HDNG Hardinge Inc. (delisted)

Hardinge Inc. (NASDAQ: HDNG), a leading international provider of advanced metal-cutting solutions, reported financial results for its fourth quarter and full year ended December 31, 2012.

Net sales (“sales”) were $90.6 million in the fourth quarter of 2012, down $0.4 million from sales of $91.0 million in the prior-year’s fourth quarter. The effect of foreign currency exchange was not significant. When compared with the trailing third quarter of 2012, sales were up $7.7 million, or 9%, during the fourth quarter 2012. Foreign currency translation had a $1.4 million positive impact on sales relative to the trailing quarter.

Net income for the fourth quarter was $7.8 million, or $0.66 per diluted share, compared with $3.2 million, or $0.28 per diluted share, in the prior-year’s fourth quarter. Net income in the 2012 fourth quarter benefited from a $2.7 million reduction in tax valuation allowances which resulted from deferred tax liabilities recorded in conjunction with the acquisition of Usach Technologies in December 2012. Excluding the tax benefit, net income would have been $5.1 million*, or $0.43 per diluted share*.

For the full year, sales declined in 2012 to $334.4 million, down by $7.2 million, or 2%, from sales of $341.6 million in 2011. Foreign currency translation had a negative $4.8 million effect on sales for the year. Excluding this unfavorable impact, 2012 sales were down $2.4 million, or relatively unchanged, compared with the prior year. Net income for the year was $17.9 million, or $1.53 per diluted share, compared with $12.0 million, or $1.02 per diluted share, in 2011. Excluding the tax benefit from the previously mentioned reversal in tax valuation allowances, net income in 2012 was $15.2 million*, or $1.29 per diluted share*.

* These are non-GAAP financial measures. Please see the attached table for a reconciliation of GAAP and non-GAAP financial measures.

Richard L. Simons, Chairman, President and Chief Executive Officer, commented, “Our strong fourth quarter financial performance reflected favorable product mix, primarily driven by grinding machine orders received in late 2011 and early 2012 that were shipped in the quarter. For the full year, we had strong cash generation from operations which effectively funded the acquisition of Usach Technologies in late December. This was the result of our continued focus on driving operational efficiencies and carefully managing working capital.”

 

Sales by Region

 

      Quarter Ended         December 31,   December 31,   September 30,

Sales toCustomers in

        2012   % of Total     2011   % Change     2012   % Change                 North America $ 24,030 27% $ 31,796 (24)% $ 20,161 19% Europe 34,878 39% 26,449 32% 27,445 27% Asia         31,652   35%     32,801   (4)%     35,277   (10)% Total       $ 90,560       $ 91,046   (1)%   $ 82,883   9%                   Fiscal Year Ended         December 31,   December 31, Sales toCustomers in         2012   % of Total     2011   % Change             North America $ 83,547 25% $ 90,000 (7)% Europe 121,008 36% 104,825 15% Asia         129,858   39%     146,748   (12)% Total       $ 334,413       $ 341,573   (2)%  

For the fourth quarter, sales in Europe were up $8.4 million over the prior-year period and up $7.4 million over the trailing third quarter driven by strong sales of grinding machines. North American sales were down by $7.8 million compared with the prior year which had an unusually strong fourth quarter. Fourth quarter sales in North America improved by $3.9 million over the trailing third quarter of 2012, driven by customer year-end delivery requirements. Asia sales were down $1.1 million from the prior-year period. Compared with the trailing third quarter, Asia sales were down $3.6 million as the trailing quarter benefitted from $9.6 million of incremental multi-machine sales to China.

For the full year, European sales increased by $16.2 million on improved grinding sales, particularly to Germany. This improvement was offset by sales to Asia which were down $16.9 million as a result of the decelerating economy in China throughout 2012. In North America, sales were down by $6.5 million due to our distributors adjusting their inventory levels.

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 necessarily indicative of larger business trends. Rather, the Company believes that such business trends can be discerned from the Company’s performance during a longer period of time, such as a trailing twelve-month period.

Solid Margin Expansion

Gross profit was $27.7 million, or 30.6% of sales, in the 2012 fourth quarter compared with $23.1 million, or 25.4% of sales, in the same period of the prior year, and gross profit of $24.0 million, or 29.0% of sales, in the trailing third quarter of 2012. Improvements in fourth quarter 2012 gross profit when compared with the prior-year period were primarily the result of favorable product mix and improved pricing, as a larger percent of total sales was represented by grinding machines than in the prior-year period. Also, gross profit in the fourth quarter of 2011 was negatively impacted by $0.9 million in year-end inventory adjustments. For the year, gross profit in 2012 increased to $96.8 million, or 29.0% of sales, compared with $91.0 million, or 26.6% of sales, in 2011 as a result of product and sales channel mix.

