,046) (749) (1,141)
Proceeds from sale of assets 291 274 864 205 447
Net cash (used in) investing activities (4,138) (3,599) (7,182) (544) (694)
Financing activities
Increase (decrease) in short-term notes payable to
bank 83 (43) 2,791 (438) --
Increase (decrease) in long-term debt 1,286 6,786 (3,193) (2,500) 6,080
(Purchase) sale of treasury stock (142) (420) (346) 37 (379)
Dividends paid (2,746) (2,676) (2,864) (1,316) (1,483)
Net cash (used in) provided by financing activities (1,519) 3,647 (3,612) (4,217) 4,218
Effect of exchange rate changes on cash (286) (118) (67) (91) 33
Net (decrease) increase in cash (495) (311) 429 (54) (914)
Cash at beginning of period 4,160 3,665 3,354 3,354 3,783
Cash at end of period $ 3,665 $ 3,354 $ 3,783 $ 3,300 $ 2,869
</TABLE>
See accompanying notes.
F-5
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Property, Plant and Equipment
Property additions, including major renewals and betterments, are recorded
at cost and are depreciated over their estimated useful lives. Upon
retirement or disposal of an asset, the asset and related allowance for
depreciation are eliminated and any resultant gain or loss is credited or
charged to income. Depreciation is provided on the straight-line and sum of
the years digits methods. Total depreciation expense on property, plant, and
equipment was $3,307,000, $3,250,000, and $3,388,000 for 1992, 1993 and 1994,
respectively. Total depreciation expense on property, plant, and equipment
was $927,000 and $1,098,000 for the three months ended March 31, 1994 and
1995, respectively.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes". The Company adopted the
provisions of the new standard in its financial statements effective January
1, 1992.
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. Prior to the
adoption of Statement 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
Foreign Currency Translation
In accordance with Financial Accounting Standards Board Statement No. 52,
all balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement items are translated at an average
exchange rate for the year. The gain or loss resulting from translating
subsidiary financial statements is recorded as a separate component of
shareholders' equity. Transaction gains and losses are recorded in
operations.
The Company enters into foreign currency exchange contracts to hedge
against the risk of future currency rate fluctuations on payments from its
foreign subsidiaries and on payments to foreign suppliers of materials used
in production. At December 31, 1993 and 1994 and at March 31, 1995, the total
amount of outstanding contracts was not significant.
Concentration of Credit Risk
The Company manufactures and sells products to companies in diversified
industries, with a substantial majority of sales occurring in North America
and Western Europe. The Company performs periodic credit evaluations of its
customers' financial condition. The Company offers financing terms of up to
seven years for its customers in the United States and Canada and files a
lien against the equipment purchased under those terms. No collateral is
required for sales made on open account terms with payment due within thirty
days. As of December 31, 1993 and 1994 the total amount of receivables from
any one specific industry was not significant. As of March 31, 1995, 29% of
the accounts receivable were from three major customers in the automobile
industry.
Income Per Share
Income per share is computed using the weighted average number of shares
of common stock outstanding during the year including common stock
equivalents related to restricted stock. The number of shares outstanding has
been adjusted to reflect the stock transactions as explained in Note 8 to the
financial statements. The weighted
F-6
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
1. Significant Accounting Policies (continued)
average number of common shares outstanding used to calculate income per
share was 3,512,508, 3,565,033, 3,573,046, 3,545,168 and 3,583,916 for 1992,
1993, 1994 and for the three months ended March 31, 1994 and 1995,
respectively.
1. Significant Accounting Policies (continued)Research and Development Costs
The cost of research and development, all of which as been charged to
operations, amounted to $4,420,000, $4,216,000, $5,218,000, $1,200,000 and
$1,233,000 in 1992, 1993, 1994 and for the three months ended March 31, 1994
and 1995, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market. They are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994 1995
(in thousands)
<S> <C> <C> <C>
Finished products $18,261 $20,024 $18,176
Work-in-process 15,555 19,439 23,447
Raw materials and purchased components 10,474 11,235 12,456
$44,290 $50,698 $54,079
</TABLE>
2. Long-Term Debt and Contingencies
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994 1995
(in thousands)
<S> <C> <C> <C>
Note payable, due in annual installments of $714,000
commencing August 29, 1992 through 1998, with interest
payable quarterly at 9.38% $ 3,571 $ 2,857 $ 2,857
Note payable, due December 11, 1995, with interest payable semi-
annually at 9.52% 5,000 5,000 5,000
Note payable, due under revolving loan agreement, with interest at
7.12% as of March 31, 1995 10,500 8,021 14,102
19,071 15,878 21,959
Less current portion 714 714 714
$18,357 $15,164 $21,245
</TABLE>
In 1994, the Company entered into an unsecured credit arrangement with
three banks which provides for borrowing in several currencies up to the
equivalent of $30,000,000 on a revolving loan basis through August 1, 1997.
The credit agreement provides for repayment of the outstanding principal
beginning September 30, 1997 in 16 consecutive quarterly installments in
amounts equal to 6.25% of the outstanding balance. Interest charged on the
debt is based on the Company's choice of one, two, three, or six-month London
Interbank Offered Rates (LIBOR) plus a fixed percent. A commitment fee of 3/8
of 1% is payable on the unused portion of the facility.
