HDNG Hardinge Inc. (delisted)

Hardinge Reports Third Quarter Results -- Pre-tax Income of $0.6 Million for the Quarter and $1.6 Million YTD. -- Valuation Allowance on U.S. Deferred Tax Assets of $13.7 Million Charged to Net Income -- Debt Reduced $1.6 Million in Third Quarter, $10.4 Million Year to Date ELMIRA, N.Y., Oct. 30 /PRNewswire-FirstCall/ -- Hardinge Inc. , a leading producer of advanced material-cutting solutions, today reported financial results for the quarter ended September 30, 2003. Pre-tax income was $.6 million on sales of $44.0 million in the third quarter of 2003 compared to a pre-tax loss of ($1.2) million on sales of $39.3 in the same quarter of 2002. Year to date pre-tax income in 2003 was $1.6 million on sales of $132.4 million, compared to a pre-tax loss of ($0.4) million on sales of $127.1 million in 2002. J. Patrick Ervin, Chairman, President and Chief Executive Officer, commented, "Looking at Hardinge's total pre-tax results, the continuing improvement in our performance reflects our worldwide cost containment accomplishments, as well as steady sales from our core product lines and incremental sales from Bridgeport knee mill products. We are pleased to be reporting these improved operating results in a very difficult time for machine tool manufacturers around the world." The after-tax results for the quarter included a non-cash charge to provide a valuation allowance on the deferred tax assets related to the Company's U.S. operations. This $13.7 million of additional tax expense contributed to a net loss of ($13.4) million, or ($1.54) per basic and diluted share, for the three months ended September 30, 2003, as compared to a net loss of ($0.2) million, or ($0.02) per basic and diluted share, in the third quarter of 2002. For the nine months ended September 30, 2003, the net loss including the impact of the valuation allowance charge was ($12.9) million, or ($1.49) per basic share and ($1.48) per diluted share, as compared to a net income under $0.1 million, and less than $0.01 per basic and diluted share, in the first nine months of 2002. The sales of $44.0 million for the third quarter of 2003 were 12.0% above the $39.3 million of net sales in the third quarter of 2002. For the first nine months of 2003, net sales were $132.4 million, an increase of 4.2% over the net sales of $127.1 million in the first nine months of 2002. Mr. Ervin commented further: "We continue to place strong emphasis on operating income and positive cash flow from each of our business units. This strategy has allowed us to generate EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization, a non-GAAP financial measure often used by investors) of $3.4 million in the third quarter of 2003 and $10.2 million for the first nine months of 2003. Although we are running at a pre-tax loss in the U.S. operations, we are still generating positive EBITDA in that entity. Plus we have also added positive cash flow by further reducing inventories." Richard L. Simons, Executive Vice President and Chief Financial Officer, commented on the deferred tax charge, noting that: "In the third quarter of 2003, the Company recorded a non-cash valuation allowance of $13.7 million against its U.S. net deferred tax assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. "Deferred tax assets, such as those resulting from net operating loss carryforwards and deductible timing differences, reduce taxable income on tax returns in future years. SFAS 109 requires an assessment of a company's recent performance and other relevant factors when determining the need for a valuation allowance against those assets. In a situation where a company has three years of cumulative losses in a tax jurisdiction, as is the situation for Hardinge's U.S. operations, SFAS 109 indicates that forming a conclusion that a valuation allowance is not needed is very difficult. Positive evidence such as anticipated future year earnings and a long history of generating significant taxable income are not sufficient to offset the requirement to establish a valuation allowance," Mr. Simons added. "Previously, Hardinge had expected to return to profitability in its U.S. operations during 2003. The prolonged delay in the recovery of the machine tool industry in the U.S. has altered this expectation. Although we currently see improvements in our outlook for 2004 and a higher probability of a return to profitability sometime during 2004, it has proven especially difficult to predict the timing of this turnaround. Thus, under the strict