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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000912057-01-007588.txt : 20010315
<SEC-HEADER>0000912057-01-007588.hdr.sgml : 20010315
ACCESSION NUMBER: 0000912057-01-007588
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010314
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: 1568058
BUSINESS ADDRESS:
STREET 1: ONE HARDING DRIVE
CITY: ELMIRA
STATE: NY
ZIP: 14902
BUSINESS PHONE: 6077342281
MAIL ADDRESS:
STREET 1: ONE HARDINGE DRIVE
CITY: ELMIRA
STATE: NY
ZIP: 14902
FORMER COMPANY:
FORMER CONFORMED NAME: HARDINGE BROTHERS INC
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>a2040520z10-k405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO .
</TABLE>
COMMISSION FILE NUMBER 0-15760
------------------------
HARDINGE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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, 2001:
Common Stock, $.01 par value--$71,600,799.
The number of shares outstanding of the issuer's common stock as of
February 1, 2001:
Common Stock, $.01 par value 8,914,896 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Hardinge Inc.'s Proxy Statement filed with the Commission on
March 14, 2001 are incorporated by reference to Part III of this Form.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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
six 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 December of 2000, Hardinge purchased 100% of the stock ownership of
HTT Hauser Tripet Tschudin AG, based in Biel, Switzerland. Hardinge also owns a
51% interest in a newly formed company, Hardinge Taiwan Precision Machinery
Limited, located in Nan Tou City, (Taiwan) Republic of China. The remaining 49%
is owned by the management of Hardinge Taiwan Precision Machinery Limited. In
May of 2000, Hardinge and EMAG Maschinenfabrik GmbH, of Germany established
Hardinge EMAG GmbH in Leipzig, Germany. Each company owns 50% of the shares of
Hardinge EMAG.
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, Nan Tou
City, Taiwan, Leipzig, Germany, and Biel, Switzerland. The Company assembles
machinery at its Shanghai, PRC facility for deliveries to customers in Asia.
Hardinge 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.
2
<PAGE>
In 1994, the Company expanded its machine tool line to include CNC vertical
turning machines and traditional 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 traditional vertical turning machine, the spindle
and turret are aligned on a vertical plane, with the spindle on the bottom. A
vertical turning machine permits the customer to produce larger, heavier and
more oddly shaped parts on a machine that uses less floor space when compared to
a traditional horizontal turning machine.
In 2000, Hardinge formed a joint venture to market a new line of inverted
spindle vertical turning lathes. These machines also have the spindle and turret
aligned on a vertical plane, but the spindle is on top. This design allows for
automatic "pick and place" of materials within the movements of the machine
itself. Combined with a built in conveyor system, this allows unattended
operation of the machine without the need for external robotic devices. These
machines are suited for a wide range of smaller manufactured components and can
support both small lot-size production requirements as well as high-volume
manufacturing.
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. 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 both of
them from a single supplier. The Company now produces a line of nine machining
centers addressing a range of sizes, speeds and powers.
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.
At the end of 2000, Hardinge complemented its precision grinding technology
of Kellenberger AG by adding HTT Hauser Tripet Tschudin AG to its grinding
machine product line. Hauser machines are jig grinders used to make demanding
contour components, primarily for tool and moldmaking applications. Tripet and
Tschudin product technology is focused on specialized grinding needs of high
volume production customers.
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.
New product development is important to the Company's growth. Products are
introduced each year to take advantage of new technologies available to the
Company. These technologies generally allow the machine to run at higher speeds
and with more power, thus increasing their efficiency. Customers routinely
replace old machines with newer machines that can produce parts faster and with
less time to set up the machine when converting from one type of part to
another.
3
<PAGE>
Also, due to a chronic shortage of skilled labor, customers are looking for
machines and accessories that can produce parts without an operator attending to
the machine. New products introduced in recent years have been aimed at this
need.
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, the Company has increasingly
emphasized the engineering of complete systems for customers who desire one or
more CNC machines to produce a specific part. In configuring complete systems,
the Company provides, in addition to its machines, the necessary computer
programming and tooling, as well as robotics and other parts handling equipment
manufactured by it or others.
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, the Company offers the most extensive line available in the
industry of workholding and toolholding devices, which may be used on both its
turning machines and those produced by others. The Company considers itself to
be a worldwide leader in the design and manufacture of workholding and
toolholding devices. It also offers a complete line of bar feed systems for its
horizontal turning machines, which automatically feed the workpiece into the
turning machine. In 2000, the Company introduced a line of indexing tables used
to hold parts on vertical machining centers. These products can be installed on
both Hardinge equipment and equipment of other manufacturers.
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, in-field 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 markets its machine tools through a combination of a direct
sales force and through distributors and manufacturers' representatives. In the
United States, Canada, and the United Kingdom, the company primarily uses a
direct sales force, supplemented by distributors and manufacturers'
representatives where appropriate. In the remainder of the world, sales are
exclusively through distributors and agents. Generally, distributors have
exclusive rights to sell the Company's products.
The Company's direct 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 only 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.
4
<PAGE>
The Company's non-machine products mainly are sold in the United States
through telephone orders to a toll-free "800" telephone number, which is linked
to an on-line computer order entry system maintained by the Company at its
Elmira headquarters. In most cases, the Company is able to package and ship
in-stock tooling and repair parts within 24 hours of receiving orders. The
Company can package and ship items with heavy demand, within several hours. In
other parts of the world, they are sold through distributor arrangements
associated with machine sales.
