FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-15760
HARDINGE INC.
(Exact name of Registrant as specified in its charter)
New York 16-0470200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hardinge Inc.
One Hardinge Drive
Elmira, NY 14902
(Address of principal executive offices) (Zip code)
(607) 734-2281
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of March 31, 2002 there were 8,802,593 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 March 31, 2002 and
December 31, 2001. 2
Consolidated Statements of Income and Retained Earnings
for the three months ended March 31, 2002 and 2001. 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2002 and 2001. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 15
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Default upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
1
PART I, ITEM 1
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, Dec. 31,
2002 2001
------------------------
(Unaudited)
Assets
Current assets:
Cash $ 3,966 $ 4,608
Accounts receivable 37,209 38,562
Notes receivable 6,763 6,961
Inventories 81,409 84,084
Deferred income taxes 8,436 9,558
Income tax receivables 4,648
Prepaid expenses 4,411 4,381
------------------------
Total current assets 142,194 152,802
Property, plant and equipment:
Property, plant and equipment 148,267 149,714
Less accumulated depreciation 81,289 79,490
------------------------
66,978 70,224
Other assets:
Notes receivable 10,936 10,394
Deferred income taxes 3,338 3,659
Goodwill 13,479 13,660
Other 3,420 3,752
------------------------
31,173 31,465
------------------------
Total assets $240,345 $254,491
========================
See accompanying notes.
2
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--CONTINUED
(IN THOUSANDS)
March 31, Dec. 31,
2002 2001
---------------------------
(Unaudited)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,999 $ 12,757
Notes payable to bank 232 464
Accrued expenses 14,274 17,612
Accrued income taxes 1,109 1,889
Deferred income taxes 2,703 2,623
Current portion long-term debt 5,018 55,620
---------------------------
Total current liabilities 36,335 90,965
Other liabilities:
Long-term debt 45,601 4,474
Accrued pension plan expense 6,205 6,113
Deferred income taxes 1,861 1,810
Accrued postretirement benefits 5,799 5,795
Other liabilities 2,263 2,251
---------------------------
61,729 20,443
Equity of minority interest 2,008 1,868
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 March 31, 2002
and December 31, 2001 99 99
Additional paid-in capital 61,172 61,328
Retained earnings 104,048 104,480
Treasury shares (14,831) (14,934)
Accumulated other comprehensive income (8,352) (7,799)
Deferred employee benefits (1,863) (1,959)
---------------------------
Total shareholders' equity 140,273 141,215
---------------------------
Total liabilities and shareholders' equity $ 240,345 $ 254,491
===========================
See accompanying notes.
3
HARDINGE INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended
March 31,
2002 2001
---------------------------
(Unaudited) (Unaudited)
Net Sales $ 43,753 $ 58,433
Cost of sales 31,170 39,221
---------------------------
Gross profit 12,583 19,212
Selling, general and administrative expenses 11,548 15,118
Provision for doubtful accounts 180 195
---------------------------
Income from operations 855 3,899
Interest expense 880 862
Interest (income) (118) (129)
---------------------------
Income before income taxes and minority interest
in consolidated subsidiary and investment of equity
company 93 3,166
Income taxes (140) 958
Minority interest in (profit) of consolidated subsidiary (140) (152)
(Loss) profit in investment of equity company (4) 137
---------------------------
Net income 89 2,193
Retained earnings at beginning of period 104,480 130,955
Less dividends declared 521 1,221
---------------------------
Retained earnings at end of period $ 104,048 $ 131,927
===========================
Per share data:
Basic earnings per share $ .01 $ .25
===========================
Weighted average number
of common shares outstanding 8,660 8,705
===========================
Diluted earnings per share $ .01 $ .25
===========================
Weighted average number
of common shares outstanding 8,667 8,711
===========================
Cash Dividends Declared $ .06 $ .14
===========================
See accompanying notes.
4
HARDINGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
2002 2001
--------------------------
(Unaudited) (Unaudited)
Net cash provided by operating activities $ 9,723 $ 149
Investing activities:
Capital expenditures (391) (1,893)
Investment in Hardinge EMAG 4 (137)
--------------------------
Net cash (used in) investing activities (387) (2,030)
Financing activities:
(Decrease) increase in short-term notes payable to bank (228) 2,652
Additional long-term debt 1,000
(Payments) on long-term debt (10,238) (514)
Sale (purchase) of treasury stock (99) (338)
Dividends paid (521) (1,221)
Funds provided by minority interest 140 152
--------------------------
Net cash (used in) provided by financing activities (9,946) 731
Effect of exchange rate changes on cash (32) (64)
--------------------------
Net (decrease) in cash ($ 642) ($ 1,214)
==========================
See accompanying notes
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
2002, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2002. 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, 2001. The Company operates in only one
business segment - industrial machine tools.