rules of SFAS 109, we found it appropriate to establish this non-cash valuation allowance. It is important to note that the deferred assets can still be utilized when the company achieves profitability in the U.S. and, in fact, most net operating losses can be carried forward for 20 years under U.S. tax law. Recording this charge is not a reflection on the long-term future prospects of our U.S. business. Over time, we believe we will be in the position to fully utilize the U.S. deferred tax assets as we return to profitability. This non- cash charge did require an amendment to the net worth covenant within our debt agreements and those amendments are now in place. There were no other changes made to the terms of the debt agreements." The following table summarizes the Company's September 30, 2003 quarter- to-date and year-to-date sales by geographical region, with comparisons to the same periods in 2002: Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sales to: 2003 2002 % Change 2003 2002 % Change North America $20,487 $15,909 29% $56,832 $54,260 5% Europe 16,576 15,245 9% 53,279 53,451 0% Asia & Other 6,930 8,114 -15% 22,278 19,372 15% $43,993 $39,268 12% $132,389 $127,083 4% These 2003 sales included the positive impact of the weaker U.S. dollar on the conversion of the Company's European subsidiaries' sales into U.S. dollars. Viewed in constant dollars at the 2002 exchange rates, the Company's sales increased by 10% in the third quarter of 2003 as compared to the third quarter of 2002. For year-to-date sales viewed in constant dollars, sales declined by 1%. In both cases, the primary impact was on sales in Europe. Hardinge's U.S. sales, although improved, continued to reflect the severely depressed domestic demand for machine tools. The U.S. sales increase was due to an improvement in the Company's core business plus sales of Bridgeport machines and repair parts, which were added to the Company's product line in January, 2003. The sales results for Europe included most of the foreign currency translation benefits described previously, which were $0.8 million for the third quarter of 2003 and $7.1 million year to date. The year to date drop in European sales, in local currency, reflect the significant decline in the European markets since the start of 2002. Third quarter sales in Asia were 15% below the third quarter of 2002 but, as the $11.5 million third quarter orders from Asia results noted below indicate, this decline reflects timing of shipments. Customer order activity in this expanding market, and Hardinge's share thereof, continue to expand. The following table summarizes the Company's orders for the three and nine months ended September 30, 2003, which improved 39% and 18%, respectively, as compared to the same periods in 2002: Orders from Three Months Ended Nine Months Ended Customers in: Sept. 30, Sept. 30, 2003 2003 % Change 2003 2002 % Change North America $22,867 $14,309 60% $64,136 $51,528 24% Europe 16,360 14,072 16% 47,145 43,340 9% Asia & Other 11,485 8,087 42% 25,455 20,828 22% $50,712 $36,468 39% $136,736 $115,696 18% These increases included benefits of the exchange rate changes described previously. However, third quarter orders increased by 35% after excluding those benefits. Orders for the first nine months of 2003 increased by $14.2 million, or 12%, after excluding foreign currency impacts. North American orders rose despite a continuing decline in industry-wide orders. The Association for Manufacturing Technology, the machine tool industry's primary trade group, has recently reported that for the first eight months of 2003 metal-cutting machinery orders from U.S. customers were down 16% from the very depressed level of the same period in 2002. U.S. orders for Hardinge traditional products were better than the overall industry experience and the Company also continued to benefit from new orders for Bridgeport products. Increased orders from European customers included most of the foreign currency translation benefits described previously. Excluding those benefits, third quarter 2003 orders in Europe were approximately 5% above the third quarter orders in 2002. For the first nine months of 2003, orders from Europe, stated in constant U.S. dollars, actually declined by 1%. Mr. Ervin commented, "I just returned from the EMO machine tool show in Milan, Italy last week. This biannual show brings together machine tool manufacturers from around the world and customers from throughout Europe. Although things have been slowing down in Europe, I sensed that