Hardinge Inc. (NASDAQ: HDNG), a leading international provider
of advanced metal-cutting solutions, reported financial results for
its fourth quarter and fiscal year ended December 31, 2011.
Net sales (“sales”) were $91.0 million in the fourth quarter of
2011, up $9.0 million, or 11%, over sales of $82.0 million in the
prior year’s fourth quarter. Foreign currency translation had
approximately $2.4 million favorable effect on sales in the quarter
compared with the prior year. When compared with the 2011 third
quarter, sales were up $0.6 million, or 1%, for the 2011 fourth
quarter. Net income for the fourth quarter was up measurably to
$3.2 million, or $0.28 per diluted share, a $1.3 million increase
from $1.9 million, or $0.17 per diluted share, in the prior-year
period. Sequentially, net income declined from $4.3 million, or
$0.36 per diluted share, primarily as a result of lower gross
profits.
Richard Simons, Chairman, President and Chief Executive Officer,
commented, “Significant sales growth continued into the fourth
quarter in North America, illustrating both the effectiveness of
our strategic actions to deepen and broaden domestic distribution
channels and the strengthening of the U.S. industrial economy. Our
restructuring efforts over the last several years, along with our
strong cost discipline, have strengthened our sustained earnings
power.”
For the year, 2011 sales grew 33%, or $84.6 million, to $341.6
million from $257.0 million in 2010, as the Company recognized
strong sales throughout its markets. Foreign currency translation
had approximately $20.9 million favorable effect on sales for the
year. Net income in 2011 was $12.0 million, or $1.02 per diluted
share, compared with a net loss of $5.2 million, or ($0.46) per
diluted share, in 2010.
Diversified Markets Create Balance and Drive Growth
Sales by Region
Quarter Ended Fiscal Year Ended
December 31, December 31, (in thousands) (in
thousands)
Sales to 2011
2010 %
2011 %
Sales to 2011
2010 %
2011 %
Customers in
Change of Total
Customers in
Change of Total North America $
31,796 $ 15,314 108 % 35 % North America $ 90,000 $ 58,438 54 % 26
% Europe
26,449
30,289
(13)
%
29 % Europe
104,825
74,449
41 % 31 % Asia & Other
32,801
36,404
(10)
%
36 % Asia & Other
146,748
124,120
18 % 43 %
Total $ 91,046
$ 82,007 11 %
Total $ 341,573 $ 257,007
33 %
North American sales, which represented 35% of total sales in
the fourth quarter of 2011, more than doubled when compared with
the fourth quarter of 2010. Sales in Europe and Asia & Other
declined in the quarter when compared with the prior year period,
reflecting the slowing in the European industrial economy and
leveling of activity in China. Approximately $8 million in sales to
Asia & Other in the 2010 fourth quarter were related to orders
from a China-based supplier to the consumer electronics
industry.
For the year, sales to North America, which had the strongest
regional growth, were up $31.6 million to $90.0 million. Sales to
Europe were up $30.4 million, or 41%, while sales to Asia &
Other grew $22.6 million to $146.7 million. Included in sales to
Asia & Other in 2010 and 2011 were approximately $29 million
and $15 million, respectively, related to the orders from a
China-based supplier to the consumer electronics industry. The
Company believes that its geographic diversity helps to offset
economic impacts that can vary from region to region around the
world.
Approximately 23% of sales in both the fourth quarter and full
year 2011 were from parts and service, which is representative of
the typical mix of machine tools and repair parts/service given the
large installed base of Hardinge brands around the world.
Fluctuations in Hardinge’s sales in total and among geographic
locations and industries can vary from quarter-to-quarter based on
the timing and magnitude of orders and projects. Hardinge does not
believe that such quarter-to-quarter fluctuations are indicative of
business trends, which the Company believes are more apparent on a
trailing twelve-month basis.
Leverage Realized on Higher Sales
Gross profit was $23.1 million, or 25.4% of sales, in the 2011
fourth quarter compared with $19.7 million, or 24.1% of sales, in
the same period of the prior year. When compared with the 2011
third quarter gross margin of 28.3%, gross margin was negatively
impacted approximately 120 basis points as a result of year-end
inventory adjustments and an additional 110 basis points due to
product and geographic mix. For the year, gross profit in 2011 was
$91 million, or 26.6% of sales, compared with $61.3 million, or
23.8% of sales, in the prior fiscal year as a result of the
leverage gained on higher sales volume.
