FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-15760
HARDINGE INC.
(Exact name of Registrant as specified in its charter)
New York 16-0470200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hardinge Inc.
One Hardinge Drive
Elmira, NY 14902
(Address of principal executive offices) (Zip code)
(607) 734-2281
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
As of September 30, 2001 there were 8,858,333 shares of Common Stock of
the Registrant outstanding.
HARDINGE INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2001 and
December 31, 2000. 3
Consolidated Statements of Income and Retained Earnings
for the three months ended September 30, 2001 and 2000 and
the nine months ended September 30, 2001 and 2000. 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2001 and 2000. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 16
Part II Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Default upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
PART I. ITEM 1
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Sept. 30, Dec. 31,
2001 2000
---------------------------
(Unaudited)
Assets
Current assets:
Cash $2,963 $2,740
Accounts receivable 45,920 45,276
Notes receivable 7,809 7,185
Inventories 80,484 102,780
Deferred income taxes 4,536 5,065
Income tax receivable 5,424
Prepaid expenses 4,891 5,825
---------------------------
Total current assets 152,027 168,871
Property, plant and equipment:
Property, plant and equipment 156,018 153,431
Less accumulated depreciation 80,327 77,561
---------------------------
75,691 75,870
Other assets:
Notes receivable 12,194 17,354
Deferred income taxes 8,619 66
Goodwill 14,434 18,238
Other 2,530 2,717
---------------------------
37,777 38,375
---------------------------
Total assets $265,495 $283,116
===========================
See accompanying notes.
3
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--Continued
(IN THOUSANDS)
Sept. 30, Dec. 31,
2001 2000
---------------------------
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $15,213 $17,477
Notes payable to bank 5,627 7,037
Accrued expenses 18,321 17,672
Accrued income taxes 375 2,386
Deferred income taxes 4,908 2,152
Current portion long-term debt 4,106 4,105
---------------------------
Total current liabilities 48,550 50,829
Other liabilities:
Long-term debt 57,761 47,417
Accrued pension plan expense 6,418 6,092
Deferred income taxes 3,130 2,342
Accrued postretirement benefits 5,774 5,747
---------------------------
73,083 61,598
Equity of minority interest 1,636 1,226
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, 2001
and December 31, 2000 99 99
Additional paid-in capital 61,193 61,542
Retained earnings 104,841 130,955
Treasury shares (14,216) (14,243)
Accumulated other comprehensive income (6,922) (6,239)
Deferred employee benefits (2,769) (2,651)
---------------------------
Total shareholders' equity 142,226 169,463
---------------------------
Total liabilities and shareholders' equity $265,495 $283,116
===========================
See accompanying notes.
4
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
-------------------------- --------------------------
Net Sales $ 47,703 $45,335 $162,008 $140,944
Cost of sales 34,227 30,903 112,299 95,014
Cost of sales - nonrecurring 2 27,237 27,237
-------------------------- --------------------------
Gross (loss) profit (13,761) 14,432 22,472 45,930
Selling, general and administrative expenses 12,488 11,808 41,193 35,369
Provision for doubtful accounts 1,2 5,820 200 6,210 670
Impairment charge - nonrecurring 2 5,519 5,519
-------------------------- --------------------------
(Loss) income from operations (37,588) 2,424 (30,450) 9,891
Interest expense 879 369 2,587 1,348
Interest (income) (125) (106) (392) (325)
-------------------------- --------------------------
(Loss) income before income taxes and minority interest
in consolidated subsidiary and investment of equity
company (38,342) 2,161 (32,645) 8,868
Income taxes (benefits) (11,986) 639 (10,390) 3,188
Minority interest in (profit) of consolidated subsidiary (134) (153) (410) (166)
Profit in investment of equity company 100 250
-------------------------- --------------------------
Net (loss) income 2 (26,390) 1,369 (22,415) 5,514
Retained earnings at beginning of period 132,469 129,964 130,955 128,325
Less dividends declared 1,238 1,247 3,699 3,753
-------------------------- --------------------------
Retained earnings at end of period $104,841 $130,086 $104,841 $130,086
========================== ==========================
Per share data:
