Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
x
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For the
quarterly period ended March 31, 2009
OR
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number: 000-15760
Hardinge Inc.
(Exact name of Registrant as specified in its charter)
New York
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|
16-0470200
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification No.)
|
|
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Hardinge Inc.
|
|
|
One Hardinge Drive
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|
|
Elmira, NY
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14902
|
(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 has submitted
electronically and posted to its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulations S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
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.
Large accelerated filer
o
|
|
Accelerated filer
x
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|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
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,
2009 there were 11,532,252
shares of Common Stock of the Registrant outstanding.
Table of
Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
HARDINGE INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(In Thousands)
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
10,683
|
|
$
|
18,430
|
|
Accounts
receivable, net
|
|
38,506
|
|
60,110
|
|
Notes
receivable, net
|
|
1,333
|
|
994
|
|
Inventories, net
|
|
139,757
|
|
144,957
|
|
Deferred income
tax
|
|
384
|
|
398
|
|
Prepaid expenses
|
|
8,627
|
|
10,964
|
|
Total current
assets
|
|
199,290
|
|
235,853
|
|
|
|
|
|
|
|
Property, plant
and equipment:
|
|
|
|
|
|
Property, plant
and equipment
|
|
177,412
|
|
183,387
|
|
Less accumulated
depreciation
|
|
120,978
|
|
123,790
|
|
Net property,
plant and equipment
|
|
56,434
|
|
59,597
|
|
|
|
|
|
|
|
Non-current
assets:
|
|
|
|
|
|
Notes
receivable, net
|
|
795
|
|
923
|
|
Deferred income
taxes
|
|
1,440
|
|
1,406
|
|
Intangible
assets
|
|
10,510
|
|
10,725
|
|
Other long-term
assets
|
|
886
|
|
1,321
|
|
|
|
13,631
|
|
14,375
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
269,355
|
|
$
|
309,825
|
|
See accompanying notes.
3
Table of Contents
|
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March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
Liabilities
and shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,509
|
|
$
|
20,059
|
|
Notes payable to
bank
|
|
8,353
|
|
|
|
Accrued expenses
|
|
25,453
|
|
33,255
|
|
Accrued income
taxes
|
|
2,985
|
|
2,911
|
|
Deferred income
taxes
|
|
3,253
|
|
3,466
|
|
Current portion
of long-term debt
|
|
530
|
|
24,549
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|
Total current
liabilities
|
|
56,083
|
|
84,240
|
|
|
|
|
|
|
|
Other
liabilities:
|
|
|
|
|
|
Long-term debt
|
|
3,315
|
|
3,572
|
|
Accrued pension
expense
|
|
43,616
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|
44,962
|
|
Deferred income
taxes
|
|
34
|
|
|
|
Accrued
postretirement benefits
|
|
2,813
|
|
2,528
|
|
Accrued income
taxes
|
|
2,208
|
|
2,153
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|
Other
liabilities
|
|
4,464
|
|
4,243
|
|
Total other
liabilities
|
|
56,450
|
|
57,458
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
Preferred stock,
Series A, par value $.01 per share; Authorized 2,000,000; issued - none
|
|
|
|
|
|
Common stock,
$.01 par value:
|
|
|
|
|
|
Authorized
shares - 20,000,000; Issued shares 12,472,992 at March 31, 2009 and
December 31, 2008
|
|
125
|
|
125
|
|
Additional
paid-in capital
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|
114,174
|
|
114,841
|
|
Retained
earnings
|
|
87,209
|
|
92,700
|
|
Treasury shares
940,740 at March 31, 2009 and 1,003,828 shares at December 31,
2008
|
|
(12,097
|
)
|
(13,037
|
)
|
Accumulated
other comprehensive (loss)
|
|
(32,589
|
)
|
(26,502
|
)
|
Total
shareholders equity
|
|
156,822
|
|
168,127
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
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|
$
|
269,355
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|
$
|
309,825
|
|
See accompanying
notes.
4
Table of Contents
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In
Thousands, Except Per Share Data)
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Unaudited)
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|
(Unaudited)
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
52,114
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|
$
|
85,599
|
|
Cost of sales
|
|
38,063
|
|
60,471
|
|
Gross profit
|
|
14,051
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|
25,128
|
|
|
|
|
|
|
|
Selling, general
and administrative expenses
|
|
18,150
|
|
23,501
|
|
Other (income)
expense
|
|
(189
|
)
|
2,024
|
|
(Loss) from
operations
|
|
(3,910
|
)
|
(397
|
)
|
|
|
|
|
|
|
Interest expense
|
|
1,232
|
|
451
|
|
Interest
(income)
|
|
(46
|
)
|
(40
|
)
|
(Loss) before
income taxes
|
|
(5,096
|
)
|
(808
|
)
|
|
|
|
|
|
|
Income taxes
|
|
280
|
|
(78
|
)
|
Net (loss)
|
|
$
|
(5,376
|
)
|
$
|
(730
|
)
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per
share:
|
|
$
|
(0.47
|
)
|
$
|
(0.06
|
)
|
Weighted average
number of common shares outstanding (in thousands)
|
|
11,368
|
|
11,323
|
|
|
|
|
|
|
|
Diluted (loss) per
share:
|
|
$
|
(0.47
|
)
|
$
|
(0.06
|
)
|
Weighted average
number of common shares outstanding (in thousands)
|
|
11,368
|
|
11,323
|
|
|
|
|
|
|
|
Cash dividends
declared per share
|
|
$
|
0.01
|
|
$
|
0.05
|
|
See accompanying
notes.
