-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IRcW+HC1s6Zj2bTkO7PKi+cVsYOpKHdjvqZBtozvQkt3lwA0CGZGkKZbVNYxu89p W0QW6ZCm/+sn1hE1O2L+1A== 0000912057-00-011004.txt : 20000313 0000912057-00-011004.hdr.sgml : 20000313 ACCESSION NUMBER: 0000912057-00-011004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDINGE INC CENTRAL INDEX KEY: 0000313716 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 160470200 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15760 FILM NUMBER: 566720 BUSINESS ADDRESS: STREET 1: ONE HARDING DRIVE CITY: ELMIRA STATE: NY ZIP: 14902 BUSINESS PHONE: 6077342281 MAIL ADDRESS: STREET 1: ONE HARDINGE DRIVE STREET 2: ONE HARDINGE DRIVE CITY: ELMIRA STATE: NY ZIP: 14902 FORMER COMPANY: FORMER CONFORMED NAME: HARDINGE BROTHERS INC DATE OF NAME CHANGE: 19920703 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1999. / / 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 Identification No.) incorporation or organization) ONE HARDINGE DRIVE, ELMIRA, NEW YORK 14902-1507 (Address of principal executive Zip Code offices)
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 February 1, 2000: Common Stock, $.01 par value--$80,216,217. The number of shares outstanding of the issuer's common stock as of February 1, 2000: Common Stock, $.01 par value 9,242,533 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of Hardinge Inc.'s Proxy Statement filed with the Commission on March 10, 2000 are incorporated by reference to Part III of this Form. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 GmbH was established by the Company in Germany in 1987. In November 1995, the Company acquired 100% of the outstanding stock of L. Kellenberger & Co., AG of St. Gallen, Switzerland and its subsidiary, Kellenberger, Inc. (collectively referred to as "Kellenberger"). The Kellenberger, Inc. subsidiary was then liquidated in 1998. During 1996, Hardinge Shanghai Company, Ltd. was established near Shanghai, People's Republic of China. In April 1997, the Company acquired 100% of the outstanding stock of Hansvedt Industries, Inc. Additionally, the Company is a majority owner in Hardinge Taiwan Precision Machinery Limited, located in Nan Tou City, (Taiwan) Republic of China. 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, St. Gallen, Switzerland and Nan Tou City, Taiwan. The Company assembles machinery at its Shanghai, PRC facility for deliveries to customers in Asia. The Company manufactures the majority of the products it sells, purchasing 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. PRODUCTS Hardinge Inc. has been a manufacturer of industrial-use Super-Precision-Registered Trademark- 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 parts produced by 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 being produced. 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, Hardinge expanded its machine tool line to include CNC vertical turning machines and vertical machining centers. 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 1 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. They are being marketed by Hardinge 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 further the ability of the Company to be a sole source supplier for its customers. Further refining its ability to provide products aimed at particular types of customer applications, Hardinge in 1998 introduced the Conquest Twin Turn 65 dual spindle, twin turret lathe. This is the most technologically advanced machine tool Hardinge has ever built. This machine is specially designed to manufacture complex parts within a single machining cycle. In 1999, Hardinge introduced the Conquest GT27SP Autoload which added automation to the reliable and rugged Conquest GT line of machines. The machine was designed to meet the needs of our job shop customers who have asked for affordable, fexible automation to allow them to run multiple shifts of unattended operation. The Company has taken its knowledge of automation gained through its turnkey orders from large manufacturers and transferred this into a product available to smaller customers. Also in 1999, Hardinge began manufacturing and sales of a new series of machining centers. Three new machines in this market have been designed through a joint effort of engineers in the United States and Taiwan, and are being manufactured in Taiwan by a workforce that was trained in quality and workmanship procedures by employees from the Company's main facility in Elmira. In 1997, the Company entered the market for electrical discharge machines ("EDM") with its acquisition of Hansvedt Industries, Inc. EDM's are used to produce complex metal parts through a process of erosion with electricity using either a cutting wire or electrode. EDM's are used by many of the same customers who purchase other Hardinge products, adding a new dimension to the Company's product lines without moving beyond its core businesses. Hardinge has redesigned components of these machines to improve manufacturability and reliability of the Hansvedt line. Multiple options are available on the broad range of the Company's 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, Hardinge 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 2 programming and tooling, as well as robotics and other parts handling equipment manufactured by it or others. Generally, 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, Hardinge 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. Also produced are a variety of other optional equipment and accessories for its machines. The Company has further expanded its workholding products with the addition of its Sure-Grip-TM- line of power jaw chucks. 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. In North America, 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 are sold mainly 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. The Company can package and ship items with heavy demand within several hours. 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 3 products through publication of general catalogues 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 and indirectly served by the Company include automotive, medical equipment, aerospace, defense, recreational equipment, farm equipment, construction equipment, energy, and transportation. Sales to the automobile industry accounted for 4%, 13% and 17% of the Company's net sales in 1999, 1998 and 1997, respectively. 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. Hansvedt EDMs compete primarily with similar products produced by European and Asian builders. 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, one line of machining centers, Hansvedt electrical discharge machines and related products at its Elmira, New York plant. The Kellenberger grinding machines and related products are manufactured at its St. Gallen, Switzerland plant. Hardinge began producing a line of its machining centers at its majority-owned subsidiary in Taiwan in late 1999. 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 primarily from Fanuc Limited, a large Japanese electronics company, except on occasions where a significant customer order specifies a different control. While the Company believes that design changes could be made to its machines to allow sourcing from several other existing suppliers, and occasionally does so for these special orders, 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. The Company utilizes several quality and process control programs, including Total Quality Management. The Company's quality management system is certified to the ISO 9001 Quality Standard of the International Standards Organization. The ISO 9001 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. 4 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 $7,060,000, $8,630,000, and $8,415,000, in 1999, 1998 and 1997, 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. However, the Company's quarterly results are subject to 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 U.S. and European 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. The ability to deliver products within a short period of time is an important competitive criterion. Also, the Company feels it is important to provide availability of replacement parts for a machine throughout its useful life. These factors contribute to a requirement that the Company carry significant amounts of inventory. For many years, the Company has periodically sold a substantial portion of the customer notes receivable generated by its customer financing program 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 these notes. BACKLOG The Company normally ships its machine products within two to three months after order. The Company's order backlog at December 31, 1999 and 1998 was $38,950,000 and $32,260,000, respectively. The increase in backlog in 1999 reflects a large order received during the second quarter of 1999 which will not ship until 2000. 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 is not necessarily indicative of actual shipments or sales for any future period, and period-to-period comparisons 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. 5 ENVIRONMENTAL MATTERS The Company's operations are subject to extensive federal and state legislation and regulation relating to environmental matters. Certain environmental laws can impose joint and several liability for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal. Activities at properties 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 Company completed the construction phase of the cleanup in the first quarter of 1996. On August 31, 1998, the New York State Department of Conservation notified the Company that it could decommission the pump and treat system, skim product from one of the wells, and bioremediate in three locations. The Company is following this process at a nominal yearly cost. 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, 1999 the Company employed 1,266 persons, 956 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. 6 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 Systems, 80 acres Marketing, Sales, Demonstration, Service and 515,000 sq. ft. Administration Elmira, New York Machine Assembly and Warehouse 12 acres 176,000 sq. ft. St. Gallen, Switzerland Manufacturing, Engineering, Turnkey Systems, 8 acres Marketing, Sales, Demonstration, Service and 155,000 sq. ft. Administration Exeter, England Sales, Marketing, Demonstration, Service, Turnkey 2 acres Systems and Administration 27,500 sq. ft.
LEASE EXPIRATION LOCATION TYPE OF FACILITY SQUARE FOOTAGE DATE - -------- ----------------------------------------- --------------- ---------- LEASED PROPERTIES Krefeld, Germany Sales, Service and Demonstration 4,000 sq. ft. 3/31/07 Los Angeles, California Sales, Service and Demonstration 14,500 sq. ft. 10/31/02 Toronto, Canada Sales, Service 5,800 sq. ft. 6/5/01 Charlotte, North Carolina Sales, Service and Demonstration 6,400 sq. ft. 3/31/06 Cleveland, Ohio Sales, Service and Demonstration 10,000 sq. ft. 6/30/03 Shanghai, PRC Product Assembly, Sales, Service, 14,500 sq. ft. 7/31/02 Demonstration and Administration Nan Tou City, Taiwan Manufacturing, Engineering, Marketing, 110,000 sq. ft. 12/2019 Sales, Service, Demonstration and Administration
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 1999, no matters were submitted to a vote of security holders. 7 PART II ITEM 5.--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table reflects the highest and lowest values at which the stock traded in each quarter of the last two years. Hardinge Inc. common stock trades on The Nasdaq Stock Market-Registered Trademark- under the symbol "HDNG." The table also includes dividends per share, by quarter.
1999 VALUES 1998 VALUES ------------------------------- ------------------------------- HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS -------- -------- --------- -------- -------- --------- QUARTER ENDED March 31............................... $18.17 $14.13 $.14 $24.83 $21.17 $.14 June 30................................ 18.38 13.75 .14 30.25 23.00 .14 September 30........................... 17.38 14.81 .14 28.00 20.06 .14 December 31............................ 16.38 12.25 .14 23.00 18.13 .14
At February 1, 2000, there were 3,418 holders of record of common stock. 8 ITEM 6.--SELECTED FINANCIAL DATA The following selected financial data are 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).
