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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO .
</TABLE>
COMMISSION FILE NUMBER 0-15760
------------------------
HARDINGE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 16-0470200
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE HARDINGE DRIVE, ELMIRA, NEW YORK 14902-1507
(Address of principal executive Zip Code
offices)
</TABLE>
Registrant's telephone number, including area code: (607) 734-2281
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, 2000:
Common Stock, $.01 par value--$80,216,217.
The number of shares outstanding of the issuer's common stock as of
February 1, 2000:
Common Stock, $.01 par value 9,242,533 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Hardinge Inc.'s Proxy Statement filed with the Commission on
March 10, 2000 are incorporated by reference to Part III of this Form.
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<PAGE>
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
five 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. (collectively referred to as "Kellenberger"). The
Kellenberger, Inc. subsidiary was then liquidated in 1998. During 1996, Hardinge
Shanghai Company, Ltd. was established near Shanghai, People's Republic of
China. In April 1997, the Company acquired 100% of the outstanding stock of
Hansvedt Industries, Inc. Additionally, the Company is a majority owner in
Hardinge Taiwan Precision Machinery Limited, located in Nan Tou City, (Taiwan)
Republic of China.
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, St. Gallen, Switzerland and Nan
Tou City, Taiwan. 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-Registered Trademark- 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 by 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, Hardinge expanded its machine tool line to include CNC vertical
turning machines and vertical machining centers. 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
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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 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. They
are being marketed by Hardinge 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.
Further refining its ability to provide products aimed at particular types
of customer applications, Hardinge in 1998 introduced the Conquest Twin Turn 65
dual spindle, twin turret lathe. This is the most technologically advanced
machine tool Hardinge has ever built. This machine is specially designed to
manufacture complex parts within a single machining cycle.
In 1999, Hardinge introduced the Conquest GT27SP Autoload which added
automation to the reliable and rugged Conquest GT line of machines. The machine
was designed to meet the needs of our job shop customers who have asked for
affordable, fexible automation to allow them to run multiple shifts of
unattended operation. The Company has taken its knowledge of automation gained
through its turnkey orders from large manufacturers and transferred this into a
product available to smaller customers.
Also in 1999, Hardinge began manufacturing and sales of a new series of
machining centers. Three new machines in this market have been designed through
a joint effort of engineers in the United States and Taiwan, and are being
manufactured in Taiwan by a workforce that was trained in quality and
workmanship procedures by employees from the Company's main facility in Elmira.
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. Hardinge has redesigned
components of these machines to improve manufacturability and reliability of the
Hansvedt line.
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, Hardinge 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
2
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programming and tooling, as well as robotics and other parts handling equipment
manufactured by it or others.
Generally, 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, Hardinge 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.
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.
In North America, 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 are sold mainly 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. The
Company can package and ship items with heavy demand 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
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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 4%, 13% and 17% of the Company's net sales in
1999, 1998 and 1997, 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, one line of machining
centers, Hansvedt electrical discharge machines and related products at its
Elmira, New York plant. The Kellenberger grinding machines and related products
are manufactured at its St. Gallen, Switzerland plant. Hardinge began producing
a line of its machining centers at its majority-owned subsidiary in Taiwan in
late 1999. 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 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.
The Company utilizes several quality and process control programs, including
Total Quality Management. The Company's quality management system is certified
to the ISO 9001 Quality Standard of the International Standards Organization.
The ISO 9001 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.
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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 $7,060,000, $8,630,000, and $8,415,000, in 1999, 1998
and 1997, 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 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.
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, 1999 and 1998 was
$38,950,000 and $32,260,000, respectively. The increase in backlog in 1999
reflects a large order received during the second quarter of 1999 which will not
ship until 2000.
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.
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ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive federal and state
legislation and regulation relating to environmental matters.
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. On August 31, 1998, the New York State Department of
Conservation notified the Company that it could decommission the pump and treat
system, skim product from one of the wells, and bioremediate in three locations.
The Company is following this process at a nominal yearly cost.
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, 1999 the Company employed 1,266 persons, 956 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:
<TABLE>
<CAPTION>
ACREAGE (LAND)
SQUARE FOOTAGE
LOCATION TYPE OF FACILITY (BUILDING)
- -------- --------------------------------------------------- ---------------
<S> <C> <C>
OWNED PROPERTIES
Horseheads, New York Manufacturing, Engineering, Turnkey Systems, 80 acres
Marketing, Sales, Demonstration, Service and 515,000 sq. ft.
Administration
Elmira, New York Machine Assembly and Warehouse 12 acres
176,000 sq. ft.
St. Gallen, Switzerland Manufacturing, Engineering, Turnkey Systems, 8 acres
Marketing, Sales, Demonstration, Service and 155,000 sq. ft.
Administration
Exeter, England Sales, Marketing, Demonstration, Service, Turnkey 2 acres
Systems and Administration 27,500 sq. ft.
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION
LOCATION TYPE OF FACILITY SQUARE FOOTAGE DATE
- -------- ----------------------------------------- --------------- ----------
<S> <C> <C> <C>
LEASED PROPERTIES
Krefeld, Germany Sales, Service and Demonstration 4,000 sq. ft. 3/31/07
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
Cleveland, Ohio Sales, Service and Demonstration 10,000 sq. ft. 6/30/03
Shanghai, PRC Product Assembly, Sales, Service, 14,500 sq. ft. 7/31/02
Demonstration and Administration
Nan Tou City, Taiwan Manufacturing, Engineering, Marketing, 110,000 sq. ft. 12/2019
Sales, Service, Demonstration and
Administration
</TABLE>
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 1999, 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. Hardinge Inc. common stock
trades on The Nasdaq Stock Market-Registered Trademark- under the symbol "HDNG."
The table also includes dividends per share, by quarter.
<TABLE>
<CAPTION>
1999 VALUES 1998 VALUES
------------------------------- -------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
March 31............................... $18.17 $14.13 $.14 $24.83 $21.17 $.14
June 30................................ 18.38 13.75 .14 30.25 23.00 .14
September 30........................... 17.38 14.81 .14 28.00 20.06 .14
December 31............................ 16.38 12.25 .14 23.00 18.13 .14
</TABLE>
At February 1, 2000, there were 3,418 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).
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales....................................... $178,533 $259,625 $246,579 $220,295 $180,586
Cost of sales................................... 121,375 167,528 164,161 145,264 119,975
-------- -------- -------- -------- --------
Gross profit.................................... 57,158 92,097 82,418 75,031 60,611
Selling, general and administrative expenses.... 47,541 57,507 49,959 45,058 36,076
Unusual expense (1)............................. 950 1,960
-------- -------- -------- -------- --------
Operating income................................ 9,617 33,640 30,499 29,973 24,535
Interest expense................................ 1,743 2,324 2,378 2,770 1,369
Interest (income)............................... (565) (597) (705) (889) (927)
(Gain) on sale of assets........................ (326)
-------- -------- -------- -------- --------
Income before income taxes and minority interest
in loss of consolidated subsidiary............ 8,439 31,913 28,826 28,092 24,419
Income taxes.................................... 3,054 11,630 10,886 10,804 9,574
Minority interest in loss of consolidated
subsidiary.................................... 656
-------- -------- -------- -------- --------
Net income...................................... $ 6,041 $ 20,283 $ 17,940 $ 17,288 $ 14,845
======== ======== ======== ======== ========
Per share data: (2)
Basic earnings per share: (2)
Weighted average number of common shares
outstanding................................. 9,287 9,432 9,357 9,249 7,394
Earnings per share............................ $ .65 $ 2.15 $ 1.92 $ 1.87 $ 2.01
======== ======== ======== ======== ========
Diluted earnings per share: (2)
Weighted average number of common shares
outstanding................................. 9,287 9,434 9,427 9,336 7,431
Earnings per share............................ $ .65 $ 2.15 $ 1.90 $ 1.85 $ 2.00
======== ======== ======== ======== ========
Cash dividends declared per share............... $ .56 $ .56 $ .53 $ .46 $ .41
======== ======== ======== ======== ========
BALANCE SHEET DATA
Working capital................................. $115,428 $130,550 $118,385 $116,256 $ 99,780
Long-term portion of notes receivable........... 15,014 13,063 11,951 11,791 10,936
Total assets.................................... 241,457 256,681 245,284 229,162 211,582
Long-term debt.................................. 23,380 35,415 31,012 37,156 27,100
Shareholders' equity............................ 171,714 179,795 163,184 147,545 136,103
</TABLE>
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(1) 1998 included a one-time charge of $950,000 (approximately $570,000 after
tax). This charge resulted from costs incurred to relocate the manufacture
and support of Hansvedt Inc. from Illinois to the Company's headquarters in
Elmira, New York, and from a workforce reduction of approximately 200
full-time jobs, or 15% of the total employment. 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.