5
Table of Contents
HARDINGE
INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In
Thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net (loss)
|
|
$
|
(5,376
|
)
|
$
|
(730
|
)
|
Adjustments to
reconcile net (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
2,209
|
|
2,611
|
|
Provision for
deferred income taxes
|
|
(282
|
)
|
663
|
|
Debt issuance
amortization
|
|
1,045
|
|
|
|
Unrealized
intercompany foreign currency transaction (gain) loss
|
|
(386
|
)
|
1,919
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
19,716
|
|
3,419
|
|
Notes receivable
|
|
(240
|
)
|
977
|
|
Inventories
|
|
994
|
|
(6,749
|
)
|
Prepaids/other
assets
|
|
1,909
|
|
(1,678
|
)
|
Accounts payable
|
|
(3,906
|
)
|
2,345
|
|
Accrued expenses
|
|
(5,998
|
)
|
(4,741
|
)
|
Accrued
postretirement benefits
|
|
285
|
|
(112
|
)
|
Net cash
provided by (used in) operating activities
|
|
9,970
|
|
(2,076
|
)
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Capital
expenditures
|
|
(906
|
)
|
(1,236
|
)
|
Net cash (used
in) investing activities
|
|
(906
|
)
|
(1,236
|
)
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Increase
(decrease) in short-term notes payable to bank
|
|
8,353
|
|
(2,322
|
)
|
(Decrease)
increase in long-term debt
|
|
(24,132
|
)
|
3,575
|
|
Net sale
(purchases) of treasury stock
|
|
168
|
|
(498
|
)
|
Dividends paid
|
|
(115
|
)
|
(576
|
)
|
Debt issuance
fees paid
|
|
(628
|
)
|
|
|
Net cash (used
in) provided by financing activities
|
|
(16,354
|
)
|
179
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
(457
|
)
|
1,320
|
|
Net (decrease)
in cash
|
|
(7,747
|
)
|
(1,813
|
)
|
|
|
|
|
|
|
Cash at
beginning of period
|
|
18,430
|
|
16,003
|
|
|
|
|
|
|
|
Cash at end of
period
|
|
$
|
10,683
|
|
$
|
14,190
|
|
See accompanying
notes.
6
Table
of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31,
2009
NOTE 1BASIS 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, 2009,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2009. 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, 2008.
We operate in only one business segment industrial machine tools.
The consolidated balance sheet at December 31,
2008 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 2008 consolidated financial statements have been reclassified to conform to
the March 31, 2009 presentation.
NOTE 2 SIGNIFICANT RECENT EVENTS
On March 16, 2009, we entered into a new financing arrangement
with Manufacturers and Traders Trust Company (M&T), which provides the
Company a $10 million term loan secured by substantially all of the Companys
U.S. assets, as well as two thirds of the Companys investment in its foreign
subsidiaries. Proceeds from the term loan were used to repay $8.0 million of
Company indebtedness under the multi-currency secured credit facility entered
into in June 2008. The multi-currency secured credit facility has been paid
in full and terminated. The Company is currently working on an asset based
revolving credit facility which will replace the term loan and provide a
flexible credit facility that could adjust to working capital needs as business
volumes dictate.
At March 31,
2009, the Company had borrowings of $8.4 million outstanding under the new term
loan. At December 31, 2008, the Company had borrowings of $24.0 million
outstanding under the former multi-currency secured credit facility. Total
consolidated outstanding borrowings at March 31, 2009 and December 31,
2008 were $12.2 million and $28.1 million, respectively.
In February 2009,
the Company offered a Voluntary Employee Retirement Program (VERP) to employees
whose sum of current age and length of service equaled 94 years or more as of April 1,
2009. This VERP covers post-retirement health care costs for 60 months or until
Medicare coverage begins, whichever occurs first. This VERP also provided 10
weeks of severance pay. The Company
recorded a charge for the VERP of approximately $0.9 million during the quarter
ended March 31, 2009
In March 2009,
the Company implemented voluntary and involuntary lay-offs in North America and
Europe, reducing staffing by 72 employees. The Company recorded a $0.6 million
charge for severance related expenses during the quarter ended March 31,
2009
7
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2009
NOTE 3STOCK-BASED COMPENSATION
We account for
stock based compensation under 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.
We did not issue any new
stock options during the first quarter of 2009 or 2008. We did issue 46,000
stock options in December of 2008. The first quarter 2009 expense
recognized on these options was immaterial. All of the other 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 related to
those stock options.
For restricted
stock awards issued, the cost is equal to the fair value of the award at the
date of grant and compensation expense is recognized for those awards earned
over the service period of the grant. A
summary of the restricted stock activity under the Incentive Stock Plan for the
three month periods ended March 31, 2009 and 2008 is as follows:
|
|
Three months ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
Shares and units
at beginning of period
|
|
179,483
|
|
177,000
|
|
Shares/Units
granted
|
|
26,000
|
|
42,000
|
|
Shares vested
|
|
(20,883
|
)
|
(16,000
|
)
|
Shares cancelled
or forfeited
|
|
(1,600
|
)
|
(8,000
|
)
|
Shares and units
at end of period
|
|
183,000
|
|
195,000
|
|
The value of the
restricted stock awarded in the three months ended March 31, 2009 and 2008
was $0.1 million and $0.5 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, 2009
and 2008 was $0.1 million and $0.1 million, respectively. At March 31, 2009, the compensation cost
not yet recognized on these shares was $1.3 million, which will be amortized
over a weighted average term of 2.8 years.
8
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2009
NOTE 4EARNINGS 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
(SFAS 128). Basic (loss) 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 stock options and restricted
stock.
The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings (loss) per share computations required by SFAS 128:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(5,376
|
)
|
$
|
(730
|
)
|
Numerator for
basic (loss) per share
|
|
(5,376
|
)
|
(730
|
)
|
Numerator for
diluted (loss) per share
|
|
(5,376
|
)
|
(730
|
)
|
Denominator:
|
|
|
|
|
|
Denominator for
basic (loss) per share -weighted average shares (in thousands)
|
|
11,368
|
|
11,323
|
|
Effect of
diluted securities:
|
|
|
|
|
|
Restricted stock
and stock options (in thousands)
|
|
|
|
|
|
Denominator for
diluted (loss) per share -adjusted weighted average shares (in thousands)
|
|
11,368
|
|
11,323
|
|
|
|
|
|
|
|
Basic (loss) per
share
|
|
$
|
(0.47
|
)
|
$
|
(0.06
|
)
|
Diluted (loss)
per share
|
|
$
|
(0.47
|
)
|
$
|
(0.06
|
)
|
There is no dilutive effect of the restrictive stock and stock options
for the three months ended March 31, 2009 and 2008, since the impact would
be anti-dilutive.
NOTE
5INVENTORIES
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,
|
|
|
|
2009
|
|
2008
|
|
|
|
(dollars in thousands)
|
|
Finished
products
|
|
$
|
72,296
|
|
$
|
74,287
|
|
Work-in-process
|
|
32,971
|
|
32,827
|
|
Raw materials
and purchased components
|
|
34,490
|
|
37,843
|
|
Inventories, net
|
|
$
|
139,757
|
|
$
|
144,957
|
|
9
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2009
NOTE 6GOODWILL 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 provides that goodwill and other
separately recognized intangible assets with indefinite lives are no longer
amortized, but reviewed at least annually for impairment or will be reviewed
for impairment between annual tests if an event occurs or circumstances change
that more likely than not would indicate the carrying amount may be impaired.