order levels have stabilized with anticipation that the current order level will continue through 2004." Strong third quarter orders from Asian customers reflected recovery from second quarter order delays, which were caused by the SARS tragedy. The Company expects order levels to remain strong in this area of the world. The Company's September 30, 2003 backlog of $40.7 million was 19% above the $34.2 million backlog at June 30, 2003 and 3% above the September 30, 2002 backlog of $39.5 million. The following table summarizes the Company's sales by product category for the three and nine months ended September 30, 2003, with comparisons to the same periods in 2002: Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sales of: 2003 2002 % Change 2003 2002 % Change Machines $29,471 $25,339 16% $86,631 $83,240 4% Non-machine products & services 14,522 13,929 4% 45,758 43,843 4% $43,993 $39,268 12% $132,389 $127,083 4% Gross margin was 29.1% of net sales during the third quarter of 2003, similar to the 28.8% in the third quarter of 2002. For the first nine months of 2003, gross margin was 30.1% of net sales, as compared to 29.6% during the first nine months of 2002. Selling, general and administrative (SG&A) expenses were $11.6 million, or 26.5% of net sales, during the three months ended September 30, 2003, as compared to $11.7 million, or 29.7% of net sales, during the third quarter of 2002. For the first nine months of 2003, SG&A was $36.4 million, or 27.5% of net sales, as compared to $35.5 million, or 27.9% of net sales, during the first nine months of 2002. The impact of translating foreign operations into U.S. dollars increased the 2003 periods' SG&A by $0.1 million and $1.7 million, respectively. The decrease without the currency impacts, which were $0.2 million for the latest quarter and $0.8 million for the first nine months of 2003, resulted from cost cutting efforts taken throughout 2002, partially offset by higher costs of employee benefits in the U.S., largely due to pension and health care expenses. Interest expense was $0.6 million for the quarter ended September 30, 2003, as compared to $0.9 million in the third quarter of 2002, and $2.2 million for the first nine months of 2003, as compared to $2.8 million in the first nine months of 2002. These reductions of 33% and 21%, respectively, were primarily due to reduced borrowing levels. Total debt was $31.6 million at September 30, 2003, as compared to $42.0 million at December 31, 2002 and $33.2 million at June 30, 2003. Mr. Ervin continued, "We are pleased, but not content, with the improvements we have seen over the past year. We are encouraged to see the strong order level improvements attained in all three regions last quarter. In fact, the third quarter of 2003 was the best order level since the second quarter of 2001, despite the summer quarter being historically the lowest order quarter, with long vacation shutdowns both in our plants and within our customers' organizations. Regarding the Company's outlook, Mr. Ervin added: "Looking at the relatively low interest rates, coupled with President Bush's Economic Recovery Act, with powerful tax incentives requiring machinery purchases' installation by the end of 2004, as well as the length of this downturn, which has led to aging equipment throughout America's factories, we believe that 2004 demand for machine tools in North America is likely to increase. "Hardinge's excellent new products, strong service network and established international presence, as well as the weaker dollar, will allow us to achieve strong market share participation as this recovery builds steam. Furthermore, our lower cost structures throughout the world will allow us to achieve better shareholder returns on these sales" Mr. Ervin concluded. The Company will host its usual conference call at 10:00 am today to discuss these results. The call can be accessed via the Internet live or as a replay at http://www.fulldisclosure.com/. The archive will be available for replay for 14 days following the call. Hardinge Inc., founded more than 100 years ago, is an international leader in providing the latest industrial technology to companies requiring material- cutting solutions. The Company designs and manufactures computer-numerically controlled metal-cutting lathes, machining centers, grinding machines and other industrial products. The Company's common stock trades on NASDAQ under the symbol "HDNG." For more information, please visit the Company's website at http://www.hardinge.com/ . This news release