(2) All share and per share data have been restated, where appropriate, to
reflect: (a) compliance with Statement of Financial Accounting Standard
No. 128, EARNINGS PER SHARE, and (b) the Company's three-for-two stock split
in May, 1998.
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ITEM 7.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
NET SALES. Net sales for the year 1999 were $178,533,000 compared to
$259,625,000 in 1998, a decrease of $81,092,000, or 31.2%. Sales declined by
35.6% in the United States, from $179,951,000 in 1998 to $115,932,000 in 1999.
Likewise, sales to European customers dropped by 17.8%, from $55,391,000 to
$45,559,000. Sales to all other areas of the world were also down from 1998's
level by 29.8%, from $24,283,000 in 1998 to $17,042,000 in 1999. 1999's lower
volume is directly attributable to the overall depression of the machine tool
industry, which has experienced a similar drop in demand. Further, increased
competition for fewer sales has resulted in significant price discounting for
Hardinge and its competitors. Sales to customers in the automotive industry
declined by $27,800,000 in 1999 compared to 1998, accounting for 3.6% of total
1999 sales, compared to 13.2% in 1998.
Sales of machines represented 61.9% of 1999's total sales, with the balance
of 38.1% represented by non-machine products and services. This compares to
1998's breakdown of 69.5% for machines and 30.5% for non-machine products and
services. The relatively lower proportion of machine sales to total sales during
1999 is also a direct reflection of the above-described conditions.
The Company's backlog of orders at December 31, 1999 of $38,950,000
increased by 20.7% from its level at December 31, 1998. The increase reflects a
large order received during the second quarter of 1999 which will not ship until
2000.
GROSS PROFIT. Gross profit for 1999 was $57,158,000 compared to $92,097,000
during 1998. The reduction is the result of both the volume decline discussed
earlier and a decrease in gross margin percentage from 35.5% in 1998 to 32.0% in
1999. The lower margin percentage reflects the necessity to offer special
discounts to customers during 1999 in order to remain competitive, and the
impact of fixed expenses on a lower sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses totaled $47,541,000 during 1999, representing a
decrease of $9,966,000, or 17.3%, from 1998's total of $57,507,000. During
January 1999 the Company reduced its U.S. workforce by approximately 200 jobs,
or 15%, in response to declining market conditions. Throughout the balance of
1999, the Company made other significant reductions in SG&A costs in an effort
to offset the reduction in sales volume.
INCOME FROM OPERATIONS. Income from operations as a percentage of net sales
was 5.4% during 1999 compared to 13.0% for 1998. This decline was substantially
attributable to the decline in sales, partially offset by the cost reduction
efforts described above.
INTEREST EXPENSE. Interest expense totaled $1,743,000 in 1999 compared to
$2,324,000 in the previous year. While interest rates increased slightly
throughout 1999, the significant decline in sales demand resulted in a reduction
of working capital of $15,122,000 from beginning to end of the year. A portion
of the cash generated by this working capital reduction was used to repay debt.
Therefore, average outstanding borrowings during 1999 were considerably lower
than during 1998.
INTEREST INCOME. Interest income, primarily derived from internally
financed customer sales during both years, remained relatively flat, at $565,000
for 1999 compared to $597,000 for 1998.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax
income was slightly lower, at 36.2%, during 1999 compared to 1998's 36.4%. This
is attributable to a lower effective tax rate in the United States coupled with
a higher portion of profit attributable to our European operations, where tax
rates are lower.
10
<PAGE>
REDUCTION OF MINORITY INTEREST. During 1999 the Company entered into a
joint venture to produce a portion of its product line at a new manufacturing
facility in Taiwan. The reduction of minority interest for 1999 represents the
removal of the minority owners' 49% share of that Company's start-up losses for
the year.
NET INCOME. Net income was $6,041,000, or $.65 per diluted share, for 1999,
compared to $20,283,000, or $2.15 per diluted share, during 1998. The reduced
earnings during 1999 are directly attributable to the issues described above.
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.
Additionally, to provide comparability between periods, prior periods' data have
also been restated to give effect to the Company's 3 for 2 stock split which
took place in May 1998.
1998 COMPARED TO 1997
NET SALES. Net sales for the year 1998 were $259,625,000, compared to 1997
net sales of $246,579,000, an increase of $13,046,000 or 5.3%. The Company's
overseas sales increased significantly during the year. European sales totaled
$55,391,000 in 1998 compared to $43,071,000 in 1997, an increase of 28.6%. While
sales of all products were somewhat stronger in Europe during 1998, higher sales
of Kellenberger grinding machines accounted for a significant portion of this
increase. Likewise, sales to the Far East and all other areas of the world
totaled $24,283,000 in 1998 compared to $21,333,000 in 1997, a gain of 13.8%.
The gain is primarily attributable to increased sales in the Peoples' Republic
of China. Sales to domestic U.S. customers decreased slightly, from $182,176,000
in 1997 to $179,951,000 in 1998, primarily as a result of declining shipments to
automotive customers. Automotive sales represented 13.2% of total 1998 sales,
compared to 17.0% during 1997.
Shipments of machines increased by $12,548,000 during 1998, accounting for
69.5% of net sales for that year compared to 68.1% in 1997. Shipments of
non-machine products and services were slightly higher in 1998 than 1997, at
$79,253,000 versus $78,755,000. During 1998 sales of non-machine products and
services represented 30.5% of total sales compared to 31.9% for the previous
year. The increase in machine sales was a result of new products introduced
during 1997 and 1998 coupled with stronger sales of Kellenberger grinding
machines.
At December 31, 1998 the Company's backlog of orders had decreased by
approximately 43% from a year earlier. The drop is primarily the result of a
significant reduction in incoming orders during the fourth quarter of 1998, when
compared to previous quarters of 1998 and to the fourth quarter of 1997. The
Company responded by reducing its U.S. workforce by approximately 200 jobs or
15%, in January 1999, and by initiating other cost reduction measures.
Incremental costs to implement these measures were recorded during the fourth
quarter of 1998 as more fully explained in this analysis under the caption
"unusual expense".
GROSS PROFIT. Gross profit was $92,097,000 during 1998, an increase of
11.7% or $9,679,000 from 1997's gross profit of $82,418,000. Gross profit as a
percentage of net sales was considerably higher in 1998 compared to 1997, at
35.5% compared to 33.4%. The margin improvement has been the result of increased
utilization at the Company's factories in the United States and Switzerland,
coupled with a more profitable mix of product sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") as a percentage of net sales during 1998 were
22.2% of sales compared to 20.3% during 1997. During 1998, the Company
implemented a strategy to provide better service to our growing marketplace.
This resulted in the hiring of additional personnel for both sales and service
functions, and the opening of two new regional technical facilities in Ohio and
Texas. Also during 1998 the Company participated in the International
Manufacturing Technology Show in Chicago. This event is the premier showcase for
11
<PAGE>
Hardinge products. Hardinge's presence at the 1998 show was broadly expanded to
accommodate its growing product lines. Since the show is held only biannually,
1997's SG&A expenses did not include similar costs.
