FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

(Mark One)

 

ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2003

 

OR

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

 

Commission file number: 000-15760

 

 

Hardinge Inc.

(Exact name of Registrant as specified in its charter)

 

New York

 

16-0470200

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

Hardinge Inc.

One Hardinge Drive

Elmira, NY 14902

(Address of principal executive offices)  (Zip code)

 

(607) 734-2281

(Registrant’s telephone number including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2). Yes ý No o

 

As of September 30, 2003 there were 8,854,849 shares of Common Stock of the Registrant outstanding.

 

 



 

HARDINGE INC. AND SUBSIDIARIES

 

INDEX

 

Part I

Financial Information

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at September 30, 2003 and December 31, 2002.

 

 

 

 

 

Consolidated  Statements of Operations and Retained Earnings for the three months ended September 30, 2003 and 2002 and the nine months ended September 30, 2003 and 2002.

 

 

 

 

 

Condensed Consolidated  Statements of  Cash Flows for the nine months ended September 30, 2003 and 2002.

 

 

 

 

 

Notes to Consolidated Financial Statements.

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

Part I I

Other Information

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 2.

Changes in Securities

 

 

 

 

Item 3.

Default upon Senior Securities

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 5.

Other Information

 

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

 

 

 

 

Signatures

 

 

2



 

PART I, ITEM 1

HARDINGE INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

(In Thousands)

 

 

 

Sept. 30,
2003

 

Dec. 31,
2002

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

3,474

 

$

2,175

 

Accounts receivable, net

 

43,626

 

38,519

 

Notes receivable, net

 

7,243

 

6,333

 

Inventories

 

83,571

 

87,748

 

Deferred income taxes

 

10

 

4,243

 

Income tax receivables

 

 

 

5,795

 

Prepaid expenses

 

4,516

 

3,362

 

Total current assets

 

142,440

 

148,175

 

 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

 

Property, plant and equipment

 

159,607

 

156,815

 

Less accumulated depreciation

 

93,934

 

87,908

 

 

 

65,673

 

68,907

 

Other assets:

 

 

 

 

 

Notes receivable

 

7,053

 

8,392

 

Deferred income taxes

 

102

 

9,268

 

Intangible pension asset

 

2,630

 

2,630

 

Goodwill

 

17,165

 

16,390

 

Other

 

2,565

 

2,523

 

 

 

29,515

 

39,203

 

 

 

 

 

 

 

Total assets

 

$

237,628

 

$

256,285

 

 

See accompanying notes.

 

3



 

 

 

Sept. 30,
2003

 

Dec. 31,
2002

 

 

 

(Unaudited)

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

12,921

 

$

14,417

 

Notes payable to bank

 

3,052

 

5,351

 

Accrued expenses

 

13,477

 

13,995

 

Accrued income taxes

 

1,834

 

1,150

 

Deferred income taxes

 

3,608

 

3,273

 

Current portion long-term debt

 

5,215

 

6,125

 

Total current liabilities

 

40,107

 

44,311

 

 

 

 

 

 

 

Other liabilities:

 

 

 

 

 

Long-term debt

 

23,329

 

30,526

 

Accrued pension plan expense

 

17,804

 

17,356

 

Deferred income taxes

 

2,563

 

2,525

 

Accrued postretirement benefits

 

5,838

 

5,838

 

Derivative financial instruments

 

5,383

 

5,257

 

Other liabilities

 

2,620

 

2,255

 

 

 

57,537

 

63,757

 

 

 

 

 

 

 

Equity of minority interest

 

3,122

 

2,431

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, Series A, par value $.01:

 

 

 

 

 

Authorized -  2,000,000; issued - none

 

 

 

 

 

Common stock, $.01 par value:

 

 

 

 

 

Authorized shares - 20,000,000 Issued  shares  - 9,919,992 at  Sept. 30, 2003 and  Dec. 31, 2002

 

99

 

99

 

Additional paid-in capital

 

60,612

 

61,139

 

Retained earnings

 

92,577

 

105,612

 

Treasury Shares - 1,065,143 shares at Sept. 30, 2003 and 1,146,084 shares at Dec. 31, 2002

 

(13,898

)

(15,068

)

Accumulated other comprehensive loss

 

(901

)

(4,562

)

Deferred employee benefits

 

(1,627

)

(1,434

)

Total shareholders’ equity

 

136,862

 

145,786

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

237,628

 

$

256,285

 

 

See accompanying notes.

