FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-15760
Hardinge Inc.
New York 16-0470200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hardinge Inc.
One Hardinge Drive
Elmira, NY 14902
(607) 734-2281
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
As of June 30, 1997 there were 6,504,498 shares of Common Stock of the
Registrant outstanding.
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996. 3
Consolidated Statements of Income and Retained
Earnings for the three months ended June 30, 1997 and
1996, and the six months ended June 30, 1997 and 1996. 5
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1997 and 1996. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
June 30, Dec. 31,
1997 1996
-------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 1,392 $ 2,636
Accounts receivable 48,643 41,150
Notes receivable 5,916 5,070
Inventories 90,794 99,906
Deferred income taxe 2,158 2,158
Prepaid expenses 1,198 1,656
-------------------------------
Total current assets 150,101 152,576
Property, plant and equipment:
Property, plant and equipment 125,580 117,606
Less accumulated depreciation 60,153 53,716
-------------------------------
65,427 63,890
Other assets:
Notes receivable 10,798 11,791
Deferred income taxes 511 651
Goodwill 4,364
Other 222 254
-------------------------------
15,895 12,696
-------------------------------
Total assets $231,423 $229,162
===============================
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
(Dollars In Thousands)
June 30, Dec. 31,
1997 1996
-------------------------------
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 11,248 $ 12,067
Notes payable to bank 3,569 10,950
Accrued expenses 12,470 10,676
Accrued income taxes 1,177 1,017
Deferred income taxes 1,390 896
Current portion long-term debt 826 714
-------------------------------
Total current liabilities 30,680 36,320
Other liabilities:
Long-term debt 40,009 37,156
Accrued pension plan expense 1,485 1,485
Deferred income taxes 1,525 1,657
Accrued postretirement benefits 5,173 4,999
-------------------------------
48,192 45,297
Shareholders' equity
Preferred stock, Series A, par value $.01:
Authorized - 2,000,000; issued - none
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 6,511,703 65 65
Additional paid-in capital 57,974 57,027
Retained earnings 105,498 99,622
Treasury shares (208) (343)
Cumulative foreign currency translation adjustment (5,515) (3,731)
Deferred employee benefits (5,263) (5,095)
-------------------------------
Total shareholders' equity 152,551 147,545
-------------------------------
Total liabilities and shareholders' equity $231,423 $229,162
===============================
See accompanying notes.
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In Thousands, Except Per Share Data)
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
-------------------- --------------------
Net Sales $63,668 $55,266 $123,724 $114,888
Cost of sales 42,334 36,789 82,212 77,079
---------------------------------------------------------------------------
Gross profit 21,334 18,477 41,512 37,809
Selling, general and
administrative expenses 12,975 10,946 24,779 22,516
Unusual expense 1,960
---------------------------------------------------------------------------
Income from operations 8,359 7,531 14,773 15,293
Interest expense 674 675 1,365 1,197
Interest (income) (188) (167) (354) (382)
---------------------------------------------------------------------------
Income before income taxes 7,873 7,023 13,762 14,478
Income taxes 3,040 2,703 5,415 5,688
---------------------------------------------------------------------------
Net income 4,833 4,320 8,347 8,790
Retained earnings at beginning
of period 101,901 90,035 99,622 86,666
Less dividends declared 1,236 1,097 2,471 2,198
===========================================================================
Retained earnings at end of
period $105,498 $ 93,258 $105,498 $ 93,258
===========================================================================
Weighted average number
of common shares outstanding 6,236 6,228 6,252 6,228
===========================================================================
Per share data:
Net Income $ .78 $ .69 $ 1.34 $ 1.41
===========================================================================
Dividends Declared $ .19 $ .17 $ .38 $ .34
===========================================================================
See accompanying notes.
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Six Months Ended
June 30,
1997 1996
----------------------------------
Net cash provided by (used in)
operating activities $18,308 ($ 2,398)
Investing activities:
Capital expenditures (5,124) (6,384)
Proceeds from sale of assets 24
Investment in subsidiary (4,588)
----------------------------------
Net cash (used in) investing activities (9,712) (6,360)
Financing activities:
(Decrease) increase in short-term notes
payable to bank (6,801) 364
(Decrease) increase in long-term debt (652) 10,036
Sale of treasury stock 137 171
Dividends paid (2,471) (2,199)
----------------------------------
Net cash (used in) provided by
financing activities (9,787) 8,372
Effect of exchange rate changes on cash (53) (1)
==================================
Net (decrease) in cash ($ 1,244) ($387)
==================================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended December 31, 1996.
