UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
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For the
transition period from
to
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Commission file number: 000-15760
Hardinge
Inc.
(Exact name of Registrant as specified in its charter)
New York
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16-0470200
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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Hardinge Inc.
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One Hardinge Drive
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Elmira, NY
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14902
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(Address of principal executive offices)
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(Zip code)
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(607) 734-2281
(Registrants 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
o
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a small reporting company. See definitions
of large accelerated filer, accelerated filer, and small reporting
company in Rule 12b-2 in the Exchange Act.
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Large
accelerated filer
o
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Accelerated
filer
x
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Non-accelerated
filer
o
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Small
reporting company
o
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Indicate by check mark whether
the registrant is a shell company (as defined by Exchange Act Rule 12b-2). Yes
o
No
x
As of March 31,
2008 there were 11,473,044 shares of Common Stock of the Registrant
outstanding.
HARDINGE INC. AND SUBSIDIARIES
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
HARDINGE
INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In
Thousands)
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|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
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Current assets:
|
|
|
|
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Cash and cash equivalents
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$
|
14,190
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|
$
|
16,003
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|
Accounts receivable, net
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|
70,412
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|
71,228
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|
Notes receivable, net
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|
835
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|
1,555
|
|
Inventories, net
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|
173,069
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|
158,617
|
|
Deferred income taxes
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|
1,110
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|
1,032
|
|
Prepaid expenses
|
|
10,599
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|
8,573
|
|
Total current assets
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270,215
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|
257,008
|
|
|
|
|
|
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Property, plant and equipment:
|
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|
|
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Property, plant and equipment
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188,856
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180,427
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Less accumulated depreciation
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123,657
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118,896
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Net property, plant and equipment
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65,199
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61,531
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|
|
|
|
|
|
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Other assets:
|
|
|
|
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Notes receivable, net
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1,638
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|
1,847
|
|
Deferred income taxes
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|
290
|
|
306
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|
Other intangible assets
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11,733
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11,927
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|
Goodwill
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25,586
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|
22,841
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Other
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8,028
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|
6,368
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|
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47,275
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43,289
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|
|
|
|
|
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Total assets
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$
|
382,689
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|
$
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361,828
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|
See accompanying notes.
3
HARDINGE
INC. AND SUBSIDIARIES
Consolidated
Balance Sheets - Continued
(In
Thousands Except Share and Per Share Data)
|
|
March 31,
|
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December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
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Accounts payable
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$
|
30,149
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|
$
|
27,266
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|
Notes payable to banks
|
|
479
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|
2,801
|
|
Accrued expenses
|
|
29,666
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|
26,873
|
|
Accrued income taxes
|
|
1,579
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|
2,574
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|
Deferred income taxes
|
|
2,500
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|
2,375
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|
Current portion of long-term debt
|
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28,915
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|
5,655
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Total current liabilities
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93,288
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67,544
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|
|
|
|
|
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Other liabilities:
|
|
|
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Long-term debt
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19,363
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|
Accrued pension expense
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|
7,977
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|
8,145
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|
Deferred income taxes
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|
4,802
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|
4,361
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|
Accrued postretirement benefits
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|
2,087
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|
2,199
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|
Accrued income taxes
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|
1,071
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|
1,054
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Other liabilities
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3,759
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|
4,017
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|
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19,696
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39,139
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|
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Shareholders equity:
|
|
|
|
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Preferred stock, Series A, par value
$.01 per share;
Authorized 2,000,000; issued none
|
|
|
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Common stock, $.01 par value:
|
|
|
|
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Authorized shares - 20,000,000;
|
|
|
|
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Issued shares 12,472,992 at March 31, 2008 and December 31, 2007
|
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125
|
|
125
|
|
Additional paid-in capital
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|
114,595
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|
114,971
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Retained earnings
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127,532
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|
128,838
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|
Treasury shares 999,948 at March 31,
2008 and 993,076 shares at December 31, 2007
|
|
(13,066
|
)
|
(13,023
|
)
|
Accumulated other comprehensive income
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|
40,519
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|
24,234
|
|
Total shareholders equity
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269,705
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255,145
|
|
|
|
|
|
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Total liabilities and shareholders equity
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|
$
|
382,689
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|
$
|
361,828
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|
See accompanying notes.
4
HARDINGE
INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands Except Per Share Data)
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Three Months Ended
March 31,
|
|
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2008
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|
2007
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|
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(Unaudited)
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|
(Unaudited)
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|
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Net sales
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$
|
85,599
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$
|
86,966
|
|
Cost of sales
|
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60,471
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|
58,986
|
|
Gross profit
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25,128
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27,980
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|
|
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|
|
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Selling, general and administrative
expenses
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23,501
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|
19,625
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|
Other expense (income)
|
|
2,024
|
|
(633
|
)
|
(Loss) income from operations
|
|
(397
|
)
|
8,988
|
|
|
|
|
|
|
|
Interest expense
|
|
451
|
|
1,369
|
|
Interest (income)
|
|
(40
|
)
|
(53
|
)
|
(Loss) income before income taxes
|
|
(808
|
)
|
7,672
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
(78
|
)
|
2,347
|
|
Net (loss) income
|
|
$
|
(730
|
)
|
$
|
5,325
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
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Basic (loss) earnings per share
|
|
$
|
(0.06
|
)
|
$
|
.61
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|
Weighted average number of common shares
outstanding
|
|
11,323
|
|
8,786
|
|
|
|
|
|
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|
Diluted (loss) earnings per share:
|
|
$
|
(0.06
|
)
|
$
|
.60
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|
Weighted average number of common shares
outstanding
|
|
11,323
|
|
8,845
|
|
|
|
|
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Cash dividends declared
|
|
$
|
.05
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$
|
.05
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|
See accompanying notes.