 

4



 

HARDINGE INC AND SUBSIDIARIES

 

Consolidated Statements of Operations and Retained Earnings (Unaudited)

(In Thousands, Except Per Share Data)

 

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

43,993

 

$

39,268

 

$

132,389

 

$

127,083

 

Cost of sales

 

31,204

 

27,960

 

92,579

 

89,473

 

Gross profit

 

12,789

 

11,308

 

39,810

 

37,610

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

11,648

 

11,654

 

36,372

 

35,457

 

Income (loss) from operations

 

1,141

 

(346

)

3,438

 

2,153

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

615

 

946

 

2,157

 

2,846

 

Interest (income)

 

(97

)

(48

)

(339

)

(277

)

Income (loss) before income taxes and minority interest in consolidated subsidiary and investment of equity company

 

623

 

(1,244

)

1,620

 

(416

)

Income  taxes (benefits)

 

13,718

 

(1,094

)

13,951

 

(719

)

Minority interest in (profit) of consolidated subsidiary

 

(374

)

(96

)

(691

)

(322

)

Profit in investment of equity company

 

39

 

30

 

75

 

34

 

Net (loss) income

 

(13,430

)

(216

)

(12,947

)

15

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning of period

 

106,007

 

103,931

 

105,612

 

104,480

 

Less dividends declared

 

0

 

0

 

88

 

780

 

Retained earnings at end of period

 

$

92,577

 

$

103,715

 

$

92,577

 

$

103,715

 

 

 

 

 

 

 

 

 

 

 

Per share data:

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share

 

$

(1.54

)

$

(.02

)

$

(1.49

)

$

.00

 

Weighted average number
of common shares outstanding

 

8,716

 

8,703

 

8,703

 

8,683

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per share

 

$

(1.54

)

$

(.02

)

$

(1.49

)

$

.00

 

Weighted average number
of common shares outstanding

 

8,716

 

8,719

 

8,703

 

8,714

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared

 

$

.00

 

$

.00

 

$

.01

 

$

.09

 

 

See accompanying notes.

 

5



 

HARDINGE INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2003

 

2002

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

13,460

 

$

16,953

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Capital expenditures

 

(1,181

)

(2,033

)

Net cash (used in) investing activities

 

(1,181

)

(2,033

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

(Decrease) increase in short-term notes payable to bank

 

(2,341

)

2,644

 

(Decrease) in long-term debt

 

(8,670

)

(18,396

)

Sale (purchase) of treasury stock

 

26

 

(99

)

Dividends paid

 

(88

)

(780

)

Net cash (used in) financing activities

 

(11,073

)

(16,631

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

93

 

139

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

$

1,299

 

$

(1,572

)

 

See accompanying  notes

 

6



 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2003

 

NOTE A—BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the three month period and nine month period ended September 30, 2003, are not necessarily indicative of the results that may be expected for the year ended December 31, 2003.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report for the year ended December 31, 2002.  The Company operates in only one business segment – industrial machine tools.

 

Certain amounts in the September 30, 2002 consolidated financial statements have been reclassified to conform with the September 30, 2003 presentation.

 

NOTE B—STOCK-BASED COMPENSATION

 

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-Based Compensation.  SFAS No. 148, which is effective for years ended after December 15, 2002, provides alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires prominent disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The Company’s adoption of SFAS No. 148 in 2002 enhanced stock-based employee compensation disclosures and had no effect on the method of accounting followed by the Company.

 

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.  The stock options issued under the 1996 and 2002 Incentive Stock Plan expire 10 years from the date of grant and are exercisable one-third after the first year, two-thirds after the second year, and 100 percent exercisable after the third year.

 

In accordance with the provisions of Statement of Financial Accounting Standard No. 123 the Company has elected to continue applying the provisions of Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans.  Accordingly, the Company does not recognize compensation expense for stock options when the stock option price at the grant date is equal to or greater than the fair market value of the stock at that date.

 

A summary of the stock option activity under the Incentive Stock Plan is as follows:

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

Shares at beginning of period

 

241,250

 

151,000

 

236,000

 

100,500

 

Shares granted

 

 

 

5,250

 

54,250

 

Shares canceled and forfeited

 

 

 

 

(3,750

)

Shares at end of period

 

241,250

 

151,000

 

241,250

 

151,000

 

 

7



 

The following illustrates the pro forma effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123:

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

Reported net (loss) income

 

$

(13,430

)

$

(216

)

$

(12,947

)

$

15

 

Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects

 

30

 

12

 

88

 

36

 

Pro forma net (loss) income

 

$

(13,460

)

$

(228

)

$

(13,035

)

$

(21

)

(Loss) Earnings per share:

 

 

 

 

 

 

 

 

 

Basic and Diluted – as reported

 

$

(1.54

)

$

(.02

)

$

(1.49

)

$

.00

 

Basic and Diluted – pro forma

 

$

(1.54

)

$

(.03

)

$

(1.50

)

$

.00

 

 

NOTE C—WARRANTIES

 

The Company offers warranties for its products.  The specific terms and conditions of those warranties vary depending upon the product sold and the country in which the Company sold the product.  The Company generally provides a basic limited warranty, including parts and labor for a period of one year for most of its machine products.  The Company estimates the costs that may be incurred under its basic limited warranty, based largely upon actual warranty repair cost history, and records a liability in the amount of such costs in the month that product revenue is recognized.  The resulting accrual balance is reviewed during the year.  Factors that affect the Company’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim.