UNUSUAL EXPENSE. 1998's fourth quarter included a one-time charge of
$950,000 (approximately $570,000 after tax, or $.06 per share). This charge
resulted from costs incurred to relocate the manufacture and support for
Hansvedt electrical discharge machines from Illinois to the Company's
headquarters in Elmira, NY, and from a workforce reduction of approximately 200
full-time jobs, or 15% of total employment. These actions were taken as a result
of a significant decline in incoming orders during the fourth quarter of 1998.
1997's first quarter included a one-time charge of $1,960,000 (approximately
$1,200,000 after tax, or $.13 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 during 1998 totaled
$33,640,000 compared to $30,499,000 in 1997. As a percentage of net sales,
operating income was 13.0% in 1998 compared to 12.4% the previous year.
Excluding the unusual expenses described above, operating income for 1998 and
1997 would have been 13.3% and 13.2% of net sales, respectively.
INTEREST EXPENSE. Interest expense in 1998 was $2,324,000 compared to
$2,378,000 in 1997. A slight increase in average borrowings in 1998 was offset
by lower average interest rates.
INTEREST INCOME. Interest income for the years 1998 and 1997 was $597,000
and $705,000, respectively. The income resulted primarily from internally
financed customer sales during both years. During 1998, interest rates charged
on these notes were somewhat reduced from 1997 levels.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax
income was somewhat lower in 1998, at 36.4%, compared to 37.8% in 1997. The
reduction in the tax rate is the result of higher utilization of US income tax
credits in 1998.
NET INCOME. Net income was $20,283,000, or $2.15 per share, in 1998
compared to 1997's $17,940,000, or $1.90 per share after restatement for the
Company's May 1998 3-for-2 stock split. Excluding the unusual expenses described
above, net income would have been $20,853,000 in 1998 ($2.21 per share) and
$19,140,000 in 1997 ($2.03 per share after restatement for the stock split).
This would have represented an increase of $1,713,000, or 8.9% over 1997. The
increase was brought about by 1998's improved margin rate on the increased sales
volume described earlier, offset partially by the described increases in SG&A
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio at December 31, 1999 was 4.52:1 compared to
5.25:1 at December 31, 1998.
Cash generated from operating activities in 1999 totaled $34,050,000
compared to $21,495,000 in 1998, an increase of $12,555,000, despite the
previously discussed reduction in earnings of $14,242,000. The remaining
increase of $26,797,000 in cash provided from other operating activities from
1998 to 1999 was caused by several factors. Reductions in accounts receivable
and inventories during 1999 exceeded 1998's reductions by $5,580,000 and
$3,243,000, respectively, providing for $8,823,000 in additional cash from
operations. Likewise, accounts payable and accrued expenses increased during
1999 by $8,757,000 while declining by $9,069,000 during 1998, providing
additional cash from operations of $17,826,000.
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
12
<PAGE>
retaining a security interest in the purchased equipment. In the event of a
customer default and foreclosure, which are uncommon, 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 1999, the Company sold
$16,852,000 of customer notes compared to $39,939,000 sold during 1998,
reflecting the reduction in sales volume previously discussed. 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
$15,014,000 and $13,063,000 at December 31, 1999 and December 31, 1998,
respectively.
Total capital expenditures in 1999 were $5,445,000. Expenditures were made
for new manufacturing equipment to initiate production at the Company's Taiwan
manufacturing facility. Additionally, the Company purchased new manufacturing
equipment to improve productivity at both the Company's Elmira, New York and St.
Gallen, Switzerland production facilities.
During 1999 the Company used $8,002,000 of its cash to repurchase a portion
of its own stock under a repurchase program announced on April 9, 1999.
During most of 1999, the Company had 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. The Company decided not to renew the $20,000,000 revolver which expired on
November 1. Notes issued under these revolving credit agreements are 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. As of December 31, 1999, total borrowings under the
remaining $50,000,000 credit line were $15,392,000.
The Company's Kellenberger subsidiary maintains unsecured overdraft
facilities with commercial banks which permit borrowing in Swiss francs
equivalent to approximately $5,650,000. At December 31, 1999, total borrowings
under these agreements were $663,000.
These facilities, along with an $8,000,000 unsecured short-term line with
another bank, provided for immediate access of up to $63,650,000 at
December 31, 1999. Outstanding borrowings under these arrangements totaled
$16,055,000 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 commenced in 1998. The
agreement contains financial and other covenants consistent with the revolving
loan agreements.
The Company currently intends to use its strong balance sheet position 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.
MARKET RISK
The following information has been provided in accordance with the
Securities and Exchange Commission's requirements for disclosure of exposures to
market risk arising from certain market risk sensitive instruments.
13
<PAGE>
The Company's earnings are effected by changes in short-term interest rates
as a result of its floating interest rate debt. However, due to its purchase of
interest rate swap agreements, the effects of interest rate changes are limited.
If market interest rates on debt subject to floating interest rates were to have
increased by 2% over the actual rates paid for the previous year, interest
expense would have increased by $150,000 in 1999 and $420,000 in 1998, after
considering the effect of the interest rate swap agreements. These amounts are
determined by considering the impact of hypothetical interest rates on the
Company's borrowing cost and interest rate swap agreements. These analyses do
not consider the effects of the reduced level of economic activity that could
exist in such an environment. Further, in the event of a change of significant
magnitude, management would likely take actions to further mitigate its exposure
to the change. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
changes in the Company's financial structure.
A portion of the Company's operations consist of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures its products in
the United States, Switzerland, and Taiwan using production components purchased
internationally, and sells the products in those markets as well as other
worldwide markets. The U.S. parent purchases grinding machines manufactured in
Switzerland by its Swiss subsidiary. Likewise, it purchases vertical machining
centers manufactured in Taiwan by its Taiwanese subsidiary. The Company's
subsidiaries in the U.K., Germany, Switzerland and Canada sell products in
native currency to customers in those countries. The Company's Taiwanese
subsidiary sells products to foreign purchasers in U.S. dollars. As a result,
the Company's financial results could be significantly affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. The Company's
operating results are exposed to changes in exchange rates between the U.S.
dollar, Canadian dollar, U.K. pound, Swiss franc, German mark, New Taiwan
Dollar, and Japanese yen. For example, when the U.K. pound or Swiss franc
strengthens against other European currencies, the value of sales denominated in
these other currencies decreases when translated to pounds or Swiss francs. When
the U.S. dollar strengthens against the Japanese yen, the price of competitive
Japanese imports to the United States decreases. To mitigate the short-term
effect of changes in currency exchange rates on the Company's functional
currency based purchases and sales, the Company regularly hedges by entering
into foreign exchange forward contracts to hedge portions of its 3 to 6 months'
planned purchase and sales transactions.
YEAR 2000 DISCLOSURE
The Year 2000 issue arises from the use of two-digit date fields in certain
computer programs which may have caused problems as the year changed from 1999
to 2000. The Company successfully completed all elements of its Y2K readiness
plan prior to December 31, 1999, and all costs related to remediation were paid
from operating cash flow and were not significant. The Company has experienced
no problems of any kind resulting from the Y2K issue. No additional actions are
anticipated related to this issue.
EURO CONVERSION
The Company sells products in several European countries which began
conversion in 1999 to the new common currency (the Euro) to be used by members
of the European Union. The Company did not anticipate any significant risk to
its operations as a result of the conversion, nor has it experienced any such
difficulties. No additional actions are anticipated related to this issue.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 2000. The Company
expects to adopt the new statement effective January 1, 2001. The statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the
14
<PAGE>
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be
on earnings and financial position of the Company.