NOTE B--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
June 30, December 31,
1997 1996
------------- --------------
Finished products $ 32,791 $ 34,461
Work-in-process 31,259 35,479
Raw materials and purchased components 26,744 29,966
------------- --------------
$ 90,794 $ 99,906
============= ==============
NOTE C--UNUSUAL EXPENSE
1997's first quarter included a one-time charge of $1,960,000 (approximately
$1,200,000 after tax, or $.20 per share). This non-recurrung charge involves
outside costs incurred in connection with a major acquisition that the Company
carried into the final stages of the due diligence process but decided not to
complete.
NOTE D--EARNINGS PER SHARE AND WEIGHTED SHARES OUTSTANDING
Earnings per share are calculated using a monthly weighted average shares
outstanding and include common stock equivalents related to restricted stock.
<PAGE>
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following are management's comments relating to significant changes
in the results of operations for the three month and six month periods ended
June 30, 1997 and 1996 and in the Company's financial condition during the six
month period ended June 30, 1997.
Results of Operations
Net Sales. Net sales for the quarter ended June 30, 1997 were
$63,668,000, an increase of $8,402,000, or 15.2%, over 1996's second quarter
sales of $55,266,000. Year to date sales of $123,724,000 for the first six
months of 1997 represent a 7.7% increase over the $114,888,000 net sales for the
same 1996 period.
Machine sales accounted for $43,103,000 of net sales for the second
quarter of 1997, representing a 19.6% increase from the same 1996 period. Year
to date June 30, 1997 sales of machines accounted for $84,962,000, a 13.7%
increase over the $74,739,000 sales in the same 1996 period. Sales of
non-machine products and services in the second quarter of 1997 increased to
$20,565,000 from $19,292,000 for the same 1996 period, a 6.6% increase. Year to
date sales of this product group were $38,762,000, down 3.6% from $40,149,000
the previous year. Factors in the increased machine sales for both the three and
six month periods were the success of the Company's new Cobra(TM)42 product and
a number of large deliveries of automotive orders during both the first and
second quarters of this year.
Geographically, these same factors resulted in a large increase in
sales in the United States. Second quarter U.S. sales of $44,650,000 exceeded
1996's second quarter by $9,533,000, or 27%. Similarly, U.S. sales for the first
six months of 1997 were up by $16,923,000 over the previous year, an increase of
nearly 24%. European sales continue to lag behind the previous year. Sales for
the second quarter were down from the previous year by 21%, but considerably
less than the first quarter's shortfall of 44%. Year to date sales to European
customers were $22,144,000, down 34% from the 1996 level. International sales to
the remainder of the world continued to increase in the second quarter, with a
volume of $6,900,000 representing an increase of 46% over the previous year. For
the six months ended June 30, 1997, these sales increased to $12,900,000, 34%
over the 1996 level.
Gross Profit. Gross margin for the second quarter 1997, as a percentage
of sales, remained relatively unchanged from the second quarter 1996 level, at
33.5% compared to 33.4%. Gross margins for the first six months of 1997 and 1996
were 33.6% and 32.9%, respectively. The improvement was due primarily to lower
distribution discounts in the United States compared to Europe, as reported for
the first quarter.
Selling, General, and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses were 20.4% of sales during the second quarter
of 1997 compared to 19.8% a year earlier. The increase resulted in part from
higher commission costs related to the Company's increased sales and in part to
the acquisition of Hansvedt Industries, Inc. as described below. SG&A expenses
for the six months ended June 30, 1997 and 1996 were 20% and 19.6%,
respectively.
Income from Operations. Income from operations as a percentage of net
sales decreased for the three months ended June 30, 1997 to 13.1%, from 13.6% a
year earlier, as a result of the increase in SG&A costs discussed above. Prior
to the non-recurring charge related to acquisition efforts which was reported
during the first quarter of this year, income from operations for the first six
months of 1997 increased to 13.6% of sales compared to 13.3% for the same period
of 1996. With this charge taken into consideration, operating earnings for the
first half of 1997 were 11.9% of sales.