Basic (loss) earnings per share 2 $ (3.04) $ .16 $ (2.58) $ .63
========================== ==========================
Weighted average number
of common shares outstanding 8,682 8,715 8,701 8,766
========================== ==========================
Diluted (loss) earnings per share 2 $ (3.04) $ .16 $ (2.58) $ .63
========================== ==========================
Weighted average number
of common shares outstanding 8,690 8,715 8,701 8,797
========================== ==========================
Cash Dividends Declared $ .14 $ .14 $ .42 $ .42
========================== ==========================
1 In 2001, includes $5,200 of nonrecurring provision for doubtful accounts.
2 2001 third quarter results include a nonrecurring charge of $37,956
(after-tax $26,455) related to the realignment as explained in the notes to
the financial statements. Excluding this charge, third quarter earnings and
basic and diluted earnings per share would have been $65, $0.01 and $0.01,
respectively. Year to date September 30, 2001 earnings and basic and
diluted earnings per share would have been $4,040, $0.46 and $0.46,
respectively, excluding this nonrecurring charge.
See accompanying notes.
5
HARDINGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Nine Months Ended
September 30,
2001 2000
-------------------------------
Net cash provided by operating activities $ 3,090 $ 14,756
Investing activities:
Capital expenditures (7,492) (1,828)
Investment in Hardinge EMAG (250) (1,425)
-------------------------------
Net cash (used in) investing activities (7,742) (3,253)
Financing activities:
(Decrease) increase in short-term notes payable to bank (1,277) 3,129
Increase (decrease) in long-term debt 10,694 (7,050)
(Purchase) of treasury stock (1,109) (4,315)
Dividends paid (3,699) (3,753)
Funds provided by minority interest 410 166
-------------------------------
Net cash provided by (used in) financing activities 5,019 (11,823)
Effect of exchange rate changes on cash (144) (61)
-------------------------------
Net increase (decrease) in cash $ 223 $ (381)
===============================
See accompanying notes
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2001, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. 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, 2000. The Company
operates in only one business segment - industrial machine tools.
The Company has adopted Statement of Financial Accounting
Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
as of January 1, 2001. See Note E below.
NOTE B--NONRECURRING REALIGNMENT CHARGE
2001's third quarter included a one-time charge of $37,956,000
($26,455,000 after tax, or $3.05 per basic and diluted share). This nonrecurring
charge is in response to the current recession impacting the machine tool
industry and market changes requiring the Company to realign its U.S. based
manufacturing operations in Elmira, New York. This realignment is designed to
improve the Company's profitability, strengthen its financial position and
enhance its competitive advantages. The nonrecurring charge includes (dollars in
thousands):
Nonrecurring realignment charge: Pre-Tax Tax benefit Net of Taxes
--------- ----------- ------------
Inventory write-off related to under-performing product
lines which will be discontinued. $27,237 $ 9,156 $18,081
Goodwill write-off. 3,542 3,542
Reserve for uncollectible accounts and notes receivable. 5,200 1,820 3,380
A write-down of underutilized assets that will be offered
for sale, and other charges. 1,977 525 1,452
-----------------------------------------
$37,956 $11,501 $26,455
=========================================
NOTE C--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
Sept. 30, December 31,
2001 2000
--------- ------------
Finished products $ 25,029 $ 36,766
Work-in-process 30,052 32,727
Raw materials and purchased components 25,403 33,287
-------- --------
$ 80,484 $102,780
======== =========
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE D--COMPANY STOCK REPURCHASE PROGRAM
On April 9, 1999 Hardinge announced a stock repurchase program. The
Board of Directors authorized the repurchase of up to 1.0 million shares of the
Company's common stock, or approximately 10% of the total shares outstanding.
