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 June 30, 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 June 30, 2010 there were 11,607,289
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)
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,845
|
|
$
|
24,632
|
|
Accounts receivable, net
|
|
38,381
|
|
39,936
|
|
Notes receivable, net
|
|
2,966
|
|
2,364
|
|
Inventories, net
|
|
109,100
|
|
97,266
|
|
Deferred income taxes
|
|
517
|
|
732
|
|
Prepaid expenses
|
|
11,305
|
|
9,375
|
|
Total current assets
|
|
187,114
|
|
174,305
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
142,192
|
|
144,635
|
|
Less accumulated depreciation
|
|
90,473
|
|
89,924
|
|
Net property, plant and equipment
|
|
51,719
|
|
54,711
|
|
|
|
|
|
|
|
Notes receivable, net
|
|
54
|
|
157
|
|
Deferred income taxes
|
|
616
|
|
446
|
|
Intangible assets
|
|
10,460
|
|
10,527
|
|
Pension assets
|
|
2,369
|
|
2,032
|
|
Other long-term assets
|
|
26
|
|
26
|
|
Total non-current assets
|
|
13,525
|
|
13,188
|
|
Total assets
|
|
$
|
252,358
|
|
$
|
242,204
|
|
|
|
|
|
|
|
Liabilities and shareholders
equity
|
|
|
|
|
|
Accounts payable
|
|
$
|
32,362
|
|
$
|
16,285
|
|
Notes payable to bank
|
|
3,439
|
|
1,364
|
|
Accrued expenses
|
|
18,621
|
|
17,777
|
|
Customer deposits
|
|
8,164
|
|
4,400
|
|
Accrued income taxes
|
|
1,761
|
|
1,535
|
|
Deferred income taxes
|
|
2,643
|
|
2,832
|
|
Current portion of long-term debt
|
|
558
|
|
563
|
|
Total current liabilities
|
|
67,548
|
|
44,756
|
|
|
|
|
|
|
|
Long-term debt
|
|
2,788
|
|
3,095
|
|
Accrued pension expense
|
|
21,392
|
|
22,082
|
|
Accrued postretirement benefits
|
|
2,361
|
|
2,472
|
|
Accrued income taxes
|
|
1,558
|
|
2,377
|
|
Deferred income taxes
|
|
3,924
|
|
4,030
|
|
Other liabilities
|
|
1,782
|
|
1,862
|
|
Total other liabilities
|
|
33,805
|
|
35,918
|
|
|
|
|
|
|
|
Common Stock $0.01 par value
|
|
125
|
|
125
|
|
Additional paid-in capital
|
|
113,889
|
|
114,387
|
|
Retained earnings
|
|
53,027
|
|
59,103
|
|
Treasury shares 865,703 shares at June 30, 2010
and 939,240 shares at December 31, 2009
|
|
(11,019
|
)
|
(11,978
|
)
|
Accumulated other comprehensive (loss)
|
|
(5,017
|
)
|
(107
|
)
|
Total shareholders equity
|
|
151,005
|
|
161,530
|
|
Total liabilities and shareholders equity
|
|
$
|
252,358
|
|
$
|
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
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
59,899
|
|
$
|
55,262
|
|
$
|
103,068
|
|
$
|
107,376
|
|
Cost of sales
|
|
45,228
|
|
42,316
|
|
79,458
|
|
80,379
|
|
Gross profit
|
|
14,671
|
|
12,946
|
|
23,610
|
|
26,997
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
16,041
|
|
17,142
|
|
30,439
|
|
35,292
|
|
Other expense (income)
|
|
(669
|
)
|
637
|
|
(871
|
)
|
448
|
|
(Loss) from operations
|
|
(701
|
)
|
(4,833
|
)
|
(5,958
|
)
|
(8,743
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
121
|
|
241
|
|
231
|
|
1,473
|
|
Interest income
|
|
(35
|
)
|
(8
|
)
|
(70
|
)
|
(54
|
)
|
(Loss) before income taxes
|
|
(787
|
)
|
(5,066
|
)
|
(6,119
|
)
|
(10,162
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
(13
|
)
|
(109
|
)
|
(159
|
)
|
171
|
|
Net (loss)
|
|
$
|
(774
|
)
|
$
|
(4,957
|
)
|
$
|
(5,960
|
)
|
$
|
(10,333
|
)
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share:
|
|
$
|
(0.07
|
)
|
$
|
(0.44
|
)
|
$
|
(0.52
|
)
|
$
|
(0.91
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
$
|
(0.07
|
)
|
$
|
(0.44
|
)
|
$
|
(0.52
|
)
|
$
|
(0.91
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.005
|
|
$
|
0.005
|
|
$
|
0.01
|
|
$
|
0.015
|
|
See accompanying notes
4
Table of
Contents
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(In Thousands)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Net (loss)
|
|
$
|
(5,960
|
)
|
$
|
(10,333
|
)
|
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
3,593
|
|
4,395
|
|
Provision for deferred income taxes
|
|
515
|
|
(355
|
)
|
(Gain) loss on sale of assets
|
|
(228
|
)
|
59
|
|
(Gain) on purchase of Jones & Shipman
|
|
(626
|
)
|
|
|
Debt issuance amortization
|
|
165
|
|
1,148
|
|
Unrealized intercompany foreign currency
transaction loss (gain)
|
|
9
|
|
(7
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
3,088
|
|
22,172
|
|
Notes receivable
|
|
(497
|
)
|
(519
|
)
|
Inventories
|
|
(11,469
|
)
|
14,685
|
|
Prepaids/other assets
|
|
(1,890
|
)
|
1,256
|
|
Accounts payable
|
|
13,900
|
|
(6,514
|
)
|
Accrued expenses/other liabilities
|
|
2,458
|
|
(9,360
|
)
|
Accrued postretirement benefits
|
|
(296
|
)
|
21
|
|
Net cash provided by operating activities
|
|
2,762
|
|
16,648
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Capital expenditures
|
|
(1,077
|
)
|
(1,655
|
)
|
Proceeds from sale of assets
|
|
282
|
|
9
|
|
Purchase of Jones & Shipman
|
|
(2,903
|
)
|
|
|
Net cash (used in) investing activities
|
|
(3,698
|
)
|
(1,646
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Increase in short-term notes payable to bank
|
|
2,113
|
|
8,354
|
|
(Decrease) in long-term debt
|
|
(282
|
)
|
(24,269
|
)
|
Dividends paid
|
|
(116
|
)
|
(173
|
)
|
Debt issuance fees paid
|
|
(100
|
)
|
(706
|
)
|
Net cash provided by (used in) financing
activities
|
|
1,615
|
|
(16,794
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(466
|
)
|
(130
|
)
|
Net increase (decrease) in cash
|
|
213
|
|
(1,922
|
)
|
|
|
|
|
|
|
Cash at beginning of period
|
|
24,632
|
|
18,430
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
24,845
|
|
$
|
16,508
|
|
See accompanying notes
5
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 and the six month period
ended June 30, 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 June 30, 2010 presentation.
