Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1995.
[ ] 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 0-15760 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.)
One Hardinge Drive, Elmira, New York 14902-1507
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (607) 734-2281
Securities registered pursuant to Section 12(b) of the Act: None
Securities pursuant to section 12(g) of the Act::
Common Stock with a par value of $.01 per share
Preferred Stock purchase rights
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 and 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1996:
Common Stock, $.01 par value - $ 107,920,000
The number of shares outstanding of the issuer's common stock as of March 1,
1996:
Common Stock, $.01 par value 6,471,388 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Hardinge Inc.'s Proxy Statement filed with the Commission on March
15, 1996 are incorporated by reference to Part III of this Form.
This report contains a total of 48 pages
1
PART I
ITEM 1. - BUSINESS
General
Hardinge Inc.'s principal executive offices are located at One Hardinge Drive,
Elmira, New York 14902-1507; telephone (607) 734-2281. The Company has five
wholly owned subsidiaries. Canadian Hardinge Machine Tools, Ltd. located near
Toronto, Ontario was established by Hardinge Inc. in 1958. Hardinge Machine
Tools, Ltd. was established in the United Kingdom in 1939 and became a wholly
owned subsidiary in 1981 when it redeemed the shares previously held by others.
Hardinge Brothers GmbH was established by the Company in Germany in 1987. In
November, 1995, the Company completed the acquisition of 100% of the
outstanding stock of L. Kellenberger & Co., AG of St. Gallen, Switzerland and
its subsidiary, Kellenberger, Inc. of Elmsford, New York (collectively referred
to as "Kellenberger").
The Company's headquarters is located in Chemung County, New York, which is on
the south-central border of upstate New York. The Company has manufacturing
facilities located in Chemung County, New York and in St. Gallen, Switzerland.
The Company manufactures the majority of the products it sells and purchases a
few machine accessories from other manufacturers for resale.
References to Hardinge Inc., the "Company", or "Hardinge" are to Hardinge Inc.
and its predecessors and subsidiaries, unless the context indicates otherwise.
The Company changed its name in 1995 from Hardinge Brothers, Inc., to Hardinge
Inc.
Recent Developments
At the annual meeting on May 16, 1995, shareholders approved amendments to the
Company's Certificate of Incorporation (a) authorizing a reclassification of
its Common Stock pursuant to which each former Class A common share was
converted into 2.0 shares of a new single class of Common Stock and each former
Class B common share was converted into 2.05 shares of a new single class of
Common Stock;(b) increasing the number of shares of Common Stock the Company is
authorized to issue from 6,000,000 to 20,000,000 shares and reducing the par
value of all Common Stock from $5 to $0.01 per share; and (c) authorizing a new
class of Preferred Stock consisting of 2,000,000 shares. All share and per
share data appearing in the financial statements and notes thereto have been
restated giving effect to these amendments.
In June 1995, the Company issued 2,540,000 shares of its common stock at $19.00
per share in a public common stock offering. Proceeds of the offering, net of
commissions and expenses, were $43,584.000. The proceeds were used to reduce
the Company's debt, fund building expansion, and fund working capital growth.
On November 29, 1995, the Company completed the acquisition of Kellenberger, a
Switzerland based manufacturer of grinding machines. The acquisition has been
accounted for as a purchase and results of operations of Kellenberger for the
period from the acquisition date through December 31, 1995, have been included
in the consolidated financial statements of the Company for 1995.
Products
Hardinge Inc. has been a manufacturer of industrial-use Super-Precision(R) and
general precision turning machine tools since 1890. Turning machines, or
lathes, are power-driven machines used to remove material from a rough-formed
part by moving multiple cutting tools arranged on a turret assembly against the
surface of a part rotating at very high speeds in a spindle mechanism. The
multi-directional movement of the cutting tools allows the part to be shaped to
the desired dimensions. On
2
parts produced on Hardinge machines, those dimensions are often measured in
millionths of inches. Hardinge considers itself to be a leader in the field of
producing machines capable of consistently and cost-effectively producing parts
to those dimensions.
In the late 1970's, Hardinge began to produce computer numerically controlled
("CNC") machines which use commands from an on-board computer to control the
movement of cutting tools and rotation speeds of the part. The computer control
enables the operator to program operations such as part rotation, tooling
selection and tooling movement for a specific part and then store that program
in memory for future use. The machine is able to produce parts while left
unattended when connected to automatic bar-feeding or robotics equipment
designed to supply raw materials. Because of this ability, as well as superior
speed of operation, a CNC machine is able to produce the same amount of work as
several manually controlled machines, as well as reduce the number of operators
required. Since the introduction of CNC turning machines, continual advances in
computer control technology have allowed for easier programming and additional
machine capabilities.
In 1994, the Company expanded its machine tool line to include CNC vertical
turning machines and vertical machining centers, the first sales of which
occurred during the first quarter of 1995. Prior to that, all of the Company's
turning machines were horizontal which means that the spindle holding the
rotating part and the turret holding the cutting tools are arranged on a
horizontal plane. On a vertical turning machine, the spindle and turret are
aligned on a vertical plane, with the spindle on the bottom. A vertical turning
machine permits the customer to produce larger, heavier and more oddly shaped
parts on a machine that uses less floor space when compared to a traditional
horizontal turning machine.
A vertical machining center cuts material differently than a turning machine.
These machines are designed to remove material from stationary, prismatic
(box-like) parts of various shapes with rotating tools that are capable of
milling, drilling, tapping, reaming and routing. Machining centers have
mechanisms that automatically change tools based on commands from a built-in
computer control without the assistance of an operator. Machining centers are
generally purchased by the same customers as turning machines and are being
marketed by the Company on the basis that a customer will be able to obtain
machining centers with the same quality and reliability as the Company's
turning machines and will be able to obtain its turning machines and machining
centers from a single supplier.
The Company has further extended its machine offerings into the grinding
machine sector of the metal-cutting machine tool industry with the acquisition
of Kellenberger. Grinding is a machining process where a surface is shaped to
closer tolerances with a rotating abrasive wheel or tool. Grinding machines can
be used to finish parts of various shapes and sizes.
The grinding machines of Kellenberger are used to grind the inside and outside
diameters of round, cylindrical parts. Such grinding machines are typically
used to provide for a more exact finish on a part which has been partially
completed on a lathe. The grinding machines of Kellenberger, which are
manufactured in both CNC and manually controlled models, are generally
purchased by the same type of customers as other Hardinge equipment and
furthers the ability of the Company to be a sole source supplier for its
customers.
Multiple options are available on the broad range of the Company's machines,
including Kellenberger grinding machines, which allow customers to customize
their machines for the specific purpose and cost objective they require. The
Company produces machines for stock with popular option combinations for
immediate delivery, as well as machines made to specific customer orders. In
recent years, the Company has increasingly emphasized the engineering of
complete systems for customers who desire one or more CNC machines to produce a
specific part. In configuring complete systems, the Company provides, in
addition to its machines, the necessary computer programming and tooling, as
well as robotics and other parts handling equipment manufactured by it or
others.
3
All Hardinge machines can be used to produce parts from all of the standard
ferrous and non-ferrous metals, as well as plastics, composites and exotic
materials.
In addition, the Company offers the most extensive line available in the
industry of workholding and toolholding devices, which may be used on both its
turning machines and those produced by others. The Company considers itself to
be a worldwide leader in the design and manufacture of workholding and
toolholding devices. It also offers a complete line of six-foot and twelve-foot
bar feed systems for its CNC and manual turning machines, which hold the
workpiece steady and feed it into the turning machine. It also produces a
variety of other optional equipment and accessories for its machines.
The Company offers various warranties on its equipment and considers post-sales
support to be a critical element of its business. Services provided include
operation and maintenance training, maintenance, and in-field repair. The
Company's intent, where practical, is to provide readily available replacement
parts throughout the life of the machine.
Markets and Distribution
Sales are principally in the United States and Western Europe. In addition,
sales are made to customers in Canada, China, Mexico, Japan, Australia and
other foreign countries.
The Company primarily markets its machine tools through its direct sales force
and through distributors and manufacturers' representatives in the United
States and abroad. The Company uses a similar system of employee sales
personnel and independent distributors in the United Kingdom and Canada. In
other countries, the Company primarily sells through distributors.
The Company's U.S. distributors have the exclusive right to distribute its
products in particular markets, although these markets are located in less
industrialized areas of the country.
The Company's sales personnel earn a fixed salary plus commission based upon a
percentage of net sales. Certain of the Company's distributors operate
independent businesses, purchase machine tools and non-machine products from
the Company and maintain inventories of these products and spare parts for
their customers, while other distributors merely sell machine tools on behalf
of the Company. The Company's commission schedule is adjusted to reflect the
level of aftermarket support offered by its distributors.
As is common in its industry, the Company provides long-term financing for the
purchase of its equipment by qualified customers. The Company regards this
program as an important part of its marketing efforts, particularly to
independent machine shops. Customer financing is offered for a term of up to
seven years, with the Company retaining a security interest in the equipment.
In response to competitive pressures, the Company occasionally offers this
financing at below market interest rates or with deferred payment terms. The
present value of the difference between the actual interest charged on customer
notes for periods during which finance charges are waived or reduced and the
estimated rate at which the notes could be sold to financial institutions is
accounted for as a reduction of the Company's net sales.
The Company's non-machine products mainly are sold in the United States through
telephone orders to a toll-free "800" telephone number, which is linked to an
on-line computer order entry system maintained by the Company at its Elmira
headquarters. In most cases, the Company is able to package and ship in-stock
tooling and repair parts within 24 hours of receiving orders. In the case of
some popular items, the company can package and ship within several hours.
4
The Company promotes recognition of its products in the marketplace through
advertising in trade publications and participation in industry trade shows. In
addition, the Company markets its non-machine products through publication of
general catalogue and other targeted catalogues, which it distributes to
existing and prospective customers.
A substantial portion of the Company's sales are to small and medium-sized
independent job shops, which in turn sell machined parts to their industrial
customers. Industries directly served by the Company include automotive,
medical equipment, aerospace, and electronics, as well as defense, recreational
equipment, farm equipment, construction equipment, energy, and transportation.
In 1995, sales to the automobile industry accounted for 21% of the Company's
net sales. In 1994 and 1993, no industry or customer accounted for more than 4%
of the Company's net sales.
The Company operates in a single business segment, industrial machine tools.
Competitive Conditions
The primary competitive factors in the marketplace for the Company's machine
tools are reliability, price, delivery time, service and technological
characteristics. There are many manufacturers of machine tools in the world.