Intangible assets that are determined to have a finite life will continue to be
amortized over their estimated useful lives and are also subject to review for
impairment.
At March 31,
2009, we do not have any goodwill on our balance sheet. During 2008, we conducted impairment testing
and noted that the implied fair value of our remaining goodwill and a portion
of our intangible assets were $0, accordingly we recorded a goodwill impairment
charge of $23.7 million in 2008 as well as $0.6 million impairment on other
intangible assets.
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. We use the
Bridgeport brand name on all of our 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 $4.0 million include the Bridgeport technical information,
patents, distribution agreements, and other items. The estimated useful lives
of these intangible assets range from five to ten years.
NOTE 7WARRANTIES
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 the 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
up to 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,
2009 and 2008 is as follows:
|
|
Three months ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(dollars in thousands)
|
|
Beginning
balance
|
|
$
|
2,872
|
|
$
|
2,469
|
|
Provision for
warranties
|
|
638
|
|
420
|
|
Warranties
settlement costs
|
|
(762
|
)
|
(429
|
)
|
Other currency
translation impact
|
|
(123
|
)
|
236
|
|
Quarter end
balance
|
|
$
|
2,625
|
|
$
|
2,696
|
|
10
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2009
NOTE 8INCOME 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.,
Germany, and Canadian deferred tax assets related to tax loss carryforwards in
those jurisdictions, as well as all other deferred tax assets of those
entities.
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 5.5%
for the three months ended March 31, 2009.
The anticipated full year tax rate has been affected by the
non-recognition of tax benefits for certain entities in a loss position for
which a full valuation allowance has been recorded.
The tax years 2005
to 2008 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 2003 to 2008 generally remain open to routine examination
by foreign taxing authorities, depending on the jurisdiction.
At March 31,
2009 and December 31, 2008, we had a $2.2 million liability recorded for
uncertain income tax positions, which included interest and penalties of $0.5
million. If recognized, the liability with related penalties and interest at March 31,
2009 and December 31, 2008 would be recorded as a benefit to income tax
expense on the Consolidated Statement of Operations.
11
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2009
NOTE
9PENSION AND POST RETIREMENT PLANS
We account for defined benefit pension and other
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, 88, 106 and
132(R).
A summary of the components of net periodic pension
costs and post retirement costs for the consolidated company for the three
months ended March 31, 2009 and 2008 is presented below.
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
|
Three months ended
March 31,
|
|
Three months ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(dollars in thousands)
|
|
(dollars in thousands)
|
|
Service cost
|
|
$
|
981
|
|
$
|
856
|
|
$
|
5
|
|
$
|
7
|
|
Interest cost
|
|
2,146
|
|
2,261
|
|
44
|
|
37
|
|
Expected return
on plan assets
|
|
(2,474
|
)
|
(2,766
|
)
|
|
|
|
|
Amortization of
prior service cost
|
|
(35
|
)
|
(12
|
)
|
(126
|
)
|
(126
|
)
|
Amortization of
transition (asset)
|
|
(54
|
)
|
(89
|
)
|
|
|
|
|
Amortization of
loss
|
|
391
|
|
34
|
|
|
|
|
|
Net periodic
cost (benefit)
|
|
$
|
955
|
|
$
|
284
|
|
$
|
(77
|
)
|
$
|
(82
|
)
|
The expected
contributions to be paid during the year ending December 31, 2009 to the
domestic defined benefit plan are $2.4 million.
Contributions to the domestic plan as of March 31, 2009 and 2008
were $0.7
million and $0.5 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, 2009 to the foreign defined
benefit plans are $2.5
million. For each of the Companys foreign plans,
contributions are made on a monthly or quarterly basis and are determined by
applicable governmental regulations. As
of March 31, 2009 and 2008, $0.6
million and $0.7 million of contributions have been made to the foreign plans,
respectively. Each of the foreign plans requires employee and employer
contributions, except for Taiwan, which has only employer contributions.
12
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2009
NOTE 10REPORTING COMPREHENSIVE
(LOSS) INCOME
The components of
other comprehensive (loss) income, net of tax, for the three months ended March 31,
2009 and 2008 consisted of the following:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(dollars in thousands)
|
|
Net (Loss)
|
|
$
|
(5,376
|
)
|
$
|
(730
|
)
|
Other
Comprehensive (Loss) Income:
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
(7,498
|
)
|
17,185
|
|
Pension
liability adjustment, net of tax
|
|
1,411
|
|
(246
|
)
|
Unrealized gain
(loss) on derivatives, net of tax:
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
(654
|
)
|
Other
comprehensive (loss) income
|
|
(6,087
|
)
|
16,285
|
|
Total
Comprehensive (Loss) Income
|
|
$
|
(11,463
|
)
|
$
|
15,555
|
|
Accumulated
balances of the components of other comprehensive (loss) consisted of the
following at March 31, 2009 and December 31,
2008:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Accumulated
Other Comprehensive (Loss) Income:
|
|
|
|
|
|
Impact of
SFAS 158 and 87 on retirement related plans (net of tax of $8,233
and $8,571 in 2009 and 2008, respectively)
|
|
$
|
(43,022
|
)
|
$
|
(44,433
|
)
|
Foreign currency
translation adjustments
|
|
10,433
|
|
17,931
|
|
Accumulated
Other Comprehensive (Loss)
|
|
$
|
(32,589
|
)
|
$
|
(26,502
|
)
|
13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2009
NOTE 11 DERIVATIVE FINANCIAL
INSTRUMENTS
In March 2008, the FASB issued Statement of Financial
Accounting Standards No. 161,
Disclosures about
Derivative Instruments and Hedging
Activities
(SFAS 161) an amendment to Statement of Financial
Accounting Standards No. 133,
Accounting
for Derivative Instruments and Hedging Activities
. The statement requires companies with
derivative instruments to disclose information that should enable financial
statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS 133 and how derivative instruments and related hedged items
affect a companys financial position, financial performance and cash flows. We
adopted SFAS 161 in the first quarter of fiscal 2009. Since SFAS 161 only
required additional disclosure, the adoption did not impact our consolidated
financial position, results of operations or cash flows.
We principally use derivative financial instruments to
manage foreign exchange risk related to foreign operations and foreign currency
transactions. We enter into derivative financial instruments with a number of
major financial institutions to minimize foreign exchange risk. We also have
foreign currency exposure on receivables and payables that are denominated in a
foreign currency and are adjusted to current values using period-end exchange
rates. The resulting gains or losses are recorded in the statement of earnings.