Selling, general and administrative (“SG&A”) expenses in the
2011 fourth quarter were $19.0 million compared with $16.5 million
in the prior year’s fourth quarter. The increase was primarily due
to commissions on higher sales, performance-based compensation
increases and approximately $0.4 million associated with foreign
currency exchange. As a percent of sales, SG&A was 20.9% in the
2011 fourth quarter, up from 20.1% in the prior year’s fourth
quarter. For the year, SG&A expenses increased 12%, or $7.9
million, to $73.6 million compared with $65.7 million in 2010;
however, as a percent of sales, SG&A was down to 21.5% of sales
in 2011 compared with 25.5% in the prior year, reflecting the
Company’s emphasis on cost discipline.
Income from operations in the fourth quarter of 2011 was $3.6
million, up 12% over $3.3 million in the prior year’s fourth
quarter. As a percent of sales, income from operations remained
unchanged at 4.0%. For the year, income from operations was $16.6
million, or 4.9% of sales, compared with a loss from operations of
$2.7 million in the prior year.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) grew 11% to $5.5 million in the 2011 fourth quarter
compared with $4.9 million in the same period of the prior year.
2011 EBITDA was $24.3 million, sharply improved over EBITDA of $4.3
million in the prior fiscal year. The Company believes that, when
used in conjunction with GAAP measures, EBITDA, which is a non-GAAP
measure, helps in the understanding of operating performance. (See
the attached table for a Reconciliation of Net Income (Loss) to
EBITDA and other important information regarding Hardinge’s use and
presentation of EBITDA).
Solid Balance Sheet Provides Financial Flexibility for Growth
Strategy
Cash and cash equivalents at December 31, 2011 were $21.7
million compared with $30.9 million at December 31, 2010. During
2011, Hardinge invested $17.2 million in the expansion of its
manufacturing operations in China and Switzerland to provide
additional capacity for growth and productivity enhancements. Total
capital expenditures in 2011 were $19.2 million. Capital
expenditures in fiscal 2012 are expected to be approximately $7
million to $8 million, with approximately $3 million to $4 million
related to maintenance capital spend. The remainder is planned for
completion of the China and Switzerland projects.
Mr. Simons noted, “The significant capital used for expanding
our capacity and improving our operations were critical, strategic
investments in our future and we believe will better enable us to
capitalize on the opportunities we see in the expanding machine
tool market. We have more than doubled our manufacturing capacity
in China in order to better serve the Asian market as its
consumption of machine tools is expected to grow at a double digit
compounded rate for the next few years. As well, Kellenberger, our
operation in Switzerland, is among the top suppliers of
high-precision cylindrical grinding machines in the world and we
expect the enhancements we have made in that operation will
facilitate our capture of a greater share of that highly
specialized market.”
Trend in Net Orders (“Orders”) Vary by Region
Orders by Region
Quarter Ended Fiscal Year Ended
December 31, December 31, (in thousands) (in
thousands)
Orders from 2011
2010 %
2011 %
Orders from 2011
2010 %
2011 %
Customers in
Change of Total
Customers in
Change of Total North
America $ 22,647 $ 19,161 18 %
33
% North America $ 95,435 $ 67,213 42 % 26 % Europe
26,920
32,027
(16)
%
39 % Europe
120,410
90,618
33 % 32 % Asia & Other
19,111
31,800
(37)
%
28 % Asia & Other
157,010
138,871
13 % 42 %
Total $ 69,478
$ 82,988
(16)
%
Total $
372,855 $ 296,702 26 %
Orders during the fourth quarter of 2011 were $69.5 million, net
of approximately $8.5 million in cancellations of orders that had
been received in the first half of 2011. Orders for the quarter
were down 16% compared with orders in the fourth quarter of fiscal
2010. For 2011, total orders received were $372.9 million, up 26%
over orders received in 2010. Included in orders in 2010 was $35.2
million associated with the China-based supplier to the consumer
electronics industry. Hardinge received an additional $12.5 million
in orders from the same company in 2011. Strong activity in the
North American markets reflected the strengthening of the U.S.
industrial economy and the effectiveness of Hardinge’s restructured
channels to market.
Mr. Simons concluded, “During the latter half of 2010 and the
first half of 2011, the machine tool industry realized an extremely
exaggerated recovery. We saw rapid expansion of sales as early
recovery demand was strong and customers reacted to the sudden
constraints on the machine tool supply chain due to the significant
demand. Given this and the macro-economic pressures that exist, we
believe the rate of growth will be tempered during the first half
of the year in 2012, but should still be strong and more
representative of long-term industry fundamentals.
