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,
2010
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from
to
Commission file number: 000-15760
Hardinge
Inc.
(Exact name of Registrant
as specified in its charter)
New
York
|
|
16-0470200
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or
organization)
|
|
Identification No.)
|
Hardinge
Inc.
One
Hardinge Drive
Elmira,
NY 14902
(Address of
principal executive offices) (Zip code)
(607) 734-2281
(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
o
|
|
|
|
Non-accelerated
filer
x
|
|
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,
2010 there were 11,610,789
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 Except Share and Per Share Data)
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
28,307
|
|
$
|
24,632
|
|
Accounts
receivable, net
|
|
30,380
|
|
39,936
|
|
Notes receivable,
net
|
|
2,927
|
|
2,364
|
|
Inventories, net
|
|
101,646
|
|
97,266
|
|
Deferred income
taxes
|
|
576
|
|
732
|
|
Prepaid expenses
|
|
10,591
|
|
9,375
|
|
Total current
assets
|
|
174,427
|
|
174,305
|
|
|
|
|
|
|
|
Property, plant
and equipment
|
|
142,491
|
|
144,635
|
|
Less accumulated
depreciation
|
|
89,362
|
|
89,924
|
|
Net property,
plant and equipment
|
|
53,129
|
|
54,711
|
|
|
|
|
|
|
|
Notes
receivable, net
|
|
100
|
|
157
|
|
Deferred income
taxes
|
|
451
|
|
446
|
|
Intangible
assets
|
|
10,458
|
|
10,527
|
|
Pension assets
|
|
2,220
|
|
2,032
|
|
Other long-term
assets
|
|
27
|
|
26
|
|
Total non-current
assets
|
|
13,256
|
|
13,188
|
|
Total assets
|
|
$
|
240,812
|
|
$
|
242,204
|
|
|
|
|
|
|
|
Liabilities
and shareholders equity
|
|
|
|
|
|
Accounts payable
|
|
$
|
21,997
|
|
$
|
16,285
|
|
Notes payable to
bank
|
|
2,263
|
|
1,364
|
|
Accrued expenses
|
|
22,051
|
|
22,177
|
|
Accrued income
taxes
|
|
1,360
|
|
1,535
|
|
Deferred income
taxes
|
|
2,745
|
|
2,832
|
|
Current portion
of long-term debt
|
|
567
|
|
563
|
|
Total current
liabilities
|
|
50,983
|
|
44,756
|
|
|
|
|
|
|
|
Long-term debt
|
|
2,977
|
|
3,095
|
|
Accrued pension
expense
|
|
21,677
|
|
22,082
|
|
Accrued
postretirement benefits
|
|
2,416
|
|
2,472
|
|
Accrued income
taxes
|
|
2,394
|
|
2,377
|
|
Deferred income
taxes
|
|
4,048
|
|
4,030
|
|
Other
liabilities
|
|
1,796
|
|
1,862
|
|
Total other
liabilities
|
|
35,308
|
|
35,918
|
|
|
|
|
|
|
|
Common Stock -
$0.01 par value
|
|
125
|
|
125
|
|
Additional
paid-in capital
|
|
113,723
|
|
114,387
|
|
Retained
earnings
|
|
53,859
|
|
59,103
|
|
Treasury shares
862,203 shares at March 31, 2010 and 939,240 shares at
December 31, 2009
|
|
(10,999
|
)
|
(11,978
|
)
|
Accumulated
other comprehensive (loss)
|
|
(2,187
|
)
|
(107
|
)
|
Total
shareholders equity
|
|
154,521
|
|
161,530
|
|
Total
liabilities and shareholders equity
|
|
$
|
240,812
|
|
$
|
242,204
|
|
See
accompanying notes.
3
Table
of Contents
HARDINGE INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
(In Thousands Except Per
Share Data)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
43,170
|
|
$
|
52,114
|
|
Cost of sales
|
|
34,230
|
|
38,063
|
|
Gross profit
|
|
8,940
|
|
14,051
|
|
|
|
|
|
|
|
Selling, general
and administrative expenses
|
|
14,398
|
|
18,150
|
|
Other (income)
|
|
(201
|
)
|
(189
|
)
|
(Loss) from
operations
|
|
(5,257
|
)
|
(3,910
|
)
|
|
|
|
|
|
|
Interest expense
|
|
110
|
|
1,232
|
|
Interest income
|
|
(35
|
)
|
(46
|
)
|
(Loss) before
income taxes
|
|
(5,332
|
)
|
(5,096
|
)
|
|
|
|
|
|
|
Income tax
(benefit) expense
|
|
(146
|
)
|
280
|
|
Net (loss)
|
|
$
|
(5,186
|
)
|
$
|
(5,376
|
)
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per
share:
|
|
$
|
(0.45
|
)
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
Diluted (loss)
per share:
|
|
$
|
(0.45
|
)
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
Cash dividends
declared per share
|
|
$
|
0.005
|
|
$
|
0.01
|
|
See
accompanying notes.
4
Table
of Contents
HARDINGE
INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net (loss)
|
|
$
|
(5,186
|
)
|
$
|
(5,376
|
)
|
Adjustments to
reconcile net (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
1,807
|
|
2,209
|
|
Provision for
deferred income taxes
|
|
(8
|
)
|
(282
|
)
|
(Gain) on sale
of assets
|
|
(273
|
)
|
|
|
Debt issuance
amortization
|
|
80
|
|
1,045
|
|
Unrealized
intercompany foreign currency transaction loss (gain)
|
|
59
|
|
(386
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
9,152
|
|
19,716
|
|
Notes receivable
|
|
(504
|
)
|
(240
|
)
|
Inventories
|
|
(5,917
|
)
|
994
|
|
Prepaids/other
assets
|
|
(794
|
)
|
2,077
|
|
Accounts payable
|
|
5,641
|
|
(3,906
|
)
|
Accrued expenses
|
|
(346
|
)
|
(5,998
|
)
|
Accrued
postretirement benefits
|
|
(149
|
)
|
285
|
|
Net cash
provided by operating activities
|
|
3,562
|
|
10,138
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Capital
expenditures
|
|
(657
|
)
|
(906
|
)
|
Proceeds from
sale of assets
|
|
283
|
|
|
|
Net cash (used
in) investing activities
|
|
(374
|
)
|
(906
|
)
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Increase in
short-term notes payable to bank
|
|
884
|
|
8,353
|
|
(Decrease) in
long-term debt
|
|
(141
|
)
|
(24,132
|
)
|
Dividends paid
|
|
(58
|
)
|
(115
|
)
|
Debt issuance
fees paid
|
|
(67
|
)
|
(628
|
)
|
Net cash
provided by (used in) financing activities
|
|
618
|
|
(16,522
|
)
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
(131
|
)
|
(457
|
)
|
Net increase
(decrease) in cash
|
|
3,675
|
|
(7,747
|
)
|
|
|
|
|
|
|
Cash at
beginning of period
|
|
24,632
|
|
18,430
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
28,307
|
|
$
|
10,683
|
|
See
accompanying notes.