To minimize foreign currency exposure, we have foreign currency forwards with
notional amounts of approximately $29.8 million and $22.1 million at March 31,
2009 and December 31, 2008, respectively.
The foreign currency forwards are recorded in the
balance sheet at fair value and resulting gains or losses are recorded in the
statements of operations, generally offsetting the gains or losses from the
adjustments on the foreign currency denominated transactions. At March 31,
2009, the fair value of the foreign currency forwards was a $0.4 million asset,
which was included in prepaid expenses and a $0.3 million liability which was
included in accrued expenses. At December 31, 2008, the fair value of the
foreign currency forwards was a $0.7 million asset, which was included in
prepaid expenses. The loss recognized for derivative instruments in the
statement of operations for the three months ended March 31, 2009 of $0.6
million was included in other (income) expense.
14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2009
NOTE
12FAIR VALUE OF FINANCIAL INSTRUMENTS
In September 2006,
the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 157, Fair Value
Measurements. This statement establishes a framework for measuring fair value
in generally accepted accounting principles, clarifies the definition of fair
value within that framework and expands disclosures about the use of fair value
measurement. SFAS No. 157 emphasizes that fair value is a market-based
measurement, as opposed to a transaction-specific measurement. We adopted SFAS
157 as of January 1, 2008, with the
exception of the application of the statement to non-recurring nonfinancial
assets and nonfinancial liabilities, which was delayed by FSP FAS 157-2 to
fiscal years beginning after November 15, 2008, which we adopted as of January 1,
2009. As of March 31, 2009, we do not have any significant non-recurring
measurements of nonfinancial assets and nonfinancial liabilities.
Fair value is defined by
SFAS No. 157 as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants
at the measurement date. Depending on the nature of the asset or liability,
various techniques and assumptions can be used to estimate fair value. SFAS No. 157
defines the following fair value hierarchy:
Level 1 Quoted prices
in active markets for identical assets and liabilities.
Level 2 Observable
inputs other than quoted prices in active markets for similar assets and
liabilities.
Level
3 Inputs for which significant valuation assumptions are unobservable in a
market and therefore value is based on the best available data, some of which
is internally developed and considers risk premiums that a market participant
would require.
The following table
presents the fair values and classification of our financial assets and
liabilities measured on a recurring basis as of March 31, 2009:
|
|
Classification
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
(in thousands)
|
|
Foreign currency
forwards
|
|
Prepaid expenses
|
|
$
|
416
|
|
$
|
|
|
$
|
416
|
|
$
|
|
|
Foreign currency
forwards
|
|
Accrued expenses
|
|
$
|
287
|
|
$
|
|
|
$
|
287
|
|
$
|
|
|
Fair value of foreign
currency derivative assets and liabilities are determined by using market
prices obtained from the banks using valuation models that use readily
observable market data that is actively quoted and can be validated through
external sources.
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115 (SFAS 159) permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement
also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. Unrealized gains and
losses on items for which the fair value option is elected would be reported in
earnings. We have elected not to measure any additional financial instruments
and other items at fair value.
15
Table of Contents
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
March 31,
2009
NOTE
13COMMITMENTS AND CONTINGENCIES
On October 28,
2008, a putative class-action lawsuit was filed in the United States District
Court for the Western District of New York against the Company and certain of
our officers and former officers. This
complaint, as amended, alleges that during the period from January 16,
2007 to February 21, 2008 the defendants made misleading statements and/or
omissions relating to our business and operating results in violation of the
Federal securities laws. The Company has
not yet responded to the complaint. While the Company believes the lawsuit to
be without merit and intends to vigorously defend itself, the impact of the lawsuit
on the Company cannot be assessed at this time.
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, our
Elmira, 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 (RI/FS) 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 Wellfield 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 was estimated
to be approximately $0.8 million. We estimated our portion of the study to be
$0.11 million for which we established a reserve. As of March 31, 2009 we
have incurred expenses of $0.1 million, thus the remaining reserve balance at March 31,
2009 was $0.01 million. The PRPs developed a Draft RI/FS with their consultants
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 commenced
field work in the spring of 2008 and completed the field investigations that
June. In the fall of 2008, the PRPs forwarded the results of the investigation
to the EPA and the New York State Department of Environmental Conservation (DEC).
During the winter and spring of 2009, the PRPs have been working with the EPA
and the DEC to respond to comments and to clarify and resolve technical issues.
16
Table
of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2009
NOTE
13COMMITMENTS AND CONTINGENCIES (Continued)
Until receipt of this
notice, we had never been named as a PRP at the site or received any requests
for information from the 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 operations or property have or are
contributing to the contamination. Other than as described above, we have not
established 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.
Although we
believe, based upon information currently available, that, except as described
in the preceding paragraphs, we will not have material liabilities for
environmental remediation, it is possible that future remedial requirements or
changes in the enforcement of existing laws and regulations, which are subject
to extensive regulatory discretion, will result in material liabilities to us.
On May 22, 2008 the
Company President and CEO separated from Hardinge Inc. In conjunction with
his departure, the Company recognized $1.6 million in severance related
expenses during the second quarter of 2008. At March 31, 2009 the
liability on our balance sheet for this reserve was $0.6 million.
In 2008, the
Company offered a Voluntary Employee Retirement Program (VERP) to employees
whose sum of current age and length of service equaled 94 or more as of November 1,
2008. The VERP covers post-retirement
health care costs for 60 months or until Medicare coverage begins, which ever
occurs first. We recorded a charge for the VERP of approximately $1.0 million
during 2008. At March 31, 2009, the liability associated with this VERP
was $0.7 million.
In February 2009,
the Company re-offered a VERP which also provided 10 weeks of severance
pay. The Company recorded a charge for
the VERP of approximately $0.9 million during the quarter ended March 31,
2009. The liability was $0.9 million at March 31, 2009.
NOTE
14SUBSEQUENT EVENTS
In May 2009, the
Company announced that future accrual of benefits under its U.S. defined
benefit pension plan (which was closed to new participants in 2004) would be
suspended as of June 15, 2009 and Company contributions to the 401(K) program
would be suspended as of the same date.
In addition to the above
measures, the Company announced that effective May 1, 2009 it was reducing
the pay of all U.S. based salaried employees, including corporate officers, by
5%, which, when combined with a similar action in February 2009, brings
the year to date pay decreases to 10%.