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- STATEMENT OF INCOME DATA Net sales....................................... $178,533 $259,625 $246,579 $220,295 $180,586 Cost of sales................................... 121,375 167,528 164,161 145,264 119,975 -------- -------- -------- -------- -------- Gross profit.................................... 57,158 92,097 82,418 75,031 60,611 Selling, general and administrative expenses.... 47,541 57,507 49,959 45,058 36,076 Unusual expense (1)............................. 950 1,960 -------- -------- -------- -------- -------- Operating income................................ 9,617 33,640 30,499 29,973 24,535 Interest expense................................ 1,743 2,324 2,378 2,770 1,369 Interest (income)............................... (565) (597) (705) (889) (927) (Gain) on sale of assets........................ (326) -------- -------- -------- -------- -------- Income before income taxes and minority interest in loss of consolidated subsidiary............ 8,439 31,913 28,826 28,092 24,419 Income taxes.................................... 3,054 11,630 10,886 10,804 9,574 Minority interest in loss of consolidated subsidiary.................................... 656 -------- -------- -------- -------- -------- Net income...................................... $ 6,041 $ 20,283 $ 17,940 $ 17,288 $ 14,845 ======== ======== ======== ======== ======== Per share data: (2) Basic earnings per share: (2) Weighted average number of common shares outstanding................................. 9,287 9,432 9,357 9,249 7,394 Earnings per share............................ $ .65 $ 2.15 $ 1.92 $ 1.87 $ 2.01 ======== ======== ======== ======== ======== Diluted earnings per share: (2) Weighted average number of common shares outstanding................................. 9,287 9,434 9,427 9,336 7,431 Earnings per share............................ $ .65 $ 2.15 $ 1.90 $ 1.85 $ 2.00 ======== ======== ======== ======== ======== Cash dividends declared per share............... $ .56 $ .56 $ .53 $ .46 $ .41 ======== ======== ======== ======== ======== BALANCE SHEET DATA Working capital................................. $115,428 $130,550 $118,385 $116,256 $ 99,780 Long-term portion of notes receivable........... 15,014 13,063 11,951 11,791 10,936 Total assets.................................... 241,457 256,681 245,284 229,162 211,582 Long-term debt.................................. 23,380 35,415 31,012 37,156 27,100 Shareholders' equity............................ 171,714 179,795 163,184 147,545 136,103
- ------------------------ (1) 1998 included a one-time charge of $950,000 (approximately $570,000 after tax). This charge resulted from costs incurred to relocate the manufacture and support of Hansvedt Inc. from Illinois to the Company's headquarters in Elmira, New York, and from a workforce reduction of approximately 200 full-time jobs, or 15% of the total employment. 1997 included a one-time charge of $1,960,000 ($1,200,000 after tax). This non-recurring charge involves outside costs incurred in connection with a major acquisition that the Company carried into the final stages of the due diligence process but decided not to complete. (2) All share and per share data have been restated, where appropriate, to reflect: (a) compliance with Statement of Financial Accounting Standard No. 128, EARNINGS PER SHARE, and (b) the Company's three-for-two stock split in May, 1998. 9 ITEM 7.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1999 COMPARED TO 1998 NET SALES. Net sales for the year 1999 were $178,533,000 compared to $259,625,000 in 1998, a decrease of $81,092,000, or 31.2%. Sales declined by 35.6% in the United States, from $179,951,000 in 1998 to $115,932,000 in 1999. Likewise, sales to European customers dropped by 17.8%, from $55,391,000 to $45,559,000. Sales to all other areas of the world were also down from 1998's level by 29.8%, from $24,283,000 in 1998 to $17,042,000 in 1999. 1999's lower volume is directly attributable to the overall depression of the machine tool industry, which has experienced a similar drop in demand. Further, increased competition for fewer sales has resulted in significant price discounting for Hardinge and its competitors. Sales to customers in the automotive industry declined by $27,800,000 in 1999 compared to 1998, accounting for 3.6% of total 1999 sales, compared to 13.2% in 1998. Sales of machines represented 61.9% of 1999's total sales, with the balance of 38.1% represented by non-machine products and services. This compares to 1998's breakdown of 69.5% for machines and 30.5% for non-machine products and services. The relatively lower proportion of machine sales to total sales during 1999 is also a direct reflection of the above-described conditions. The Company's backlog of orders at December 31, 1999 of $38,950,000 increased by 20.7% from its level at December 31, 1998. The increase reflects a large order received during the second quarter of 1999 which will not ship until 2000. GROSS PROFIT. Gross profit for 1999 was $57,158,000 compared to $92,097,000 during 1998. The reduction is the result of both the volume decline discussed earlier and a decrease in gross margin percentage from 35.5% in 1998 to 32.0% in 1999. The lower margin percentage reflects the necessity to offer special discounts to customers during 1999 in order to remain competitive, and the impact of fixed expenses on a lower sales volume. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses totaled $47,541,000 during 1999, representing a decrease of $9,966,000, or 17.3%, from 1998's total of $57,507,000. During January 1999 the Company reduced its U.S. workforce by approximately 200 jobs, or 15%, in response to declining market conditions. Throughout the balance of 1999, the Company made other significant reductions in SG&A costs in an effort to offset the reduction in sales volume. INCOME FROM OPERATIONS. Income from operations as a percentage of net sales was 5.4% during 1999 compared to 13.0% for 1998. This decline was substantially attributable to the decline in sales, partially offset by the cost reduction efforts described above. INTEREST EXPENSE. Interest expense totaled $1,743,000 in 1999 compared to $2,324,000 in the previous year. While interest rates increased slightly throughout 1999, the significant decline in sales demand resulted in a reduction of working capital of $15,122,000 from beginning to end of the year. A portion of the cash generated by this working capital reduction was used to repay debt. Therefore, average outstanding borrowings during 1999 were considerably lower than during 1998. INTEREST INCOME. Interest income, primarily derived from internally financed customer sales during both years, remained relatively flat, at $565,000 for 1999 compared to $597,000 for 1998. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income was slightly lower, at 36.2%, during 1999 compared to 1998's 36.4%. This is attributable to a lower effective tax rate in the United States coupled with a higher portion of profit attributable to our European operations, where tax rates are lower. 10 REDUCTION OF MINORITY INTEREST. During 1999 the Company entered into a joint venture to produce a portion of its product line at a new manufacturing facility in Taiwan. The reduction of minority interest for 1999 represents the removal of the minority owners' 49% share of that Company's start-up losses for the year. NET INCOME. Net income was $6,041,000, or $.65 per diluted share, for 1999, compared to $20,283,000, or $2.15 per diluted share, during 1998. The reduced earnings during 1999 are directly attributable to the issues described above. EARNINGS PER SHARE. All earnings per share and weighted average share amounts are presented, and where appropriate, restated as diluted, to conform with Financial Accounting Standards Board Statement No. 128, EARNINGS PER SHARE. Additionally, to provide comparability between periods, prior periods' data have also been restated to give effect to the Company's 3 for 2 stock split which took place in May 1998. 1998 COMPARED TO 1997 NET SALES. Net sales for the year 1998 were $259,625,000, compared to 1997 net sales of $246,579,000, an increase of $13,046,000 or 5.3%. The Company's overseas sales increased significantly during the year. European sales totaled $55,391,000 in 1998 compared to $43,071,000 in 1997, an increase of 28.6%. While sales of all products were somewhat stronger in Europe during 1998, higher sales of Kellenberger grinding machines accounted for a significant portion of this increase. Likewise, sales to the Far East and all other areas of the world totaled $24,283,000 in 1998 compared to $21,333,000 in 1997, a gain of 13.8%. The gain is primarily attributable to increased sales in the Peoples' Republic of China. Sales to domestic U.S. customers decreased slightly, from $182,176,000 in 1997 to $179,951,000 in 1998, primarily as a result of declining shipments to automotive customers. Automotive sales represented 13.2% of total 1998 sales, compared to 17.0% during 1997. Shipments of machines increased by $12,548,000 during 1998, accounting for 69.5% of net sales for that year compared to 68.1% in 1997. Shipments of non-machine products and services were slightly higher in 1998 than 1997, at $79,253,000 versus $78,755,000. During 1998 sales of non-machine products and services represented 30.5% of total sales compared to 31.9% for the previous year. The increase in machine sales was a result of new products introduced during 1997 and 1998 coupled with stronger sales of Kellenberger grinding machines. At December 31, 1998 the Company's backlog of orders had decreased by approximately 43% from a year earlier. The drop is primarily the result of a significant reduction in incoming orders during the fourth quarter of 1998, when compared to previous quarters of 1998 and to the fourth quarter of 1997. The Company responded by reducing its U.S. workforce by approximately 200 jobs or 15%, in January 1999, and by initiating other cost reduction measures. Incremental costs to implement these measures were recorded during the fourth quarter of 1998 as more fully explained in this analysis under the caption "unusual expense". GROSS PROFIT. Gross profit was $92,097,000 during 1998, an increase of 11.7% or $9,679,000 from 1997's gross profit of $82,418,000. Gross profit as a percentage of net sales was considerably higher in 1998 compared to 1997, at 35.5% compared to 33.4%. The margin improvement has been the result of increased utilization at the Company's factories in the United States and Switzerland, coupled with a more profitable mix of product sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses ("SG&A") as a percentage of net sales during 1998 were 22.2% of sales compared to 20.3% during 1997. During 1998, the Company implemented a strategy to provide better service to our growing marketplace. This resulted in the hiring of additional personnel for both sales and service functions, and the opening of two new regional technical facilities in Ohio and Texas. Also during 1998 the Company participated in the International Manufacturing Technology Show in Chicago. This event is the premier showcase for 11 Hardinge products. Hardinge's presence at the 1998 show was broadly expanded to accommodate its growing product lines. Since the show is held only biannually, 1997's SG&A expenses did not include similar costs. UNUSUAL EXPENSE. 1998's fourth quarter included a one-time charge of $950,000 (approximately $570,000 after tax, or $.06 per share). This charge resulted from costs incurred to relocate the manufacture and support for Hansvedt electrical discharge machines from Illinois to the Company's headquarters in Elmira, NY, and from a workforce reduction of approximately 200 full-time jobs, or 15% of total employment. These actions were taken as a result of a significant decline in incoming orders during the fourth quarter of 1998. 