 

A reconciliation of the changes in the Company’s product warranty liability during the three month period and nine month period ended September 30, 2003 and 2002 was as follows:   (dollars in thousands)

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

Beginning balance

 

$

1,548

 

$

2,324

 

$

1,975

 

$

2,294

 

Warranties issued

 

309

 

273

 

1,413

 

1,199

 

Warranties settlement costs

 

(325

)

(319

)

(1,882

)

(1,345

)

Other – currency translation impact

 

28

 

13

 

54

 

143

 

Balance at September 30,

 

$

1,560

 

$

2,291

 

$

1,560

 

$

2,291

 

 

8



 

NOTE D—INVENTORIES

 

Inventories are summarized as follows (dollars in thousands):

 

 

 

September 30,
2003

 

December 31,
2002

 

 

 

 

 

 

 

Finished products

 

$

31,782

 

$

30,045

 

Work-in-process

 

26,725

 

30,180

 

Raw materials and purchased components

 

25,064

 

27,523

 

 

 

$

83,571

 

$

87,748

 

 

NOTE E—INCOME TAXES

 

Statement of Financial Accounting Standards No.109 (SFAS 109) requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized.  A review of all available positive and negative evidence needs to be considered, including a company’s current and past performance, the market conditions in which the Company operates, the utilization of past tax credits, the length of carryback and carryforward periods, sales backlogs , etc. that will result in future profits, etc.  It further states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years.  Therefore, cumulative losses weigh heavily in the overall assessment.  As a result of the review undertaken at September 30, 2003, Hardinge, Inc. concluded that it was appropriate to establish a full valuation allowance for its U.S. net deferred tax assets.  The valuation allowance resulted in a $13,694,000 charge to earnings in the quarter ended September 30, 2003.  In addition, Hardinge, Inc. expects to provide a full valuation allowance on future U.S. tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the assets.

 

For additional information see Management’s Discussion and Analysis of Results of Operations and Financial Condition.

 

9



 

NOTE F—EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING

 

Earnings per share are computed in accordance with Statement of Financial Accounting Standards No. 128 Earnings per Share.   Basic earnings per share are computed using the weighted average number of shares of common stock outstanding during the period.  For diluted earnings per share, in periods when the Company is profitable, the weighted average number of shares includes common stock equivalents related primarily to restricted stock.  Common stock equivalents are not treated as outstanding for diluted purposes during loss periods, as such inclusion would be anti-dilutive.

 

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations required by Statement No. 128:

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

 

 

(dollars in thousands)

 

Numerator:

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(13,430

)

$

(216

)

$

(12,947

)

$

15

 

Numerator for basic (loss) earnings per share

 

(13,430

)

(216

)

(12,947

)

15

 

Numerator for diluted (loss) earnings per share

 

(13,430

)

(216

)

(12,947

)

15

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic earnings (loss) per share
-weighted average shares  (in thousands)

 

8,716

 

8,703

 

8,703

 

8,683

 

Effect of diluted securities:

 

 

 

 

 

 

 

 

 

Restricted stock and stock options  (in thousands)

 

 

 

16

 

 

 

31

 

Denominator for diluted earnings (loss) per share
-adjusted weighted average shares  (in thousands)

 

8,716

 

8,719

 

8,703

 

8,714

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share

 

$

(1.54

)

$

(.02

)

$

(1.49

)

$

.00

 

Diluted (loss) earnings per share

 

$

(1.54

)

$

(.02

)

$

(1.49

)

$

.00

 

 

NOTE G— DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company follows the provision of Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.  The statement requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value.  The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.  For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

 

10



 

NOTE H—REPORTING COMPREHENSIVE (LOSS) INCOME

 

During the three and nine months ended September 30, 2003 and 2002, the components of total comprehensive (loss) income consisted of the following  (dollars in thousands):

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

Net (Loss) Income

 

$

(13,430

)

$

(216

)

(12,947

)

$

15

 

Other Comprehensive (Loss) Income

 

 

 

 

 

 

 

 

 

Foreign currency  translation adjustments

 

1,947

 

325

 

4,531

 

7,512

 

Unrealized gain (loss) on derivatives:

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

183

 

(519

)

185

 

(653

)

Net investment hedges

 

(643

)

(83

)

(1,055

)

(2,219

)

Other comprehensive income (loss)

 

1,487

 

(277

)

3,661

 

4,640

 

Total Comprehensive (Loss) Income

 

$

(11,943

)

$

(493

)

$

(9,286

)

$

4,655

 

 

Accumulated balances of the components of other comprehensive (loss) income consisted of the following at September 30, 2003 and December 31, 2002  (dollars in thousands):

 

 

 

Accumulated balances

 

 

 

Sept. 30,

 

Dec. 31,

 

 

 

2003

 

2002

 

Other Comprehensive (Loss) Income:

 

 

 

 

 

Pension liability (net of tax of $3,133)

 

$

(5,112

)

$

(5,112

)

Foreign currency  translation adjustments

 

6,786

 

2,255

 

Unrealized gain (loss) on derivatives:

 

 

 

 

 

Cash flow hedges, (net of tax of $634 and $782, respectively)

 

(1,235

)

(1,420

)

Net investment hedges, (net of tax of $715 and $241, respectively)

 

(1,340

)

(285

)

Other Comprehensive (Loss)

 

$

(901

)

$

(4,562

)

 

NOTE  I—GOODWILL AND OTHER INTANGIBLE ASSETS

 

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001.  Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements.  Other intangible assets will continue to be amortized over their useful lives.