The Company promotes recognition of its products in the marketplace through
advertising in trade publications and participation in industry trade shows. In
addition, the Company markets its non-machine products through publication of
general catalogues and other targeted catalogues, which it distributes to
existing and prospective customers. The Company has a substantial presence on
the internet at www.hardinge.com where customers can obtain information about
the Company's products.
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, telecommunications, fiber
optics, recreational equipment, farm equipment, construction equipment, energy,
and transportation. Sales to the automobile industry accounted for 2%, 4% and
13% of the Company's net sales in 2000, 1999, and 1998, 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 and HTT 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 and HTT products are
produced at its Biel, Switzerland facility. Hardinge produces its machining
centers at its majority-owned subsidiary in Taiwan. 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. Also, in 2000, the Company announced the introduction of a
Siemen's (a German control manufacturer) control on its line of machining
centers. 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 special orders, a disruption in the supply of the Fanuc
components could cause
5
<PAGE>
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 and improve the quality and reliability of its products.
RESEARCH AND DEVELOPMENT
The Company's ongoing research and development program involves creating new
products and modifying existing products to meet market demands and redesigning
existing products to reduce the cost of manufacturing. The research and
development department is staffed with experienced design engineers with
technical through doctorate degrees.
The cost of research and development, all of which has been charged to
operations, amounted to $6,992,000, $7,060,000, and $8,630,000, in 2000, 1999,
and 1998, respectively. The Company has also obtained significant new product
knowledge through its Hardinge EMAG joint venture and its purchase of HTT.
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's business, and that of the machine tool industry in general, is
cyclical. It is not subject to significant seasonal trends. 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 New York 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, where
practical, 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 to various financial
institutions, a substantial portion of the customer notes receivable generated
by its customer financing program. 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 was $64,801,000 at December 31, 2000,
including orders totaling $17,813,000 at HTT Hauser Tripet Tschudin AG.
Excluding HTT, the backlog was $46,988,000, compared to $38,950,000 at
December 31, 1999.
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
6
<PAGE>
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.
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, 2000 the Company employed 1,508 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 6 to consolidated financial statements contained in this Annual Report.
The Company believes that its subsidiaries operate in countries in which the
economic climate is relatively stable.
7
<PAGE>
ITEM 2.--PROPERTIES
Pertinent information concerning the principal properties of the Company and
its subsidiaries is as follows:
<TABLE>
<CAPTION>
ACREAGE (LAND)
SQUARE FOOTAGE
LOCATION TYPE OF FACILITY (BUILDING)
- -------- --------------------------------------------------- ---------------
<S> <C> <C>
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
Biel, Switzerland Manufacturing, Engineering, Turnkey Systems 4 acres
41,500 sq. ft.
Exeter, England Sales, Marketing, Demonstration, Service, Turnkey 2 acres
Systems and Administration 27,500 sq. ft.
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION
LOCATION TYPE OF FACILITY SQUARE FOOTAGE DATE
- -------- ----------------------------------------- --------------- ----------
<S> <C> <C> <C>
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, Taiwan Manufacturing, Engineering, Marketing, 110,000 sq. ft. 12/31/19
Sales, Service, Demonstration and
Administration
Biel, Switzerland Marketing, Sales, Service, and 17,400 sq. ft. 6/30/05
Administration
</TABLE>
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 anticipated to be 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 2000, no matters were submitted to a vote of
security holders.
8
<PAGE>
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 under the symbol "HDNG." The table also
includes dividends per share, by quarter.
<TABLE>
<CAPTION>
2000 VALUES 1999 VALUES
------------------------------- -------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
March 31............................... $13.94 $ 9.06 $.14 $18.17 $14.13 $.14
June 30................................ 13.50 8.38 .14 18.38 13.75 .14
September 30........................... 13.88 9.56 .14 17.38 14.81 .14
December 31............................ 14.25 10.44 .14 16.38 12.25 .14
</TABLE>
At February 1, 2001, there were 3,250 holders of record of common stock.
9
<PAGE>
ITEM 6.--SELECTED FINANCIAL DATA
The following selected financial data is derived from the audited
consolidated financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements, related notes and other
information included herein (dollar amounts in thousands except per share data).