They can be categorized by the size of material their products can machine and
the precision level they can achieve. In the size and precision level the
Company addresses with its turning machines and machining centers, the primary
competition comes from several Japanese manufacturers. Several German
manufacturers also compete with the Company, primarily in Europe. The
Kellenberger machines compete with Japanese, German and other Swiss
manufacturers. Management considers its segment of the industry to be extremely
competitive. The Company believes that it brings superior quality, reliability,
value, availability, capability and support to its customers.
Sources and Availability of Raw Materials
The Company manufactures and assembles its lathes and machining centers and
related products at its Elmira, New York plant. The Kellenberger grinding
machines and related products are manufactured at its St. Gallen, Switzerland
plant. Products are manufactured by the Company from various raw materials,
including cast iron, sheet metal, bar steel and bearings. Although the
Company's operations are highly integrated, it purchases a number of components
from outside suppliers, including the computer and electronic components for
its CNC lathes and machining centers. There are multiple suppliers for
virtually all of the Company's raw material and components and the Company has
not experienced a supply interruption in recent years.
A major component of the Company's CNC machines is the computer and related
electronics package. The Company purchases these components for its lathes and
machining centers exclusively from Fanuc Limited, a large Japanese electronics
company. While the Company believes that design changes could be made to its
machines to allow sourcing from several other existing suppliers, a disruption
in the supply of the Fanuc components could cause the Company to experience a
substantial disruption of its operations, depending on the circumstances at the
time. Kellenberger assembles an electronics package of its own design.
The Company utilizes several quality and process control programs, including
Total Quality Management. The Company believes that it operates its quality
system to the requirements of the ISO 9000 Quality System of the International
Standards Organization and is postured to obtain ISO 9000 certification if
required for
5
marketing. The ISO 9000 Quality System is an internationally accepted quality
standard for commercial operations, such as product design verification,
reviewing the quality of suppliers, imperfection and testing requirements and
maintaining quality records. The Company believes that these initiatives have
helped it maintain the quality and reliability of its products.
Research and Development
The Company's ongoing research and development program involves creating new
products and modifying existing products to meet market demands and redesigning
existing products to reduce the cost of manufacturing. The research and
development department is staffed with experienced design engineers with
technical through doctorate degrees.
The cost of research and development, all of which has been charged to
operations, amounted to $5,713,000, $5,218,000, and $4,216,000, in 1995, 1994
and 1993, respectively.
Patents
Although the Company holds several patents with respect to certain of its
products, it does not believe that its business is dependent to any material
extent upon any single patent or group of patents.
Seasonal Trends and Working Capital Requirements
The Company is not subject to significant seasonal trends. Its business, and
that of the machine tool industry in general, is cyclical. The ability to
deliver products within a short period of time is an important competitive
criteria. Also, the Company feels it is important to provide availability of
replacement parts for a machine throughout its life. These factors contribute
to a requirement that the Company carry significant amounts of inventory.
The Company's sales generally have not been subject to significant seasonal
variation. However, the Company's quarterly results are subject to significant
fluctuation based on the timing of its shipments of machine tools, which are
largely dependent upon customer delivery requirements. Traditionally, the
Company has experienced reduced activity during the third quarter of the year,
largely as a result of vacations scheduled at its customers' plants and the
Company's policy of closing its facilities during the first two weeks of July.
As a result, the Company's third-quarter net sales, income from operations and
net income typically have been the lowest of any quarter during the year.
During 1995 and 1994, shipments of certain large orders offset this historical
pattern in the third quarter.
In common with other machine tool manufacturers, the Company will provide
long-term financing for the purchase of its equipment by qualified customers.
The Company regards this program as an important part of its marketing efforts,
particularly to independent machine shops. For many years, the Company has
periodically sold a substantial portion of the underlying customer notes
receivable to various financial institutions. While the Company's customer
financing program has an impact on its month-to-month borrowings, it has had
little long-term impact on its working capital requirements because of the
sales of the customer notes.
6
Backlog
The Company normally ships its machine products within two to three months
after order. The Company's order backlog at December 31, 1995 and 1994 was
$54,335,000 and $38,432,000, respectively.
Orders are generally subject to cancellation by the customer prior to shipment.
The level of unfilled orders at any given date during the year may be
materially affected by the timing of the Company's receipt of orders and the
speed with which those orders are filled. Accordingly, the Company's backlog at
December 31, 1995 is not necessarily indicative of actual shipments or sales
for any future period, and period-to-period comparisons from 1995 to 1994 may
not be meaningful.
Governmental Regulations
The Company believes that its current operations and its current uses of
property, plant and equipment conform in all material respects to applicable
laws and regulations.
Environmental Matters
The Company's operations are subject to extensive federal and state legislation
and regulation relating to environmental matters. The Company believes it is
currently in material compliance with applicable environmental laws and
regulations in each of the countries in which it operates.
Future regulations, under the Clean Air Act and otherwise, are expected to
impose stricter emission requirements on the metal working industry. While the
Company believes that current pollution control measures at most of the
emission sources at its manufacturing facilities will meet these anticipated
future requirements, additional measures at some sources may be required. The
Company does not believe that these anticipated future requirements are likely
to have a material adverse effect upon its financial condition, results of
operations or competitive position.
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 owned by the Company and on adjacent areas
have resulted in environmental impacts.
In particular, the Company's New York manufacturing facility is located within
the Kentucky Avenue Well Field 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 Well Field site encompasses an area of approximately three square miles
which includes sections of the Town of Horseheads and the Village of Elmira
Heights in Chemung County, New York. The Company, however, has never been named
as a potentially responsible party at the site or received any requests for
information from EPA concerning the site. Environmental sampling on the
Company's property within this site under supervision of regulatory authorities
has identified off-site sources for such groundwater contamination and has
found no evidence that the Company's property is contributing to the
contamination.
Environmental sampling at the Company's former New York manufacturing facility
following the removal of an underground storage tank disclosed the presence of
hydrocarbon contamination in surrounding soils. An environmental consultant
retained by the Company prepared a site assessment and remedial action plan
which were adopted and approved by the New York State Department of
Environmental Conservation. Pursuant to the timetable set forth in the remedial
action plan, the
7
Company anticipates that it will be able to complete the construction phase of
the cleanup in the first quarter of 1996. Approximately $500,000 was reserved
in 1994 by the Company for this construction work. The Company anticipates that
ongoing operation and maintenance expenses for the cleanup are anticipated to
be less than $100,000 annually.
Although the Company believes, based upon information currently available to
management, that it will not have material liabilities for environmental
remediation, there can be no assurance that future remedial requirements or
changes in the enforcement of existing laws and regulation, which are subject
to extensive regulatory discretion, will not result in material liabilities.
Employees
As of December 31, 1995, the Company employed 1,345 persons, 1,153 of whom were
located in the United States. None of the Company's employees are covered by
collective bargaining agreements. Management believes that relations with the
Company's employees are good.
Foreign Operations and Export Sales
Information related to foreign and domestic operations and sales is included in
Note 5 to consolidated financial statements contained in this Annual Report.
The Company believes that its subsidiaries operate in countries where the
economic climate is relatively stable.
8
ITEM 2. - PROPERTIES
Pertinent information concerning the principal properties of the Company and
its subsidiaries is as follows:
Acreage (Land)
Square Footage
Location Type of Facility (Building)
- ------------------------------------ ------------------------------------------- -------------------------
Owned Properties
Horseheads, New York Manufacturing, Engineering, Turnkey 80 acres
Systems, Marketing, Sales, Demonstration, 515,000 sq. ft.
Service and Administration
Elmira, New York Warehouse 12 acres
176,000 sq. ft.
St. Gallen Manufacturing, Engineering, Turnkey 8 acres
Switzerland Systems, Marketing, Sales, Demonstration, 155,000 sq. ft.
Service and Administration
Lease
Expiration
Location Type of Facility Square Footage Date
- ---------------------------------------- --------------------------------- ---------------------- -----------------
Leased Properties
Exeter, England Sales, Marketing, 20,000 sq. ft. 6/30/97
Service, Turnkey System and
Administration
Krefeld, Germany Sales, Service 1,500 sq. ft. 12/31/96
Elmsford, New York Sales, Service 9,500 sq. ft. 6/30/96
Los Angeles, California Sales, Service 14,500 sq. ft. 12/31/00
Demonstration
Toronto, Canada Sales, Service 4,600 sq. ft. 6/30/96
ITEM 3. - LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental to
its operations. None of the litigation in which the Company is currently
involved, individually or in the aggregate, is material to its financial
condition or results of operations.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote of
security holders.
9
PART II
ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to May of 1995, the Company's common stock was traded in a local,
over-the-counter market in small amounts and on an irregular basis. The Company
was aware that these and other transfers took place, but often was without
knowledge of whether the transfer was a sale, was without consideration or was
for re-registration. Valuation of the stock was made from time-to-time for tax
and other purposes and some of said valuations are known to the Company. For
example, the stock was valued quarterly by a qualified independent appraiser
retained by the Company during 1994 and the first quarter of 1995, for purposes
of Employee Stock Ownership Plan administration. Also, First Albany Corporation
had supplied the Company with quarterly data of actual known trades.
For periods prior to the Company's May, 1995 public offering, the following
table reflects the highest and lowest values known to the Company from the
foregoing described sources. Since May 25, 1995, the Company has been traded on
the NASDAQ market under the symbol "HDNG". The table also includes dividends
per share, by quarter. The Company has paid five dividends in past years; in
January, March, June, September and December. In 1995, the Board of Directors
announced its intent to discontinue the special January dividend, which will
affect dividends paid in 1996.
1995 1994
------------------------------------------------ ------------------------------------------
Values Values
------------------------------------------------ ------------------------------------------
High Low Dividends High Low Dividends
------------------------------------------------ ------------------------------------------
Quarter Ended
March 31 $17 1/4 $12 1/4 $ .40 $12 1/2 $ 10 $ .34
June 30 20 1/4 17 1/4 .15 12 1/2 11 3/4 .15
September 30 26 1/2 19 1/8 .15 12 1/2 12 1/8 .15
December 31 26 3/4 23 3/8 .17 14 1/2 12 1/4 .15
At March 1, 1996, there were 479 holders of record of common stock. Dividend
amounts as well as high and low values have been restated for 1994 and the
first quarter of 1995 to reflect the reclassification of stock, as explained in
the notes to the financial statements.