The revolving credit note and the note payable in 1995 have been
classified as long-term debt, as it is the Company's intention to maintain
the principal amounts outstanding either through the existing credit facility
or new borrowing arrangements.
The Company also has a $5,000,000 unsecured short-term line of credit with
a bank with interest based on a fixed percent over the one-month LIBOR. As of
December 31, 1994, the $3,500,000 borrowed on this line carries
F-7
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
2. Long-Term Debt and Contingencies (continued)
an interest rate of 6.38%. As of March 31, 1995, the $3,500,000 borrowed on
this line carried an interest rate of 6.125%. The agreement is negotiated
yearly and does not require any commitment fee.
The debt agreements require, among other things, that the Company maintain
specified levels of tangible net worth, working capital and indebtedness.
Interest paid in 1992, 1993, 1994 and for the three months ended March 31,
1994 and 1995 totaled $1,417,000, $1,340,000, $1,477,000, $235,000 and
$298,000, respectively.
The Company conducts some of its sales and service operations from leased
office space with lease terms up to 15 years and uses certain data processing
equipment under lease agreements expiring at various dates during the next
four years. Rent expense under these leases totaled $1,391,000, $1,390,000,
$1,290,000, $320,000 and $220,000 during the years ended December 31, 1992,
1993, 1994, and for the three months ended March 31, 1994 and 1995,
respectively. Future minimum payments under noncancellable operating leases
as of March 31, 1995 total $3,280,000, with payments over the next five years
of $1,107,000, $929,000, $571,000, $232,000 and $58,000.
The Company has provided financing terms of up to seven years for
qualified customers who buy equipment. The Company may choose, when
appropriate, to sell underlying notes receivable contracts to financial
institutions to reduce debt and finance current operations. During 1992,
1993, 1994 and the three months ended March 31, 1994 and 1995, the Company
sold notes totaling $6,900,000, $19,800,000, $30,000,000, $9,100,000 and
$3,000,000, respectively. Recourse against the Company from default of any of
the notes included in the sales is limited to 10% of the then outstanding
balance of the underlying notes. At March 31, 1995, the Company was
contingently liable to the extent of approximately $4,368,000 as a result of
said financing transactions.
3. Income Taxes
Effective January 1, 1992, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes". The cumulative effect
of adopting Statement 109 as of January 1, 1992 was to increase net income by
$113,000 which is included under the caption "Cumulative effect of changes in
accounting methods".
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At December
31, 1993 and 1994 and March 31, 1995, the Company has state investment tax
credits expiring at various dates through the year 2004, foreign net
operating loss carryforwards which can be carried forward indefinitely, and
foreign tax credit carryforwards expiring in 1999 for which no benefit has
been recognized in the financial statements. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994 1995
(in thousands)
<S> <C> <C> <C>
Deferred tax assets:
Federal and state tax credit carryforwards $ 928 $1,910 $2,277
Foreign net operating loss carryforwards 194 425 352
Postretirement benefits 1,784 1,792 1,795
Inventory valuation 595 872 836
Deferred employee benefits 442 754 952
Accrued pension 316 425 401
Other 148 499 431
4,407 6,677 7,044
Less valuation allowance 1,122 2,335 2,629
Total deferred tax assets 3,285 4,342 4,415
F-8
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
3. Income Taxes (continued)
December 31, March 31,
1993 1994 1995
(in thousands)
Deferred tax liabilities:
Tax over book depreciation 1,280 1,361 1,501
Margin on installment sales 129 230 230
Other 250 331 330
Total deferred tax liabilities 1,659 1,922 2,061
Net deferred tax assets $1,626 $2,420 $2,354
</TABLE>
Pretax income (loss) before the "Cumulative effect of changes in
accounting methods" was $4,992,000, $9,233,000, $11,709,000, $2,742,000 and
$4,881,000 from domestic operations and $(2,270,000), $(349,000), $224,000,
$(2,000) and $588,000 from foreign operations for 1992, 1993, 1994 and for
the three months ended March 31, 1994 and 1995, respectively.
Significant components of income tax expense (benefit) attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Current:
Federal $1,666 $3,208 $4,812 $1,036 $1,680
Foreign (481) (87) 414 95 187
State 441 650 782 180 232
Total current 1,626 3,771 6,008 1,311 2,099
Deferred:
Federal (129) (204) (739) (170) 58
Foreign (345) 163 53 12 --
State -- -- (108) (25) 8
Total deferred (474) (41) (794) (183) 66
$1,152 $3,730 $5,214 $1,128 $2,165
</TABLE>
Income tax payments totaled $1,423,000, $3,629,000, $4,642,000, $188,000
and $1,650,000 in 1992, 1993, 1994 and for the three months ended March 31,
1994 and 1995, respectively.