NOTE 2 SIGNIFICANT RECENT EVENTS
Acquisition
of the Assets of Jones and Shipman Precision Limited
On
April 7, 2010, Kellenberger & Co. AG (Kellenberger), an indirect
wholly owned subsidiary of Hardinge Inc. completed the acquisition of certain
assets of Jones and Shipman Precision
Limited (J&S), a UK based manufacturer of grinding and super-abrasive
machines and machining systems, for £2.0 million ($3.0 million equivalent) from
Precision Technologies Group Limited. In conjunction with this asset
acquisition, Kellenberger established Jones & Shipman Grinding
Limited, a new UK based wholly owned subsidiary. The results of operations of
this acquisition have been included in the consolidated financial statements
from the date of acquisition. The Company expensed acquisition related costs of
$0.3 million during the six months ended June 30, 2010 and recorded it in
SG&A expense on the Consolidated Statement of Operations.
The
acquisition agreement contains provisions for a contingent purchase price
payment based on sales through March 31, 2014. The contingent purchase price payment is
5.42% of sales in excess of £36.4 million (approximately $54.5 million), with a
maximum payment of £0.3 million (approximately $0.45 million). Based on the companys current forecasted
revenue over this period, the fair value of this contingent purchase price is
£0.2 (approximately $0.3 million). This
contingent liability is recorded on the balance sheet within accrued expenses.
6
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 2010
NOTE 2 SIGNIFICANT RECENT EVENTS (continued)
Acquisition
of the Assets of Jones and Shipman Precision Limited (continued)
The
following table summarizes the allocation of the preliminary purchase price to
the fair value of the assets acquired and liabilities assumed on the date of
acquisition:
Assets acquired:
|
|
|
|
Accounts receivable, net
|
|
$
|
2,778
|
|
Inventory
|
|
3,731
|
|
Property, plant and equipment, net
|
|
452
|
|
Other assets
|
|
294
|
|
Tradename and other intangible assets
|
|
312
|
|
Total assets acquired
|
|
$
|
7,567
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
Accounts payable, accrued expenses and other
liabilities
|
|
3,961
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,606
|
|
The
assets acquired and liabilities assumed are measured at fair value. Acquired inventory is valued based on one of
the following methods: for acquired
finished goods inventory, the value is based on the expected sales price less
an allowance for direct selling costs and profits thereon; for acquired work in
process the value is based on the expected sales price less an allowance for
costs to complete the manufacturing process, direct selling costs and profits
thereon; and for acquired raw materials, the value is based on the on current
market price. Acquired property, plant and equipment are valued based upon our
estimate of replacement cost less an allowance for age and condition at the
time of acquisition. The weighted average life of these intangible assets is
6.6 years. Other assets, accounts
payable, accrued expenses and other liabilities are expected to be settled at
face value; therefore face value is assumed to approximate fair value. The fair value of the net assets acquired
exceeded the purchase price; accordingly, a gain of £0.4 million (approximately
$0.6 million) was recorded during the quarter within other expense (income) in
the Consolidated Statement of Operations. The allocation of the purchase price
is preliminary pending the finalization of the fair value of the assets
acquired.
Revised
Kellenberger Working Capital Credit Facility
In
June 2010, our Swiss subsidiary, L. Kellenbergrer & Co. AG (Kellenberger)
entered into a new
working capital credit facility with a bank to provide up to
CHF 6.0 million ($5.6 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. This new facility replaced a CHF 5.0 million
($4.6 million equivalent) credit facility with substantially the same terms.
7
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 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. (Hardinge or
the Company) 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). Hardinge had previously
received on February 4, 2010 an unsolicited acquisition proposal from Romi
at the same price. On May 10, 2010,
Romi increased their offer to $10.00 per share (Romis Amended Offer). After multiple extensions, on July 15,
2010 Romi announced the expiration of their tender offer to acquire all of the
outstanding shares of Hardinge and did not further extend the offer. No shares of Hardinge stock were purchased
pursuant to the offer, and Romi indicated that all shares of Hardinge
previously tendered and not withdrawn were returned.
As noted in the Companys Schedule 14D-9 filings
with the SEC, our Board unanimously determined that Romis Offer and Romis
Amended Offer were 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 the amendments thereto include
a complete discussion of the reasons and other material factors contributing to
the Board of Directors recommendations.
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:
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Finished
products
|
|
$
|
49,173
|
|
$
|
51,314
|
|
Work-in-process
|
|
20,650
|
|
19,019
|
|
Raw
materials and purchased components
|
|
39,277
|
|
26,933
|
|
Inventories,
net
|
|
$
|
109,100
|
|
$
|
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.