“When final numbers are published, it is expected that worldwide
machine tool consumption in 2011 will have surpassed its 2008
historic peak, and industry analysts estimate that by 2014 Asia’s
consumption of machine tools alone will surpass the world’s
historic peak consumption. We believe our high quality brands and
continually expanding channels to market will enable us to fully
capitalize on the industry’s expansion.”
Webcast and Conference Call
Hardinge will host a conference call and webcast today at 11:00
a.m. Eastern Time. During the conference call and webcast, Richard
Simons, Chairman, President and CEO, and Edward Gaio, Vice
President and CFO, will review the financial and operating results
for the quarter and full year, as well as the Company’s strategy
and outlook. A question and answer session will follow the formal
discussion. Their review will be accompanied by a slide
presentation which will be available on Hardinge’s website at
www.hardinge.com.
The conference call can be accessed by dialing (201) 689-8560.
The listen-only audio webcast can be monitored at
www.hardinge.com.
A telephonic replay will be available from 2:00 p.m. ET the day
of the call through Thursday, February 23, 2012. To listen to the
archived call, dial (858) 384-5517 and enter conference ID number
386498. Alternatively, an archive of the webcast will be available
on the Company’s website at www.hardinge.com. A transcript will
also be posted to the website, once available.
About Hardinge
Hardinge is a global designer, manufacturer and distributor of
machine tools, specializing in SUPER-PRECISION® and precision CNC
Lathes, high performance Machining Centers, high-end cylindrical
and jig Grinding Machines, and technologically advanced Workholding
& Rotary Products. The Company’s products are distributed to
most of the industrialized markets around the world with
approximately 75% of its sales outside of North America. Hardinge
has a very diverse international customer base and serves a wide
variety of end-user markets. This customer base includes
metalworking manufacturers which make parts for a variety of
industries, as well as a wide range of end users in the aerospace,
agricultural, transportation, basic consumer goods, communications
and electronics, construction, defense, energy, pharmaceutical and
medical equipment, and recreation industries, among others. The
Company has manufacturing operations in Switzerland, Taiwan, the
United States, China and the United Kingdom. Hardinge’s common
stock trades on the NASDAQ Global Select Market under the symbol,
“HDNG.”
For more information, please visit http://www.hardinge.com.
Safe Harbor Statement
This news release contains forward-looking statements (within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended). Such statements are based on management's current
expectations that involve risks and uncertainties. Any statements
that are not statements of historical fact or that are about future
events may be deemed to be forward-looking statements. For example,
words such as "may," "will," "should," "estimates," "predicts,"
"potential," "continue," "strategy," "believes," "anticipates,"
"plans," "expects," "intends," and similar expressions are intended
to identify forward-looking statements. The Company's actual
results or outcomes and the timing of certain events may differ
significantly from those discussed in any forward-looking
statements. The Company undertakes no obligation to publicly update
any forward-looking statement, whether as a result of new
information, future events, or otherwise.
HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands except per share
data) Quarter Ended
Fiscal Year Ended
December 31, December 31, 2011
2010 2011
2010 Net sales $ 91,046 $ 82,008
$ 341,573 $ 257,007 Cost of sales 67,946
62,266 250,545 195,717
Gross profit 23,100 19,742
91,028 61,290 Gross profit margin 25.4
% 24.1 % 26.6 % 23.8 % Selling, general and administrative
expenses 18,990 16,494 73,599 65,650 Loss (gain) on sale of assets
69 (85 ) 46 (1,045 ) Other expense (income) 397
67 786 (585 ) Income (loss) from
operations 3,644 3,266 16,597
(2,730 ) Operating margin 4.0 % 4.0 % 4.9 % (1.1 )%
Interest expense 102 92 339 426 Interest income -
(3 ) (101 ) (90 ) Income (loss) before
income taxes 3,542 3,177 16,359 (3,066 ) Income tax expense
300 1,253 4,373
2,168 Net income (loss) $ 3,242 $ 1,924 $
11,986 $ (5,234 ) Per share data: Basic
earnings (loss) per share $ 0.28 $ 0.17 $ 1.03
$ (0.46 ) Diluted earnings (loss) per share $ 0.28 $
0.17 $ 1.02 $ (0.46 ) Cash dividends declared