The Company purchased 900,351 shares under the program through July 25, 2000. On
July 26, 2000, the Board of Directors expanded the Company's stock buyback
program by authorizing a plan to repurchase up to an additional 1.0 million
shares of stock. No shares have been purchased under the new plan.
NOTE E--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, the weighted
average number of shares includes common stock equivalents related primarily to
restricted stock.
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 Nine months ended
September 30, September 30,
--------------------------- ----------------------------
2001 2000 2001 2000
--------------------------- ----------------------------
Numerator: (dollars in thousands)
Net (loss) income $(26,390) $ 1,369 $(22,415) $ 5,514
Numerator for basic earnings per share (26,390) 1,369 (22,415) 5,514
Numerator for diluted earnings per share (26,390) 1,369 (22,415) 5,514
Denominator: (shares in thousands)
Denominator for basic earnings per share
--weighted average shares 8,682 8,715 8,701 8,766
Effect of diluted securities:
Restricted stock and stock options 8 31
--------------------------- ----------------------------
Denominator for diluted earnings per share
--adjusted weighted average shares 8,690 8,715 8,701 8,797
Basic (loss) earnings per share $ (3.04) $ .16 $ (2.58) $ .63
=========================== ============================
Diluted (loss) earnings per share $ (3.04) $ .16 $ (2.58) $ .63
=========================== ============================
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 quarters for 2001 does not
equal the year to date earnings per share for 2001.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE F-- DERIVATIVES AND HEDGING ACTIVITIES
The Company adopted Financial Accounting Standards Board Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, on
January 1, 2001. 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.
The adoption of Statement 133 on January 1, 2001, resulted in a cumulative
effect of an accounting change recognized as a credit of $25,000 in other
comprehensive income in the first quarter of 2001.
NOTE G--REPORTING COMPREHENSIVE INCOME
During the three and nine month periods ended September 30, 2001 and
2000, the components of total comprehensive income consisted of the following
(dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------- -------------
Net (Loss) Income $(26,390) $ 1,369 $(22,415) $ 5,514
Other Comprehensive (Loss) Income:
Foreign currency translation
adjustments 5,212 (1,681) 172 (2,658)
Cumulative effect of accounting change 25
Unrealized gain (loss) on derivatives:
Cash flow hedges (705) (1,125)
Net investment hedges (1,359) 384 245 611
---------------------------- -------------------------------
Other comprehensive income (loss) 3,148 (1,297) (683) (2,047)
---------------------------- -------------------------------
Total Comprehensive (Loss) Income $(23,242) $ 72 $(23,098) $ 3,467
============================ ===============================
Components of other comprehensive income consisted of the following
(dollars in thousands):
Accumulated balances at
September 30, 2001 December 31, 2000
------------------ -----------------
Other Comprehensive (Loss) Income:
Foreign currency translation adjustments $ (8,664) $ (8,861)
Unrealized gain (loss) on derivatives:
Cash flow hedges (1,124) 1
Net investment hedges 2,866 2,621
------------------- -----------------
Other Comprehensive (Loss) $ (6,922) $ (6,239)
=================== =================
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE H--NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and
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 will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following are management's comments relating to significant
changes in the results of operations for the three month and nine month periods
ended September 30, 2001 and 2000 and in the Company's financial condition at
September 30, 2001.
RESULTS OF OPERATIONS
NET SALES. Net sales for the quarter ended September 30, 2001 were
$47,703,000, an increase of $2,368,000, or 5.2%, compared to net sales of
$45,335,000 for the third quarter of 2000. Year to date net sales for the first
nine months of 2001 were $162,008,000, an increase of $21,064,000, or 14.9%,
compared to net sales of $140,944,000 for the first nine months of 2000. These
increases were due to the acquisition of HTT (Hauser Tripet Tschudin) on
December 22, 2000, which added $7,788,000 to third quarter net sales and
$26,169,000 to September 30, 2001 year to date net sales. Excluding HTT, net
sales decreased by $5,420,000, or 12.0%, and $5,105,000, or 3.6%, for the
respective three and nine month periods.