5
Table
of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
March 31,
2010
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, 2010 are not necessarily indicative of
the results that may be expected for the year ended December 31,
2010. 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,
2009. We operate in only one business
segment industrial machine tools.
The consolidated
balance sheet at December 31, 2009 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 2009 consolidated financial
statements have been reclassified to conform to the March 31, 2010
presentation.
NOTE 2 SIGNIFICANT RECENT EVENTS
Class-Action Lawsuit Dismissed
In October
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 former officers. This complaint, as amended, alleged 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. On May 29,
2009, the Company filed a motion to dismiss the complaint. By a decision and
order dated February 2, 2010, the Court dismissed the class action
lawsuit. The plaintiff did not file a notice to appeal the Courts dismissal of
the lawsuit and the time to appeal has expired.
Share
Purchase Rights Plan
In February 2010,
the Company adopted a one-year Share Purchase Rights Plan designed to
ensure that all stockholders of Hardinge receive fair and equal treatment in
the case of a takeover bid and to enable our stockholders to realize the full
long-term value of their investment. The rights were distributed as a
non-taxable dividend on March 1, 2010, payable to stockholders of record
on that date, and expire in one year.
6
Table
of Contents
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2010
NOTE 2 SIGNIFICANT RECENT EVENTS (continued)
Unsolicited
Tender Offer by Industrias Romi S.A.
On March 30, 2010,
Industrias Romi S.A. (Romi), through a wholly-owned subsidiary, commenced an
unsolicited tender offer to acquire the outstanding Common Shares of Stock of
Hardinge Inc. for $8.00 per share, subject to a number of terms and conditions
contained in the tender offer documents filed by Romi with the SEC (Romis
Offer). Unless extended, the offer
expires on May 10, 2010. On April 5,
2010, our Companys Board of Directors filed a Schedule 14D-9 with the SEC in
which our Board unanimously determined that Romis Offer is not in the best
interests of the Company and the Companys shareholders and recommended that
Company shareholders reject Romis Offer and not tender their shares. The Schedule 14D-9 and amendments thereto
include a complete discussion of the reasons and other material factors
contributing to the Board of Directors recommendation.
NOTE 3INVENTORIES
Net 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,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Finished
products
|
|
$
|
48,212
|
|
$
|
51,314
|
|
Work-in-process
|
|
18,677
|
|
19,019
|
|
Raw materials
and purchased components
|
|
34,757
|
|
26,933
|
|
Inventories, net
|
|
$
|
101,646
|
|
$
|
97,266
|
|
We assess the valuation of our inventories and reduce
the carrying value of those inventories that are obsolete or in excess of our
forecasted usage to their estimated net realizable value. We estimate the net realizable value of such
inventories based on analyses and assumptions including, but not limited to,
historical usage, future demand, and market requirements. We also review the carrying value of our
inventory compared to the estimated selling price less costs to sell and adjust
our inventory carrying value accordingly. Reductions to the carrying value of
inventories are recorded in cost of goods sold. If future demand for our
products is less favorable than our forecasts, inventories may need to be
reduced, which would result in additional expense.
7
Table
of Contents
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2010
NOTE 4PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment at March 31,
2010 and December 31, 2009 consisted of the following:
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Land, buildings
and improvements
|
|
$
|
64,162
|
|
$
|
64,675
|
|
Machinery,
equipment and fixtures
|
|
61,806
|
|
62,857
|
|
Office
furniture, equipment and vehicles
|
|
16,523
|
|
17,103
|
|
|
|
142,491
|
|
144,635
|
|
Less accumulated
depreciation and amortization
|
|
89,362
|
|
89,924
|
|
Property, plant
and equipment, net
|
|
$
|
53,129
|
|
$
|
54,711
|
|
NOTE 5GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other separately recognized intangible
assets with indefinite lives are not amortized, but rather reviewed at least
annually for impairment or 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 are amortized over
their estimated useful lives and are also subject to review for impairment.
At March 31, 2010 and December 31, 2009, we
do not have any amounts recorded as goodwill on our balance sheet.
Nonamortizable intangible assets include $6.9 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, therefore, the asset has been determined
to have an indefinite useful life. These assets are reviewed annually for
impairment.
Amortizable intangible assets of $3.6 million include
the Bridgeport technical information, patents, distribution agreements, and
other items. These assets are tested for impairment when indicators of
impairment are present. The estimated useful lives of these intangible assets
range from five to ten years.
8
Table
of Contents
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2010
NOTE 6INCOME TAXES
We continue to maintain a full valuation allowance on
the tax benefits of our U.S., U.K., German, Canadian and Dutch net 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 (2.7)% for the three months ended March 31,
2010. 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 2006 to 2009 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 2004 to
2009 generally remain open to routine examination by foreign taxing
authorities, depending on the jurisdiction.
At March 31, 2010 and December 31, 2009, we
had a $2.3 million and $2.4 million liability recorded for uncertain income tax
positions, respectively, which included interest and penalties of $0.7 million
and $0.8 million, respectively. If recognized, essentially all of the uncertain
tax benefits and related interest and penalties at March 31, 2010 and December 31,
2009 would be recorded as a benefit to income tax expense on the Consolidated
Statement of Operations.
During the quarter ended March 31, 2010, we
recognized the settlement of an uncertain tax position at one of our foreign
subsidiaries, and recorded a benefit to the tax provision of $0.1 million.
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 up to 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.
