SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1997.
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[ ] 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 0-15760
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HARDINGE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
NEW YORK 16-0470200
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<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Hardinge Drive, Elmira, New York 14902-1507
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(Address of principal executive offices) Zip Code
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(607) 734-2281
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Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Securities pursuant to section 12(g) of the Act:
Common Stock with a par value of $.01 per share
Preferred Stock purchase rights
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 and 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 1, 1998:
Common Stock, $.01 par value--$145,856,646.
The number of shares outstanding of the issuer's common stock as of February 1,
1998:
Common Stock, $.01 par value 6,537,469 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Hardinge Inc.'s Proxy Statement filed with the Commission on March
12, 1998 are incorporated by reference to Part III of this Form.
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FPO Blank
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PART I
ITEM 1.--BUSINESS
General
Hardinge Inc.'s principal executive offices are located at One Hardinge
Drive, Elmira, New York 14902-1507; telephone (607) 734-2281. The Company has
seven wholly owned subsidiaries. Canadian Hardinge Machine Tools, Ltd. located
near Toronto, Ontario was established by Hardinge Inc. in 1958. Hardinge
Machine Tools, Ltd. was established in the United Kingdom in 1939 and became a
wholly owned subsidiary in 1981 when it redeemed the shares previously held by
others. Hardinge GmbH was established by the Company in Germany in 1987. In
November 1995, the Company acquired 100% of the outstanding stock of L.
Kellenberger & Co., AG of St. Gallen, Switzerland and its subsidiary,
Kellenberger, Inc. of Elmsford, New York (collectively referred to as
"Kellenberger"). During 1996, Hardinge Shanghai Company, Ltd. was established
near Shanghai, Peoples Republic of China. In April 1997, the Company acquired
100% of the outstanding stock of Hansvedt Industries, Inc., located in Urbana,
Illinois.
The Company's headquarters is located in Chemung County, New York, which
is on the south-central border of upstate New York. The Company has
manufacturing facilities located in Chemung County, New York, Urbana, Illinois
and St. Gallen, Switzerland. The Company assembles machinery at its Shanghai,
PRC facility for deliveries to customers in Asia. The Company manufactures the
majority of the products it sells, purchasing a few machine accessories from
other manufacturers for resale.
References to Hardinge Inc., the "Company", or "Hardinge" are to Hardinge
Inc. and its predecessors and subsidiaries, unless the context indicates
otherwise. The Company changed its name in 1995 from Hardinge Brothers, Inc. to
Hardinge Inc.
Products
Hardinge Inc. has been a manufacturer of industrial-use
Super-Precision[RegTM] and general precision turning machine tools since 1890.
Turning machines, or lathes, are power-driven machines used to remove material
from a rough-formed part by moving multiple cutting tools arranged on a turret
assembly against the surface of a part rotating at very high speeds in a
spindle mechanism. The multi-directional movement of the cutting tools allows
the part to be shaped to the desired dimensions. On parts produced on Hardinge
machines, those dimensions are often measured in millionths of inches. Hardinge
considers itself to be a leader in the field of producing machines capable of
consistently and cost-effectively producing parts to those dimensions.
In the late 1970's, Hardinge began to produce computer numerically
controlled ("CNC") machines which use commands from an on-board computer to
control the movement of cutting tools and rotation speeds of the part being
produced. The computer control enables the operator to program operations such
as part rotation, tooling selection and tooling movement for a specific part
and then store that program in memory for future use. The machine is able to
produce parts while left unattended when connected to automatic bar-feeding or
robotics equipment designed to supply raw materials. 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 manually controlled machines, as well as reduce
the number of operators required. Since the introduction of CNC turning
machines, continual advances in computer control technology have allowed for
easier programming and additional machine capabilities.
In 1994, the Company expanded its machine tool line to include CNC
vertical turning machines and vertical machining centers, the first sales of
which occurred during the first quarter of 1995. Prior to that, all of the
Company's turning machines were horizontal which means that the spindle holding
the rotating part and the turret holding the cutting tools are arranged on a
horizontal plane. On a vertical turning machine, the spindle and turret are
aligned on a vertical plane, with the spindle on the bottom. A vertical turning
machine permits the customer to produce larger, heavier and more oddly shaped
parts on a machine that uses less floor space when compared to a traditional
horizontal turning machine.
A vertical machining center cuts material differently than a turning
machine. These machines are designed to remove material from stationary,
prismatic (box-like) parts of various shapes with rotating tools that are
capable of milling, drilling, tapping, reaming and routing. Machining centers
have mechanisms that automatically change
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tools based on commands from a built-in computer control without the assistance
of an operator. Machining centers are generally purchased by the same customers
as turning machines and are being marketed by the Company on the basis that a
customer will be able to obtain machining centers with the same quality and
reliability as the Company's turning machines and will be able to obtain its
turning machines and machining centers from a single supplier.
The Company has further extended its machine offerings into the grinding
machine sector of the metal-cutting machine tool industry with the acquisition
of Kellenberger. Grinding is a machining process where a surface is shaped to
closer tolerances with a rotating abrasive wheel or tool. Grinding machines can
be used to finish parts of various shapes and sizes.
The grinding machines of Kellenberger are used to grind the inside and
outside diameters of round, cylindrical parts. Such grinding machines are
typically used to provide for a more exact finish on a part which has been
partially completed on a lathe. The grinding machines of Kellenberger, which
are manufactured in both CNC and manually controlled models, are generally
purchased by the same type of customers as other Hardinge equipment and further
the ability of the Company to be a sole source supplier for its customers.
During 1997, Kellenberger and Hardinge combined their respective skills to
introduce a new jointly developed line of grinders, the Kel-Vision.
During 1996, the Company took yet another step to address a new market
segment with the introduction of its Cobra[TM]42 CNC lathe. A basic, no frills,
yet very reliable and accurate lathe, the Cobra provides a relatively
inexpensive product offering for potential customers with limited financial
resources. Additional models were added to this product line in 1997. Further
refining its ability to provide products aimed at particular types of customer
applications, Hardinge also introduced two new "long bed" lathes in 1996. These
machines are specially designed to manufacture parts of greater length than
would normally be possible using smaller, more conventional lathes.
In 1997, the Company entered the market for electrical discharge machines
("EDM") with its acquisition of Hansvedt Industries, Inc. EDM's are used to
produce complex metal parts through a process of erosion with electricity using
either a cutting wire or electrode. EDM's are used by many of the same
customers who purchase other Hardinge products, adding a new dimension to the
Company's product lines without moving beyond its core businesses.
Multiple options are available on the broad range of the Company's
machines which allow customers to customize their machines for the specific
purpose and cost objective they require. The Company produces machines for
stock with popular option combinations for immediate delivery, as well as
machines made to specific customer orders. In recent years, the Company has
increasingly emphasized the engineering of complete systems for customers who
desire one or more CNC machines to produce a specific part. In configuring
complete systems, the Company provides, in addition to its machines, the
necessary computer programming and tooling, as well as robotics and other parts
handling equipment manufactured by it or others.
All Hardinge machines can be used to produce parts from all of the
standard ferrous and non-ferrous metals, as well as plastics, composites and
exotic materials.
In addition, the Company offers the most extensive line available in the
industry of workholding and toolholding devices, which may be used on both its
turning machines and those produced by others. The Company considers itself to
be a worldwide leader in the design and manufacture of workholding and
toolholding devices. It also offers a complete line of six-foot and twelve-foot
bar feed systems for its CNC and manual turning machines, which hold the
workpiece steady and feed it into the turning machine. Also produced are a
variety of other optional equipment and accessories for its machines. The
Company has further expanded its workholding products with the addition of its
Sure-Grip[TM] line of power jaw chucks.
The Company offers various warranties on its equipment and considers
post-sales support to be a critical element of its business. Services provided
include operation and maintenance training, maintenance, and in-field repair.
The Company's intent, where practical, is to provide readily available
replacement parts throughout the life of the machine.
Markets and Distribution
Sales are principally in the United States and Western Europe. In
addition, sales are made to customers in Canada, China, Mexico, Japan,
Australia and other foreign countries.
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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.
The Company's 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.
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 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 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 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. With
more 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 general catalogues and other targeted catalogues, which it
distributes to existing and prospective customers.
A substantial portion of the Company's sales are to small and medium-sized
independent job shops, which in turn sell machined parts to their industrial
customers. Industries directly and indirectly served by the Company include
automotive, medical equipment, aerospace, defense, recreational equipment, farm
equipment, construction equipment, energy, and transportation. Sales to the
automobile industry accounted for 17%, 9% and 21% of the Company's net sales in
1997, 1996 and 1995, respectively.
The Company operates in a single business segment, industrial machine
tools.
Competitive Conditions
The primary competitive factors in the marketplace for the Company's
machine tools are reliability, price, delivery time, service and technological
characteristics. There are many manufacturers of machine tools in the world.
They can be categorized by the size of material their products can machine and
the precision level they can achieve. In the size and precision level the
Company addresses with its turning machines and machining centers, the primary
competition comes from several Japanese manufacturers. Several German
manufacturers also compete with the Company, primarily in Europe. The
Kellenberger machines compete with Japanese, German and other Swiss
manufacturers. Hansvedt EDMs compete primarily with similar products produced
by European and Asian builders. Management considers its segment of the
industry to be extremely competitive. The Company believes that it brings
superior quality, reliability, value, availability, capability and support to
its customers.
Sources and Availability of Raw Materials
The Company manufactures and assembles its lathes and machining centers
and related products at its Elmira, New York plant. The Kellenberger grinding
machines and related products are manufactured at its St. Gallen, Switzerland
plant. Hansvedt EDM's are produced at the Company's plant in Urbana, Illinois.
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
lathes and machining centers. There are multiple suppliers
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for virtually all of the Company's raw material 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. The Company purchases these components for its
lathes and machining centers primarily from Fanuc Limited, a large Japanese
electronics company, except on occasions where a significant customer order
specifies a different control. While the Company believes that design changes
could be made to its machines to allow sourcing from several other existing
suppliers, and occasionally does so for these special orders, 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. Kellenberger assembles an electronics package of its own design.
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 and is postured to obtain ISO 9000
certification if required for marketing. 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 involves creating
new products and modifying existing products to meet market demands and
redesigning existing products to reduce the cost of manufacturing. The research
and development department is staffed with experienced design engineers with
technical through doctorate degrees.
The cost of research and development, all of which has been charged to
operations, amounted to $8,415,000, $7,932,000, and $5,713,000, in 1997, 1996
and 1995, respectively.
Patents
Although the Company holds several patents with respect to certain of its
products, it does not believe that its business is dependent to any material
extent upon any single patent or group of patents.
Seasonal Trends and Working Capital Requirements
The Company is not subject to significant seasonal trends. Its business,
and that of the machine tool industry in general, is cyclical. 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 U.S. and European 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.
During 1995 shipments of certain large orders offset this historical pattern in
the third quarter.
The ability to deliver products within a short period of time is an
important competitive criterion. Also, the Company feels it is important to
provide availability of replacement parts for a machine throughout its useful
life. These factors contribute to a requirement that the Company carry
significant amounts of inventory.