The geographic distribution of sales reflected a decline in sales
to the U.S. market and increased sales in Europe and Asia. Sales in the U.S.
market were $18,752,000 in the quarter ended September 30, 2001, down 30.8% from
$27,096,000 in the third quarter of 2000. For the nine months ended September
30, 2001, U.S. market sales have declined 20.7% to $72,167,000 from $91,054,000
during the same nine months of 2000. This reflects the continuing, and
increasing, reductions in North American manufacturing sector activity levels
and the resulting industry-wide reduction in machine tool sales to North
American manufacturers.
Sales to European customers increased 62.9% to $19,682,000 in the
quarter ended September 30, 2001 from $12,084,000 in the third quarter of 2000.
For the nine months ended September 30, 2001, sales into Europe increased 77.7%,
or $25,000,000, to $57,169,000 from $32,169,000 in the same period in 2000.
These increases were largely due to HTT sales in Europe of $5,424,000 in the
third quarter of 2001 and $18,008,000 year to date. Excluding HTT, sales to
European customers increased $2,174,000, or 18.0%, in the third quarter of 2001
as compared to the same quarter in 2000. For the September 30, 2001 year to date
period, these sales excluding HTT increased $6,992,000, or 21.7%.
Other international sales, primarily to customers in Asia, rose
50.6%, or $3,114,000, to $9,269,000 in the third quarter of 2001, compared to
$6,155,000 in the same three months of 2000. For the nine months ended September
30, 2001, other international sales rose 84.4%, or $14,951,000, to $32,672,000
from $17,721,000 during the same nine months of 2000. These increases were
primarily due to higher exports of U.S. turning machines to customers in China.
Machine sales represented 67.7% of revenues for the quarter ended
September 30, 2001, compared to 65.0% for the same period last year. For the
nine month period ended September 30, 2001, machine sales represented 68.3% of
the total, compared to 63.9% in the same nine month period in 2000. Sales of
non-machine products and services make up the balance.
The Company's backlog at September 30, 2001 was $59,957,000,
compared to the $48,675,000 backlog at September 30, 2000. Excluding HTT, the
backlog was $39,876,000, a decrease of $8,799,000, or 18.1%, since September 30,
2000.
11
NONRECURRING REALIGNMENT CHARGE. Nonrecurring realignment charges of
$26,455,000, or $3.05 per basic and diluted share, net of tax benefits
($37,956,000 excluding tax benefits), were recorded in the third quarter of
2001. The realignment reflects a management review of each of the Company's
product lines in order to better focus its U.S. manufacturing operations, as
well as the Company's worldwide engineering and financial resources, on those
product lines which will provide the strongest long-term shareholder returns. In
particular, domestic manufacturing and engineering resources will focus on
cost-effective, high end products, leveraging the Company's experience in
developing technologically advanced, high performance machines. The realignment
will also reduce debt as underperforming inventory is converted into cash
through sales at discounted prices as well as tax benefits.
The nonrecurring realignment included an inventory write-down of
$27,237,000, or $18,081,000 net of tax benefits, for under-performing product
lines which will be discontinued, a goodwill write-down of $3,542,000 million,
for which no tax benefit is available, a reserve for uncollectible accounts and
notes receivable of $5,200,000, or $3,380,000 net of tax benefits, and
$1,977,000, or $1,452,000 net of tax benefits, for write-down of underutilized
assets, which have now been offered for sale, and other charges. The above
amounts include cash charges of $977,000, excluding tax benefits.
GROSS PROFIT. Excluding the nonrecurring realignment charge described
above, gross margin for the three months ended September 30, 2001 was 28.2% of
net sales compared to 31.8% of net sales for the third quarter of 2000.