 

The Company adopted Financial Accounting Standards No. 142 on January 1, 2002.  The Company performed a preliminary annual impairment test in the third quarter of 2003 and determined that there was no goodwill impairment.  The Company will complete its annual impairment test in the fourth quarter of 2003.

 

11



 

The total carrying amount of goodwill as of September 30, 2003 was $17,165,000.  This entire asset resulted from the December 2000 acquisition of HTT Hauser Tripet Tschudin AG.  The asset value of this goodwill increased by $775,000, or 4.7%, during the first nine months of 2003, with the entire change caused by the increased dollar value of the Swiss franc, the functional currency of the Company’s HTT subsidiary, whose balance sheet includes this goodwill.

 

The total carrying amount of intangible assets subject to amortization, as of September 30, 2003, was $797,000, which derived from patents and one non-compete agreement.  The Company’s intangible asset amortization expense was $54,000 for the quarter ended September 30, 2003 and 2002.  The estimated intangible amortization expense for each of the next five years is approximately $200,000, which will vary depending upon additional amortizable intangible assets.

 

NOTE J—NEW ACCOUNTING PRONOUNCEMENTS

 

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires the recognition of expense when the liability is incurred and not as a result of an entity’s commitment to an exit plan.  The statement is effective for exit or disposal activities initiated after December 31, 2002.  The adoption of SFAS No. 146 in the first quarter of 2003 did not have an impact on the Company’s financial results.

 

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.  The Interpretation requires certain guarantees to be recorded at fair value, which is different from prior accounting principles generally accepted in the United States.  The Interpretation also requires a guarantor to make new disclosures. The Company adopted this Interpretation with the Form 10-K issued for the period ended December 31, 2002 and implementation has had no material effect on the financial statements.

 

In December 2002, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-based compensation-Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-based Compensation. SFAS No. 148, which is effective for years ended after December 15, 2002, provides alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires prominent disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The Company’s adoption of SFAS 148 in 2002 enhanced disclosures about stock-based employee compensation and had no effect on the method of accounting followed by the Company, as the Company continues to follow the provisions of APB Opinion No. 25.

 

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46”).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the periods ended after December 15, 2003.  The Company does not expect FIN 46 to have a material effect on its consolidated financial statements.

 

12



 

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement requires reporting of derivative contracts as either freestanding derivative instruments subject to Statement 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. The statement is effective for contracts entered into after June 30, 2003.  The Company has implemented SFAS 149 effective June 30, 2003 and there has been no impact on the financial statements as all the hedging activities since the implementation have been reported pursuant to SFAS 133.

 

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity.  Statement No. 150 is effective for all financial instruments created or modified after May 31, 2003, except for the indefinite deferral of the measurement and recognition guidance in Statement No. 150 related to mandatory redeemable noncontrolling interests that are classified as equity in the financial statements of the subsidiary but would be classified as a liability in the parent’s financial statements under Statement No. 150 because the subsidiary has a limited life and to defer the application of the measurement guidance in Statement 150 to mandatory redeemable noncontrolling interests, that are not within the scope of the deferral described in the preceding sentence, that were issued on or before November 5, 2003.  The Company has implemented Statement No. 150, except for the partial deferral described above, and the implementation had no impact on the consolidated financial statements of the Company.

 

On November 21, 2002, the Emerging Issues Task Force, an affiliate of the Financial Accounting Standards Board, issued EITF 00-21, Revenue Arrangements with Multiple Deliverables. EITF 00-21 specifies how a seller is to determine whether a sales transaction involving multiple deliverables contains more than one unit of accounting. One example is the case of a product sale invoiced with a vendor installation service and the issue of whether a portion of the revenue must not be recognized if the installation is not fully completed within the accounting period.  EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company implemented EITF 00-21 effective July 1, 2003 and the implementation had no material effect on the Company’s financial statements.

 

13



 

PART I, ITEM 2

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following are management’s comments relating to Hardinge’s results of operations for the three month and nine month periods ended September 30, 2003 and 2002 and in the Company’s financial condition at September 30, 2003.

 

Quarterly Information

 

The following table sets forth certain quarterly financial data for each of the periods indicated.

 

 

 

Three Months Ended

 

 

 

March 31,
2003

 

June 30,
2003

 

Sept. 30,
2003 *

 

 

 

(in thousands, except per share data)

 

Net Sales

 

$

40,902

 

$

47,494

 

$

43,993

 

Gross Profit

 

12,797

 

14,224

 

12,789

 

Income from operations

 

673

 

1,624

 

1,141

 

Net (loss) income

 

(97

)

580

 

(13,430

)

Diluted earnings (loss) per share

 

(.01

)

.07

 

(1.54

)

Weighted average shares outstanding

 

8,700

 

8,716

 

8,716

 

 

 

 

Three Months Ended

 

 

 

March 31,
2002

 

June 30,
2002

 

Sept. 30,
2002

 

Dec. 31,
2002

 

 

 

(in thousands, except per share data)

 

Net Sales

 

$

43,753

 

$

44,062

 

$

39,268

 

$

41,931

 

Gross Profit

 

12,583

 

13,719

 

11,308

 

14,001

 

Income (loss) from operations

 

855

 

1,644

 

(346

)

3,010

 

Net income (loss)

 

89

 

142

 

(216

)

1,985

 

Diluted earnings (loss) per share

 

.01

 

.02

 

(.02

)

.23

 

Weighted average shares outstanding

 

8,667

 

8,700

 

8,719

 

8,721

 

 


*  The net loss of ($13,430,000) for the quarter ended September 30, 2003 included the deferred tax charge of $13,694,000 as described in Note E.

