FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-15760
Hardinge Inc.
(Exact name of Registrant as specified in its charter)
New York 16-0470200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hardinge Inc.
One Hardinge Drive
Elmira, NY 14902
(Address of principal executive offices) (Zip code)
(607) 734-2281
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
As of March 31, 1998 there were 6,542,739 shares of Common Sock of the
Registrant outstanding.
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997. 3
Consolidated Statements of Income and Retained
Earnings for the three months ended March 31, 1998 and
1997. 5
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1998 and 1997. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I, ITEM 1
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands)
Mar. 31, Dec. 31,
1998 1997
-------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 2,618 $ 1,565
Accounts receivable 53,371 56,210
Notes receivable 5,731 5,886
Inventories 89,880 91,969
Deferred income taxes 2,961 2,961
Prepaid expenses 2,725 1,790
-------------------------------
Total current assets 157,286 160,381
Property, plant and equipment:
Property, plant and equipment 134,724 128,640
Less accumulated depreciation 65,221 63,453
-------------------------------
69,503 65,187
Other assets:
Notes receivable 11,861 11,951
Deferred income taxes 837 837
Goodwill 4,046 4,082
Other 2,962 2,846
-------------------------------
19,706 19,716
-------------------------------
Total assets $246,495 $245,284
===============================
See accompanying notes.
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
(Dollars In Thousands)
Mar. 31, Dec. 31,
1998 1997
-------------------------------
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 13,031 $ 18,323
Notes payable to bank 4,169 7,282
Accrued expenses 10,389 9,756
Accrued income taxes 4,287 1,614
Deferred income taxes 1,612 1,553
Current portion long-term debt 4,355 3,468
-------------------------------
Total current liabilities 37,843 41,996
Other liabilities:
Long-term debt 32,383 31,012
Accrued pension plan expense 2,311 2,311
Deferred income taxes 1,521 1,575
Accrued postretirement benefits 5,142 5,206
-------------------------------
41,357 40,104
Shareholders' equity
Preferred stock, Series A, par value $.01:
Authorized - 2,000,000; issued - none
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 6,562,703 at March 31, 1998;
6,511,703 at December 31, 1997 66 65
Additional paid-in capital 59,964 58,065
Retained earnings 116,711 112,625
Treasury shares (721) (552)
Cumulative foreign currency translation adjustment (3,029) (2,763)
Deferred employee benefits (5,696) (4,256)
------------------------------
Total shareholders' equity 167,295 163,184
-------------------------------
Total liabilities and shareholders' equity $246,495 $245,284
===============================
See accompanying notes.
<PAGE>
HARDINGE INC AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In Thousands, Except Per Share Data)
Three months ended
March 31,
1998 1997
-----------------------------
Net Sales $65,779 $60,056
Cost of sales 42,926 39,878
-----------------------------
Gross profit 22,853 20,178
Selling, general and
administrative expenses 13,671 11,804
Unusual expense 1,960
-----------------------------
Income from operations 9,182 6,414
Interest expense 573 691
Interest (income) (150) (166)
-----------------------------
Income before income taxes 8,759 5,889
Income taxes 3,305 2,375
-----------------------------
Net income 5,454 3,514
Retained earnings at beginning of period 112,625 99,622
Less dividends declared 1,368 1,235
-----------------------------
Retained earnings at end of period $116,711 $ 101,901
=============================
Per share data:
Basic earnings per share $ .87 $ .57
=============================
Weighted average number
of common shares outstanding 6,274 6,206
=============================
Diluted earnings per share $ .87 $ .57
=============================
Weighted average number
of common shares outstanding 6,296 6,219
=============================
Cash dividends declared $ .21 $ .19
=============================
See accompanying notes.
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
Three Months Ended
March 31,
1998 1997
----------------------------------
Net cash provided by operating activities $10,014 $ 10,276
Investing activities:
Capital expenditures (6,677) (744)
----------------------------------
Net cash (used in) investing activities (6,677) (744)
Financing activities:
(Decrease) in short-term notes payable to bank (3,002) (7,485)
Increase (decrease) in long-term debt 2,259 (2,218)
(Purchase) sale of treasury stock (169) 137
Dividends paid (1,368) (1,235)
----------------------------------
Net cash (used in) financing activities (2,280) (10,801)
Effect of exchange rate changes on cash (4) (46)
----------------------------------
Net increase (decrease) in cash $ 1,053 ($1,315)
==================================
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report for the year ended December 31, 1997.
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
Company operates in only one business segment - industrial machine tools.
NOTE B--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
March 31, December 31,
1998 1997
--------------- ---------------
Finished products $34,872 $32,290
Work-in-process 30,576 32,328
Raw materials and purchased components 24,432 27,351
--------------- ---------------
$89,880 $91,969
=============== ===============
NOTE C--UNUSUAL EXPENSE
1997's first quarter included a one-time charge of $1,960,000 (approximately
$1,200,000 after tax, or $.20 per share). This non-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.