Competitive discounting of turning machines and machining centers, especially in
the depressed North American market, continued to reduce gross margins. Gross
margins were also negatively impacted by lower recovery of fixed manufacturing
overhead because of decreased U.S. machine production, reflecting both reduced
North American orders and the August 16, 2001 workforce reduction. For the nine
months ended September 30, 2001, gross margin was 30.7%, compared to 32.6% for
the first nine months of 2000. Including the nonrecurring realignment charge
described above, which added $27,237,000 to cost of sales, gross margin was
(28.8)% of net sales for the third quarter of 2001 and 13.9% of net sales for
the nine months ended September 30, 2001.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses were $12,488,000, or 26.2% of net sales, during
the third quarter of 2001, compared to $11,808,000, or 26.1% of net sales one
year earlier. SG&A expenses for the nine months ended September 30, 2001 and
2000 were $41,193,000 and $35,369,000, or 25.4% and 25.1% of net sales,
respectively. This $5,824,000 increase was primarily due to the SG&A incurred at
HTT.
PROVISION FOR DOUBTFUL ACCOUNTS. Excluding the nonrecurring charge
described above, bad debt expense was $620,000 and $200,000 for the third
quarters of 2001 and 2000, respectively, and $1,010,000 and $670,000, for the
first nine months of 2001 and 2000, respectively. The nonrecurring realignment
charge described above included $5,200,000 for additional bad debt allowances
related to domestic and foreign trade and notes receivables. Including that
charge, bad debt expense was $5,820,000 for the quarter ended September 30, 2001
and $6,210,000 for the first nine months of 2001.
IMPAIRMENT CHARGES. The nonrecurring realignment charge described above
included $3,542,000 for the impairment of purchased goodwill. An additional
$1,977,000 represented impairment of other assets, which have since been offered
for sale, and other, lesser charges.
INCOME FROM OPERATIONS. Excluding the nonrecurring realignment charge
described above, income from operations was $368,000, or $2,056,000 less than
the $2,424,000 of operating income in the third quarter of 2000. Income from
operations for the first nine months of 2001 declined $2,385,000, or 24.1%, to
$7,506,000 compared to $9,891,000 for the same period in 2000. This reduced
operating income was due to the reduced North American sales, and other factors,
discussed above. Including the nonrecurring realignment charge, loss from
operation was ($37,588,000) and ($30,450,000) for the third quarter, and the
first nine months, respectively, of 2001.
12
INTEREST EXPENSE AND INCOME. Interest expense for the quarter ended
September 30, 2001 was $879,000 compared to $369,000 a year earlier. This 138.2%
increase was caused by higher debt levels as debt rose $44,615,000, or 195%,
from September 30, 2000 to September 30, 2001. Increased borrowings included
$31,511,000 of additional debt incurred and assumed due to the acquisition of
HTT. Partially offsetting increased debt were decreases in interest rates on
borrowings. Interest expense for the nine month periods ended September 30, 2001
and 2000 was $2,587,000 and $1,348,000, respectively. This 91.9% increase was
due to the same factors as mentioned above.
INCOME TAXES. The nonrecurring realignment charge described above
included $11,501,000 of tax benefits, of which $5,424,000 is expected to be
received as a 2002 tax refund from a NOL carryback, and the remaining $6,077,000
will provide deferred tax benefits for use in 2002 and thereafter.
Excluding the nonrecurring realignment charge described above, the
provision for income taxes was ($485,000), or 125.6% of taxable loss, for the
quarter ended September 30, 2001 and $1,111,000, or 20.9% of taxable income, for
the first nine months of 2001. This compares to tax rates of 29.6% for the third
quarter of 2000 and 35.9% for the first nine months of 2000. The unusual 2001
tax rates were due to increased taxable profits earned in countries with
comparatively lower tax rates partially offset by taxable losses incurred in
jurisdictions with higher tax rates.