The following is a reconciliation of income tax expense computed at the
United States statutory rate to amounts shown in the consolidated statements
of income.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C>
Federal income taxes 34.0% 34.0% 34.0% 34.0% 34.0%
Tax differential on operations of foreign
subsidiaries (2.0) 2.2 3.3 3.3 (.2)
State income taxes 10.7 5.0 3.7 3.7 2.9
Other (.4) .8 2.7 .2 2.9
42.3% 42.0% 43.7% 41.2% 39.6%
</TABLE>
As a result of changes in U.S. tax law effective in 1994, earnings of a
foreign subsidiary were deemed distributed, and U.S. federal taxes of
$260,000 were provided. The remaining undistributed earnings of the foreign
subsidiaries, which amounted to approximately $6,423,000 and $6,955,000 at
December 31, 1994 and at March
F-9
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
3. Income Taxes (continued)
31, 1995, are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state taxes has been provided thereon. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to an adjustment
for foreign tax credits) and withholding taxes payable to the various foreign
countries. Determination of the amount of the unrecognized deferred U.S.
income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
4. Shareholders' Equity
Additional paid-in capital increased by $86,000, $36,000, $7,000, and
$1,141,000 in 1993, 1994 and for the three months ended March 31, 1994 and
1995, respectively, as a result of shares distributed from Treasury pursuant
to a long-term incentive plan (see Note 6).
During the three month period ended March 31, 1995, common stock was
reduced and additional paid-in capital was increased by $9,643,000 to reflect
the stock transactions discussed in Note 8 to the financial statements. The
following information has also been adjusted to give effect to the stock
transactions discussed in Note 8.
Transactions affecting treasury shares are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance--beginning $1,105 $ 1,649 $ 565 $ 565 $361
Purchases 162 488 467 -- 476
Employee benefit plans:
Contributions -- (1,504) (550) (375) --
Forfeitures 402 -- -- -- --
Sales <F20> (68) (121) (30) (97)
Balance--ending $1,649 $ 565 $ 361 $ 160 $740
</TABLE>
The number of shares in treasury were 147,954, 48,746, 33,232, 14,982 and
59,039 at December 31, 1992, 1993, 1994, and at March 31, 1994 and 1995,
respectively.
Dividends declared (per share) were $.74, $.79, $.84, $.15 and $.15 in
1992, 1993, 1994 and for the three months ended March 31, 1994 and 1995,
respectively.
F-10
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
5. Industry Segment and Foreign Operations
The Company operates in one business segment--industrial machine tools.
Domestic and foreign operations consist of:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Sales:
Gross sales:
United States $78,309 $ 94,268 $110,942 $ 25,900 $ 38,625
Western Europe 9,360 8,715 12,346 2,802 4,370
Other 4,903 8,403 12,980 1,613 3,228
Total 92,572 111,386 136,268 30,315 46,223
Less interarea transfers:
United States 7,769 12,930 18,915 2,835 5,535
Western Europe 6 19 17 1 1
Total 7,775 12,949 18,932 2,836 5,536
Net sales:
United States 70,540 81,338 92,027 23,065 33,090
Western Europe 9,354 8,696 12,329 2,801 4,369
Other 4,903 8,403 12,980 1,613 3,228
Total net sales $84,797 $ 98,437 $117,336 $ 27,479 $ 40,687
Operating income (loss):
United States $ 5,175 $ 9,192 $ 12,220 $ 2,948 $ 5,262
Western Europe (1,281) (617) (875) (72) 314
Other (952) 889 1,614 101 248
Total operating income $ 2,942 $ 9,464 $ 12,959 $ 2,977 $ 5,824
Net income (loss) before cumulative
effect of changes in accounting
methods:
United States $ 2,925 $ 5,148 $ 6,884 $ 1,654 $ 2,931
Western Europe (824) (596) (1,039) (86) 277
Other (531) 602 874 44 96
Total net income before cumulative
effect of changes in accounting
methods $ 1,570 $ 5,154 $ 6,719 $ 1,612 $ 3,304
Identifiable assets:
United States $85,323 $ 97,816 $106,606 $ 96,612 $117,421
Western Europe 7,725 7,348 7,256 7,143 7,212
Other 5,413 6,005 7,864 5,701 7,858
Total identifiable assets $98,461 $111,169 $121,726 $109,456 $132,491
</TABLE>
Interarea sales are accounted for at prices comparable to normal,
unaffiliated customer sales, reduced by estimated costs not incurred on these
sales.
Operating income excludes interest income and interest expense including
that which is directly attributable to the related operations. The operating
loss in Western Europe in 1994 includes a $540,000 charge for the write- off
of inventory that became obsolete when the Company changed its distribution
strategies there. Operating income (loss) for 1992 includes charges for
restructuring costs of $142,000, $327,000 and $617,000 in the United States,
Western Europe and Other, respectively. The 1992 net income for the United
States does not include the cumulative effect of changes in accounting
methods of ($2,754,000).
F-11
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
6. Employee Benefits
Pension Plan
The Company provides a non-contributory defined benefit pension plan
covering all eligible domestic employees. The related benefits are generally
based on years of service and a percentage of the employee's average annual
compensation. The Company's practice is to fund all pension costs accrued and
to contribute annually amounts within the range allowed by the Internal
Revenue Service.