 

Results of Operations

 

Net Sales.    Net sales for the quarter ended September 30, 2003 were $43,993,000, an increase of $4,725,000, or 12.0%, as compared to net sales of $39,268,000 during the third quarter of 2002. For the nine months ended September 30, 2003, net sales were $132,389,000, which was $5,306,000, or 4.2%, above the net sales of $127,083,000 during the first nine months of 2002. In both cases, these 2003 sales included the significant favorable impacts of stronger European currencies on the translation of foreign sales into U.S. Dollars. When measured at constant exchange rates, third quarter, 2003 sales were 10.0% above the third quarter of 2002 and September 30, 2003 year-to-date sales were 1.4% below the first nine months of 2002.

 

14



 

Sales to customers in North America were $20,487,000 in the third quarter of 2003, an increase of $4,578,000, or 28.8%, from sales of $15,909,000 in the third quarter of 2002. The third quarter sales increase included sales of Bridgeport machines and repair parts, products which the Company first offered in January of 2003.

 

For the first nine months of 2003, sales in North America were $56,832,000, which was $2,572,000, or 4.7%, above the sales of $54,260,000 in the first nine months of 2002.

 

Sales to European customers were $16,576,000 in the third quarter of 2003, an increase of $1,331,000, or 8.7%, as compared to sales of $15,245,000 during the third quarter of 2002. For the first nine months of 2003, sales in Europe were $53,279,000, which was $172,000, or 0.3%, below the sales of $53,451,000 in the first nine months of 2002. Excluding the positive impact of exchange rate changes, as described previously, sales in the third quarter of 2003 increased by 5.0% whereas sales in the first nine months of 2003 declined by 9.6%, reflecting the substantial decline in European machine tool demand.

 

Other international sales, primarily to customers in Asia, were $6,930,000 in the third quarter of 2003, which was a decrease of $1,184,000, or 14.6%, as compared to sales of $8,114,000 in the third quarter of 2002. These lower sales were due to shipment timing, rather than diminished customer demand. As described later in this analysis, third quarter new orders from this region, at $11,485,000, were 42% above the third quarter of 2002.

 

For the first nine months of 2003, other international sales were $22,278,000, which was $2,906,000, or 15.0%, above the sales of $19,372,000 in the first nine months of 2002.

 

Sales in North America accounted for 46.6% of third quarter, 2003 sales, as compared to 40.5% in the third quarter of 2002. Europe represented 37.7% of third quarter sales in 2003 and 38.8% in 2002. Sales to customers in the Asia and Other region represented 15.7% of third quarter, 2003 sales, as compared to 20.7% of sales in the third quarter of 2002.

 

For the first nine months of 2003, 42.9% of the Company’s sales were to customers in North America, with the remaining 40.3% and 16.8% of sales representing shipments to Europe and the remainder of the world, respectively. In the first nine months of 2002, 42.7% of sales were to North America, with the remaining 42.1% and 15.2% of sales representing shipments to Europe and the remainder of the world, respectively.

 

Machine sales accounted for 67.0% of revenues for the third quarter of 2003, as compared to 64.5% of revenues in the third quarter of 2002. For the first nine months of 2003, machine sales accounted for 65.4% of revenues, as compared to 65.5% in the first nine months of 2002. Sales of non-machine products and services made up the balance.

 

The Company’s new orders were $50,712,000 in the third quarter of 2003, which was 39% above the orders of $36,468,000 received in the third quarter of 2002. The Company notes that this is the highest quarterly order rate since June 2001. This increase of $14,244,000 included both the addition of the Bridgeport products and benefits of $1,566,000 due to the previously mentioned dollar exchange rate changes. When measured at constant currency rates, orders were 34.8% higher in the third quarter of 2003 than in the third quarter of 2002.

 

For the first nine months of 2003, orders of $136,736,000 were 18.2% above the $115,696,000 order rate for the first nine months of 2002. When viewed at constant currency rates, these orders increased by $14,213,000, or 12.3%, as compared to the first nine months of 2002.

 

The Company’s North American orders, at $22,867,000 in the third quarter of 2003, rose $8,558,000, or 59.8%, as compared to $14,309,000 in the third quarter of 2002. This improvement in orders, which included the benefit of Bridgeport product orders, occurred despite a continuing decline in

 

15



 

industry-wide machine tool orders.  The Association for Manufacturing Technology, the primary trade group for the American machine tool industry, has reported that for the first eight months of 2003 metal-cutting machinery orders from U.S. customers were down 16% from the very depressed level of the same period in 2002.