1997's first quarter included a one-time charge of $1,960,000 (approximately $1,200,000 after tax, or $.13 per share). This non-recurring charge involved outside costs incurred in connection with a major acquisition that the Company carried into the final stages of the due diligence process but decided not to complete. INCOME FROM OPERATIONS. Income from operations during 1998 totaled $33,640,000 compared to $30,499,000 in 1997. As a percentage of net sales, operating income was 13.0% in 1998 compared to 12.4% the previous year. Excluding the unusual expenses described above, operating income for 1998 and 1997 would have been 13.3% and 13.2% of net sales, respectively. INTEREST EXPENSE. Interest expense in 1998 was $2,324,000 compared to $2,378,000 in 1997. A slight increase in average borrowings in 1998 was offset by lower average interest rates. INTEREST INCOME. Interest income for the years 1998 and 1997 was $597,000 and $705,000, respectively. The income resulted primarily from internally financed customer sales during both years. During 1998, interest rates charged on these notes were somewhat reduced from 1997 levels. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income was somewhat lower in 1998, at 36.4%, compared to 37.8% in 1997. The reduction in the tax rate is the result of higher utilization of US income tax credits in 1998. NET INCOME. Net income was $20,283,000, or $2.15 per share, in 1998 compared to 1997's $17,940,000, or $1.90 per share after restatement for the Company's May 1998 3-for-2 stock split. Excluding the unusual expenses described above, net income would have been $20,853,000 in 1998 ($2.21 per share) and $19,140,000 in 1997 ($2.03 per share after restatement for the stock split). This would have represented an increase of $1,713,000, or 8.9% over 1997. The increase was brought about by 1998's improved margin rate on the increased sales volume described earlier, offset partially by the described increases in SG&A expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's current ratio at December 31, 1999 was 4.52:1 compared to 5.25:1 at December 31, 1998. Cash generated from operating activities in 1999 totaled $34,050,000 compared to $21,495,000 in 1998, an increase of $12,555,000, despite the previously discussed reduction in earnings of $14,242,000. The remaining increase of $26,797,000 in cash provided from other operating activities from 1998 to 1999 was caused by several factors. Reductions in accounts receivable and inventories during 1999 exceeded 1998's reductions by $5,580,000 and $3,243,000, respectively, providing for $8,823,000 in additional cash from operations. Likewise, accounts payable and accrued expenses increased during 1999 by $8,757,000 while declining by $9,069,000 during 1998, providing additional cash from operations of $17,826,000. 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 12 retaining a security interest in the purchased equipment. In the event of a customer default and foreclosure, which are uncommon, 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. 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 1999, the Company sold $16,852,000 of customer notes compared to $39,939,000 sold during 1998, reflecting the reduction in sales volume previously discussed. 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. Long-term customer notes receivable held by the Company totaled $15,014,000 and $13,063,000 at December 31, 1999 and December 31, 1998, respectively. Total capital expenditures in 1999 were $5,445,000. Expenditures were made for new manufacturing equipment to initiate production at the Company's Taiwan manufacturing facility. Additionally, the Company purchased new manufacturing equipment to improve productivity at both the Company's Elmira, New York and St. Gallen, Switzerland production facilities. During 1999 the Company used $8,002,000 of its cash to repurchase a portion of its own stock under a repurchase program announced on April 9, 1999. During most of 1999, the Company had revolving loan agreements with several U.S. banks providing for unsecured borrowing up to $70,000,000 on a revolving basis, $20,000,000 through November 1, 1999, and $50,000,000 through August 1, 2002. The Company decided not to renew the $20,000,000 revolver which expired on November 1. Notes issued under these revolving credit agreements are classified as long-term debt, as it is the Company's intention to maintain the principal amounts outstanding either through the existing credit facilities or new borrowing arrangements. As of December 31, 1999, total borrowings under the remaining $50,000,000 credit line were $15,392,000. The Company's Kellenberger subsidiary maintains unsecured overdraft facilities with commercial banks which permit borrowing in Swiss francs equivalent to approximately $5,650,000. At December 31, 1999, total borrowings under these agreements were $663,000. These facilities, along with an $8,000,000 unsecured short-term line with another bank, provided for immediate access of up to $63,650,000 at December 31, 1999. Outstanding borrowings under these arrangements totaled $16,055,000 at that time. During the first quarter of 1996, the Company entered into a long term borrowing agreement for $17,750,000 with a syndication of banks. The proceeds were used to repay revolving loan borrowing which had originally been used to finance the acquisition of Kellenberger. Quarterly interest payments on this term loan began during 1996, and principal repayments commenced in 1998. The agreement contains financial and other covenants consistent with the revolving loan agreements. The Company currently intends to use its strong balance sheet position to seek growth opportunities in new products, international markets, and strategic acquisitions. Management believes that the currently available funds and credit facilities, and internally generated funds, will provide sufficient financial resources for its ongoing operations. MARKET RISK The following information has been provided in accordance with the Securities and Exchange Commission's requirements for disclosure of exposures to market risk arising from certain market risk sensitive instruments. 13 The Company's earnings are effected by changes in short-term interest rates as a result of its floating interest rate debt. However, due to its purchase of interest rate swap agreements, the effects of interest rate changes are limited. If market interest rates on debt subject to floating interest rates were to have increased by 2% over the actual rates paid for the previous year, interest expense would have increased by $150,000 in 1999 and $420,000 in 1998, after considering the effect of the interest rate swap agreements. These amounts are determined by considering the impact of hypothetical interest rates on the Company's borrowing cost and interest rate swap agreements. These analyses do not consider the effects of the reduced level of economic activity that could exist in such an environment. Further, in the event of a change of significant magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure. A portion of the Company's operations consist of manufacturing and sales activities in foreign jurisdictions. The Company manufactures its products in the United States, Switzerland, and Taiwan using production components purchased internationally, and sells the products in those markets as well as other worldwide markets. The U.S. parent purchases grinding machines manufactured in Switzerland by its Swiss subsidiary. Likewise, it purchases vertical machining centers manufactured in Taiwan by its Taiwanese subsidiary. The Company's subsidiaries in the U.K., Germany, Switzerland and Canada sell products in native currency to customers in those countries. The Company's Taiwanese subsidiary sells products to foreign purchasers in U.S. dollars. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products. The Company's operating results are exposed to changes in exchange rates between the U.S. dollar, Canadian dollar, U.K. pound, Swiss franc, German mark, New Taiwan Dollar, and Japanese yen. For example, when the U.K. pound or Swiss franc strengthens against other European currencies, the value of sales denominated in these other currencies decreases when translated to pounds or Swiss francs. When the U.S. dollar strengthens against the Japanese yen, the price of competitive Japanese imports to the United States decreases. To mitigate the short-term effect of changes in currency exchange rates on the Company's functional currency based purchases and sales, the Company regularly hedges by entering into foreign exchange forward contracts to hedge portions of its 3 to 6 months' planned purchase and sales transactions. YEAR 2000 DISCLOSURE The Year 2000 issue arises from the use of two-digit date fields in certain computer programs which may have caused problems as the year changed from 1999 to 2000. The Company successfully completed all elements of its Y2K readiness plan prior to December 31, 1999, and all costs related to remediation were paid from operating cash flow and were not significant. The Company has experienced no problems of any kind resulting from the Y2K issue. No additional actions are anticipated related to this issue. EURO CONVERSION The Company sells products in several European countries which began conversion in 1999 to the new common currency (the Euro) to be used by members of the European Union. The Company did not anticipate any significant risk to its operations as a result of the conversion, nor has it experienced any such difficulties. No additional actions are anticipated related to this issue. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is required to be adopted in years beginning after June 15, 2000. The Company expects to adopt the new statement effective January 1, 2001. The statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the 14 nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement 133 will be on earnings and financial position of the Company. THIS REPORT CONTAINS STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO THE FINANCIAL PERFORMANCE OF HARDINGE INC. SUCH STATEMENTS ARE BASED UPON INFORMATION KNOWN TO MANAGEMENT AT THIS TIME. THE COMPANY CAUTIONS THAT SUCH STATEMENTS NECESSARILY INVOLVE UNCERTAINTIES AND RISK AND DEAL WITH MATTERS BEYOND THE COMPANY'S ABILITY TO CONTROL, AND IN MANY CASES THE COMPANY CANNOT PREDICT WHAT FACTORS WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED. AMONG THE MANY FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS ARE FLUCTUATIONS IN THE MACHINE TOOL BUSINESS CYCLES, CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE U.S. OR INTERNATIONALLY, THE MIX OF PRODUCTS SOLD AND THE PROFIT MARGINS THEREON, THE RELATIVE SUCCESS OF THE COMPANY'S ENTRY INTO NEW PRODUCT AND GEOGRAPHIC MARKETS, THE COMPANY'S ABILITY TO MANAGE ITS OPERATING COSTS, ACTIONS TAKEN BY CUSTOMERS SUCH AS ORDER CANCELLATIONS OR REDUCED BOOKINGS BY CUSTOMERS OR DISTRIBUTORS, COMPETITORS' ACTIONS SUCH AS PRICE DISCOUNTING OR NEW PRODUCT INTRODUCTIONS, GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS, CHANGES IN THE AVAILABILITY AND COST OF MATERIALS AND SUPPLIES, THE IMPLEMENTATION OF NEW TECHNOLOGIES AND CURRENCY FLUCTUATIONS. ANY FORWARD-LOOKING STATEMENT SHOULD BE CONSIDERED IN LIGHT OF THESE FACTORS. THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE ITS FORWARD-LOOKING STATEMENTS IF UNANTICIPATED EVENTS ALTER THEIR ACCURACY. ITEM 7A.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by this item is incorporated herein by reference to the section entitled "Market Risk" in Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition, of this Form 10K. 15 ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA HARDINGE INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AUDITED CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors.............................. 17 Consolidated Balance Sheets................................. 18 Consolidated Statements of Income........................... 19 Consolidated Statements of Shareholders' Equity............. 20 Consolidated Statements of Cash Flows....................... 21 Notes to Consolidated Financial Statements.................. 22