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales....................................... $189,479 $178,533 $259,625 $246,579 $220,295
Cost of sales................................... 128,531 121,375 167,528 164,161 145,264
-------- -------- -------- -------- --------
Gross profit.................................... 60,948 57,158 92,097 82,418 75,031
Selling, general and administrative expenses.... 48,279 47,541 57,507 49,959 45,058
Unusual expense (1)............................. 950 1,960
-------- -------- -------- -------- --------
Operating income................................ 12,669 9,617 33,640 30,499 29,973
Interest expense................................ 1,736 1,743 2,324 2,378 2,770
Interest (income)............................... (582) (565) (597) (705) (889)
-------- -------- -------- -------- --------
Income before income taxes and minority interest
in (profit) loss of consolidated subsidiary
and (loss) in investment of equity company.... 11,515 8,439 31,913 28,826 28,092
Income taxes.................................... 3,631 3,054 11,630 10,886 10,804
Minority interest in (profit) loss of
consolidated subsidiary....................... (263) 656
(Loss) in investment of equity company.......... (89)
-------- -------- -------- -------- --------
Net income...................................... $ 7,532 $ 6,041 $ 20,283 $ 17,940 $ 17,288
======== ======== ======== ======== ========
Per share data: (2)
Basic earnings per share: (2)
Weighted average number of common shares
outstanding................................. 8,755 9,287 9,432 9,357 9,249
Earnings per share............................ $ .86 $ .65 $ 2.15 $ 1.92 $ 1.87
======== ======== ======== ======== ========
Diluted earnings per share: (2)
Weighted average number of common shares
outstanding................................. 8,794 9,287 9,434 9,427 9,336
Earnings per share............................ $ .86 $ .65 $ 2.15 $ 1.90 $ 1.85
======== ======== ======== ======== ========
Cash dividends declared per share............... $ .56 $ .56 $ .56 $ .53 $ .46
======== ======== ======== ======== ========
BALANCE SHEET DATA
Working capital................................. $118,042 $115,428 $130,550 $118,385 $116,256
Long-term portion of notes receivable........... 17,354 15,014 13,063 11,951 11,791
Total assets.................................... 283,116 241,457 256,681 245,284 229,162
Long-term debt.................................. 47,417 23,380 35,415 31,012 37,156
Shareholders' equity............................ 169,463 171,714 179,795 163,184 147,545
</TABLE>
- ------------------------
(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 the Company's three-for-two stock split in May, 1998.
10
<PAGE>
ITEM 7.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
NET SALES. Net sales for the year 2000 were $189,479,000 compared to
$178,533,000 in 1999, an increase of $10,946,000, or 6.1%. Sales in the U.S.
market increased 7.4% to $124,484,000, or 65.7% of the total. Sales in Europe
declined 5.0% to $43,289,000, or 22.9% of total sales. Other international sales
rose 27.4% to $21,706,000 or 11.4% of sales. Sales to customers in the
automotive industry declined to $2,911,000 in 2000, compared to $6,499,000 in
1999, and accounted for only 1.5% of total 2000 sales compared to 3.6% of total
1999 sales.
Sales of machines represented 63.5% of 2000's total sales, with the balance
of 36.5% represented by non-machine products and services. This compares to
1999's breakdown of 61.9% for machines and 38.1% for non-machine products and
services.
The Company's backlog of orders was $64,801,000 at December 31, 2000,
including orders totaling $17,813,000 at HTT Hauser Tripet Tschudin AG (HTT),
which Hardinge acquired on December 22, 2000. Excluding HTT, the backlog was
$46,988,000, compared to $38,950,000 at December 31, 1999, representing a 20.6%
increase.
GROSS PROFIT. Gross profit for 2000 was $60,948,000 compared to $57,158,000
during 1999. This $3,790,000 improvement includes both $3,503,000 due to the
6.1% increase in sales discussed above and $287,000 due to the gross margin
percentage increase to 32.2% from 32.0% in 1999. Continued difficult worldwide
market conditions caused significant price discounting in Hardinge's primary
markets, often requiring continued selective discounting by the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses totaled $48,279,000, or 25.5% of sales, during
2000, compared to $47,541,000, or 26.6% of sales in 1999. The Company continued
with the cost control program begun in 1999 and accomplished this lower SG&A
percentage despite the substantial promotional expenses incurred in 2000 for the
bi-annual International Manufacturing Technology Show.
INCOME FROM OPERATIONS. Income from operations was $12,669,000, or 6.7% of
sales, during 2000, compared to $9,617,000, or 5.4% of sales for 1999. This
improvement was due to the higher sales level and the cost reduction efforts,
both described above.
INTEREST EXPENSE. Interest expense totaled $1,736,000 in 2000 compared to
$1,743,000 in the previous year. While interest rates were higher during most of
2000, the reduced average borrowing level, which benefited from the substantial
operating cash flow more than offset the impact of the higher interest rates.
INTEREST INCOME. Interest income, primarily derived from internally
financed customer sales during both years, remained relatively flat, at $582,000
for 2000 compared to $565,000 for 1999.
INCOME TAXES. Income taxes declined to 31.5% of pre-tax income, from 36.2%
in 1999, primarily for three reasons: the new Hardinge Taiwan subsidiary's
profitability allowed utilization of a tax loss carry-forward of $1,171,000
generated during its 1999 startup; the higher proportion of profits earned at
foreign operations, which are generally taxed at lower rates; and the benefits
from final resolution of multi-year tax audits in the U.S. and Canada.
MINORITY INTEREST IN (PROFIT) OF CONSOLIDATED SUBSIDIARY. The Company has a
51% interest in Hardinge Taiwan Precision Machinery Limited, an entity which is
recorded as a consolidated subsidiary. The $263,000 reduction in net income
represents the minority stockholders' 49% share in that joint venture's 2000 net
income.
11
<PAGE>
(LOSS) IN INVESTMENT OF EQUITY COMPANY. The new Hardinge EMAG GmbH joint
venture generated an ($89,000) loss for Hardinge's 50% interest during its
startup and initial four months of operation.
NET INCOME. Net income increased to $7,532,000 for 2000, compared to
$6,041,000 during 1999. The increased net income during 2000 was directly
attributable to the higher sales level and other issues described above.
EARNINGS PER SHARE. Earnings per share improved to $.86 per diluted share
in 2000, compared to $.65 per diluted share in 1999, because of the higher net
income together with the Company's repurchase of stock which resulted in the
decline in weighted shares outstanding to 8,794,000 shares in 2000 compared to
9,287,000 shares in 1999. 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.