For many years, the Company has periodically sold a substantial portion of
the customer notes receivable generated by its customer financing program to
various financial institutions. While the Company's customer financing program
has an impact on its month-to-month borrowings, it has had little long-term
impact on its working capital requirements because of the sales of these notes.
Backlog
The Company normally ships its machine products within two to three months
after order. The Company's order backlog at December 31, 1997 and 1996 was
$56,857,000 and $71,400,000, respectively. The reduction in backlog during 1997
is largely a result of deliveries of extended orders for automotive customers.
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Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year may 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 is
not necessarily indicative of actual shipments or sales for any future period,
and period-to-period comparisons may not be meaningful.
Governmental Regulations
The Company believes that its current operations and its current uses of
property, plant and equipment conform in all material respects to applicable
laws and regulations.
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 in each of the countries in which it operates.
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 manufacturing facilities 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 New York manufacturing facility is located
within the Kentucky Avenue Well Field on the National Priorities List of
hazardous waste sites designated for cleanup by the United States Environmental
Protection Agency ("EPA") because of groundwater contamination. The Kentucky
Avenue Well Field site encompasses an area of approximately three square miles
which includes sections of the Town of Horseheads and the Village of Elmira
Heights in Chemung County, New York. The Company, however, has never been named
as a potentially responsible party at the site or received any requests for
information from EPA concerning the site. Environmental sampling on the
Company's property within this site under supervision of regulatory authorities
has identified off-site sources for such groundwater contamination and has
found no evidence that the Company's property is contributing to the
contamination.
Environmental sampling at the Company's former New York manufacturing
facility following the removal of an underground storage tank 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 adopted and approved by the New York State Department of
Environmental Conservation. Pursuant to the timetable set forth in the remedial
action plan, the Company completed the construction phase of the cleanup in the
first quarter of 1996 at a cost of approximately $400,000. The Company
anticipates that ongoing operation and maintenance expenses for the cleanup are
anticipated to 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 regulation, which are subject
to extensive regulatory discretion, will not result in material liabilities.
Employees
As of December 31, 1997, the Company employed 1,510 persons, 1,254 of whom
were located in the United States. None of the Company's employees are covered
by collective bargaining agreements. Management believes that relations with
the Company's employees are good.
Foreign Operations and Export Sales
Information related to foreign and domestic operations and sales is
included in Note 5 to consolidated financial statements contained in this
Annual Report. The Company believes that its subsidiaries operate in countries
where the economic climate is relatively stable.
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ITEM 2.--PROPERTIES
Pertinent information concerning the principal properties of the Company
and its subsidiaries is as follows:
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Acreage (Land)
Square Footage
Location Type of Facility (Building)
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Owned Properties
Horseheads, New York Manufacturing, Engineering, Turnkey 80 acres
Systems, Marketing, Sales, Demonstration, 515,000 sq. ft.
Service and Administration
Elmira, New York Warehouse 12 acres
176,000 sq. ft.
St. Gallen, Manufacturing, Engineering, Turnkey 8 acres
Switzerland Systems, Marketing, Sales, Demonstration, 155,000 sq. ft.
Service and Administration
Exeter, England Sales, Marketing, Demonstration, Service, 2 acres
Turnkey Systems and Administration 27,500 sq. ft.
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Lease
Expiration
Location Type of Facility Square Footage Date
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Leased Properties
Krefeld, Germany Sales, Service and Demonstration 4,000 sq. ft. 3/31/07
Elmsford, New York Sales, Service 1,500 sq. ft. 12/31/98
Los Angeles, California Sales, Service and Demonstration 14,500 sq. ft. 10/31/02
Toronto, Canada Sales, Service 5,800 sq. ft. 6/5/01
Charlotte, North Carolina Sales, Service and Demonstration 6,400 sq. ft. 3/31/06
Urbana, Illinois Manufacturing, Engineering, 38,000 sq. ft. 12/27/99
Marketing, Sales, Demonstration,
Service and Administration
Shanghai, PRC Product Assembly, Sales, 14,500 sq. ft. 7/31/99
Service, Demonstration and
Administration
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ITEM 3.--LEGAL PROCEEDINGS
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.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote of
security holders.
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PART II
ITEM 5.--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table reflects the highest and lowest values at which the
stock traded in each quarter of the last two years. The Company has traded on
the NASDAQ market under the symbol "HDNG" since May 25, 1995. The table also
includes dividends per share, by quarter.
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1997 1996
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Values Values
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High Low Dividends High Low Dividends
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Quarter Ended
March 31 $27-1/8 $25-1/4 $ .19 $28-1/2 $25 $ .17
June 30 29-1/4 25 .19 35-1/2 26 .17
September 30 36-1/8 28-1/2 .19 31-3/4 20-3/8 .17
December 31 38-1/2 35 .21 29 23 .19
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At February 1, 1998, there were 4,277 holders of record of common stock.
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ITEM 6.--SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
consolidated financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements, related notes and other
information included herein (dollar amounts in thousands except per share
data).
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<CAPTION>
Year Ended December 31
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales $246,579 $220,295 $180,586 $117,336 $ 98,437
Cost of sales 164,161 145,264 119,975 76,937 63,169
-------- -------- -------- -------- --------
Gross profit 82,418 75,031 60,611 40,399 35,268
Selling, general and administrative
expenses 49,959 45,058 36,076 27,882 25,804
Unusual expense (2) 1,960
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Operating income 30,499 29,973 24,535 12,517 9,464
Interest expense 2,378 2,770 1,369 1,479 1,343
Interest (income) (705) (889) (927) (453) (763)
(Gain) on sale of assets (326) (442)
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Income before income taxes 28,826 28,092 24,419 11,933 8,884
Income taxes 10,886 10,804 9,574 5,214 3,730
-------- -------- -------- -------- --------
Net income $ 17,940 $ 17,288 $ 14,845 $ 6,719 $ 5,154
======== ======== ======== ======== ========
Per share data: (1)
Basic earnings per share: (1)
Weighted average number of common
shares outstanding 6,238 6,166 4,929 3,563 3,539
Earnings per share $ 2.88 $ 2.80 $ 3.01 $ 1.89 $ 1.46
======== ======== ======== ======== ========
Diluted earnings per share: (1)
Weighted average number of common
shares outstanding 6,285 6,224 4,954 3,572 3,545
Earnings per share $ 2.85 $ 2.78 $ 3.00 $ 1.88 $ 1.45
======== ======== ======== ======== ========
Cash dividends declared per share $ .78 $ .70 $ .62 $ .84 $ .79
BALANCE SHEET DATA
Working capital $118,385 $116,256 $ 99,780 $ 60,520 $ 58,455
Long-term portion of notes receivable 11,951 11,791 10,936 7,744 12,460
Total assets 245,284 229,162 211,582 121,726 111,169
Long-term debt 31,012 37,156 27,100 15,164 18,357
Shareholders' equity 163,184 147,545 136,103 79,776 75,462
</TABLE>
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(1) All share and per share data have been restated to reflect the
reclassification of stock in 1995, as explained in the notes to the
financial statements.
All share and per share data have been restated to comply with Statement of
Financial Accounting Standard No. 128, Earnings Per Share, as explained in
the financial statements.
(2) 1997 included a one-time charge of $1,960,000 ($1,200,000 after tax). This
non-recurring charge involves outside costs incurred in connection with a
major acquisition that the Company carried into the final stages of the
due diligence process but decided not to complete.
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ITEM 7.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following table sets forth the net sales by product line for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands)
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Machine sales $167,824 $144,725 $117,381
Non-machine products and services 78,755 75,570 63,205
-------- -------- --------
Total $246,579 $220,295 $180,586
======== ======== ========
</TABLE>
Results of Operations
1997 Compared to 1996
Net Sales. Net sales for the year 1997 were $246,579,000, an increase of
11.9% over 1996's net sales of $220,295,000. Sales in domestic U.S. markets
increased by 23.6% during 1997 to a total of $182,176,000 compared to
$147,390,000 in 1996. Significantly higher deliveries to automotive customers
during 1997 and the continuing success of the Company's new Cobra[TM] line of
low cost lathes were partially responsible for this increase. Shipments to the
automotive industry accounted for 17% of the Company's 1997 sales, compared to
9% during 1996. Also, the acquisition of Hansvedt Industries, Inc. in April,
1997 added incremental sales of yet another new product line for Hardinge,
electrical discharge machines. Sales to European customers totaled $43,071,000,
a decrease of $13,180,000 or 23.4% from 1996's total of $56,251,000. This
softening in the European market was apparent throughout the year, but lessened
as the year progressed, from a shortfall of 44.4% in the first quarter to 6.0%
in the fourth quarter. A significant factor affecting European sales was the
approximate 15% weakening of the Swiss franc against the U.S. dollar, based on
average exchange rates for 1997 compared to 1996. Sales by the Company's Swiss
subsidiary, Kellenberger, increased by over 4% from 1996 to 1997 as recorded in
Swiss francs. However, when translated to U.S. dollars the results indicate a
decrease of over 11% as a result of the difference in exchange rates. Sales to
all other areas of the world increased by 28.1%, from $16,654,000 in 1996 to
$21,333,000 in 1997.
Shipments of machines increased by $23,099,000 during 1997, accounting for
68.1% of net sales for that year compared to 65.7% in 1996. Shipments of
non-machine products and services also increased by $3,185,000 during 1997.
However, as a result of the larger increase in machine sales, the percentage of
net sales represented by non-machine products and services decreased from 34.3%
in 1996 to 31.9% in 1997. The large increase in machine sales was a result of
the same factors described above which caused the increase in domestic sales.
Gross Profit. Gross profit was $82,418,000 during 1997, an increase of
9.8% or $7,387,000 from 1996's gross profit of $75,031,000. Gross profit as a
percentage of net sales was slightly lower in 1997 compared to 1996, at 33.4%
compared to 1996's 34.1%. It is generally true that the margin percentage is
favorably affected by an increased proportion of domestic sales, where channel
of distribution costs are typically less than in other parts of the world.
However, in 1997 a significant portion of these increased domestic sales were
made to large automotive customers where the Company experiences somewhat lower
margins. Also, the Company's machine sales have traditionally generated lower
gross margins than sales of non-machine products and services. The fact that
1997's sales included a higher percentage of machine revenues than 1996
contributed to a somewhat lower margin in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") as a percentage of net sales were slightly
lower in 1997 than 1996, at 20.3% compared to 20.5%
Unusual Expense. 1997's first quarter included a one-time charge of
$1,960,000 (approximately $1,200,000 after tax, or $.20 per share). This
non-recurring charge involved outside costs incurred in connection with a major
acquisition that the Company carried into the final stages of the due diligence
process but decided not to complete.
Income from Operations. Income from operations totaled $30,499,000 in 1997
compared to $29,973,000 in 1996. As a percentage of net sales, operating income
was 12.4% in 1997 compared to 13.6% the previous year. Excluding the unusual
expense described above, operating income for 1997 would have been 13.2% of net
sales. The slight reduction in percentage from 1996 is attributable to the
lower gross margin rate previously discussed.
9
<PAGE>
Interest Expense. Interest expense in 1997 was $2,378,000 compared to
$2,770,000 in 1996. The reduction was the result of lower average outstanding
borrowings in 1997.