9
Table
of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31, 2010
NOTE 7WARRANTIES (continued)
A reconciliation of the changes in our product
warranty accrual during the three month periods ended March 31, 2010 and
2009 is as follows:
|
|
Three months ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Balance at the
beginning of period
|
|
$
|
2,436
|
|
$
|
2,872
|
|
Warranty
settlement costs
|
|
(266
|
)
|
(762
|
)
|
Warranties
Issued
|
|
507
|
|
632
|
|
Changes in
accruals for pre-existing warranties
|
|
(386
|
)
|
7
|
|
Other currency
translation impact
|
|
(27
|
)
|
(124
|
)
|
Balance at the
end of period
|
|
$
|
2,264
|
|
$
|
2,625
|
|
NOTE 8PENSION AND POST RETIREMENT PLANS
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, 2010 and 2009 is
presented below.
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
|
Three months ended
March 31,
|
|
Three months ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in
thousands)
|
|
(in
thousands)
|
|
Service cost
|
|
$
|
334
|
|
$
|
981
|
|
$
|
4
|
|
$
|
5
|
|
Interest cost
|
|
2,139
|
|
2,146
|
|
39
|
|
44
|
|
Expected return
on plan assets
|
|
(2,350
|
)
|
(2,474
|
)
|
|
|
|
|
Amortization of
prior service cost
|
|
(30
|
)
|
(35
|
)
|
(92
|
)
|
(126
|
)
|
Amortization of
transition (asset)
|
|
(54
|
)
|
(54
|
)
|
|
|
|
|
Amortization of
loss
|
|
215
|
|
391
|
|
|
|
|
|
Net periodic
cost (benefit)
|
|
$
|
254
|
|
$
|
955
|
|
$
|
(49
|
)
|
$
|
(77
|
)
|
The expected
contributions to be paid during the year ending December 31, 2010 to the
domestic defined benefit plans are $0.6 million. Contributions to the domestic plans as of March 31,
2010 and 2009 were $0.03
million and
$0.7 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, 2010 to the
foreign defined benefit plans are $2.2
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, 2010 and 2009, $0.5
million and $0.6 million of contributions have been made to the foreign plans,
respectively. Each of the foreign plans requires employee and employer
contributions, except for Taiwan, to which only employer contributions are
made.
Effective June 15, 2009, the Company suspended
future accrual of benefits under its U.S. defined benefit pension plan (which
was closed to new participants in 2004) and also suspended Company
contributions to the 401(k) program as of the same date.
10
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2010
NOTE 9 DERIVATIVE
FINANCIAL INSTRUMENTS
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. These
derivatives do not qualify for hedge accounting treatment. We 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 operations. To
minimize foreign currency exposure, we have foreign currency forwards with
notional amounts of approximately $11.9 million and $12.4 million at March 31,
2010 and December 31, 2009, 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 and revaluation of the foreign currency denominated
assets and liabilities. At March 31, 2010, the fair value of the foreign
currency forwards was a $0.02 million asset, which was included in prepaid
expenses and a $0.01 million liability which was included in accrued expenses.
At December 31, 2009, the fair value of the foreign currency forwards was
a $0.06 million asset, which was included in prepaid expenses and a $0.03
million liability which was included in accrued expenses. The loss recognized
for derivative instruments in the statement of operations for the three month
period ended March 31, 2010 of $.08 million, was included in other
(income) expense.
NOTE
10FAIR VALUE
Fair value is defined 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. We are using the following fair
value hierarchy definition:
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:
|
|
Classification
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in thousands)
|
|
|
|
As of March 31, 2010
|
|
Foreign
currency forwards
|
|
Prepaid expenses
|
|
$
|
21
|
|
$
|
|
|
$
|
21
|
|
$
|
|
|
Foreign
currency forwards
|
|
Accrued expenses
|
|
$
|
6
|
|
$
|
|
|
$
|
6
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
Foreign
currency forwards
|
|
Prepaid expenses
|
|
$
|
63
|
|
$
|
|
|
$
|
63
|
|
$
|
|
|
Foreign
currency forwards
|
|
Accrued expenses
|
|
$
|
33
|
|
$
|
|
|
$
|
33
|
|
$
|
|
|
Fair value of foreign currency derivative assets and
liabilities are determined by using market prices obtained from the banks using
foreign currency spot rate and forward rates. We have elected not to measure
any additional financial instruments and other items at fair value.
11
Table
of Contents
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
March 31, 2010
NOTE
10FAIR VALUE (continued)
The carrying amounts of
cash and cash equivalents, trade receivables and trade payables approximate
fair value because of the short maturity of these financial instruments. At March 31, 2010 and December 31,
2009, the carrying value of notes receivable approximated their fair
value. The fair value of our variable
interest rate debt is approximately equal to its carrying value, as the
underlying interest rate is variable. We
did not have any significant non-recurring measurements of nonfinancial assets
and nonfinancial liabilities.
NOTE
11COMMITMENTS 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, 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 (the Site) encompasses an area
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 Site. The EPA documented the release and threatened
release of hazardous substances into the environment at the 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.
Hardinge, 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 $0.84 million. We estimated our portion
of the study to be $0.12 million for which we established a reserve of $0.13
million. As of March 31, 2010 we have incurred total expenses of $0.12
million with respect to the study and other activities relating to the Site, thus
the remaining reserve balance at March 31, 2010 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 May 2008, the EPA approved the RI/FS
Work Plan. The PRPs commenced field work
in the spring of 2008 and submitted a Draft Site Characterization Report to EPA
in the fall. The PRPs currently are
performing Risk Assessments in accordance with the Remedial Investigation
portion of the RI/FS.
Until receipt of this
Special Notice, Hardinge had never been named as a PRP at the Site nor had we
received any requests for information from the EPA concerning the site. Environmental sampling on our
12
Table
of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2010
NOTE 11COMMITMENTS AND
CONTINGENCIES (continued)
property within this Site
under supervision of regulatory authorities had identified off-site sources for
such groundwater contamination and sediment contamination in the Pond and 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 Hardinge.
During 2008 and 2009, the
Company offered a Voluntary Early Retirement Program (VERP) to employees whose
sum of current age and length of service equaled 94. The VERP covers
post-retirement health care costs for 60 months or until Medicare coverage
begins, which ever occurs first. The
Company also incurred various restructuring related charges in 2009 due to
workforce reductions in Europe, the closure of our Exeter England facility, and
the reduction in our U.S. workforce due the strategic changes within the
Elmira, NY manufacturing facility. During the quarter ended March 31, 2010, we
utilized $1.3 million of the restructuring reserves, of which $0.1 million was
for the VERP and $1.2 million was related to severance. At March 31, 2010,
the remaining liability on our balance sheet associated with all of these
restructuring related charges was $1.8 million. The VERP which is the
post-retirement health care benefit is $1.3 million of this liability and will
be relieved through April 2014. The remaining $0.5 million liability is
severance related and will be paid out during the balance of 2010.