5
HARDINGE
INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
|
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Three Months Ended
|
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|
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March 31,
|
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|
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2008
|
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2007
|
|
|
|
(Unaudited)
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|
(Unaudited)
|
|
|
|
|
|
|
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Operating activities
|
|
|
|
|
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Net (loss) income
|
|
$
|
(730
|
)
|
$
|
5,325
|
|
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
2,611
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|
2,477
|
|
Provision for deferred income taxes
|
|
663
|
|
155
|
|
Unrealized foreign currency transaction
loss (gain)
|
|
1,919
|
|
(668
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
3,419
|
|
1,923
|
|
Notes receivable
|
|
977
|
|
1,207
|
|
Inventories
|
|
(6,749
|
)
|
(7,260
|
)
|
Prepaid expenses/other assets
|
|
(1,678
|
)
|
105
|
|
Accounts payable
|
|
2,345
|
|
(958
|
)
|
Accrued expenses
|
|
(4,741
|
)
|
817
|
|
Accrued postretirement benefits
|
|
(112
|
)
|
(165
|
)
|
Net cash (used in) provided by operating
activities
|
|
(2,076
|
)
|
2,958
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Capital expenditures
|
|
(1,236
|
)
|
(425
|
)
|
Net cash used in investing activities
|
|
(1,236
|
)
|
(425
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
(Decrease) increase in short-term notes
payable to bank
|
|
(2,322
|
)
|
3,296
|
|
Increase in long-term debt
|
|
3,575
|
|
3,172
|
|
Net purchases of treasury stock
|
|
(498
|
)
|
(6
|
)
|
Dividends paid
|
|
(576
|
)
|
(444
|
)
|
Net cash provided by financing activities
|
|
179
|
|
6,018
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
1,320
|
|
89
|
|
Net (decrease) increase in cash
|
|
(1,813
|
)
|
8,640
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of
period
|
|
16,003
|
|
6,762
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
14,190
|
|
$
|
15,402
|
|
See accompanying notes.
6
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED AND CONDENSED)
March 31,
2008
NOTE ABASIS OF PRESENTATION
In these notes, the terms
Hardinge, Company, we, us, or our mean Hardinge Inc. and its
predecessors together with its subsidiaries.
The accompanying
unaudited consolidated financial statements have been prepared in accordance
with U.S. 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 U.S. 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, 2008,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2008. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report on Form 10-K for
the year ended December 31, 2007.
We operate in only one business segment industrial machine tools.
The consolidated balance sheet at December 31, 2007 has been
derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Certain amounts in the December 31,
2007 consolidated financial statements have been reclassified to conform with
the March 31, 2008 presentation.
During the quarter ended March 31,
2008, we violated our debt covenant calculation in our U.S. credit agreement related
to fixed charges. We have negotiated an amendment with the banks to our current
credit facility which excludes abnormal or unusual items from the
calculation. This amendment enables us
to be in compliance with the covenants at March 31, 2008. However, our debt is shown as a current
liability as of March 31, 2008 because it is possible that we may violate the
covenant within the next year. As a
result of this transaction, our Form 10-Q balance sheet as of March 31,
2008 reflects all debt as current which is different from the balance sheet set
forth in our press release circulated on May 8, 2008 and filed on Form 8-K
with the Securities and Exchange Commission on May 12, 2008. The Company
is currently in the process of negotiating a new credit facility which will
remediate this covenant compliance issue.
We anticipate finalizing the new credit agreement by the end of the
second quarter.
NOTE
BSTOCK-BASED COMPENSATION
On January 1, 2006,
we adopted Statement of Financial Accounting Standards No. 123 (Revised
2004
),
Share-Based Payment
(SFAS 123R), which requires all
equity-based payments to employees, including grants of employee stock options,
to be recognized in the statement of operations based on the grant date fair
value of the award. This was adopted using the modified perspective method.
We did not issue any new
stock options during 2008 or 2007. All previously awarded stock option grants
were fully vested at the date of the adoption of SFAS 123R, thus, we did not
recognize any share-based compensation expense in 2008 or 2007, related to
stock options.
7
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2008
NOTE
BSTOCK-BASED COMPENSATION (Continued)
The Company does
recognize share-based compensation expense in relation to restricted stock
awards issued. A summary of the restricted stock activity under the Incentive
Stock Plan is as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
Shares and units
at beginning of period
|
|
177,000
|
|
143,000
|
|
Shares granted
|
|
42,000
|
|
49,500
|
|
Shares vested
|
|
(16,000
|
)
|
(26,000
|
)
|
Shares canceled,
forfeited or exercised
|
|
(8,000
|
)
|
|
|
Shares at end of
period
|
|
195,000
|
|
166,500
|
|
The value of the
restricted stock awarded in the three months ended March 31, 2008 and 2007
was $0.5 million and $0.9 million, respectively. We amortize compensation
expense for restricted stock over the vesting period of the grant. Total
share-based compensation expense for the three months ended March 31, 2008
and 2007, was $78,524 and $58,589, respectively, relating to restricted stock.
At March 31, 2008, the compensation cost not yet recognized on these
shares was $2.1 million, which will be amortized over a weighted average term
of 3.5 years.
NOTE CWARRANTIES
We offer warranties for
our products. The specific terms and conditions of those warranties vary
depending upon the product sold and the country in which we sold the
product. We generally provide a basic
limited warranty, including parts and labor for a period of one year. We estimate the costs that may be incurred
under our basic limited warranty, based largely upon actual warranty repair
cost history, and record a liability for such costs in the month that product
revenue is recognized. The resulting accrual balance is reviewed during the
year. Factors that affect our warranty liability include the number of
installed units, historical and anticipated rates of warranty claims, and cost
per claim.
We also sell extended
warranties for some of our products.
These extended warranties usually cover a 12-24 month period that begins
0-12 months after time of sale. Revenues
for these extended warranties are recognized monthly as a portion of the
warranty expires.
These liabilities are reported
as accrued expenses on our consolidated balance sheet.
A reconciliation of the
changes in our product warranty accrual during the three month periods ended March 31,
2008 and 2007 is as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
2,469
|
|
$
|
1,957
|
|
Provision for
warranties
|
|
420
|
|
363
|
|
Warranties
settlement costs
|
|
(429
|
)
|
(394
|
)
|
Other currency
translation impact
|
|
236
|
|
7
|
|
Quarter end
balance
|
|
$
|
2,696
|
|
$
|
1,933
|
|
8
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2008
NOTE
DINVENTORIES
Inventories are stated at the lower of cost (computed in accordance
with the first-in, first-out method) or market.
Elements of cost include materials, labor and overhead and are as
follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Finished
products
|
|
$
|
90,103
|
|
$
|
85,009
|
|
Work-in-process
|
|
32,909
|
|
31,428
|
|
Raw materials
and purchased components
|
|
50,057
|
|
42,180
|
|
Inventories, net
|
|
$
|
173,069
|
|
$
|
158,617
|
|
NOTE EINCOME TAXES
We continue to maintain a
full valuation allowance on the tax benefits of our U.S. net deferred tax
assets and we expect to continue to record a full valuation allowance on future
tax benefits until an appropriate level of profitability in the U.S. is
sustained. We also maintain a valuation allowance on our U.K. deferred tax
asset for minimum pension liabilities and maintain a valuation allowance on our
Canadian and China deferred tax asset for net operating loss carryforwards.