8
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 2010
NOTE
4PROPERTY, PLANT AND EQUIPMENT
Components
of property, plant and equipment at June 30, 2010 and December 31,
2009 consisted of the following:
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Land,
buildings and improvements
|
|
$
|
63,414
|
|
$
|
64,675
|
|
Machinery,
equipment and fixtures
|
|
62,076
|
|
62,857
|
|
Office
furniture, equipment and vehicles
|
|
16,702
|
|
17,103
|
|
|
|
142,192
|
|
144,635
|
|
Less
accumulated depreciation and amortization
|
|
90,473
|
|
89,924
|
|
Property,
plant and equipment, net
|
|
$
|
51,719
|
|
$
|
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
June 30, 2010 and December 31, 2009, we do not have any amounts
recorded as goodwill on our balance sheet.
Nonamortizable
intangible assets include $6.8 million representing the value of the name,
trademarks and copyrights associated with the former worldwide operations of
Bridgeport. 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 $3.7 million include the Bridgeport technical
information, Jones & Shipman
trade name, patents, distribution agreements, customer lists, 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.
9
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 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 (1.7)% and (2.6)% for the
three and six months ended June 30,
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
June 30, 2010 and December 31, 2009, we had a $1.8 million and $2.4
million liability recorded for uncertain income tax positions, respectively,
both of which included interest and penalties of $0.7 million. If recognized,
the uncertain tax benefits, with related penalties and interest at June 30,
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. During the quarter ended June 30,
2010, we determined, based on guidance issued by foreign tax authorities, that
it is more likely than not that $0.5 million of our liability for uncertain tax
positions should be reversed. In addition,
the corporate tax rate in Taiwan was reduced, and as a result we reduced our
net deferred tax assets there by $0.1 million.
10
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 2010
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.
A
reconciliation of the changes in our product warranty accrual during the three
and six month periods ended June 30, 2010 and 2009 is as follows:
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Balance
at the beginning of period
|
|
$
|
2,264
|
|
$
|
2,625
|
|
$
|
2,436
|
|
$
|
2,872
|
|
Warranty
settlement costs
|
|
(509
|
)
|
(497
|
)
|
(775
|
)
|
(1,259
|
)
|
Warranties
Issued
|
|
1,031
|
|
703
|
|
1,538
|
|
1,335
|
|
Changes
in accruals for pre-existing warranties
|
|
(297
|
)
|
(379
|
)
|
(683
|
)
|
(372
|
)
|
Other
currency translation impact
|
|
(37
|
)
|
82
|
|
(64
|
)
|
(42
|
)
|
Balance
at the end of period
|
|
$
|
2,452
|
|
$
|
2,534
|
|
$
|
2,452
|
|
$
|
2,534
|
|
11
Table of
Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
NOTE 8PENSION AND POST RETIREMENT PLANS
A summary of the components of net periodic pension costs for our
consolidated Company for the three and six months ended June 30, 2010 and
2009 is presented below.
|
|
Pension Benefits
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Service cost
|
|
$
|
318
|
|
$
|
937
|
|
$
|
652
|
|
$
|
1,928
|
|
Interest cost
|
|
2,105
|
|
2,150
|
|
4,244
|
|
4,309
|
|
Expected return on plan assets
|
|
(2,313
|
)
|
(2,472
|
)
|
(4,663
|
)
|
(4,963
|
)
|
Amortization of prior service cost
|
|
(29
|
)
|
(16
|
)
|
(59
|
)
|
(51
|
)
|
Amortization of transition asset
|
|
(51
|
)
|
(55
|
)
|
(105
|
)
|
(110
|
)
|
Amortization of loss
|
|
205
|
|
348
|
|
420
|
|
746
|
|
Net periodic benefit cost
|
|
$
|
235
|
|
$
|
892
|
|
$
|
489
|
|
$
|
1,859
|
|
A summary of the components of net postretirement benefits costs for
our consolidated Company for the three and six months ended June 30, 2010
and 2009 is presented below:
|
|
Postretirement Benefits
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Service cost
|
|
$
|
4
|
|
$
|
3
|
|
$
|
8
|
|
$
|
9
|
|
Interest cost
|
|
39
|
|
58
|
|
78
|
|
102
|
|
Amortization of prior service cost
|
|
(93
|
)
|
(126
|
)
|
(185
|
)
|
(253
|
)
|
Amortization of actuarial gain
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Special termination benefits
|
|
|
|
(62
|
)
|
|
|
376
|
|
Net periodic benefit (credit) cost
|
|
$
|
(50
|
)
|
$
|
(135
|
)
|
$
|
(99
|
)
|
$
|
226
|
|
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 June 30,
2010 and 2009 were $0.1
million and
$1.3 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 June 30, 2010 and 2009, $1.0
million and $1.2 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.
12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 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 $12.4 million at both June 30,
2010 and December 31, 2009.
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 June 30, 2010, the fair
value of the foreign currency forwards was a $0.07 million asset, which was
included in prepaid expenses and a $0.10 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 and six month periods ended June 30, 2010 of $0.2 million
and $0.3 million, respectively, 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 June 30, 2010
|
|
Foreign currency forwards
|
|
Prepaid
expenses
|
|
$
|
67
|
|
$
|
|
|
$
|
67
|
|
$
|
|
|
Foreign currency forwards
|
|
Accrued
expenses
|
|
$
|
103
|
|
$
|
|
|
$
|
103
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 rates and forward
rates. We have elected not to measure any additional financial instruments and
other items at fair value.
13
Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 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 June 30,
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. In conjunction with the Jones &
Shipman asset acquisition, trade names and other intangible assets of £0.2
million (approximately $0.3 million) are valued using an income approach (level
3). Other than the Jones & Shipman intangible assets, 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 (thePRPs) 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 June 30,
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 June 30, 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.