NOTE B--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 at date of charge).
This charge was in response to the recession that is impacting the machine tool
industry and market changes which required the Company to realign its U.S. based
manufacturing operations in Elmira, New York. This realignment charge was
designed to improve the Company's profitability, strengthen its financial
position and enhance its competitive advantages. The realignment charge
included:
Tax Net of
Realignment charge: Pre-Tax Benefit Taxes
-------------------------------
(in thousands)
Inventory write-off related to under-performing
product lines which have been discontinued $27,237 $ 9,156 $18,081
Goodwill write-off 3,542 3,542
Reserve for uncollectable accounts and notes
receivable 5,200 1,820 3,380
A write-down of underutilized assets that have been
offered for sale, and other charges 1,977 525 1,452
-------------------------------
$37,956 $11,501 $26,455
===============================
The activity in the realignment reserve for the quarter ended
March 31, 2002 is as follows:
January 1, Charges, Reclas- March 31,
2002 Additions Net sification 2002
---------------------------------------------------------------------
Inventory write- off $ 11,391 $ 0 $ 2,123 $ 0 $ 9,268
Reserve for uncollectable accounts
and notes receivable 4,894 129 4,765
Write-down of under-utilized
assets and other charges 821 19 802
---------------------------------------------------------------------
Pre-tax realignment charge 17,106 2,271 14,835
Tax benefit (6,332) (568) (5,764)
---------------------------------------------------------------------
Realignment net of taxes $ 10,774 $ 0 $ 1,703 $ 0 $ 9,071
=====================================================================
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002
NOTE B--REALIGNMENT CHARGE (CONTINUED)
The above balance of $14,835,000 at March 31, 2002 primarily
represents inventories that have been identified but not yet physically
discarded through sale or other disposition, accounts receivable that have not
been written off and other assets that have not been sold or abandoned.
NOTE C--INVENTORIES
Inventories are summarized as follows (dollars in thousands):
March 31, December 31,
2002 2001
----------------------
Finished products $25,463 $32,494
Work-in-process 32,294 27,431
Raw materials and purchased components 23,652 24,159
------- -------
$81,409 $84,084
======= =======
NOTE D--INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of March 31,
2002, the Company has recorded a U.S. net deferred tax asset of approximately
$11.8 million. To the extent that deductible temporary differences reverse over
the next three quarters, the Company has sufficient taxable income in the
carryback period, as a result of the recent tax law change, to realize a
recoverable tax benefit. For deductible temporary differences that remain at
December 31, 2002, the Company will be relying on future U.S. taxable income.
Given the Company's trend of earnings during past cycles in the industry and
expected upturns based on external market analysis, it believes that it will be
able to generate taxable income sufficient to realize the value of this net
deferred tax asset.
NOTE E--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.
Treasury stock purchases in the quarters ended March 31, 2002 and 2001 were
related to transactions involving employees as part of the Company's Incentive
Stock Plan.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002
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, 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
March 31,
----------------------
2002 2001
----------------------
(dollars in thousands)
Numerator:
Net income $ 89 $2,193
Numerator for basic earnings per share 89 2,193
Numerator for diluted earnings per share 89 2,193
Denominator:
Denominator for basic earnings per share
-weighted average shares (in thousands) 8,660 8,705
Effect of diluted securities:
Restricted stock and stock options (in thousands) 7 6
----------------------
Denominator for diluted earnings per share
-adjusted weighted average shares (in thousands) 8,667 8,711
Basic earnings per share $ .01 $ .25
======================
Diluted earnings per share $ .01 $ .25
======================
NOTE G-- DERIVATIVE FINANCIAL INSTRUMENTS
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.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002
NOTE H--REPORTING COMPREHENSIVE INCOME
During the three months ended March 31, 2002 and 2001, the
components of total comprehensive income consisted of the following (dollars in
thousands):
Three months ended
March 31,
2002 2001
------- -------
Net Income $ 89 $ 2,193
Other Comprehensive (Loss) Income:
Foreign currency translation adjustments (815) (3,482)
Cumulative effect of accounting change 25
Unrealized gain (loss) on derivatives, net of tax:
Cash flow hedges 265 (668)
Net investment hedges (3) 1,120
------- -------
Other comprehensive (loss) (553) (3,005)
------- -------