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 16 REPORT OF INDEPENDENT AUDITORS Board of Directors Hardinge Inc. We have audited the accompanying consolidated balance sheets of Hardinge Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young ERNST & YOUNG LLP Syracuse, New York January 21, 2000 17 HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------- 1999 1998 -------- -------- ASSETS Current assets: Cash...................................................... $ 1,156 $ 2,192 Accounts receivable....................................... 46,218 54,631 Notes receivable.......................................... 7,594 7,194 Inventories............................................... 85,640 91,965 Deferred income taxes..................................... 4,207 2,299 Prepaid expenses.......................................... 3,367 2,960 -------- -------- Total current assets........................................ 148,182 161,241 Property, plant and equipment: Land and buildings........................................ 39,720 41,016 Machinery, equipment and fixtures......................... 96,341 94,809 Office furniture, equipment and vehicles.................. 8,360 8,112 -------- -------- 144,421 143,937 Less accumulated depreciation............................. 72,156 67,183 -------- -------- 72,265 76,754 Other assets: Notes receivable.......................................... 15,014 13,063 Goodwill.................................................. 3,794 3,938 Other..................................................... 2,202 1,685 -------- -------- 21,010 18,686 -------- -------- Total assets................................................ $241,457 $256,681 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 14,460 $ 11,368 Notes payable to bank..................................... 663 5,018 Accrued expenses.......................................... 9,292 8,540 Accrued income taxes...................................... 2,667 Deferred income taxes..................................... 2,122 2,111 Current portion of long-term debt......................... 3,550 3,654 -------- -------- Total current liabilities................................... 32,754 30,691 Other liabilities: Long-term debt............................................ 23,380 35,415 Accrued pension plan expense.............................. 4,971 3,527 Deferred income taxes..................................... 2,055 1,863 Accrued postretirement benefits........................... 5,620 5,390 -------- -------- 36,026 46,195 Equity of minority interest................................. 963 Shareholders' equity: Preferred stock, Series A, par value $.01 per share; Authorized 2,000,000; issued--none Common stock, $.01 par value: Authorized shares--20,000,000; Issued shares--9,919,992 at December 31, 1999; 9,843,992 at December 31, 1998........................ 99 98 Additional paid-in capital................................ 61,760 60,351 Retained earnings......................................... 128,325 127,526 Treasury shares........................................... (10,199) (853) Accumulated other comprehensive loss-- Foreign currency translation adjustment................. (4,143) (2,485) Deferred employee benefits................................ (4,128) (4,842) -------- -------- Total shareholders' equity.................................. 171,714 179,795 -------- -------- Total liabilities and shareholders' equity.................. $241,457 $256,681 ======== ========
SEE ACCOMPANYING NOTES. 18 HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Net sales................................................... $178,533 $259,625 $246,579 Cost of sales............................................... 121,375 167,528 164,161 -------- -------- -------- Gross profit................................................ 57,158 92,097 82,418 Selling, general and administrative expenses................ 47,541 57,507 49,959 Unusual expense............................................. 950 1,960 -------- -------- -------- Income from operations...................................... 9,617 33,640 30,499 Interest expense............................................ 1,743 2,324 2,378 Interest (income)........................................... (565) (597) (705) -------- -------- -------- Income before income taxes and minority interest in loss of consolidated subsidiary................................... 8,439 31,913 28,826 Income taxes................................................ 3,054 11,630 10,886 Minority interest in loss of consolidated subsidiary........ 656 -------- -------- -------- Net income.................................................. $ 6,041 $ 20,283 $ 17,940 ======== ======== ======== Per share data: Basic earnings per share: Weighted average number of common shares outstanding........ 9,287 9,432 9,357 -------- -------- -------- Earnings per share.......................................... $ .65 $ 2.15 $ 1.92 ======== ======== ======== Diluted earnings per share: Weighted average number of common shares outstanding........ 9,287 9,434 9,427 -------- -------- -------- Earnings per share.......................................... $ .65 $ 2.15 $ 1.90 ======== ======== ======== Cash dividends declared per share........................... $ .56 $ .56 $ .53 ======== ======== ========
SEE ACCOMPANYING NOTES. 19 HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER DEFERRED TOTAL COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE EMPLOYEE SHAREHOLDERS' STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) BENEFITS EQUITY -------- ---------- -------- -------- ------------- -------- ------------- BALANCE AT DECEMBER 31, 1996...... $65 $57,027 $ 99,622 ($ 343) ($3,731) ($5,095) $147,545 Comprehensive Income Net income........................ 17,940 17,940 Other comprehensive income Foreign currency translation adjustment.................. 968 968 - -------------------------------------------------------------------------------------------------------------------------- Comprehensive income.............. 18,908 - -------------------------------------------------------------------------------------------------------------------------- Dividends declared................ (4,937) (4,937) Issuance of 52,500 shares for the long-term incentive plan........ 945 (945) Shares issued pursuant to long-term incentive plan........ (119) 193 74 Amortization (long-term incentive plan)........................... 1,784 1,784 Tax benefit from long-term incentive plan.................. 210 210 Net purchase of treasury stock.... 2 (402) (400) - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997...... 65 58,065 112,625 (552) (2,763) (4,256) 163,184 Comprehensive Income Net income........................ 20,283 20,283 Other comprehensive income Foreign currency translation adjustment.................. 278 278 - -------------------------------------------------------------------------------------------------------------------------- Comprehensive income.............. 20,561 - -------------------------------------------------------------------------------------------------------------------------- Dividends declared................ (5,349) (5,349) 3-for-2 stock split in the form of a dividend...................... 33 (33) Issuance of 76,500 shares for long-term incentive plan........ 1,900 (1,900) Shares issued pursuant to long-term incentive plan........ 50 561 (586) 25 Amortization (long-term incentive plan)........................... 1,900 1,900 Tax benefit from long-term incentive plan.................. 339 339 Net purchase of treasury stock.... (3) (862) (865) - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998...... 98 60,351 127,526 (853) (2,485) (4,842) 179,795 Comprehensive Income Net income........................ 6,041 6,041 Other comprehensive loss Foreign currency translation adjustment.................. (1,658) (1,658) - -------------------------------------------------------------------------------------------------------------------------- Comprehensive income.............. 4,383 - -------------------------------------------------------------------------------------------------------------------------- Dividends declared................ (5,242) (5,242) Issuance of 76,000 shares for long-term incentive plan........ 1 1,367 (1,368) Shares issued and forfeited pursuant to long-term incentive plan............................ (260) 250 230 220 Amortization (long-term incentive plan)........................... 1,852 1,852 Tax benefit from long-term incentive plan.................. 390 390 Net purchase of treasury stock.... (88) (9,596) (9,684) - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999...... $99 $61,760 $128,325 ($10,199) ($4,143) ($4,128) $171,714 ==========================================================================================================================
20 HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- OPERATING ACTIVITIES Net income.................................................. $ 6,041 $20,283 $17,940 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................. 10,458 9,024 8,766 Provision for deferred income taxes....................... (1,195) 2,162 (202) Foreign currency transaction loss (gain).................. 517 (71) (42) Changes in operating assets and liabilities: Accounts receivable..................................... 7,371 1,791 (14,585) Notes receivable........................................ (2,081) (2,695) (1,119) Inventories............................................. 4,103 860 10,159 Other assets............................................ (151) (974) 167 Accounts payable........................................ 3,605 (7,047) 6,241 Accrued expenses........................................ 5,152 (2,022) (544) Accrued postretirement benefits......................... 230 184 207 ------- ------- ------- Net cash provided by operating activities................... 34,050 21,495 26,988 INVESTING ACTIVITIES Capital expenditures--net................................... (5,445) (17,620) (8,269) Acquisitions, net of cash acquired.......................... (4,588) ------- ------- ------- Net cash (used in) investing activities..................... (5,445) (17,620) (12,857) FINANCING ACTIVITIES (Decrease) in short-term notes payable to bank.............. (4,229) (2,513) (6,665) (Decrease) increase in long-term debt....................... (11,866) 5,107 (3,390) Purchase of treasury stock.................................. (9,143) (500) (117) Dividends paid.............................................. (5,242) (5,349) (4,937) Funds provided by minority interest......................... 963 ------- ------- ------- Net cash (used in) financing activities..................... (29,517) (3,255) (15,109) Effect of exchange rate changes on cash..................... (124) 7 (93) ------- ------- ------- Net (decrease) increase in cash............................. (1,036) 627 (1,071) Cash at beginning of year................................... 2,192 1,565 2,636 ------- ------- ------- Cash at end of year......................................... $ 1,156 $ 2,192 $ 1,565 ======= ======= =======