14
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2010
NOTE
11COMMITMENTS AND CONTINGENCIES (continued)
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 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, whichever 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 three and six month
period ended June 30, 2010, respectively, we utilized $0.4 million and
$1.7 million of the restructuring reserves. At June 30, 2010, the
remaining liability on our balance sheet associated with all of these
restructuring related charges was $1.4 million. The VERP, which is the
post-retirement health care benefit, is $1.2 million of this liability and will
be relieved through April 2014. The remaining $0.2 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 six months of 2010 or
2009. Expense related to stock options was not material for the three months
and six months ended June 30, 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 and six month
period ended June 30, 2010 and 2009 is as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Shares and units at beginning of period
|
|
251,340
|
|
183,000
|
|
184,500
|
|
179,483
|
|
Shares/Units granted
|
|
|
|
|
|
70,340
|
|
26,000
|
|
Shares vested
|
|
|
|
|
|
(3,500
|
)
|
(20,883
|
)
|
Shares cancelled, forfeited or exercised
|
|
(3,500
|
)
|
|
|
(3,500
|
)
|
(1,600
|
)
|
Shares and units at end of period
|
|
247,840
|
|
183,000
|
|
247,840
|
|
183,000
|
|
15
Table of Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 2010
NOTE
12STOCK-BASED COMPENSATION (continued)
The
fair value of the restricted stock/units awarded in the six months ended June
30, 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 and six months ended June 30, 2010 was $0.1 million and $0.3 million,
Total share-based compensation expense relating to restricted stock for the
three months and six months ended June 30, 2009 was $0.1 million and $0.2
million, respectively. At June 30, 2010, the compensation cost not yet
recognized on these shares was $1.1 million, which will be amortized over a
weighted average term of 1.9 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
June 30,
|
|
Six months ended
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(in thousands except per share data)
|
|
Net
(loss)
|
|
$
|
(774
|
)
|
$
|
(4,957
|
)
|
$
|
(5,960
|
)
|
$
|
(10,333
|
)
|
Earnings allocated to participating stock awards
|
|
1
|
|
1
|
|
2
|
|
2
|
|
Net (loss) applicable to common shareholders
|
|
$
|
(775
|
)
|
$
|
(4,958
|
)
|
$
|
(5,962
|
)
|
$
|
(10,335
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted calculations
|
|
|
|
|
|
|
|
|
|
Average common shares used in basic and diluted
computation
|
|
11,409
|
|
11,373
|
|
11,409
|
|
11,371
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic (loss) per share
|
|
$
|
(0.07
|
)
|
$
|
(0.44
|
)
|
$
|
(0.52
|
)
|
$
|
(0.91
|
)
|
Diluted (loss) per share
|
|
$
|
(0.07
|
)
|
$
|
(0.44
|
)
|
$
|
(0.52
|
)
|
$
|
(0.91
|
)
|
16
Table of
Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 2010
NOTE
13EARNINGS PER SHARE (continued)
There is no dilutive effect of the restrictive stock
and stock options for the three months and the six months ended June 30, 2010
and 2009 since the impact would be anti-dilutive. 152,203 and 131,361 shares
would have been included in the diluted earnings per share calculations for the
three and six months ended June 30, 2010, respectively, had the impact of
including these diluted securities not been anti-dilutive. 45,575 and 36,578
shares would have been included in the diluted earnings per share calculations
for the three and six months ended June 30, 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.
NOTE
14REPORTING COMPREHENSIVE INCOME (LOSS)
The
components of Other Comprehensive Income (Loss), net of tax, for the three
months and six months ended June 30, 2010 and 2009 are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
(dollars in thousands)
|
|
(dollars in thousands)
|
|
Net (Loss)
|
|
$
|
(774
|
)
|
$
|
(4,957
|
)
|
$
|
(5,960
|
)
|
$
|
(10,333
|
)
|
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
Retirement plan-related adjustments (net of tax of
$59 and $112 in 2010 and $243 and $96 in 2009)
|
|
189
|
|
(1,279
|
)
|
591
|
|
132
|
|
Foreign currency translation adjustments
|
|
(3,019
|
)
|
8,256
|
|
(5,501
|
)
|
758
|
|
Other Comprehensive Income (Loss)
|
|
(2,830
|
)
|
6,977
|
|
(4,910
|
)
|
890
|
|
Total Comprehensive Income (Loss)
|
|
$
|
(3,604
|
)
|
$
|
2,020
|
|
$
|
(10,870
|
)
|
$
|
(9,443
|
)
|
Accumulated
balances of the components of Other Comprehensive (Loss) consisted of the
following at June 30, 2010 and December 31, 2009:
|
|
Accumulated balances at
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Accumulated Other Comprehensive (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
Retirement plan- related adjustments (net of tax
of $5,161 in 2010 and $5,273 in 2009)
|
|
$
|
(22,824
|
)
|
$
|
(23,415
|
)
|
Foreign currency translation adjustments
|
|
21,715
|
|
27,216
|
|
Net investment hedges (net of tax of $715 in 2010
and 2009)
|
|
(3,908
|
)
|
(3,908
|
)
|
Accumulated Other Comprehensive (Loss)
|
|
$
|
(5,017
|
)
|
$
|
(107
|
)
|
17
Table of
Contents
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
June 30, 2010
NOTE 15SUBSEQUENT EVENTS
On
July 12, 2010, our Taiwan subsidiary entered into a new unsecured credit
facility replacing the existing $5.0 million facility. The new facility
provides a $10.0 million facility for working capital purposes and expires on
May 31, 2011. Interest is charged 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.
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
arrangements 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). We have applied the new
disclosure requirements as of 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 did not and
will not have a material impact on our consolidated financial statements.
18
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 Switzerland, Taiwan, United States, China, and
United Kingdom, 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 in 2009 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 as compared to
industry measures of market activity levels.
The
global economic recession, which began in 2008, continues to have an impact on
industries in several 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 began 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 in the Metalworking Insiders Report
published annually by Gardner Publications. 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
19
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 cash
equivalents. Our emphasis is primarily on safety of principal. Our cash and
cash 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
June 2010, our Swiss subsidiary, L. Kellenbergrer & Co. AG (Kellenberger)
entered into a new
working capital credit facility with a bank to provide up to
CHF 6.0 million ($5.6 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. This new facility replaced a CHF 5.0 million
($4.6 million equivalent) credit facility with substantially the same terms.