Selling, general and administrative (“SG&A”) expenses in the 2012 fourth quarter were up by $2.0 million to $21.0 million, or 23.2% of sales, compared with $19.0 million, or 20.9% of sales, in the prior-year’s fourth quarter. For the full year, SG&A was $76.2 million or 22.8% of sales, up $2.6 million, or 4%, compared with 2011, when SG&A as a percent of sales was 21.5%. Increased SG&A as a percent of sales compared with the prior-year period for both the fourth quarter and full year 2012 was due to acquisition related fees associated with the purchase of Usach Technologies of $0.3 million, $0.3 million for the reorganization of operations in the United Kingdom, a well as higher agent related sales commissions.

Income from operations in the fourth quarter of 2012 was $6.5 million, up 80% from $3.6 million during the prior-year’s fourth quarter. As a percentage of sales, income from operations was 7.2%, a 3.2 point increase over the same period of the prior year. Operating margin improved 0.8 points over the trailing third quarter. For the full year, income from operations was $20.1 million, or 6.0% of sales, compared with $16.6 million, or 4.9% in 2011.

Significant Cash Generation in the Fourth Quarter

Cash and cash equivalents at December 31, 2012 increased by $5.2 million to $26.9 million compared with $21.7 million at December 31, 2011, and increased by $5.4 million from $21.5 million at September 30, 2012. Increased cash compared with the prior year was the result of strong cash generation from operations that more than offset the net $8.8 million use of cash for the acquisition of Usach Technologies in December 2012 and capital expenditures for the year of $7.6 million including expansion capital for the completion of the Company’s new facilities in China and Switzerland. Capital expenditures in 2013 are expected to be in the $4.0 to $5.0 million range for general maintenance expenditures.

Cash from operations was $17.8 million in the fourth quarter of 2012, compared with $1.9 million in the prior-year period, and for the full year cash from operations increased by $30.6 million, to $23.4 million.

 

Net Orders by Region

 

      Quarter Ended         December 31,   December 31,   September 30, Orders from Customers in         2012   % of Total   2011 % Change     2012   % Change                 North America $ 17,410 30%

$

22,647

(23)% $ 20,913 (17)% Europe 19,937 34% 26,920 (26)% 23,756 (16)% Asia         20,968   36%     19,911 5%     23,690   (11)% Total       $ 58,315      

$

69,478

(16)%   $ 68,359   (15)%           Fiscal Year Ended         December 31,   December 31, Orders from Customers in   2012 % of Total   2011   % Change               North America $ 78,982 27%

$

95,435

(17)% Europe 105,978 37% 120,410 (12)% Asia         103,418   36%     157,010   (34)% Total       $ 288,378      

$

372,855

  (23)%  

Net orders (“orders”) during the quarter were $58.3 million, a decrease of $11.2 million when compared with the fourth quarter of 2011. The effects of foreign currency translation were not material. Sequentially, orders were down $10.0 million from the trailing third quarter of 2012, which reflected order declines in all regions. Excluding the $0.8 million impact of foreign currency translation, orders on a sequential basis were down $10.8 million.

Compared with the prior-year period, fourth quarter 2012 orders declined $5.2 million in North America as U.S. based distributors’ slowed order levels to manage their inventories. In Europe, orders declined as the recession has negatively impacted demand. Orders in Asia improved somewhat in the fourth quarter as the economy in China improved after several quarters of decline.

For the year, orders were down $84.5 million as capital spending slowed and comparables in the prior year reflected order recovery from very weak levels during the recession.

The Company’s order backlog at December 31, 2012 was $124.9 million, which includes the addition of $28.8 million in backlog from the Usach acquisition.

Outlook

Mr. Simons noted, “During the quarter, the impact of Europe’s recession was apparent in the dramatic decline in orders and we expect demand to remain weak in that region through 2013. The North American market overall is actually stable and we are expecting organic sales in 2013 to be at about the same level as 2012. Somewhat encouraging is that Asia has appeared to have stabilized with positive growth in the fourth quarter in China. As I have mentioned on several occasions, China can turn upward rapidly and we are confident that we are in an excellent position to handle a strong surge in orders should that occur. However, we expect it will be sometime in the second quarter before we have a real sense of the direction and degree that the China market will trend.