per share $ 0.02 $ 0.005 $ 0.05 $ 0.02
Weighted avg. shares outstanding: Basic 11,467 11,409 11,463
11,409 Weighted avg. shares outstanding: Diluted 11,552 11,586
11,548 11,409
HARDINGE INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in
thousands except share and per share data) December
31, December 31, 2011
2010 Assets Cash and cash equivalents $
21,736 $ 30,945 Restricted cash 4,575 5,225 Accounts receivable,
net 65,909 47,572 Inventories, net 122,782 105,306 Other current
assets 13,338 12,882
Total current assets 228,340 201,930 Property, plant and
equipment, net 68,204 56,628 Intangible assets, net 12,765 13,642
Other non-current assets 2,360
2,647 Total non-current assets 83,329
72,917 Total assets $ 311,669
$ 274,847
Liabilities and shareholders'
equity Accounts payable $ 36,952 $ 33,533 Notes payable to bank
12,969 1,650 Accrued expenses 25,103 22,791 Customer deposits
18,881 10,468 Accrued income taxes 3,480 3,656 Deferred income
taxes 2,556 2,546 Current portion of long-term debt 1,548
617 Total current liabilities
101,489 75,261 Long-term debt 7,020 2,777 Pension and
postretirement liabilities 49,310 32,223 Deferred income taxes
2,391 2,516 Other liabilities 4,436
4,168 Total non-current liabilities 63,157 41,684
Common stock ($0.01 par value, 12,472,992 issued) 125 125
Additional paid-in capital 114,369 114,183 Retained earnings 65,041
53,637 Treasury shares (10,379 ) (11,022 ) Accumulated other
comprehensive (loss) income (22,133 )
979 Total shareholders' equity 147,023
157,902 Total liabilities and shareholders'
equity $ 311,669 $ 274,847
HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS (in thousands) Fiscal
Year Ended December 31, 2011
2010 Operating activities Net
income (loss) $ 11,986 $ (5,234 ) Adjustments to reconcile net
income (loss) to net cash (used in) provided by operating
activities: Impairment charge - (25 ) Depreciation and amortization
7,736 7,042 Debt issuance amortization 124 310 Provision for
deferred income taxes (361 ) (1,983 ) Loss (gain) on sale of assets
46 (1,045 ) (Gain) on purchase of Jones & Shipman - (647 )
Unrealized intercompany foreign currency transaction (gain) loss
(862 ) 615 Changes in operating assets and liabilities: Accounts
receivable (18,589 ) (609 ) Inventories (18,123 ) 622 Other assets
444 (3,077 ) Accounts payable 3,990 12,520 Customer deposits 8,469
5,691 Accrued expenses (1,277 ) 3,697 Accrued postretirement
benefits (715 ) (741 ) Net cash (used in)
provided by operating activities (7,132 ) 17,136
Investing activities Capital expenditures (19,217 ) (3,728 )
Proceeds on sale of assets 900 1,576 Purchase of land use rights -
(2,594 ) Purchase of Jones & Shipman, net of cash acquired
- (3,014 ) Net cash used in investing
activities (18,317 ) (7,760 )
Financing activities
Proceeds from short-term notes payable to bank 29,987 10,416
Repayments of short-term notes payable to bank (18,299 ) (10,272 )
Proceeds from long-term debt 6,011 - Payments on long-term debt
(614 ) (571 ) Dividends paid (581 ) (232 ) Other financing
activities (41 ) (111 ) Net cash provided by
(used in) financing activities 16,463 (770 ) Effect of
exchange rate changes on cash (223 ) 1,920
Net (decrease) increase in cash (9,209 ) 10,526 Cash and
cash equivalents at beginning of year 30,945
20,419 Cash and cash equivalents at end of year $
21,736 $ 30,945
HARDINGE INC. AND SUBSIDIARIES
Reconciliation of Net Income (Loss) to
EBITDA
(in thousands)
The following table provides a
reconciliation of the Company’s reported net income (loss) to
EBITDA for the fourth quarter and fiscal year ended December 31,
2011 and 2010, respectively:
Quarter Ended Fiscal Year Ended December
31, December 31, 2011 2010
$ Change
2011 2010
$ Change
GAAP net income (loss)
$
3,242
$
1,924
$
1,318
$
11,986
$
(5,234
)
$
17,220
Plus: Interest expense, net 102 89 13 238 336
(98
)
Income tax expense 300 1,253
(953
)
4,373
2,168 2,205 Depreciation and amortization 1,851 1,678
173 7,736 7,042 694
EBITDA (1)
$
5,495
$
4,944
$
551
$
24,333
$
4,312
$
20,021
(1) EBITDA, a non-GAAP financial measure, is
defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is used by management to internally measure
our operating and management performance and by investors as a
supplemental financial measure to evaluate the performance of our
business that, when viewed with our GAAP results and the
accompanying reconciliation, we believe provides additional
information that is useful to gain an understanding of the factors
and trends affecting our business.
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