Each quarter, we estimate
our full year tax rate for jurisdictions not subject to valuation allowances
based upon our most recent forecast of full year anticipated results and adjust
year to date tax expense to reflect our full year anticipated tax rate. The effective tax rate was 9.6% for the three
months ended March 31, 2008. The anticipated full year tax rate has been
affected by the recognition of the accumulated tax effects of a settled cash
flow hedge as described below, which is a discrete period item.
We have approximately a
$1.1 million liability for uncertain income tax positions at March 31,
2008 and December 31, 2007. If
recognized, the liability with related penalties and interest at March 31,
2008 would be recorded as a benefit to income tax expense on our Consolidated
Statement of Operations.
We record interest and
penalties on tax reserves as income tax expense in the financial statements.
For the quarter ended March 31, 2008, a nominal amount of interest expense
was recorded, and there was $0.2 million of accrued interest and $0.3 million
of accrued penalties related to uncertain tax positions included in the
liability for uncertain tax positions at March 31, 2008.
The tax years 2004 to
2007 remain open to examination by United States taxing authorities, and for
our other major jurisdictions (Switzerland, UK, Taiwan, Germany, Canada, and
China), the tax years 2002 to 2007 generally remain open to routine examination
by foreign taxing authorities.
During the quarter ended March 31,
2008, one of our derivatives, a qualifying hedge, was settled. The accumulated tax effect related to the
contract, a benefit of $0.6 million that had previously been recognized in
Other Comprehensive Income , was recognized through earnings in the current
quarter. This tax effect typically is
recognized through earnings over the duration and effectiveness of the hedge,
but due to our valuation allowance in the U.S., no tax benefit could be
recognized through earnings until final settlement of the contact.
9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
NOTE F DERIVATIVE FINANCIAL
INSTRUMENTS
The Company accounts for
derivative financial instruments in accordance with Statement of Financial
Accounting Standards No. 133,
Accounting
for Derivative Instruments and Hedging Activities
. The statement requires the Company to
recognize all its derivative instruments on the balance sheet at fair
value. Derivatives that are not
qualifying hedges must be adjusted to fair value through income. If the derivative is a qualifying hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives
change in fair value is immediately recognized in earnings.
NOTE GEARNINGS 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
to stock options and restricted stock.
The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations required by SFAS 128:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars
in thousands except
per share data)
|
|
Numerator:
|
|
|
|
|
|
Net (loss)
income
|
|
$
|
(730
|
)
|
$
|
5,325
|
|
Numerator for
basic (loss) earnings per share
|
|
(730
|
)
|
5,325
|
|
Numerator for
diluted (loss) earnings per share
|
|
(730
|
)
|
5,325
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for
basic (loss) earnings per share -weighted
average shares (in thousands)
|
|
11,323
|
|
8,786
|
|
Effect of
diluted securities:
|
|
|
|
|
|
Restricted stock
and stock options (in thousands)
|
|
N/A
|
|
59
|
|
Denominator for
diluted (loss) earnings per share -adjusted
weighted average shares (in thousands)
|
|
11,323
|
|
8,845
|
|
|
|
|
|
|
|
Basic (loss)
earnings per share
|
|
$
|
(0.06
|
)
|
$
|
0.61
|
|
Diluted (loss)
earnings per share
|
|
$
|
(0.06
|
)
|
$
|
0.60
|
|
For
the three months ended March 31, 2008, the effect of restricted stock and
stock options is excluded from diluted shares outstanding as they are
anti-dilutive.
10
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
NOTE HREPORTING COMPREHENSIVE
INCOME
The components of other
comprehensive income (loss), net of tax, for the three months ended March 31,
2008 and 2007 consisted of the following:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
Net (Loss)
Income
|
|
$
|
(730
|
)
|
$
|
5,325
|
|
Other
Comprehensive Income:
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
17,185
|
|
172
|
|
Pension
liability adjustment, net of tax
|
|
(246
|
)
|
(61
|
)
|
Unrealized gain
(loss) on derivatives adjustment, net of tax:
|
|
|
|
|
|
Cash flow hedges
|
|
(654
|
)
|
28
|
|
Other
comprehensive income
|
|
16,285
|
|
139
|
|
Total
Comprehensive Income
|
|
$
|
15,555
|
|
$
|
5,464
|
|
Accumulated balances of
the components of other comprehensive income, net of tax, in the Consolidated
Balance Sheets at March 31, 2008 and December 31, 2007 are as
follows:
|
|
Accumulated balances
|
|
|
|
March 31,
|
|
Dec. 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Accumulated Other Comprehensive Income:
|
|
|
|
|
|
Impact of
SFAS 158 and 87 on retirement related plans (net of tax of $3,934
and $3,861 in 2008 and 2007, respectively)
|
|
$
|
2,088
|
|
$
|
2,334
|
|
Foreign currency
translation adjustments
|
|
38,431
|
|
21,246
|
|
Unrealized gain
on derivatives, net of tax:
|
|
|
|
|
|
Cash flow
hedges, (net of tax of $634 in
2007)
|
|
|
|
654
|
|
Accumulated
Other Comprehensive Income
|
|
$
|
40,519
|
|
$
|
24,234
|
|
NOTE IGOODWILL AND OTHER
INTANGIBLE ASSETS
We account for goodwill
and intangibles in accordance with Statements of Financial Accounting Standards
No. 141 (SFAS 141),
Business Combinations
,
and No. 142 (SFAS 142),
Goodwill and Other
Intangible Assets
. SFAS 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives. The statement
requires that these assets be reviewed for impairment at least annually.
Intangible assets with finite lives are amortized over their estimated useful
lives.
The total carrying amount
of goodwill was $25.6 million as
of March 31, 2008 and $22.8 million as of December 31, 2007. The majority of this asset resulted from the
acquisition of HTT Hauser Tripet Tschudin AG in 2000. The acquisition of the European sales and
service operations of Bridgeport in 2004 added $0.5 million to goodwill. Canadian Harding Machine Tools purchased a
Canadian entity in 2007 and recorded $2.1 million in goodwill. The asset value
of the goodwill increased by $2.8
million during the first quarter of 2008, due to the increased dollar
value of the functional currency of the Companys subsidiaries whose balance
sheets include the goodwill.