In
July 2010, our Taiwan subsidiary entered into a new unsecured credit facility
replacing the existing $5.0 million facility. This new credit facility provides
a $10.0 million facility for working capital purposes and expires on May 31,
2011. Interest is charged at the banks
current base rate of 2.5% subject to change by the bank based on market
conditions. This new credit facility carries no commitment fees on unused
funds.
Refer
to Liquidity and Capital Resources for further details on the Companys credit
facilities.
20
Table of Contents
Results of Operations
Summarized
selected financial data for the three months and six months ended June 30,
2010 and 2009:
|
|
Three months ended
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
|
June 30,
|
|
$
|
|
%
|
|
June 30,
|
|
$
|
|
%
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
(dollars in thousands, except per share data)
|
|
Orders
|
|
$
|
85,664
|
|
$
|
44,566
|
|
$
|
41,098
|
|
92
|
%
|
$
|
143,152
|
|
$
|
77,373
|
|
$
|
65,779
|
|
85
|
%
|
Net sales
|
|
59,899
|
|
55,262
|
|
4,637
|
|
8
|
%
|
103,068
|
|
107,376
|
|
(4,308
|
)
|
(4
|
)%
|
Gross profit
|
|
14,671
|
|
12,946
|
|
1,725
|
|
13
|
%
|
23,610
|
|
26,997
|
|
(3,387
|
)
|
(13
|
)%
|
Selling, general and
administrative expenses
|
|
16,041
|
|
17,142
|
|
(1,101
|
)
|
(6
|
)%
|
30,439
|
|
35,292
|
|
(4,853
|
)
|
(14
|
)%
|
Other expense (income)
|
|
(669
|
)
|
637
|
|
(1,306
|
)
|
(205
|
)%
|
(871
|
)
|
448
|
|
(1,319
|
)
|
(294
|
)%
|
(Loss) income from
operations
|
|
(701
|
)
|
(4,833
|
)
|
4,132
|
|
(85
|
)%
|
(5,958
|
)
|
(8,743
|
)
|
2,785
|
|
(32
|
)%
|
Net (loss)
|
|
(774
|
)
|
(4,957
|
)
|
4,183
|
|
(84
|
)%
|
(5,960
|
)
|
(10,333
|
)
|
4,373
|
|
(42
|
)%
|
Diluted (loss) per share
|
|
$
|
(0.07
|
)
|
$
|
(0.44
|
)
|
$
|
0.37
|
|
|
|
$
|
(0.52
|
)
|
$
|
(0.91
|
)
|
$
|
0.39
|
|
|
|
Weighted average shares
outstanding (in thousands)
|
|
11,409
|
|
11,373
|
|
36
|
|
|
|
11,409
|
|
11,371
|
|
38
|
|
|
|
Gross profit as % of net
sales
|
|
24.5
|
%
|
23.4
|
%
|
1.1
|
pts.
|
|
|
22.9
|
%
|
25.1
|
%
|
(2.2
|
)pts
|
|
|
Selling, general and
administrative expenses as % of net sales
|
|
26.8
|
%
|
31.0
|
%
|
(4.2
|
)pts.
|
|
|
29.5
|
%
|
32.9
|
%
|
(3.4
|
)pts.
|
|
|
Other expense (income) as %
of net sales
|
|
(1.1
|
)%
|
1.2
|
%
|
(2.3
|
)pts.
|
|
|
(0.8
|
)%
|
0.4
|
%
|
(1.2
|
)pts.
|
|
|
(Loss) from operations as %
of net sales
|
|
(1.2
|
)%
|
(8.7
|
)%
|
7.5
|
pts.
|
|
|
(5.8
|
)%
|
(8.1
|
)%
|
2.3
|
pts.
|
|
|
Net (loss) % of net sales
|
|
(1.3
|
)%
|
(9.0
|
)%
|
7.7
|
pts.
|
|
|
(5.8
|
)%
|
(9.6
|
)%
|
3.8
|
pts.
|
|
|
Reconciliation of Net Income to EBITDA
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
|
2010
|
|
2009
|
|
$ Change
|
|
2010
|
|
2009
|
|
$ Change
|
|
|
|
(dollars in thousands)
|
|
GAAP Net Income (Loss)
|
|
$
|
(774
|
)
|
$
|
(4,957
|
)
|
$
|
4,183
|
|
$
|
(5,960
|
)
|
$
|
(10,333
|
)
|
$
|
4,373
|
|
Plus:
|
Interest expense net of
interest income
|
|
86
|
|
233
|
|
(147
|
)
|
161
|
|
1,419
|
|
(1,258
|
)
|
|
Taxes
|
|
(13
|
)
|
(109
|
)
|
96
|
|
(159
|
)
|
171
|
|
(330
|
)
|
|
Depreciation and
amortization
|
|
1,786
|
|
2,186
|
|
(400
|
)
|
3,593
|
|
4,395
|
|
(802
|
)
|
EBITDA (1)
|
|
$
|
1,085
|
|
$
|
(2,647
|
)
|
$
|
3,732
|
|
$
|
(2,365
|
)
|
$
|
(4,348
|
)
|
$
|
1,983
|
|
(1)
EBITDA, a non-GAAP financial
measure, is defined as earnings before interest, taxes, depreciation and
amortization. The comparable financial measure to EBITDA under GAAP is net
income. EBITDA is used by management to evaluate the operating performance of
our business for comparable periods. EBITDA should not be used by investors or
others as the sole basis for formulating investment decisions, as it excludes a
number of important items. We compensate for this limitation by using GAAP
financial measures as well in managing our business.
21
Table of
Contents
Orders
: The table below summarizes orders by
geographical region for the three months and six months ended June 30,
2010 compared to the same periods in 2009:
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
Orders from
|
|
June 30,
|
|
%
|
|
June 30,
|
|
%
|
|
Customers in:
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
North America
|
|
$
|
19,770
|
|
$
|
11,107
|
|
78
|
%
|
$
|
32,591
|
|
$
|
23,546
|
|
38
|
%
|
Europe
|
|
17,798
|
|
14,228
|
|
25
|
%
|
36,225
|
|
25,347
|
|
43
|
%
|
Asia & Other
|
|
48,096
|
|
19,231
|
|
150
|
%
|
74,336
|
|
28,480
|
|
161
|
%
|
|
|
$
|
85,664
|
|
$
|
44,566
|
|
92
|
%
|
$
|
143,152
|
|
$
|
77,373
|
|
85
|
%
|
Orders,
net of cancellations, for the quarter ended June 30, 2010 were $85.7
million, an increase of $41.1 million or 92% compared to the same quarter in
2009. Orders, net of cancellations, for
the six months ended June 30, 2010 were $143.2 million, an increase of
$65.8 million or 85% compared to the six months ended June 30, 2009.