Interest Income. Interest income for the years 1997 and 1996 was $705,000
and $889,000, respectively. The income resulted primarily from internally
financed customer sales during both years.
Income taxes. The provision for income taxes as a percentage of pre-tax
income was nearly unchanged in 1997 compared to 1996, at 37.8% in 1997 and
38.5% in 1996.
Net Income. Net income was $17,940,000, or $2.85 per share, in 1997
compared to $17,288,000, or $2.78 per share, in 1996. Excluding the unusual
expense described above, net income would have been $19,140,000 in 1997, or
$3.05 per share. This would have represented an increase of $1,852,000, or
10.7% over 1996. The increase was brought about by margin on the increased
sales volume described earlier, coupled with the stable rate of SG&A expenses.
The Company has adopted Financial Accounting Standard No. 128, Earnings per
Share, which requires presentation of both basic and diluted earnings per share
amounts. The above earnings per share represent diluted earnings per share as
defined by that statement. All previous earnings per share amounts have been
restated to comply with the new treatment.
1996 Compared to 1995
Net Sales: Net sales for the year 1996 increased by 22.0% or $39,709,000
to $220,295,000 from $180,586,000 in 1995. Net sales in the European markets
increased by $30,846,000 or 121.5%, primarily as a result of inclusion of a
full year's sales volume of L. Kellenberger & Co. AG, the wholly owned
subsidiary purchased on November 29, 1995. European sales of other Hardinge
products increased as well, particularly in England and France. Sales in
domestic U.S. markets increased by $10,753,000 or 7.9%, where a decline in
sales to the U.S. automotive industry was more than offset by increased sales
to other market segments plus the very successful launch of the Company's new
low cost lathe product during the second half of 1996. Shipments to the
automobile industry accounted for 9% of the Company's 1996 sales compared to
21% in 1995.
The Company experienced a substantial increase in machine units sold
during 1996. This increase is primarily a result of aggressive new product
introductions and the inclusion of a full year's sales of Kellenberger
grinders.
Sales of non-machine products and services continue to represent a
significant revenue source for the Company. 1996 sales of these products and
services were $75,570,000, an increase of $12,365,000 over the prior year. The
growth of these sales in 1996 is primarily caused by increased levels of
customer activity plus sales of new products introduced during the year. Sales
of these products and services account for approximately 35% of total sales
dollars in both 1996 and 1995.
Gross Profit: Gross profit increased by $14,420,000 or 23.8% to
$75,031,000 in 1996, primarily as a result of increased sales. Gross profit as
a percentage of sales improved to 34.1% in 1996 from 33.6% in 1995. The
improvement resulted in part from the Company's use of advanced technology to
upgrade its manufacturing efficiency. Another factor contributing to this
increase was a higher portion of sales through the Company's direct sales
organizations, relative to sales made to independent distributors, where
discounts are generally higher. Sales of non-machine products and services
continue to generate higher gross margins than machine sales. However, since
both these sales categories increased at about the same rate during 1996, the
comparison of gross profit between 1996 and 1995 was not affected by this mix.
Increasing sales volume and improvements in manufacturing processes at the
Company's Kellenberger subsidiary also contributed to the improvement in gross
profit during 1996.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses ("SG&A") as a percentage of net sales increased only
slightly during 1996, in spite of the large increase in volume and the
inclusion of a full year's expenses for the Kellenberger operation. 1996's SG&A
expenses represented 20.5% of sales compared to 20.0% in 1995. 1996's expenses
include increased costs for product sales promotion, both for new product
introductions and for the International Manufacturing Technology Show held in
Chicago in September. This show, held every two years, is a major event for the
industry.
Income from Operations: Income from operations increased by $5,438,000 to
$29,973,000 in 1996 compared to $24,535,000 in 1995. As a percentage of net
sales, income from operations remained constant at 13.6% during both years.
10
<PAGE>
Interest Expense: Interest expense during 1996 totaled $2,770,000 compared
to $1,369,000 in 1995. Interest expense during 1995 benefited from a mid-year
paydown of debt as a result of the May, 1995 public offering of stock. 1996
interest cost increased as a result of higher average outstanding debt to fund
the Kellenberger acquisition and increased working capital requirements.
Interest Income: Interest income remained relatively constant during both
years. During 1995, interest income was unusually high as a result of the
temporary investment of cash received from the Company's public stock offering.
Normally, interest income is mainly attributable to financing of customer
purchases. During 1996 a significant increase in the volume of customer
financing transactions resulted in interest income being about equal to the
prior year.
Gain on Sale of Assets: 1995's income includes a gain of $326,000
(approximately $198,000 on an after-tax basis) resulting from the sale of a
branch office building.
Income Taxes: The provision for income taxes as a percentage of pre-tax
income was 38.5% and 39.2%, respectively, for 1996 and 1995. The 1996
consolidated tax rate was impacted favorably by a larger proportion of foreign
income which was taxed at rates slightly lower than in the United States.
Net Income: Net income for 1996 was $17,288,000 compared to $14,845,000 in
1995, an increase of 16.5%. The increase represents an accumulation of the
factors discussed above. Geographically, results of operations in Western
Europe have improved significantly on higher sales. Inclusion of a full year's
results of Kellenberger was a primary factor in this improvement. Performance
in North America continues to provide the large base of profitable operations.
Liquidity and Capital Resources
The Company's current ratio at December 31, 1997 was 3.82:1 compared to
4.20:1 at December 31, 1996. Current assets increased by $7,805,000 during
1997, primarily as a result of growth in accounts receivable of $15,060,000
offset by an inventory reduction of $7,937,000. These changes occurred largely
as a result of completion and billing of orders to automotive customers.
Current liabilities increased by $5,676,000, primarily as a result of an
increase in accounts payable of $6,256,000 from December 31, 1996 to December
31, 1997
Operating activities generated cash in 1997 of $26,988,000 compared to
$3,038,000 in 1996, an increase of $23,950,000. This large increase was a
result of several factors. The most significant cash generating change between
the two years,$26,598,000, resulted from the fact that inventories were reduced
by $10,159,000 during 1997 while they were increased by $16,439,000 during 1996
to support the introduction of the new Cobra machine line and for automotive
orders still in process at the end of that year. Additionally, accounts payable
grew by $6,241,000 during 1997 while in 1996 they shrank by $6,167,000, the net
change adding another $12,408,000 to cash generation in 1997 over 1996.
Finally, these two factors were offset by $14,198,000 as a result of growth in
accounts receivable of $14,585,000 during 1997 while receivables grew by only
$387,000 throughout 1996.
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 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 debt and finance current operations, the Company
periodically sells a substantial portion of its underlying customer notes
receivable to various financial institutions. In 1997, the Company sold
$34,165,000 of customer notes compared to $27,255,000 sold during 1996,
reflecting the increase in notes available for sales as the number of shipments
financed through the Company's program have increased in 1997 compared to 1996.
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. Long-term customer notes receivable held by the
Company totaled $11,951,000 and $11,791,000 at December 31, 1997 and December
31, 1996, respectively.
11
<PAGE>
Total capital expenditures in 1997 were $8,269,000. The majority of these
expenditures were for the purchase of new manufacturing equipment at the
Company's Elmira, New York and St. Gallen, Switzerland production facilities.
The Company used cash of $4,588,000 in its April, 1997 purchase of 100% of
the outstanding shares of Hansvedt Industries, Inc., an Urbana, Illinois-based
manufacturer of electrical discharge machines.
The Company paid total dividends of $4,937,000 during 1997. At its meeting
in October, 1997, the Board of Directors increased the quarterly dividend to
$.21 per share, representing an 11% increase from the previous regular
quarterly dividend rate of $.19 per share.
The Company has revolving loan agreements with several U.S. banks
providing for unsecured borrowing up to $70,000,000 on a revolving basis,
$20,000,000 through November 1, 1999, and $50,000,000 through August 1, 2002.
At November 1, 1999 any amounts outstanding on the $20,000,000 facility
convert, at the Company's option, to term loans payable quarterly over four
years through 2003. As of December 31, 1997, total borrowings under these
agreements were $15,614,000.
The Company's Kellenberger subsidiary maintains unsecured overdraft
facilities with commercial banks which permit borrowing in Swiss francs
equivalent to approximately $4,000,000. At December 31, 1997, total borrowings
under these agreements were $3,282,000.
These facilities, along with a $7,000,000 unsecured short term line with
another bank, provided for immediate access of up to $81,000,000 at December
31, 1997. Outstanding borrowings under these arrangements totaled $22,896,000
at that time.
During the first quarter of 1996, the Company entered into a long term
borrowing agreement for $17,750,000 with a syndication of banks. The proceeds
were used to repay revolving loan borrowing which had originally been used to
finance the acquisition of Kellenberger. Quarterly interest payments on this
term loan began during 1996, and principal repayments will commence in 1998.
The agreement contains financial and other covenants consistent with the
revolving loan agreements.
The Company currently intends to use its improved financial condition to
seek growth opportunities in new products, international markets, and strategic
acquisitions. Management believes that the currently available funds and credit
facilities, and internally generated funds, will provide sufficient financial
resources for its ongoing operations.
The Company has considered the impact of the year 2000 problem on its
future operations and financial condition. The year 2000 problem is described
as the potential that computer programs written using two digits rather than
four to define an applicable year could cause systems failures resulting in
disruption of operations. The Company has developed and initiated a plan to
deal with the problem. The Company's study of the issue and the development of
its plan of action have considered both the vulnerability resulting from
failure of third parties to deal with the problem and the impact of potential
changes required to the Company's products previously sold and to be sold in
the future. The Company has initiated its plan to deal with the problem and
expects the plan to be completed in sufficient time to avoid any disruptions in
its operations. The cost of implementing the plan is not material.
The annual report contains statements of a forward-looking nature relating
to the financial performance of Hardinge Inc. Such statements are based upon
information known to management at this time. The company cautions that such
statements necessarily involve risk, because actual results could differ
materially from those projected. Among the many factors that could cause actual
results to differ from those set forth in the forward-looking statements are
changes in general economic conditions in the U.S. or internationally, actions
taken by customers or competitors, the receipt of more or fewer orders than
expected, and changes in the cost of materials. The company undertakes no
obligation to revise its forward-looking statements if unanticipated events
alter their accuracy.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
12
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HARDINGE INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
December 31, 1997
Audited Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors 14
Consolidated Balance Sheets 15
Consolidated Statements of Income 17
Consolidated Statements of Shareholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
13
<PAGE>
Report of Independent Auditors
Board of Directors Hardinge Inc.