11
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
NOTE IGOODWILL AND OTHER
INTANGIBLE ASSETS (Continued)
Other intangible assets
include $6.6 million representing the value of the name, trademarks and
copyrights associated with the former worldwide operations of Bridgeport, which
were acquired in 2004. The Company uses
this recognized brand name on all of its machining center lines, and therefore,
the asset has been determined to have an indefinite useful life. These assets
are reviewed annually for impairment under the provisions of SFAS 142.
Amortizable intangible
assets of $5.1 million include the Bridgeport technical information, patents,
distribution agreement, customer lists and other items. The estimated useful
life of these intangible assets ranges from five to ten years.
NOTE
JPENSION AND POST RETIREMENT PLANS
The Company accounts for
the pension plans and postretirement benefits in accordance with Statements of
Financial Accounting Standards No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans
an amendment of SFAS No. 87, 106 and
132(R)
.
A
summary of the components of net periodic pension cost and postretirement
benefit costs for the consolidated company for the three months ended March 31,
2008 and 2007 is presented below:
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
|
Three months ended
March 31,
|
|
Three months ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
(dollars in thousands)
|
|
Service cost
|
|
$
|
843
|
|
$
|
1,034
|
|
$
|
7
|
|
$
|
7
|
|
Interest cost
|
|
2,215
|
|
2,025
|
|
37
|
|
36
|
|
Expected return
on plan assets
|
|
(2,766
|
)
|
(2,437
|
)
|
|
|
|
|
Amortization of
prior service cost
|
|
(37
|
)
|
(35
|
)
|
(126
|
)
|
(126
|
)
|
Amortization of
transition (asset)
|
|
(89
|
)
|
(92
|
)
|
|
|
|
|
Amortization of
loss
|
|
34
|
|
298
|
|
|
|
2
|
|
Net periodic
cost (benefit)
|
|
$
|
200
|
|
$
|
793
|
|
$
|
(82
|
)
|
$
|
(81
|
)
|
The expected
contributions to be paid during the year ending December 31, 2008 to the
domestic defined benefit plan are $6.2 million.
Contributions to the domestic plan as of March 31, 2008 and 2007
were $0.5 and $0.0 million, respectively. The Company also provides
defined benefit pension plans or defined contribution pension plans for some of
its foreign subsidiaries. The expected
contributions to be paid during the year ending December 31, 2008 to the
foreign defined benefit plans are $2.6 million.
For each of the Companys foreign plans, contributions are made on a
monthly basis and are determined by their governmental regulations. As of March 31, 2008 and 2007, $0.7
million and $0.5 million contributions have been made to the foreign plans,
respectively. Also, each of the foreign plans requires employee and employer
contributions, except for Taiwan, which has only employer contributions.
12
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2008
NOTE KCOMMITMENTS
AND CONTINGENCIES
Our operations are subject to extensive federal and
state legislation and regulation relating to environmental matters.
Certain
environmental laws can impose joint and several liability for releases or
threatened releases of hazardous substances upon certain statutorily defined
parties regardless of fault or the lawfulness of the original activity or
disposal. Activities at properties we
own or previously owned and on adjacent areas have resulted in environmental
impacts.
In particular, the Companys New York manufacturing facility is located
within the Kentucky Avenue Wellfield on the National Priorities List of
hazardous waste sites designated for cleanup by the United States Environmental
Protection Agency (EPA) because of groundwater contamination. The Kentucky Avenue Wellfield site
encompasses an area of approximately three square miles which includes sections
of the Town of Horseheads and the Village of Elmira Heights in Chemung County,
New York. In February 2006, we received a Special Notice Concerning a
Remedial Investigation/Feasibility Study for the Koppers Pond (the Pond)
portion of the Kentucky Avenue Wellfield site.
The EPA has documented the release and threatened release of hazardous
substances into the environment at the Kentucky Avenue Well Field Superfund
site, including releases into and in the vicinity of the Pond. The hazardous substances, including metals
and polychlorinated biphenyls, have been detected in sediments in the Pond.
A substantial portion of the Pond is located on our
property. We, along with Beazer East, Inc.,
the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS
Corporation, and Toshiba America, Inc., the Potentially Responsible
Parties (the PRPs) have agreed to voluntarily participate in the Remedial
Investigation and Feasibility Study (RI/FS) by signing an Administrative
Settlement Agreement and Order of Consent on September 29, 2006. On September 29, 2006, the Director of
Emergency and Remedial Response Division of the U.S. Environmental Protection
Agency, Region II, approved and executed the Agreement on behalf of the
EPA. The PRPs also signed a PRP Member Agreement,
agreeing to share the cost of the RI/FS study on a per capita basis. The cost of the RI/FS has been estimated to
be between $0.6 million and $0.8 million.
We have established a reserve of $0.09 million for our portion of the
study.
The PRPs developed a Draft RI/FS with their consultant and, following
EPA comments, submitted a Revised RI/FS on December 6, 2007. In April 2008,
the PRPs were notified that the EPA approved the RI/FS Work Plan which now
includes the PRPs responses to EPAs comments on their December 6th
submission. The PRPs are planning to mobilize and initiate field investigations
commencing the week of May 5, 2008.
Until receipt of
this notice, we had never been named as a potentially responsible party at the
site or received any requests for information from EPA concerning the
site. Environmental sampling on our
property within this site under supervision of regulatory authorities has
identified off-site sources for such groundwater contamination and sediment
contamination in the Pond and has found no evidence that our property is
contributing to the contamination. Since the RI/FS has not commenced, we have
not established, other than as described above, a reserve for any potential
costs relating to this site, as it is too early in the process to determine our
responsibility as well as to estimate any potential costs to remediate. We have
notified all appropriate insurance carriers and are actively cooperating with
them, but whether coverage will be available has not yet been determined and
possible insurance recovery cannot now be estimated with any degree of
certainty.
13
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2008
NOTE
L
SUBSEQUENT
EVENT
We operate in many
foreign countries and are exposed to movements in foreign currency exchange
rates. In April 2008, we entered
into a non-deliverable forward contract through June 6, 2008 with a
notional amount of $24.0 million to hedge 100% of our net U.S. Dollar
denominated receivables and payables in our Hardinge Taiwan subsidiary.
NOTE
MNEW ACCOUNTING STANDARDS
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value in applying generally accepted accounting
principles, and expands disclosures about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
adoption of SFAS 157 did not impact our consolidated financial statements for
the period ending March 31, 2008.