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 UNCERTAINTIES AND RISK AND DEAL WITH MATTERS
BEYOND THE COMPANY'S ABILITY TO CONTROL, AND IN MANY CASES THE COMPANY CANNOT
PREDICT WHAT FACTORS WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED. AMONG THE MANY FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM
THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS ARE FLUCTUATIONS IN THE
MACHINE TOOL BUSINESS CYCLES, CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE U.S.
OR INTERNATIONALLY, THE MIX OF PRODUCTS SOLD AND THE PROFIT MARGINS THEREON, THE
RELATIVE SUCCESS OF THE COMPANY'S ENTRY INTO NEW PRODUCT AND GEOGRAPHIC MARKETS,
THE COMPANY'S ABILITY TO MANAGE ITS OPERATING COSTS, ACTIONS TAKEN BY CUSTOMERS
SUCH AS ORDER CANCELLATIONS OR REDUCED BOOKINGS BY CUSTOMERS OR DISTRIBUTORS,
COMPETITORS' ACTIONS SUCH AS PRICE DISCOUNTING OR NEW PRODUCT INTRODUCTIONS,
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS, CHANGES IN THE AVAILABILITY
AND COST OF MATERIALS AND SUPPLIES, THE IMPLEMENTATION OF NEW TECHNOLOGIES AND
CURRENCY FLUCTUATIONS. ANY FORWARD-LOOKING STATEMENT SHOULD BE CONSIDERED IN
LIGHT OF THESE FACTORS. 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.
The information required by this item is incorporated herein by reference to
the section entitled "Market Risk" in Item 7, Management's Discussion and
Analysis of Results of Operations and Financial Condition, of this Form 10K.
15
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HARDINGE INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. 17
Consolidated Balance Sheets................................. 18
Consolidated Statements of Income........................... 19
Consolidated Statements of Shareholders' Equity............. 20
Consolidated Statements of Cash Flows....................... 21
Notes to Consolidated Financial Statements.................. 22
</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.
16
<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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young
ERNST & YOUNG LLP
Syracuse, New York
January 21, 2000
17
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,156 $ 2,192
Accounts receivable....................................... 46,218 54,631
Notes receivable.......................................... 7,594 7,194
Inventories............................................... 85,640 91,965
Deferred income taxes..................................... 4,207 2,299
Prepaid expenses.......................................... 3,367 2,960
-------- --------
Total current assets........................................ 148,182 161,241
Property, plant and equipment:
Land and buildings........................................ 39,720 41,016
Machinery, equipment and fixtures......................... 96,341 94,809
Office furniture, equipment and vehicles.................. 8,360 8,112
-------- --------
144,421 143,937
Less accumulated depreciation............................. 72,156 67,183
-------- --------
72,265 76,754
Other assets:
Notes receivable.......................................... 15,014 13,063
Goodwill.................................................. 3,794 3,938
Other..................................................... 2,202 1,685
-------- --------
21,010 18,686
-------- --------
Total assets................................................ $241,457 $256,681
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 14,460 $ 11,368
Notes payable to bank..................................... 663 5,018
Accrued expenses.......................................... 9,292 8,540
Accrued income taxes...................................... 2,667
Deferred income taxes..................................... 2,122 2,111
Current portion of long-term debt......................... 3,550 3,654
-------- --------
Total current liabilities................................... 32,754 30,691
Other liabilities:
Long-term debt............................................ 23,380 35,415
Accrued pension plan expense.............................. 4,971 3,527
Deferred income taxes..................................... 2,055 1,863
Accrued postretirement benefits........................... 5,620 5,390
-------- --------
36,026 46,195
Equity of minority interest................................. 963
Shareholders' equity:
Preferred stock, Series A, par value $.01 per share;
Authorized 2,000,000; issued--none
Common stock, $.01 par value:
Authorized shares--20,000,000;
Issued shares--9,919,992 at December 31, 1999;
9,843,992 at December 31, 1998........................ 99 98
Additional paid-in capital................................ 61,760 60,351
Retained earnings......................................... 128,325 127,526
Treasury shares........................................... (10,199) (853)
Accumulated other comprehensive loss--
Foreign currency translation adjustment................. (4,143) (2,485)
Deferred employee benefits................................ (4,128) (4,842)
-------- --------
Total shareholders' equity.................................. 171,714 179,795
-------- --------
Total liabilities and shareholders' equity.................. $241,457 $256,681
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
18
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $178,533 $259,625 $246,579
Cost of sales............................................... 121,375 167,528 164,161
-------- -------- --------
Gross profit................................................ 57,158 92,097 82,418
Selling, general and administrative expenses................ 47,541 57,507 49,959
Unusual expense............................................. 950 1,960
-------- -------- --------
Income from operations...................................... 9,617 33,640 30,499
Interest expense............................................ 1,743 2,324 2,378
Interest (income)........................................... (565) (597) (705)
-------- -------- --------
Income before income taxes and minority interest in loss of
consolidated subsidiary................................... 8,439 31,913 28,826
Income taxes................................................ 3,054 11,630 10,886
Minority interest in loss of consolidated subsidiary........ 656
-------- -------- --------
Net income.................................................. $ 6,041 $ 20,283 $ 17,940
======== ======== ========
Per share data:
Basic earnings per share:
Weighted average number of common shares outstanding........ 9,287 9,432 9,357
-------- -------- --------
Earnings per share.......................................... $ .65 $ 2.15 $ 1.92
======== ======== ========
Diluted earnings per share:
Weighted average number of common shares outstanding........ 9,287 9,434 9,427
-------- -------- --------
Earnings per share.......................................... $ .65 $ 2.15 $ 1.90
======== ======== ========
Cash dividends declared per share........................... $ .56 $ .56 $ .53
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER DEFERRED TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE EMPLOYEE SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) BENEFITS EQUITY
-------- ---------- -------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996...... $65 $57,027 $ 99,622 ($ 343) ($3,731) ($5,095) $147,545
Comprehensive Income
Net income........................ 17,940 17,940
Other comprehensive income
Foreign currency translation
adjustment.................. 968 968
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income.............. 18,908
- --------------------------------------------------------------------------------------------------------------------------
Dividends declared................ (4,937) (4,937)
Issuance of 52,500 shares for the
long-term incentive plan........ 945 (945)
Shares issued pursuant to
long-term incentive plan........ (119) 193 74
Amortization (long-term incentive
plan)........................... 1,784 1,784
Tax benefit from long-term
incentive plan.................. 210 210
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
Comprehensive Income
Net income........................ 20,283 20,283
Other comprehensive income
Foreign currency translation
adjustment.................. 278 278
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income.............. 20,561
- --------------------------------------------------------------------------------------------------------------------------
Dividends declared................ (5,349) (5,349)
3-for-2 stock split in the form of
a dividend...................... 33 (33)
Issuance of 76,500 shares for
long-term incentive plan........ 1,900 (1,900)
Shares issued pursuant to
long-term incentive plan........ 50 561 (586) 25
Amortization (long-term incentive
plan)........................... 1,900 1,900
Tax benefit from long-term
incentive plan.................. 339 339
Net purchase of treasury stock.... (3) (862) (865)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998...... 98 60,351 127,526 (853) (2,485) (4,842) 179,795
Comprehensive Income
Net income........................ 6,041 6,041
Other comprehensive loss
Foreign currency translation
adjustment.................. (1,658) (1,658)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income.............. 4,383
- --------------------------------------------------------------------------------------------------------------------------
Dividends declared................ (5,242) (5,242)
Issuance of 76,000 shares for
long-term incentive plan........ 1 1,367 (1,368)
Shares issued and forfeited
pursuant to long-term incentive
plan............................ (260) 250 230 220
Amortization (long-term incentive
plan)........................... 1,852 1,852
Tax benefit from long-term
incentive plan.................. 390 390
Net purchase of treasury stock.... (88) (9,596) (9,684)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999...... $99 $61,760 $128,325 ($10,199) ($4,143) ($4,128) $171,714
==========================================================================================================================
</TABLE>
20
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 6,041 $20,283 $17,940
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 10,458 9,024 8,766
Provision for deferred income taxes....................... (1,195) 2,162 (202)
Foreign currency transaction loss (gain).................. 517 (71) (42)
Changes in operating assets and liabilities:
Accounts receivable..................................... 7,371 1,791 (14,585)
Notes receivable........................................ (2,081) (2,695) (1,119)
Inventories............................................. 4,103 860 10,159
Other assets............................................ (151) (974) 167
Accounts payable........................................ 3,605 (7,047) 6,241
Accrued expenses........................................ 5,152 (2,022) (544)
Accrued postretirement benefits......................... 230 184 207
------- ------- -------
Net cash provided by operating activities................... 34,050 21,495 26,988
INVESTING ACTIVITIES
Capital expenditures--net................................... (5,445) (17,620) (8,269)
Acquisitions, net of cash acquired.......................... (4,588)
------- ------- -------
Net cash (used in) investing activities..................... (5,445) (17,620) (12,857)
FINANCING ACTIVITIES
(Decrease) in short-term notes payable to bank.............. (4,229) (2,513) (6,665)
(Decrease) increase in long-term debt....................... (11,866) 5,107 (3,390)
Purchase of treasury stock.................................. (9,143) (500) (117)
Dividends paid.............................................. (5,242) (5,349) (4,937)
Funds provided by minority interest......................... 963
------- ------- -------
Net cash (used in) financing activities..................... (29,517) (3,255) (15,109)
Effect of exchange rate changes on cash..................... (124) 7 (93)
------- ------- -------
Net (decrease) increase in cash............................. (1,036) 627 (1,071)
Cash at beginning of year................................... 2,192 1,565 2,636
------- ------- -------
Cash at end of year......................................... $ 1,156 $ 2,192 $ 1,565
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 and majority-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
$8,003,000, $6,869,000, and $6,825,000 for 1999, 1998 and 1997, 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. Amortization expense
was $144,000 for 1999 and 1998. Accumulated amortization was $348,000 and
$204,000 at December 31, 1999 and 1998, respectively.