Also, as of May 1, 2009, our Board of Directors cash compensation
will be reduced 10%. Beginning May 11,
2009, the Elmira, NY manufacturing facility will begin a ten week furlough for
approximately 80 employees in the machine manufacturing division. Other areas
of the factory will continue to work a four-day workweek. These actions, along
with the above discussed VERP and lay-offs, are a direct response to align our
cost structure with our current order levels.
17
Table
of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2009
NOTE
15NEW ACCOUNTING STANDARDS
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities
. This statement requires companies with
derivative instruments to disclose information that should enable financial
statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS 133 and how derivative instruments and related hedged items
affect a companys financial position, financial performance and cash flows. We
adopted SFAS 161 in the first quarter of fiscal 2009. Since SFAS 161 only
required additional disclosure, the adoption did not impact our consolidated
financial position, results of operations or cash flows.
In April 2008, the FASB issued FSP No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets.
This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142). The objective of this FSP is to
improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(R), and other U.S. Generally Accepted
Accounting Principles (GAAP). This FSP applies to all intangible assets,
whether acquired in a business combination or otherwise and shall be effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years and applied prospectively
to intangible assets acquired after the effective date. The adoption of this
statement did not have a material impact on our financial statements.
In November 2008, the FASB issued EITF Abstract 08-6 Equity Method
Investment Accounting Considerations (EITF 08-6). EITF 08-6 applies to all
investments accounted for under the equity method and clarifies the accounting
for certain transactions and impairment considerations involving equity method
investments. This standard is required to be applied prospectively and is
effective for fiscal years beginning after December 15, 2008. The adoption
of this EITF did not have a material impact on our consolidated results of
operations and financial condition.
In December 2008, the FASB issued FSP FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1). FSP
FAS 132(R)-1 amends FASB Statement No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits, to provide
guidance on an employers disclosures about plan assets of a defined benefit
pension or other postretirement plan. Required disclosures address: how
investment allocation decisions are made; the major categories of plan assets;
the inputs and valuation techniques used to measure the fair value of plan
assets; the effect of fair value measurements using significant unobservable
inputs on changes in plan assets for the period; and significant concentrations
of risk within plan assets. Disclosures required by this FSP shall be provided
for fiscal years ending after December 15, 2009, and are not required for
earlier periods presented for comparative purposes. We are currently evaluating
the disclosure requirements of this new FSP.
18
Table
of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2009
NOTE
15NEW ACCOUNTING STANDARDS (Continued)
In April 2009, the
FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP FAS 157-4). FSP FAS 157-4
amends SFAS 157 and provides additional guidance for estimating fair value in
accordance with SFAS 157 when the volume and level of activity for the asset or
liability have significantly decreased and also includes guidance on
identifying circumstances that indicate a transaction is not orderly for fair
value measurements. This FSP shall be applied prospectively with retrospective
application not permitted. This FSP shall be effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting this FSP
must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS
124-2). Additionally, if an entity elects to early adopt either FSP FAS 107-1
and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments
(FSP FAS 107-1 and APB 28-1) or FSP FAS 115-2 and FAS 124-2, it must also elect
to early adopt this FSP. We are currently evaluating this new FSP but do not
believe that it will have a significant impact on our reporting of our
financial results.
19
Table of Contents
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, 2008.
Our primary
business is designing, manufacturing, and distributing high precision computer
controlled metal-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 69% of our 2008 sales were to customers outside North
America, and 70% of our 2008 products were manufactured outside of North
America. At March 31, 2009
approximately 65% of our employees were 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 global economic
recession, which began in 2008, continues to impact the industries in which we
conduct business. The reduced
availability of credit has impacted our customers ability to obtain
financing. As a result, we continue to
experience order cancellations and low levels of incoming orders and related
sales activity. Due to these conditions, management is continually assessing
and implementing cost reduction initiatives throughout the Company to preserve
cash flow.
In February 2009,
the Company implemented a Voluntary Employee Retirement Program (VERP) covering
post-retirement health care costs for 60 months or until Medicare coverage
begins, whichever occurs first. The VERP also provided 10 weeks of severance
pay. This program was available to employees whose sum total of current age and
length of service equaled 94 years or more as of April 1, 2009. The Company recorded a charge for the VERP of
approximately $0.9 million during the quarter ended March 31, 2009.
In March 2009,
we implemented voluntary and involuntary lay-offs in North America and Europe,
reducing staffing by 72 employees. We recorded a $0.6 million charge for
severance related expenses during the quarter ended March 31, 2009
In May 2009, the
Company announced that benefits under its U.S. defined benefit pension plan
(which was closed to new participants in 2004) would be suspended as of June 15,
2009 and Company contributions to the 401(K) program would be suspended as
of the same date.
In addition to the above
measures, effective May 1, 2009, the Company reduced the pay of all U.S.
based salaried employees, including corporate officers, by 5%, which, when
combined with a similar action in February 2009, brings the year to date
pay decreases to 10%. Also, as of May 1,
2009, our Board of Directors cash compensation will be reduced by 10%.
Beginning May 11, 2009 the Elmira, NY manufacturing facility will begin a
ten week furlough for approximately 80 employees in the machine manufacturing
division. Other areas of the factory will continue to work a four-day workweek.
These actions, along with the above discussed VERP and lay-offs, are a direct
response to align our cost structure with our current order levels.
20
Table of Contents
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 (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.
We are exposed to
financial market risk resulting from changes in interest and foreign currency
rates. The current global recessionary conditions and related disruptions
within the financial markets have also increased our exposure to the possible
liquidity and credit risks of our counterparties. We believe we have sufficient
liquidity to fund our foreseeable business needs, including cash and cash
equivalents, cash flows from operations, and our bank financing arrangements.
We monitor the
third-party depository institutions that hold our cash and equivalents. Our
emphasis is primarily on safety of principal. Our cash and equivalents are
diversified among counterparties to minimize exposure to any one of these
entities.
We are also
subject to credit risks relating to the ability of counterparties of hedging
transactions to meet their contractual payment obligations. The risks related
to creditworthiness and nonperformance have been considered in the fair value
measurements of our foreign currency forward exchange contracts.
We also expect
that some of our customers and vendors may experience difficulty in maintaining
the liquidity required to buy inventory or raw materials. We continue to
monitor our customers financial condition in order to mitigate our accounts
receivable collectability risks.