In February 2007,
the FASB issued SFAS No. 159,
The Fair
Value Option for Financial Assets and Financial Liabilities including an
amendment of FASB Statement No. 115
(SFAS 159). This Statement
allows all entities a one-time election to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value (the fair value option). SFAS 159 is effective for
fiscal years beginning after November 15, 2007. The adoption of SFAS 159
did not impact our consolidated financial statements for the period ended March 31,
2008.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (revised - 2007)
(SFAS 141(R)). SFAS 141(R) is a revision to previously existing guidance
on accounting for business combinations. The statement retains the fundamental
concept of the purchase method of accounting, and introduces new requirements
for the recognition and measurement of assets acquired, liabilities assumed,
and noncontrolling interests. The statement is effective for fiscal years
beginning after December 15, 2008 and impacts business combinations after
that date.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures
about Derivative Instruments and Hedging Activities
. This Statement
is effective for financial statements issued for periods beginning after November 15,
2008, with early application encouraged. This statement amends and expands the
disclosure requirements in SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities
,
and
other related literature. We believe that the updated disclosures will not have
a material impact on our consolidated financial statements.
14
PART I - ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview.
The following
Managements Discussion and Analysis (MD&A) is written to help the reader
understand our company. The MD&A is provided as a supplement to, and should
be read in conjunction with, our unaudited condensed financial statements, the
accompanying condensed financial statement notes (Notes) appearing elsewhere
in this report and our annual report on Form 10-K for the year ended December 31,
2007.
Our primary
business is designing, manufacturing and distributing high precision computer
controlled material-cutting turning, grinding and milling machines and related
accessories. We are geographically diversified with manufacturing facilities in
the U.S., Switzerland, Taiwan, and China, with sales to most industrialized
countries. Approximately 66% of our 2007 sales were to customers outside North
America, 70% of our 2007 products were manufactured outside of North America
and approximately 58% of our employees are located outside of North America.
Our machine
products are considered to be capital goods and are part of what has historically
been a highly cyclical industry. Our management believes that a key performance
indicator is our order level compared to industry measures of market activity
levels.
The U.S. market
activity metric most closely watched by our management has been metal-cutting
machine orders as reported by the Association of Manufacturing Technology
(AMT), the primary industry group for U.S. machine tool manufacturers. Other
closely followed U.S. market indicators are tracked to determine activity
levels in U.S. manufacturing plants that might purchase our products. One such
measurement is the PMI (formerly called the Purchasing Managers Index), as
reported by the Institute for Supply Management. Another is capacity
utilization of U.S manufacturing plants, as reported by the Federal Reserve
Board. Similar information regarding machine tool consumption in foreign
countries is published in various trade journals
Other key
performance indicators are geographic distribution of sales and orders, income
from operations, working capital changes and debt level trends. In an
industry where constant product technology development has led to an average
model life of three to five years, effectiveness of technological innovation
and development of new products are also key performance indicators.
Foreign currency
exchange rate changes can be significant to our reported financial results for
several reasons. Our primary competitors, particularly for the most
technologically advanced products are now, largely, manufacturers in Japan,
Germany, and Switzerland, which causes the worldwide valuation of the Japanese
Yen, Euro, and Swiss Franc to be central to competitive pricing in all of our
markets. Also, we translate the financial results of our Swiss, Taiwanese,
Chinese, English, German and Canadian subsidiaries into U.S. Dollars for
consolidation and financial reporting purposes. Period to period changes in the
exchange rate between their local currency and the U.S. Dollar may affect
comparative data significantly. We also purchase computer controls and other
components from suppliers throughout the world, with purchase costs reflecting
currency changes.
On April 25,
2007, the Company completed a public offering of 2,553,000 shares of common
stock, including a 330,000 share over-allotment option exercised in full by the
underwriters, with net proceeds of approximately $55.9 million after deducting
underwriting discounts and commissions, and offering expenses. We used these
funds to repay indebtedness under our U.S. overdraft and revolving line of
credit facilities. On March 31, 2008 and 2007, we had 11,473,044 and
8,890,859 shares of common stock outstanding, respectively.
15
Results
of Operations (unaudited)
Summarized
selected financial data for the three months ended March 31, 2008 and March 31,
2007:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
%
Change
|
|
|
|
(in thousands, except per share amount)
|
|
Net sales
|
|
$
|
85,599
|
|
$
|
86,966
|
|
$
|
(1,367
|
)
|
(1.6
|
)%
|
Gross profit
|
|
25,128
|
|
27,980
|
|
(2,852
|
)
|
(10.2
|
)%
|
SG&A
expenses
|
|
23,501
|
|
19,625
|
|
3,876
|
|
19.8
|
%
|
Other expense
(income)
|
|
2,024
|
|
(633
|
)
|
2,657
|
|
(419.7
|
)%
|
(Loss) income
from operations
|
|
(397
|
)
|
8,988
|
|
(9,385
|
)
|
(104.4
|
)%
|
(Loss) profit
before taxes
|
|
(808
|
)
|
7,672
|
|
(8,480
|
)
|
(110.5
|
)%
|
Net (loss)
income
|
|
(730
|
)
|
5,325
|
|
(6,055
|
)
|
(113.7
|
)%
|
Diluted (loss)
earnings per share
|
|
$
|
(0.06
|
)
|
$
|
0.60
|
|
$
|
(0.66
|
)
|
|
|
Weighted average
shares outstanding
|
|
11,323
|
|
8,845
|
|
|
|
|
|
Gross profit as %
of net sales
|
|
29.4
|
%
|
32.2
|
%
|
(2.8
|
) pts.
|
|
|
SG&A expense
as % of net sales
|
|
27.5
|
%
|
22.6
|
%
|
4.9
|
pts.
|
|
|
Other expense
(income) as a % of net sales
|
|
2.4
|
%
|
(0.7
|
)%
|
3.1
|
pts.
|
|
|
(Loss) income
from operations as % of net sales
|
|
(0.5
|
)%
|
10.3
|
%
|
(10.8
|
) pts.
|
|
|
Net (loss)
income as % of net sales
|
|
(0.9
|
)%
|
6.1
|
%
|
(7.0
|
) pts.
|
|
|
Orders.
Orders for the first quarter of 2008 were
$93.1 million, a decrease of $2.4 million or 3% compared to the same period in
2007. Excluding the impact of foreign
currency results, orders declined by $8.8 million or 9%.