NOTE 12STOCK-BASED COMPENSATION
All of our equity-based
payments to employees, including grants of employee stock options are
recognized in our statement of operations based on the grant date fair value of
the award.
We did not issue any new
stock options during the first three months of 2010 or 2009. Expense related to
stock options was not material for the three months ended March 31, 2010
and 2009. 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 over the requisite service
period of the grant. A summary of the
restricted stock activity under the Incentive Stock Plan for the three month
period ended March 31, 2010 and 2009 is as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
Shares
and units at beginning of period
|
|
184,500
|
|
179,483
|
|
Shares/Units
granted
|
|
70,340
|
|
26,000
|
|
Shares
vested
|
|
(3,500
|
)
|
(20,883
|
)
|
Shares
cancelled or forfeited
|
|
|
|
(1,600
|
)
|
Shares
and units at end of period
|
|
251,340
|
|
183,000
|
|
13
Table
of Contents
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
2010
NOTE 12STOCK-BASED COMPENSATION
(continued)
The fair value of
the restricted stock/units awarded in the three months ended March 31,
2010 and 2009 was $0.4 million and $0.1 million, respectively. Total
share-based compensation expense relating to restricted stock for the three
months ended March 31, 2010 and 2009 was $0.1 million and $0.1 million,
respectively. At March 31, 2010, the compensation cost not yet recognized
on these shares was $1.1 million, which will be amortized over a weighted
average term of 2.2 years.
NOTE 13EARNINGS PER SHARE
We calculate earnings per
share using the two-class method. Basic earnings per common share is
computed by dividing net (loss) income applicable to common shareholders by the
weighted average number of common shares outstanding for the period. Net (loss)
income applicable to common shareholders represents net (loss) income reduced
by the allocation of earnings to participating securities. Losses are not
allocated to participating securities. Diluted earnings per common share are
calculated by adjusting the weighted average outstanding shares to assume conversion
of all potentially dilutive stock options.
Unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and are included in the earnings allocation
in the earnings per share calculation under the two-class method.
Recipients of restricted stock are entitled to receive non-forfeitable
dividends during the vesting period, therefore, meeting the definition of a
participating security.
The computation of
earnings per share is as follows:
|
|
Three months ended
March 31,
|
|
Three months ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands except per share data)
|
|
Net
(loss)
|
|
$
|
(5,186
|
)
|
$
|
(5,376
|
)
|
Earnings
allocated to participating stock awards
|
|
1
|
|
2
|
|
Net
(loss) applicable to common shareholders
|
|
$
|
(5,187
|
)
|
$
|
(5,378
|
)
|
|
|
|
|
|
|
Denominator
for basic and diluted calculations
|
|
|
|
|
|
Average
common shares used in basic computation
|
|
11,408
|
|
11,368
|
|
Stock
options
|
|
|
|
|
|
Restricted
stock
|
|
|
|
|
|
Average
common shares used in diluted computation
|
|
11,408
|
|
11,368
|
|
|
|
|
|
|
|
(Loss)
earnings per share:
|
|
|
|
|
|
Basic
(loss) per share
|
|
$
|
(0.45
|
)
|
$
|
(0.47
|
)
|
Diluted
(loss) per share
|
|
$
|
(0.45
|
)
|
$
|
(0.47
|
)
|
There
is no dilutive effect of the restrictive stock and stock options for the three
months ended March 31, 2010 and 2009 since the impact would be
anti-dilutive. 110,519 and 27,582 shares would have been included in the
diluted earnings per share calculations at March 31, 2010 and 2009,
respectively, had the impact of including these diluted securities not been
anti-dilutive. All restricted shares are subject to forfeiture and restrictions
on transfer. Unconditional vesting occurs upon the completion of a specified
period ranging from three to eight years from the date of grant. Stock options vest over a three year period and
are exercisable over ten years.
14
Table
of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2010
NOTE 14REPORTING COMPREHENSIVE
INCOME (LOSS)
The components of Other
Comprehensive Income (Loss), net of tax, for the three months ended March 31,
2010 and 2009 are as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Net
(Loss)
|
|
$
|
(5,186
|
)
|
$
|
(5,376
|
)
|
Other
Comprehensive Income (Loss):
|
|
|
|
|
|
Retirement
plan- related adjustments (net of tax of $53 in 2010 and $338 in 2009)
|
|
402
|
|
1,411
|
|
Foreign
currency translation adjustments
|
|
(2,482
|
)
|
(7,498
|
)
|
Other
Comprehensive (Loss)
|
|
(2,080
|
)
|
(6,087
|
)
|
Total
Comprehensive (Loss)
|
|
$
|
(7,266
|
)
|
$
|
(11,463
|
)
|
Balances of the
components of Accumulated Other Comprehensive Income (Loss), net of tax, in the
Consolidated Balance Sheets are as follows:
|
|
Accumulated balances at
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Accumulated
Other Comprehensive (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
plan- related adjustments (net of tax of $5,220 in 2010 and $5,273 in 2009)
|
|
$
|
(23,013
|
)
|
$
|
(23,415
|
)
|
Foreign
currency translation adjustments
|
|
24,734
|
|
27,216
|
|
Net
investment hedges (net of tax of $715 in 2010 and 2009)
|
|
(3,908
|
)
|
(3,908
|
)
|
Accumulated
Other Comprehensive (Loss)
|
|
$
|
(2,187
|
)
|
$
|
(107
|
)
|
NOTE
15SUBSEQUENT EVENTS
Hardinge
Acquires
the Assets of Jones and Shipman
On April 8, 2010, L.
Kellenberger & Co. AG, an indirect wholly owned subsidiary of Hardinge
Inc. acquired the assets of Jones and Shipman (J&S), a UK-based
manufacturer of grinding and super-abrasive machines and machining systems, for
£2 million from Precision Technologies Group Ltd. Located in Leicester, UK,
J&S manufactures and distributes a range of high-quality grinding (surface,
creep feed and cylindrical) machines used by a diverse range of industries,
including aerospace, medical, mould tool & die, power generation and
high-end automotive. The J&S
business has operated continuously in the UK, under various owners, since 1899.