contains statements of a forward-looking nature relating to the financial performance of Hardinge Inc. Such statements are based upon information known to management at this time. The company cautions that such statements necessarily involve uncertainties and risk, and deal with matters beyond the company's ability to control and in many cases the company cannot predict what factors would cause actual results to differ materially from those indicated. Among the many factors that could cause actual results to differ from those set forth in the forward-looking statements are fluctuations in the machine tool business cycles, changes in general economic conditions in the U.S. or internationally, the mix of products sold and the profit margins thereon, the relative success of the company's entry into new product and geographic markets, the company's ability to manage its operating costs, 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. HARDINGE INC. Consolidated Statements of Operations (In Thousands, Except Per Share Data) Three months ended Nine months ended September 30, September 30, 2003 2002 2003 2002 (Unaudited)(Unaudited)(Unaudited)(Unaudited) Net Sales $43,993 $39,268 $132,389 $127,083 Cost of sales 31,204 27,960 92,579 89,473 Gross profit 12,789 11,308 39,810 37,610 Selling, general and administrative expenses 11,648 11,654 36,372 35,457 Income (loss) from operations 1,141 (346) 3,438 2,153 Interest expense 615 946 2,157 2,846 Interest (income) (97) (48) (339) (277) Income (loss) before income taxes and minority interest in consolidated subsidiary and investment of equity company 623 (1,244) 1,620 (416) Income taxes (benefits) 13,718 (1,094) 13,951 (719) Minority interest in (profit) of consolidated subsidiary (374) (96) (691) (322) Profit in investment of equity company 39 30 75 34 Net (loss) income ($13,430) ($216) ($12,947) $15 Per share data: Basic (loss) earnings per share ($1.54) ($.02) ($1.49) $.00 Weighted average number of common shares outstanding 8,716 8,703 8,703 8,683 Diluted (loss) earnings per share ($1.54) ($.02) ($1.48) $.00 Weighted average number of common shares outstanding 8,736 8,719 8,739 8,714 Other financial data: Gross margin 29.1% 28.8% 30.1% 29.6% Operating margin 2.6% -0.9% 2.6% 1.7% Capital expenditures 315 1,063 1,181 2,033 Depreciation and amortization 2,170 2,521 6,446 7,541 HARDINGE INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands) Sept. 30, Dec. 31, 2003 2002 (Unaudited) Assets Current assets: Cash $3,474 $2,175 Accounts receivable, net 43,626 38,519 Notes receivable, net 7,243 6,333 Inventories 83,571 87,748 Deferred income taxes 10 4,243 Income tax receivables 5,795 Prepaid expenses 4,516 3,362 Total current assets 142,440 148,175 Property, plant and equipment: Property, plant and equipment 159,607 156,815 Less accumulated depreciation 93,934 87,908 65,673 68,907 Other assets: Notes receivable 7,053 8,392 Deferred income taxes 102 9,268 Intangible pension asset 2,630 2,630 Goodwill 17,165 16,390 Other 2,565 2,523 29,515 39,203 Total assets $237,628 $256,285 HARDINGE INC. AND SUBSIDIARIES Consolidated Balance Sheets--Continued (In Thousands) Sept. 30, Dec. 31, 2003 2002 (Unaudited) Liabilities and shareholders' equity Current liabilities: Accounts payable $12,921 $14,417 Notes payable to bank 3,052 5,351 Accrued expenses 13,477 13,995 Accrued income taxes 1,834 1,150 Deferred income taxes 3,608 3,273 Current portion long-term debt 5,215 6,125 Total current liabilities 40,107 44,311 Other liabilities: Long-term debt 23,329 30,526 Accrued pension plan expense 17,804 17,356 Deferred income taxes 2,563 2,525 Accrued postretirement benefits 5,838 5,838 Derivative financial instruments 5,383 5,257 Other liabilities 2,620 2,255 57,537 63,757 Equity of minority interest 3,122 2,431 Shareholders' equity: Preferred stock, Series A, par value $.01: Authorized - 2,000,000; issued - none Common stock, $.01 par value: Authorized shares - 20,000,000 Issued shares - 9,919,992 at September 30, 2003 and December 31, 2002 99 99 Additional paid-in capital 60,612 61,139 Retained earnings 92,577 105,612 Treasury shares (13,898) (15,068) Accumulated other comprehensive loss (901) (4,562) Deferred employee benefits (1,627) (1,434) Total shareholders' equity 136,862 145,786 Total liabilities and shareholders' equity $237,628 $256,285 DATASOURCE: Hardinge Inc. CONTACT: Richard L. Simons, Exec VP & CFO of Hardinge Inc., +1-607-378-4202, or John McNamara of FRB Weber Shandwick, +1-212-445-8435

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