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
22
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
as other comprehensive income. 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 a foreign 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.
The Financial Accounting Standards Board issued Statement No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is required
to be adopted in years beginning after June 15, 2000. The Company expects to
adopt the new statement effective January 1, 2001. The statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be
on earnings and financial position of the Company.
RESEARCH AND DEVELOPMENT COSTS
The cost of research and development, all of which has been charged to
operations, amounted to $7,060,000, $8,630,000, and $8,415,000 in 1999, 1998 and
1997, respectively.
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 for diluted earnings per share 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.
23
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment of the
product.
CONTINGENCIES
The Company is a defendant in various lawsuits as a result of normal
operations and in the ordinary course of business. Management believes the
outcome of these lawsuits will not have a material effect on the financial
position or results of operations of the Company.
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,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished products........................................... $37,361 $36,185
Work-in-process............................................. 25,572 29,499
Raw materials and purchased components...................... 22,707 26,281
------- -------
$85,640 $91,965
======= =======
</TABLE>
2. FINANCING ARRANGEMENTS
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Note payable, under revolving loan agreement, with interest
averaging 5.13% at December 31, 1999...................... $15,392 $12,669
Note payable, under revolving loan agreement, with interest
averaging 6.00% at December 31, 1998...................... 11,000
Note payable, under term loan agreement, due in quarterly
installments of $887,500 through February 28, 2003, with
an effective
interest rate of 4.49% at December 31, 1999............... 11,538 15,088
Other debt.................................................. 312
------- -------
26,930 39,069
Less current portion........................................ 3,550 3,654
------- -------
$23,380 $35,415
======= =======
</TABLE>
24
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. FINANCING ARRANGEMENTS (CONTINUED)
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.
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, 1999, total borrowings under the
facility were $15,392,000. Approximately $1,615,000 of the borrowing was
denominated in British pounds sterling and $6,277,000 in Swiss francs. At
December 31, 1998, total borrowings under the facility were $12,669,000.
Approximately $1,660,000 of the borrowing was denominated in British pounds
sterling and $8,009,000 in Swiss francs.
In November 1996, the Company entered into an unsecured credit arrangement
with a bank which provided for borrowing in several currencies up to the
equivalent of $20,000,000 on a revolving loan basis through November 1, 1999.
The credit arrangement provided for repayment of the then outstanding principal
beginning January 1, 2000 in 16 consecutive equal quarterly installments.
Interest charged on the debt was based on LIBOR plus a fixed percentage. A
commitment fee of up to 1/4 of 1% was paid on the unused portion of the
facility. On November 1, 1999 the Company elected not to renew this arrangement.
At December 31, 1999 there were no remaining loans outstanding under this
arrangement. At December 31, 1998, total borrowings under this arrangement were
$11,000,000.
In May 1998, the Company entered into an interest swap arrangement with a
financial institution which effectively fixed the interest rate on $15,000,000
of the Company's revolving debt at 6.01% through June 2003. On July 15, 1999,
the amount of the swap was reduced to $10,000,000.
All debt under the revolving credit arrangements has been classified as
long-term debt, as it is the Company's intention to maintain the principal
amounts outstanding through the existing credit facilities.
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
Kellenberger. At December 31, 1999 and 1998, the balance owed on this loan was
$11,538,000 and $15,088,000, respectively.
The Company also has a $8,000,000 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, 1999, there was no outstanding loans on this line. At December 31,
1998, total borrowings under this line were $4,000,000 with interest averaging
6.05%. The agreement is negotiated annually and requires no commitment fee.
The Company's Kellenberger subsidiary maintains unsecured overdraft
facilities with commercial banks that permit borrowings in Swiss francs
equivalent to approximately $5,650,000. These lines provide for interest at a
fixed percentage over LIBOR and carry no commitment fees on unused funds. At
December 31, 1999, total borrowings under these lines were $663,000 with an
average interest rate of 6.43%. At December 31, 1998, total borrowings under
these lines were $1,018,000 with an average interest rate of 6.50%.
25
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. FINANCING ARRANGEMENTS (CONTINUED)
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 1999, 1998, and
1997 totaled $1,765,000, $2,086,000, and $2,498,000, respectively.
The Company conducts some of its manufacturing, sales and service operations
from leased office space with lease terms up to 20 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 $1,755,000, $1,871,000,
and $1,601,000 during the years ended December 31, 1999, 1998, and 1997,
respectively. Future minimum payments under noncancelable operating leases as of
December 31, 1999 total $20,466,000, with payments over the next five years of
$2,133,000, $2,009,000, $1,869,000, $1,073000, and $919,000, 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 1999, 1998, and 1997, the Company
sold notes totaling $16,852,000, $39,939,000, and $34,165,000, respectively. The
remaining outstanding balance of all notes sold as of December 31, 1999 and 1998
was $63,659,000 and $74,786,000, 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.
26
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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, 1999 and
1998, the Company had state investment tax credits expiring at various dates
through the year 2009, 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,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Federal and state tax credit carryforwards............... $4,898 $ 4,550
Foreign net operating loss carryforwards................. 36
Postretirement benefits.................................. 2,143 2,060
Deferred employee benefits............................... 2,137 2,235
Accrued pension.......................................... 1,978 1,410
Inventory valuation...................................... 1,434
Other.................................................... 1,682 1,337
------ -------
14,272 11,628
Less valuation allowance................................. 4,898 4,550
------ -------
Total deferred tax assets............................ 9,374 7,078
------ -------
Deferred tax liabilities:
Tax over book depreciation............................... 6,683 6,083
Margin on installment sales.............................. 220 213
Other.................................................... 2,441 2,457
------ -------
Total deferred tax liabilities........................... 9,344 8,753
------ -------
Net deferred tax assets (liabilities).................... $ 30 $(1,675)
====== =======
</TABLE>
Pre-tax income was $6,968,000, $27,611,000, and $24,813,000 from domestic
operations and $1,471,000, $4,302,000, and $4,013,000 from foreign operations
for 1999, 1998, and 1997, respectively.