We have audited the accompanying consolidated balance sheets of Hardinge
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. 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. Those 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Hardinge Inc. and Subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Syracuse, New York
January 22, 1998
14
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,565 $ 2,636
Accounts receivable 56,210 41,150
Notes receivable 5,886 5,070
Inventories 91,969 99,906
Deferred income taxes 2,961 2,158
Prepaid expenses 1,790 1,656
-------- --------
Total current assets 160,381 152,576
Property, plant and equipment:
Land and buildings 40,008 40,468
Machinery, equipment and fixtures 83,537 72,736
Office furniture, equipment and vehicles 5,095 4,402
-------- --------
128,640 117,606
Less accumulated depreciation 63,453 53,716
-------- --------
65,187 63,890
Other assets:
Notes receivable 11,951 11,791
Deferred income taxes 837 651
Goodwill 4,082
Other 2,846 254
-------- --------
19,716 12,696
-------- --------
Total assets $245,284 $229,162
======== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
------------ ------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 18,323 $ 12,067
Notes payable to bank 7,282 10,950
Accrued expenses 9,756 10,676
Accrued income taxes 1,614 1,017
Deferred income taxes 1,553 896
Current portion of long-term debt 3,468 714
-------- --------
Total current liabilities 41,996 36,320
Other liabilities:
Long-term debt 31,012 37,156
Accrued pension plan expense 2,311 1,485
Deferred income taxes 1,575 1,657
Accrued postretirement benefits 5,206 4,999
-------- --------
40,104 45,297
Shareholders' equity:
Preferred stock, Series A, par value $.01 per share;
authorized 2,000,000; issued--none
Common stocks, $.01 par value:
Authorized shares--20,000,000
Issued shares--6,511,703 at December 31, 1997;
6,476,703 at December 31, 1996 65 65
Additional paid-in capital 58,065 57,027
Retained earnings 112,625 99,622
Treasury shares (552) (343)
Cumulative foreign currency translation adjustment (2,763) (3,731)
Deferred employee benefits (4,256) (5,095)
-------- --------
Total shareholders' equity 163,184 147,545
-------- --------
Total liabilities and shareholders' equity $245,284 $229,162
======== ========
</TABLE>
See accompanying notes.
16
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $246,579 $220,295 $180,586
Cost of sales 164,161 145,264 119,975
-------- -------- --------
Gross profit 82,418 75,031 60,611
Selling, general and administrative expenses 49,959 45,058 36,076
Unusual expense 1,960
-------- -------- --------
Income from operations 30,499 29,973 24,535
Interest expense 2,378 2,770 1,369
Interest (income) (705) (889) (927)
(Gain) on sale of assets (326)
-------- -------- --------
Income before income taxes 28,826 28,092 24,419
Income taxes 10,886 10,804 9,574
-------- -------- --------
Net income $ 17,940 $ 17,288 $ 14,845
======== ======== ========
Per share data:
Basic earnings per share:
Weighted average number of common shares
outstanding 6,238 6,166 4,929
Earnings per share $ 2.88 $ 2.80 $ 3.01
======== ======== ========
Diluted earnings per share:
Weighted average number of common shares
outstanding 6,285 6,224 4,954
Earnings per share $ 2.85 $ 2.78 $ 3.00
======== ======== ========
Cash dividends declared per share $ .78 $ .70 $ .62
======== ======== ========
</TABLE>
See accompanying notes.
17
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency Deferred Total
Common Paid-in Retained Treasury Translation Employee Shareholders'
Stock Capital Earnings Stock Adjustment Benefits Equity
----------- ------------ ------------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 9,444 $ 655 $ 74,853 $ (361) $ (1,874) $ (2,941) $ 79,776
Net income 14,845 14,845
Dividends declared (3,032) (3,032)
Foreign currency translation
adjustment 146 146
Reclassification Class A and B to
new Common Stock and change in
par value from $ 5.00 to .01 (9,405) 9,405 0
Issuance of 2,540,000 common
shares in public offering 25 43,559 43,584
Issuance of 95,500 shares for long-
term incentive plan 1 1,377 (1,378) 0
Stock bonuses awarded 518 502 1,020
Amortization (long-term incentive
plan) 1,345 1,345
Tax benefit from long-term incentive
plan 802 802
Payment on ESOP loan 350 350
Net purchase of treasury stock 7 (2,740) (2,733)
-------- ------- -------- -------- -------- -------- --------
Balance at December 31, 1995 65 56,323 86,666 (2,599) (1,728) (2,624) 136,103
Net income 17,288 17,288
Dividends declared (4,332) (4,332)
Foreign currency translation
adjustment (2,003) (2,003)
Shares awarded pursuant to long-term
incentive plan 259 2,779 (3,038) 0
Issuance of 18,000 shares for long-
term incentive plan 486 (486) 0
Amortization (long-term incentive
plan) 1,053 1,053
Net purchase of treasury stock (41) (523) (564)
-------- ------- -------- -------- -------- -------- --------
Balance at December 31, 1996 65 57,027 99,622 (343) (3,731) (5,095) 147,545
Net income 17,940 17,940
Dividends declared (4,937) (4,937)
Foreign currency translation
adjustment 968 968
Shares issued pursuant to long-term
incentive plan (119) 193 74
Tax benefit from long-term incentive
plan 210 210
Issuance of 35,000 shares for long-
term incentive plan 945 (945) 0
Amortization (long-term incentive
plan) 1,784 1,784
Net purchase of treasury stock 2 (402) (400)
-------- ------- -------- -------- -------- -------- --------
Balance at December 31, 1997 $ 65 $58,065 $112,625 $ (552) $ (2,763) $ (4,256) $163,184
======== ======= ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
18
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net income $ 17,940 $ 17,288 $ 14,845
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,766 7,433 5,952
Provision for deferred income taxes (202) 1,408 (642)
(Gain) on sale of assets (326)
Foreign currency transaction (gain) loss (42) (556) 267
Changes in operating assets and liabilities:
Accounts receivable (14,585) (387) (14,114)
Notes receivable (1,119) (882) (3,255)
Inventories 10,159 (16,439) (21,248)
Other assets 167 (562) 1,060
Accounts payable 6,241 (6,167) 7,240
Accrued expenses (544) 1,896 657
Accrued postretirement benefits 207 6 155
--------- --------- ---------
Net cash provided by (used in) operating activities 26,988 3,038 (9,409)
Investing activities
Capital expenditures--net (8,269) (12,734) (17,703)
Proceeds from sale of assets 510
Acquisitions, net of cash acquired (4,588) (19,232)
--------- --------- ---------
Net cash (used in) investing activities (12,857) (12,734) (36,425)
Financing activities
(Decrease) increase in short-term notes payable to
bank (6,665) 1,591 (2,730)
(Decrease) increase in long-term debt (3,390) 10,478 11,936
Purchase of treasury stock, net of stock bonus (117) (564) (1,713)
Dividends paid (4,937) (4,332) (3,993)
Proceeds from stock offering 43,584
--------- --------- ---------
Net cash (used in) provided by financing activities (15,109) 7,173 47,084
Effect of exchange rate changes on cash (93) 39 87
--------- --------- ---------
Net (decrease) increase in cash (1,071) (2,484) 1,337
Cash at beginning of year 2,636 5,120 3,783
--------- --------- ---------
Cash at end of year $ 1,565 $ 2,636 $ 5,120
========= ========= =========
</TABLE>
See accompanying notes.
19
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
1. Significant Accounting Policies
Nature of Business
Hardinge Inc. is a machine tool manufacturer, which designs, manufactures
and distributes metal cutting lathes, grinding machines, machining centers,
electrical discharge machines and tooling and accessories related to metal
cutting machines. Sales are principally in the United States and Western
Europe. Sales are also made to customers in Canada, China, Mexico, Japan,
Australia, and other foreign countries. A substantial portion of the Company's
sales are to small and medium-sized independent job shops, which in turn sell
machined parts to their industrial customers. Industries directly and
indirectly served by the Company include automotive, medical equipment,
aerospace, defense, recreational equipment, farm equipment, construction
equipment, energy and transportation.
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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
$6,825,000, $6,300,000, and $4,538,000 for 1997, 1996 and 1995, respectively.
Goodwill
Intangibles resulting from business acquisitions, comprised of costs in
excess of net business assets acquired and brands and trademarks, are being
amortized on a straight-line basis over 30 years. The Company periodically
evaluates the recoverability of intangibles resulting from business
acquisitions and measures the amount of impairment, if any, by assessing
current and future levels of income and cash flows as well as other factors,
such as business trends and prospects and market and economic conditions.
Accumulated amortization was $60,000 at December 31, 1997.
Income Taxes
The Company accounts for income taxes using the liability method according
to Financial Accounting Standards Board Statement No. 109. 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.
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.
Foreign Exchange Contracts
Gains and losses on contracts designated as hedges of existing assets and
liabilities are accrued as exchange rates change and are recognized in income.
Gains and losses on contracts designated as hedges of net investments in
foreign subsidiaries are accrued as exchange rates change and are recognized in
Shareholders' Equity as foreign
20
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
currency translation adjustment. Gains and losses on contracts designated as
hedges of identifiable foreign currency firm commitments are deferred and
included in the measurement of the related foreign currency transaction.
Earnings Per Share
Earnings per share is computed using the weighted average number of shares
of common stock outstanding during the year. For diluted earnings per share,
the weighted average number of shares includes common stock equivalents related
primarily to restricted stock. Restricted shares awarded under the Company's
long-term incentive stock plans are treated as issued shares at time of award
and are treated as outstanding in accordance with the treasury stock method
over the period of their vesting. The number of shares outstanding has been
adjusted to reflect the stock transactions as explained in Note 4 to the
financial statements.
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.
Research and Development Costs
The cost of research and development, all of which has been charged to
operations, amounted to $8,415,000, $7,932,000, and $5,713,000 in 1997, 1996
and 1995, respectively.
Stock Based Compensation
The Company grants restricted shares of common stock and stock options to
certain officers and other key employees. The Company accounts for restricted
share grants and stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees.
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
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Finished products $32,290 $34,461
Work-in-process 32,328 35,479
Raw materials and purchased components 27,351 29,966
------- -------
$91,969 $99,906
======= =======
</TABLE>
Revenue Recognition
The Company recognizes revenue from product sales upon shipment of the
product.
21
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
2. Financing Arrangements
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Note payable, due in annual installments of $714,000 through
1998, with interest payable quarterly at 9.38% $ 714 $ 1,429
Note payable, under revolving loan agreement, with interest
averaging 4.20% at December 31, 1997 12,614 8,691
Note payable, under revolving loan agreement, with interest at
6.38% at December 31, 1997 3,000 10,000
Note payable, under term loan agreement, due in quarterly
installments of $887,500 beginning on May 28, 1998 and
continuing through February 28, 2003, with an effective
interest rate of 4.49% at December 31, 1997 17,750 17,750
Other debt 402
------- -------
34,480 37,870
Less current portion 3,468 714
------- -------
$31,012 $37,156
======= =======
</TABLE>
In August 1997, the Company entered into an unsecured credit arrangement
with three banks which provides for borrowing in several currencies up to the
equivalent of $50,000,000 on a revolving loan basis through August 1, 2002.
This agreement replaces a $30,000,000 credit facility which would have
otherwise converted to term debt at that time. Interest charged on the debt is
based on London Interbank Offered Rates (LIBOR) plus a fixed percentage. A
commitment fee of up to 1/4 of 1% is payable on the unused portion of the
facility. At December 31, 1997, total borrowings under the facility were
$12,614,000. Approximately $2,086,000 of the borrowing was denominated in
British pounds sterling and $7,528,000 in Swiss francs.