10
ITEM 6. - SELECTED FINANCIAL DATA
The following selected financial data is derived from the audited consolidated
financial statements of the Company. The data should be read in conjunction
with the consolidated financial statements, related notes and other information
included herein (dollar amounts in thousands except per share data).
Year Ended December 31
1995 1994 1993 1992 1991
---------------------------------------------------------------------------------
STATEMENT OF INCOME DATA
Net sales $ 180,586 $ 117,336 $ 98,437 $ 84,797 $ 82,595
Cost of sales 119,975 76,937 63,169 55,905 53,702
---------------------------------------------------------------------------------
Gross profit 60,611 40,399 35,268 28,892 28,893
Selling, general and
administrative expenses 36,076 27,882 25,804 24,864 25,979
Restructuring costs (2) 1,086
---------------------------------------------------------------------------------
Operating income 24,535 12,517 9,464 2,942 2,914
Interest expense 1,369 1,479 1,343 1,380 1,332
Interest (income) (927) (453) (763) (1,160) (1,590)
(Gain) on sale of assets (326) (442) (598)
---------------------------------------------------------------------------------
Income before income taxes 24,419 11,933 8,884 2,722 3,770
Income taxes (3) 9,574 5,214 3,730 1,152 1,063
---------------------------------------------------------------------------------
Income before cumulative
effect of changes in
accounting methods
14,845 6,719 5,154 1,570 2,707
Cumulative effect of
changes in accounting
methods(4) (2,754)
---------------------------------------------------------------------------------
Net income (loss) $ 14,845 $ 6,719 $ 5,154 $ (1,184) $ 2,707
=================================================================================
Weighted average number of shares of
Common Stock outstanding (1)
4,969 3,573 3,565 3,513 3,535
Per share data: (1)
Income before
cumulative effect of
changes in accounting
methods $2.99 $1.88 $1.45 $ .45 $ .77
Cumulative effect of
changes in accounting
methods (4) (.79)
---------------------------------------------------------------------------------
Net income (loss) $2.99 $1.88 $1.45 $(.34) $ .77
=================================================================================
Cash dividends declared per share
$ .62 $ .84 $ .79 $ .74 $ .80
BALANCE SHEET DATA
Working capital $ 99,780 $ 60,520 $ 58,455 $ 54,035 $ 57,295
Long-term portion of notes receivable 10,936 7,744 12,460 9,536 7,018
Total assets 210,856 121,726 111,169 98,461 98,536
Long-term debt 27,100 15,164 18,357 11,571 10,223
Shareholders' equity(4) 136,103 79,776 75,462 73,067 78,188
(1) All share and per share data has been restated to reflect the
reclassification of stock in 1995, as explained in the notes to the financial
statements.
(2) During 1992, the Company took action to significantly restructure its
overhead functions primarily in its foreign subsidiaries. Nonrecurring costs of
statutorily required severance payments and other costs associated with the
restructuring totaled $1,086,000 ($641,000 after tax).
11
(3) Income taxes for 1991 were reduced by the effects of eliminating income
taxes provided in periods prior to December 31, 1990, which were no longer
required.
(4) The cumulative effect of changes in accounting principles for the year
ended December 31, 1992 represent the adoption, as of January 1, 1992, of (a)
FASB No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," resulting in a $2,867,000 decrease in net income (net of income tax
benefit of $1,683,000), and (b) FASB No. 109, "Accounting for Income Taxes,"
resulting in a $113,000 increase in net income.
12
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1995 Compared to 1994
Net Sales: Net sales for the year ended December 31, 1995, increased 53.9% to
$180,586,000 from $117,336,000 in 1994. Sales in the domestic U.S. markets
increased by $44,610,000 or 48.5%, reflecting positive economic conditions and
continued strength in machine tool purchases by the auto industry. Net sales in
the European markets increased by $13,076,000 or 106.1% with particular
strength from the UK and French markets as the economies there continued to
expand. In other worldwide marketplaces, sales increased by 42.9% led mainly by
growth in shipments to Asia. The acquisition of L. Kellenberger & Co. AG
("Kellenberger") did not result in a material impact on the year's sales and
net income figures as only their results for the month of December were
included in the Company's 1995 results.
Unit volumes increased in substantially all of the Company's Computer
Numerically Controlled (CNC) machine lines. Shipments of the Company's newly
introduced vertical CNC lathes and vertical CNC machining centers exceeded
beginning of the year expectations. Shipments to the automobile industry of
those new models, as well as horizontal CNC lathes, contributed to increased
sales during the year with sales to the U.S. manufacturers accounting for 21%
of the Company's 1995 net sales compared to 4% in 1994.
Sales of non-machine products and services increased by 22.7% accounting for
$63,205,000 or 35.0% of total net sales for the 1995 year compared to
$51,507,000 or 43.9% of total sales for 1994. Sales in this product line
increased in all of the Company's predominate geographical markets. The
positive economic conditions in those areas contributed to increases in sales.
Gross Profit: Gross profit increased 50.0% to $60,611,000 in 1995, from
$40,399,000 in 1994. This increase was primarily the result of increased unit
volumes. Gross profit as a percentage of sales was 33.6% in 1995 compared to
34.4% in 1994. Sales in the lathe and other machine tool product group
traditionally have generated lower gross margins than the non-machine products
and services group. Therefore, overall gross margin as a percentage of sales is
negatively affected when sales in the lathe and other machine tool product
group account for a larger percentage of overall net sales. The 1995 gross
profit percentage was also affected by production start up costs for the
Company's new machine introductions. These negative impacts were partially
offset by the ability to spread fixed overhead costs over a larger number of
units sold. The decline of the dollar against the Japanese yen, particularly in
the first half of 1995, did not have a significant impact on year to year
comparisons of gross profit due to the Company's foreign currency arrangements
and lower discounts given.
Selling, General, and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses decreased as a percent of net sales to 20.0%
from 23.8% in 1994. This improvement indicates the success of the Company's
cost control strategy of holding increases in this category to a minimum during
periods of higher sales growth. Increases occurred primarily in the commission
and other volume based expenditures, and advertising and show expenses where
money was spent to promote new products.
Income from Operations: Income from operations increased 96.0% to $24,535,000
in 1995 from $12,517,000 in 1994. Income from operations as a percentage of net
sales increased to 13.6% in 1995 from 10.7% in 1994.
13
Interest Expense: Interest expense in 1995 decreased by $110,000 from 1994.
This resulted from a decrease in average outstanding debt due to the pay down
of debt with the proceeds of the public offering in May, 1995. Additional
borrowings to fund working capital growth partially offset this benefit.
Interest Income: Interest income increased $474,000 in 1995 from 1994 primarily
due to interest earned on cash from the public offering temporarily placed in
interest bearing accounts.
Gain on Sale of Assets: Results from 1995 include a gain of $326,000
(approximately $198,000 on an after-tax basis) on the sale of a branch office
building in California. The Company now leases space in that area.
Income Taxes: The provision for income taxes as a percentage of income before
income taxes was 39.2% for 1995 as compared to 43.7% for 1994. The 1995
consolidated tax rate was lower due to profits in the Company's Western
European operations for which no tax provision was recorded because of tax
credits available from net operating loss carryforwards which were fully
utilized in 1995.
Net Income: Net income for 1995 was $14,845,000, an increase of $8,126,000, or
120.9% from 1994. Net income from operations in all geographic locations
increased. The largest dollar increase occurred in domestic operations while
Western European operations generated positive results after incurring losses
in 1994.
1994 Compared to 1993
Net Sales: Net sales increased 19.2% to $117,336,000 in 1994 from $98,437,000
in 1993. Unit volumes increased in 1994 across the Company's entire line of
products and, in particular, in its new Conquest(R) ST Swiss-style CNC lathe
introduced in late 1993. This increase in sales volumes was largely related to
improved general economic conditions and increased capital expenditures by the
Company's industrial customers. The increase in net sales came primarily in the
United States, where net sales increased 13.1% to $92,027,000 in 1994 from
$81,338,000 in 1993. Net sales in Western Europe increased 41.8% to $12,329,000
in 1994 from $8,696,000 in 1993 with increased sales volumes in the United
Kingdom more than offsetting continued depressed net sales in continental
Western Europe. Net sales in the Company's other international markets
increased 54.5% to $12,980,000 in 1994 from $8,403,000 in 1993 led by improved
net sales in Eastern Asia and Canada.
Gross Profit: Gross Profit increased 14.5% to $40,399,000 in 1994, from
$35,268,000 in 1993. This increase in gross profit primarily was a result of
increased unit volume and selective price increases. Gross profit as a percent
of net sales was 34.4% for 1994 compared to 35.8% in 1993. The gross profit
percentage declined slightly as a result of price discounting of certain
discontinued models of machine tools in Western Europe, a write-off of obsolete
inventory in France resulting from changes in the Company's distribution
strategies, competitive market conditions in Western Europe and the increase in
the cost of electronic components due to the relative weakness of the U.S.
dollar against the Japanese yen in 1994 compared to 1993. The decrease in gross
margin was partially offset by an increase in unit volumes that distributed
fixed costs over a greater number of units.
Selling, General and Administrative Expenses: SG&A expenses decreased as a
percentage of sales to 23.8% in 1994 from 26.2% in 1993, largely as a result of
the Company's strategy of controlling SG&A expenses in a period of sales
growth. The dollar increase in SG&A expenses resulted from increased
commissions and advertising and trade show expenses.
14
Income from Operations: Income from operations increased 32.3% to $12,517,000
in 1994 from $9,464,000 in 1993. Income from operations as a percentage of net
sales increased to 10.7% in 1994 from 9.6% in 1993.
Interest Expense: Interest expense increased 10.1% to $1,479,000 in 1994 from
$1,343,000 in 1993 due to an increase in average interest rates on the
Company's outstanding borrowings from 1993 to 1994. Average monthly borrowing
under such facilities remained fairly constant from 1993 to 1994.
Interest Income: Interest income, primarily consisting of interest on customer
notes receivable, decreased 40.6% to $453,000 in 1994 from $763,000 in 1993, as
a result of an increase in special financing packages offered to customers as
sales incentives in 1994.
Income Taxes: The provision for income taxes was $5,214,000 in 1994 compared to
$3,730,000 in 1993. The Company's tax rate increased to 43.7% of income in 1994
from 42.0% of income in 1993, primarily as a result of operating losses in
Western Europe that the Company was unable to offset against income from prior
years and provisions for U.S. taxes on a deemed distribution of earnings from a
foreign subsidiary.