“Our current level of orders indicates much weaker organic sales for us in 2013, although we do expect strong cash generation. Given our strengthened business model, we expect our financial results in slower periods to be much better than they were historically. And, no matter what direction the markets turn, we are prepared to adjust our operations accordingly. Of note, the acquisition of Usach Technologies has fortified our grinding machine offering in North America and over the next year we will work to roll out Usach’s products to the rest of the world. We will continue to pursue other opportunities that can enhance our product offering focused on providing custom solutions to our global markets, while maintaining our focus on building upon our brands and high precision machining of difficult materials.”

Hardinge to Participate in CIMT 2013

Hardinge will be participating in the 2013 China International Machine Tool Show (“CIMT 2013”), in Beijing, China from April 22-27, 2013 at the China International Exhibition Center. CIMT is a biennial machine tool show first launched in 1989 and serves as a platform for Hardinge to showcase our broad product offerings. CIMT 2011 was attended by over 305,000 visitors from 60 countries.

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 L. Simons, Chairman, President and CEO, and Edward J. Gaio, Vice President and CFO, will review the financial and operating results for the quarter, 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 calling (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 21, 2013. To listen to the archived call, dial (858) 384-5517 and enter conference ID number 406979. Alternatively, the archive can be heard 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 leading global designer and manufacturer of high precision, computer-controlled machine tool solutions developed for critical, hard to machine metal parts. The Company’s strategy is to leverage its global brand strength to further penetrate global market opportunities where customers will benefit from the technologically advanced, high quality, reliable equipment Hardinge produces. With approximately 75% of its sales outside of North America, Hardinge serves the worldwide metal working market. Hardinge’s machine tool solutions can also be found in a broad base of industries to include aerospace, agricultural, automotive, construction, consumer products, defense, energy, medical, technology and transportation.

Hardinge applies its engineering design and manufacturing expertise in high performance machining centers, high-end cylindrical and jig grinding machines, SUPER-PRECISION® and precision CNC lathes and technologically advanced workholding accessories. Hardinge has manufacturing operations in China, Switzerland, Taiwan, the United Kingdom and the United States.

The Company regularly posts information on its website: 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

December 31,

Year to Date Ended

December 31,

  2012         2011     2012         2011   (unaudited)   Net sales $ 90,560 $ 91,046 $ 334,413 $ 341,573 Cost of sales   62,878     67,946     237,576     250,545   Gross profit   27,682     23,100     96,837     91,028   Gross profit margin

30.6%

 

25.4%

 

29.0%

 

26.6%

 

  Selling, general and administrative expenses 20,981 18,990 76,196 73,599 Other expense   156     466     559     832   Income from operations   6,545     3,644     20,082     16,597   Operating margin

7.2%

 

4.0%

 

6.0%

 

4.9%

 

  Interest expense 204 102 859 339 Interest income   (23 )   -     (118 )   (101 ) Income before income taxes 6,364 3,542 19,341 16,359   Income tax (benefit) expense   (1,388 )   300     1,486     4,373   Net income $ 7,752   $ 3,242   $ 17,855   $ 11,986     Basic earnings per share $ 0.67 $ 0.28 $ 1.53 $ 1.03   Diluted earnings per share $ 0.66 $ 0.28 $ 1.53 $ 1.02   Cash dividends declared per share $ 0.02 $ 0.02 $ 0.08 $ 0.05   Weighted avg. shares outstanding: Basic 11,574 11,467 11,557 11,463 Weighted avg. shares outstanding: Diluted 11,619 11,552 11,596 11,548   HARDINGE INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands except share and per share data)           December 31, December 31,   2012     2011     Assets Cash and cash equivalents $ 26,855 $ 21,736 Restricted cash 2,634 4,575 Accounts receivable, net 51,871 65,909 Inventories, net 128,000 122,782 Other current assets   12,580     13,338   Total current assets 221,940 228,340   Property, plant and equipment, net 71,035 68,204 Goodwill and other intangible assets, net 30,321 12,765 Other non-current assets   2,358     2,360   Total non-current assets   103,714     83,329   Total assets $ 325,654   $ 311,669     Liabilities and shareholders' equity Accounts payable $ 27,779 $ 36,952 Notes payable to bank 11,500 12,969 Accrued expenses 29,307 25,103 Customer deposits 15,720 18,881 Accrued income taxes 3,952 3,480 Deferred income taxes 2,980 2,556 Current portion of long-term debt   2,873     1,548   Total current liabilities 94,111 101,489   Long-term debt 5,616 7,020 Pension and postretirement liabilities 50,313 49,310 Deferred income taxes 3,431 2,391 Other liabilities   10,976     4,436   Total non-current liabilities 70,336 63,157  