SEE ACCOMPANYING NOTES. 21 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Hardinge Inc. is a machine tool manufacturer, which designs, manufactures and distributes metal cutting lathes, grinding machines, machining centers, electrical discharge machines and tooling and accessories related to metal cutting machines. 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 and indirectly served by the Company include automotive, medical equipment, aerospace, 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 and majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. 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 $8,003,000, $6,869,000, and $6,825,000 for 1999, 1998 and 1997, respectively. GOODWILL Intangibles resulting from business acquisitions, comprised of costs in excess of net business assets acquired and brands and trademarks, are being amortized on a straight-line basis over 30 years. The Company periodically evaluates the recoverability of intangibles resulting from business acquisitions and measures the amount of impairment, if any, by assessing current and future levels of income and cash flows as well as other factors, such as business trends and prospects and market and economic conditions. Amortization expense was $144,000 for 1999 and 1998. Accumulated amortization was $348,000 and $204,000 at December 31, 1999 and 1998, 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 22 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 as other comprehensive income. Transaction gains and losses are recorded in operations. FOREIGN EXCHANGE CONTRACTS Gains and losses on contracts designated as hedges of existing assets and liabilities are accrued as exchange rates change and are recognized in income. Gains and losses on contracts designated as hedges of net investments in foreign subsidiaries are accrued as exchange rates change and are recognized in Shareholders' Equity as a foreign currency translation adjustment. Gains and losses on contracts designated as hedges of identifiable foreign currency firm commitments are deferred and included in the measurement of the related foreign currency transaction. The Financial Accounting Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is required to be adopted in years beginning after June 15, 2000. The Company expects to adopt the new statement effective January 1, 2001. The statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement 133 will be on earnings and financial position of the Company. RESEARCH AND DEVELOPMENT COSTS The cost of research and development, all of which has been charged to operations, amounted to $7,060,000, $8,630,000, and $8,415,000 in 1999, 1998 and 1997, respectively. EARNINGS PER SHARE Earnings per share is computed using the weighted average number of shares of common stock outstanding during the year. For diluted earnings per share, the weighted average number of shares includes common stock equivalents related primarily to restricted stock. Restricted shares awarded under the Company's long-term incentive stock plans are treated as issued shares at time of award and are treated for diluted earnings per share as outstanding in accordance with the treasury stock method over the period of their vesting. The number of shares outstanding has been adjusted to reflect the stock transactions as explained in Note 4 to the financial statements. 23 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION The Company grants restricted shares of common stock and stock options to certain officers and other key employees. The Company accounts for restricted share grants and stock option grants in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. REVENUE RECOGNITION The Company recognizes revenue from product sales upon shipment of the product. CONTINGENCIES The Company is a defendant in various lawsuits as a result of normal operations and in the ordinary course of business. Management believes the outcome of these lawsuits will not have a material effect on the financial position or results of operations of the Company. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. They are summarized as follows:
DECEMBER 31, ------------------- 1999 1998 -------- -------- (IN THOUSANDS) Finished products........................................... $37,361 $36,185 Work-in-process............................................. 25,572 29,499 Raw materials and purchased components...................... 22,707 26,281 ------- ------- $85,640 $91,965 ======= =======
2. FINANCING ARRANGEMENTS Long-term debt consists of:
DECEMBER 31, ------------------- 1999 1998 -------- -------- (IN THOUSANDS) Note payable, under revolving loan agreement, with interest averaging 5.13% at December 31, 1999...................... $15,392 $12,669 Note payable, under revolving loan agreement, with interest averaging 6.00% at December 31, 1998...................... 11,000 Note payable, under term loan agreement, due in quarterly installments of $887,500 through February 28, 2003, with an effective interest rate of 4.49% at December 31, 1999............... 11,538 15,088 Other debt.................................................. 312 ------- ------- 26,930 39,069 Less current portion........................................ 3,550 3,654 ------- ------- $23,380 $35,415 ======= =======
24 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. FINANCING ARRANGEMENTS (CONTINUED) In August 1997, the Company entered into an unsecured credit arrangement with three banks which provides for borrowing in several currencies up to the equivalent of $50,000,000 on a revolving loan basis through August 1, 2002. Interest charged on the debt is based on London Interbank Offered Rates (LIBOR) plus a fixed percentage. A commitment fee of up to 1/4 of 1% is payable on the unused portion of the facility. At December 31, 1999, total borrowings under the facility were $15,392,000. Approximately $1,615,000 of the borrowing was denominated in British pounds sterling and $6,277,000 in Swiss francs. At December 31, 1998, total borrowings under the facility were $12,669,000. Approximately $1,660,000 of the borrowing was denominated in British pounds sterling and $8,009,000 in Swiss francs. In November 1996, the Company entered into an unsecured credit arrangement with a bank which provided for borrowing in several currencies up to the equivalent of $20,000,000 on a revolving loan basis through November 1, 1999. The credit arrangement provided for repayment of the then outstanding principal beginning January 1, 2000 in 16 consecutive equal quarterly installments. Interest charged on the debt was based on LIBOR plus a fixed percentage. A commitment fee of up to 1/4 of 1% was paid on the unused portion of the facility. On November 1, 1999 the Company elected not to renew this arrangement. At December 31, 1999 there were no remaining loans outstanding under this arrangement. At December 31, 1998, total borrowings under this arrangement were $11,000,000. In May 1998, the Company entered into an interest swap arrangement with a financial institution which effectively fixed the interest rate on $15,000,000 of the Company's revolving debt at 6.01% through June 2003. On July 15, 1999, the amount of the swap was reduced to $10,000,000. All debt under the revolving credit arrangements has been classified as long-term debt, as it is the Company's intention to maintain the principal amounts outstanding through the existing credit facilities. In February 1996, the Company entered into an unsecured term loan arrangement with a syndication of banks for the purpose of financing its November 1995 acquisition of L. Kellenberger & Co. AG. The loan provides for repayment of the outstanding principal in twenty equal installments beginning May 1998. Interest is charged on the debt based on LIBOR plus a fixed percentage. The Company has entered into a cross-currency interest rate swap agreement which effectively converts the $17,750,000 term loan to a borrowing of 21,000,000 Swiss francs with an effective interest rate of 4.49%. The swap agreement has been designated as a hedge against the Company's net investment in Kellenberger. At December 31, 1999 and 1998, the balance owed on this loan was $11,538,000 and $15,088,000, respectively. The Company also has a $8,000,000 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, 1999, there was no outstanding loans on this line. At December 31, 1998, total borrowings under this line were $4,000,000 with interest averaging 6.05%. The agreement is negotiated annually and requires no commitment fee. The Company's Kellenberger subsidiary maintains unsecured overdraft facilities with commercial banks that permit borrowings in Swiss francs equivalent to approximately $5,650,000. These lines provide for interest at a fixed percentage over LIBOR and carry no commitment fees on unused funds. At December 31, 1999, total borrowings under these lines were $663,000 with an average interest rate of 6.43%. At December 31, 1998, total borrowings under these lines were $1,018,000 with an average interest rate of 6.50%. 25 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 2. FINANCING ARRANGEMENTS (CONTINUED) The debt agreements require, among other things, that the Company maintain specified levels of tangible net worth, working capital, and specified ratios of debt to earnings and earnings to interest cost. Interest paid in 1999, 1998, and 1997 totaled $1,765,000, $2,086,000, and $2,498,000, respectively. The Company conducts some of its manufacturing, sales and service operations from leased office space with lease terms up to 20 years and uses certain data processing equipment under lease agreements expiring at various dates during the next five years. Rent expense under these leases totaled $1,755,000, $1,871,000, and $1,601,000 during the years ended December 31, 1999, 1998, and 1997, respectively. Future minimum payments under noncancelable operating leases as of December 31, 1999 total $20,466,000, with payments over the next five years of $2,133,000, $2,009,000, $1,869,000, $1,073000, and $919,000, respectively. The Company has provided financing terms of up to seven years for qualified customers who purchase equipment. The Company may choose, when appropriate, to sell underlying notes receivable contracts to financial institutions to reduce debt and finance current operations. During 1999, 1998, and 1997, the Company sold notes totaling $16,852,000, $39,939,000, and $34,165,000, respectively. The remaining outstanding balance of all notes sold as of December 31, 1999 and 1998 was $63,659,000 and $74,786,000, 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. 26 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 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, 1999 and 1998, the Company had state investment tax credits expiring at various dates through the year 2009, and foreign tax credit carryforwards expiring in 2001 for which no benefit has been recognized in the financial statements. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------- 1999 1998 -------- -------- (IN THOUSANDS) Deferred tax assets: Federal and state tax credit carryforwards............... $4,898 $ 4,550 Foreign net operating loss carryforwards................. 36 Postretirement benefits.................................. 2,143 2,060 Deferred employee benefits............................... 2,137 2,235 Accrued pension.......................................... 1,978 1,410 Inventory valuation...................................... 1,434 Other.................................................... 1,682 1,337 ------ ------- 14,272 11,628 Less valuation allowance................................. 4,898 4,550 ------ ------- Total deferred tax assets............................ 9,374 7,078 ------ ------- Deferred tax liabilities: Tax over book depreciation............................... 6,683 6,083 Margin on installment sales.............................. 220 213 Other.................................................... 2,441 2,457 ------ ------- Total deferred tax liabilities........................... 9,344 8,753 ------ ------- Net deferred tax assets (liabilities).................... $ 30 $(1,675) ====== =======
Pre-tax income was $6,968,000, $27,611,000, and $24,813,000 from domestic operations and $1,471,000, $4,302,000, and $4,013,000 from foreign operations for 1999, 1998, and 1997, respectively. Significant components of income tax expense (benefit) attributable to continuing operations are as follows:
YEAR ENDED DECEMBER 31 ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Current: Federal......................................... $3,072 $ 7,270 $ 8,650 Foreign......................................... 447 693 846 State........................................... 637 1,446 1,628 ------ ------- ------- Total current............................... 4,156 9,409 11,124 ------ ------- ------- Deferred: Federal......................................... (1,236) 1,420 (705) Foreign......................................... 255 617 562 State........................................... (121) 184 (95) ------ ------- ------- Total deferred.............................. (1,102) 2,221 (238) ------ ------- ------- $3,054 $11,630 $10,886 ====== ======= =======
27 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 3. INCOME TAXES (CONTINUED) Income tax payments totaled $651,000, $11,239,000, and $9,754,000 in 1999, 1998 and 1997, 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.