A summary of the components of net periodic pension cost is presented
below.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1992 1993 1994 1994 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Service costs--benefits earned during the year $ 1,030 $ 1,054 $ 1,126 $ 282 $ 241
Interest costs on projected benefit obligation 2,720 2,844 3,055 764 796
Actual return on plan assets (4,668) (3,439) (1,538) (385) (951)
Net amortization and deferral 1,305 (103) (2,065) (516) (46)
Net pension costs $ 387 $ 356 $ 578 $ 145 $ 40
</TABLE>
Actuarial assumptions used to determine pension costs include a discount
rate of 8.75% at December 31, 1994 and for the three months ended March 31,
1994 and 1995 (7.75% and 8.50% as of December 31, 1993 and 1992,
respectively), expected long-term rate of return on assets of 9% for all
periods shown, and expected rate of increase in compensation levels of 5% for
all periods shown. The increase in the discount rate in 1994 decreased the
projected benefit obligation at the end of the year by $4,600,000.
A summary of the Plan's funded status and amounts recognized in the
Company's consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
1993 1994
(in thousands)
<S> <C> <C>
Plan assets at fair value $43,705 $42,888
Projected benefit obligation for services rendered to date 40,403 37,570
Plan assets in excess of projected benefit obligation 3,302 5,318
Unrecognized net (gain) (5,154) (7,901)
Unrecognized net (asset) from transition (2,613) (2,439)
Unrecognized prior service costs resulting from Plan amendment 3,649 3,628
Net pension (liability) recognized in the balance sheets $ (816) $(1,394)
</TABLE>
The actuarial valuation is performed at the Plan's year end. The pension
liability at March 31, 1995 was $1,615,000.
The portion of the projected benefit obligation representing the
accumulated benefit obligation for the pension plan was $37,641,000 and
$35,102,000 at the end of 1993 and 1994, respectively. The vested benefit
obligation included in those numbers was $32,717,000 and $30,595,000 at the
end of 1993 and 1994, respectively.
Pension plan assets include shares of the Company's common stock valued at
approximately $2,074,000 and $2,364,000 at December 31, 1993 and 1994,
respectively. The remaining plan assets consisted of United States Government
securities, corporate bonds and notes, other common stocks and an insurance
contract.
Postretirement Plans Other Than Pensions
The Company provides a contributory retiree health plan covering all
eligible domestic employees who retired at normal retirement age prior to
January 1, 1993 and all retirees who will retire at normal retirement age
after January 1, 1993 with at least 10 years of active service. Employees who
elect early retirement are eligible for the
F-12
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
6. Employee Benefits (continued)
plan benefits if they have 15 years of active service at retirement. Benefit
obligations and funding policies are at the discretion of the Company's
management. Retiree contributions are adjusted annually and contain other
cost- sharing features such as deductibles and coinsurance, all of which vary
according to the retiree's date of retirement. The accounting for the plan
anticipates future cost-sharing changes to the written plan that are
consistent with the Company's expressed intent to limit its contributions to
125% of the average aggregate 1993 claim cost. The Company also provides a
non-contributory life insurance plan to retirees. Because the amount of
liability relative to this plan is insignificant, it is combined with the
health plan for purposes of this disclosure.
In 1992, the Company adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The Company
elected to immediately recognize the initial liability calculated at the time
of adoption (the transition obligation) in its operations which resulted in a
$2,867,000 after tax charge ($4,550,000 pretax) recorded as a "Cumulative
effect of a change in accounting method" on the Consolidated Statements of
Income and Retained Earnings. Aside from that adjustment, the effect of
adopting the new rules increased 1992 net periodic postretirement benefit
cost by $101,000 and decreased net income by $60,000.
A summary of the components of net periodic other postretirement benefit
costs relating to the plans is presented below.
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
1992 1993 1994 1994 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Service costs--benefits earned during the year $ 94 $103 $ 97 $ 24 $ 20
Interest costs on projected benefit obligation 383 392 435 109 113
Amortization of actuarial losses -- -- 27 7 --
Amount recorded in operations $477 $495 $559 $140 $133
</TABLE>
Actuarial assumptions used to determine the liability for postretirement
plans other than pensions included a discount rate of 8.75%, 7.75%, 8.75%,
8.75% and 8.75% at December 31, 1992, 1993, 1994 and for the three months
ended March 31, 1994 and 1995, respectively. The annual rate of increase in
the per capita cost of covered health care benefits (the health care cost
trend) was assumed to be 13% for 1994, 12% for 1995 and is assumed to
decrease gradually to 6% by the year 2004 and remain at that level
thereafter.
The health care cost trend rate assumption does not have a significant
effect on the amounts reported due to the 125% cap on the Company's portion
of the medical plan claims. A one percentage point increase in the assumed
health care cost trend rates would increase the accumulated postretirement
benefit obligation by only $171,000 and increase the aggregate of the service
and interest cost components of the net periodic postretirement benefit cost
for 1994 by $20,000.
The Company has not prefunded any of its postretirement health and life
insurance liabilities and, consequently, there are no expected returns on
assets anticipated in the calculation of expense.
A schedule reconciling the accumulated benefit obligation with the
Company's recorded liability follows:
<TABLE>
<CAPTION>
1993 1994
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees $(3,144) $ (2,988)
Fully eligible active participants (843) (1,345)
Other active participants (1,816) (1,024)
Total (5,803) (5,357)
Unrecognized losses 1,046 520
Accrued postretirement benefit recognized in balance sheet $(4,757) $(4,837)
</TABLE>
F-13
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
6. Employee Benefits (continued)
The actuarial valuation is performed at the Plan's year end. The accrued
postretirement benefit at March 31, 1995 was $4,864,000.