Common stock ($0.01 par value, 12,472,992 issued)

125 125 Additional paid-in capital 114,072 114,369 Retained earnings 81,961 65,041 Treasury shares (9,442 ) (10,379 ) Accumulated other comprehensive loss   (25,509 )   (22,133 ) Total shareholders' equity   161,207     147,023   Total liabilities and shareholders' equity $ 325,654   $ 311,669     HARDINGE INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands)             Quarter Ended December 31, YTD Ended December 31,   2012       2011   2012       2011   (unaudited)     Operating activities Net income

$

7,752

$

3,242

$ 17,855 $ 11,986

Adjustments to reconcile net income to net cash

used in operating activities:

Depreciation and amortization 1,998 1,851 7,451 7,736 Debt issuance amortization 36 46 78 124 (Benefit) provision for deferred income taxes (3,453 ) 50 (2,601 ) (361 ) Loss on sale of assets 107 69 80 46 Unrealized intercompany foreign currencytransaction loss (gain) 340 (114 ) 853 (862 ) Changes in operating assets and liabilities: Accounts receivable 1,296 (7,227 ) 17,522 (18,589 ) Inventories 12,580 2,362 2,365 (18,123 ) Other assets 5,443 3,144 4,486 444 Accounts payable (6,119 ) (2,061 ) (11,538 ) 3,990 Customer deposits (3,669 ) 4,260 (7,876 ) 8,469 Accrued expenses 1,511 (3,467 ) (4,781 ) (1,277 ) Accrued postretirement benefits   (68 )   (292 )   (455 )   (715 ) Net cash provided by (used in) operating activities 17,754 1,863 23,439 (7,132 )   Investing activities Capital expenditures (1,474 ) (5,705 ) (7,641 ) (19,217 ) Proceeds on sale of assets 517 - 557 900 Purchase of Usach, net of cash acquired   (8,768 )   -     (8,768 )   -   Net cash used in investing activities (9,725 ) (5,705 ) (15,852 ) (18,317 )   Financing activities (Repayments of) proceeds from short-term notes payable to bank (2,738 ) 745 (1,911 ) 11,688 (Repayments of) proceeds from long-term debt (154 ) 4,245 (294 ) 5,397 Dividends paid (233 ) (232 ) (931 ) (581 ) Other financing activities   (11 )   (83 )   (3 )   (41 ) Net cash (used in) provided by financing activities (3,136 ) 4,675 (3,139 ) 16,463   Effect of exchange rate changes on cash   455     (358 )   671     (223 ) Net increase (decrease) in cash 5,348 475 5,119 (9,209 ) Cash and cash equivalents at beginning of period   21,507     21,261     21,736     30,945   Cash and cash equivalents at end of period

$

26,855

 

$

21,736

 

$

26,855

  $ 21,736     HARDINGE INC. AND SUBSIDIARIES Adjusted Net Income and Earnings Per Share Reconciliation (in thousands except per share data)        

Quarter Ended

December 31,

   

Year Ended

December 31,

2012     2011     2012     2011 (unaudited)             Net income as reported $ 7,752 $ 3,242 $ 17,855 $ 11,986 Income tax benefit   2,720       -       2,720       - Adjusted net income $ 5,032 $ 3,242 $ 15,135 $ 11,986   Basic earnings per share as reported $ 0.67 $ 0.28 $ 1.53 $ 1.03 Income tax benefit per share: Basic $ 0.24     $ -     $ 0.23     $ - Adjusted basic earnings per share $ 0.43 $ 0.28 $ 1.30 $ 1.03   Diluted earnings per share as reported $ 0.66 $ 0.28 $ 1.53 $ 1.02 Income tax benefit per share: Diluted $ 0.23     $ -     $ 0.24     $ - Adjusted diluted earnings per share $ 0.43 $ 0.28 $ 1.29 $ 1.02   Weighted avg. shares outstanding: Basic 11,574 11,467 11,557 11,463 Weighted avg. shares outstanding: Diluted 11,619 11,552 11,596 11,548

Adjusted Net Income and Earnings Per Share are defined as GAAP net income and earnings per share adjusted for unusual items that the Company believes do not clearly represent actual financial performance. The Company believes that providing non-GAAP information such as Adjusted Net Income and EPS is important for investors and other readers of the Company’s financial statements, as it is used as an analytical indicator by the Company’s management to better understand of operating performance. Because Adjusted Net Income and EPS are non-GAAP measures and thus susceptible to varying calculations, Adjusted Net Income and EPS, as presented, may not be directly comparable to other similarly titled measures used by other companies.