In November 1996, the Company entered into an unsecured credit arrangement
with a bank which provides for borrowing in several currencies up to the
equivalent of $20,000,000 on a revolving loan basis through November 1, 1999.
The credit agreement provides for repayment of the then outstanding principal
beginning January 1, 2000 in 16 consecutive equal quarterly installments.
Interest charged on the debt is based on LIBOR plus a fixed percentage. A
commitment fee of up to 1/4 of 1% is payable on the unused portion of the
facility. At December 31, 1997, total borrowings under this arrangement were
$3,000,000.
All debt under both revolving credit arrangements has been classified as
long-term debt, as it is the Company's intention to maintain the principal
amounts outstanding either through the existing credit facilities or new
borrowing arrangements.
In February 1996, the Company entered into an unsecured term loan
arrangement with a syndication of banks for the purpose of financing its
November 1995 acquisition of L. Kellenberger & Co. AG. The loan provides for
repayment of the outstanding principal in twenty equal installments beginning
May 1998. Interest is charged on the debt based on LIBOR plus a fixed
percentage. The Company has entered into a cross-currency interest rate swap
agreement which effectively converts the $17,750,000 term loan to a borrowing
of 21,000,000 Swiss francs with an effective interest rate of 4.49%. The swap
agreement has been designated as a hedge against the Company's net investment
in its Kellenberger facility.
The Company also has a $7,000,000 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, 1997, the $4,000,000 borrowed on this line carries an average
interest rate of 6.40%. The agreement is negotiated annually and requires no
commitment fee.
22
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
2. Financing Arrangements (continued)
The Company's Kellenberger subsidiary maintains unsecured overdraft
facilities with commercial banks that permit borrowings in Swiss francs
equivalent to approximately $4,000,000. These lines provide for interest at a
fixed percentage over LIBOR and carry no commitment fees on unused funds. At
December 31, 1997, total borrowings under these lines were $3,282,000 with an
average interest rate of 5.26%.
The debt agreements require, among other things, that the Company maintain
specified levels of tangible net worth, working capital, and specified ratios
of debt to earnings and earnings to interest cost. Interest paid in 1997, 1996,
and 1995 totaled $2,498,000, $2,799,000, and $1,416,000, 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 five
years. Rent expense under these leases totaled $1,601,000, $1,378,000, and
$1,192,000 during the years ended December 31, 1997, 1996, and 1995,
respectively. Future minimum payments under noncancelable operating leases as
of December 31, 1997 total $3,662,000, with payments over the next five years
of $1,286,000, $962,000, $575,000, $128,000, and $119,000, respectively.
The Company has provided financing terms of up to seven years for
qualified customers who purchase equipment. The Company may choose, when
appropriate, to sell underlying notes receivable contracts to financial
institutions to reduce debt and finance current operations. During 1997, 1996,
and 1995, the Company sold notes totaling $34,165,000, $27,255,000, and
$12,955,000, respectively. The remaining outstanding balance of all notes sold
as of December 31, 1997 and 1996 was $61,505,000 and $50,724,000, respectively.
Gains and losses from the sales of notes receivable have not been material.
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.
3. Income Taxes
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, 1997 and
1996, the Company had state investment tax credits expiring at various dates
through the year 2007, and foreign tax credit carryforwards expiring in 2001
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
1997 1996
--------- ----------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Federal and state tax credit carryforwards $ 5,073 $ 4,571
Foreign net operating loss carryforwards 445 1,147
Postretirement benefits 2,265 1,861
Deferred employee benefits 1,804 1,201
Accrued pension 908 590
Other 1,065 818
------- -------
11,560 10,188
Less valuation allowance 5,073 4,571
------- -------
Total deferred tax assets 6,487 5,617
------- -------
Deferred tax liabilities:
Tax over book depreciation 4,490 3,976
Margin on installment sales 228 257
Other 1,099 1,128
------- -------
Total deferred tax liabilities 5,817 5,361
------- -------
Net deferred tax assets $ 670 $ 256
======= =======
</TABLE>
23
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
3. Income Taxes (continued)
Pretax income was $24,813,000, $22,872,000, and $21,554,000 from domestic
operations and $4,013,000, $5,220,000, and $2,865,000 from foreign operations
for 1997, 1996, and 1995, respectively.
Significant components of income tax expense (benefit) attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
----------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 8,650 $ 7,488 $ 7,885
Foreign 846 788 1,117
State 1,628 1,006 1,214
------- ------- -------
Total current 11,124 9,282 10,216
------- ------- -------
Deferred:
Federal (705) 468 (484)
Foreign 562 991 (104)
State (95) 63 (54)
------- ------- -------
Total deferred (238) 1,522 (642)
------- ------- -------
$10,886 $10,804 $ 9,574
======= ======= =======
</TABLE>
Income tax payments totaled $9,754,000, $9,467,000, and $9,009,000 in
1997, 1996 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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes 34.0% 34.0% 34.0%
Tax differential on operations of foreign subsidiaries .2 (.4) .2
State income taxes 3.5 2.4 3.1
Other .1 2.5 1.9
---- ---- ----
37.8% 38.5% 39.2%
==== ==== ====
</TABLE>
Undistributed earnings of the foreign subsidiaries, which amounted to
approximately $11,633,000 at December 31, 1997, 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
withholdings 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
Treasury Shares
The number of shares of common stock in treasury was 16,144, 12,365, and
108,766 at December 31, 1997, 1996 and 1995, respectively. In 1997, the Company
purchased a net 9,709 treasury shares and issued 5,930 shares under the
long-term incentive plan from treasury. In 1996, the Company purchased a net
28,570 treasury shares and issued 124,971 shares under the long-term incentive
plan from treasury. During 1995, the Company purchased a net 114,755 treasury
shares and awarded 39,221 shares under the long-term incentive plan from
treasury.
Stock Reclassification
At the annual meeting on May 16, 1995, shareholders approved amendments to
the Company's Certificate of Incorporation (a) converting each Class A common
share into 2.00 shares of a new single class of Common Stock,
24
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
4. Shareholders' Equity (continued)
representing a 2-for-1 stock split and each Class B common share into 2.05
shares of the new single class of Common Stock, representing a 2.05-for-1 stock
split; (b) 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; and (c) authorizing a new
class of Preferred Stock consisting of 2,000,000 shares. All share and per
share data appearing in the financial statements and notes thereto have been
restated giving effect to the amendments discussed above.
Public Offering
In June 1995, the Company issued 2,540,000 shares of its common stock at
$19.00 per share in a public common stock offering. Proceeds of the offering,
net of commissions and expenses, were $43,584,000. The proceeds were used to
reduce the Company's debt, fund building expansion, and fund working capital
growth.
Preferred Stock Purchase Rights
Pursuant to the Shareholder Rights Plan adopted at the Annual Meeting in
1995, each outstanding share of the Company's common stock carries with it the
right to purchase shares of Series A Preferred Stock. Each Right 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 of $80.00 per Unit. The Rights
will become exercisable ten business days after any person or group 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. 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 of 20% or more of the outstanding Common Stock.
Reconciliation of Weighted Average Number of Shares Outstanding
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations required by Statement No.
128. The table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Numerator:
Net income $ 17,940 $ 17,288 $ 14,845
Numerator for basic earnings per share 17,940 17,288 14,845
Numerator for diluted earnings per share 17,940 17,288 14,845
Denominator:
Denominator for basic earnings per share--weighted
average shares 6,238 6,166 4,929
Effect of diluted securities:
Restricted stock and stock options 47 58 25
Denominator for diluted earnings per share--adjusted
weighted average shares 6,285 6,224 4,954
Basic earnings per share $ 2.88 $ 2.80 $ 3.01
======== ======== ========
Diluted earnings per share $ 2.85 $ 2.78 $ 3.00
======== ======== ========
</TABLE>
25
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
5. Industry Segment and Foreign Operations
The Company operates in one business segment--industrial machine tools.
Domestic and foreign operations consist of:
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------------------------ ------------------------ -----------------------
(in thousands)
United Western United Western United Western
States European States European States European
Oper. Oper. Oper. Oper. Oper. Oper.
----------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales
Gross domestic sales $182,176 $34,779 $144,978 $41,863 $134,814 $18,075
Export sales 45,888 14,409 47,485 12,870 40,191 3,954
-------- ------- -------- ------- -------- -------
228,064 49,188 192,463 54,733 175,005 22,029
Less interarea eliminations 20,437 10,236 18,277 8,624 16,448 0
-------- ------- -------- ------- -------- -------
Total net sales $207,627 $38,952 $174,186 $46,109 $158,557 $22,029
======== ======= ======== ======= ======== =======
Operating income $ 26,896 $ 3,603 $ 24,715 $ 5,258 $ 23,033 $ 1,502
======== ======= ======== ======= ======== =======
Net income $ 15,725 $ 2,215 $ 13,907 $ 3,381 $ 13,598 $ 1,247
======== ======= ======== ======= ======== =======
Identifiable assets $198,384 $46,900 $180,999 $48,163 $168,368 $43,214
======== ======= ======== ======= ======== =======
</TABLE>
Export sales from Hardinge's U.S. operations include the following:
<TABLE>
<S> <C> <C> <C>
Sales to Western European
customers $ 6,485 $ 11,492 $ 3,468
Sales to affiliated companies 20,437 18,277 16,448
Sales to customers in the
remainder of the world 18,966 17,716 20,275
-------- -------- --------
$ 45,888 $ 47,485 $ 40,191
======== ======== ========
</TABLE>
In 1997, the Company adopted Financial Accounting Standards Board
Statement No. 131, Disclosures About Segments of an Enterprise and Related
Information. Certain of the above amounts have been restated to reflect the
reporting format required by this newly released statement.
Sales attributable to Western European Operations are based on those sales
generated by subsidiaries located in Europe.
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 directly
attributable to the related operations.
In 1997, 1996 and 1995, sales to one customer in the automotive industry
represented approximately 9%, 5% and 17%, respectively, of consolidated sales.
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.
26
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
A summary of the components of net periodic pension cost is presented
below.
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Service costs--benefits earned during the year $ 1,481 $ 1,321 $ 962
Interest costs on projected benefit obligation 3,665 3,425 3,186
Actual return on plan assets (13,031) (6,008) (9,753)
Net amortization and deferral 8,711 1,996 5,763
--------- -------- --------
Net pension costs $ 826 $ 734 $ 158
========= ======== ========
</TABLE>
Actuarial assumptions used to determine pension costs include a discount
rate of 7.50% at December 31, 1997 (8.00% and 7.75% as of December 31, 1996 and
1995, respectively), expected long-term rate of return on assets of 9% for all
three years, and expected rate of increase in compensation levels of 4.5% for
1997 and 5% for 1996 and 1995. Transition amounts, unrecognized prior service
costs and unrecognized gains or losses are amortized on a straight line basis
over the future working lifetime of those expected to receive benefits under
the plan. Non-investment experience during 1997 produced a total net liability
loss of $7,500,000. The components of this loss consist of the following. A
decrease in the discount rate in 1997 increased the projected benefit
obligation at the end of the year by approximately $3,308,000. A liability loss
of $2,898,000 was attributable to the adoption of the 1983 Group Annuity
Mortality Tables in 1997. A liability gain of $551,000 was attributable to the
decrease in the salary increase rate from 5.0% to 4.5%. A liability loss of
$1,845,000 was attributable to actuarial experience. The increase in the
discount rate in 1996 decreased the projected benefit obligation at the end of
1996 by approximately $1,500,000.