The company currently has approximately 65 employees.
15
Table of Contents
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2010
NOTE
16NEW ACCOUNTING STANDARDS
In October 2009, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update No. 2009-13,
Revenue Recognition ASC Topic 605: Multiple-Deliverable Revenue Arrangements -
a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13
addresses the accounting for sales arrangements that include multiple products
or services by revising the criteria for when deliverables may be accounted for
separately rather than as a combined unit. Specifically, this guidance
establishes a selling price hierarchy for determining the selling price of a
deliverable, which is necessary to separately account for each product or
service. This hierarchy provides more options for establishing selling price
than existing guidance. ASU 2009-13 is required to be applied prospectively to
new or materially modified revenue arrang ements in fiscal years beginning on
or after June 15, 2010. Early adoption is permitted. We do not expect
adoption of this standard to have a material impact on our consolidated results
of operations and financial condition.
In January 2010, the
FASB issued an amendment to ASC Topic 820 Fair Value Measurements and
Disclosures. The amendment requires new disclosures on the transfers of assets
and liabilities between Level 1 (quoted prices in active market for identical
assets or liabilities) and Level 2 (significant other observable inputs) of the
fair value measurement hierarchy, including the reasons and the timing of the
transfers. Additionally, the guidance requires a roll forward of
activities on purchases, sales, issuance, and settlements of the assets and
liabilities measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance became effective for us with the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which is effective for fiscal
years beginning after December 15, 2010. Other than requiring additional
disclosures, adoption of this new guidance will not have a material impact on
our financial statements.
16
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, 2009.
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 and with sales to most
industrialized countries. Approximately
70% o
f our 2009 sales
were to customers outside of North America,
69% of our 2009 products
sold were manufactured outside of North America, and 66% of our employees were
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 as compared to industry
measures of market activity levels.
The global economic recession, which began in 2008,
continues to impact the industries in many of the regions 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 lower levels of incoming orders and related
sales activity in several regions in which we conduct business. Order volumes in the Asia and Other market have
shown dramatic improvements over the past 18 months as those economies begin
the rebound to more normalized 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, and machine tool
consumption as reported annually by Gardner Publications in the Metalworking
Insiders Report. 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 measurement 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.
Non-machine
sales, which include collets, accessories, repair parts, and service revenue,
have typically accounted for approximately 27% of overall sales and are an
important part of our business, especially in the U.S. where Hardinge has an
installed base of thousands of machines.
Sales of these products do not vary on a year-to-year basis as
significantly as capital goods, but demand does typically track the direction
of the related machine metrics.
Other key performance
indicators are geographic distribution of net
sales and
orders, gross profit as a percent of net
sales, 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
17
Table
of Contents
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 has 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 reported results
for
several
reasons. Our primary competitors,
particularly for the most technologically advanced products, are now largely
manufacturers in Japan, Germany, Switzerland, Korea, and Taiwan which causes
the
worldwide valuation of the Japanese Y
en
,
Euro
, Swiss Franc, South Korean
Won, and New Taiwanese Dollar
to be central to competitive pricing in all of our markets
.
Also,
we
translate the results of
our Swiss, Taiwanese, Chinese, British, German, Dutch and Canadian subsidiaries
into U.S. Dollars for consolidation and 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.
In March 2010, our
Taiwan subsidiary amended their NTD 100.0 million (approximately $3.2 million)
unsecured credit facility. The amendment
changed the facility from an NTD based facility to a USD based facility and
increased the available credit to $5.0 million. This credit facility charges
interest at the banks current base rate of 2.5% subject to change by the bank
based on market conditions. It carries no commitment fees on unused funds.
Refer to Liquidity and
Capital Resources for further details on the Companys credit facilities.
18
Table of Contents
Results
of Operations
Summarized selected
financial data for the three months ended March 31, 2010 and 2009:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
%
Change
|
|
|
|
(in thousands except per share
amounts)
|
|
Orders
|
|
$
|
57,487
|
|
$
|
32,807
|
|
$
|
24,680
|
|
75
|
%
|
Net sales
|
|
43,170
|
|
52,114
|
|
(8,944
|
)
|
(17
|
)%
|
Gross profit
|
|
8,940
|
|
14,051
|
|
(5,111
|
)
|
(36
|
)%
|
Selling, general and administrative expenses
|
|
14,398
|
|
18,150
|
|
(3,752
|
)
|
(21
|
)%
|
Other (income)
|
|
(201
|
)
|
(189
|
)
|
(12
|
)
|
6
|
%
|
(Loss) from operations
|
|
(5,257
|
)
|
(3,910
|
)
|
(1,347
|
)
|
35
|
%
|
(Loss) before income taxes
|
|
(5,332
|
)
|
(5,096
|
)
|
(236
|
)
|
5
|
%
|
Net (loss)
|
|
(5,186
|
)
|
(5,376
|
)
|
190
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) per share
|
|
$
|
(0.45
|
)
|
$
|
(0.47
|
)
|
$
|
0.02
|
|
|
|
Weighted average shares outstanding
(in thousands)
|
|
11,408
|
|
11,368
|
|
40
|
|
|
|
Gross profit as % of net sales
|
|
20.7
|
%
|
27.0
|
%
|
(6.3)
|
pts.
|
|
|
Selling, general and administrative expenses as % of
sales
|
|
33.4
|
%
|
34.8
|
%
|
(1.4)
|
pts.
|
|
|
(Loss) from operations as % of net sales
|
|
(12.2
|
)%
|
(7.5
|
)%
|
(4.7)
|
pts.
|
|
|
Net (loss) as % of net sales
|
|
(12.0
|
)%
|
(10.3
|
)%
|
(1.7)
|
pts.
|
|
|
Orders
: The table
below summarizes orders by geographical region for the three months ended March 31,
2010 compared to the same period in 2009:
|
|
Three months ended
|
|
|
|
March 31,
|
|
Orders from Customers in
:
|
|
2010
|
|
2009
|
|
%
Change
|
|
North
America
|
|
$
|
12,820
|
|
$
|
12,439
|
|
3
|
%
|
Europe
|
|
18,422
|
|
11,119
|
|
66
|
%
|
Asia &
Other
|
|
26,245
|
|
9,249
|
|
184
|
%
|
|
|
$
|
57,487
|
|
$
|
32,807
|
|
75
|
%
|
Orders for the quarter
ended March 31, 2010 were $57.5 million, an increase of $24.7 million or
75% compared to the same quarter in 2009.