Including the nonrecurring charge, the provision for income taxes was
($11,986,000) and $639,000 for the three month periods ending September 30, 2001
and 2000, respectively. The provision for income taxes for the nine month
periods ended September 30, 2001 and 2000 was ($10,390,000) and $3,188,000,
respectively.
NET INCOME. Excluding the nonrecurring realignment charge described
above, net income for the third quarter of 2001 was $65,000, or $.01 per basic
and diluted share, compared to $1,369,000, or $.16 per basic and diluted share,
for the third quarter of 2000. Year to date 2001 net income was $4,040,000, or
$.46 per basic and diluted share, compared to $5,514,000, or $.63 per basic and
diluted share for the same 2000 period. These reductions in earnings were the
result of the reduced North American sales, and other factors, discussed above.
Including the nonrecurring realignment charge described above, net income was
($26,390,000), or ($3.04) per basic and diluted share, for the third quarter of
2001 and ($22,415,000), or ($2.58) per basic and diluted share, for the three
quarters ended September 30, 2001.
EARNINGS PER SHARE. All earnings per share and weighted average share
amounts are computed in accordance with Financial Accounting Standards Board
Statement No. 128, EARNINGS PER SHARE.
13
QUARTERLY INFORMATION
The following table sets forth certain quarterly financial data for
each of the periods indicated.
Three Months Ended
Mar. 31, June 30, Sept. 30, Dec. 31,
2001 2001 2001 2001
----------------------------------------------------------
(in thousands, except per share data)
----------------------------------------------------------
Net Sales $ 58,433 $ 55,872 $ 47,703
Gross Profit (Loss) 19,212 17,021 (13,761)
Income (loss) from operations 3,899 3,239 (37,588)
Net income (loss) 2,193 1,782 (26,390)
Diluted earnings (loss) per share .25 .20 (3.04)
Weighted average shares outstanding 8,711 8,724 8,690
Three Months Ended
Mar. 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000
----------------------------------------------------------
(in thousands, except per share data)
----------------------------------------------------------
Net Sales $ 47,836 $ 47,773 $ 45,335 $ 48,535
Gross Profit 15,702 15,796 14,432 15,018
Income from operations 3,781 3,686 2,424 2,778
Net income 2,162 1,983 1,369 2,018
Diluted earnings per share .24 .23 .16 .23
Weighted average shares outstanding 8,934 8,680 8,715 8,718
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the nine months ended September 30, 2001
generated cash of $3,090,000, compared to $14,756,000 generated during the same
nine months of 2000, for a $11,666,000 net reduction in cash generation. Trade
receivables contributed $5,494,000 of reduced cash generation as receivables
increased $2,543,000 in the first nine months of 2001, compared to a $2,951,000
decline during the first nine months of 2000. Accrued liabilities contributed
another $4,276,000 of reduced cash generation as a $2,486,000 decrease in the
first nine months of 2001 followed a $1,790,000 increase in accrued liabilities
in the corresponding nine months of 2000. Trade payables declined by $2,467,000
in the first nine months of 2001, compared to a $439,000 decline in the same
nine months of 2000, contributing an additional $2,028,000 to reduced cash
generation. Inventories caused $1,722,000 of reduced cash generation as the
$4,193,000 increase in the first nine months of 2001, excluding noncash changes
for the nonrecurring realignment charge described above, exceeded the $2,471,000
increase during the first nine months of 2000. Partially offsetting these
reductions were increases in cash generation of $1,104,000 for notes receivable
and $1,097,000 for other assets.
Investing activities for the first nine months of 2001 used $7,742,000
compared to $3,253,000 for the same period of 2000. Capital expenditures were
$7,492,000 in the first three quarters of 2001 as compared to $1,828,000 during
the first nine months of 2000. The 2001 capital spending included $3,268,000 of
demonstration machines for the new products and $3,210,000 for plant expansion
and related capacity additions at Kellenberger AG.