Total Comprehensive (Loss) Income $ (464) $ (812)
======= =======
Accumulated balances of the components of other comprehensive
income consisted of the following at March 31, 2002 and December 31, 2001
(dollars in thousands):
Accumulated balances
March 31, Dec. 31,
2002 2001
-------- --------
Other Comprehensive (Loss) Income:
Foreign currency translation adjustments $(11,002) $(10,187)
Cumulative effect of accounting change, net of tax 25 25
Unrealized gain (loss) on derivatives, net of tax:
Cash flow hedges (714) (979)
Net investment hedges 3,339 3,342
-------- --------
Other Comprehensive (Loss) $ (8,352) $ (7,799)
======== ========
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.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002
NOTE I--GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
The Company adopted Financial Accounting Standards No. 142 on
January 1, 2002. The following table shows the impact of goodwill amortization
on net income and earnings per share for the first quarter of 2001. (dollars in
thousands, except for per share data)
Three months ended
March 31,
2002 2001
--------- ---------
Reported net income $ 89 $ 2,193
Add back goodwill amortization 218
--------- ---------
Adjusted net income $ 89 $ 2,411
========= =========
Basic earnings per share:
Reported earnings per share $ .01 $ .25
Goodwill amortization .03
--------- ---------
Adjusted earnings per share $ .01 $ .28
========= =========
Weighted average number of common shares outstanding 8,660 8,705
Diluted earnings per share:
Reported earnings per share $ .01 $ .25
Goodwill amortization .03
--------- ---------
Adjusted earnings per share $ .01 $ .28
========= =========
Weighted average number of common shares outstanding 8,667 8,711
========= =========
The Company has performed the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of March 31, 2002 and has
determined that there is no impact on the earnings and financial position of the
Company, at this time.
NOTE J--NEW ACCOUNTING PRONOUNCEMENT
In August 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, effective for fiscal years
beginning after December 15, 2001. Under the new rules, the criteria for
classifying an asset as held-for-sale are significantly changed from prior
treatment. Assets which are to be disposed of are stated at the lower of their
fair values or carrying amounts and depreciation is no longer recognized.
The Company adopted this statement as of January 1, 2002. The
Company has determined that implementation of this new rule does not impact the
financial position of the Company at this time.
10
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 periods ended March 31, 2002 and 2001 and in
the Company's financial condition at March 31, 2002.
RESULTS OF OPERATIONS
NET SALES. Net sales for the quarter ended March 31, 2002 were
$43,753,000 compared to $58,433,000 for the first quarter of 2001, for a
reduction of $14,680,000, or 25.1%.
Sales in the U.S. market were $18,781,000 in the quarter ended March
31, 2002, down 31.5% or $8,645,000 from the $27,426,000 reported during the same
three months of 2001. This was directly due to the continued reduced levels of
North American manufacturing which has resulted in an ongoing industry-wide
decline in machine tool sales. Sales to European customers for the first quarter
of 2002 remained relatively flat compared to one year ago, at $18,891,000
compared to $18,744,000. Other international sales, primarily to customers in
Asia, declined significantly, from $12,263,000 for the first quarter of 2001
when sales to customers in the Peoples Republic of China were particularly high,
to $6,081,000 for the first quarter of 2002, for a reduction of $6,182,000, or
50.4%.
Machine sales accounted for 65.8% of revenues for the quarter ended
March 31, 2002 compared to 68.2% for the same period last year. Sales of
non-machine products and services made up the balance.
The Company's order rate declined similar to its sales levels, from
$62,078,000 for the quarter ended March 31, 2001 to $39,351,000 for the first
quarter of 2002, for a reduction of 36.6%. The Company's backlog at March 31,
2002 was $46,801,000 compared to $68,446,000 one year earlier and $51,202,000 at
December 31, 2001.
GROSS PROFIT. Expressed as a percentage of net sales, gross margin for
the three months ended March 31, 2002 was 28.8% compared to 32.9% for the
comparable quarter of 2001. Competitive price discounting continued during this
quarter, especially in the depressed North American market. Lower recovery of
fixed manufacturing overhead continued to be a factor in reduced margins during
the first quarter of 2002, as the Company continued to operate its manufacturing
facilities at reduced levels.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses were $11,548,000, or 26.4% of sales, during the
first quarter of 2002 compared to $15,118,000, or 25.9% of sales, one year
earlier. During the first quarter of 2002, the Company continued to make
significant efforts to reduce expenses in all areas of its operations.