Group Health Plan
The Company has a contributory group benefit plan which provides medical
and dental benefits to all of its domestic employees.
Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan. The Plan covers
substantially all employees of the Company subject to minimum employment
period requirements. The approved Plan required establishment of an employee
stock ownership trust, which borrowed from a bank to purchase the Company's
common stock. The Company thereby effectively obligated itself to contribute
to the employee trust sufficient amounts to allow the trust to repay the loan
and related interest installments through 1996. The balance of the loan,
including the current portion of $200,000, was $550,000, $350,000 and
$300,000 at December 31, 1993, 1994 and March 31, 1995, respectively.
Contributions (including dividends) to the trust for the years ended December
31, 1992, 1993, 1994 and for the three months ended March 31, 1994 and 1995,
totaled $274,000, $257,000, $240,000, $61,000 and $57,000, respectively. The
interest portion of those contributions was $74,000, $57,000, $40,000,
$11,000 and $7,000 in 1992, 1993, 1994 and for the three months ended March
31, 1994 and 1995, respectively. Approximately $67,000, $53,000, $41,000,
$18,000 and $16,000 of dividends on shares owned by the ESOP were used to
service debt requirements in 1992, 1993, 1994 and for the three months ended
March 31, 1994 and 1995, respectively.
401(k) Plan
The Company also maintains a 401(k) Savings Plan. Provisions of the Plan
allow employees to defer from 1% to 15% of their pre-tax salary to the Plan.
Those contributions may be invested at the option of the employees in either
fixed income securities or Hardinge Inc. common stock.
Long-Term Incentive Plans
The following information has been adjusted to give effect to the stock
transactions discussed in Note 8.
In 1993, the Board of Directors established an Incentive Stock Plan to
assist in attracting and retaining key employees. The Plan allows the Board
to grant restricted stock and performance share awards up to an aggregate of
405,000 shares of common stock to these employees. The ability of the Board
to grant awards under a similar incentive stock plan from 1988 expired on
December 31, 1991.
During 1993, certain officers and other key managers were awarded a total
of 134,750 restricted shares of common stock. During 1994 and the three
months ended March 31, 1995, 46,750 and 95,500 restricted shares of common
stock were awarded. Restrictions on 24,600 and 18,450 shares of common stock
from the 1988 Plan expired in 1993 and 1994, respectively. Restrictions on
10,250 shares of common stock from the 1993 Plan expired during the three
months ended March 31, 1995.
As of March 31, 1995, a total of 491,800 restricted shares of common stock
were outstanding under the two Plans. All shares of restricted stock are
subject to forfeiture and restrictions on transfer, and unconditional vesting
occurs upon the completion of a specified period ranging from four to eight
years from the date of grant.
Deferred compensation associated with these grants is measured by the
market value of the stock on the date of grant and totaled $1,584,000,
$575,000, $375,000 and $1,377,500 in 1993, 1994 and for the three months
ended March 31, 1994 and 1995, respectively. This deferred compensation is
being amortized on a straight-line basis over the specified service period.
The unamortized deferred compensation at December 31, 1993, 1994 and March
31, 1994 and 1995 totaled $2,826,000, $2,591,000, $3,024,000 and $3,737,000
respectively, and is included along with Employee Stock Ownership Benefits as
a reduction of shareholders' equity.
Foreign Operations
The Company also has employees in certain foreign countries that are
covered by defined benefit pension plans and other employee benefit plans.
Related obligations and costs charged to operations are not material.
F-14
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Information pertaining to March 31, 1995 and for the three months
ended March 31, 1994 and 1995 is unaudited)
7. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for 1993, 1994 and the three
months ended March 31, 1995 is as follows:
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1993
Net sales $24,588 $25,113 $22,511 $26,225
Gross profit 9,015 8,791 7,939 9,523
Income from operations 2,638 2,315 1,633 2,878
Net income 1,494 1,259 928 1,473
Net income per share .43 .35 .26 .41
1994
Net sales $27,479 $29,023 $29,449 $31,385
Gross profit 9,549 10,010 10,394 10,446
Income from operations 2,977 3,358 2,975 3,207
Net income 1,612 1,819 1,608 1,680
Net income per share .45 .51 .45 .47
1995
Net sales $40,687
Gross profit 13,913
Income from operations 5,498
Net income 3,304
Net income per share .92
</TABLE>
8. Subsequent Events
In connection with a proposed public offering, the Board of Directors
approved amendments to the Company's 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 were
approved by the Company's shareholders at its annual meeting on May 16, 1995,
which approval (in the case of clauses (b) and (c)) was 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. Terms of
the underwriting agreement were approved on May 24, 1995 and an amendment to
the Company's Certificate was filed with the Secretary of State of the State
of New York promptly thereafter.
The March 31, 1995 balance sheet and all share and per share data
appearing in the financial statements and notes thereto have been restated
giving effect to the amendments discussed above.