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, British, German, Dutch 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 March 16,
2009, we entered into an agreement with a bank for a 366 day $10.0 million term
loan. This term loan replaced a
multi-currency secured credit facility, which as of March 15, 2009 had an
outstanding balance of $8.0 million. The term loan is secured by substantially
all of the Companys assets, a negative pledge on the Companys headquarters in
Elmira, NY and a pledge of 66 and 2/3% of the Companys investment in
Hardinge Holdings GmbH. Interest is based on one-month London Interbank Offered
Rates (LIBOR) plus 5.0%. The interest
rate will increase by 1.0% to LIBOR plus 6.0% on September 30, 2009, with
a minimum interest rate of 5.5% at all times.
The Company is currently working on an asset based revolving credit
facility which will replace the term loan and provide a flexible credit
facility that could adjust to working capital needs as business volumes
dictate.
21
Table
of Contents
Results of Operations
Summarized
selected financial data for the three months ended March 31, 2009 and
2008:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
%
Change
|
|
|
|
(in thousands except per share amounts)
|
|
Orders
|
|
$
|
32,807
|
|
$
|
93,121
|
|
$
|
(60,314
|
)
|
(65
|
)%
|
Net sales
|
|
52,114
|
|
85,599
|
|
(33,485
|
)
|
(39
|
)%
|
Gross profit
|
|
14,051
|
|
25,128
|
|
(11,077
|
)
|
(44
|
)%
|
Selling, general and administrative expenses
|
|
18,150
|
|
23,501
|
|
(5,351
|
)
|
(23
|
)%
|
Other (income) expense
|
|
(189
|
)
|
2,024
|
|
(2,213
|
)
|
(109
|
)%
|
(Loss) income from operations
|
|
(3,910
|
)
|
(397
|
)
|
(3,513
|
)
|
885
|
%
|
(Loss) income before income taxes
|
|
(5,096
|
)
|
(808
|
)
|
(4,288
|
)
|
531
|
%
|
Net (loss)
|
|
(5,376
|
)
|
(730
|
)
|
(4,646
|
)
|
636
|
%
|
Diluted (loss) per share
|
|
$
|
(0.47
|
)
|
$
|
(0.06
|
)
|
$
|
(0.41
|
)
|
|
|
Weighted average shares outstanding
(in
thousands)
|
|
11,368
|
|
11,323
|
|
45
|
|
|
|
Gross profit as % of net sales
|
|
27.0
|
%
|
29.4
|
%
|
(2.4
|
)pts.
|
|
|
Selling, general and administrative expenses as % of sales
|
|
34.8
|
%
|
27.5
|
%
|
7.3
|
pts.
|
|
|
(Loss) from operations as % of net sales
|
|
(7.5
|
)%
|
(0.5
|
)%
|
(7.0
|
)pts.
|
|
|
Net (loss) as % of net sales
|
|
(10.3
|
)%
|
(0.9
|
)%
|
(9.4
|
)pts.
|
|
|
Orders
: The table
below summarizes orders by geographical region for the three months ended March 31,
2009 compared to the same period in 2008:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Orders from Customers in:
|
|
2009
|
|
2008
|
|
%
Change
|
|
North America
|
|
$
|
12,439
|
|
$
|
25,698
|
|
(52
|
)%
|
Europe
|
|
11,119
|
|
43,348
|
|
(74
|
)%
|
Asia &
Other
|
|
9,249
|
|
24,075
|
|
(62
|
)%
|
|
|
$
|
32,807
|
|
$
|
93,121
|
|
(65
|
)%
|
Orders for the three
months ended March 31, 2009 were $32.8 million, a decrease of $60.3
million or 65% compared to the three months ended March 31, 2008. The decrease in orders is directly related to
the global economic recession and related financial crisis which has affected
all of the regions and product lines in which we conduct business. Currency
exchange rates had an unfavorable impact on new orders of approximately $1.5
million for the three months ended March 31, 2009 compared to the same
period in 2008.
North American orders
decreased by $13.3 million or 52% for the first quarter of 2009 compared to the
same quarter in 2008 primarily due to the global economic recession and related
financial crisis. The decrease was noted
across all of our product lines.
European orders decreased
by $32.2 million or 74% for the first quarter of 2009 compared to the
22
Table of Contents
same quarter in
2008. This decrease was noted across all
of our product lines and countries within Europe. The decrease from the prior year quarter was
also influenced by an unfavorable foreign currency translation impact of
approximately $1.6 million.
Asia &
Other orders decreased by $14.8 million or 62% in the first quarter of 2009
compared to the same quarter in 2008.
The decrease was less severe in China, where we experienced declines of
42% compared to the rest of the Asia and Other region which experienced
declines in excess of 95%. The decrease from the prior year quarter was
influenced by a favorable foreign currency translation impact of approximately
$0.2 million.
Net Sales
.
The table below summarizes net sales by geographical region for the
three months ended March 31, 2009 compared to the same period in 2008:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Sales to Customers in:
|
|
2009
|
|
2008
|
|
%
Change
|
|
North America
|
|
$
|
16,123
|
|
$
|
28,556
|
|
(44
|
)%
|
Europe
|
|
24,287
|
|
37,563
|
|
(35
|
)%
|
Asia &
Other
|
|
11,704
|
|
19,480
|
|
(40
|
)%
|
|
|
$
|
52,114
|
|
$
|
85,599
|
|
(39
|
)%
|
Net sales for the
three months ended March 31, 2009 were $52.1 million, a decrease of $33.5
million or 39% compared to the three months ended March 31, 2008. Like order activity, the decrease in sales
was primarily the result of the global economic recession and the related
financial crisis and has affected all of the regions in which the Company
conducts business. Sales in Grinding
decreased by only 15% compared to a decrease of 49% in Turning and Milling for
the quarter ended March 31, 2009.
Currency exchange rates had an unfavorable impact on sales of
approximately $3.9 million for the three months ended March 31, 2009
compared to the same period in 2008.
North American sales decreased by $12.4 million or 44%
for the first quarter of 2009 compared to the same quarter in 2008 primarily
due to the global economic recession and related financial crisis. This decrease
was noted across all of our product lines and countries within North America.
Sales for the three months ended March 31, 2009
in Europe decreased by $13.3 million or 35%. The decrease was primarily in
Turning and Milling which was down 54% over the same period in 2008 while
Grinding only decreased 9% over the same period. The decrease from the prior
year quarter was also influenced by an unfavorable foreign currency translation
impact of approximately $3.8 million. The decrease was favorably impacted by
$0.4 million or 305% increase in workholding sales over the same quarter in
2008.