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
12
<PAGE>
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio at December 31, 2000 was 3.32:1 compared to
4.52:1 at December 31, 1999.
Cash generated from operating activities was $17,808,000 in 2000, largely
due to net income of $7,532,000 and the non-cash depreciation and amortization
charges of $9,827,000 included therein. This compares to $6,041,000 and
$10,458,000, respectively, in 1999. Accounts receivable declined $6,115,000,
excluding HTT, despite the 6.1% increase in sales, compared to a $7,371,000
decrease in 1999. Inventories increased $6,850,000, or 8%, excluding HTT, due to
both the higher sales level and requirements for several new product
introductions.
The Company provides long-term financing for the purchase of its equipment
by qualified customers. The Company regards this program as an important part of
its marketing efforts, particularly to independent machine shops. Customer
financing is offered for a term of up to seven years, with the Company retaining
a security interest in the purchased equipment. In the event of a customer
default and foreclosure, which have been relatively 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 most of the
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 2000, the Company sold
$26,593,000 of customer notes compared to $16,852,000 sold during 1999,
reflecting the higher 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
$17,354,000 and $15,014,000 at December 31, 2000 and December 31, 1999,
respectively.
13
<PAGE>
Total capital expenditures in 2000 were $3,171,000, which included new
manufacturing equipment purchased to improve productivity at the Company's
Elmira, New York production facility.
During 2000, the Company used $4,013,000 of its cash to repurchase a portion
of its own stock under a repurchase program announced on April 9, 1999.
During 2000, the Company had revolving loan agreements with several U.S.
banks providing for unsecured borrowing up to $50,000,000 on a revolving basis
through August 1, 2002. 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, 2000, total borrowings under this
credit line were $38,535,000, which includes the $24,071,000 temporary financing
of the HTT Hauser Tripet Tschudin AG acquisition which the Company expects to
refinance in 2001.
The Company's Kellenberger subsidiary maintains unsecured overdraft
facilities with commercial banks which permit borrowing in Swiss francs
equivalent to approximately $5,550,000. At December 31, 2000, there were no
borrowings under these agreements.
The Company's HTT subsidiary maintains unsecured overdraft facilities with
commercial banks which permit borrowing in Swiss francs equivalent to
approximately $5,550,000. At December 31, 2000, total borrowings under these
agreements were $5,033,000.
These facilities, along with an $8,000,000 unsecured short-term line with
another bank, provided for immediate access of up to $69,100,000 at
December 31, 2000. Outstanding borrowings under these arrangements totaled
$45,572,000 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 quarterly principal repayments commenced in
1998 and are due through February 28, 2003. 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.
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 in that year, interest expense would
have increased by $274,000 in 2000 and $150,000 in 1999, 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.
14
<PAGE>
A portion of the Company's operations consists 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 subsidiaries. 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.
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
adopted the new statement effective January 1, 2001. The statement requires 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 computed the effects of
Statement 133 on the financial position of the Company as of January 1, 2001 and
found them to be immaterial.
STAFF ACCOUNTING BULLETIN 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
Implementation of SAB 101 was required for fiscal years beginning after
December 15, 1999. The Company has reviewed the provisions of SAB 101 and found
that its existing revenue recognition practices are in compliance with these
requirements.
TRANSFERS OF FINANCIAL ASSETS
In September 2000, the Financial Accounting Standards Board issued Statement
No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES, which is effective for fiscal years ending after
December 15, 2000. The Company has reviewed the provisions of the statement and
has determined that its existing notes receivable contract sales are not
impacted by the statement.
15
<PAGE>
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.
16
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HARDINGE INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
<TABLE>
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. 18
Consolidated Balance Sheets................................. 19
Consolidated Statements of Income........................... 20
Consolidated Statements of Shareholders' Equity............. 21
Consolidated Statements of Cash Flows....................... 22
Notes to Consolidated Financial Statements.................. 23
</TABLE>
Schedule II--Valuation and Qualifying Accounts is included in Item 14(a) of
this report.
All other 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.