At its annual meeting on May 16, 1995, the Company's shareholders approved
an amendment to the Company's Certificate changing the name of the Company to
Hardinge Inc. from Hardinge Brothers Inc.
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the Registrant's expenses in connection
with the securities being registered. Except for the SEC registration fee,
the Nasdaq National Market application fee and the NASD filing fee, the
amounts listed below are estimates. All of the following expenses will be
paid by the Registrant:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 18,174
Nasdaq National Market application fee 32,775
NASD filing fee 5,773
Printing and engraving expenses 169,600
Legal fees and expenses 744,500
Accounting fees and expenses 70,000
Blue sky qualification fees and expenses 20,000
Transfer agent fees and expenses 3,500
Miscellaneous 43,178
Total $1,107,500
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Registrant is incorporated under the New York Business Corporation Law
("NYBCL"). Section 722 of the NYBCL generally permits a corporation to
indemnify its officers and directors against judgments, fines, amounts paid
in settlement and reasonable expenses, including attorney's fees actually and
necessarily incurred in an action or proceeding (other than an action by or
in the right of a corporation, a "derivative action"), if such directors or
officers acted in good faith, for a purpose which they reasonably believed to
be in the best interests of the corporation, and, with respect to a criminal
action or proceeding, had no reasonable cause to believe their conduct was
wrongful. A similar standard is applicable in the case of derivative actions
except that no indemnification is permitted in respect of (i) a threatened
action, or a pending action which is settled or disposed of, or (ii) any
claim, issue or matter as to which such officers or directors are adjudged to
be liable to the corporation, unless and only to the extent a court
determines that such officers or directors are fairly and reasonably entitled
to indemnity for such portion of the settlement and expenses as the court
deems proper. Section 724 of the NYBCL requires indemnification in a civil
action or proceeding if so ordered by a court.
Article XI of the By-Laws of the Registrant provides indemnification of
its directors and officers to the fullest extent permitted by the NYBCL. The
Registrant's directors and officers also are covered by a conventional
directors' and officers' insurance policy.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Item Description
<S> <C> <C> <C>
+++ 1 - Form of Underwriting Agreement.
++ 4.1 - Restated Certificate of Incorporation of Hardinge Brothers, Inc.
++ 4.2 - Amendment to the Restated Certificate of Incorporation of Hardinge Brothers, Inc. filed with
the Secretary of State of the State of New York on May 27, 1988.
4.3 - Amendment to the Restated Certificate of Incorporation of Hardinge Brothers, Inc. filed with
the Secretary of State of the State of New York on May 19, 1995 is incorporated by reference
from the Registrant's Form 8-A, filed with the Securities and Exchange Commission on May 19,
1995.
4.4 - Form of Amendment to the Restated Certificate of Incorporation of Hardinge Inc. to be filed
with the Secretary of State of the State of New York prior to the effective date of the
Registration Statement, Registration Number 33-91644, is incorporated by reference from the
Registrant's Form 8-A, filed with the Securities and Exchange Commission on May 19, 1995.
++ 4.5 - By-Laws of Hardinge Brothers, Inc.
4.6 - Section 719 through 726 of the New York Business Corporation Law are incorporated by
reference from the Registrant's Form 10, effective June 29, 1987.
4.7 - Specimen of certificate for shares of Common Stock, par value $.01 per share, of Hardinge
Inc. is incorporated by reference from the Registrant's Form 8-A, filed with the Securities
and Exchange Commission on May 19, 1995.
4.8 - Form of Rights Agreement, dated as of May 16, 1995, between Hardinge Inc. and American Stock
Transfer and Trust Company is incorporated by reference from the Registrant's Form 8-A,
filed with the Securities and Exchange Commission on May 23, 1995.
5 - Opinion of Shearman & Sterling as to the validity of the Common Stock.
10.1 - The 1988 Hardinge Brothers, Inc. Incentive Stock Plan, as adopted by shareholders at the
annual meeting of shareholders held on May 17, 1988, is incorporated by reference from the
Registrant's Form 10-Q for the quarter ended June 30, 1988 and the Annual Proxy Statement
dated April 28, 1988.
II-1
<PAGE>
10.2 - First Amendment to Hardinge Brothers, Inc. 1988 Incentive Stock Plan is incorporated by
reference from the Registrant's Form 10-K for the year ended December 31, 1993.
10.3 - Hardinge Brothers, Inc. 1993 Incentive Stock Plan is incorporated by reference from the
Registrant's Form 10-K for the year ended December 31, 1993.
10.4 - Hardinge Brothers, Inc. Executive Supplemental Pension Plan is incorporated by reference from
the Registrant's Form 10-K for the year ended December 31, 1993.
+ 10.5 - Credit Agreement dated as of August 1, 1994 among Hardinge Brothers, Inc., the Banks
signatory thereto and The Chase Manhattan Bank, relating to a $30,000,000 revolving loan.
+ 10.6 - Note Agreement dated August 29, 1991 between Hardinge Brothers, Inc. and AEtna Life Insurance
Company, relating to the issuance by Hardinge Brothers, Inc. of $5,000,000 principal amount
of its 9.38% notes due 1998.