Net sales to customers in Asia & Other
decreased by $7.8 million or 40%. The decrease was primarily in Turning and
Milling which was down $6.9 million or 77% over the same period in 2008 while
Grinding decreased $0.9 million or 32% over the same period. The decrease from
the prior year quarter was also influenced by a favorable foreign currency
translation impact of approximately $0.1 million
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 2009, the U.S. Dollar strengthened by 27% against the British Pound
Sterling, 7% against the New Taiwanese Dollar, 19% against the Canadian Dollar,
7% against the Swiss Franc, and 13% against the Euro compared to the average
rates during the same period in 2008. The U. S. Dollar weakened by 5% against
the Chinese Renminbi. The net of these
foreign currencies relative to the U.S. Dollar was an approximate unfavorable
impact of approximately $3.9 million on net sales for the three months ended March 31,
2009 compared to the same period in 2008.
23
Table of Contents
Net sales of
machines accounted for 73% and 74% of consolidated net sales for the three
months ended March 31, 2009 and 2008, respectively. Sales of non-machine
products and services consist of workholding, repair parts, service and
accessories.
Gross Profit.
Gross profit for the three months ended March 31, 2009 was $14.1
million, a decrease of $11.1 million or 44% compared to the three months ended March 31,
2008. The decreased gross profit is
primarily due to the $33.5 million reduction in sales as well as lower gross
margins due to increasingly competitive business conditions.
Selling, General
and Administrative Expenses & Other.
Selling, general and administrative (SG&A) expenses were $18.2
million, or 34.8% of net sales for the three months ended March 31, 2009,
a decrease of $5.4 million or 23% compared to $23.5 million or 27.5% of net
sales for the three months ended March 31, 2008. SG&A for the three months ended March 31,
2009 includes $1.5 million in VERP and severance related expenses in the U.S.
and Europe as well as a favorable foreign currency translation impact of
approximately $1.8 million compared to the same quarter in 2008. Exclusive of the VERP and severance related
charges, SG&A was $16.7 million, a decrease of $6.8 million over the same
period in 2008 which is primarily due to strategic actions taken to manage
operating expenses as a result of the current sales and order activity level.
Other (Income) Expense.
Other income was $0.2 million for the quarter compared
to $2.0 million expense in the prior year quarter. The improvement over the
prior year quarter is primarily related to realized and unrealized foreign
exchange gains and losses.
(Loss) from Operations
. Loss from
operations was $3.9 million, or 7.5% of net sales for the three months ended March 31,
2009, compared to a loss of $0.4 million or 0.5% of net sales for the three
months ended March 31, 2008.
Interest Expense & Interest Income
. Net interest expense was $1.2 million for the
three months ended March 31, 2009 compared to $0.4 million for the same
period in 2008. The increase for the three months of 2009 compared to the same
period in 2008 is attributed to $1.0 million of unamortized deferred financing
costs related to the termination of the multi-currency credit facility which
were expensed in the current quarter offset by higher levels of borrowings
during the same period in the prior year.
Income Taxes.
The provision for income taxes was $0.3
million for the three months ended March 31, 2009, compared to a tax
benefit of $.1 million for the three months ended March 31, 2008. The effective tax rate was 5.5% for the three
months ended March 31, 2009, compared to (9.6)% for the three months ended
March 31, 2008.
This difference was driven by the
non-recognition of tax benefits in 2009 for certain
entities in a loss position for which a full valuation allowance has been
recorded, but which were not so situated in 2008. In addition, the effective tax rate was
affected by the mix of earnings by country.
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 2009 effective income tax rate to be in the range of (5)% to 10%,
inclusive of the effects of the valuation allowances 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 2009 or 2008 to offset the taxes accrued for pre-tax
earnings from profitable foreign subsidiaries.
24
Table of Contents
The effective tax
rate for the period ended March 31, 2009 of 5.5% 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.
Net (Loss).
Net loss for
the three months ended March 31, 2009 was $5.4 million, or (10.3%) of net
sales, compared to a net loss of $0.7 million, or (0.9%) of net sales for the
three months ended March 31, 2008.
Basic and diluted loss per share for the three months ended March 31,
2009 were ($0.47) compared to ($0.06) for the three months ended March 31,
2008.
Liquidity and Capital Resources
At March 31, 2009 cash and cash equivalents were $10.7 million
compared to $18.4 million at December 31, 2008. The current ratio at March 31, 2009 was
3.55:1 compared to 2.80:1 at December 31, 2008.
Cash
Flow Provided By (Used In) Operating Activities and Investing Activities:
Cash flow provided by (used in) operating and investing activities for
the three months ended March 31, 2009 compared to the same period in 2008
are summarized in the table below:
|
|
Three months ended
March 31,
(dollars in thousands)
|
|
|
|
2009
|
|
2008
|
|
Net cash
provided by (used in) operating activities
|
|
$
|
9,970
|
|
$
|
(2,076
|
)
|
Cash flow used
in investing activities
|
|
$
|
(906
|
)
|
$
|
(1,236
|
)
|
Capital
expenditures (included in investing activities)
|
|
$
|
(906
|
)
|
$
|
(1,236
|
)
|
Net cash provided by operating activities
was $10.0 million for the three months ended March 31, 2009 compared to
$2.1 million cash used in operating activities for the same period in 2008.
This represents an increase in cash provided by operating activities of $12.1
million.
Net cash used in
investing activities was $0.9 million for the three months ended March 31,
2009 compared to $1.2 million for the same period in 2008. Capital expenditures
for the three months ended March 31, 2009 included modest investment in
manufacturing equipment and updates to our overall information technology
infrastructure.
Cash Flow (Used In) Provided by Financing Activities:
Cash flow provided by (used in) financing
activities for the three months ended March 31, 2009 and 2008, are
summarized in the table below:
|
|
Three months ended
March 31,
(dollars in thousands)
|
|
|
|
2009
|
|
2008
|
|
Borrowings
(repayments) of short-term notes payable
|
|
$
|
8,353
|
|
$
|
(2,322
|
)
|
(Repayments)
borrowings of long-term debt
|
|
(24,132
|
)
|
3,575
|
|
Net sale
(purchases) of treasury stock
|
|
168
|
|
(498
|
)
|
Payments of
dividends
|
|
(115
|
)
|
(576
|
)
|
Payments of debt
issuance fees
|
|
(628
|
)
|
|
|
Net cash (used
in) provided by financing activities
|
|
$
|
(16,354
|
)
|
$
|
179
|
|
Cash flow used in financing activities
was $16.4 million for the three months ended March 31, 2009 compared to
cash flow provided by financing activities of $0.2 million for the same period
in 2008. During
25
Table of
Contents
the three months ended March 31,
2009, we used $24.0 million to repay the multi-currency debt facility. We
borrowed $8.4 on the new term loan.