INCOME FROM OPERATIONS. Income from operations for the quarter ended
March 31, 2002 was $855,000, or 2.0% of sales, compared to $3,899,000, or 6.6%
of sales for the same quarter of 2001. The reduction was primarily caused by the
reduced sales and manufacturing levels previously discussed.
INTEREST EXPENSE AND INCOME. Interest expense for the quarter ended
March 31, 2002 was $880,000 compared to $862,000 a year earlier. While average
outstanding borrowings during the first quarter of 2002 were somewhat lower than
during the previous year's first quarter, interest rate spreads were increased
as a result of renegotiating borrowing arrangements during the third quarter of
2001 and first quarter of 2002. Interest income totaled $118,000 during the
quarter ended March 31, 2002 compared to $129,000 a year earlier.
11
INCOME TAXES. The provision for income taxes was 30.3% of pre-tax
income for the quarter ended March 31, 2001. For the first quarter of 2002, a
tax benefit of $140,000 was reported on pre-tax income of $93,000. This negative
tax expense is the result of pre-tax losses in high tax rate jurisdictions while
achieving higher pre-tax profits in countries with lower tax rates.
MINORITY INTEREST IN (PROFIT) OF CONSOLIDATED SUBSIDIARY. The Company
has a 51% interest in Hardinge Taiwan Precision Machinery Limited, an entity
that is recorded as a consolidated subsidiary. For the quarters ended March 31,
2002 and 2001, respectively, reductions in net income of $140,000 and $152,000
represented the minority stockholders' 49% share in the joint venture's net
income.
PROFIT (LOSS) IN INVESTMENT OF EQUITY COMPANY. During the quarters
ended March 31, 2002 and 2001, respectively, Hardinge EMAG GmbH generated
($4,000) and $137,000 for Hardinge's 50% interest in this joint venture.
NET INCOME. Net income for the first quarter of 2002 was $89,000, or
$.01 per share, compared to $2,193,000, or $.25 per share, in the first quarter
of 2001. The reduction in earnings was the result of the factors discussed
above.
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,
2002 2002 2002 2002
------------------------------------------------------------
(in thousands, except per share data)
------------------------------------------------------------
Net Sales $ 43,753
Gross Profit 12,583
Income from operations 855
Net income 89
Diluted earnings per share .01
Weighted average shares outstanding 8,667
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 $ 47,514
Gross Profit 19,212 17,021 (13,761) 14,305
Income from operations 3,899 3,239 (37,588) 1,823
Net income 2,193 1,782 (26,390) 562
Diluted earnings per share .25 .20 (3.04) .06
Weighted average shares outstanding 8,711 8,724 8,690 8,695
12
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the three months ended March 31, 2002
generated cash of $9,723,000, compared to generating $149,000 during the same
three months of 2001, for an increase in cash generation of $9,574,000. The
Company reduced its inventories by $4,283,000 during the first quarter of 2002,
compared to increasing its inventories by $5,934,000 during the first quarter of
2001, which resulted in $10,217,000 of the improvement in cash generation
between the two periods. Additionally, during the first quarter of 2002, the
Company filed and received a net operating loss carryback claim of $4,648,000
based on its operations for the year 2001. Partially offsetting these items was
a reduction in cash generation of $2,104,000 resulting from lower net income
during the first quarter of 2002 ($89,000 compared to $2,193,000 during the
previous year). Additionally, an increase in accounts payable of only $28,000
for the first quarter of 2002 compared to an increase of $3,639,000 during the
same period of the previous year further offset the generation of additional
cash by $3,611,000.
Investing activities, consisting primarily of capital expenditures, for
the first three months of 2002 used $387,000 compared to $2,030,000 for the same
period of 2001. Capital expenditures during the first quarter of 2002 have been
minimized in order to generate cash for debt reduction.
Financing activities used $9,946,000 in the first three months of 2002,
compared to generating $731,000 in cash during the same three months of 2001.
The primary use of cash during the first quarter of 2002 was for debt reduction
totaling $9,466,000.
Hardinge's current ratio at March 31, 2002 was 3.91:1 compared to
1.68:1 at December 31, 2001. The significant improvement resulted from the
Company's returning the classification of its revolver and term debt to
long-term status at March 31, 2002 compared to classification of those items as
currently payable at December 31, 2001, as discussed later in this analysis.