Significant components of income tax expense (benefit) attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $3,072 $ 7,270 $ 8,650
Foreign......................................... 447 693 846
State........................................... 637 1,446 1,628
------ ------- -------
Total current............................... 4,156 9,409 11,124
------ ------- -------
Deferred:
Federal......................................... (1,236) 1,420 (705)
Foreign......................................... 255 617 562
State........................................... (121) 184 (95)
------ ------- -------
Total deferred.............................. (1,102) 2,221 (238)
------ ------- -------
$3,054 $11,630 $10,886
====== ======= =======
</TABLE>
27
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. INCOME TAXES (CONTINUED)
Income tax payments totaled $651,000, $11,239,000, and $9,754,000 in 1999,
1998 and 1997, 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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes...................................... 35.0% 35.0% 35.0%
State income taxes........................................ 3.9 3.3 3.5
Other..................................................... (2.7) (1.9) (.7)
---- ---- ----
36.2% 36.4% 37.8%
==== ==== ====
</TABLE>
Undistributed earnings of the foreign subsidiaries, which amounted to
approximately $14,867,000 at December 31, 1999, are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state taxes has been provided thereon. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable to the various foreign countries. Determination of the amount of
the unrecognized deferred U.S. income tax liability is not practicable because
of the complexities associated with its hypothetical calculation.
4. SHAREHOLDERS' EQUITY
TREASURY SHARES
The number of shares of common stock in treasury was 686,059, 40,909, and
24,216 at December 31, 1999, 1998 and 1997, respectively. In 1999, the Company
purchased 652,080 shares and distributed 33,030 shares and had 26,100 shares
forfeited pursuant to the long-term incentive plan. In 1998, the Company
purchased a net 40,143 treasury shares and distributed 23,450 shares from
treasury pursuant to the long-term incentive plan. In 1997, the Company
purchased a net 14,564 treasury shares and issued 8,895 shares under the
long-term incentive plan from treasury. The changes in treasury shares for 1997
have been restated to reflect the 3-for-2 stock split in May 1998.
COMPANY STOCK REPURCHASE PROGRAM
On April 9, 1999, Hardinge announced a stock repurchase program. The Board
of Directors has authorized the repurchase of up to 1.0 million shares of the
Company's stock, or approximately 10% of the total shares outstanding. The
Company has purchased 545,369 shares under the program as of December 31, 1999.
STOCK SPLIT
On April 28, 1998, the Board of Directors approved a three-for-two stock
split of the Company's common shares to be paid in the form of a 50 percent
stock dividend. As a result of the split, 3,281,351 additional shares were
issued on May 29, 1998 to shareholders of record on May 8, 1998 and retained
earnings were reduced by $32,813. Any fractional shares resulting from the split
were paid in cash. All
28
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. SHAREHOLDERS' EQUITY (CONTINUED)
references in the accompanying consolidated financial statements to common
shares outstanding and earnings per share have been restated, where appropriate,
to reflect this stock split.
PREFERRED STOCK PURCHASE RIGHTS
On May 16, 1995, the Board of Directors of the Company adopted a Shareholder
Rights Plan and declared a dividend of one Right to purchase Series A Preferred
Stock for each outstanding share of Company common stock held as of May 16,
1995. 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Numerator:
Net income...................................... $6,041 $20,283 $17,940
Numerator for basic earnings per share.......... 6,041 20,283 17,940
Numerator for diluted earnings per share........ 6,041 20,283 17,940
Denominator:
Denominator for basic earnings per share
--weighted average shares..................... 9,287 9,432 9,357
Effect of diluted securities:
Restricted stock and stock options............ 2 70
------ ------- -------
Denominator for diluted earnings per share
--adjusted weighted average shares............ 9,287 9,434 9,427
====== ======= =======
Basic earnings per share.......................... $ .65 $ 2.15 $ 1.92
====== ======= =======
Diluted earnings per share........................ $ .65 $ 2.15 $ 1.90
====== ======= =======
</TABLE>
29
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
UNITED STATES WESTERN UNITED STATES WESTERN UNITED STATES WESTERN
OPER. EUROPEAN OPER. OPER. EUROPEAN OPER. OPER. EUROPEAN OPER.
------------- -------------- ------------- -------------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales
Gross domestic
sales.............. $115,932 $38,572 $179,951 $45,358 $182,176 $34,779
Export sales......... 39,512 10,688 54,482 13,630 45,888 14,409
-------- ------- -------- ------- -------- -------
155,444 49,260 234,433 58,988 228,064 49,188
Less interarea
eliminations....... 16,791 9,380 23,120 10,676 20,437 10,236
-------- ------- -------- ------- -------- -------
Total net
sales.......... $138,653 $39,880 $211,313 $48,312 $207,627 $38,952
======== ======= ======== ======= ======== =======
Operating income....... $ 6,283 $ 3,334 $ 29,264 $ 4,376 $ 26,896 $ 3,603
======== ======= ======== ======= ======== =======
Net income............. $ 3,798 $ 2,243 $ 17,474 $ 2,809 $ 15,725 $ 2,215
======== ======= ======== ======= ======== =======
Identifiable assets.... $195,475 $45,982 $205,020 $51,661 $198,384 $46,900
======== ======= ======== ======= ======== =======
</TABLE>
Export sales from Hardinge's U.S. operations include the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Sales to Western European customers..................... $ 6,173 $ 7,943 $ 6,485
Sales to affiliated companies........................... 16,791 23,120 20,437
Sales to customers in the remainder of the world........ 16,548 23,419 18,966
------- -------- -------
$39,512 $ 54,482 $45,888
======= ======== =======
</TABLE>
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.
No single customer accounted for 5% or more of consolidated sales in 1999.
In 1998 and 1997, sales to one customer in the automotive industry represented
approximately 5% and 9%, respectively, of consolidated sales.
30
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. EMPLOYEE BENEFITS
PENSION AND POSTRETIREMENT PLANS
The Company accounts for the pension plan and postretirement benefits in
accordance with Financial Accounting Standards Board Statements No. 87 and 106.
The following disclosures related to the pension and postretirement benefits are
presented in accordance with Financial Accounting Standards Board Statement
No. 132 which became effective in 1998. All prior year disclosures have been
restated to conform with the requirements of this Statement.
The Company provides a qualified defined benefit pension plan covering all
eligible domestic employees. The Plan bases benefits upon both years of service
and earnings. The Company's policy is to fund at least an amount necessary to
satisfy the minimum funding requirements of ERISA. The amount to be funded is
subject to annual review by management and its consulting actuary.
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.
A summary of the components of net periodic pension cost and postretirement
benefit costs is presented below.