1999 1998 1997 -------- -------- -------- Federal income taxes...................................... 35.0% 35.0% 35.0% State income taxes........................................ 3.9 3.3 3.5 Other..................................................... (2.7) (1.9) (.7) ---- ---- ---- 36.2% 36.4% 37.8% ==== ==== ====
Undistributed earnings of the foreign subsidiaries, which amounted to approximately $14,867,000 at December 31, 1999, 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 was 686,059, 40,909, and 24,216 at December 31, 1999, 1998 and 1997, respectively. In 1999, the Company purchased 652,080 shares and distributed 33,030 shares and had 26,100 shares forfeited pursuant to the long-term incentive plan. In 1998, the Company purchased a net 40,143 treasury shares and distributed 23,450 shares from treasury pursuant to the long-term incentive plan. In 1997, the Company purchased a net 14,564 treasury shares and issued 8,895 shares under the long-term incentive plan from treasury. The changes in treasury shares for 1997 have been restated to reflect the 3-for-2 stock split in May 1998. COMPANY STOCK REPURCHASE PROGRAM On April 9, 1999, Hardinge announced a stock repurchase program. The Board of Directors has authorized the repurchase of up to 1.0 million shares of the Company's stock, or approximately 10% of the total shares outstanding. The Company has purchased 545,369 shares under the program as of December 31, 1999. STOCK SPLIT On April 28, 1998, the Board of Directors approved a three-for-two stock split of the Company's common shares to be paid in the form of a 50 percent stock dividend. As a result of the split, 3,281,351 additional shares were issued on May 29, 1998 to shareholders of record on May 8, 1998 and retained earnings were reduced by $32,813. Any fractional shares resulting from the split were paid in cash. All 28 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 4. SHAREHOLDERS' EQUITY (CONTINUED) references in the accompanying consolidated financial statements to common shares outstanding and earnings per share have been restated, where appropriate, to reflect this stock split. PREFERRED STOCK PURCHASE RIGHTS On May 16, 1995, the Board of Directors of the Company adopted a Shareholder Rights Plan and declared a dividend of one Right to purchase Series A Preferred Stock for each outstanding share of Company common stock held as of May 16, 1995. 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. RECONCILIATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations required by Statement No. 128:
YEAR ENDED DECEMBER 31 ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Numerator: Net income...................................... $6,041 $20,283 $17,940 Numerator for basic earnings per share.......... 6,041 20,283 17,940 Numerator for diluted earnings per share........ 6,041 20,283 17,940 Denominator: Denominator for basic earnings per share --weighted average shares..................... 9,287 9,432 9,357 Effect of diluted securities: Restricted stock and stock options............ 2 70 ------ ------- ------- Denominator for diluted earnings per share --adjusted weighted average shares............ 9,287 9,434 9,427 ====== ======= ======= Basic earnings per share.......................... $ .65 $ 2.15 $ 1.92 ====== ======= ======= Diluted earnings per share........................ $ .65 $ 2.15 $ 1.90 ====== ======= =======
29 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 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 ------------------------------------------------------------------------------------------------ 1999 1998 1997 ------------------------------ ------------------------------ ------------------------------ UNITED STATES WESTERN UNITED STATES WESTERN UNITED STATES WESTERN OPER. EUROPEAN OPER. OPER. EUROPEAN OPER. OPER. EUROPEAN OPER. ------------- -------------- ------------- -------------- ------------- -------------- (IN THOUSANDS) Sales Gross domestic sales.............. $115,932 $38,572 $179,951 $45,358 $182,176 $34,779 Export sales......... 39,512 10,688 54,482 13,630 45,888 14,409 -------- ------- -------- ------- -------- ------- 155,444 49,260 234,433 58,988 228,064 49,188 Less interarea eliminations....... 16,791 9,380 23,120 10,676 20,437 10,236 -------- ------- -------- ------- -------- ------- Total net sales.......... $138,653 $39,880 $211,313 $48,312 $207,627 $38,952 ======== ======= ======== ======= ======== ======= Operating income....... $ 6,283 $ 3,334 $ 29,264 $ 4,376 $ 26,896 $ 3,603 ======== ======= ======== ======= ======== ======= Net income............. $ 3,798 $ 2,243 $ 17,474 $ 2,809 $ 15,725 $ 2,215 ======== ======= ======== ======= ======== ======= Identifiable assets.... $195,475 $45,982 $205,020 $51,661 $198,384 $46,900 ======== ======= ======== ======= ======== =======
Export sales from Hardinge's U.S. operations include the following:
YEAR ENDED DECEMBER 31 ---------------------------------------- 1999 1998 1997 ------------ ---------- ------------ Sales to Western European customers..................... $ 6,173 $ 7,943 $ 6,485 Sales to affiliated companies........................... 16,791 23,120 20,437 Sales to customers in the remainder of the world........ 16,548 23,419 18,966 ------- -------- ------- $39,512 $ 54,482 $45,888 ======= ======== =======
Sales attributable to Western European Operations are based on those sales generated by subsidiaries located in Europe. 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. No single customer accounted for 5% or more of consolidated sales in 1999. In 1998 and 1997, sales to one customer in the automotive industry represented approximately 5% and 9%, respectively, of consolidated sales. 30 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 6. EMPLOYEE BENEFITS PENSION AND POSTRETIREMENT PLANS The Company accounts for the pension plan and postretirement benefits in accordance with Financial Accounting Standards Board Statements No. 87 and 106. The following disclosures related to the pension and postretirement benefits are presented in accordance with Financial Accounting Standards Board Statement No. 132 which became effective in 1998. All prior year disclosures have been restated to conform with the requirements of this Statement. The Company provides a qualified defined benefit pension plan covering all eligible domestic employees. The Plan bases benefits upon both years of service and earnings. The Company's policy is to fund at least an amount necessary to satisfy the minimum funding requirements of ERISA. The amount to be funded is subject to annual review by management and its consulting actuary. 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 vary 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. A summary of the components of net periodic pension cost and postretirement benefit costs is presented below.