 

For the first nine months of 2003, North American orders of $64,136,000 were 24.5% above the $51,528,000 order level attained in the first nine months of 2002.

 

Orders from European customers were $16,360,000 in the third quarter of 2003, which was 16.3% above new orders of $14,072,000 in the third quarter of 2002. For the first nine months of 2003, orders from European customers were $47,145,000. This was 8.8% above the new orders received in the first nine months of 2002. However, excluding the previously mentioned positive impact of exchange rate changes, new European orders in the first nine months of 2003 were 1.5% below the first nine months of 2002.

 

Third quarter new orders from the Asia and Other region, at $11,485,000, were 42.0% above the new orders received in the third quarter of 2002. Although third quarter orders from Asia benefited from that region’s recovery from SARS, current order and pre-order activity suggests that the strong third quarter order level is likely to continue for the foreseeable future. For the first nine months of 2003, new orders from this region, most of which continued to be from customers in China, were $25,455,000, or 22.2% above the order rate of the first nine months of 2002.

 

The Company’s September 30, 2003 backlog of $40,723,000 was 3.1% above the September 30, 2002 backlog of $39,514,000 and it was 19.2%, or $6,547,000, above the $34,176,000 backlog at June 30, 2003.

 

Gross Profit.     Expressed as a percentage of net sales, gross margin was 29.1% for the three months ended September 30, 2003, as compared to 28.8% in the third quarter of 2002. For the first nine months of 2003, gross margin was 30.1% of net sales as compared to 29.6% in the first nine months of 2002. In all these periods, gross margins were reduced by low utilization of the Company’s manufacturing operations in both the United States and Switzerland.

 

Selling, General and Administrative Expenses.      Selling, general and administrative (“SG&A”) expenses were $11,648,000, or 26.5% of sales, during the third quarter of 2003, which was 0.1% below the SG&A of $11,654,000, or 29.7% of sales, during the third quarter of 2002. The impact of translating foreign operations into U.S. dollars, due to the exchange rate changes discussed previously, caused SG&A to increase by approximately $325,000.  Excluding those currency changes, third quarter SG&A declined by approximately $331,000, or 2.8%, due to continuing cost cutting efforts which were partially offset by higher pension and health care costs in the U.S.

 

For the first nine months of 2003, SG&A expenses were $36,372,000, or 27.5% of sales, which was $915,000, or 2.6%, above the SG&A of $35,457,000, or 27.9% of sales, during the first nine months of 2002. The foreign currency translation impact was approximately $1,705,000; excluding those currency impacts, SG&A declined by approximately $790,000, or 2.2%, despite the 4.2% increase in net sales. The primary reasons for this improvement are as noted previously.

 

Income/(Loss) from Operations.      For the quarter ended September 30, 2003, income from operations was $1,141,000, or 2.6% of sales, as compared to a loss of ($346,000), or (0.9%) of sales, in the third quarter of 2002. For the first nine months of 2003, income from operations was $3,438,000, or 2.6% of sales, as compared to $2,153,000, or 1.7% of sales, in the first nine months of 2002. As noted previously, the primary reason for these improvements has been increased sales.

 

Interest Expense and Income.      Interest expense was $615,000 in the third quarter of 2003, a decrease of  $331,000, or 35.0%, as compared to $946,000 in the third quarter of 2002. For the first nine

 

16



 

months of 2003, interest expense was $2,157,000, or 24.2% below the $2,846,000 incurred in the first nine months of 2002. In both cases, the primary reason was decreased borrowing levels. Interest income was $97,000 during the third quarter of 2003, as compared to $48,000 in the third quarter of 2002, and $339,000 in the first nine months of 2003 as compared to $277,000 in the first nine months of 2002.

 

Income Taxes/(Benefits).     The third quarter, 2003 income tax expense of $13,718,000 included a charge of $13,694,000 to provide a 100% valuation allowance for the Company’s U.S. deferred tax assets. As specified in Statement of Financial Accounting Standards No.109 (SFAS 109), the Company regularly, and at least quarterly, reviewed the recent results and projected future results of its operations, as well as other relevant factors, to reconfirm the likelihood that existing deferred tax assets in each tax jurisdiction would be fully recoverable. In the Company’s case, this recoverability has been based largely on the likelihood of future taxable income.

 

During the third quarter of 2003, it became unlikely that the Company’s U.S. operations would return to profitability by the end of 2003, as had been previously expected. SFAS 109 stipulates that when a Company is relying largely on future taxable income and also has a history of recurring pre-tax losses, considerably greater positive evidence is necessary to conclude that deferred tax assets do not warrant a valuation allowance. Although the Company sees a higher probability that its U.S. operations will return to profitability sometime during 2004, it does not feel that the high standard of SFAS 109 for positive evidence could be fully met and thus the valuation allowance was established.

 

For the first nine months of 2003, income tax expense was $13,951,000, largely for the reasons described previously, as compared to a tax benefit of ($719,000) in the first nine months of 2002.