NOTE D--EARNINGS PER SHARE AND WEIGHTED SHARES OUTSTANDING
Earnings per share are computed using the weighted average number of shares
of common stock outstanding during the period. For diluted earnings per share,
the weighted average number of shares includes common stock equivalents related
primarily to restricted stock. In 1997, Statement of Financial Accounting
Standards No. 128 "Earnings per Share" was issued. Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. All earnings per share amounts have been restated to
conform to the requirements of Statement 128.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 1998
NOTE E--REPORTING COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components, however, the adoption of this Statement had no impact on the
Company's net income or shareholders'equity. Statement 130 requires that foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, be included in shareholders' equity as other
comprehensive income. Prior year financial statements will be reclassified to
conform to the requirements of Statement 130.
During the first quarter of 1998 and 1997, the components of total
comprehensive income consisted of the following (dollars in thousands):
Three months ended
March 31,
1998 1997
------------- ------------
Net Income $ 5,454 $ 3,514
Foreign currency translation adjustments (266) (1,708)
------------- ------------
Comprehensive Income $ 5,188 $ 1,806
============= ============
<PAGE>
PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following are management's comments relating to significant changes
in the results of operations for the three month periods ended March 31, 1998
and 1997 and in the Company's financial condition during the three month period
ended March 31, 1998.
Results of Operations
Net Sales. Net sales for the quarter ended March 31, 1998 were
$65,779,000, an increase of $5,723,000 or 9.5% over sales of $60,056,000 for the
first quarter of 1997. As previously reported, shipments to automotive customers
during the first quarter of 1997 were unusually high. Shipments to auto
customers during the first quarter of 1998 returned to typical levels. While
total U.S. sales increased by a modest 3.5%, sales to non-automotive U.S.
customers increased by 20.7%. Sales to European customers were particularly
strong, showing an increase of $4,939,000, or 49.1%, over the first quarter of
1997. Sales to all other areas of the world were only slightly lower than the
first quarter of 1997, at $5,185,000 compared to $5,960,000 in 1997.
Sales of machines accounted for $46,405,000 during the first quarter of
1998, an increase of $4,545,000, or 10.9% over the first quarter of 1997. Sales
of non-machine products and services of $19,374,000 increased by $1,178,000, or
6.5%, over the previous year's first quarter.
Gross Profit. Gross margin, as a percentage of sales, was 34.7% in the
first quarter of 1998, compared to 33.6% for the same period in 1997. This
increase reflects a more profitable mix of product sales among machine lines,
plus the relatively lower portion of machine sales attributable to automotive
customers.
Selling, General, and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses during the first quarter of 1998 were 20.8% of
sales, compared to 19.7% for the same quarter of 1997. The increase is
attributable to the fact that Hansvedt Industries, Inc. was not acquired until
the second quarter of 1997. Also a factor is a higher level of expenditures for
new product promotion and trade shows during 1998.
Unusual Expense. 1997's first quarter included a one-time charge of
$1,960,000 (approximately $1,200,000 after tax, or $.20 diluted earnings 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 as a percentage of net
sales increased in the three month period ended March 31, 1998 to 14.0% from the
10.7% earned for the same period in 1997. The increase is substantially
attributable to the unusual expense in 1997 described above. Excluding this
one-time charge, income from operations for the first quarter of 1997 would have
been 13.9%.
<PAGE>
Interest Expense and Income. Interest expense decreased to $573,000 in
the first quarter of 1998, from $691,000 in the same 1997 period, since average
outstanding debt for the first quarter of 1998 was considerably lower than a
year previous. Interest income, earned primarily on customer notes, remained
fairly constant over the two periods.
Income Taxes. The provision for income taxes as a percentage of net
income was 37.7% for the first quarter of 1998 compared to 40.3% a year earlier.
This is largely a result of higher utilization of U.S. income tax credits during
1998.
Net Income. Net income for the first quarter of 1998 was $5,454,000 or
$.87 diluted earnings per share compared to $3,514,000 or $.57 diluted earnings
per share for the first quarter of 1997, an increase of 55.2%. Net income for
the first quarter of 1997 was reduced by $1,200,000 or $.20 diluted earnings per
share as a result of the one-time charge related to the acquisition efforts
described above. Excluding that charge, net income for the first quarter of 1998
increased by 15.7% over the first quarter of 1997. The increase resulted from
higher volume in 1998.
Earnings Per Share. All earnings per share and weighted average share
amounts are presented,and where appropriate, restated as diluted to conform with
Financial Accounting Standards Board Statement No. 128, Earnings Per Share.
Quarterly Information
The following table sets forth certain quarterly financial data for
each of the periods indicated.