A summary of the Plan's funded status and amounts recognized in the
Company's consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Plan assets at fair value $ 64,703 $ 54,037
Projected benefit obligation for services rendered to date (56,997) (47,053)
--------- ---------
Plan assets in excess of projected benefit obligation 7,706 6,984
Unrecognized net (gain) (10,937) (9,816)
Unrecognized net (asset) from transition (1,916) (2,091)
Unrecognized prior service costs resulting from Plan amendment 2,836 3,101
--------- ---------
Net pension (liability) recognized in the balance sheets $ (2,311) $ (1,822)
========= =========
</TABLE>
Net pension liability consists of a long-term portion of $2,311,000 and
$1,485,000 as of December 31, 1997 and December 31, 1996, respectively. The
remaining 1996 balance is included in accrued expenses.
The portion of the projected benefit obligation representing the
accumulated benefit obligation for the pension plan was $51,281,000 and
$42,270,000 at the end of 1997 and 1996, respectively. The vested benefit
obligation included in those numbers was $45,304,000 and $36,710,000 at the end
of 1997 and 1996, respectively.
Pension plan assets include 165,924 shares of the Company's common stock
valued at approximately $6,181,000 and $4,418,000 at December 31, 1997 and
1996, respectively. Dividends paid on those shares were $129,000 and $116,000
in 1997 and 1996, respectively. The remaining plan assets consisted of United
States Government securities, corporate bonds and notes, other common stocks
and an insurance contract.
27
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
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 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.
The Company accounts for other postretirement benefit costs in accordance
with Financial Accounting Standards Board Statement No. 106. A summary of the
components of net periodic other postretirement benefit costs relating to the
plan is presented below.
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the year $114 $114 $ 78
Interest costs on projected benefit obligations 435 449 451
Amortization of actuarial losses 25 46 --
---- ---- ----
Amount recorded in operations $574 $609 $529
==== ==== ====
</TABLE>
Actuarial assumptions used to determine the liability for postretirement
plans other than pensions included a discount rate of 7.00%, 7.50% and 7.25% at
December 31, 1997, 1996 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 10% for January 1, 1997, decreasing gradually to 6% by
the year 2005. The annual rate of increase in the per capita cost of covered
health care benefits was assumed to be 9.5% as of December 31, 1997, decreasing
gradually to 5.5% by the year 2006 and remaining at that level thereafter.
As of December 31, 1997, the mortality table was changed from the 1971
Group Mortality Table, projected to 1986 by Scale D, to the 1983 Group Annuity
Mortality table. The effect of the mortality, trend, and discount rate changes
was to increase the accumulated postretirement benefit obligation by $796,000.
In 1998, the plan will change from a self-funded plan to an insured plan
under third party coverage. The effect of this change, which is treated as a
negative plan amendment, was to decrease the accumulated postretirement benefit
obligation by $310,000 as of December 31, 1997.
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 $120,000 and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
1997 by $15,000.
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.
28
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
A schedule reconciling the accumulated benefit obligation with the
Company's recorded liability follows:
<TABLE>
<CAPTION>
December 31
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Current retirees $ (3,232) $ (3,039)
Fully eligible active participants (1,948) (1,676)
Other active participants (1,586) (1,308)
-------- --------
Total (6,766) (6,023)
Unrecognized losses 1,560 1,024
-------- --------
Accrued postretirement benefit recognized in balance sheet $ (5,206) $ (4,999)
======== ========
</TABLE>
Group Health Plans
The Company has contributory group benefit plans which provide medical
benefits to all of its domestic employees.
Savings Plan
The Company maintains a 401(k)plan which covers all eligible domestic
employees of the Company subject to minimum employment period requirements.
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 a number of investment alternatives, one being Hardinge Inc.
common stock. The Company contributes to the plan on a matching formula of 25%
of an employee's contribution up to 5% of the employee's compensation. The
Company's match is in Hardinge Inc. common stock. The Company contributed
$324,000 and $253,000 in 1997 and 1996 respectively, for this match. The
Company may also contribute a discretionary contribution to the plan to be
distributed among all participants. In 1996, the Company contributed $250,000
as a discretionary contribution.
The Company maintains an Employee Stock Ownership Plan for its eligible
domestic employees. 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. During 1995, the Company made contributions to
the trust sufficient to allow payment of the remainder of the loan.
Contributions, including dividends, to the trust for the year ended December
31, 1995 totaled $372,000. The interest portion of those contributions was
$22,000. Approximately $29,000 of dividends on shares owned by the ESOP were
used to service debt requirements in 1995.
Long-Term Incentive Plans
In 1996, 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, performance share awards, stock options and stock
appreciation rights up to an aggregate of 300,000 shares of common stock to
these employees.
During 1997, certain officers were awarded a total of 35,000 restricted
shares of common stock. During 1996 and 1995, shares of restricted common stock
were awarded to certain officers and key managers totaling 134,650 and 95,500,
respectively. Restrictions on 12,300 shares, which were the final shares from
the 1988 Incentive Stock Plan, expired in 1997. Restrictions on 13,000 shares
of common stock from a similar 1993 Incentive Stock Plan were released during
1997. Restrictions on 10,250 shares expired in 1996.
As of December 31, 1997, a total of 458,500 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 three to eight
years from date of grant.
29
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
Deferred compensation associated with these grants is measured by the
market value of the stock on the date of grant and totaled $945,000, $3,467,000
and $1,377,500 in 1997, 1996 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, 1997, 1996 and 1995,
totaled $4,256,000, $5,095,000 and $2,624,000, respectively, and is included
along with Employee Stock Ownership Benefits as a reduction of shareholders'
equity.
Stock options for 21,000 shares in 1997 and 39,500 shares in 1996 have
also been issued under the 1996 Plan. The options expire ten years from the
date of issue and vest over periods varying from immediate vesting to three
years. The Company accounts for the stock options issued under the Plan using
the intrinsic value method as defined by Accounting Principle Board Opinion No.
25, Accounting for Stock Issued to Employees. Since all such options have been
issued at exercise prices equal to the trading price of Hardinge stock at date
of issue, no expense is recognized. The Company has considered valuation of
stock options using the fair value method as determined by Financial Accounting
Standards Board Statement No. 123, Accounting for Stock Based Compensation.
Application of the fair value method, however, would only reduce 1997 and 1996
net income by $68,000 and $15,000, respectively, and is not deemed to be
material.
Foreign Operations
The Company also has employees in certain foreign countries that are
covered by defined contribution and benefit pension plans and other employee
benefit plans. Related obligations and costs charged to operations are not
material.
7. Financial Instruments
At December 31, 1997 and 1996, the carrying value of financial instruments
such as cash, accounts receivable, accounts payable and short-term debt
approximated their fair values, based on the short-term maturities of these
instruments. The carrying amounts of debt under the revolving agreements
classified as long-term debt approximate fair value as the underlying
instruments are comprised of notes that are repriced on a short-term basis.
In addition, the carrying amount of the term loan dated February, 1996
approximates its fair value as the underlying interest rate is variable.
Related to this term loan, the Company entered into a seven-year cross-currency
interest rate swap agreement (see Note 2). The fair value of the instrument was
$2,475,000 and $1,241,000 at December 31, 1997 and 1996 respectively, based on
current settlement value as determined by a financial institution.
The fair value of notes receivable, short-term and long-term, was
determined using a discounted cash flow analysis based on the rate at which the
Company could sell those notes at year end under standard terms experienced on
recent sales (a fixed percentage over U.S. Treasury notes). At December 31,
1997 and 1996, the carrying value of these notes approximated the fair value.
The fair value of other long term debt was determined based on rates
obtained from financial institutions on funds available for terms approximating
the remaining term of that debt. At December 31, 1997, the fair value of that
debt with carrying value of $714,000 was $672,000.
The Company regularly enters into foreign currency contracts to manage its
exposure to fluctuations in foreign currency exchange rates on purchases of
materials used in production and cash settlements of intercompany sales. Any
gains or losses from these contracts have not been material. At December 31,
1997 and 1996, the Company had notional principal amounts of approximately
$8,535,000 and $10,621,000 in contracts to purchase currency in the future from
major commercial banks. The fair value of these contracts is not material.
Concentration of Credit Risk
The Company 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 the financial condition of
its customers. The Company offers financing terms of up to seven years for its
customers in the United
30
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
7. Financial Instruments (continued)
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, 1997 and 1996, 36% and 22%,
respectively, of the accounts receivable were from the three major U.S.
automobile manufacturers, with receivables from one representing 21% at
December 31, 1997 and 10% at December 31, 1996 of the consolidated accounts
receivable.
In addition, at December 31, 1996, receivables from one of the Company's
distributors totaled 8% of the consolidated accounts receivable.
8. Acquisitions
On November 29, 1995, the Company completed the acquisition of 100% of the
outstanding shares of L. Kellenberger & Co. AG and subsidiary, a St. Gallen,
Switzerland based manufacturer of grinding machines ("Kellenberger"). The
Company paid $19,232,000 including acquisition expenses. The acquisition cost
was funded with an unsecured term loan arrangement with two banks.
The acquisition has been accounted for as a purchase. Results of
operations of Kellenberger have been included in the consolidated financial
statements of the Company from the date of acquisition. The purchase price was
allocated based on the estimated fair values of assets and liabilities as of
the date of acquisition resulting in no goodwill.
On the basis of an unaudited proforma consolidation of the results of
operations as if the acquisition had taken place as of January 1, 1995,
consolidated net sales for the combined companies would have been $213,127,000
for the year ended December 31, 1995. Consolidated net income would have been
$13,430,000 and diluted earnings per share would have been $2.71 for 1995. The
results reflect additional depreciation on the step-up in basis of certain
fixed assets acquired, interest expense that would have been incurred to
finance the purchase, and savings which would have resulted if cost cutting
measures taken at the time of acquisition had taken place at the beginning of
1995. The proforma amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisition had been
effective at the beginning of 1995 or of future results of operations of the
consolidated entities.
On April 14, 1997, Hardinge completed a stock purchase agreement under
which it acquired 100% of the outstanding shares of Hansvedt Industries, Inc.,
an Urbana, Illinois based manufacturer of electrical discharge machines (EDM)
and related equipment. Electrical discharge machines are used to produce
complex metal parts through a process of erosion with electricity using either
a cutting wire or electrode. Hansvedt Industries, which was privately held and
is the largest U.S. manufacturer of EDM equipment, had 1996 revenues of
$8,000,000. The acquisition was financed using Hardinge's existing credit
lines.
9. Unusual Expense
During the first quarter of 1997, the Company incurred a one-time charge
of $1,960,000 (approximately $1,200,000 after tax, or $.20 per share). This
non-recurring charge involves outside costs incurred in connection with a major
acquisition that the Company carried into the final stages of the due diligence
process but decided not to complete.