Orders were up in most of the regions where we conduct our business, as the
global economy begins to rebound from the economic recession. Asia and Other
represents 52% of the Companys total orders through the first six months of
2010. Currency exchange rates impact on orders for the quarter was not
material. Currency exchange rates had a
favorable impact on new orders of approximately $1.7 million for the six months
ended June 30, 2010 compared to the same period in 2009.
North
American orders increased by $8.7 million or 78% for the second quarter of 2010
compared to the same quarter in 2009.
North American orders for the six months ended June 30, 2010
increased by $9.0 million or 38% compared to the same period in 2009. This
increase was driven by strong machine orders in the second quarter of 2010
which were up $6.7 million or 160% over the same period in 2009. This increase in machine orders can be
attributed to the global economy rebounding from the recessionary conditions as
well as a successful transition to our new U.S. distributor based model.
European
orders increased by $3.6 million or 25% for the second quarter of 2010 compared
to the same quarter in 2009. European
orders for the six months ended June 30, 2010 increased by $10.9 million
or 43% compared to the same period in 2009. The increases were primarily driven
by strong machine order activity in Turkey for specialized grinding machines.
The impact of foreign currency translation on orders for the three month and
six month periods ended June 30, 2010 compared to the same periods in the
prior year was unfavorable by $0.2 million and favorable by $1.2 million,
respectively.
Asia &
Other orders increased by $28.9 million or 150% and $45.9 million or 161%, for
the respective three month and six month periods ended June 30, 2010
compared to the same periods in 2009. This increase was driven by $23.1 million
in orders during the second quarter from a China-based supplier to the consumer
electronics industry. Foreign currency translation on Asian and Other orders
for the three and six month periods ended June 30, 2010 compared to the
same periods in the prior year had a favorable impact of $0.3 million and $0.5
million, respectively.
Net Sales
. The table below summarizes net sales by
geographical region for the three and six month periods ended June 30,
2010 compared to the same periods in 2009:
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
Net Sales to
|
|
June 30,
|
|
%
|
|
June 30,
|
|
%
|
|
Customers
in:
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
North America
|
|
$
|
18,698
|
|
$
|
14,546
|
|
29
|
%
|
$
|
30,247
|
|
$
|
30,669
|
|
(1
|
)%
|
Europe
|
|
13,512
|
|
23,779
|
|
(43
|
)%
|
25,930
|
|
48,066
|
|
(46
|
)%
|
Asia & Other
|
|
27,689
|
|
16,937
|
|
63
|
%
|
46,891
|
|
28,641
|
|
64
|
%
|
|
|
$
|
59,899
|
|
$
|
55,262
|
|
8
|
%
|
$
|
103,068
|
|
$
|
107,376
|
|
(4
|
)%
|
22
Table of
Contents
Net
sales for the quarter ended June 30, 2010 were $59.9 million, an increase
of $4.6 million or 8% compared to the same quarter in 2009. Net sales for the six months ended June 30,
2010 were $103.1 million, a decrease of $4.3 million or 4% compared to the same
period in 2009. Sales in Europe in 2010
continued to trail 2009 activity with the most significant decreases in Germany
and Switzerland. Sales in the first half of 2010 were negatively influenced by
delivery difficulties within the machine tool industry supply chain which
struggled to respond to the sudden and extraordinary demand growth in Asian
markets. Currency exchange rates for the three and six month periods ended June 30,
2010 compared to the same periods in the prior year was unfavorable by $0.2
million and favorable by $1.4 million, respectively.
North
American sales increased by $4.2 million or 29% for the three months ended June 30,
2010 and decreased $0.4 million or 1% for the six months ended June 30,
2010 compared to the same periods in 2009.
The increase in the second quarter was mostly attributable to increased
sales of grinding and milling machines and workholding as we transition to our
new U.S. distributor based model. The year-to-date decrease was primarily due
to the remnant effects of the global economic recession.
European
sales decreased by $10.3 million or 43% for the three months ended June 30,
2010 and decreased by $22.1 million or 46% for the six month period ended June 30,
2010 compared to the same periods in 2009. These decreases were primarily
related to the continued effects of the global economic recession and related
financial crisis still entrenched in this region, and were noted across most of
the countries within Europe. First half 2009 sales levels benefited from
shipment of machine orders obtained prior to the collapse of the market.
Currency exchange rates had an unfavorable impact on sales of $0.6 million for
the three months ended June 30, 2010 and a favorable impact of $0.7
million for the six months ended June 30, 2010 compared to the same
periods in 2009.
Asia &
Other net sales increased by $10.8 million or 63% for the second quarter of
2010 compared to the same quarter in 2009.
Net sales increased by $18.3 million or 64% for the six month period
ended June 30, 2010 compared to the same period in 2009. These increases
were primarily driven by strong machine sales in China which increased $13.2
million or 55% year to date 2010 over the same period in 2009. Sales to a
China-based supplier to the consumer electronics industry contributed
approximately $5.5 million and $7.1 million for the respective three and six
month periods ended June 30, 2010. The impact of foreign currency
translation on sales for the three and six months ended June 30, 2010
compared to the corresponding periods in the prior year was a favorable $0.4
million and $0.8 million, respectively.
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 half of 2010, the U.S. Dollar weakened by 2%
against the New Taiwanese Dollar and by 6% against the Canadian Dollar, while
it strengthened by 3% against the Euro and by 2% against the British Pound
Sterling compared to the average rates during the same period in 2009. The U.S.