The increase in orders was driven by overall strong market conditions in
the Asia and Other market. European
orders showed improved activity on a year over year basis. Currency exchange
rates had a favorable impact on new orders of approximately $1.6 million for
the quarter ended March 31, 2010 compared to the same period in 2009.
North American orders
increased by $.4 million or 3% for the first quarter of 2010 compared to the
same quarter in 2009. This slight
increase was driven by a strong 2010 quarter in parts and accessories which
were up 18% over the same quarter in 2009.
This increase was offset by weaker performance in machine orders. The decrease in machine orders can be
attributed to the continued recessionary conditions as well as the transition
period associated with the change to our new U.S. distributor based model
during the first quarter of 2010.
European orders increased
by $7.3 million or 66% for the first quarter of 2010 compared to the
19
Table of Contents
same quarter in
2009. This increase was primarily driven
by strong machine order activity in Turkey, Germany and Italy for specialized
grinding machines while order activity in most of the remaining European
countries lag 2009 orders as a result of continued recessionary
conditions. The increase from the prior
year quarter was also influenced by a favorable foreign currency translation
impact of approximately $1.4 million.
Asia & Other
orders increased by $17.0 million or 184% in the first quarter of 2010 compared
to the same quarter in 2009. This
increase was primarily driven by strong machine order activity in China, Taiwan
and Thailand, which collectively increased $14.8 million or 169% over the same
quarter in 2009. The increase from the
prior year quarter was also 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,
2010 compared to the same period in 2009:
|
|
Three months ended
|
|
|
|
March 31,
|
|
Sales to Customers in
:
|
|
2010
|
|
2009
|
|
%
Change
|
|
North
America
|
|
$
|
11,550
|
|
$
|
16,123
|
|
(28
|
)%
|
Europe
|
|
12,418
|
|
24,287
|
|
(49
|
)%
|
Asia &
Other
|
|
19,202
|
|
11,704
|
|
64
|
%
|
|
|
$
|
43,170
|
|
$
|
52,114
|
|
(17
|
)%
|
Net sales for the quarter
ended March 31, 2010 were $43.2 million, a decrease of $8.9 million or 17%
compared to the same quarter in 2009.
First quarter 2009 sales in Europe benefited from shipments out of the
backlog of orders generated prior to the collapse of worldwide demand. Sales in
the first quarter 2010 were negatively influenced by temporary supply chain
shortages for computer controls in addition to logistical delays in large
turnkey orders that required customer run-offs, which translated to
approximately $3.0 million in revenue being deferred to subsequent quarters in
2010. The China market continues to be a strong market with a year over year
increase in net sales of 79%. Currency
exchange rates had a favorable impact on sales of approximately $1.6 million
for the quarter ended March 31, 2010 compared to the same period in 2009.
North American sales decreased by $4.6 million or 28% for the first
quarter of 2010 compared to the same quarter in 2009 primarily due to the
continued effects of the global economic recession and related financial crisis
as well as the transition to our new U.S. distributor based model during the
quarter. This decrease was noted across all of our machine product lines and
countries within North America.
European sales decreased by $11.9 million or 49% for the first quarter
of 2010 compared to the same quarter in 2009. As in North America, the decrease
was primarily related to the continued effects of the global economic recession
and related financial crisis, and was noted across all of our machine product
lines and countries within Europe. The
decrease from the prior year quarter was favorably influenced by foreign
currency translation impact of approximately $1.2 million.
Asia & Other increased by $7.5 million or 64% for the first
quarter of 2010 compared to the same quarter in 2009. This increase was
primarily driven by strong machine order activity in China which increased $6.6
million or 79% over the same quarter in 2009.
The increase from the prior year quarter was also influenced by a
favorable foreign currency translation impact of approximately $0.4 million
Under U.S. generally
accepted 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 2010, the U.S. Dollar weakened by 9% against the
British Pound Sterling, 6% against the New Taiwanese Dollar, 20% against the
Canadian Dollar, 9% against the Swiss Franc, and 6% against the Euro compared
to the average rates during the same period in 2009. The U. S. Dollar remained
relatively flat against the Chinese
20
Table of Contents
Renminbi. The net of these foreign currencies relative
to the U.S. Dollar was an approximate favorable impact of approximately $1.6
million on net sales for the quarter ended March 31, 2010 compared to the
same period in 2009.
Net sales of machines
accounted for 68% and 73% of consolidated net sales for the quarter ended March 31,
2010 and 2009, respectively. Sales of non-machine products and services consist
of workholding, repair parts, service and accessories.
Gross Profit.
Gross profit for the first quarter of 2010 was $8.9 million, a decrease
of $5.1 million or 36% when compared to the same quarter of 2009. The decrease
was a direct result of reduced sales, continued market pricing pressures, and
the impact of lower production volumes against fixed manufacturing expenses.
Gross margin in the first quarter of 2010 was 20.7%, compared to 27.0% in the
first quarter of 2009.
Selling, General
and Administrative Expenses & Other.
Selling, general and administrative (SG&A) expenses for the quarter
decreased by $3.8 million to $14.4 million, or 21% lower when compared to the
same quarter of the prior year. First
quarter 2010 SG&A included charges of $0.9 million for professional
services expenses related to the tender offer and $0.2 million related to Jones
and Shipman acquisition costs, while first quarter 2009 SG&A included
severance related charges of $1.4 million. Exclusive of these charges, SG&A
for the first quarter of 2010 would have been $13.3 million, or 21% below the
first quarter of 2009. The reduction is a direct result of transformational
changes to the Companys business model as well as reductions in variable
expenses given the lower sales levels. Foreign currency translation had an
unfavorable impact of approximately $0.6 million during the first quarter
compared to the same quarter of 2009.
Other (Income) Expense.
Other income was $0.2 million for the quarter ended March 31,
2010 and 2009.
(Loss) from Operations
. Loss from
operations was ($5.3) million or (12.2%) of net sales for the quarter, compared
to a loss of ($3.9) million or (7.5%) of net sales for the same quarter of the
prior year.