17
<PAGE>
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, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index of Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Buffalo, New York
January 19, 2001
18
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,740 $ 1,156
Accounts receivable....................................... 45,276 46,218
Notes receivable.......................................... 7,185 7,594
Inventories............................................... 102,780 85,640
Deferred income taxes..................................... 5,065 4,207
Prepaid expenses.......................................... 5,825 3,367
-------- --------
Total current assets........................................ 168,871 148,182
Property, plant and equipment:
Land and buildings........................................ 46,407 39,720
Machinery, equipment and fixtures......................... 98,243 96,341
Office furniture, equipment and vehicles.................. 8,781 8,360
-------- --------
153,431 144,421
Less accumulated depreciation............................. 77,561 72,156
-------- --------
75,870 72,265
Other assets:
Notes receivable.......................................... 17,354 15,014
Deferred income taxes..................................... 66
Goodwill.................................................. 18,238 3,794
Other..................................................... 2,717 2,202
-------- --------
38,375 21,010
-------- --------
Total assets................................................ $283,116 $241,457
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 17,477 $ 14,460
Notes payable to bank..................................... 7,037 663
Accrued expenses.......................................... 17,672 9,292
Accrued income taxes...................................... 2,386 2,667
Deferred income taxes..................................... 2,152 2,122
Current portion of long-term debt......................... 4,105 3,550
-------- --------
Total current liabilities................................... 50,829 32,754
Other liabilities:
Long-term debt............................................ 47,417 23,380
Accrued pension plan expense.............................. 6,092 4,971
Deferred income taxes..................................... 2,342 2,055
Accrued postretirement benefits........................... 5,747 5,620
-------- --------
61,598 36,026
Equity of minority interest................................. 1,226 963
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, 2000 and
1999................................................... 99 99
Additional paid-in capital................................ 61,542 61,760
Retained earnings......................................... 130,955 128,325
Treasury shares........................................... (14,243) (10,199)
Accumulated other comprehensive loss--
Foreign currency translation adjustment................. (6,239) (4,143)
Deferred employee benefits................................ (2,651) (4,128)
-------- --------
Total shareholders' equity.................................. 169,463 171,714
-------- --------
Total liabilities and shareholders' equity.................. $283,116 $241,457
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $189,479 $178,533 $259,625
Cost of sales............................................... 128,531 121,375 167,528
-------- -------- --------
Gross profit................................................ 60,948 57,158 92,097
Selling, general and administrative expenses................ 48,279 47,541 57,507
Unusual expense............................................. 950
-------- -------- --------
Income from operations...................................... 12,669 9,617 33,640
Interest expense............................................ 1,736 1,743 2,324
Interest (income)........................................... (582) (565) (597)
-------- -------- --------
Income before income taxes and minority interest in (profit)
loss of consolidated subsidiary and (loss) in investment
of equity company......................................... 11,515 8,439 31,913
Income taxes................................................ 3,631 3,054 11,630
Minority interest in (profit) loss of consolidated
subsidiary................................................ (263) 656
(Loss) in investment of equity company...................... (89)
-------- -------- --------
Net income.................................................. $ 7,532 $ 6,041 $ 20,283
======== ======== ========
Per share data:
Basic earnings per share:
Weighted average number of common shares outstanding........ 8,755 9,287 9,432
======== ======== ========
Earnings per share.......................................... $ .86 $ .65 $ 2.15
======== ======== ========
Diluted earnings per share:
Weighted average number of common shares outstanding........ 8,794 9,287 9,434
======== ======== ========
Earnings per share.......................................... $ .86 $ .65 $ 2.15
======== ======== ========
Cash dividends declared per share........................... $ .56 $ .56 $ .56
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER DEFERRED TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE EMPLOYEE SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME BENEFITS EQUITY
-------- ---------- -------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Comprehensive Income
Net income........................ 7,532 7,532
Other comprehensive (loss)
Foreign currency translation
adjustment.................. (2,096) (2,096)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income.............. 5,436
- --------------------------------------------------------------------------------------------------------------------------
Dividends declared................ (4,902) (4,902)
Shares issued and forfeited
pursuant to long-term incentive
plan............................ (177) 404 (118) 109
Amortization (long-term incentive
plan)........................... 1,595 1,595
Tax effect from long-term
incentive plan.................. (41) (41)
Net purchase of treasury stock.... (4,448) (4,448)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000...... $99 $61,542 $130,955 ($14,243) ($6,239) ($2,651) $169,463
==========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 7,532 $ 6,041 $20,283
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 9,827 10,458 9,024
Provision for deferred income taxes....................... (542) (1,195) 2,162
Foreign currency transaction loss (gain).................. 134 517 (71)
Changes in operating assets and liabilities:
Accounts receivable..................................... 6,115 7,371 1,791
Notes receivable........................................ (1,848) (2,081) (2,695)
Inventories............................................. (6,850) 4,103 860
Other assets............................................ (1,596) (151) (974)
Accounts payable........................................ 2,348 3,605 (7,047)
Accrued expenses........................................ 2,559 5,152 (2,022)
Accrued postretirement benefits......................... 129 230 184
------- ------- -------
Net cash provided by operating activities................... 17,808 34,050 21,495
INVESTING ACTIVITIES
Capital expenditures--net................................... (3,171) (5,445) (17,620)
Acquisition of HTT, net of cash acquired.................... (21,479)
Investment in Hardinge EMAG................................. (1,338)
------- ------- -------
Net cash (used in) investing activities..................... (25,988) (5,445) (17,620)
FINANCING ACTIVITIES
Increase (decrease) in short-term notes payable to bank..... 1,383 (4,229) (2,513)
Increase (decrease) in long-term debt....................... 17,385 (11,866) 5,107
Purchase of treasury stock.................................. (4,338) (9,143) (500)
Dividends paid.............................................. (4,902) (5,242) (5,349)
Funds provided by minority interest......................... 263 963
------- ------- -------
Net cash provided by (used in) financing activities......... 9,791 (29,517) (3,255)
Effect of exchange rate changes on cash..................... (27) (124) 7
------- ------- -------
Net increase(decrease)in cash............................... 1,584 (1,036) 627
Cash at beginning of year................................... 1,156 2,192 1,565
------- ------- -------
Cash at end of year......................................... $ 2,740 $ 1,156 $ 2,192
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
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,
telecommunications, fiber optics, 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. The
consolidated accounts do not include an unconsolidated subsidiary which is a
joint venture in which the Company owns 50% of the stock but does not have
control of operations.
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
$7,691,000, $8,003,000, and $6,869,000 for 2000, 1999 and 1998, 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 periods ranging from 20 to 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 2000, 1999 and 1998.