Dollar remained relatively flat against the Swiss Franc and Chinese Renminbi. The net of these foreign currencies relative
to the U.S. Dollar was a favorable impact of approximately $1.4 million on net
sales for the six months ended June 30, 2010 compared to the same period
in 2009. The impact for the quarter comparison was not material.
Net sales of machines accounted for approximately 73% of consolidated
net sales for the three and six month periods ended June 30, 2010 and
2009. Sales of non-machine products and services consist of workholding, repair
parts, service and accessories.
Gross Profit.
Gross profit for the three months ended June 30,
2010 was $14.7 million, an increase of $1.7 million or 13% when compared to the
same period in 2009. Gross profit for the six months ended June 30, 2010
was $23.6 million, a decrease of $3.4 million or 13% when compared to the six
months ended June 30, 2009. The increased gross profit is primarily
attributable to the increased sales volumes and product mix. The increase was
offset by the impact of lower manufacturing volumes against fixed manufacturing
expenses. The year-to-date decrease was
a direct result of lower sales, continued market pricing pressures, and the
impact of lower production volumes against fixed manufacturing expenses. Gross
margin for the three and six month period ended June 30, 2010 was 24.5%
and 22.9%, respectively, compared to 23.4% and 25.1% for the same periods in
2009.
23
Table of
Contents
Selling, General and Administrative
Expenses & Other.
Selling, general and administrative
(SG&A) expenses were $16.0 million, or 26.8% of net sales for the three
months ended June 30, 2010, a decrease of $1.1 million or 6% compared to
$17.1 million, or 31% of net sales for the three months ended June 30,
2009. The second quarter of 2010 SG&A included charges of $1.2 million for
professional services expenses related to the unsolicited tender offer
initiated by Industrias Romi S.A., and $0.1 million related to Jones and
Shipman acquisition costs. The second
quarter of 2009 SG&A included a $0.1 million charge for severance related
expenses in Europe. Exclusive of these charges, SG&A for the second quarter
of 2010 would have been $14.7 million, or 13% below the second quarter of 2009.
SG&A
expenses were $30.4 million, or 29.5% of net sales for the six months ended June 30,
2010, a decrease of $4.9 million or 14% compared to $35.3 million, or 32.9% of
net sales for the six months ended June 30, 2009. The first half of 2010
SG&A included charges of $2.1 million for professional services expenses
related to the unsolicited tender offer initiated by Industrias Romi S.A., and
$0.3 million related to Jones and Shipman acquisition costs. The first half of 2009 SG&A included a
$1.5 million charge related to a Voluntary Early Retirement Program (VERP) and
severance related expenses in the U.S. and Europe. Exclusive of these charges,
SG&A for the first half of 2010 would have been $28.0 million, or 17% below
the first half of 2009.
The
reductions in SG&A are 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 was not material for the
quarter, but had an unfavorable impact of approximately $0.6 million for the
six months ended June 30, 2010 compared to the same period of 2009.
Other (Income) Expense.
Other income
was $0.7 million for the quarter ended June 30, 2010 compared to expense
of $0.6 million for the same period in the prior year, an improvement of $1.3
million. Second quarter 2010 income
includes $0.6 million associated with the gain on the purchase of Jones &
Shipman. The 2009 second quarter loss is primarily related to foreign exchange
loss. Other income was $0.9 million for the six months ended June 30, 2010
compared to expense of $0.4 million for the same period in the prior year.
(Loss) from Operations
. Loss from operations was ($0.7) million or
(1.2%) of net sales for the three months ended June 30, 2010 compared to a
loss of ($4.8) million or (8.7%) of net sales for the same period of the prior
year. Loss from operations was ($6.0) million or (5.8%) of net sales for the
six months ended June 30, 2010 compared to a loss of ($8.7) million or
(8.1%) of net sales for the same period of 2009.
Interest Expense & Interest
Income
. Net
interest expense was $0.1 million and $0.2 million for the three and six months
ended June 30, 2010 compared to $0.2 million and $1.4 million for the same
periods in 2009. The decrease for the first half of 2010 compared to the same
period in 2009 is attributed to the $1.0 million of unamortized deferred
financing costs related to the termination of the multi-currency credit
facility which was expensed in 2009.
Income Taxes.
The provision for income taxes was $(0.01)
million and $(0.16) million for the three and six months ended June 30,
2010 compared to a tax provision of $(0.11) million and $0.17 million for the
three and six months ended June 30, 2009. The effective tax rate was
(1.7)% and (2.6)% for the three and six months ended June 30, 2010
compared to (2.2)% and 1.7% for the same periods in 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.
24
Table of
Contents
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 quarter ended June 30, 2010 of (1.7)% 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.
Net (Loss).
Net loss for the three months ended June 30,
2010 was ($0.8) million, or (1.3%) of net sales, compared to a net loss of
($5.0) million, or (9.0%) of net sales for the three months ended June 30,
2009. Net loss for the six months ended June 30, 2010 was ($6.0) million,
or (5.8%) of net sales, compared to a net loss of ($10.3) million, or (9.6%) of
net sales for the six months ended June 30, 2009. Basic and diluted loss per share for the
three months and six months ended June 30, 2010 were ($0.07) and ($0.52),
respectively, compared to basic and diluted loss of ($0.44) and ($0.91),
respectively, for the three and six months ended June 30, 2009.
Liquidity
and Capital Resources
At June 30, 2010 cash and cash equivalents were $24.8 million
compared to $24.6 million at December 31, 2009.
Cash Flow Provided By (Used In) Operating
Activities and Investing Activities:
Cash flow provided by (used in) operating and investing activities for
the six months ended June 30, 2010 compared to the same period in 2009 are
summarized in the table below:
|
|
Six months ended
June 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
2,762
|
|
$
|
16,648
|
|
Cash flow used in investing activities
|
|
$
|
(3,698
|
)
|
$
|
(1,646
|
)
|
Capital expenditures (included in investing
activities)
|
|
$
|
(1,077
|
)
|
$
|
(1,655
|
)
|
Net cash provided by operating activities was $2.8 million for the six
months ended June 30, 2010 compared to $16.6 million for the same period
in 2009, a decrease of $13.8 million. As a result of lower sales levels, our
accounts receivable balances decreased dramatically during the first six months
of 2009 providing $22.2 million in cash flow.