Interest Expense & Interest Income
.
Net interest expense was $0.1 million for the quarter compared to $1.2
million for the same quarter of the prior year. The decrease for the quarter 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 prior year quarter.
Income Taxes.
The provision for income taxes was a benefit
of $0.1 million for the three months ended March 31, 2010, compared to tax
expense of $0.3 million for the three months ended March 31, 2009. The effective tax rate was (2.7)% for the
three months ended March 31, 2010, compared to 5.5% for the three months
ended March 31, 2009. This difference was driven by the non-recognition
of tax benefits for certain entities in a loss position for which a full
valuation allowance has been recorded and 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 2010
effective income tax rate to be in the range of (5)% to 10%, inclusive of the
effects of the valuation allowances described above.
We maintain a full valuation allowance on the tax benefits of our U.S.,
U.K., German, Canadian, and Dutch net deferred tax assets related to tax loss
carryforwards in those jurisdictions, as well as all other deferred tax assets
of those entities.
The effective tax rate
for the period ended March 31, 2010 of (2.7)% 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.
21
Table of Contents
Net (Loss).
Net loss for
the three months ended March 31, 2010 was ($5.2) million, or (12.0%) of net
sales, compared to a net loss of ($5.4) million, or (10.3%) of net sales for
the three months ended March 31, 2009.
Basic and diluted loss per share for the three months ended March 31,
2010 were ($0.45) compared to ($0.47) for the three months ended March 31,
2009.
Liquidity and Capital Resources
At March 31,
2010 cash and cash equivalents were $28.3 million compared to $24.6 million at December 31,
2009. The $3.7 million increase in cash
was driven by cash flow generated by operating activities of $3.6 million. The
cash flow from operating activities was generated as a result of net working
capital reductions as a result of the global economic business conditions.
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,
2010 compared to the same period in 2009 are summarized in the table below:
|
|
Three months ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Net
cash provided by operating activities
|
|
$
|
3,562
|
|
$
|
10,138
|
|
Cash
flow used in investing activities
|
|
$
|
(374
|
)
|
$
|
(906
|
)
|
Capital
expenditures (included in investing activities)
|
|
$
|
(657
|
)
|
$
|
(906
|
)
|
Net cash provided by
operating activities was $3.6 million for the three months ended March 31,
2010 compared to $10.1 million for the same period in 2009, a decrease of $6.5
million. The primary driver of this decrease is related to the contraction of
our balance sheet as a result of reduced sales levels in late 2008 and the
first quarter of 2009. As a result of
these decreased sales levels, our accounts receivable balances decreased
dramatically during the first quarter of 2009 providing $19.7 million in cash
flow. These same business conditions
existed during the first quarter of 2010, however, as the sales levels had been
depressed since late 2008, the magnitude of the decreases in accounts
receivable were diminished resulting in $9.2 million in cash flow provided, a
year over year decrease in cash flow provided by accounts receivable reductions
of $10.5 million. Additionally, during the first quarter of 2010, our purchases
of raw materials and parts increased due to the increased order activity,
resulting in cash used of $5.9 million, which was offset by an increase in
accounts payable of $5.6 million due to the increased inventory purchasing
activity.
Net cash used in
investing activities was $0.4 million for the three months ended March 31,
2010 compared to $0.9 million for the same period in 2009. Capital expenditures
for the three months ended March 31, 2010 included modest investment in
manufacturing equipment.
22
Table
of Contents
Cash Flow Provided by (Used In) Financing Activities:
Cash flow provided by
(used in) financing activities for the three months ended March 31, 2010
and 2009, are summarized in the table below:
|
|
Three months ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Borrowings
of short-term notes payable
|
|
$
|
884
|
|
$
|
8,353
|
|
(Repayments)
of long-term debt
|
|
(141
|
)
|
(24,132
|
)
|
Payments
of dividends
|
|
(58
|
)
|
(115
|
)
|
Payments
of debt issuance fees
|
|
(67
|
)
|
(628
|
)
|
Net
cash provided by (used in) financing activities
|
|
$
|
618
|
|
$
|
(16,522
|
)
|
Cash flow provided by
financing activities was $0.6 million for the three months ended March 31,
2010 compared to cash flow used in financing activities of $16.5 million for
the same period in 2009. During the first quarter of 2009, we used $24.0 million
to repay and terminate our multi-currency debt facility. Dividend payments during the first three
months of 2010 decreased by $0.06 million over the same period in 2009 as a
result of our decreasing the quarterly dividend payout to $0.005 per share at June 2009. During the first three months of 2010, we
paid fees of $0.07 million related to the revolving credit facility compared to
$0.6 million paid for the term loan and the multi-currency debt facility during
the same period of 2009.
Debt outstanding,
including notes payable was $5.8 million on March 31, 2010 compared to
$
5.0 million on December 31, 2009.
Credit
Facilities:
We have a $10.0 million
revolving credit facility due March 31, 2011. This credit facility is
secured by substantially all of the Companys U. S. assets (exclusive of real
property), a negative pledge on the Companys headquarters in Elmira, NY and a
pledge of 65% of the Companys investment in Hardinge Holdings GmbH. The credit
facility is guaranteed by Hardinge Technology Systems, Inc., a
wholly-owned subsidiary of the Company and owner of the real property
comprising the Companys world headquarters in Elmira, New York. The credit facilitys interest is based on
the one-month LIBOR with a minimum interest rate of 5.5%. The credit facility
does not include any financial covenants.
There are no amounts outstanding under this credit facility as of March 31,
2010 or December 31, 2009.
We have a $3.0 million
unsecured short-term line of credit from a bank with interest based on the
prime rate with a floor of 5.0% and a ceiling of 16%. There was no balance
outstanding at March 31, 2010 or December 31, 2009 on this line. The
agreement is negotiated annually and requires no commitment fee. It is payable
on demand.
At our Swiss subsidiary,
Kellenberger, we have two credit agreements with a bank. The first facility
provides for borrowing of up to CHF 7.5 million ($7.1 million equivalent) which
can be used
for guarantees, documentary credit, or margin cover
for foreign exchange hedging activity conducted with
the bank
with maximum terms of 12 months. The interest rate, which is currently 1.5%
per annum, is determined by
the bank
based on
prevailing money and capital market conditions and the banks risk assessment
of Kellenberger. The credit facility is
secured by the real property owned by Kellenberger.