The table below
summarizes orders by geographical region for the first quarter of 2008 compared
to the same period in 2007:
|
|
Three months ended
|
|
|
|
March 31,
|
|
Orders from Customers in:
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
|
(dollars in thousands)
|
|
North America
|
|
$
|
25,698
|
|
$
|
33,995
|
|
(24.4
|
)%
|
Europe
|
|
43,348
|
|
45,353
|
|
(4.4
|
)%
|
Asia &
Other
|
|
24,075
|
|
16,220
|
|
48.4
|
%
|
|
|
$
|
93,121
|
|
$
|
95,568
|
|
(2.6
|
)%
|
North American orders
were negatively influenced by the non-recurrence of a $4.9 million order for
grinding machines for use in turbine blade manufacturing in the first quarter
of 2007. Excluding this order, the North
American market demand would have been down by $3.4 million or 12% for the
quarter. Uncertainty in the U.S. market is having significant influence on
performance.
European orders were down
$2.0 million, or 4% versus the first quarter of 2007. Our order performance in
Europe has been steady for over 18 months, however, we are seeing some signs of
decline in the UK market. Overall, our European business continues to be
relatively strong.
Asia & Other
orders increased by $7.9 million, or 48% in the first quarter of 2008 compared
to the same period in 2007. This increase was exclusively driven by success in
the Chinese market.
16
Net Sales
. Net sales for the three months ended March 31,
2008 were $85.6 million, a decrease of $1.4 million or 2% compared to the three
months ended March 31, 2007. Excluding the impact of foreignexchange,
sales declined by $8.1 million or 9%. The geographic mix of sales for the first
quarter was similar to the mix for the full year 2007 with more than 66% of
sales outside of North America.
The table below
summarizes first quarter 2008 net sales by geographical region compared to the
same period in 2007:
|
|
Three months ended
|
|
|
|
March 31,
|
|
Sales to Customers in
:
|
|
2008
|
|
2007
|
|
%
Change
|
|
|
|
(dollars in thousands)
|
|
North America
|
|
$
|
28,556
|
|
$
|
27,780
|
|
2.8
|
%
|
Europe
|
|
37,563
|
|
41,263
|
|
(9.0
|
)%
|
Asia &
Other
|
|
19,480
|
|
17,923
|
|
8.7
|
%
|
|
|
$
|
85,599
|
|
$
|
86,966
|
|
(1.6
|
)%
|
North American sales were
steady, in comparison to the prior year, despite an economic environment that
is not favoring capital spending. Increased sales, related to our direct sales
efforts, more than offset declines resulting from adjustments to our
distribution channels.
The
9% decrease in European net sales was a result of slowness in the UK market,
where the company has a significant presence, in addition to lower volume in
Germany driven by transitioning market coverage in certain product segments
from distribution to direct selling.
Asia &
Other net sales increased by 9% for the quarter, reflecting improved
performance in the Chinese market. This excludes approximately $3.5 million of
grinding machines that had delayed shipments due to import/export compliance
issues between Switzerland and China.
Under U.S.
accounting standards, results of foreign subsidiaries are translated into U.S.
Dollars at the average exchange rate during the periods presented. For the
first quarter of 2008, the U.S. Dollar weakened 13% against the Euro, 13%
against the Swiss Franc, 8% against the Chinese Renminbi, 4% against the New
Taiwanese Dollar, and 1% against the British Pound Sterling, compared to the
average rates during the same period in 2007. The net of these foreign currency
changes relative to the U.S. Dollar was a favorable impact of $6.7 million on
net sales for the first quarter of 2008.
Sales of machines
accounted for approximately 74.4% and 72.0% of net sales in the first quarter
of 2008 and 2007, respectively. Sales of non-machine products and services
consist of workholding, repair parts, service, and accessories.
Gross Profit.
First quarter
2008 gross profit was $25.1 million, down 10% in comparison to $28.0 million
for the prior year quarter. Gross profit
for the first quarter was positively impacted by $1.8 million due to the
translation of foreign subsidiary financial statements into US Dollars, which
was partially offset by $1.0 million related to the impact of exchange rates
where revenue transactions are in currencies other than the functional
currency. Gross profit margin for the quarter was 29.4% of net sales, a
reduction of 280 basis points in comparison to 32.2% for 2007. Lower unit production volume continues to
have an unfavorable affect on factory absorption, which results in lower profit
margins. We have evaluated factory loading of production and will be moving
some production that is currently outsourced to company owned facilities as
well as making necessary cost reductions to align overhead costs with current
demand.
17
Selling, General and Administrative Expenses
. Selling, general and
administrative (SG&A) expenses were $23.5 million
, or 27.5% of
net sales in the first quarter of 2008, compared to $19.6 million, or 22.6% of
net sales in the first quarter of 2007.
The $3.9 million SG&A increase for the first quarter of 2008 was
primarily a result of $1.5 million related to the unfavorable effects of
foreign subsidiary financial statement translation and increases of $1.6 in
direct sales and marketing efforts in the UK, North America, and Germany, with
the balance of the increase attributable to strengthening the corporate
infrastructure. We have also evaluated expense levels by market, and will
redeploy resources where market opportunities are greater and/or adjust
spending levels depending on our performance.
Other Expense/(Income)
. Other expense/(income) was $2.0 million
expense for the first quarter of 2008 compared to $0.6 million income in the
first quarter of 2007, and has been separately reclassified out of SG&A in
order to provide greater transparency in the financial statements. This expense
was primarily a result of unrealized/realized currency losses in the current
quarter.
Income from Operations
.
Income from operations was ($0.4)
million, or (0.5%) of net sales for the first quarter of 2008 compared to $9.0
million or 10.3% of net sales for the same period in 2007.
Interest Expense & Interest Income
.
Interest
expense was $0.5 million for the first quarter of 2008 compared to $1.4 million
for the prior year period, and reflects actions taken by the Company in 2007 to
substantially reduce long-term debt.
Income Tax/Benefit.
The provision for income taxes was a benefit of $0.1
million for the three months ended March 31, 2008, compared to an tax
expense of $2.3 million for the same period of 2007. The effective tax rate was 9.6% for
the three months ended March 31, 2008, compared to 30.6% for the same
period of 2007.
This difference was
driven by the mix of earnings by country, and by the following discrete period
item which occurred in the current quarter: the recognition of the accumulated
tax effects of a settled derivative contract.
This tax effect, a benefit of $0.6 million, typically is recognized
through earnings over the duration and effectiveness of the hedge. However, due to our valuation allowance in
the U.S., no tax benefit could be recognized through earnings until final
settlement of the contact.
Each quarter, an estimate
of the full year tax rate for jurisdictions not subject to a full valuation
allowance is developed based upon anticipated annual results and an adjustment
is made, if required, to the year to date income tax expense to reflect the
full year anticipated effective tax rate. We expect the 2008 effective income
tax rate to be in the range of 25% to 27%, inclusive of the effects of the
discrete period item described above.