Net Income: Net income increased 30.4% to $6,719,000 in 1994 from $5,154,000 in
1993 as a result of the factors discussed above. Geographically, performance in
North American operations showed significant improvements in profitability
while Western European operations continued to generate losses despite the
substantial sales increase, as overall unit volumes failed to reach levels
sufficient to cover operating costs.
General
The following table sets forth the net sales by product line for the periods
indicated:
For the years ended
December 31,
(in thousands)
1995 1994 1993
----------------------------------------------------------------
Lathes and other machine tool
equipment $ 117,381 $ 65,829 $ 54,112
Non-machine products and
services 63,205 51,507 44,325
----------------------------------------------------------------
Total $ 180,586 $ 117,336 $ 98,437
================================================================
Liquidity and Capital Resources: At the annual meeting on May 16, 1995,
shareholders approved amendments to the Company's Certificate of Incorporation
(a) authorizing a new class of Preferred Stock consisting of 2,000,000 shares;
(b) authorizing a reclassification of its Common Stock pursuant to which each
former Class A common share was converted into 2.00 shares of a new single
class of Common Stock and each former Class B common share was converted into
2.05 shares of a new single class of Common Stock; (c) increasing the number of
shares of Common Stock the Company is authorized to issue from 6,000,000 to
20,000,000 shares and reducing the par value of all Common Stock from $5 to
$.0.01 per share. All prior year number of shares outstanding and earnings per
share numbers in this report have been restated to reflect the conversion.
15
On June 2, 1995, the Company received proceeds from the public offering and
sale of 2,250,000 shares of common stock. Together with the underwriters'
over-allotment option exercised at the end of June for 290,000 additional
shares, the Company raised a net $43,584,000 from the offering. A portion of
the net proceeds of the offering were used to pay down debt existing at that
time. The remainder of the funds have been used to finance expenditures on the
expansion of the Company's Elmira manufacturing facility and to fund growth in
working capital.
On November 29, 1995, the Company completed the acquisition of 100% of the
outstanding stock of Kellenberger for $19,232,000 in cash, including
acquisition expenses. Approximately $1,800,000 of the purchase price was placed
in an escrow account to cover potential purchase price adjustments. The
acquisition was funded at that time using the Company's revolving loan
agreement. The Company anticipates refinancing the purchase price using longer
term financing during the first quarter of 1996.
The acquisition was accounted for as a purchase and December results of
operations of Kellenberger have been included in the consolidated financial
statements of the Company. The purchase price was allocated among the assets
and liabilities based on the estimated fair values of assets and liabilities as
of the date of acquisition. No goodwill was recorded because the fair value of
Kellenberger's assets exceeded the purchase price.
The Company's current ratio at December 31, 1995 was 3.47:1 compared to 3.92:1
at December 31, 1994. Current assets increased by $58,889,000 during 1995, with
inventory increasing by $34,270,000 and accounts receivable increasing by
$20,858,000. The Kellenberger acquisition resulted in a $11,731,000 increase in
inventory. The remainder of the increase results from the Company's purchasing
of materials to increase production of new products and to meet customer
delivery requirements. Accounts receivable increased during the year primarily
due to the high level of sales at the end of the quarter and $7,675,000 of the
increase results from accounts receivable acquired in the Kellenberger
transaction.
Current liabilities increased by $19,629,000, primarily due to increases in
accounts payable reflecting the higher level of business activity and the
increase in notes payable which resulted from the addition of approximately
$7,504,000 of current debt of Kellenberger.
Operating activities used $9,409,000 of cash in 1995, while operating
activities in 1994 generated $11,290,000 of cash. Operating activities used
cash in the 1995 period, notwithstanding the Company's improved net income,
primarily because of the increases in accounts receivable and inventory.
Operating activities in 1994 provided cash, primarily because working capital
requirements remained flat during the period. In its investing and financing
activities, the Company has required cash for capital expenditures, the
acquisition of Kellenberger, and dividend payments.
As is common in its industry, the Company provides long-term financing for the
purchase of its equipment by qualified customers. The Company regards this
program as an important part of its marketing efforts, particularly to
independent machine shops. Customer financing is offered for a term of up to
seven years, with the Company retaining a security interest in the purchased
equipment. In the event of a customer default and foreclosure, it is the
practice of the Company to recondition and resell the equipment. It has been
the Company's experience that such equipment resales have realized the
approximate remaining contract value.
16
In order to reduce debt and finance current operations, the Company
periodically sells a substantial portion of its underlying customer notes
receivable to various financial institutions. In 1995, the Company sold
$12,955,000 of customer notes compared to $30,000,000 sold during 1994
reflecting the decrease in notes available for sales as the number of shipments
financed through the Company's program have decreased in 1995 compared to 1994.
Although the Company has no formal arrangements with financial institutions to
purchase its customer notes receivable, it has not experienced difficulty in
arranging such sales. While the Company's customer financing program has an
impact on its month-to-month borrowings from time-to-time, it has had little
long-term impact on its working capital because of the sales of the underlying
customer notes receivable. The amount of long-term customer notes receivable
held by the Company increased to $10,936,000 at December 31, 1995 from
$7,744,000 at December 31, 1994.
In April 1995, the Company began construction of three additions to its
manufacturing facility, which, when completed and fully operational, will
increase its machine making capacity by approximately 25%. Construction of the
building is expected to be completed by early 1996 and the equipment portion of
the project is expected to be fully productive by mid-year 1996. The Company
estimates that the cost of these additions, together with the necessary
machinery and equipment, will be approximately $15,000,000. As of December 31,
1995, approximately $13,000,000 of this amount has been expended.
Excluding property, plant and equipment acquired with the purchase of
Kellenberger, total capital expenditures in 1995 were $17,703,000. In addition
to the expenditures on the manufacturing expansion project, capital
expenditures were primarily made to improve operating efficiencies at the
Elmira manufacturing facility. Property, plant and equipment acquired in the
Kellenberger transaction total approximately $16,530,000.
The Board of Directors past practice had been to pay five dividends in respect
of each year - four quarterly dividends during the year and a fifth "extra"
dividend in January of the following year. The Board communicated to its
shareholders in the second quarter of 1995 its present intent to discontinue
the payment of a fifth dividend. The Company paid total dividends of $3,993,000
during 1995. At its meeting in October, 1995, the Board increased the quarterly
dividend to $.17 per share, representing a 13.3% increase from the previous
regular quarterly dividend rate of $.15 per share.
The Company has a revolving loan agreement with three banks providing for
borrowing up to $30,000,000 on a revolving basis through August 1, 1997. At
that time, the outstanding amounts convert to a term loan payable quarterly
over four years through 2001. As of December 31, 1995, total borrowings under
the agreement were $25,671,000, which includes borrowings to fund the
Kellenberger acquisition.
In December, 1995, the Company negotiated an unsecured $10,000,000 line of
credit with a bank which expires in June, 1996, or when long-term financing of
the acquisition price of Kellenberger is in place, whichever is earlier. There
are no commitment fees associated with this line and there were no borrowings
on this line at December 31, 1995.
The Company's Kellenberger subsidiary maintains lines of credit with commercial
banks that permit borrowings in Swiss francs equivalent to approximately
$10,000,000, secured by the land and buildings of Kellenberger. As of December
31, 1995, total borrowing under these lines were $7,504,000.
These facilities, along with a $5,000,000 unsecured short term line with
another bank, provide for immediate access of up to $55,000,000 at December 31,
1995. Outstanding borrowings under these arrangements totaled $36,175,000 at
that time.
17
The Company currently intends to use its improved financial condition to seek
growth opportunities in new products, international markets, and strategic
acquisitions. Management believes that the currently available funds and credit
facilities, agreements currently in negotiation, and internally generated
funds, will provide sufficient financial resources for its ongoing operations.
18
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HARDINGE INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
December 31, 1995
Audited Consolidated Financial Statements
Report of Independent Auditors 20
Consolidated Balance Sheets 21
Consolidated Statements of Income 23
Consolidated Statements of Shareholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been omitted.
19
Report of Independent Auditors
Board of Directors
Hardinge Inc.
We have audited the accompanying consolidated balance sheets of Hardinge Inc.
(formerly Hardinge Brothers, Inc.) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hardinge Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Syracuse, New York
January 26, 1996
20
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
December 31
1995 1994
--------------------------------
Assets
Current assets:
Cash $ 5,120 $ 3,783
Accounts receivable 41,095 20,237
Notes receivable 5,053 4,935
Inventories (Note 1) 84,968 50,698
Deferred income taxes (Note 3) 2,585 981
Prepaid expenses 1,332 630
--------------------------------
Total current assets 140,153 81,264
Property, plant and equipment:
Land and buildings 38,653 20,695
Machinery, equipment and fixtures 66,676 52,132
Office furniture, equipment and vehicles 3,991 3,251
--------------------------------
109,320 76,078
Less accumulated depreciation 49,716 45,812
--------------------------------
59,604 30,266
Other assets:
Notes receivable 10,936 7,744
Deferred income taxes (Note 3) 1,439
Other 163 1,013
--------------------------------
11,099 10,196
--------------------------------
Total assets $ 210,856 $ 121,726
================================
21
December 31
1995 1994
---------------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 18,409 $ 9,415
Notes payable to bank 10,504 3,500
Accrued expenses 9,297 4,571
Accrued pension plan expense 126 339
Dividends payable 959
Accrued income taxes 1,323 1,246
Current portion of long-term debt (Note 2) 714 714
---------------------------------
Total current liabilities 40,373 20,744
Other liabilities:
Long-term debt (Note 2) 27,100 15,164
Employee benefit obligation (Note 6) 150
Accrued pension plan expense 1,087 1,055
Deferred income taxes (Note 3) 1,200
Accrued postretirement benefits (Note 6) 4,993 4,837
---------------------------------
34,380 21,206
Shareholders' equity (Notes 4 and 6):
Preferred stock, Series A, par value $.01 per share;
authorized 2,000,000; issued - none
Common stocks, $5 par value:
Class A:
Authorized shares - 3,000,000
Issued shares - 975,912 4,880
Class B:
Authorized shares - 3,000,000
Issued shares - 912,910 4,564
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 6,458,703 65
Additional paid-in capital 56,323 655
Retained earnings 86,666 74,853
Treasury shares (2,599) (361)
Cumulative foreign currency translation adjustment (1,728) (1,874)
Deferred employee benefits (Note 6) (2,624) (2,941)
---------------------------------
Total shareholders' equity 136,103 79,776
---------------------------------
Total liabilities and shareholders' equity $ 210,856 $ 121,726
=================================
See accompanying notes.