10. Reporting Comprehensive Income
In June, 1997 the Financial Accounting Standards Board issued Statement of
No. 130, Reporting Comprehensive Income which is effective for fiscal years
beginning after December 15, 1997. Statement No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company will adopt this statement
in the quarter ending March 31, 1998, and will reclassify its financial
statements for earlier periods provided for comparative purposes. Under this
statement, changes in cumulative foreign currency translation adjustment of
$968,000 for the year ended December 31, 1997 and ($2,003,000) for the year
ended December 31, 1996, currently reported as a separate component of
shareholders' equity, would be reclassified under shareholders' equity as
adjustments to comprehensive income.
31
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
11. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1997
Net sales $60,056 $63,668 $56,772 $66,083
Gross profit 20,178 21,334 19,193 21,713
Income from operations 6,414 8,359 6,800 8,926
Net income 3,514 4,833 3,985 5,608
Basic earnings per share:
Weighted average shares outstanding 6,206 6,231 6,253 6,277
Earnings per share .57 .78 .64 .89
Diluted earnings per share:
Weighted average shares outstanding 6,219 6,237 6,275 6,295
Earnings per share .57 .77 .64 .89
1996
Net sales $59,622 $55,266 $47,577 $57,830
Gross profit 19,332 18,477 17,103 20,119
Income from operations 7,762 7,531 6,254 8,426
Net income 4,470 4,320 3,435 5,063
Basic earnings per share:
Weighted average shares outstanding 6,158 6,183 6,187 6,184
Earnings per share .73 .70 .56 .82
Diluted earnings per share:
Weighted average shares outstanding 6,197 6,227 6,212 6,203
Earnings per share .72 .69 .55 .82
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share.
Earnings per share amounts are based on the weighted average shares
outstanding for each period presented. As a result of the changes in
outstanding shares from quarter to quarter, the total of the four quarters for
1997 and 1996 does not equal the annual earnings per share for each of the
years.
32
<PAGE>
ITEM 9.--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
33
<PAGE>
PART III
ITEM 10.--DIRECTORS AND OFFICERS OF THE REGISTRANT
Certain information required by this item is incorporated by reference
from the Registrant's proxy statement filed with the Commission on March 12,
1998. Additional information required to be furnished by Item 401 of Regulation
S-K is as follows:
List of Executive Officers of the Registrant
<TABLE>
<CAPTION>
Executive
Officer
Name Age Since Positions and Offices Held
- --------------------- ----- ---------- ------------------------------------------------------------
<S> <C> <C> <C>
Robert E. Agan 59 1978 Chairman of the Board and Chief Executive Officer since
October, 1996; Chairman of the Board, President and Chief
Executive Officer in 1996; President and Chief Executive
Officer 1984-1995; President and Chief Operating Officer in
1983; Executive Vice President and Chief Operating Officer
1980-1982; Vice President--Employee Relations 1978-
1979; member of Board of Directors of the Company since
1980.
J. Allan Krul 55 1988 President and Chief Operating Officer since October, 1996;
Executive Vice President and Chief Operating Officer in
1996; Senior Vice President and Chief Operating Officer
1995-1996; Vice President--General Manager Machine
Operations 1991-1994; Vice President--Engineering 1988-
1990; member of Board of Directors of the Company since
November, 1996.
Malcolm L. Gibson 57 1983 Executive Vice President and Chief Financial Officer, and
Assistant Secretary since October, 1996. Senior Vice
President, Chief Financial Officer and Assistant Secretary
1995-1996; Vice President--Finance, Treasurer and
Assistant Secretary 1985-1994; Vice President--Finance
and Assistant Secretary 1983-1984; Treasurer 1972-1982.
Joseph T. Colvin 54 1996 Vice President--Manufacturing since October, 1996;
Manufacturing Director, Machine Operations 1994-1996;
Formerly Vice President Operations, General Manager,
Inertial Guidance Test Equipment and Original Equipment
Manufacturing, Contraves, Inc.,1994; President and CEO,
Modern Manufacturing, 1993; President, Inland Motor
Division, Kollmorgen Corp., 1987-1992.
J. Patrick Ervin 40 1996 Vice President--Sales & Marketing since October 1996;
General Manager, Machine Tool Division in 1996; Director,
Sales & Marketing 1992-1996; Director of Materials &
Purchasing 1990-1992; Superintendent, Machine Division
1989-1990, Various other Company positions 1978-1989.
Douglas A. Greenlee 50 1992 Vice President--Business Development since 1993;
Secretary in 1992; Formerly attorney, Hazel & Thomas, P.C.,
Law Firm; member of Board of Directors of the Company
since 1979.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Executive
Officer
Name Age Since Positions and Offices Held
- -------------------- ----- ---------- -------------------------------------------------------------
<S> <C> <C> <C>
Richard L. Simons 42 1996 Vice President--Finance since October, 1996; Controller
1987-1996; Assistant Treasurer 1985-1987; Manager
Financial Accounting 1983-1984.
Daniel P. Soroka 49 1996 Vice President--Engineering since October, 1996; Director
of Research & Engineering 1992-1996; Manager of
Mechanical Design and Analysis 1989-1992.
Douglas C. Tifft 43 1988 Vice President--Employee Relations since 1988. Various
other Company positions 1978-1988.
Thomas T. Connelly 50 1984 Treasurer since 1995; Senior Vice President-General
Manager Workholding Operations 1991--1994; Senior Vice
President 1987--1990; Vice President and Assistant to the
President 1985--1986; Treasurer and Assistant to the
President in 1984; Treasurer in 1983; Assistant Treasurer in
1982.
</TABLE>
ITEM 11.--EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Registrant's proxy statement filed with the Commission on March 12, 1998.
ITEM 12.--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Registrant's proxy statement filed with the Commission on March 12, 1998.
ITEM 13.--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Registrant's proxy statement filed with the Commission on March 12, 1998.
35
<PAGE>
PART IV
ITEM 14.--EXHIBITS, FINANCIAL STAEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements of the Registrant listed in ITEM 8. of
this Report are incorporated herein by reference.
(2) The financial statement schedules of the Registrant listed in ITEM 8.
of this Report are incorporated herein by reference.
(3) Exhibits filed as part of this Report: See (c) below.
(b) Reports on Form 8-K filed by the Registrant during the last quarter
of the period covered by this report: None.
(c) Exhibits required by Item 601 of Regulation S-K filed as a part of
this Report on Form 10-K:
<TABLE>
<CAPTION>
Item Description
-- -----------
<S> <C>
4.1- Restated Certificate of Incorporation of Hardinge Inc. filed with the Secretary of State of the
State of New York on May 24, 1995, incorporated by reference from the Registrant's Form
8-A, filed with the Securities and Exchange Commission on May 19, 1995.
4.2- By-Laws of Hardinge Inc. as amended November 19, 1996, incorporated by reference from
the Registrant's Form 10-K for the year ended December 31, 1996.
4.3- Section 719 through 726 of the New York Business Corporation Law, incorporated by
reference from the Registrant's Form 10, effective June 29, 1987.
4.4- Specimen of certificate for shares of Common Stock, par value $.01 per share, of Hardinge
Inc., incorporated by reference from the Registrant's Form 8-A, filed with the Securities and
Exchange Commission on May 19, 1995.
4.5- Form of Rights Agreement, dated as of May 16, 1995, between Hardinge Inc. and American
Stock Transfer and Trust Company, incorporated by reference from the Registrant's Form
8-A, filed with the Securities and Exchange Commission on May 23, 1995.
4.6- Amended Form of Rights Agreement, dated as of August 25, 1997 between Hardinge Inc.
and Fifth Third Bank, incorporated by reference from the Registrant's Form 8-A/A filed with
the Securities and Exchange Commission on September 29, 1997.
10.1- Credit Agreement dated as of August 1, 1997 among Hardinge Inc. and the Banks signatory
thereto and The Chase Manhattan Bank as Agent, incorporated by reference from the
Registrant's Form 10-Q for the quarter ended September 30, 1997.
10.2- Credit Agreement dated as of November 18, 1996 between Hardinge Inc. and Marine
Midland Bank, incorporated by reference from the Registrant's Form 10-K for the year
ended December 31, 1996.
10.3- Amendment Number One dated August 1, 1997 to Credit Agreement dated as of November
18, 1996 between Hardinge Inc. and Marine Midland Bank, incorporated by reference from
the Registrant's Form 10-Q for the quarter ended September 30, 1997.
10.4- Credit Agreement dated as of February 28, 1996 among Hardinge Inc. and the Banks
signatory thereto and The Chase Manhattan Bank as Agent, incorporated by reference from
the Registrant's Form 10-Q for the quarter ended March 31, 1996.
10.5- Amendment Number One dated August 1, 1997 to Credit Agreement dated as of February
28, 1996 among Hardinge Inc. and the Banks signatory thereto and The Chase Manhattan
Bank as Agent, incorporated by reference from the Registrant's Form 10-Q for the quarter
ended September 30, 1997.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Item Description
---- -----------
<S> <C>
10.6- $7,000,000 Master Note among Hardinge Inc. and Chemung Canal Trust Company dated
July 23, 1996, incorporated by reference from the Registrant's Form 10-K for the year ended
December 31, 1996.
10.7- Credit Agreement dated as of August 1, 1994 among Hardinge Inc., the Banks signatory
thereto and The Chase Manhattan Bank, incorporated by reference from the Registrant's
Registration Statement on Form S-2 (No. 33-91644).
10.8- Amendment Number One dated February 29, 1996 to Credit Agreement dated as of August
1, 1994 among Hardinge Inc., the Banks signatory thereto and The Chase Manhattan Bank,
incorporated by reference from the Registrant's Form 10-K for the year ended December 31,
1996.
10.9- Amendment Number Two dated August 1, 1997 to Credit Agreement dated as of August 1,
1994 among Hardinge Inc., the Banks signatory thereto and The Chase Manhattan Bank
terminating said Credit Agreement, incorporated by reference from the Registrant's Form
10-Q for the quarter ended September 30, 1997.
10.10- Stock Purchase Agreement dated as of November 15, 1995 between Hardinge Inc. and L.
Kellenberger & Co. AG, incorporated by reference from the Registrant's Form 8-K, as
amended, dated November 29, 1995.
10.11- Note Agreement dated August 29, 1991 between Hardinge Inc. and AEtna Life Insurance
Company, relating to the issuance by Hardinge Inc. of $5,000,000 principal amount of its
9.38% notes due 1998, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.12- The 1996 Hardinge Inc. Incentive Stock Plan as adopted by shareholders at the April 23,
1996 annual meeting, incorporated by reference from the Registrant's Form 10-Q for the
quarter ended June 30, 1996.
*10.13- Hardinge Inc. Savings Plan, incorporated by reference from the Registrant's Registration
Statement on Form S-8 (No. 33-65049).
*10.14- Employment Agreement with Joseph T. Colvin effective January 1, 1997, incorporated by
reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997.
*10.15- Employment Agreement with J. Patrick Ervin effective January 1, 1997, incorporated by
reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997.
*10.16- Employment Agreement with Richard L. Simons effective January 1, 1997, incorporated by
reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997.