PENSION BENEFITS POSTRETIREMENT BENEFITS ------------------------------------ ------------------------------------ YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 ------------------------------------ ------------------------------------ 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Service cost............................... $2,472 $2,020 $1,481 $134 $148 $114 Interest cost.............................. 4,401 4,178 3,665 431 459 435 Expected return on plan assets............. (5,519) (5,072) (4,371) -- -- -- Amortization of prior service cost......... 264 264 264 (24) (24) Amortization of transition obligation...... (174) (174) (174) -- -- -- Amortization of (gain) loss................ -- -- (39) 37 70 25 ------ ------ ------ ---- ---- ---- Net periodic benefit cost.................. $1,444 $1,216 $ 826 $578 $653 $574 ====== ====== ====== ==== ==== ====
31 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 6. EMPLOYEE BENEFITS (CONTINUED) A summary of the Pension and Postretirement Plans' funded status and amounts recognized in the Company's consolidated balance sheets is as follows:
POSTRETIREMENT PENSION BENEFITS BENEFITS DECEMBER 31 DECEMBER 31 ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of period................ $64,206 $56,997 $ 6,366 $ 6,766 Service cost............................................. 2,472 2,020 134 148 Interest cost............................................ 4,401 4,178 431 459 Plan participants' contributions......................... -- -- 305 271 Actuarial(gain)loss...................................... (3,782) 3,875 (416) (537) Benefits paid............................................ (2,935) (2,864) (653) (741) ------- ------- ------- ------- Benefit obligation at end of period...................... 64,362 64,206 6,167 6,366 ------- ------- ------- ------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of period......... 65,185 64,703 -- -- Actual return on plan assets............................. 8,397 3,346 -- -- Employer contribution.................................... -- -- 348 469 Plan participants' contributions......................... -- -- 305 272 Benefits paid............................................ (2,935) (2,864) (653) (741) ------- ------- ------- ------- Fair value of plan assets at end period.................. 70,647 65,185 -- -- ------- ------- ------- ------- RECONCILIATION OF FUNDED STATUS: Funded status............................................ 6,285 979 (6,167) (6,366) Unrecognized net actuarial (gain) loss................... (11,997) (5,336) 811 1,264 Unrecognized transition (asset) or obligation............ (1,568) (1,742) -- -- Unrecognized prior service cost.......................... 2,309 2,572 (264) (288) ------- ------- ------- ------- Prepaid (accrued) benefit cost........................... $(4,971) $(3,527) $(5,620) $(5,390) ======= ======= ======= =======
Actuarial assumptions used to determine pension costs and other postretirement benefit costs include:
PENSION POSTRETIREMENT BENEFITS BENEFITS --------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate............................... 7.50% 7.00% 7.50% 7.00% Expected return on plan assets.............. 9.50% 9.50% N/A N/A Rate of compensation increase............... 4.50% 4.50% N/A N/A
The increase in the discount rate from 7.0% to 7.5% in 1999 decreased the benefit obligation for pension benefits and postretirement benefits by $4,427,000 and $351,000, respectively at December 31, 1999. 32 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 6. EMPLOYEE BENEFITS (CONTINUED) Pension plan assets include 333,886 shares and 248,886 shares of the Company's common stock valued at approximately $4,361,000 and $4,589,000 at December 31, 1999 and 1998, respectively. Dividends paid on those shares were $149,000 and $139,000 in 1999 and 1998 respectively. The remaining plan assets consisted of United States Government securities, corporate bonds and notes, other common stocks and an insurance contract. The annual rate of increase in the per capita cost of covered health care benefits (the health care cost trend) used to calculate the liability for the postretirement benefits was assumed to be 9.0% at December 31, 1998, decreasing gradually to 5.5% by the year 2006 and remaining at that level thereafter. The annual rate of increase in the per capita cost of covered health care benefits was assumed to be 8.5% at December 31, 1999, decreasing gradually to 5.5% by the year 2006 and remaining at that level thereafter. In 1998, the postretirement benefit plan changed from a self-funded plan to an insured plan under third party coverage. The effect of this change, which was treated as a negative plan amendment, was to decrease the accumulated postretirement benefit obligation by $310,000 as of December 31, 1997. 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 approximately $143,000 and increase the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for 1999 by $18,000. GROUP HEALTH PLANS The Company has contributory group benefit plans which provide medical benefits to all of its domestic employees. SAVINGS PLAN The Company maintains a 401(k)plan which covers all eligible domestic employees of the Company subject to minimum employment period requirements. Provisions of the plan allow employees to defer from 1% to 20% of their pre-tax salary to the plan. Those contributions may be invested at the option of the employees in a number of investment alternatives, one being Hardinge Inc. common stock. The Company contributes to the plan on a matching formula of 25% of an employee's contribution up to 5% of the employee's compensation. The Company's match is in Hardinge Inc. common stock. The Company contributed $376,000, $363,000, and $324,000 in 1999, 1998 and 1997 respectively, for this match. The Company may also contribute a discretionary contribution to the plan to be distributed among all participants. LONG-TERM INCENTIVE PLANS In 1996, 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, performance share awards, stock options and stock appreciation rights up to an aggregate of 450,000 shares of common stock to these employees. Reference to share amounts in the plan have been restated, where appropriate, for the Company's 3-for-2 stock split in May, 1998. Additionally, in 1988 and 1993, similar plans were established by the Company; no further shares will be awarded under these plans. 33 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 6. EMPLOYEE BENEFITS (CONTINUED) During 1999, certain officers were awarded a total of 79,000 restricted shares of common stock and 21,000 shares were granted to key managers. During 1998 and 1997, shares of restricted common stock were awarded to certain officers totaling 98,500 and 52,500, respectively. In 1999, restrictions on 236,183 shares from the Incentive Stock Plans were released and 26,100 shares were forfeited. Restrictions on 99,725 shares were released during 1998. As of December 31, 1999, a total of 503,092 restricted shares of common stock were outstanding under the 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 three 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 $1,573,000, $2,486,000, and $945,000 in 1999, 1998 and 1997, respectively. This deferred compensation is being amortized on a straight-line basis over the specified service period. The unamortized deferred compensation at December 31, 1999, 1998 and 1997, totaled $4,128,000, $4,842,000, and $4,256,000, respectively, and is included in deferred employee benefits as a reduction of shareholders' equity. Stock options for 5,250, 15,750, and 31,500, shares were issued in 1999, 1998 and 1997, respectively under the 1996 Plan. As of December 31, 1999, a total of 96,875 options remained outstanding under the plan. The options expire ten years from the date of issue and vest over periods varying from immediate vesting to three years. The Company accounts for the stock options issued under the Plan using the intrinsic value method as defined by Accounting Principle Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Since all such options have been issued at exercise prices equal to the trading price of Hardinge stock at date of issue, no expense is recognized. The Company has considered valuation of stock options using the fair value method as determined by Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION. Application of the fair value method, however, would not have a material impact on the financial statements. FOREIGN OPERATIONS The Company also has employees in certain foreign countries that are covered by defined contribution and benefit pension plans and other employee benefit plans. Related obligations and costs charged to operations are not material. 7. FINANCIAL INSTRUMENTS At December 31, 1999 and 1998, 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 amounts of debt under the revolving agreements classified as long-term debt approximate fair value as the underlying instruments are comprised of notes that are repriced on a short-term basis. In May 1998, the Company entered into a five year interest rate swap arrangement with a financial institution (See Note 2). At December 31, 1999 and 1998, the fair market value of this instrument was $211,000 and ($527,000), respectively. The carrying amount of the term loan dated February 1996 approximates its fair value as the underlying interest rate is variable. Related to this term loan, the Company entered into a seven-year cross- 34 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 7. FINANCIAL INSTRUMENTS (CONTINUED) currency interest rate swap agreement (see Note 2). The fair value of the instrument was $2,633,000 and $1,276,000 at December 31, 1999 and 1998 respectively, based on current settlement value as determined by a financial institution. 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 percentage over U.S. Treasury notes). At December 31, 1999 and 1998 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. There was no other long-term debt outstanding at December 31, 1999. At December 31, 1998 carrying and fair value of that debt were approximately equal. 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 cash settlements of intercompany sales. Gains or losses from these contracts have not been material. At December 31, 1999 and 1998, the Company had notional principal amounts of approximately $5,746,000 and $5,232,000 in contracts to purchase or sell currency in the future from and to major commercial banks. The fair value of these contracts is not material. 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, 1999 and 1998, 12% and 21%, respectively, of the accounts receivable were from the three major U.S. automobile manufacturers, with receivables from one representing 5% at December 31, 1999 and 11% at December 31, 1998 of the consolidated accounts receivable. In addition, at December 31, 1999 and 1998, receivables from the Company's distributor in France totaled 10% and 6%, respectively, of the consolidated accounts receivable. The Company holds a security interest in any of its equipment held by the distributor for inventory or demonstration purposes. 8. UNUSUAL EXPENSE 1998's fourth quarter included a one-time charge of $950,000 (approximately $570,000 after tax, or $.06 per share). This charge resulted from costs incurred to relocate the manufacture and support for Hansvedt electrical discharge machines from Illinois to the Company's headquarters in Elmira, NY, and from a workforce reduction of approximately 200 full-time jobs, or 15% of total employment. These actions were taken as a result of a significant decline in incoming orders during the fourth quarter of 1998. 1997's first quarter included a one-time charge of $1,960,000 (approximately $1,200,000 after tax, or $.13 per share). This non-recurring charge involves outside costs incurred in connection with a major acquisition that the Company carried into the final stages of the due diligence process but decided not to complete. 35 HARDINGE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial information for 1999 and 1998 is as follows:
QUARTER ----------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 Net sales............................................... $46,194 $45,881 $42,399 $44,059 Gross profit............................................ 15,548 14,381 13,418 13,811 Income from operations *................................ 3,415 2,346 1,468 2,388 Net income.............................................. 2,082 1,458 980 1,521 Basic earnings per share: Weighted average shares outstanding................... 9,460 9,338 9,264 9,026 Earnings per share.................................... .22 .16 .11 .17 Diluted earnings per share: Weighted average shares outstanding................... 9,431 9,342 9,265 9,035 Earnings per share.................................... .22 .16 .11 .17 1998 Net sales............................................... $65,779 $65,071 $62,041 $66,734 Gross profit............................................ 22,853 23,600 22,606 23,038 Income from operations.................................. 9,182 9,068 7,720 7,670 Net income.............................................. 5,454 5,409 4,531 4,889 Basic earnings per share: Weighted average shares outstanding................... 9,411 9,420 9,426 9,475 Earnings per share.................................... .58 .57 .48 .52 Diluted earnings per share: Weighted average shares outstanding................... 9,441 9,468 9,468 9,468 Earnings per share.................................... .58 .57 .48 .52
- ------------------------ * Income from operations for the first, second and third quarter of 1999 has been restated by ($38,000),($146,000) and ($260,000), respectively, to conform to the year end presentation for a minority interest in the loss of a consolidated subsidiary. 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 1999 does not equal the annual earnings per share for the year. ITEM 9.--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 36 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 10, 2000. 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....................... 61 1978 Chairman of the Board, President and Chief Executive Officer since April, 1998; Chairman of the Board and Chief Executive Officer in 1997; Chairman of the Board, President and Chief Executive Officer in 1996; President and Chief Executive Officer 1984-1995; President and Chief Operating Officer in 1983; Executive Vice President and Chief Operating Officer 1980-1982; Vice President--Employee Relations 1978-1979; member of Board of Directors of the Company since 1980. J. Patrick Ervin..................... 42 1996 Executive Vice President--Operations since August 1998; Senior Vice President of Operations, Mfg., Eng. and Marketing, April 1998--July 1998; Vice President--Sales & Marketing 1996--March 1998; General Manager, Machine Tool Operations in 1996; Director, Sales & Marketing 1992-1996; Director of Materials & Purchasing 1990-1992; Superintendent, Machine Operations 1989-1990, Various other Company positions 1978-1989. Richard L. Simons.................... 44 1996 Senior Vice President, Chief Financial Officer and Assistant Secretary since January, 1999; Vice President--Finance 1996-1998; Controller 1987-1996; Assistant Treasurer 1985-1987; Manager Financial Accounting 1983-1984. Richard C. Amadril................... 56 1998 Vice President--Sales and Marketing since August 1998; Director, Sales & Marketing 1998; Director, Marketing 1996-1997; Formerly President/CEO, South Bend Lathe Corp., 1990-1995. Joseph T. Colvin..................... 56 1996 Vice President--Manufacturing since October, 1996; Manufacturing Director, Machine Operations 1994-1996; Formerly Vice President Operations, General Manager, Inertial Guidance Test Equipment and Original Equipment Manufacturing, Contraves, Inc.,1994; President and CEO, Modern Manufacturing, 1993; President, Inland Motor Division, Kollmorgen Corp., 1987-1992.