Accounts receivable balances continued to contract during the first six
months of 2010, however, as the sales levels had been depressed since late
2008, the magnitude of the decreases was diminished resulting in $3.1 million
in cash flow provided. During the first six months of 2010 as a result of new
order volumes, our raw material and parts purchase activity increased,
resulting in a cash use of $11.5 million as compared to $14.7 million in cash
provided by the reduction of inventory during the first six months of
2009. The inventory reduction during the
first half of 2009 was the result of the economic downturn and active working
capital management. During the first six
months of 2010, accounts payable increased by $13.9 million, primarily due to
increased inventory related activity.
During the first six months of 2009, accounts payable decreased by $6.5
million as we curtailed our spending activity due to the economic
downturn. During the first six months of
2010, accrued expenses/other liabilities increased by $2.5 million, primarily
due to increases in customer deposits, which is related to order activity. During the first six months of 2009, accrued
expenses/other liabilities decreased by $9.4 million primarily due to decreases
in customer deposits, which was related to reduced order activity levels.
Net
cash used in investing activities was $3.7 million for the six months ended June 30,
2010 compared to $1.6 million for the same period in 2009. We used $2.9 million
to purchase Jones & Shipman. Capital expenditures for the six months
ended June 30, 2010 included modest investment in manufacturing equipment.
25
Table
of Contents
Cash Flow Provided by
(Used In) Financing Activities:
Cash
flow provided by (used in) financing activities for the six months ended June
30, 2010 and 2009 are summarized in the table below:
|
|
Six months ended
June 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(in thousands)
|
|
Borrowings of short-term notes payable
|
|
$
|
2,113
|
|
$
|
8,354
|
|
(Repayments) of long-term debt
|
|
(282
|
)
|
(24,269
|
)
|
Payments of dividends
|
|
(116
|
)
|
(173
|
)
|
Payments of debt issuance fees
|
|
(100
|
)
|
(706
|
)
|
Net cash provided by (used in) financing
activities
|
|
$
|
1,615
|
|
$
|
(16,794
|
)
|
Cash
flow provided by financing activities was $1.6 million for the six months ended
June 30, 2010 compared to cash flow used in financing activities of $16.8
million for the same period in 2009. During the six months ended June 30, 2009,
we used $24.0 million to repay and terminate our multi-currency debt
facility. Dividend payments during the
first six 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 six
months of 2010, we paid fees of $0.1 million related to the revolving credit
facility compared to $0.7 million paid for the term loan and the multi-currency
debt facility during the same period of 2009.
Debt
outstanding, including notes payable was $6.8 million on June 30, 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, New York 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 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 June 30,
2010and as of 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 June 30, 2010 and as of December 31, 2009
on this line. The credit 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 ($7.0
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 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 ($4.6 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
26
Table of Contents
Kellenberger. The credit
facility is secured by real property owned by Kellenberger. On June 17, 2010, we replaced this agreement
with a new agreement which has substantially the same terms except for an
increase in the borrowing limit to CHF 6.0 million ($5.6 million equivalent).
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 June 30, 2010 and December 31, 2009, we were in compliance with the
required minimum equity ratios. At June 30, 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 a bank
that provides a CHF 7.0 million ($6.5 million equivalent) facility, that
provides for up to CHF 7.0 million ($6.5 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 June 30, 2010 and December 31, 2009, we
were in compliance with the required minimum equity ratios and 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 (NTD) which was equivalent to
approximately $5.5 million. At June 30, 2010 and December 31, 2009 borrowings
under this agreement were $3.3 million and $3.7 million, respectively.
Principal on the mortgage loan is repaid quarterly in the amount of NTD 4.5
million ($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, the
credit facility was amended. 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 June 30, 2010 and December 31, 2009 the balance outstanding under
this facility was $3.4 million and NTD 43.6 million ($1.4 million equivalent)
respectively.
On
July 12, 2010, we entered into a new unsecured credit facility at our
Taiwan subsidiary replacing the existing $5.0 million facility and maturing on
May 31, 2011. The agreement provides a $10.0 million facility for working
capital purposes. Interest is charged at the banks current base rate of
2.5% subject to change by the bank based on market conditions. This credit facility
carries no commitment fees on unused funds
Under
our current credit facilities, the Company has total credit availability of up
to $40.4 million at June 30, 2010 of which $26.4 million is available for
working capital needs. Of the $26.4 million working capital capacity under
these credit facilities, $21.6 million was available at June 30, 2010. Total
consolidated outstanding borrowings at June 30, 2010 and December 31, 2009 were
$6.8 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 10-K.
27
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 six
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 June 30, 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 June 30, 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.
28
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
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)
Item 5. Other Information
None
Item 6. Exhibits
|
10.1
|
-
|
Credit
Agreement dated June 17, 2010 between L. Kellenberger & Co. AG, and
Credit Suisse AG.
|
|
|
|
|
|
10.2
|
-
|
Credit
Agreement dated July 12, 2010 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.
|
|
|
|
|
|
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.
|
29
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.
|
|
|
|
|
|
|
|
|
August
6, 2010
|
|
By:
|
/s/
Richard L. Simons
|
Date
|
|
|
Richard
L. Simons
|
|
|
|
President
and CEO
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
August
6, 2010
|
|
By:
|
/s/
Edward J. Gaio
|
Date
|
|
|
Edward
J. Gaio.
|
|
|
|
Vice
President and CFO
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
August
6, 2010
|
|
By:
|
/s/
Douglas J. Malone
|
Date
|
|
|
Douglas
J. Malone
|
|
|
|
Corporate
Controller and Chief Accounting Officer
|
|
|
|
(Principal
Accounting Officer)
|
30
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