*10.17- Employment Agreement with Daniel P. Soroka effective January 1, 1997, incorporated by
reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997.
*10.18- Employment Agreement with Robert E. Agan dated as of April 1, 1995, incorporated by
reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644).
*10.19- Employment Agreement with J. Allan Krul dated as of April 1, 1995, incorporated by
reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644).
*10.20- Employment Agreement with Malcolm L. Gibson dated as of April 1, 1995, incorporated by
reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644).
*10.21- Employment Agreement with Douglas A. Greenlee dated as of April 1, 1995, incorporated
by reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644).
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Item Description Item
---- ----------- ----
<S> <C>
*10.22- Employment Agreement with Douglas C. Tifft dated as of April 1, 1995, incorporated by
reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644).
*10.23- Hardinge Inc. 1993 Incentive Stock Plan, incorporated by reference from the Registrant's
Form 10-K for the year ended December 31, 1993.
*10.24- The 1988 Hardinge Inc. Incentive Stock Plan, as adopted by shareholders at the annual
meeting of shareholders held on May 17, 1988, incorporated by reference from the
Registrant's Form 10-Q for the quarter ended June 30, 1988.
*10.25- First Amendment to Hardinge Inc. 1988 Incentive Stock Plan, incorporated by reference
from the Registrant's Form 10-K for the year ended December 31, 1993.
*10.26- Hardinge Inc. Executive Supplemental Pension Plan, incorporated by reference from the
Registrant's Form 10-K for the year ended December 31, 1993.
*10.27- Form of Deferred Directors Fee Plan, incorporated by reference from the Registrant's
Registration Statement on Form S-2 (No. 33-91644).
*10.28- Description of Incentive Cash Bonus Program, incorporated by reference from the
Registrant's Registration Statement on Form S-2 (No. 33-91644).
21- Subsidiaries of the Company.
23- Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
27.3 Restated Financial Data Schedule.
27.4 Restated Financial Data Schedule.
27.5 Restated Financial Data Schedule.
27.6 Restated Financial Data Schedule.
27.7 Restated Financial Data Schedule.
27.8 Restated Financial Data Schedule.
</TABLE>
- ----------
*Management contract or compensatory plan or arrangement.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
-------------------------------------
(Registrant)
April 28, 1998 /s/ Robert E. Agan
- ----------------------------- -------------------------------------
Robert E. Agan
Chairman of the Board, President
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
April 28, 1998 /s/ J. Patrick Ervin
- ----------------------------- -------------------------------------
J. Patrick Ervin
Senior Vice President
April 28, 1998 /s/ Malcolm L. Gibson
- ----------------------------- -------------------------------------
Malcolm L. Gibson
Executive Vice President/Chief Financial
Officer and Assistant Secretary
(Principal Financial Officer)
April 28, 1998 /s/ John W. Bennett
- ----------------------------- -------------------------------------
John W. Bennett
Director
April 28, 1998 /s/ Richard J. Cole
- ----------------------------- -------------------------------------
Richard J. Cole
Director
April 28, 1998 /s/ James L. Flynn
- ----------------------------- -------------------------------------
James L. Flynn
Director
April 28, 1998
- ----------------------------- -------------------------------------
E. Martin Gibson
Director
April 28, 1998 /s/ Douglas A. Greenlee
- ----------------------------- -------------------------------------
Douglas A. Greenlee
Vice President and Director
April 28, 1998 /s/ J. Philip Hunter
- ----------------------------- -------------------------------------
J. Philip Hunter
Director and Secretary
April 28, 1998 /s/ Dr. Eve L. Menger
- ----------------------------- -------------------------------------
Dr. Eve L. Menger
Director
39
<PAGE>
April 28, 1998 /s/ Albert W. Moore
- ----------------------------- -------------------------------------
Albert W. Moore
Director
April 28, 1998 /s/ Richard L. Simons
- ----------------------------- -------------------------------------
Richard L. Simons
Vice President--Finance
(Principal Accounting Officer)
40
Exhibit 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction of
Company Incorporation or Organization
------- -----------------------------
Canadian Hardinge Machine Tools, Ltd. Canada
Hardinge Machine Tools, Ltd. United Kingdom
Hardinge, GmbH Federal Republic
of Germany
Hansvedt Industries, Inc. Illinois
L. Kellenberger & Co., AG Switzerland
Kellenberger Incorporated New York
Hardinge Shanghai Company, Ltd. China
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-65049) pertaining to the Hardinge Inc. Savings Plan of our report
dated January 22, 1998, with respect to the consolidated financial statements of
Hardinge Inc. and subsidiaries included in the Annual Report (Form 10-K) for the
year ended December 31, 1997.
/s/ Ernst & Young LLP
----------------------
Syracuse, New York
March 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,565
<SECURITIES> 0
<RECEIVABLES> 74,047
<ALLOWANCES> 0
<INVENTORY> 91,969
<CURRENT-ASSETS> 160,381
<PP&E> 128,640
<DEPRECIATION> 63,453
<TOTAL-ASSETS> 245,284
<CURRENT-LIABILITIES> 41,996
<BONDS> 31,012
0
0
<COMMON> 65
<OTHER-SE> 163,119
<TOTAL-LIABILITY-AND-EQUITY> 245,284
<SALES> 246,579
<TOTAL-REVENUES> 246,579
<CGS> 164,161
<TOTAL-COSTS> 49,959
<OTHER-EXPENSES> 1,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,378
<INCOME-PRETAX> 28,826
<INCOME-TAX> 10,886
<INCOME-CONTINUING> 17,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,940
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.85
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE nine months ENDED SEPTEMBER 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS
PER SHARE AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,117
<SECURITIES> 0
<RECEIVABLES> 60,263
<ALLOWANCES> 0
<INVENTORY> 90,367
<CURRENT-ASSETS> 146,790
<PP&E> 126,651
<DEPRECIATION> 61,896
<TOTAL-ASSETS> 227,994
<CURRENT-LIABILITIES> 31,537
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 155,477
<TOTAL-LIABILITY-AND-EQUITY> 227,994
<SALES> 180,496
<TOTAL-REVENUES> 180,496
<CGS> 119,791
<TOTAL-COSTS> 37,172
<OTHER-EXPENSES> 1,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,896
<INCOME-PRETAX> 20,207
<INCOME-TAX> 7,875
<INCOME-CONTINUING> 12,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,332
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS
PER SHARE AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,321
<SECURITIES> 0
<RECEIVABLES> 61,162
<ALLOWANCES> 0
<INVENTORY> 92,312
<CURRENT-ASSETS> 147,391
<PP&E> 117,051
<DEPRECIATION> 55,264
<TOTAL-ASSETS> 220,778
<CURRENT-LIABILITIES> 29,067
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 148,576
<TOTAL-LIABILITY-AND-EQUITY> 220,778
<SALES> 60,056
<TOTAL-REVENUES> 60,056
<CGS> 39,878
<TOTAL-COSTS> 11,804
<OTHER-EXPENSES> 1,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 691
<INCOME-PRETAX> 5,889
<INCOME-TAX> 2,375
<INCOME-CONTINUING> 3,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,514
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE
AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,636
<SECURITIES> 0
<RECEIVABLES> 58,011
<ALLOWANCES> 0
<INVENTORY> 99,906
<CURRENT-ASSETS> 152,576
<PP&E> 117,606
<DEPRECIATION> 53,716
<TOTAL-ASSETS> 229,162
<CURRENT-LIABILITIES> 36,320
<BONDS> 37,156
0
0
<COMMON> 65
<OTHER-SE> 147,480
<TOTAL-LIABILITY-AND-EQUITY> 229,162
<SALES> 220,295
<TOTAL-REVENUES> 220,295
<CGS> 145,264
<TOTAL-COSTS> 45,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,770
<INCOME-PRETAX> 28,092
<INCOME-TAX> 10,804
<INCOME-CONTINUING> 17,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,288
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS
PER SHARE AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,938
<SECURITIES> 0
<RECEIVABLES> 59,517
<ALLOWANCES> 0
<INVENTORY> 98,375
<CURRENT-ASSETS> 155,166
<PP&E> 117,718
<DEPRECIATION> 53,715
<TOTAL-ASSETS> 231,298
<CURRENT-LIABILITIES> 38,339
<BONDS> 42,027
0
0
<COMMON> 65
<OTHER-SE> 143,940
<TOTAL-LIABILITY-AND-EQUITY> 231,298
<SALES> 162,465
<TOTAL-REVENUES> 162,465
<CGS> 107,553
<TOTAL-COSTS> 33,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,936
<INCOME-PRETAX> 20,167
<INCOME-TAX> 7,942
<INCOME-CONTINUING> 12,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,225
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.97
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS
PER SHARE AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,733
<SECURITIES> 0
<RECEIVABLES> 60,213
<ALLOWANCES> 0
<INVENTORY> 92,775
<CURRENT-ASSETS> 150,520
<PP&E> 113,801
<DEPRECIATION> 52,170
<TOTAL-ASSETS> 223,945
<CURRENT-LIABILITIES> 37,811
<BONDS> 36,731
65
0
<COMMON> 0
<OTHER-SE> 142,087
<TOTAL-LIABILITY-AND-EQUITY> 223,945
<SALES> 114,888
<TOTAL-REVENUES> 114,888
<CGS> 77,079
<TOTAL-COSTS> 22,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,197
<INCOME-PRETAX> 14,478
<INCOME-TAX> 5,688
<INCOME-CONTINUING> 8,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,790
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS
PER SHARE AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,821
<SECURITIES> 0
<RECEIVABLES> 60,343
<ALLOWANCES> 0
<INVENTORY> 86,084
<CURRENT-ASSETS> 144,102
<PP&E> 109,330
<DEPRECIATION> 50,789
<TOTAL-ASSETS> 215,250
<CURRENT-LIABILITIES> 35,676
<BONDS> 32,706
65
0
<COMMON> 0
<OTHER-SE> 139,466
<TOTAL-LIABILITY-AND-EQUITY> 215,250
<SALES> 59,622
<TOTAL-REVENUES> 59,622
<CGS> 40,290
<TOTAL-COSTS> 11,570
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 522
<INCOME-PRETAX> 7,455
<INCOME-TAX> 2,985
<INCOME-CONTINUING> 4,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,470
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.72
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE
AMOUNTS HAVE BEEN RESTATED TO COMPLY WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,120
<SECURITIES> 0
<RECEIVABLES> 57,084
<ALLOWANCES> 0
<INVENTORY> 84,968
<CURRENT-ASSETS> 140,153
<PP&E> 109,320
<DEPRECIATION> 49,716
<TOTAL-ASSETS> 210,856
<CURRENT-LIABILITIES> 40,373
<BONDS> 27,100
65
0
<COMMON> 0
<OTHER-SE> 136,038
<TOTAL-LIABILITY-AND-EQUITY> 210,856
<SALES> 180,586
<TOTAL-REVENUES> 180,586
<CGS> 119,975
<TOTAL-COSTS> 36,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,369
<INCOME-PRETAX> 24,419
<INCOME-TAX> 9,574
<INCOME-CONTINUING> 14,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,845
<EPS-PRIMARY> 3.01
<EPS-DILUTED> 3.00
</TABLE>