The second credit facility is a working capital
facility which can provide for borrowing of up to CHF 5.0 million ($4.7 million
equivalent), and
can be used as a limit for cash credits in the form of fixed
advances in CHF and/or in any other freely convertible foreign currencies with
maximum terms of up to 36 months. The
interest rate, which is currently LIBOR plus 1.5% for a 90 day borrowing, is
determined by
the
bank
based on prevailing money and
capital market conditions and the banks risk assessment of Kellenberger. The
credit facility is secured by the real property owned by Kellenberger.
23
Table of Contents
The above two facilities are also subject to a minimum
equity covenant requirement where the minimum equity for Kellenberger must be
at least 35% of its balance sheet total assets.
Indebtedness
under both facilities is payable upon demand.
At March 31, 2010 and December 31,
2009, we were in compliance with the required minimum equity ratios. At March 31,
2010 and December 31, 2009, there were no borrowings under the working
capital facility.
At our Swiss subsidiary,
Kellenberger, we also have a credit agreement with another bank that provides a
CHF 7.0 million ($6.6 million equivalent) facility, that provides for up to CHF
7.0 million ($6.6 million equivalent) for guarantees, documentary credit and margin
cover for foreign exchange trades and of which up to CHF 3.0 million ($2.8
million equivalent) of the facility can be used for working capital. This
facility is secured by the Companys real estate in Biel Switzerland up to CHF
3.0 million ($2.8 million equivalent). This credit facility charges interest at
the current rate of 5.75% subject to change by the bank based on market
conditions. It carries no commitment fees on unused funds. The credit facility
contains a minimum equity ratio covenant. At March 31, 2010 and December 31, 2009, we were in compliance
with the required minimum equity ratios. At March 31, 2010 and December 31,
2009, there were no borrowings under the working capital facility.
At our Taiwan subsidiary
we have a mortgage loan with a bank secured by the real property owned by the
Taiwan subsidiary which initially provided borrowings of 180.0 million New
Taiwanese Dollars which was equivalent to approximately $5.5 million. At March 31,
2010 and December 31, 2009 borrowings under this agreement were $3.5
million and $3.7 million, respectively. Principal on the mortgage loan is
repaid quarterly in the amount of 4.5 million New Taiwanese Dollars ($0.1
million equivalent).
At our Taiwan subsidiary
we have an unsecured credit facility with a bank. This agreement provided a working capital
facility of NTD 100.0 million ($3.2 million equivalent). On March 19,
2010, we amended the credit facility. The amendment changed the facility from
an NTD based facility to a USD based facility and increased the available
credit to $5.0 million. This credit facility charges interest at the banks
current base rate of 2.5% subject to change by the bank based on market
conditions. It carries no commitment fees on unused funds. At March 31, 2010 and December 31,
2009 the balance outstanding under this facility was and $2.3 million and NTD
43.6 million ($1.4 million equivalent) respectively.
Under our current credit
facilities, the Company has total credit availability of up to $40.0 million at
March 31, 2010 of which $25.6 million is available for working capital
needs. Of the $25.6 million working capital capacity under these credit
facilities, $22.0 million was available at March 31, 2010. Total
consolidated outstanding borrowings at March 31, 2010 and December 31,
2009 were $5.8 million and $5.0 million, respectively.
We believe that the currently available funds and credit facilities,
along with internally generated funds, will provide sufficient financial
resources for ongoing operations throughout 2010.
Our contractual
obligations and commercial commitments have not changed materially, including
the impact from FIN 48, from the disclosures in our 2009 Form 10K.
24
Table of Contents
Certain
statements in this report, other than purely historical information, including
estimates, projections, statements relating to our business plans, objectives
and expected operating results, and the assumptions upon which those statements
are based, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements generally are identified by the words believes,
project, expects, anticipates, estimates, intends, strategy,
plan, may, will, would, will be, will continue, will likely
result, and similar expressions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statements. Accordingly, there can be no assurance that our
expectations will be realized. Such statements are based upon information known
to management at this time. The Company cautions that such statements
necessarily involve uncertainties and risk and deal with matters beyond the
Companys ability to control, and in many cases the Company cannot predict what
factors would cause actual results to differ materially from those indicated.
Among the many factors that could cause actual results to differ from those set
forth in the forward-looking statements are fluctuations in the machine tool
business cycles, changes in general economic conditions in the U.S. or
internationally, the mix of products sold and the profit margins thereon, the
relative success of the 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
revise its forward-looking statements if unanticipated events alter their
accuracy.
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 2010. For a
discussion of our exposure to market risk, refer to Item 7A, Quantitative and
Qualitative Disclosures About Market Risks, contained in our 2009 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, 2010, as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, and determined that
these controls and procedures were effective.
There
have been no changes in the Companys internal control over financial reporting during
the quarter ended March 31, 2010 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.
25
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
In
October 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 former
officers. This complaint, as amended,
alleged 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. On May 29,
2009, the Company filed a motion to dismiss the complaint. By a decision and
order dated February 2, 2010, the Court dismissed the class action
lawsuit. The plaintiff did not file a notice to appeal the Courts dismissal of
the lawsuit and the time to appeal has expired.
Item
1.a. Risk Factors
There is no change to the risk factors disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2009.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3.
Default upon Senior Securities
None
Item 4. (Removed
and Reserved)
26
Table of
Contents
Item 5.
Other Information
None
Item
6. Exhibits
|
10.1
|
|
|
|
Amendment Number One to
the Credit Agreement dated October 30, 2009 between Hardinge Machine
Tools B. V., Taiwan Branch and Mega International Commercial Bank Co., Ltd.
|
|
|
|
|
|
|
|
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.
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|
|
|
|
|
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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.
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27
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 7, 2010
|
|
By:
|
/s/ Richard L.
Simons
|
Date
|
|
|
Richard L.
Simons
|
|
|
|
President and
CEO
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
May 7, 2010
|
|
By:
|
/s/ Edward J.
Gaio
|
Date
|
|
|
Edward J. Gaio.
|
|
|
|
Vice President
and CFO
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
May 7, 2010
|
|
By:
|
/s/ Douglas J.
Malone
|
Date
|
|
|
Douglas J.
Malone
|
|
|
|
Corporate
Controller and Chief Accounting Officer
|
|
|
|
(Principal
Accounting Officer)
|
28
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