22
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
Year ended December 31
1995 1994 1993
------------------------------------------------
Net sales $ 180,586 $ 117,336 $ 98,437
Cost of sales 119,975 76,937 63,169
------------------------------------------------
Gross profit 60,611 40,399 35,268
Selling, general and administrative expenses 36,076 27,882 25,804
------------------------------------------------
Income from operations 24,535 12,517 9,464
Interest expense 1,369 1,479 1,343
Interest (income) (927) (453) (763)
(Gain) on sale of assets (326) (442)
------------------------------------------------
Income before income taxes 24,419 11,933 8,884
Income taxes (Note 3) 9,574 5,214 3,730
------------------------------------------------
Net income $ 14,845 $ 6,719 $ 5,154
================================================
Weighted average number of common shares
outstanding 4,969 3,573 3,565
================================================
Per share data:
Net income per share $ 2.99 $ 1.88 $ 1.45
================================================
Cash dividends declared per share $ .62 $ .84 $ .79
================================================
See accompanying notes.
23
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In Thousands)
Cumulative
Foreign
Additional Currency Deferred Total
Common Paid-in Retailed Treasury Translation Employee Shareholders'
Stock Capital Earnings Shares Adjustment Benefits Equity
---------------------------------------------------------------------------------------------------
Balance at December 31, 1992 $9,444 $ 533 $68,935 $(1,649) $(1,590) $(2,606) $ 73,067
Net income 5,154 5,154
Dividends declared (2,883) (2,883)
Foreign currency translation
adjustment (276) (276)
Amortization (long-term
incentive plan) 614 614
Shares awarded pursuant to
long-term incentive plan 80 1,504 (1,584) -
Payment on ESOP loan 200 200
Net purchase of treasury
stock 6 (420) (414)
---------------------------------------------------------------------------------------------------
Balance at December 31, 1993 9,444 619 71,206 (565) (1,866) (3,376) 75,462
Net income 6,719 6,719
Dividends declared (3,072) (3,072)
Foreign currency translation
adjustment (8) (8)
Amortization (long-term
incentive plan) 810 810
Shares awarded pursuant to
long-term incentive plan 36 550 (575) 11
Payment on ESOP loan 200 200
Net purchase of treasury
stock (346) (346)
---------------------------------------------------------------------------------------------------
Balance at December 31, 1994 9,444 655 74,853 (361) (1,874) (2,941) 79,776
Net income 14,845 14,845
Dividends declared (3,032) (3,032)
Foreign currency translation
adjustment 146 146
Reclassification Class A and
B to new common stock and
change in par value from
$5.00 to $.01 (9,405) 9,405
Issuance of 2,540,000 common
shares in public offering 25 43,559 43,584
Issuance of 95,500 shares for
long-term incentive plan 1 1,377 (1,378) -
Stock bonuses awarded 518 502 1,020
Amortization (long-term
incentive plan) 1,345 1,345
Tax benefit from long-term
incentive plan 802 802
Payment on ESOP loan 350 350
Net purchase of treasury
stock 7 (2,740) (2,733)
---------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 65 $56,323 $86,666 $(2,599) $(1,728) $(2,624) $136,103
===================================================================================================
See accompanying notes.
24
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
Year ended December 31
1995 1994 1993
----------------------------------------------
Operating activities
Net income $ 14,845 $ 6,719 $ 5,154
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 5,952 4,354 3,939
Provision for deferred income taxes (642) (786) (40)
(Gain) on sale of assets (326) (442) (44)
Foreign currency transaction loss (gain) 267 (147) 68
Changes in operating assets and liabilities:
Accounts receivable (14,114) (4,340) (1,659)
Notes receivable (3,255) 5,467 (3,892)
Inventories (21,248) (6,249) (6,364)
Other assets 1,060 109 (1,014)
Accounts payable 7,240 2,603 2,824
Accrued expenses 657 3,922 680
Accrued postretirement benefits 155 80 107
----------------------------------------------
Net cash (used in) provided by operating activities (9,409) 11,290 (241)
Investing activities
Capital expenditures--net (17,703) (8,046) (3,873)
Proceeds from sale of assets 510 864 274
Acquisition of L. Kellenberger & Co. AG, net of
cash acquired (19,232)
----------------------------------------------
Net cash (used in) investing activities (36,425) (7,182) (3,599)
Financing activities
(Decrease) increase in short-term notes payable
to bank (2,730) 2,791 (43)
Increase (decrease) in long-term debt 11,936 (3,193) 6,786
(Purchase) of treasury stock, net of stock bonus (1,713) (346) (420)
Dividends paid (3,993) (2,864) (2,676)
Proceeds from stock offering 43,584
----------------------------------------------
Net cash provided by (used in) financing activities 47,084 (3,612) 3,647
Effect of exchange rate changes on cash 87 (67) (118)
----------------------------------------------
Net increase (decrease) in cash 1,337 429 (311)
Cash at beginning of year 3,783 3,354 3,665
----------------------------------------------
Cash at end of year $ 5,120 $ 3,783 $ 3,354
==============================================
See accompanying notes.
25
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
1. Significant Accounting Policies
Nature of Business
Hardinge Inc. is a machine tool manufacturer, which designs, manufactures and
distributes metal cutting lathes and related tooling and accessories. Sales are
principally in the United States and Western Europe. Sales are also made to
customers in Canada, China, Mexico, Japan, Australia, and other foreign
countries. A substantial portion of the Company's sales are to small and medium
- - sized independent job shops, which in turn sell machined parts to their
industrial customers. Industries directly served by the Company include
automotive, medical equipment, aerospace and electronics, as well as defense,
recreational equipment, farm equipment, construction equipment, energy and
transportation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. The Company changed its name in
1995 from Hardinge Brothers, Inc. to Hardinge Inc.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Property, Plant and Equipment
Property additions, including major renewals and betterments, are recorded at
cost and are depreciated over their estimated useful lives. Upon retirement or
disposal of an asset, the asset and related allowance for depreciation are
eliminated and any resultant gain or loss is credited or charged to income.
Depreciation is provided on the straight-line and sum of the years digits
methods. Total depreciation expense on property, plant and equipment was
$4,538,000, $3,388,000 and $3,250,000 for 1995, 1994 and 1993, respectively.
Income Taxes
The Company accounts for income taxes using the liability method according to
Financial Accounting Standards Board Statement No. 109. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Foreign Currency Translation
In accordance with Financial Accounting Standards Board Statement No. 52, all
balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement items are translated at an average exchange
rate for the year. The gain or loss resulting from translating subsidiary
financial statements is recorded as a separate component of shareholders'
equity. Transaction gains and losses are recorded in operations.
26
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Income Per Share
Income per share is computed using the weighted average number of shares of
common stock outstanding during the year including common stock equivalents
related to restricted stock. The number of shares outstanding has been adjusted
to reflect the stock transactions as explained in Note 4 to the financial
statements.
Research and Development Costs
The cost of research and development, all of which has been charged to
operations, amounted to $5,713,000, $5,218,000 and $4,216,000 in 1995, 1994 and
1993, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. They are summarized as follows:
December 31,
1995 1994
-------------------------------
(in thousands)
Finished products $ 29,231 $ 20,024
Work-in-process 29,083 19,439
Raw materials and purchased components 26,654 11,235
-------------------------------
$ 84,968 $ 50,698
===============================
Stock Based Compensation
The Company grants restricted shares of common stock to certain officers and
other key managers. The Company accounts for restricted share grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees
(see Note 6).
2. Financing Arrangements
Long-term debt consists of:
December 31
1995 1994
-------------------------------
(in thousands)
Note payable, due in annual installments
of $714,000 commencing August 29,
1992 through 1998, with interest
payable quarterly at 9.38% $ 2,143 $ 2,857
Note payable, due December 11, 1995,
with interest payable semi-annually at 9.52% 5,000
Note payable, due under revolving
loan agreement, with interest at
4.11% as of December 31, 1995 25,671 8,021
-------------------------------
27,814 15,878
Less current portion 714 714
-------------------------------
$ 27,100 $ 15,164
===============================
27
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
2. Financing Arrangements (continued)
In 1994, the Company entered into an unsecured credit arrangement with three
banks which provides for borrowing in several currencies up to the equivalent
of $30,000,000 on a revolving loan basis through August 1, 1997. The credit
agreement provides for repayment of the outstanding principal beginning
September 30, 1997 in 16 consecutive quarterly installments in amounts equal to
6.25% of the outstanding balance. Interest charged on the debt is based on the
Company's choice of one, two, three, or six-month London Interbank Offered
Rates (LIBOR) plus a fixed percent. A commitment fee of 3/8 of 1% is payable on
the unused portion of the facility. At December 31, 1995 approximately
$1,600,000 of the borrowing was denominated in British pound sterling and
$18,000,000 was denominated in Swiss francs.
The revolving credit note and the note due in 1995 have been classified as
long-term debt, as it is the Company's intention to maintain the principal
amounts outstanding either through the existing credit facility or new
borrowing arrangements.
The Company also has a $5,000,000 unsecured short-term line of credit with a
bank with interest based on a fixed percent over the one-month LIBOR. As of
December 31, 1995, the $3,000,000 borrowed on this line carries an interest
rate of 6.29%. The agreement is negotiated yearly and does not require any
commitment fee.
In December 1995, the Company negotiated an unsecured $10,000,000 line of
credit with a bank which expires in June 1996, or when long-term financing of
the acquisition price of Kellenberger (see Note 8) is in place, whichever is
earlier. There are no commitment fees associated with this line. There were no
borrowings under this line at December 31, 1995.
The Company's Kellenberger subsidiary maintains lines of credit with commercial
banks that permit borrowings in Swiss francs equivalent to approximately
$10,000,000. These lines provide for interest at a fixed percentage over LIBOR
and carry no commitment fees on unused funds. At December 31, 1995, total
borrowings under these lines were $7,504,000 with an average interest rate of
3.51%. The borrowings are secured by the land and buildings of Kellenberger
with a net book value of $11,294,000 at December 31, 1995 and terms are
negotiated on a yearly basis.
The debt agreements require, among other things, that the Company maintain
specified levels of tangible net worth, working capital and indebtedness.
Interest paid in 1995, 1994, and 1993 totaled $1,416,000, $1,477,000 and
$1,340,000, respectively.