+ 10.7 - Note Agreement dated December 11, 1990 between Hardinge Brothers, Inc. and AEtna Life
Insurance Company, relating to the issuance by Hardinge Brothers, Inc. of $5,000,000
principal amount of its 9.52% notes due 1995.
+ 10.8 - Employment Agreement with Robert E. Agan dated as of April 1, 1995.
+ 10.9 - Employment Agreement with J. Allan Krul dated as of April 1, 1995.
+ 10.10 - Employment Agreement with Malcolm L. Gibson dated as of April 1, 1995.
+ 10.11 - Employment Agreement with Douglas A. Greenlee dated as of April 1, 1995.
+ 10.12 - Employment Agreement with Douglas C. Tifft dated as of April 1, 1995.
+ 10.13 - Form of Deferred Directors Fee Plan.
+ 10.14 - Description of Incentive Cash Bonus Program.
+ 10.15 - Loan Purchase Agreement dated as of October 26, 1994, between Hardinge Brothers, Inc. and
Chemung Canal Trust Company, relating to the purchase of $3,000,000 of receivables contracts
by Chemung Canal Trust Company from Hardinge Brothers, Inc.
+ 10.16 - Loan Purchase Agreement dated as of March 24, 1995, between Hardinge Brothers, Inc. and
Chemung Canal Trust Company, relating to the purchase of $3,000,000 of receivables contracts
by Chemung Canal Trust Company from Hardinge Brothers, Inc.
+++ 10.17 - $5,000,000 Master Note executed by Hardinge Brothers, Inc. for the benefit of Chemung Canal
Trust Company dated September 19, 1994.
23.1 - Consent of Ernst & Young LLP, Independent Auditors.
23.2 - Consent of Shearman & Sterling (included in its opinion filed as Exhibit 5).
+ 24 - Powers of Attorney.
</TABLE>
+ Previously filed as an exhibit to the Registration Statement (Registration
No. 33-91644) filed with the Securities and Exchange Commission on April 27,
1995.
++ Previously filed as an exhibit to Amendment No. 1 to the Registration
Statement (Registration No. 33-91644) filed with the Securities and Exchange
Commission on May 11, 1995.
+++ Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement (Registration No. 33-91644) filed with the Securities and Exchange
Commission on May 24, 1995.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that:
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liability (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(b)(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certificates that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Elmira, State of New
York, on the 25th day of May 1995.
HARDINGE INC.
By /s/ Robert E. Agan
Robert E. Agan
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons
in the capacities indicated on May 25, 1995:
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ Robert E. Agan President, Chief Executive
(Robert E. Agan) Officer and Director
/s/ Malcolm L. Gibson Senior Vice President/Chief
(Malcolm L. Gibson) Financial Officer and
Assistant Secretary
*
(Douglas A. Greenlee) Vice President and Director
*
(Richard L. Simons) Controller
*
(J. Philip Hunter) Secretary and Director
*
(John W. Bennett) Director
*
(Richard J. Cole) Director
*
(James L. Flynn) Director
*
(E. Martin Gibson) Director
*
(Dr. Eve L. Menger) Director
*
(Whitney S. Powers) Director
</TABLE>
*By /s/ Malcolm L. Gibson
(Malcolm L. Gibson)
Attorney-in-fact
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item Description
<S> <C> <C> <C>
+++ 1 - Form of Underwriting Agreement.
++ 4.1 - Restated Certificate of Incorporation of Hardinge Brothers, Inc.
++ 4.2 - Amendment to the Restated Certificate of Incorporation of Hardinge Brothers, Inc. filed with
the Secretary of State of the State of New York on May 27, 1988.
4.3 - Amendment to the Restated Certificate of Incorporation of Hardinge Brothers, Inc. filed with
the Secretary of State of the State of New York on May 19, 1995 is incorporated by reference
from the Registrant's Form 8-A, filed with the Securities and Exchange Commission on May 19,
1995.
4.4 - Form of Amendment to the Restated Certificate of Incorporation of Hardinge Inc. to be filed
with the Secretary of State of the State of New York prior to the effective date of the
Registration Statement, Registration Number 33-91644, is incorporated by reference from the
Registrant's Form 8-A, filed with the Securities and Exchange Commission on May 19, 1995.
++ 4.5 - By-Laws of Hardinge Brothers, Inc.
4.6 - Section 719 through 726 of the New York Business Corporation Law are incorporated by
reference from the Registrant's Form 10, effective June 29, 1987.
4.7 - Specimen of certificate for shares of Common Stock, par value $.01 per share, of Hardinge
Inc. is incorporated by reference from the Registrant's Form 8-A, filed with the Securities
and Exchange Commission on May 19, 1995.
4.8 - Form of Rights Agreement, dated as of May 16, 1995, between Hardinge Inc. and American Stock
Transfer and Trust Company is incorporated by reference from the Registrant's Form 8-A,
filed with the Securities and Exchange Commission on May 23, 1995.
5 - Opinion of Shearman & Sterling as to the validity of the Common Stock.
10.1 - The 1988 Hardinge Brothers, Inc. Incentive Stock Plan, as adopted by shareholders at the
annual meeting of shareholders held on May 17, 1988, is incorporated by reference from the
Registrant's Form 10-Q for the quarter ended June 30, 1988 and the Annual Proxy Statement
dated April 28, 1988.