Accumulated amortization was $492,000 and $348,000 at December 31, 2000 and
1999, 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
23
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
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.
DERIVATIVE FINANCIAL INSTRUMENTS
Gains and losses on foreign exchange contracts designated as hedges of
specific transactions 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
the comprehensive income section of the 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 will 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 qualifying hedges must be adjusted to fair value through income. If
the derivative is a qualifying 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.
Based on the Company's actual derivative positions as of January 1, 2001,
the Company has determined the cumulative effects of adoption, which are not
material.
RESEARCH AND DEVELOPMENT COSTS
The cost of research and development, all of which has been charged to
operations, amounted to $6,992,000, $7,060,000, and $8,630,000 in 2000, 1999 and
1998, 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
24
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period of their vesting. The number of shares outstanding has been adjusted to
reflect the stock transactions as explained in Note 5 to the financial
statements.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished products........................................ $ 36,766 $37,361
Work-in-process.......................................... 32,727 25,572
Raw materials and purchased components................... 33,287 22,707
-------- -------
$102,780 $85,640
======== =======
</TABLE>
2. ACQUISITION AND JOINT VENTURE
On December 22, 2000, the Company completed the acquisition of 100% of the
outstanding stock of HTT Hauser Tripet Tschudin AG, a Biel, Switzerland based
manufacturer of grinding machines. The Company paid $31,659,000, including
assumed debt and acquisition expenses. The acquisition was funded using the
Company's revolving loan agreement and the Company anticipates refinancing
during 2001. The acquisition has been accounted for as a purchase effective
December 31, 2000.
The purchase price was allocated based on the fair value of assets and
liabilities as of the date of acquisition, resulting in goodwill of $14,098,000.
On the basis of an unaudited pro-forma consolidation of the results of
operations, as if the acquisition had taken place on January 1, 1999,
consolidated net sales for the combined companies would have been $225,700,000
and $213,189,000 for the years ended December 31, 2000 and 1999, respectively.
Consolidated net income would have been $7,373,000 and $5,764,000 and earnings
per share would have been $0.84 and $0.62 for the years of 2000 and 1999,
respectively. These
25
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. ACQUISITION AND JOINT VENTURE (CONTINUED)
pro-forma results reflect additional depreciation on the step-up in basis of
certain fixed assets acquired, interest expense that would have been incurred to
finance the purchase, and amortization of the goodwill recorded for the
purchase. The pro-forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition had
been effective at the beginning of 1999 or of future results of operations of
the consolidated entities.
On May 9, 2000, the Company entered into an agreement with EMAG
Maschinenfabrik GmbH of Leipzig, Germany to manufacture inverted spindle
vertical lathes in Germany. The joint venture, Hardinge EMAG GmbH, was
capitalized with a Company contribution of $1,500,000 of cash for a 50%
interest. The joint venture is recorded as an unconsolidated subsidiary herein;
the joint venture is accounted for using the equity method of accounting for
investments.
3. FINANCING ARRANGEMENTS
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Note payable, under revolving loan agreement, with
interest averaging 5.20% at December 31, 2000 (5.13% in
1999)................................................... $38,535 $15,392
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,
2000.................................................... 7,988 11,538
Mortgages payable under terms of various loan agreements
with interest averaging 6.85% at December 31, 2000...... 4,999
------- -------
51,522 26,930
Less current portion...................................... 4,105 3,550
------- -------
$47,417 $23,380
======= =======
</TABLE>
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 1/4 of 1% is payable on the unused
portion of the facility. At December 31, 2000, total borrowings under the
facility were $38,535,000. Approximately $1,495,000 of the borrowing was
denominated in British pounds sterling and $26,540,000 in Swiss francs, which
included $24,071,000 for temporary financing of the acquisition of HTT Hauser
Tripet Tschudin AG in December 2000. 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.
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.
26
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. FINANCING ARRANGEMENTS (CONTINUED)
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. At December 31, 2000 and 1999, the balance owed on this loan was
$7,988,000 and $11,538,000, respectively. In February 1996, the Company entered
into a cross-currency interest rate swap agreement which effectively converted
the $17,750,000 term loan to a borrowing of 21,000,000 Swiss francs with an
effective interest rate of 4.49%. In December 2000, that swap arrangement was
bifurcated into two separate swap agreements, a cross currency swap, and an
interest rate swap. The cross currency swap, which effectively converts the
remaining term loan principal to Swiss francs, has been designated as a hedge
against the Company's net investment in Kellenberger. The interest rate swap
effectively converts the floating interest rate to a fixed rate.
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, 2000, outstanding loans under this agreement totaled $2,000,000
with interest payable at 7.06%. There were no outstanding loans on this line at
December 31, 1999. 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 $5,550,000. These lines provide for interest at
competitive short-term interest rates and carry no commitment fees on unused
funds. At December 31, 2000, there were no borrowings under these lines. At
December 31, 1999, total borrowings under these lines were $663,000 with an
average interest rate of 6.43%.
The Company's HTT Hauser Tripet Tschudin subsidiary maintains unsecured
overdraft facilities with commercial banks that permit borrowings in Swiss
francs equivalent to approximately $5,550,000. These lines provide for interest
at competitive short-term interest rates and carry no commitment fees on unused
funds. At December 31, 2000, total borrowings under these lines were $5,033,000
with an average interest rate of 7.18%. HTT is also obligated under terms of
various mortgage agreements with commercial banks on its factory building. These
loans are secured by the property and have unspecified maturities. At
December 31, 2000 total balances outstanding on these loans were $4,999,000 at
an average interest rate of 6.85%.