 

Minority Interest in (Profit) of Consolidated Subsidiary.      The Company has a 51% interest in Hardinge Taiwan Precision Machinery Limited, an entity which is recorded as a consolidated subsidiary. For the quarter ended September 30, 2003 and 2002, respectively, reductions in net income of $374,000 and $96,000 represented the minority stockholders’ 49% share in the joint venture’s net income. This reduction was $691,000 in the first nine months of 2003, as compared to $322,000 in the first nine months of 2002.

 

Profit in Investment in Equity Company.     During the third quarter of 2003, Hardinge EMAG GmbH contributed $39,000 of profit from Hardinge’s 50% interest in this joint venture, as compared to $30,000 in the third quarter of 2002. For the first nine months of 2003, this investment contributed $75,000 to net income, as compared to $34,000 in the first nine months of 2002.

 

Net Income/(Loss).     The net loss for the third quarter of 2003 was ($13,430,000), or ($1.54) per basic and diluted share, as compared to a net loss of ($216,000), or ($0.02) per basic and diluted share, in the third quarter of 2002. For the first nine months of 2003, the net loss was ($12,947,000), or ($1.49) per basic and diluted share, as compared to a profit of $15,000, or less than $.01 per basic and diluted share, in the first nine months of 2002.  These changes were largely due to the $13,694,000 charge for the higher tax provision for increasing the valuation allowance for U.S. deferred tax assets.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Operating activities for the nine months ended September 30, 2003 generated cash of $13,460,000, as compared to generating $16,953,000 during the first nine months of 2002, for a decrease in cash generation of $3,493,000. Increased accounts receivable, largely due to higher sales, caused a $3,731,000 decrease in cash generation during the first nine months of 2003, as compared to decreased accounts receivable causing a $931,000 increase in cash generation during the first nine months of 2002, for a combined $4,662,000 of net decrease in cash generation. Another $2,070,000 of decreased cash generation was due to accrued expenses, which increased $171,000 in the first nine months of 2003 but had increased $2,241,000 in the first nine months of 2002. An additional $1,095,000 of reduced cash generation

 

17



 

represented decreased depreciation and amortization expense, with $6,446,000 recorded in the first nine months of 2003 as compared to $7,541,000 recorded in the first nine months of 2002. Partially offsetting these and lesser net decreases was a $2,469,000 net increase in cash generation from other assets, which decreased by $2,912,000 in the first nine months of 2003 but had decreased by $5,381,000 during the first nine months of 2002. Another partial offset included income taxes receivable, with a $7,144,000 increase in the first nine months of 2003 as compared to a $5,795,000 increase in the first nine months of 2002, both due to tax refunds in the U.S., for a net increase in cash generation of $1,349,000. Notes receivable was another partial offset, with a $947,000 increase in the first nine months of 2003 as compared to a $51,000 decrease in the first nine months of 2002, for a net increase in cash generation of $998,000.

 

Capital expenditures used cash of $1,181,000 during the first nine months of 2003, as compared to usage of $2,033,000 during the first nine months of 2002. Capital expenditures were minimized prior to 2002 and the Company does not expect that policy to change in the foreseeable future.

 

Financing activities used $11,073,000 in the nine months of 2003, as compared to usage of $16,631,000 during the first nine months of 2002, for a net change of $5,558,000, with debt reduction representing $11,011,000 of the September 2003 year-to-date usage and $15,752,000 of the usage in the first nine months of 2002. Dividend payments were $88,000 in the first nine months of 2003 as compared to $780,000 during the first nine months of 2002. The Company replaced quarterly dividends with a policy of semi-annual dividend reviews in May of 2002.

 

Hardinge’s current ratio was 3.55:1 at September 30, 2003, as compared to 3.34:1 at December 31, 2002.

 

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. The Company has recorded a third quarter, 2003 charge to establish a 100% valuation allowance on the U.S. net deferred tax asset.

 

Hardinge maintains various borrowing arrangements. These include a revolving loan agreement with a group of U.S. banks which provides for borrowing of up to $30,000,000 secured by substantially all of the Company’s domestic assets other than real estate and by a pledge of two-thirds of its investment in its Canadian and European subsidiaries. The Company also maintains an $8,000,000 credit line with another U.S. bank. The Company has a loan agreement with a Swiss bank, providing for borrowing of up to 7,500,000 Swiss Francs, or $5,678,000 at the September 30, 2003 exchange rate, secured by the real property owned by Kellenberger AG, a wholly owned subsidiary of the Company. The Company also maintains a mortgage loan with a Swiss bank, which provide for borrowing up to 4,795,000 Swiss Francs, or $3,631,000 at the September 30, 2003 exchange rate, secured by the real property owned by HTT AG, another wholly owned subsidiary of the Company. These facilities, along with other short-term credit agreements and a $19,400,000 term loan, provide for immediate access for up to $77,198,000. Outstanding borrowings under these arrangements totaled $31,596,000, or 40.9% of the agreed borrowing capacity, at September 30, 2003. The Company believes that the currently available funds and credit facilities, along with internally generated funds, will provide sufficient financial resources for ongoing operations.