The Company conducts some of its sales and service operations from leased
office space with lease terms up to 15 years and uses certain data processing
equipment under lease agreements expiring at various dates during the next four
years. Rent expense under these leases totaled $1,192,000, $1,290,000, and
$1,390,000 during the years ended December 31, 1995, 1994, and 1993,
respectively. Future minimum payments under noncancelable operating leases as
of December 31, 1995 total $2,824,000, with payments over the next five years
of $1,067,000, $927,000, $545,000, $113,000, and $95,000, respectively.
The Company has provided financing terms of up to seven years for qualified
customers who buy equipment. The Company may choose, when appropriate, to sell
underlying notes receivable contracts to financial institutions to reduce debt
and finance current operations. During 1995, 1994, and 1993, the Company sold
notes totaling $12,955,000, $30,000,000, and $19,800,000, respectively. The
remaining outstanding balance of all notes sold as of December 31, 1995 and
1994 was
28
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
2. Financing Arrangements (continued)
$44,220,000 and $45,320,000, respectively. Gains and losses from the sales of
notes receivable have not been material. Recourse against the Company from
default of any of the notes included in the sales is limited to 10% of the then
outstanding balance of the underlying notes.
3. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1995 and
1994, the Company had state investment tax credits expiring at various dates
through the year 2005, and foreign tax credit carryforwards expiring in 2000
for which no benefit has been recognized in the financial statements. At
December 31, 1994, the Company had foreign net operating loss carryforwards for
which no benefit was recognized in the financial statements at that time.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
1995 1994
---------------------------
(in thousands)
Deferred tax assets:
Federal and state tax credit carryforwards $ 3,507 $ 1,910
Foreign net operating loss carryforwards 1,542 425
Postretirement benefits 1,852 1,792
Inventory valuation 265 872
Deferred employee benefits 742 754
Accrued pension 437 425
Other 634 499
---------------------------
8,979 6,677
Less valuation allowance 3,507 2,335
---------------------------
Total deferred tax assets 5,472 4,342
Deferred tax liabilities:
Tax over book depreciation 3,512 1,361
Margin on installment sales 126 230
Other 449 331
---------------------------
Total deferred tax liabilities 4,087 1,922
---------------------------
Net deferred tax assets $ 1,385 $ 2,420
===========================
Pretax income (loss) was $21,554,000, $11,709,000, and $9,233,000 from domestic
operations and $2,865,000, $224,000, and $(349,000) from foreign operations for
1995, 1994, and 1993, respectively.
Significant components of income tax expense (benefit) attributable to
continuing operations are as follows:
1995 1994 1993
-------------------------------------------
(in thousands)
Current:
Federal $ 7,885 $ 4,812 $ 3,208
Foreign 1,117 414 (87)
State 1,214 782 650
-------------------------------------------
Total current 10,216 6,008 3,771
-------------------------------------------
29
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
3. Income Taxes (continued)
1995 1994 1993
-------------------------------------------
(in thousands)
Deferred:
Federal $ (484) $ (739) $ (204)
Foreign (104) 53 163
State (54) (108) -
-------------------------------------------
Total deferred (642) (794) (41)
-------------------------------------------
$ 9,574 $ 5,214 $ 3,730
===========================================
Income tax payments totaled $9,009,000, $4,642,000, and $3,629,000 in 1995,
1994 and 1993, respectively.
The following is a reconciliation of income tax expense computed at the United
States statutory rate to amounts shown in the consolidated statements of
income.
1995 1994 1993
-----------------------------------
Federal income taxes 34.0% 34.0% 34.0%
Tax differential on operations of foreign subsidiaries .2 3.3 2.2
State income taxes 3.1 3.7 5.0
Other 1.9 2.7 .8
-----------------------------------
39.2% 43.7% 42.0%
===================================
As a result of changes in U.S. tax law effective in 1994, earnings of a foreign
subsidiary were deemed distributed and U.S. federal taxes of $260,000 were
provided. The remaining undistributed earnings of the foreign subsidiaries,
which amounted to approximately $9,598,000 at December 31, 1995, are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state taxes has been provided thereon. Upon distribution of those earnings
in the form of dividends or otherwise, the Company would be subject to both
U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of
the amount of the unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with its hypothetical
calculation.
4. Shareholders' Equity
Treasury Shares
The number of shares of common stock in treasury were 108,766, 33,232 and
48,746 at December 31, 1995, 1994 and 1993, respectively.
Stock Reclassification
At the annual meeting on May 16, 1995, shareholders approved amendments to the
Company's Certificate of Incorporation (a) converting each Class A common share
into 2.00 shares of a new single class of Common Stock, representing a 2-for-1
stock split and each Class B common share into 2.05 shares of the new single
class of Common Stock, representing a 2.05-for-1 stock split; (b) increasing
the number of shares of Common Stock the Company is authorized to issue from
6,000,000 to 20,000,000 shares and reducing the par value of all Common Stock
from $5 to $0.01 per share; and (c) authorizing a new class of Preferred Stock
consisting of 2,000,000 shares.
30
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
4. Shareholders' Equity (continued)
All share and per share data appearing in the financial statements and notes
thereto have been restated giving effect to the amendments discussed above.
Public Offering
In June 1995, the Company issued 2,540,000 shares of its common stock at $19.00
per share in a public common stock offering. Proceeds of the offering, net of
commissions and expenses, were $43,584,000. The proceeds were used to reduce
the Company's debt, fund building expansion, and fund working capital growth.
Preferred Stock Purchase Rights
Pursuant to the Shareholder Rights Plan adopted at the Annual Meeting in 1995,
each outstanding share of the Company's common stock carries with it the right
to purchase shares of Series A Preferred Stock. Each Right entitles the holder
of the Right to purchase one one-hundredth of a share of Series A Preferred
Stock (a "Unit") at a purchase price of $80.00 per Unit. The Rights will become
exercisable ten business days after any person or group becomes the beneficial
owner of 20% or more of the Common Stock or commences a tender or exchange
offer upon consummation of which such person or group would, if successful, own
30% or more of the Common Stock. The Rights, which will expire ten years from
the date of issuance, may be redeemed by the Board of Directors, at $.01 per
Right, at any time prior to the expiration of ten business days after the
acquisition by a person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding Common Stock.
5. Industry Segment and Foreign Operations
The Company operates in one business segment - industrial machine tools.
Domestic and foreign operations consist of:
Year Ended December 31
1995 1994 1993
-------------------------------------------------
(in thousands)
Sales:
Gross sales:
United States $ 168,679 $ 110,942 $ 94,268
Western Europe 25,739 12,346 8,715
Other 18,544 12,980 8,403
-------------------------------------------------
Total 212,962 136,268 111,386
Less interarea transfers:
United States 32,042 18,915 12,930
Western Europe 334 17 19
-------------------------------------------------
Total 32,376 18,932 12,949
Net sales:
United States 136,637 92,027 81,338
Western Europe 25,405 12,329 8,696
Other 18,544 12,980 8,403
-------------------------------------------------
Total net sales $ 180,586 $ 117,336 $ 98,437
=================================================
Operating income (loss):
United States $ 20,998 $ 12,220 $ 9,192
Western Europe 1,502 (875) (617)
Other 2,361 1,614 889
-------------------------------------------------
Total operating income $ 24,861 $ 12,959 $ 9,464
=================================================
31
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
5. Industry Segment and Foreign Operations (continued)
Year Ended December 31
1995 1994 1993
-------------------------------------------------
(in thousands)
Net income (loss):
United States $ 12,418 $ 6,884 $ 5,148
Western Europe 1,247 (1,039) (596)
Other 1,180 874 602
-------------------------------------------------
Total net income $ 14,845 $ 6,719 $ 5,154
=================================================
Identifiable assets:
United States $ 155,007 $ 106,606 $ 97,816
Western Europe 43,214 7,256 7,348
Other 12,635 7,864 6,005
-------------------------------------------------
Total identifiable assets $ 210,856 $ 121,726 $ 111,169
=================================================
Interarea sales are accounted for at prices comparable to normal, unaffiliated
customer sales, reduced by estimated costs not incurred on these sales.
Operating income excludes interest income and interest expense directly
attributable to the related operations. The operating loss in Western Europe in
1994 includes a $540,000 charge for the write off of inventory that became
obsolete when the Company changed its distribution strategies there.
In 1995, sales to one customer in the automotive industry represented
approximately 17% of consolidated sales.
6. Employee Benefits
Pension Plan
The Company provides a non-contributory defined benefit pension plan covering
all eligible domestic employees. The related benefits are generally based on
years of service and a percentage of the employee's average annual
compensation. The Company's practice is to fund all pension costs accrued and
to contribute annually amounts within the range allowed by the Internal Revenue
Service.
A summary of the components of net periodic pension cost is presented below.
Year Ended December 31
1995 1994 1993
----------------------------------------------
(in thousands)
Service costs--benefits earned during the year $ 962 $ 1,126 $ 1,054
Interest costs on projected benefit obligation 3,186 3,055 2,844
Actual return on plan assets (9,753) (1,538) (3,439)
Net amortization and deferral 5,763 (2,065) (103)
----------------------------------------------
Net pension costs $ 158 $ 578 $ 356
==============================================
Actuarial assumptions used to determine pension costs include a discount rate
of 7.75% at December 31, 1995 (8.75% and 7.75% as of December 31, 1994 and
1993, respectively), expected long-term rate of return on assets of 9% for all
three years, and expected rate of increase in compensation levels of 5% for all
three years. Transition amounts, unrecognized prior service costs and
unrecognized gains or losses are amortized on a straight line basis over the
future working lifetime of those expected to receive benefits under the plan.
The decrease in the discount rate in 1995 increased the projected benefit
obligation at the end of the year by approximately $5,000,000.
32
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
A summary of the Plan's funded status and amounts recognized in the Company's
consolidated balance sheets is as follows:
1995 1994
---------------------------------
(in thousands)
Plan assets at fair value $ 50,496 $ 42,888
Projected benefit obligation for services rendered
to date (45,372) (37,570)
---------------------------------
Plan assets in excess of projected benefit obligation 5,124 5,318
Unrecognized net (gain) (7,436) (7,901)
Unrecognized net (asset) from transition (2,265) (2,439)
Unrecognized prior service costs resulting from
Plan amendment 3,364 3,628
---------------------------------
Net pension (liability) recognized in the balance sheets $ (1,213) $ (1,394)
=================================
The portion of the projected benefit obligation representing the accumulated
benefit obligation for the pension plan was $41,097,000 and $35,102,000 at the
end of 1995 and 1994, respectively. The vested benefit obligation included in
those numbers was $35,909,000 and $30,595,000 at the end of 1995 and 1994,
respectively.