Certain of these 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. Subsequent
to year end, the Company and it's creditors amended certain of these
requirements in order to include Hauser Tripet Tschudin, acquired as discussed
in note 2, in the calculations.
Interest paid in 2000, 1999, and 1998 totaled $1,684,000, $1,765,000, and
$2,086,000, 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 $2,219,000, $1,755,000,
and $1,871,000 during the years ended December 31, 2000, 1999, and 1998,
respectively. Future minimum payments under noncancelable operating leases as of
December 31, 2000 total $16,400,000, with payments over the next five years of
$2,140,000, $1,995,000, $1,550,000, $1,001,000, and $909,000, respectively.
27
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. FINANCING ARRANGEMENTS (CONTINUED)
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 2000, 1999, and 1998, the Company
sold notes totaling $26,593,000, $16,852,000, and $39,939,000, respectively. The
remaining outstanding balance of all notes sold as of December 31, 2000 and 1999
was $65,282,000 and $63,659,000, respectively. Gains and losses from the sales
of notes receivable have not been material. Recourse against the Company from
default of most of the notes included in the sales is limited to 10% of the then
outstanding balance of the underlying notes.
In September 2000, the Financial Accounting Standards Board issued Statement
No. 140 ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES, which is effective for fiscal years ending after
December 15, 2000. The Company has reviewed the provisions of the statement, and
has determined that their existing notes receivable contract sales are not
impacted by the statement.
4. 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, 2000 and
1999, the Company had state investment tax credits expiring at various dates
through the year 2010, 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Federal and state tax credit carryforwards.............. $ 5,053 $ 4,898
Postretirement benefits................................. 2,194 2,143
Deferred employee benefits.............................. 2,437 2,137
Accrued pension......................................... 2,421 1,978
Inventory valuation..................................... 1,633 1,434
Other................................................... 2,414 2,044
------- -------
16,152 14,634
Less valuation allowance................................ 5,053 5,260
------- -------
Total deferred tax assets............................. 11,099 9,374
------- -------
Deferred tax liabilities:
Tax over book depreciation.............................. 6,908 6,683
Margin on installment sales............................. 270 220
Other................................................... 3,284 2,441
------- -------
Total deferred tax liabilities.......................... 10,462 9,344
------- -------
Net deferred tax assets................................. $ 637 $ 30
======= =======
</TABLE>
Pre-tax income was $6,111,000, $6,968,000, and $27,611,000 from domestic
operations and $5,404,000, $1,471,000, and $4,302,000 from foreign operations
for 2000, 1999, and 1998, respectively.
28
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
4. INCOME TAXES (CONTINUED)
Significant components of income tax expense (benefit) attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $ 2,912 $ 3,072 $ 7,270
Foreign........................................ 1,379 447 693
State.......................................... 565 637 1,446
------- ------- -------
Total current.............................. 4,856 4,156 9,409
------- ------- -------
Deferred:
Federal........................................ (1,028) (1,236) 1,420
Foreign........................................ (59) 255 617
State.......................................... (138) (121) 184
------- ------- -------
Total deferred............................. (1,225) (1,102) 2,221
------- ------- -------
$ 3,631 $ 3,054 $11,630
======= ======= =======
</TABLE>
Income tax payments totaled $5,728,000, $651,000, and $11,239,000 in 2000,
1999 and 1998, 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. The income tax rate decreased in 2000 primarily for three reasons: the
new Hardinge Taiwan subsidiary's profitability allowed utilization of a tax
loss-carryforward of $1,171,000 generated during it's 1999 startup; the higher
proportion of profits earned at foreign operations, which are generally taxed at
lower rates; and the benefits from final resolution of multi-year tax audits in
the U.S. and Canada.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes.................................... 35.0% 35.0% 35.0%
State income taxes...................................... 2.4 3.9 3.3
Other................................................... (5.9) (2.7) (1.9)
---- ---- ----
31.5% 36.2% 36.4%
==== ==== ====
</TABLE>
Undistributed earnings of the foreign subsidiaries, which amounted to
approximately $20,781,000 at December 31, 2000, 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.
29
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
5. SHAREHOLDERS' EQUITY
TREASURY SHARES
The number of shares of common stock in treasury was 1,051,846, 686,059, and
40,909 at December 31, 2000, 1999 and 1998, respectively. During 2000, the
Company purchased 390,232 shares and distributed 33,320 shares and had 8,875
shares forfeited pursuant to the long-term incentive plan. In 1999, the Company
purchased 652,080 shares and distributed 33,030 shares with 26,100 shares
forfeited pursuant to the 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.
COMPANY STOCK REPURCHASE PROGRAM
On April 9, 1999, Hardinge announced a stock repurchase program. The Board
of Directors 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 purchased 900,351 shares under the program through July 25, 2000. On
July 26, 2000, Hardinge announced that its Board of Directors expanded the
Company's stock buyback program by authorizing a plan to repurchase up to an
additional one million shares of stock. No shares have been purchased under the
new plan.
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 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.