<PAGE>
Interest Expense. Interest expense totaled $674,000 in the second
quarter of 1997 compared to $675,000 in the same 1996 period. Average borrowings
were only slightly higher in the second quarter of 1997 compared to 1996, and
the average consolidated interest rate was slightly lower. Interest expense for
the six month periods ended June 30, 1997 and 1996 was $1,365,000 and
$1,197,000, respectively.
Interest Income. Interest income remained fairly constant in the
comparative periods of 1997 and 1996, with the majority of this category coming
from interest on financing of customer purchases.
Income Taxes. The provisions for income taxes as percentages of income
before income taxes were nearly identical for both second quarter and
year-to-date, at 38.6% and 39.3%, for the second quarter and first half of 1997,
respectively, compared to 38.5% and 39.3% for the same 1996 periods.
Net Income. Net income for the second quarter of 1997 was $4,833,000,
or $.78 per share, an increase of $513,000 or 11.9% from the same 1996 period.
Year to date 1997 net income was $8,347,000, or $1.34 per share, compared to
$8,790,000, or $1.41 per share for the same 1996 period. 1997's net income has
been reduced by $1,200,000, or $.20 per share, as a result of the previously
reported non-recurring charge related to first quarter 1997 acquisition efforts.
Excluding that charge, net income for the first half of 1997 was $9,547,000, or
$1.52 per share, an increase of 8.6% over the first half of 1996. This
improvement in performance is primarily the result of increased volume coupled
with successful margin and operating cost management.
Acquisition. In April, 1997 the Company acquired 100% of the
outstanding shares of Hansvedt Industries, Inc., an Urbana, Illinois-based
manufacturer of Electronic Discharge Machines (EDM) and related equipment.
Electronic discharge machines are used to produce complex metal parts through a
process of erosion with electricity using either a cutting wire or electrode.
Hansvedt Industries, which was privately held and is the largest U.S.
manufacturer of EDM equipment, had 1996 revenues of $8,000,000 and has
approximately 75 employees.
Quarterly Information
The following table sets forth certain quarterly financial data for
each of the periods indicated.
Three Months Ended
----------------------------------------------------------
March 31, June 30, Sept.30, Dec. 31, March 31, June 30,
1996 1996 1996 1996 1997 1997
----------------------------------------------------------
(in thousands, except per share data)
----------------------------------------------------------
Net Sales $ 59,622 $ 55,266 $47,577 $57,830 $60,056 $63,668
Gross Profit 19,332 18,477 17,103 20,119 20,178 21,334
SG&A expense 11,570 10,946 10,849 11,693 11,804 12,975
Unusual expense 1,960
Income from operations 7,762 7,531 6,254 8,426 6,414 8,359
Net income 4,470 4,320 3,435 5,063 3,514 4,833
Net income per share .72 .69 .56 .82 .56 .78
Weighted averages
shares outstanding 6,199 6,228 6,189 6,204 6,225 6,236
<PAGE>
Liquidity and Capital Resources
Hardinge's current ratio at June 30, 1997 was 4.89:1 compared to 4.20:1
at December 31, 1996. The high level of sales in the first half of 1997 resulted
in an increase in accounts and current notes receivable of $8,339,000. During
the same period, however, inventories were reduced by $9,112,000 as work in
process and finished goods for a number of large orders for automotive customers
were completed and shipped. The net result of these changes combined with a
number of smaller differences was an overall reduction in current assets of
$2,475,000 from December 31, 1996 to June 30, 1997. On the other hand, current
liabilities also decreased by $5,640,000, primarily as a result of repayment of
bank debt at the L. Kellenberger & Co. AG subsidiary. The repayment was financed
by Hardinge's long-term credit facilities.