Pension plan assets include 165,924 shares of the Company's common stock valued
at approximately $4,314,000 and $2,364,000 at December 31, 1995 and 1994,
respectively. The remaining plan assets consisted of United States Government
securities, corporate bonds and notes, other common stocks and an insurance
contract.
Postretirement Plans Other Than Pensions
The Company provides a contributory retiree health plan covering all eligible
domestic employees who retired at normal retirement age prior to January 1,
1993 and all retirees who will retire at normal retirement age after January 1,
1993 with at least 10 years of active service. Employees who elect early
retirement are eligible for the plan benefits if they have 15 years of active
service at retirement. Benefit obligations and funding policies are at the
discretion of the Company's management. Retiree contributions are adjusted
annually and contain other cost-sharing features such as deductibles and
coinsurance, all of which varies according to the retiree's date of retirement.
The accounting for the plan anticipates future cost-sharing changes to the
written plan that are consistent with the Company's expressed intent to limit
its contributions to 125% of the average aggregate 1993 claim cost. The Company
also provides a non-contributory life insurance plan to retirees. Because the
amount of liability relative to this plan is insignificant, it is combined with
the health plan for purposes of this disclosure.
The Company accounts for other postretirement benefit costs in accordance with
Financial Accounting Standards Board Statement No. 106. A summary of the
components of net periodic other postretirement benefit costs relating to the
plan is presented below.
1995 1994 1993
---------------------------------
(in thousands)
Service cost--benefits earned during the year $ 78 $ 97 $ 103
Interest costs on projected benefit obligations 451 435 392
Amortization of actuarial losses - 27 -
---------------------------------
Amount recorded in operations $ 529 $ 559 $ 495
=================================
33
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
Actuarial assumptions used to determine the liability for postretirement plans
other than pensions included a discount rate of 7.25%, 8.75% and 7.75% at
December 31, 1995, 1994 and 1993, respectively. The annual rate of increase in
the per capita cost of covered health care benefits (the health care cost
trend) was assumed to be 12% for 1995, and is assumed to decrease gradually to
6% by the year 2005 and remain at that level thereafter.
The health care cost trend rate assumption does not have a significant effect
on the amounts reported due to the 125% cap on the Company's portion of the
medical plan claims. A one percentage point increase in the assumed health care
cost trend rates would increase the accumulated postretirement benefit
obligation by only $119,000 and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
1995 by $15,000.
The Company has not prefunded any of its postretirement health and life
insurance liabilities and, consequently, there are no expected returns on
assets anticipated in the calculation of expense.
A schedule reconciling the accumulated benefit obligation with the Company's
recorded liability follows:
1995 1994
---------------------------------
Accumulated postretirement benefit obligation:
Current retirees $ (3,145) $ (2,988)
Fully eligible active participants (1,877) (1,345)
Other active participants (1,389) (1,024)
---------------------------------
Total (6,411) (5,357)
Unrecognized losses 1,418 520
---------------------------------
Accrued postretirement benefit recognized in
balance sheet $ (4,993) $ (4,837)
=================================
Group Health Plan
The Company has a contributory group benefit plan which provides medical and
dental benefits to all of its domestic employees.
Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan. The Plan covers
substantially all domestic employees of the Company subject to minimum
employment period requirements. The approved Plan required establishment of an
employee stock ownership trust, which borrowed from a bank to purchase the
Company's common stock. The Company thereby effectively obligated itself to
contribute to the employee trust sufficient amounts to allow the trust to repay
the loan and related interest installments. During 1995, the Company made
contributions to the trust sufficient to allow payment of the remainder of the
loan. The balance of the loan at December 31, 1994 was $350,000. Contributions,
including dividends, to the trust for the year ended December 31, 1995, 1994
and 1993 totaled $372,000, $240,000 and $257,000, respectively. The interest
portion of those contributions was $22,000, $40,000 and $57,000, respectively.
Approximately $29,000, $41,000 and $53,000 of dividends on shares owned by the
ESOP were used to service debt requirements in 1995, 1994 and 1993,
respectively.
34
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
401(k) Plan
The Company also maintains a 401(k) Savings Plan for its domestic employees.
Provisions of the Plan allow employees to defer from 1% to 15% of their pre-tax
salary to the Plan. Those contributions may be invested at the option of the
employees in either fixed income securities or Hardinge Inc. common stock. The
Plan was amended effective January 1, 1996 to expand investment options. Also,
beginning in 1996, the Company will contribute to the Plan based upon a
matching formula applied to employee contributions.
Long-Term Incentive Plans
In 1993, the Board of Directors established an Incentive Stock Plan to assist
in attracting and retaining key employees. The Plan allows the Board to grant
restricted stock and performance share awards up to an aggregate of 405,000
shares of common stock to these employees.
During 1995, certain officers and other key managers were awarded a total of
95,500 restricted shares of common stock. During 1994 and 1993, shares of
restricted common stock were awarded totaling 46,750 and 134,750, respectively.
Restrictions on 177,750 shares of common stock from this Plan and a similar
1988 plan were released during 1995.
As of December 31, 1995, a total of 324,300 restricted shares of common stock
were outstanding under the two plans. All shares of restricted stock are
subject to forfeiture and restrictions on transfer, and unconditional vesting
occurs upon the completion of a specified period ranging from four to eight
years from date of grant.
Deferred compensation associated with these grants is measured by the market
value of the stock on the date of grant and totaled $1,377,500, $575,000 and
$1,584,000 in 1995, 1994 and 1993, respectively. This deferred compensation is
being amortized on a straight-line basis over the specified service period. The
unamortized deferred compensation at December 31, 1995, 1994 and 1993, totaled
$2,624,000, $2,591,000 and $2,826,000, respectively, and is included along with
Employee Stock Ownership Benefits as a reduction of shareholders' equity.
Foreign Operations
The Company also has employees in certain foreign countries that are covered by
defined benefit pension plans and other employee benefit plans. Related
obligations and costs charged to operations are not material.
7. Financial Instruments
At December 31, 1995 and 1994, the carrying value of financial instruments such
as cash, accounts receivable, accounts payable and short-term debt approximated
their fair values, based on the short-term maturities of these instruments. The
carrying amount of debt under the revolving loan agreement classified as
long-term debt approximates fair value as the underlying instrument is
comprised of notes that are repriced on a short-term basis.
The fair value of notes receivable, short-term and long-term, was determined
using a discounted cash flow analysis based on the rate at which the Company
could sell those notes at year end under standard terms experienced on recent
sales (a fixed
35
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
7. Financial Instruments (continued)
percentage over U.S. Treasury notes). At December 31, 1995 and 1994, the
carrying value of these notes approximated the fair value.
The fair value of other long term debt was determined based on rates obtained
from financial institutions on funds available for terms approximating the
remaining term of that debt. At December 31, 1995, the fair value of that debt
with carrying value of $2,143,000 was $2,223,000.
The Company regularly enters into foreign currency contracts to manage its
exposure to fluctuations in foreign currency exchange rates on purchases of
materials used in production and intercompany cash transactions. These
contracts generally involve the exchange of one currency for another at some
future date. At December 31, 1995, the Company had a notional principal amount
of approximately $1,931,000 in contracts to purchase currency in the future
from major commercial banks. The carrying value at December 31, 1995, which
approximated fair value based on exchange rates as of that date, was not
significant.
Concentration of Credit Risk
The Company sells products to companies in diversified industries, with a
substantial majority of sales occurring in North America and Western Europe.
The Company performs periodic credit evaluations of the financial condition of
its customers. The Company offers financing terms of up to seven years for its
customers in the United States and Canada and files a lien against the
equipment purchased under those terms. No collateral is required for sales made
on open account terms with payment due within thirty days. As of December 31,
1995, 18% of the accounts receivable were from the three major U.S. automobile
manufacturers, with receivables from one representing 14% of the consolidated
accounts receivable. As of December 31, 1994, the total amount of receivables
from any one specific industry was not significant.
8. Acquisition
On November 29, 1995, the Company completed the acquisition of 100% of the
outstanding stock of L. Kellenberger & Co. AG and subsidiary, a St. Gallen,
Switzerland based manufacturer of grinding machines ("Kellenberger"). The
Company paid $19,232,000 including acquisition expenses. In connection with the
acquisition, approximately $1,800,000 was placed in an escrow account to cover
potential purchase price adjustments. The acquisition cost was funded using the
Company's revolving loan agreement and the Company anticipates refinancing this
amount using longer term financing during the first quarter of 1996.
The acquisition has been accounted for as a purchase and December results of
operations of Kellenberger have been included in the consolidated financial
statements of the Company. The purchase price was allocated based on the
estimated fair values of assets and liabilities as of the date of acquisition
resulting in no goodwill.
On the basis of an unaudited proforma consolidation of the results of
operations as if the acquisition had taken place as of January 1, 1994,
consolidated net sales for the combined companies would have been $213,127,000
and $141,703,000 for the years ended December 31, 1995 and 1994, respectively.
Consolidated net income would have
36
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
8. Acquisition (continued)
been $13,430,000 and $4,422,000 and earnings per share would have been $2.70
and $1.24 for the years of 1995 and 1994, respectively. The results reflect
additional depreciation on the step-up in basis of certain fixed assets
acquired, interest expense that would have been incurred to finance the
purchase, and savings which would have resulted if cost cutting measures taken
at the time of acquisition had taken place at the beginning of 1994. The
proforma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1994 or of future results of operations of the consolidated
entities.
9. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for 1995 and 1994 is as follows:
Quarter
First Second Third Fourth
-------------------------------------------------------------
(in thousands, except per share data)
1995
Net sales $ 40,687 $ 41,501 $ 42,217 $ 56,181
Gross profit 13,913 14,207 14,439 18,052
Income from operations 5,498 5,801 4,949 8,287
Net income 3,304 3,275 3,182 5,084
Net income per share .92 .75 .52 .82
Weighted average shares outstanding 3,584 4,349 6,176 6,217
1994
Net sales $ 27,479 $ 29,023 $ 29,449 $ 31,385
Gross profit 9,549 10,010 10,394 10,446
Income from operations 2,977 3,358 2,975 3,207
Net income 1,612 1,819 1,608 1,680
Net income per share .45 .51 .45 .47
Weighted average shares outstanding 3,545 3,545 3,586 3,586
Earnings per share amounts are based on the weighted average shares outstanding
for each period presented. As a result of the changes in outstanding shares
from quarter to quarter, the total of the four quarters for 1995 does not equal
the annual earnings per share.