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------------ ------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... $2,472 $2,020 $1,481 $134 $148 $114
Interest cost.............................. 4,401 4,178 3,665 431 459 435
Expected return on plan assets............. (5,519) (5,072) (4,371) -- -- --
Amortization of prior service cost......... 264 264 264 (24) (24)
Amortization of transition obligation...... (174) (174) (174) -- -- --
Amortization of (gain) loss................ -- -- (39) 37 70 25
------ ------ ------ ---- ---- ----
Net periodic benefit cost.................. $1,444 $1,216 $ 826 $578 $653 $574
====== ====== ====== ==== ==== ====
</TABLE>
31
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. EMPLOYEE BENEFITS (CONTINUED)
A summary of the Pension and Postretirement Plans' funded status and amounts
recognized in the Company's consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31 DECEMBER 31
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of period................ $64,206 $56,997 $ 6,366 $ 6,766
Service cost............................................. 2,472 2,020 134 148
Interest cost............................................ 4,401 4,178 431 459
Plan participants' contributions......................... -- -- 305 271
Actuarial(gain)loss...................................... (3,782) 3,875 (416) (537)
Benefits paid............................................ (2,935) (2,864) (653) (741)
------- ------- ------- -------
Benefit obligation at end of period...................... 64,362 64,206 6,167 6,366
------- ------- ------- -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of period......... 65,185 64,703 -- --
Actual return on plan assets............................. 8,397 3,346 -- --
Employer contribution.................................... -- -- 348 469
Plan participants' contributions......................... -- -- 305 272
Benefits paid............................................ (2,935) (2,864) (653) (741)
------- ------- ------- -------
Fair value of plan assets at end period.................. 70,647 65,185 -- --
------- ------- ------- -------
RECONCILIATION OF FUNDED STATUS:
Funded status............................................ 6,285 979 (6,167) (6,366)
Unrecognized net actuarial (gain) loss................... (11,997) (5,336) 811 1,264
Unrecognized transition (asset) or obligation............ (1,568) (1,742) -- --
Unrecognized prior service cost.......................... 2,309 2,572 (264) (288)
------- ------- ------- -------
Prepaid (accrued) benefit cost........................... $(4,971) $(3,527) $(5,620) $(5,390)
======= ======= ======= =======
</TABLE>
Actuarial assumptions used to determine pension costs and other
postretirement benefit costs include:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER
31
Discount rate............................... 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets.............. 9.50% 9.50% N/A N/A
Rate of compensation increase............... 4.50% 4.50% N/A N/A
</TABLE>
The increase in the discount rate from 7.0% to 7.5% in 1999 decreased the
benefit obligation for pension benefits and postretirement benefits by
$4,427,000 and $351,000, respectively at December 31, 1999.
32
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. EMPLOYEE BENEFITS (CONTINUED)
Pension plan assets include 333,886 shares and 248,886 shares of the
Company's common stock valued at approximately $4,361,000 and $4,589,000 at
December 31, 1999 and 1998, respectively. Dividends paid on those shares were
$149,000 and $139,000 in 1999 and 1998 respectively. The remaining plan assets
consisted of United States Government securities, corporate bonds and notes,
other common stocks and an insurance contract.
The annual rate of increase in the per capita cost of covered health care
benefits (the health care cost trend) used to calculate the liability for the
postretirement benefits was assumed to be 9.0% at December 31, 1998, decreasing
gradually to 5.5% by the year 2006 and remaining at that level thereafter. The
annual rate of increase in the per capita cost of covered health care benefits
was assumed to be 8.5% at December 31, 1999, decreasing gradually to 5.5% by the
year 2006 and remaining at that level thereafter.
In 1998, the postretirement benefit plan changed from a self-funded plan to
an insured plan under third party coverage. The effect of this change, which was
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 approximately $143,000 and increase the aggregate of the service
and interest cost components of the net periodic postretirement benefit cost for
1999 by $18,000.
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 20% 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 $376,000,
$363,000, and $324,000 in 1999, 1998 and 1997 respectively, for this match. The
Company may also contribute a discretionary contribution to the plan to be
distributed among all participants.
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 450,000 shares of common stock to
these employees. Reference to share amounts in the plan have been restated,
where appropriate, for the Company's 3-for-2 stock split in May, 1998.
Additionally, in 1988 and 1993, similar plans were established by the Company;
no further shares will be awarded under these plans.
33
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. EMPLOYEE BENEFITS (CONTINUED)
During 1999, certain officers were awarded a total of 79,000 restricted
shares of common stock and 21,000 shares were granted to key managers. During
1998 and 1997, shares of restricted common stock were awarded to certain
officers totaling 98,500 and 52,500, respectively. In 1999, restrictions on
236,183 shares from the Incentive Stock Plans were released and 26,100 shares
were forfeited. Restrictions on 99,725 shares were released during 1998.
As of December 31, 1999, a total of 503,092 restricted shares of common
stock were outstanding under the 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.
Deferred compensation associated with these grants is measured by the market
value of the stock on the date of grant and totaled $1,573,000, $2,486,000, and
$945,000 in 1999, 1998 and 1997, respectively. This deferred compensation is
being amortized on a straight-line basis over the specified service period. The
unamortized deferred compensation at December 31, 1999, 1998 and 1997, totaled
$4,128,000, $4,842,000, and $4,256,000, respectively, and is included in
deferred employee benefits as a reduction of shareholders' equity.
Stock options for 5,250, 15,750, and 31,500, shares were issued in 1999,
1998 and 1997, respectively under the 1996 Plan. As of December 31, 1999, a
total of 96,875 options remained outstanding under the 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 not
have a material impact on the financial statements.
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, 1999 and 1998, 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 May 1998, the Company entered into a five year interest rate swap
arrangement with a financial institution (See Note 2). At December 31, 1999 and
1998, the fair market value of this instrument was $211,000 and ($527,000),
respectively.
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-
34
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. FINANCIAL INSTRUMENTS (CONTINUED)
currency interest rate swap agreement (see Note 2). The fair value of the
instrument was $2,633,000 and $1,276,000 at December 31, 1999 and 1998
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, 1999 and
1998 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. There was no other long-term debt outstanding
at December 31, 1999. At December 31, 1998 carrying and fair value of that debt
were approximately equal.
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. Gains
or losses from these contracts have not been material. At December 31, 1999 and
1998, the Company had notional principal amounts of approximately $5,746,000 and
$5,232,000 in contracts to purchase or sell currency in the future from and to
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 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, 1999 and
1998, 12% and 21%, respectively, of the accounts receivable were from the three
major U.S. automobile manufacturers, with receivables from one representing 5%
at December 31, 1999 and 11% at December 31, 1998 of the consolidated accounts
receivable. In addition, at December 31, 1999 and 1998, receivables from the
Company's distributor in France totaled 10% and 6%, respectively, of the
consolidated accounts receivable. The Company holds a security interest in any
of its equipment held by the distributor for inventory or demonstration
purposes.
8. UNUSUAL EXPENSE
1998's fourth quarter included a one-time charge of $950,000 (approximately
$570,000 after tax, or $.06 per share). This charge resulted from costs incurred
to relocate the manufacture and support for Hansvedt electrical discharge
machines from Illinois to the Company's headquarters in Elmira, NY, and from a
workforce reduction of approximately 200 full-time jobs, or 15% of total
employment. These actions were taken as a result of a significant decline in
incoming orders during the fourth quarter of 1998.
1997's first quarter included a one-time charge of $1,960,000 (approximately
$1,200,000 after tax, or $.13 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.
35
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Net sales............................................... $46,194 $45,881 $42,399 $44,059
Gross profit............................................ 15,548 14,381 13,418 13,811
Income from operations *................................ 3,415 2,346 1,468 2,388
Net income.............................................. 2,082 1,458 980 1,521
Basic earnings per share:
Weighted average shares outstanding................... 9,460 9,338 9,264 9,026
Earnings per share.................................... .22 .16 .11 .17
Diluted earnings per share:
Weighted average shares outstanding................... 9,431 9,342 9,265 9,035
Earnings per share.................................... .22 .16 .11 .17
1998
Net sales............................................... $65,779 $65,071 $62,041 $66,734
Gross profit............................................ 22,853 23,600 22,606 23,038
Income from operations.................................. 9,182 9,068 7,720 7,670
Net income.............................................. 5,454 5,409 4,531 4,889
Basic earnings per share:
Weighted average shares outstanding................... 9,411 9,420 9,426 9,475
Earnings per share.................................... .58 .57 .48 .52
Diluted earnings per share:
Weighted average shares outstanding................... 9,441 9,468 9,468 9,468
Earnings per share.................................... .58 .57 .48 .52
</TABLE>
- ------------------------
* Income from operations for the first, second and third quarter of 1999 has
been restated by ($38,000),($146,000) and ($260,000), respectively, to conform
to the year end presentation for a minority interest in the loss of a
consolidated subsidiary.