14
Financing activities provided $5,019,000 of cash in the first three
quarters of 2001, compared to $11,823,000 used in the same nine months of 2000,
for a change of $16,842,000. Increased long-term debt provided $17,744,000 of
cash generation with $10,694,000 added in the first nine months of 2001 as
compared to a $7,050,000 decrease in debt during the first three quarters of
2000. Purchases of Treasury Stock used $1,109,000 of cash in the first nine
months of 2001 and $4,315,000 of cash in the same three quarters of 2000,
causing $3,206,000 of the change. Partially offsetting the above changes was
$4,406,000 of reduced cash generation from a $1,277,000 decrease in short-term
notes payable to Banks in the first nine months of 2001 compared to a $3,129,000
increase in the first three quarters of 2000.
Hardinge's current ratio at September 30, 2001 was 3.13:1 compared to
3.32:1 at December 31, 2000. Changes included increases, excluding impacts of
the nonrecurring realignment charge described above, of $4,193,000 and
$2,543,000 in inventory and trade receivables, respectively, and a decrease of
$2,467,000 in trade payables.
The nonrecurring realignment charges described above did not impact
liquidity in the third quarter of 2001. Projected future impacts include
$5,424,000 of 2002 NOL tax carryback benefits and $6,077,000 of NOL carryforward
benefits for 2002 and later years. Excluding these tax benefits, cash outlays to
implement these actions are expected to be less than $1,000,000 and are included
in the charges.
Hardinge provides long-term financing for the purchase of its equipment
by qualified customers. The Company periodically sells portfolios of customer
notes to financial institutions in order to reduce debt and finance current
operations. Our customer financing program has an impact on our month-to-month
borrowings, but it has had little long-term impact on our working capital
because of the ability to sell the underlying notes. Hardinge sold $11,379,000
of customer notes in the first nine months of 2001, compared to $19,743,000
during the same period of 2000. At September 30, 2001 Hardinge maintained
revolving loan agreements with several U.S. banks providing for unsecured
borrowing up to $50,000,000 on a revolving basis through August 1, 2002. These
facilities, along with other short term credit agreements, provide for immediate
access of up to $69,670,000. At September 30, 2001, outstanding borrowings under
these arrangements totaled $33,164,000. We believe 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 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and
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 will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
15
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 MARKET,
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.
PART I. ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
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
16
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Amendment Number One dated October 1, 2001 to the
Term Loan Agreement dated March 20, 2001 among
Hardinge Inc. and KeyBank National Association.
10.2 Amendment Number Three dated September 20, 2001 to
the Credit Agreement dated as of August 1, 1997, and
amended December 11, 2000 and February 5, 2001 among
the Bank's signatory thereto and the Chase Manhattan
Bank as Agent.
10.3 Amendment Number Four dated September 20, 2001 to the
Credit Agreement dated as of February 28, 1996 and
amended August 1, 1997, December 11, 2000 and
February 5, 2001 among the Bank's signatory thereto
and the Chase Manhattan Bank as Agent.
B. Reports on Form 8-K
1. Current Report on Form 8-K, filed August 20, 2001 in
connection with an August 16, 2001 press release
announcing a further reduction in Hardinge's North
American workforce.
2. Current Report on Form 8-K, filed September 21, 2001
in connection with a September 20, 2001 press release
announcing a third quarter nonrecurring charge and an
intention to reduce dividends by 20%.
17
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, 2001 By: /s/ J. PATRICK ERVIN
---------------------- -------------------------------------
Date J. Patrick Ervin
President/CEO
NOVEMBER 13, 2001 By: /s/ RICHARD L. SIMONS
---------------------- ------------------------------------
Date Richard L. Simons
Executive Vice President/CFO
(Principal Financial Officer)
NOVEMBER 13, 2001 By: /s/ RICHARD B. HENDRICK
---------------------- -------------------------------------
Date Richard B. Hendrick
Vice President and Controller
(Principal Accounting Officer)
18