 

NEW ACCOUNTING STANDARDS

 

In June 2002, The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires the recognition of expense when the liability is incurred and not as a result of an entity’s commitment to an exit plan and is effective with exit or disposal activities after December 31, 2002. The Company adopted SFAS No. 146 in the first quarter of 2003 did not have an impact on the Company’s financial results.

 

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45,

 

18



 

Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.  The Interpretation requires certain guarantees to be recorded at fair value, which is different from prior accounting principles generally accepted in the United States. The Interpretation also requires a guarantor to make new disclosures.  The Company adopted this Interpretation with the Form 10-K issued for the period ended December 31, 2002 and implementation has had no material effect on the financial statements.

 

In December 2002, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-based compensation-Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-based Compensation. SFAS No. 148, which is effective for years ending after December 15, 2002, provides alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires prominent disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company’s adoption of SFAS 148 in 2002 enhanced disclosures about stock-based employee compensation and had no effect on the method of accounting followed by the Company, as the Company continues to follow the provisions of APB Opinion No. 25.

 

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the periods ended after December 15, 2003.  The Company does not expect FIN 46 to have a material effect on its consolidated financial statements.

 

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement requires reporting of derivative contracts as either freestanding derivative instruments subject to Statement 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. The statement is effective for contracts entered into after June 30, 2003. The Company has implemented SFAS 149 effective June 30, 2003 and there has been no impact on the Company’s financial statements as all of the hedging activities since the implementation have been reported pursuant to SFAS 133.

 

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity.  Statement No. 150 is effective for all financial instruments created or modified after May 31, 2003, except for the indefinite deferral of the measurement and recognition guidance in Statement No. 150 related to mandatorily redeemable noncontrolling interests that are classified as equity in the financial statements of the subsidiary but would be classified as a liability in the parent’s financial statements under Statement No. 150 because the subsidiary has a limited life and to defer the application of the measurement guidance in Statement 150 to mandatorily redeemable noncontrolling interests, that are not within the scope of the deferral described in the preceding sentence, that were issued on or before November 5, 2003.  The Company has implemented Statement No. 150, except for the partial deferral described above, and the implementation had no impact on the consolidated financial statements of the Company.

 

On November 21, 2002, the Emerging Issues Task Force, an affiliate of the Financial Accounting Standards Board, issued EITF 00-21, Revenue Arrangements with Multiple Deliverables. EITF 00-21 specifies how a seller is to determine whether a sales transaction involving multiple deliverables contains more than one unit of accounting. One example is the case of a product sale invoiced with a vendor installation service and the issue of whether a portion of the revenue must not be recognized if the installation is not fully completed within the accounting period.  EITF 00-21 is effective for revenue

 

19



 

arrangements entered into in fiscal periods beginning after June 15, 2003. The Company implemented EITF 00-21 effective July 1, 2003 and the implementation had no material effect on the Company’s financial statements.

 

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.

 

20



 

PART I.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None

 

ITEM . 4.  CONTROLS AND PROCEDURES

 

The Chief Executive Officer and the Chief Financial Officer of Hardinge have, as of September 30, 2003, evaluated the disclosure controls and procedures of the Company and have found those controls to be effective.

 

There have been no significant changes in internal controls or other factors that could significantly affect internal controls subsequent to their review.

 

Part II.  OTHER INFORMATION

 

Item 1.  Legal Proceedings

None

 

Item 2.  Changes in Securities

None

 

Item 3.  Default upon Senior Securities

None

 

Item 4.  Submission of Matters to a Vote of Security Holders

None

 

Item 5.  Other Information

None

 

21



 

Item 6.  Exhibits and Reports on Form 8-K

 

A.    Exhibits

 

10.1         Amendment Number Two to the Term Loan Agreement dated October 24, 2002 among Hardinge Inc., the Banks signatory thereto and JP Morgan Chase Bank as Sole Administrative Agent and KeyBank National Association as Documentation Agent.

 

10.2         Amendment Number Two to the Multi-currency Credit  Agreement dated October 24, 2002 among Hardinge Inc., the Banks signatory thereto and JP Morgan Chase Bank as Sole Administrative Agent and KeyBank National Association as Documentation Agent

 

31.1         Chief Executive Officer Certification pursuant to Rule 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2         Chief Financial Officer Certification pursuant to Rule 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32            Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

B.    Reports on 8-K

 

Current Report on Form 8-K, filed November 5, 2003 in connection with an October 30, 2003 press release announcing third quarter 2003 results.

 

22



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

  Hardinge Inc.

 

 

 

 

 

 

November 13, 2003

 

By:

  /s/ J. Patrick Ervin

 

Date

 

 

J. Patrick Ervin

 

 

 

Chairman of the Board, President/CEO

 

 

 

 

 

 

 

 

 

 

November 13, 2003

 

By:

  /s/ Richard L. Simons

 

Date

 

 

Richard  L. Simons

 

 

 

Executive Vice President/CFO

 

 

 

(Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

November 13, 2003

 

By:

  /s/ Richard B. Hendrick

 

Date

 

Richard  B. Hendrick

 

 

Vice President and Controller

 

 

(Principal Accounting Officer)

 

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