Dividend payments during the first quarter of 2009 decreased by $0.5
million over the same period in 2008 as a result of our decreasing the dividend
payout to $0.01 per share in December 2008. During the first quarter of
2009, we paid fees of $0.6 million related to the term loan facility and the
multi-currency debt facility.
There were no shares of stock purchased
under our Stock Repurchase Program during the first quarter of 2009. During the
three months ended March 31, 2008, we used $0.6 million to purchase stock
through this program. We repurchased 45,500 shares of stock at an average price
of $12.72 per share.
Debt outstanding, including notes payable
was $12.2 million on March 31, 2009 compared to $29.4 million on March 31,
2008.
Credit
Facilities:
In March 2009,
we entered into an agreement with a bank for a 366 day $10.0 million term
loan. This term loan replaced a
multi-currency secured credit facility.
The term loan is secured by substantially all of the Companys assets, a
negative pledge on the Companys headquarters in Elmira, NY and a pledge
of 66 and 2/3% of the Companys investment in Hardinge Holdings GmbH.
Interest is based on one-month London Interbank Offered Rates (LIBOR) plus
5.0%. The interest rate will increase by
1.0% to LIBOR plus 6.0% on September 30, 2009, with a minimum interest
rate of 5.5% at all times. Prior to the closing of the term loan, we used cash
on hand generated from operating results to reduce the outstanding obligations
under the multi-currency credit facility to $8.0 million. Borrowings were $8.4
million on the term loan at March 31, 2009.
In March 2009,
we terminated the five-year $100.0 million multi-currency secured credit facility,
which we entered into in June, 2008. The Company took a non-cash charge of $1.0
million in the first quarter of 2009 related to the unamortized deferred
financing costs in connection with this termination.
We have a $3.0
million unsecured short-term line of credit from a bank with interest based on
the prime rate. There was no balance outstanding at March 31, 2009 or December 31,
2008.
In December 2008,
our Kellenberger AG (Kellenberger) subsidiary replaced their existing credit
facilities and loan agreements with two new unsecured loan facilities with
banks providing for borrowing of up to 11.5 million Swiss Francs, which is
equivalent to approximately $10.1 million at March 31, 2009. These lines
provide for interest at competitive short-term interest rates and carry no
commitment fees on unused funds. At March 31, 2009 there were no
borrowings under these facilities.
In June 2006,
our Taiwan subsidiary negotiated a mortgage loan with a bank secured by the
real property owned by the Taiwan subsidiary which initially provided
borrowings of 153.0 million New Taiwanese Dollars which was equivalent to
approximately $4.7 million. At March 31, 2009 and December 31, 2008
borrowings under this agreement were $3.8 million and $4.1 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 we maintain
specified ratios of debt to EBITDA and EBITDA minus capital expenditures to
fixed charges, as well as, minimum equity. At December 31, 2008, the
Company was not in compliance with the minimum EBITDA minus cash taxes and
capital expenditures to fixed charge ratio required under our multi-currency
secured credit facility. At March 31, 2009, our only
covenant requirements were with the Kellenberger facility which contained a
minimum equity specified ratio. We were in compliance with that covenant at March 31,
2009.
The Company had access
of up to $26.9 million at March 31, 2009. Total consolidated outstanding
borrowings at March 31, 2009 and December 31, 2008 were $12.2 million
and $28.1 million, respectively.
26
Table of Contents
Our contractual
obligations and commercial commitments have not changed materially, including
the impact from FIN 48, from the disclosures in our 2008 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. The
company undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events, or otherwise.
27
Table of Contents
PART I.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There have been no material changes to our market risk
exposures during the first three months of 2009. For a discussion of our exposure to market
risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market
Risks, contained in our 2008 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, 2009. As defined in Rule 13a-15(e) and
15d-15(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.
Based upon their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of March 31, 2009 our disclosure controls and
procedures were effective.
As previously reported
in our Annual Report on Form 10-K for the year ended December 31,
2008,
the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective as of December 31, 2008,
for the purpose of ensuring that material information required to be in this
report was made known to them by others on a timely basis
.
There
has been no changes in the Companys internal control over
financial reporting during the quarter ended March 31, 2009 that
has materially affected or is reasonably likely to materially affect
our internal control over financial reporting, as defined
in Rule 13a-15(f) under the Exchange Act.
28
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal
Proceedings
On October 28,
2008, a putative class-action lawsuit was filed in the United States District
Court for the Western District of New York against the Company and certain of
our officers and former officers. This
complaint, as amended, alleges that during the period from January 16,
2007 to February 21, 2008 the defendants made misleading statements and/or
omissions relating to our business and operating results in violation of the
Federal securities laws. The Company has
not yet responded to the complaint
.
While the Company believes the lawsuit to be
without merit and intends to vigorously defend itself, the impact of the
lawsuit on the Company cannot be assessed at this time.
Item
1.a. Risk Factors
There is no change
to risks factors disclosed in the Companys Annual Report on Form 10K for
the year ended December 31, 2008.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about issuer
repurchases of our common stock by month for the quarter ended March 31,
2009:
Issuer
Purchases of Equity Securities
Period
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
January 1
January 31, 2009
|
|
2,349
|
|
$
|
4.34
|
|
February 1
February 29, 2009
|
|
|
|
|
|
March 1
March 31, 2009
|
|
148
|
|
$
|
2.86
|
|
Total
|
|
2,497
|
|
|
|
The above shares
repurchased during the quarter were part of the Companys Incentive
Compensation Plan to satisfy tax withholding obligations.
Item 3.
Default upon Senior Securities
None
Item 4.
Submission of Matters to a Vote of Security Holders
None
Item 5.
Other Information
None
29
Table of
Contents
Item
6. Exhibits
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.
30
Table of
Contents
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 8, 2009
|
|
By:
|
/s/ Richard L.
Simons
|
Date
|
|
Richard L.
Simons
|
|
|
President and
CEO
|
|
|
|
|
|
|
May 8, 2009
|
|
By:
|
/s/ Edward J.
Gaio
|
Date
|
|
Edward J. Gaio.
|
|
|
Vice President
and CFO
|
|
|
(Principal
Financial Officer)
|
31
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