Three Months Ended
Mar. 31, June 30, Sept.30, Dec. 31, Mar. 31,
1997 1997 1997 1997 1998
---------------------------------------------------
(in thousands, except per share data)
---------------------------------------------------
Net Sales $60,056 $63,668 $56,772 $66,083 $65,779
Gross Profit 20,178 21,334 19,193 21,713 22,853
Income from operations 6,414 8,359 6,800 8,926 9,182
Net income 3,514 4,833 3,985 5,608 5,454
Diluted earnings per share .57 .77 .64 .89 .87
Weighted average shares
outstanding 6,219 6,237 6,275 6,295 6,296
Liquidity and Capital Resources
Hardinge's current ratio at March 31, 1998 was 4.16:1 compared to
3.82:1 at December 31, 1997. Current assets decreased by $3,095,000 during the
first three months of 1998 primarily due to reductions in accounts receivable
and inventory of $2,839,000 and $2,089,000, respectively, partially offset by
increases in cash and prepaid expenses. Current liabilities also decreased by
$4,153,000 during the quarter, as a result of reductions in accounts and notes
payable totaling $8,405,000 partially offset by increases in accrued expenses.
For the first three months of 1998, operating activities generated
$10,014,000 of cash compared to $10,276,000 for the same period during 1997. As
a result of acquiring several large items of manufacturing equipment, capital
expenditures were significantly higher during 1998's first quarter, at
<PAGE>
$6,677,000 compared to $744,000 for the first quarter of 1997. Financing
activities during the first quarter of 1998 used cash of $2,280,000 compared to
1997's first quarter which used $10,801,000 primarily to reduce short and
long-term debt.
Hardinge provides long-term financing for the purchase of its equipment
by qualified customers. We periodically sell portfolios of our customer notes to
financial institutions in order to reduce debt and finance current operations.
Our customer financing program has an impact on our month-to-month borrowings,
but it has had little long-term impact on our working capital because of the
ability to sell the underlying notes. We sold $10,238,000 and $7,463,000 of
customer notes in the first three months of 1998 and 1997, respectively.
Hardinge maintains 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 outstanding balance on the $20,000,000 facility converts,
at the Company's option, to a term loan payable quarterly over four years
through 2003 These facilities, along with other short term credit agreements,
provide for immediate access of up to $77,000,000. At March 31, 1998,
outstanding borrowings under these arrangements totaled $19,898,000.
We believe that currently available funds and credit facilities, along
with internally generated funds, will provide sufficient financial resources for
ongoing operations.
Subsequent Event
On April 28, 1998, the Board of Directors approved a three-for-two
split of the Company's common stock to be paid in the form of a 50 percent stock
dividend. The resolution provides that each two outstanding shares will be
converted into three shares of Hardinge common stock with a par value of $.01
per share. The date of record for shareholders entitled to additional shares is
May 8, 1998, and payment of the additional shares is to take place on May 29,
1998. As a result of the split, approximately 3,281,351 additional shares of
common stock will be issued on May 29, 1998. Any fractional shares created by
the split will be paid in cash on May 29, 1998.
At its meeting on April 28, 1998, the Board of Directors also declared
a dividend of $.14 per post-split share, payable on June 10, 1998 to
shareholders of record as of June 2, 1998.
This report contains statements of a forward-looking nature
relating to the financial performance of Hardinge Inc. Such statements are based
upon information known to management at this time. The Company cautions that
such statements necessarily involve risk, because actual results could differ
materially from those projected. Among the many factors that could cause actual
results to differ from those set forth in the forward-looking statements are
changes in general economic conditions in the U.S. or internationally, actions
taken by customers or competitors, the receipt of more or fewer orders than
expected, and changes in the cost of materials. The Company undertakes no
obligation to revise its forward-looking statements if unanticipated events
alter their accuracy.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hardinge Inc.
May 12, 1998 By:_/s/ Robert E.Agan______________________
Date Robert E. Agan
Chairman of the Board, President /CEO
May 12, 1998 By:_/s/ J. Patrick Ervin___________________
Date J. Patrick Ervin
Senior Vice President
May 12, 1998 By:_/s/ Malcolm L Gibson___________________
Date Malcolm L. Gibson
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
May 12, 1998 By:_/s/ Richard L. Simons__________________
Date Richard L. Simons
Vice President - Finance
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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<RECEIVABLES> 70,963
<ALLOWANCES> 0
<INVENTORY> 89,880
<CURRENT-ASSETS> 157,286
<PP&E> 134,724
<DEPRECIATION> 65,221
<TOTAL-ASSETS> 246,495
<CURRENT-LIABILITIES> 37,843
<BONDS> 32,383
0
0
<COMMON> 66
<OTHER-SE> 167,229
<TOTAL-LIABILITY-AND-EQUITY> 246,495
<SALES> 65,779
<TOTAL-REVENUES> 65,779
<CGS> 42,926
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</TABLE>