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. As of March 31,
2002, the Company has recorded a U.S. net deferred tax asset of approximately
$11.8 million. To the extent that deductible temporary differences reverse over
the next three quarters, the Company has sufficient taxable income in the
carryback period, as a result of the recent tax law change, to realize a
recoverable tax benefit. For deductible temporary differences that remain at
December 31, 2002, the Company will be relying on future U.S. taxable income.
Given the Company's trend of earnings during past cycles in the industry and
expected upturns based on external market analysis, it believes that it will be
able to generate taxable income sufficient to realize the value of this net
deferred tax asset.
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 no customer
notes during the first quarter of 2002, compared to selling $6,024,000 of
customer notes during the first three months of 2001.
Hardinge maintains a revolving loan agreement with several U.S. banks.
On April 5, 2002 the agreement was amended to extend its termination date by one
year to August 1, 2003. The amended agreement provides for borrowing of up to
$40,000,000 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 amendment also provides for revised financial
covenants commensurate with the Company's current business levels. The extension
of the maturity date of this agreement beyond one year from the balance sheet
date has allowed the Company to classify this debt as long-term at March 31,
2002. At December 31, 2001, the outstanding debt under this agreement had been
reclassified entirely as currently payable based on the agreement's original
termination date of August 1, 2002. These facilities, along with other short
term credit agreements, provide for immediate access of up to $58,236,000. At
13
March 31, 2002, outstanding borrowings under these arrangements totaled
$18,662,000.
On April 5, 2002 the Company's two term loan agreements were amended to
provide substantially the same security and financial covenants as provided
under the revolving loan agreement described in the previous paragraph. As a
result the portions of these two term loans due on a date more than twelve
months past the balance sheet date ($22,800,000 at March 31, 2002) have been
reclassified as long-term liabilities. At December 31, 2001, the entire balances
of these two loans had been reported as currently payable. Also on that date,
the Company entered into a new unsecured loan agreement for $1,000,000 due in
one payment on September 30, 2003. 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
The Company adopted Statement of Financial Accounting Standards No.
141, BUSINESS COMBINATIONS as of January 1, 2002.
The Company adopted Statement of Financial Accounting Standards No.
144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED Assets as of
January 1, 2002. The implementation of this new standard has not had an impact
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, THE COMPANY'S ABILITY TO
GENERATE SUFFICIENT U.S. TAXABLE INCOME TO REALIZE DEFERRED TAX ASSETS, 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.
14
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Amendment Number Two dated March 20, 2002 to the Term Loan
Agreement dated as of March 20, 2001 and amended October 1,
2001 among Hardinge Inc. and KeyBank National Association.
10.2 Amendment Number Three dated April 5, 2002 to the Term Loan
Agreement dated as of March 20, 2001 and amended October 1,
2001 and March 20, 2002 among Hardinge Inc. and KeyBank
National Association.
10.3 Amendment Number Four dated April 5, 2002 to the Credit
Agreement dated as of August 1, 1997 and amended December
11, 2000, February 5, 2001 and September 20, 2001 among
Hardinge Inc. and the Bank's signatory thereto and the
Chase Manhattan Bank as Agent.
10.4 Amendment Number Five dated April 5, 2002 to the Credit
Agreement dated as of February 28, 1996 and amended August
1, 1997, December 11, 2000, February 5, 2001 and September
20, 2001 among Hardinge Inc. and the Bank's signatory
thereto and the Chase Manhattan Bank as Agent.
10.5 $1,000,000 Promissory Note among Hardinge Inc. and Chemung
Canal Trust Company dated April 5, 2002.
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
B. Reports on 8-K
1. Current Report on Form 8-K, filed February 14, 2002 in
connection with a February 7, 2002 press release announcing
the Company's fourth quarter earnings.
2. Current Report on Form 8-K, filed February 14, 2002 in
connection with a February 12, 2002 press release
announcing a dividend.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARDINGE INC.
May 13, 2002 By: /s/ J. Patrick Ervin
----------------- ---------------------------------------
Date J. Patrick Ervin
President/CEO
May 13, 2002 By: /s/ Richard L. Simons
----------------- ---------------------------------------
Date Richard L. Simons
Executive Vice President/CFO
(Principal Financial Officer)
May 13, 2002 By: /s/ Richard B. Hendrick
----------------- ---------------------------------------
Date Richard B. Hendrick
Vice President and Controller
(Principal Accounting Officer)
17