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 1999 does not
equal the annual earnings per share for the year.
ITEM 9.--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
36
<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 10, 2000.
Additional information required to be furnished by Item 401 of Regulation S-K is
as follows:
<TABLE>
<CAPTION>
LIST OF EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------
EXECUTIVE
OFFICER
NAME AGE SINCE POSITIONS AND OFFICES HELD
- ---- -------- --------- --------------------------
<S> <C> <C> <C>
Robert E. Agan....................... 61 1978 Chairman of the Board, President and Chief
Executive Officer since April, 1998; Chairman
of the Board and Chief Executive Officer in
1997; 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. Patrick Ervin..................... 42 1996 Executive Vice President--Operations since
August 1998; Senior Vice President of
Operations, Mfg., Eng. and Marketing, April
1998--July 1998; Vice President--Sales &
Marketing 1996--March 1998; General Manager,
Machine Tool Operations in 1996; Director,
Sales & Marketing 1992-1996; Director of
Materials & Purchasing 1990-1992;
Superintendent, Machine Operations 1989-1990,
Various other Company positions 1978-1989.
Richard L. Simons.................... 44 1996 Senior Vice President, Chief Financial Officer
and Assistant Secretary since January, 1999;
Vice President--Finance 1996-1998; Controller
1987-1996; Assistant Treasurer 1985-1987;
Manager Financial Accounting 1983-1984.
Richard C. Amadril................... 56 1998 Vice President--Sales and Marketing since
August 1998; Director, Sales & Marketing 1998;
Director, Marketing 1996-1997; Formerly
President/CEO, South Bend Lathe Corp.,
1990-1995.
Joseph T. Colvin..................... 56 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.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
LIST OF EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------
EXECUTIVE
OFFICER
NAME AGE SINCE POSITIONS AND OFFICES HELD
- ---- -------- --------- --------------------------
<S> <C> <C> <C>
Daniel P. Soroka..................... 51 1996 Vice President--Engineering since October,
1996; Director of Research & Engineering
1992-1996; Manager of Mechanical Design and
Analysis 1989-1992.
Douglas C. Tifft..................... 45 1988 Vice President--Administration since November
1998; Vice President--Employee Relations since
1988. Various other Company positions
1978-1988.
Thomas T. Connelly................... 52 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 10, 2000.
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 10, 2000.
ITEM 13.--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Registrants's proxy statement filed with the Commission on March 10, 2000.
38
<PAGE>
PART IV
ITEM 14.--EXHIBITS, FINANCIAL STATEMENT 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
- ---- -----------
<C> <C> <S>
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.
4.7 -- Stock Repurchase Program incorporated by reference from the
Registrant's Form 8-K filed with the Securities & Exchange
Commission on April 16, 1999.
10.1 -- Swap Transaction Agreement effective June 1, 1998 between
Hardinge Inc. and The Chase Manhattan Bank incorporated by
reference from the Registrant's Form 10-Q for the quarter
ended September 30, 1998.
10.2 -- 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.
10.3 -- 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.
10.4 -- 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.
10.5 -- 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.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
ITEM DESCRIPTION
- ---- -----------
<C> <C> <S>
10.6 -- 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.
10.7 -- $8,000,000 Master Note as amended 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.
10.8 -- 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.
*10.9 -- 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.
*10.10 -- Hardinge Inc. Savings Plan, incorporated by reference from
the Registrant's Registration Statement on Form S-8
(No. 33-65049).
*10.11 -- Employment Agreement with Richard C. Amadril dated August 3,
1998, incorporated by reference from the Registrant's
Form 10-Q for the quarter ended September 30, 1998.
*10.12 -- 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.
*10.13 -- 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.
*10.14 -- 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.
*10.15 -- 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.
*10.16 -- 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).
*10.17 -- 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).
*10.18 -- Hardinge Inc. 1993 Incentive Stock Plan, incorporated by
reference from the Registrant's Form 10-K for the year ended
December 31, 1993.
*10.19 -- 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.
*10.20 -- 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.
*10.21 -- Hardinge Inc. Executive Supplemental Pension Plan,
incorporated by reference from the Registrant's Form 10-K
for the year ended December 31, 1993.
*10.22 -- Form of Deferred Directors Fee Plan, incorporated by
reference from the Registrant's Registration Statement on
Form S-2 (No. 33-91644).
*10.23 -- 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.
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
40
<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.
<TABLE>
<S> <C>
HARDINGE INC.
---------------------------------------------
(REGISTRANT)
February 22, 2000 /s/ ROBERT E. AGAN
---------------------------------------------
Robert E. Agan
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER AND DIRECTOR
</TABLE>
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.
<TABLE>
<S> <C>
February 22, 2000 /s/ J. PATRICK ERVIN
---------------------------------------------
J. Patrick Ervin
EXECUTIVE VICE PRESIDENT--OPERATIONS
February 22, 2000 /s/ RICHARD L. SIMONS
---------------------------------------------
Richard L. Simons
SENIOR VICE PRESIDENT/CHIEF FINANCIAL OFFICER
AND ASSISTANT SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
February 22, 2000 /s/ JOHN W. BENNETT
---------------------------------------------
John W. Bennett
DIRECTOR
February 22, 2000 /s/ DANIEL J. BURKE
---------------------------------------------
Daniel J. Burke
DIRECTOR
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
February 22, 2000 /s/ RICHARD J. COLE
---------------------------------------------
Richard J. Cole
DIRECTOR
February 22, 2000 /s/ JAMES L. FLYNN
---------------------------------------------
James L. Flynn
DIRECTOR
February 22, 2000 /s/ E. MARTIN GIBSON
---------------------------------------------
E. Martin Gibson
DIRECTOR
February 22, 2000 /s/ DOUGLAS A. GREENLEE
---------------------------------------------
Douglas A. Greenlee
DIRECTOR
February 22, 2000 /s/ J. PHILIP HUNTER
---------------------------------------------
J. Philip Hunter
DIRECTOR AND SECRETARY
February 22, 2000 /s/ ALBERT W. MOORE
---------------------------------------------
Albert W. Moore
DIRECTOR
</TABLE>
42
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
COMPANY INCORPORATION OR ORGANIZATION
- ------- ---------------------------------------------
<S> <C>
Canadian Hardinge Machine Tools, Ltd. Canada
Hardinge Machine Tools, Ltd. United Kingdom
Hardinge, GmbH Federal Republic of Germany
Hardinge Shanghai Company, Ltd. People's Republic of China
Hardinge Taiwan Precision Machinery Limited Taiwan, Republic of China
L. Kellenberger & Co., AG Switzerland
</TABLE>
<PAGE>
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 21, 2000, 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, 1999.
Syracuse, New York
March 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,156
<SECURITIES> 0
<RECEIVABLES> 68,826
<ALLOWANCES> 0
<INVENTORY> 85,640
<CURRENT-ASSETS> 148,182
<PP&E> 144,421
<DEPRECIATION> 72,156
<TOTAL-ASSETS> 241,457
<CURRENT-LIABILITIES> 32,754
<BONDS> 23,380
0
0
<COMMON> 99
<OTHER-SE> 171,615
<TOTAL-LIABILITY-AND-EQUITY> 241,457
<SALES> 178,533
<TOTAL-REVENUES> 178,533
<CGS> 121,375
<TOTAL-COSTS> 47,541
<OTHER-EXPENSES> (656)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,743
<INCOME-PRETAX> 8,439
<INCOME-TAX> 3,054
<INCOME-CONTINUING> 6,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,041
<EPS-BASIC> .65
<EPS-DILUTED> .65
<FN>
<F1>Minority interest in loss of consolidated subsidiary.
</FN>
</TABLE>