We have recorded a
valuation allowance for the full value of the deferred tax assets of our U.S.
operations, and consistent with accounting for taxes under FAS109, no tax
expense (benefits) were recorded as a result of the pre-tax income (loss) from
continuing operations of the U.S. for 2008 or 2007 to offset the taxes accrued
for pre-tax earnings from profitable foreign subsidiaries.
The effective tax rate
for the period ended March 31, 2008 of 9.6% differs from the U.S.
statutory rate primarily due to no tax benefit being recorded for certain
entities in a loss position for which a full valuation allowance has been
recorded, as well as the benefit of the discrete item described above.
Net Income.
Net income (loss) for the first quarter of 2008 was
($0.7) million, or (0.9%) of net sales, compared to $5.3 million, or 6.1% of
net sales for the same period in 2007. Diluted and basic (loss) earnings per
share for the first quarter of 2008 were ($0.06) and ($0.06) respectively,
compared to $0.60 and $0.61 per share for the first quarter of 2007.
18
Liquidity and Capital Resources
At March 31, 2008,
cash was $14.2 million compared to $16.0 million at December 31,
2007. The current ratio at March 31,
2008 was 2.90:1 compared to 3.81:1 at December 31, 2007.
Cash
Flow Provided By (Used In) Operating Activities and Investing Activities:
Cash flow (used in)
provided by operating and investing activities for the three months ended March 31,
2008 compared to the same period in 2007 are summarized in the table below:
|
|
Three months ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Net cash (used
in) provided by operating activities
|
|
$
|
(2,076
|
)
|
$
|
2,958
|
|
Cash flow used
in investing activities
|
|
$
|
(1,236
|
)
|
$
|
(425
|
)
|
Capital
expenditures (included in investing activities)
|
|
$
|
(1,236
|
)
|
$
|
(425
|
)
|
Cash used in operating
activities was $2.1 million for the three months ended March 31, 2008,
compared to $3.0 million provided by operating activities for the same period
in 2007. This represents a decrease in cash provided by operating activities of
$5.0 million.
Cash used in investing
activities was $1.2 million for the three months ended March 31, 2008
compared to $0.4 million for the same period in 2007. Capital expenditures for the three months
ended March 31, 2008 included updates to our overall information
technology infrastructure and routine maintenance.
Cash Flow Provided by Financing Activities:
Cash flow provided by
financing activities for the three months ended March 31, 2008 and 2007,
are summarized in the table below:
|
|
Three months ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
Borrowings of
short-term notes payable
|
|
$
|
(2,322
|
)
|
$
|
3,296
|
|
Borrowings of
long-term debt
|
|
3,575
|
|
3,172
|
|
Net (purchases)
of treasury stock
|
|
(498
|
)
|
(6
|
)
|
Payments of
dividends
|
|
(576
|
)
|
(444
|
)
|
Net cash
provided by financing activities
|
|
$
|
179
|
|
$
|
6,018
|
|
Cash flow provided by
financing activities was $0.2 million for the three months ended March 31,
2008 compared to $6.0 million for the same period in 2007. We used $0.6 million to purchase stock
through our Stock Repurchase Program. During the quarter ended March 31,
2008, we repurchased 45,500 shares of stock at an average price of $12.72 per
share. Debt outstanding, including notes
payable, was $29.4 million on March 31, 2008 compared to $84.3 million on March 31,
2007. In April of 2007, we completed a public offering of 2,553,000 shares
of common stock, with net proceeds of approximately $55.9 million after
deducting underwriting discounts and commissions, and offering expenses. We
used these funds to repay indebtedness under our U.S. overdraft and revolving
line of credit facilities.
19
Credit
Facilities:
We maintain a revolving loan agreement with a group of U.S. banks. This agreement, which expires in January 2010
,
provides for borrowings of up to $70.0
million, secured by substantially all of the Companys domestic assets, other
than real estate, and by a pledge of 65% of its investment in its major
subsidiaries. Interest charged on this
debt is based on London Interbank Offered Rates plus a spread which varies
depending on the Companys debt to EBITDA (earnings before interest, taxes,
depreciation and amortization) ratio.
A variable
commitment fee of 0.15% to 0.375%, based on the Companys debt to EBITDA ratio,
is payable on the unused portion of the revolving loan facility.
At March 31, 2008, and December 31, 2007
borrowings under this agreement were $13.0 million and $8.0 million,
respectively.
We also have a term loan,
maturing in January 2011, with substantially the same security and
financial covenants as provided under the revolving loan agreement described
above. At March 31, 2008, the
balance of the term loan was $11.0 million with quarterly principal payments of
$1.3 million from 2007 through December 2010.
We maintain an $8.0
million unsecured short-term line of credit from a bank with interest based on
current prime. At March 31, 2008,
borrowings under this line of credit were $0.5 million.
Our
Swiss
subsidiary
maintains unsecured
overdraft facilities with commercial banks, providing borrowing up to 15.9
million Swiss francs, which is equivalent to approximately $16.1 million at March 31,
2008. The borrowing limits on these
facilities are reduced 0.08 million Swiss francs or approximately $0.08 million
per quarter. At March 31, 2008 and December 31, 2007, there were no
borrowings under the overdraft facilities.
Our Swiss subsidiary also has loan agreement
s
with a Swiss bank,
which are secured by the real property owned by the Swiss subsidiary and which
provide for borrowings up to 11.3 million Swiss francs, which is equivalent to
approximately $11.3 million at March 31, 2008. The borrowing limits on
these facilities are reduced 0.25 million Swiss francs or approximately $0.25
million per year. There were no
borrowings under the mortgage facilities at March 31, 2008 and December 31,
2007.
Our UK subsidiary
maintains an overdraft facility that allows for borrowing up to 0.4 million
pounds sterling, which is equivalent to approximately $0.7 million at March 31,
2008. There were no borrowings under this facility at March 31, 2008 and December 31,
2007.
Our Taiwan subsidiary maintains a
mortgage loan with a bank secured by the real property owned by the Taiwan
subsidiary which provides borrowings of 148.5 million New Taiwanese dollars
which is equivalent to approximately $4.9 million. At March 31, 2007 and December 31,
2007 borrowings under this agreement were $4.9 million and $4.7 million,
respectively. Principal on the mortgage loan is repaid quarterly in the amount
of 4.5 million New Taiwanese dollars, which is equivalent to approximately $0.1
million.
Certain of these debt
agreements require, among other things, that the company maintain specified
levels of tangible net worth, working capital, and specified ratios of debt to
EBITDA, and EBITDA minus capital expenditures to fixed charges.