10.2 - First Amendment to Hardinge Brothers, Inc. 1988 Incentive Stock Plan is incorporated by
reference from the Registrant's Form 10-K for the year ended December 31, 1993.
10.3 - Hardinge Brothers, Inc. 1993 Incentive Stock Plan is incorporated by reference from the
Registrant's Form 10-K for the year ended December 31, 1993.
10.4 - Hardinge Brothers, Inc. Executive Supplemental Pension Plan is incorporated by reference from
the Registrant's Form 10-K for the year ended December 31, 1993.
+ 10.5 - Credit Agreement dated as of August 1, 1994 among Hardinge Brothers, Inc., the Banks
signatory thereto and The Chase Manhattan Bank, relating to a $30,000,000 revolving loan.
+ 10.6 - Note Agreement dated August 29, 1991 between Hardinge Brothers, Inc. and AEtna Life Insurance
Company, relating to the issuance by Hardinge Brothers, Inc. of $5,000,000 principal amount
of its 9.38% notes due 1998.
+ 10.7 - Note Agreement dated December 11, 1990 between Hardinge Brothers, Inc. and AEtna Life
Insurance Company, relating to the issuance by Hardinge Brothers, Inc. of $5,000,000
principal amount of its 9.52% notes due 1995.
+ 10.8 - Employment Agreement with Robert E. Agan dated as of April 1, 1995.
+ 10.9 - Employment Agreement with J. Allan Krul dated as of April 1, 1995.
+ 10.10 - Employment Agreement with Malcolm L. Gibson dated as of April 1, 1995.
+ 10.11 - Employment Agreement with Douglas A. Greenlee dated as of April 1, 1995.
+ 10.12 - Employment Agreement with Douglas C. Tifft dated as of April 1, 1995.
+ 10.13 - Form of Deferred Directors Fee Plan.
+ 10.14 - Description of Incentive Cash Bonus Program.
+ 10.15 - Loan Purchase Agreement dated as of October 26, 1994, between Hardinge Brothers, Inc. and
Chemung Canal Trust Company, relating to the purchase of $3,000,000 of receivables contracts
by Chemung Canal Trust Company from Hardinge Brothers, Inc.
+ 10.16 - Loan Purchase Agreement dated as of March 24, 1995, between Hardinge Brothers, Inc. and
Chemung Canal Trust Company, relating to the purchase of $3,000,000 of receivables contracts
by Chemung Canal Trust Company from Hardinge Brothers, Inc.
+++ 10.17 - $5,000,000 Master Note executed by Hardinge Brothers, Inc. for the benefit of Chemung Canal
Trust Company dated September 19, 1994.
23.1 - Consent of Ernst & Young LLP, Independent Auditors.
23.2 - Consent of Shearman & Sterling (included in its opinion filed as Exhibit 5).
+ 24 - Powers of Attorney.
</TABLE>
+ Previously filed as an exhibit to the Registration Statement (Registration
No. 33-91644) filed with the Securities and Exchange Commission on April 27,
1995.
++ Previously filed as an exhibit to Amendment No. 1 to the Registration
Statement (Registration No. 33-91644) filed with the Securities and Exchange
Commission on May 11, 1995.
+++ Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement (Registration No. 33-91644) filed with the Securities and Exchange
Commission on May 24, 1995.
II-4
Exhibit 5
May 25, 1995
Hardinge Inc.
One Hardinge Drive
Elmira, New York 14902
Ladies and Gentlemen:
We have acted as counsel for Hardinge Inc., a New York corporation
(the "Company"), in connection with the filing by the Company with the
Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form S-2 (No. 33-91644) (the "Registration Statement") and the
prospectus contained in the Registration Statement (the "Prospectus"), covering
the registration under the Securities Act of 1933, as amended (the "Act"), of
2,250,000 shares of the Company's common stock, par value $.01 per share, to be
issued and sold by the Company (plus up to an additional 342,300 shares to cover
over-allotments) and 32,000 shares to be sold by the Selling Shareholder
referred to in the Registration Statement (collectively, the "Shares").
In connection with the foregoing, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of such documents
and corporate and public records as we have deemed necessary as a basis for the
opinion hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to the originals of all documents presented to us
as copies, and the authenticity of the originals of such documents. In rendering
our opinion, we have relied as to factual matters upon certificates of public
officials and certificates and representations of officers of the Company.
Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that the Shares have
been duly authorized by the Company and that the Shares to be sold by the
Selling Shareholder are, and the Shares to be issued and sold by the Company
will be, when issued and paid for in the manner and at the price set forth in
the Prospectus, validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" contained in the Prospectus. In giving this consent, we do not thereby
concede that we come within the category of persons whose consent is required by
the Act or the General Rules and Regulations promulgated thereunder.
Very truly yours,
/s/ Shearman & Sterling
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated January 25,
1995, except for Note 8, as to which the date is May 24, 1995, in Amendment
No. 3 to the Registration Statement (Form S-2 No. 33-91644) and the related
Prospectus of Hardinge Inc. for the registration of 2,282,000 shares of its
common stock.
ERNST & YOUNG LLP
Syracuse, New York
May 24, 1995