In the first half of 1997, operating activities provided $18,308,000 of
cash, while operating activities in the first half of 1996 used $2,398,000 of
cash. Nearly all of this change in cash generation was provided by changes in
inventory levels. During the first half of 1996, inventories were building
significantly for the launch of the new Cobra(TM)42 lathe and to support a
number of large orders with extended delivery dates. During the first half of
1997 inventories declined significantly as noted above, as these orders have now
been shipped and the Cobra introduction has been completed. During the first
half of 1997, the cash generated by operating activities was used to repay $
7,453,000 of short and long-term debt. Cash was also used for the Hansvedt
acquisition, capital expenditures and to pay dividends.
Hardinge provides long-term financing for the purchase of its equipment
by qualified customers. We periodically sell portfolios of our customer notes to
financial institutions in order to reduce debt and finance current operations.
Our customer financing program has an impact on our month-to-month borrowings,
but it has had little long-term impact on our working capital because of the
ability to sell the underlying notes. We sold $17,400,000 of customer notes in
the first half of 1997, compared to $15,000,000 during the same period of 1996.
At June 30, 1997 Hardinge maintained revolving loan agreements with
several U.S. banks providing for unsecured borrowing up to $50,000,000 on a
revolving basis, $30,000,000 through August 1, 1997 and $20,000,000 through
November 1, 1999. At those times, the outstanding amounts convert, at the
Company's option, to term loans payable quarterly over four years through 2001
and 2003, respectively. These facilities, along with other short term credit
agreements, provided for immediate access of up to $57,000,000. At June 30,
1997, outstanding borrowings under these arrangements totaled $24,191,000.
On July 31, 1997, the Company completed a new unsecured revolving
credit arrangement with a group of banks which replaces the $30,000,000
agreement expiring on August 1, 1997. This new facility, which has no term loan
conversion option, provides for borrowings up to $50,000,000 through August 1,
2002, bringing the total available funds under the Company's revolving and other
short term credit facilities to $77,000,000. This increase will provide Hardinge
with further flexibility in financing its world-wide operations.
In March, 1996, the Company completed negotiations with a syndication
of banks on a long term credit agreement for $17,750,000. The proceeds were used
to pay down the amount on the revolving loan agreement which had originally been
used to finance the acquisition of Kellenberger. Quarterly interest payments
began in 1996, and principal payments begin in 1998. The agreement contains
financial covenants consistent with the revolving loan agreements.
<PAGE>
We believe that the currently available funds and credit
facilities, along with internally generated funds, will provide sufficient
financial resources for ongoing operations.
This report contains statements of a forward-looking nature relating to
the financial performance of Hardinge Inc. Such statements are based upon
information known to management at this time. The Company cautions that such
statements necessarily involve risk, because actual results could differ
materially from those projected. Among the many factors that could cause actual
results to differ from those set forth in the forward-looking statements are
changes in general economic conditions in the U.S. or internationally, actions
taken by customers or competitors, the receipt of more or fewer orders than
expected , and changes in the cost of materials. The Company undertakes no
obligation to revise its forward-looking statements if unanticipated events
alter their accuracy.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K
There were no reports on Form 8-K filed during this
quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hardinge Inc.
August 14, 1997 By:_/s/ Robert E. Agan_____________________
Date Robert E. Agan
Chairman of the Board and
Chief Executive Officer
August 14, 1997 By:_/s/ J. Allan Krul______________________
Date J. Allan Krul
President and Chief Operating Officer
August 14, 1997 By:_/s/ Malcolm L. Gibson__________________
Date Malcolm L. Gibson
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
August 14, 1997 By:_/s/ Richard L. Simons__________________
Date Richard L. Simons
Vice President - Finance
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,392
<SECURITIES> 0
<RECEIVABLES> 65,357
<ALLOWANCES> 0
<INVENTORY> 90,794
<CURRENT-ASSETS> 150,101
<PP&E> 125,580
<DEPRECIATION> 60,153
<TOTAL-ASSETS> 231,423
<CURRENT-LIABILITIES> 30,680
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 152,486
<TOTAL-LIABILITY-AND-EQUITY> 231,423
<SALES> 123,724
<TOTAL-REVENUES> 123,724
<CGS> 82,212
<TOTAL-COSTS> 24,779
<OTHER-EXPENSES> 1,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,365
<INCOME-PRETAX> 13,762
<INCOME-TAX> 5,415
<INCOME-CONTINUING> 8,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,347
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