During the quarter ended March 31,
2008, we violated our debt covenant calculation in our U.S. credit agreement related
to fixed charges. We have negotiated an amendment with the banks to our current
credit facility which excludes abnormal or unusual items from the
calculation. This amendment enables us
to be in compliance with the covenants at March 31, 2008. However, our debt is shown as a current
liability as of March 31, 2008 because it is possible that we may violate the
covenant within the next year. The
Company is currently in the process of negotiating a new credit facility which
will remediate this covenant compliance issue.
We anticipate finalizing the new credit agreement by the end of the
second quarter.
In aggregate, these and
other borrowing agreements permit for borrowing of up to $122.0 million, including
$89.0 million from our U.S. credit agreement. As of March 31, 2008, $29.4
million was borrowed under these agreements.
The Company believes that
the currently available funds and credit facilities, along with internally
generated funds, will provide sufficient financial resources for ongoing operations.
20
Our contractual
obligations and commercial commitments have not changed materially, including
the impact from FIN 48, from the disclosures in our 2007 Form 10K.
This
report contains forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended). Such statements are based on
managements current expectations that involve risks and uncertainties. Any
statements that are not statements of historical fact or that are about future
events may be deemed to be forward-looking statements. For example, words such
as may, will, should, estimates, predicts, potential, continue, strategy,
believes, anticipates, plans, expects, intends, and similar
expressions are intended to identify forward- looking statements. The Companys
actual results or outcomes and the timing of certain events may differ
significantly from those discussed in any forward-looking statements.
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 companys entry into new
product and geographic markets, the companys 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 publicly update any
forward-looking statement, whether as a result of new information, future
events, or otherwise.
21
PART I.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no
material changes to our market risk exposures during the first three months of
2008. For a discussion of our exposure
to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures
About Market Risks, contained in our 2007 Annual Report on Form 10-K.
ITEM
4. CONTROLS AND PROCEDURES
Management of the
Company, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures as of March 31, 2008. As defined in Rule 13a-12(e) and
15d-12(e) under the Securities Exchange Act of 1934 (the Exchange Act),
disclosure controls and procedures are controls and procedures designed to
provide reasonable assurance that information required to be disclosed in
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported on a timely basis, and that such information is
accumulated and communicated to management, including the Companys Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. The Companys disclosure controls and
procedures include components of the Companys internal control over financial
reporting.
As previously reported in
our Annual Report on Form 10-K for the year ended December 31, 2007, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were not effective as of December 31, 2007,
due to the material weakness in the Companys internal control over financial
reporting. During the quarter ended
March 31, 2008, the Company began the process of implementing controls and
procedures to address the material weaknesses identified as of December 31,
2007 and believes that, once fully implemented, these controls and procedures
will correct the material weaknesses discussed above. However, based on our
current evaluation, we concluded that the disclosure controls and procedures
are still not fully effective as of March 31, 2008.
Except as discussed above,
there were no changes in the Companys internal control over
financial reporting during its most recently
completed fiscal quarter that have materially affected or
are reasonably likely to materially affect its internal control
over financial reporting, as defined in Rule 13a-15(f) under
the Exchange Act.
22
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
None
Item 1. a. Risk Facto
rs
There is no change to the risk factors disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2007.
Item 2.
Changes in Securities
The following
tables provides information about issuer repurchases of our common stock by
month for the quarter ended March 31, 2008:
Issuer Purchases of Equity Securities
Period
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
January 1
January 31, 2008
|
|
5,124
|
|
$
|
17.19
|
|
February 1
February 29, 2008
|
|
|
|
|
|
March 1
March 31, 2008
|
|
45,500
|
|
$
|
12.72
|
|
Total
|
|
50,624
|
|
|
|
The
above shares repurchased in January were part of the Companys Incentive
Compensation Plan to satisfy tax withholding obligations. The shares
repurchased in March of 2008 were shares purchased under the Companys new
Stock Repurchase Program.
Item 3.
Defaults upon Senior Securities
None
Item
4. Submission of Matters to a Vote of
Security Holders
None
Item 5.
Other Information
On May 12, 2008 we
entered into an amendment to our Second Amended and Restated Revolving Credit
and Term Loan Agreement among Hardinge Inc. and the Banks signatory thereto and
Manufacturers and Traders Trust Company as Agent and Lead Arranger and JPMorgan
Chase Bank, N.A. as Syndication Agent and KeyBank National Association as
Documentation Agent dated as of October 24, 2002 and amended and restated
as of January 28, 2005 and second amended and restated dated as of November 21,
2006. This amendment to our current U.S.
credit facility excludes abnormal or unusual items from our covenant
calculation of fixed charges. This
amendment enables us to be in compliance with the covenants at March 31,
2008. However, our debt is shown as a
current liability because it is possible that we may violate the covenant
within the next year. As a result of
this transaction, our Form 10-Q balance sheet as of March 31, 2008
reflects all debt as current which is different from the balance sheet set
forth in our press release circulated on May 8, 2008 and filed on Form 8-K
with the Securities and Exchange Commission on May 12, 2008. The Company is currently in the process of
negotiating a new credit facility which will remediate this covenant compliance
issue. We anticipate finalizing the new
credit agreement by the end of the second quarter.
23
Item
6. Exhibits
3.1
|
|
-
|
|
By-Laws of Hardinge
Inc. dated September 28, 2004 as amended May 6, 2008.
|
|
|
|
|
|
10.1
|
|
-
|
|
Amendment Two dated
May 12, 2008 to the Second Amended and Restated Revolving Credit and
Term Loan Agreement among Hardinge Inc. and the Banks signatory thereto and
Manufacturers and Traders Trust Company as Agent and Lead Arranger and
JPMorgan Chase Bank, N.A. as Syndication Agent and KeyBank National
Association as Documentation Agent dated as of October 24, 2002 and
amended and restated as of January 28, 2005 and second amended and
restated dated as of November 21, 2006.
|
|
|
|
|
|
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 of Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
Hardinge
Inc.
|
|
|
|
|
|
|
|
|
May 12,
2008
|
|
By:
|
/s/ J. Patrick
Ervin
|
Date
|
|
|
J. Patrick Ervin
|
|
|
|
Chairman of the
Board, President/CEO
|
|
|
|
|
|
|
|
|
May 12,
2008
|
|
By:
|
/s/ Edward J.
Gaio
|
Date
|
|
|
Edward J. Gaio
|
|
|
|
Vice
President/CFO
|
|
|
|
(Principal
Financial Officer)
|
25
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