37
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
38
PART III
ITEM 10. - DIRECTORS AND OFFICERS OF THE REGISTRANT
Certain information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 15, 1996.
Additional information required to be furnished by Item 401 of Regulation S-K
is as follows:
List of Executive Officers of the Registrant
---------------------------------------------------------------------------------------------------------------------
Executive
Officer
Name Age Since Positions and Offices Held
------------------------------ ------ --------------- -------------------------------------------------------
Robert E. Agan 57 1978 Chairman of the Board, President and Chief Executive
Officer since 1996; President and Chief Executive
Officer 1984-1995, President and Chief Operating
Officer in 1983; Executive Vice President and Chief
Operating Officer from 1980 to 1982; Vice President -
Employee Relations from 1978 to 1979; member of Board
of Directors of the Company since 1980.
J. Allan Krul 53 1988 Executive Vice President and Chief Operating Officer
since 1996, Senior Vice President and Chief Operating
Officer since 1995; Vice President - General Manager
Machine Operations from 1991 - 1994; Vice President -
Engineering 1988 - 1990.
Malcolm L. Gibson 55 1983 Senior Vice President, Chief Financial Officer and
Assistant Secretary since 1995; Vice President
-Finance, Treasurer and Assistant Secretary from
1985 to 1994; Vice-President - Finance and Assistant
Secretary from 1983 to 1984; Treasurer from 1972 to
1982.
Douglas C. Tifft 41 1988 Vice President - Employee Relations since 1988.
Douglas A. Greenlee 48 1992 Vice President - Business Development since 1993;
Secretary in 1992; Formerly attorney, Hazel & Thomas,
P.C., Law Firm; member of Board of Directors of the
Company since 1979.
Thomas T. Connelly 48 1984 Treasurer since 1995; Senior Vice President-General
Manager Workholding Operations 1991 - 1994; Senior
Vice President 1987 - 1990; Vice President and
Assistant to the President 1985 - 1986; Treasurer and
Assistant to the President in 1984; Treasurer in
1983; Assistant Treasurer in 1982.
39
ITEM 11. - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 15, 1996.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 15, 1996.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 15, 1996.
40
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements of the Registrant listed in ITEM 8. of this
Report are incorporated herein by reference.
(2) The financial statement schedules of the Registrant listed in
ITEM 8. of this Report are incorporated herein by reference.
(3) Exhibits:
INDEX TO EXHIBITS
Item Description
4.1 - Restated Certificate of Incorporation of Hardinge Brothers, Inc.,
incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
4.2 - Amendment to the Restated Certificate of Incorporation of Hardinge
Brothers, Inc. filed with the Secretary of State of the State of
New York on May 27, 1988, incorporated by reference from the
Registrant's Registration Statement on Form S-2 (No. 33-91644).
4.3 - Amendment to the Restated Certificate of Incorporation of Hardinge
Brothers, Inc. filed with the Secretary of State of the State of
New York on May 19, 1995, incorporated by reference from the
Registrant's Form 8-A, filed with the Securities and Exchange
Commission on May 19, 1995.
4.4 - Amendment to the Restated Certificate of Incorporation of Hardinge
Inc. filed with the Secretary of State of the State of New York on
May 24, 1995, incorporated by reference from the Registrant's
Form 8-A, filed with the Securities and Exchange Commission on
May 19, 1995.
4.5 - By-Laws of Hardinge Inc., incorporated by reference from the
Registrant's Registration Statement on Form S-2 (No. 33-91644).
4.6 - Section 719 through 726 of the New York Business Corporation Law,
incorporated by reference from the Registrant's Form 10, effective
June 29, 1987.
4.7 - Specimen of certificate for shares of Common Stock, par value
$.01 per share, of Hardinge Inc., incorporated by reference from
the Registrant's Form 8-A, filed with the Securities and Exchange
Commission on May 19, 1995.
4.8 - Form of Rights Agreement, dated as of May 16, 1995, between
Hardinge Inc. and American Stock Transfer and Trust Company,
incorporated by reference from the Registrant's Form 8-A, filed
with the Securities and Exchange Commission on May 23, 1995.
*10.1 - The 1988 Hardinge Brothers, Inc. Incentive Stock Plan, as adopted
by shareholders at the annual meeting of shareholders held on
May 17, 1988, incorporated by reference from the Registrant's Form
10-Q for the quarter ended June 30, 1988 and the Annual Proxy
Statement dated April 28, 1988.
41
*10.2 - First Amendment to Hardinge Brothers, Inc. 1988 Incentive Stock
Plan, incorporated by reference from the Registrant's Form 10-K
for the year ended December 31, 1993.
*10.3 - Hardinge Brothers, Inc. 1993 Incentive Stock Plan, incorporated by
reference from the Registrant's Form 10-K for the year ended
December 31, 1993.
*10.4 - Hardinge Brothers, Inc. Executive Supplemental Pension Plan,
incorporated by reference from the Registrant's Form 10-K for the
year ended December 31, 1993.
10.5 - Credit Agreement dated as of August 1, 1994 among Hardinge
Brothers, Inc., the Banks signatory thereto and The Chase
Manhattan Bank, incorporated by reference from the Registrant's
Registration Statement on Form S-2 (No. 33-91644).
10.6 - Note Agreement dated August 29, 1991 between Hardinge Brothers,
Inc. and AEtna Life Insurance Company, relating to the issuance by
Hardinge Brothers, Inc. of $5,000,000 principal amount of its
9.38% notes due 1998, incorporated by reference from the
Registrant's Registration Statement on Form S-2 (No. 33-91644).
10.7 - Note Agreement dated December 11, 1990 between Hardinge Brothers,
Inc. and AEtna Life Insurance Company, relating to the issuance by
Hardinge Brothers, Inc. of $5,000,000 principal amount of its
9.52% notes due 1995, incorporated by reference from the
Registrant's Registration Statement on Form S-2 (No. 33-91644).
*10.8 - Employment Agreement with Robert E. Agan dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.9 - Employment Agreement with J. Allan Krul dated as of April 1, 1995,
incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.10 - Employment Agreement with Malcolm L. Gibson dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.11 - Employment Agreement with Douglas A. Greenlee dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.12 - Employment Agreement with Douglas C. Tifft dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.13 - Form of Deferred Directors Fee Plan, incorporated by reference
from the Registrant's Registration Statement on Form S-2 (No. 33-
91644).
*10.14 - Description of Incentive Cash Bonus Program, incorporated by
reference from the Registrant's Registration Statement on Form S-2
(No. 33-91644).
10.15 - Loan Purchase Agreement dated as of October 26, 1994, between
Hardinge Brothers, Inc. and Chemung Canal Trust Company, relating
to the purchase of $3,000,000 of receivables contracts by Chemung
Canal Trust Company from Hardinge Brothers, Inc., incorporated by
reference from the Registrant's Registration Statement on Form S-2
(No. 33-91644).
10.16 - Loan Purchase Agreement dated as of March 24, 1995, between
Hardinge Brothers, Inc. and Chemung Canal Trust Company, relating
to the purchase of $3,000,000 of receivables contracts by Chemung
Canal Trust Company from Hardinge Brothers, Inc., incorporated by
42
reference from the Registrant's Registration Statement on Form S-2
(No. 33-91644).
10.17 - $5,000,000 Master Note executed by Hardinge Brothers, Inc. for the
benefit of Chemung Canal Trust Company dated September 19, 1994,
incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.18 - Hardinge Inc. Savings Plan, incorporated by reference from the
Registrant's Registration Statement on Form S-8, (No. 33-65049)
21.1 - Subsidiaries of the Company.
23.1 - Consent of Ernst & Young LLP, Independent Auditors.
27.1 - Financial Data Schedule.
*Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this report.
(b) The following reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report:
(1) Current report on Form 8-K, dated November 16, 1995, in respect of the
acquisition of L. Kellenberger & Co. AG and subsidiary.
(2) Current report on Form 8-K, as amended, dated November 29, 1995, in respect
of the acquisition of L. Kellenberger & Co. AG and subsidiary, including
financial statements of L. Kellenberger & Co. and subsidiary and pro forma
financial information reflecting on a pro forma basis the acquisition of L.
Kellenberger & Co. AG and subsidiary.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
--------------------------------------------------------------
(Registrant)
March 26, 1996
/s/ Robert E. Agan
- ---------------------------- --------------------------------------------------------------
Robert E. Agan
Chairman of the Board, President, Chief
Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 26, 1996 /s/ Malcolm L. Gibson
- ---------------------------- --------------------------------------------------------------
Malcolm L. Gibson
Senior Vice President/Chief Financial Officer and Assistant
Secretary (Principal Financial Officer)
March 26, 1996 /s/ John W. Bennett
- ---------------------------- --------------------------------------------------------------
John W. Bennett
Director
March 26, 1996 /s/ Richard J. Cole
- ---------------------------- --------------------------------------------------------------
Richard J. Cole
Director
March 26, 1996
- ---------------------------- --------------------------------------------------------------
James L. Flynn
Director
March 26, 1996 /s/ E. Martin Gibson
- ---------------------------- --------------------------------------------------------------
E. Martin Gibson
Director
March 26, 1996 /s/ Douglas A. Greenlee
- ---------------------------- --------------------------------------------------------------
Douglas A. Greenlee
Vice President and Director
44
March 26, 1996 /s/ J. Philip Hunter
- ---------------------------- --------------------------------------------------------------
J. Philip Hunter
Director and Secretary
March 26, 1996 /s/ Dr. Eve L. Menger
- ---------------------------- --------------------------------------------------------------
Dr. Eve L. Menger
Director
March 26, 1996 /s/ Whitney S. Powers
- ---------------------------- --------------------------------------------------------------
Whitney S. Powers
Director
March 26, 1996 /s/ Richard L. Simons
- ---------------------------- --------------------------------------------------------------
Richard L. Simons
Controller (Principal Accounting Officer)
45
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Jurisdiction of
Company Incorporation or Organization
Canadian Hardinge Machine Tools, Ltd. Canada
Hardinge Machine Tools, Ltd. United Kingdom
Hardinge Brothers GmbH Germany
L. Kellenberger & Co., AG Switzerland
Kellenberger Incorporated New York
46
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-65049) pertaining to the Hardinge Inc. Savings Plan of our
report dated January 26, 1996, with respect to the consolidated financial
statements of Hardinge Inc. and subsidiaries included in the Annual Report
(Form 10-K) for the year ended December 31, 1995.
Ernst & Young LLP
Syracuse, New York
March 25, 1996
47