37
LIST OF EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------- EXECUTIVE OFFICER NAME AGE SINCE POSITIONS AND OFFICES HELD - ---- -------- --------- -------------------------- Daniel P. Soroka..................... 51 1996 Vice President--Engineering since October, 1996; Director of Research & Engineering 1992-1996; Manager of Mechanical Design and Analysis 1989-1992. Douglas C. Tifft..................... 45 1988 Vice President--Administration since November 1998; Vice President--Employee Relations since 1988. Various other Company positions 1978-1988. Thomas T. Connelly................... 52 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.
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 10, 2000. 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 10, 2000. ITEM 13.--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from the Registrants's proxy statement filed with the Commission on March 10, 2000. 38 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 filed as part of this Report: See (c) below. (b) Reports on Form 8-K filed by the Registrant during the last quarter of the period covered by this report: None (c) Exhibits required by Item 601 of Regulation S-K filed as a part of this Report on Form 10-K:
ITEM DESCRIPTION - ---- ----------- 4.1 -- 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. 4.2 -- By-Laws of Hardinge Inc. as amended November 19, 1996, incorporated by reference from the Registrant's Form 10-K for the year ended December 31, 1996. 4.3 -- Section 719 through 726 of the New York Business Corporation Law, incorporated by reference from the Registrant's Form 10, effective June 29, 1987. 4.4 -- 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. 4.5 -- 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. 4.6 -- Amended Form of Rights Agreement, dated as of August 25, 1997 between Hardinge Inc. and Fifth Third Bank, incorporated by reference from the Registrant's Form 8-A/A filed with the Securities and Exchange Commission on September 29, 1997. 4.7 -- Stock Repurchase Program incorporated by reference from the Registrant's Form 8-K filed with the Securities & Exchange Commission on April 16, 1999. 10.1 -- Swap Transaction Agreement effective June 1, 1998 between Hardinge Inc. and The Chase Manhattan Bank incorporated by reference from the Registrant's Form 10-Q for the quarter ended September 30, 1998. 10.2 -- Credit Agreement dated as of August 1, 1997 among Hardinge Inc. and the Banks signatory thereto and The Chase Manhattan Bank as Agent, incorporated by reference from the Registrant's Form 10-Q for the quarter ended September 30, 1997. 10.3 -- Credit Agreement dated as of November 18, 1996 between Hardinge Inc. and Marine Midland Bank, incorporated by reference from the Registrant's Form 10-K for the year ended December 31, 1996. 10.4 -- Amendment Number One dated August 1, 1997 to Credit Agreement dated as of November 18, 1996 between Hardinge Inc. and Marine Midland Bank, incorporated by reference from the Registrant's Form 10-Q for the quarter ended September 30, 1997. 10.5 -- Credit Agreement dated as of February 28, 1996 among Hardinge Inc. and the Banks signatory thereto and The Chase Manhattan Bank as Agent, incorporated by reference from the Registrant's Form 10-Q for the quarter ended March 31, 1996.
39
ITEM DESCRIPTION - ---- ----------- 10.6 -- Amendment Number One dated August 1, 1997 to Credit Agreement dated as of February 28, 1996 among Hardinge Inc. and the Banks signatory thereto and The Chase Manhattan Bank as Agent, incorporated by reference from the Registrant's Form 10-Q for the quarter ended September 30, 1997. 10.7 -- $8,000,000 Master Note as amended among Hardinge Inc. and Chemung Canal Trust Company dated July 23, 1996, incorporated by reference from the Registrant's Form 10-K for the year ended December 31, 1996. 10.8 -- Stock Purchase Agreement dated as of November 15, 1995 between Hardinge Inc. and L. Kellenberger & Co. AG, incorporated by reference from the Registrant's Form 8-K, as amended, dated November 29, 1995. *10.9 -- The 1996 Hardinge Inc. Incentive Stock Plan as adopted by shareholders at the April 23, 1996 annual meeting, incorporated by reference from the Registrant's Form 10-Q for the quarter ended June 30, 1996. *10.10 -- Hardinge Inc. Savings Plan, incorporated by reference from the Registrant's Registration Statement on Form S-8 (No. 33-65049). *10.11 -- Employment Agreement with Richard C. Amadril dated August 3, 1998, incorporated by reference from the Registrant's Form 10-Q for the quarter ended September 30, 1998. *10.12 -- Employment Agreement with Joseph T. Colvin effective January 1, 1997, incorporated by reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997. *10.13 -- Employment Agreement with J. Patrick Ervin effective January 1, 1997, incorporated by reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997. *10.14 -- Employment Agreement with Richard L. Simons effective January 1, 1997, incorporated by reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997. *10.15 -- Employment Agreement with Daniel P. Soroka effective January 1, 1997, incorporated by reference from the Registrant's Form 10-Q for the quarter ended March 31, 1997. *10.16 -- 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). *10.17 -- 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). *10.18 -- Hardinge Inc. 1993 Incentive Stock Plan, incorporated by reference from the Registrant's Form 10-K for the year ended December 31, 1993. *10.19 -- The 1988 Hardinge 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. *10.20 -- First Amendment to Hardinge Inc. 1988 Incentive Stock Plan, incorporated by reference from the Registrant's Form 10-K for the year ended December 31, 1993. *10.21 -- Hardinge Inc. Executive Supplemental Pension Plan, incorporated by reference from the Registrant's Form 10-K for the year ended December 31, 1993. *10.22 -- Form of Deferred Directors Fee Plan, incorporated by reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644). *10.23 -- Description of Incentive Cash Bonus Program, incorporated by reference from the Registrant's Registration Statement on Form S-2 (No. 33-91644). 21 -- Subsidiaries of the Company. 23 -- Consent of Ernst & Young LLP, Independent Auditors. 27.1 -- Financial Data Schedule.
- ------------------------ * Management contract or compensatory plan or arrangement. 40 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) February 22, 2000 /s/ ROBERT E. AGAN --------------------------------------------- Robert E. Agan CHAIRMAN OF THE BOARD, PRESIDENT AND 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. February 22, 2000 /s/ J. PATRICK ERVIN --------------------------------------------- J. Patrick Ervin EXECUTIVE VICE PRESIDENT--OPERATIONS February 22, 2000 /s/ RICHARD L. SIMONS --------------------------------------------- Richard L. Simons SENIOR VICE PRESIDENT/CHIEF FINANCIAL OFFICER AND ASSISTANT SECRETARY (PRINCIPAL FINANCIAL OFFICER) February 22, 2000 /s/ JOHN W. BENNETT --------------------------------------------- John W. Bennett DIRECTOR February 22, 2000 /s/ DANIEL J. BURKE --------------------------------------------- Daniel J. Burke DIRECTOR
41 February 22, 2000 /s/ RICHARD J. COLE --------------------------------------------- Richard J. Cole DIRECTOR February 22, 2000 /s/ JAMES L. FLYNN --------------------------------------------- James L. Flynn DIRECTOR February 22, 2000 /s/ E. MARTIN GIBSON --------------------------------------------- E. Martin Gibson DIRECTOR February 22, 2000 /s/ DOUGLAS A. GREENLEE --------------------------------------------- Douglas A. Greenlee DIRECTOR February 22, 2000 /s/ J. PHILIP HUNTER --------------------------------------------- J. Philip Hunter DIRECTOR AND SECRETARY February 22, 2000 /s/ ALBERT W. MOORE --------------------------------------------- Albert W. Moore DIRECTOR
42 EX-21 2 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
JURISDICTION OF COMPANY INCORPORATION OR ORGANIZATION - ------- --------------------------------------------- Canadian Hardinge Machine Tools, Ltd. Canada Hardinge Machine Tools, Ltd. United Kingdom Hardinge, GmbH Federal Republic of Germany Hardinge Shanghai Company, Ltd. People's Republic of China Hardinge Taiwan Precision Machinery Limited Taiwan, Republic of China L. Kellenberger & Co., AG Switzerland
EX-23 3 EXHIBIT 23 EXHIBIT 23 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 21, 2000, 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, 1999. Syracuse, New York March 9, 2000 EX-27.1 4 FDS -- FOR 12 MONTHS 1999
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,156 0 68,826 0 85,640 148,182 144,421 72,156 241,457 32,754 23,380 0 0 99 171,615 241,457 178,533 178,533 121,375 47,541 (656) 0 1,743 8,439 3,054 6,041 0 0 0 6,041 .65 .65 Minority interest in loss of consolidated subsidiary.
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