30
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
5. SHAREHOLDERS' EQUITY (CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Numerator:
Net income....................................... $7,532 $6,041 $20,283
Numerator for basic earnings per share........... 7,532 6,041 20,283
Numerator for diluted earnings per share......... 7,532 6,041 20,283
Denominator:
Denominator for basic earnings per share
--weighted average shares...................... 8,755 9,287 9,432
Effect of diluted securities:
Restricted stock and stock options............. 39 2
------ ------ -------
Denominator for diluted earnings per share
--adjusted weighted average shares............. 8,794 9,287 9,434
====== ====== =======
Basic earnings per share........................... $ .86 $ .65 $ 2.15
====== ====== =======
Diluted earnings per share......................... $ .86 $ .65 $ 2.15
====== ====== =======
</TABLE>
31
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
6. INDUSTRY SEGMENT AND FOREIGN OPERATIONS
The Company operates in one business segment--industrial machine tools.
Domestic and foreign operations consist of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
UNITED WESTERN UNITED WESTERN UNITED WESTERN
STATES EUROPEAN STATES EUROPEAN STATES EUROPEAN
OPER. OPER. OPER. OPER. OPER. OPER.
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales
Gross domestic sales................ $124,484 $ 38,092 $115,932 $ 38,572 $179,951 $ 45,358
Export sales........................ 41,468 17,058 39,512 10,688 54,482 13,630
-------- -------- -------- -------- -------- --------
165,952 55,150 155,444 49,260 234,433 58,988
Less interarea eliminations......... 19,308 12,315 16,791 9,380 23,120 10,676
-------- -------- -------- -------- -------- --------
Total net sales..................... $146,644 $ 42,835 $138,653 $ 39,880 $211,313 $ 48,312
======== ======== ======== ======== ======== ========
Operating income.................... $ 7,795 $ 4,874 $ 6,283 $ 3,334 $ 29,264 $ 4,376
======== ======== ======== ======== ======== ========
Net income.......................... $ 4,316 $ 3,216 $ 3,798 $ 2,243 $ 17,474 $ 2,809
======== ======== ======== ======== ======== ========
Identifiable assets................. $193,358 $ 89,758 $195,475 $ 45,982 $205,020 $ 51,661
======== ======== ======== ======== ======== ========
</TABLE>
Export sales from Hardinge's U.S. operations include the following:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales to Western European
customers......................... $ 2,504 $ 6,173 $ 7,943
Sales to affiliated companies....... 19,308 16,791 23,120
Sales to customers in the remainder
of the world...................... 19,656 16,548 23,419
-------- -------- --------
$ 41,468 $ 39,512 $ 54,482
======== ======== ========
</TABLE>
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 more than 5% of consolidated sales in 2000
or 1999. In 1998, sales to one customer in the automotive industry represented
approximately 5% of consolidated sales.
32
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. 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.
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.
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------ ------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost................................... $2,424 $2,472 $2,020 $130 $134 $148
Interest cost.................................. 4,724 4,401 4,178 447 431 459
Expected return on plan assets................. (6,095) (5,519) (5,072) -- -- --
Amortization of prior service cost............. 264 264 264 (24) (24) (24)
Amortization of transition obligation.......... (174) (174) (174) -- -- --
Amortization of (gain) loss.................... (22) -- -- 11 37 70
------ ------ ------ ---- ---- ----
Net periodic benefit cost...................... $1,121 $1,444 $1,216 $564 $578 $653
====== ====== ====== ==== ==== ====
</TABLE>
33
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. 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:
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of period............. $64,362 $64,206 $ 6,167 $ 6,366
Service cost.......................................... 2,424 2,472 130 134
Interest cost......................................... 4,724 4,401 447 431
Plan participants' contributions...................... -- -- 380 305
Actuarial(gain)loss................................... (4,642) (3,782) (1,024) (416)
Benefits paid......................................... (3,208) (2,935) (818) (653)
------- ------- ------- -------
Benefit obligation at end of period................... 63,660 64,362 5,282 6,167
------- ------- ------- -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of period...... 70,647 65,185 -- --
Actual return on plan assets.......................... 2,359 8,397 -- --
Employer contribution................................. -- -- 437 348
Plan participants' contributions...................... -- -- 381 305
Benefits paid......................................... (3,208) (2,935) (818) (653)
------- ------- ------- -------
Fair value of plan assets at end period............... 69,798 70,647 -- --
------- ------- ------- -------
RECONCILIATION OF FUNDED STATUS:
Funded status......................................... 6,138 6,285 (5,282) (6,167)
Unrecognized net actuarial(gain)loss.................. (12,881) (11,997) (225) 811
Unrecognized transition (asset)or obligation.......... (1,394) (1,568) -- --
Unrecognized prior service cost....................... 2,045 2,309 (240) (264)
------- ------- ------- -------
Prepaid (accrued) benefit cost........................ $(6,092) $(4,971) $(5,747) $(5,620)
======= ======= ======= =======
</TABLE>
Actuarial assumptions used to determine pension costs and other
postretirement benefit costs include:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
Discount rate............................................... 7.75% 7.50% 7.50% 7.50%
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
</TABLE>
The increase in the discount rate from 7.50% to 7.75% in 2000 decreased the
benefit obligation for pension benefits by $2,016,000 at December 31, 2000.
34
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. EMPLOYEE BENEFITS (CONTINUED)
Pension plan assets include 383,886 shares and 333,886 shares of the
Company's common stock valued at approximately $5,470,000 and $4,361,000 at
December 31, 2000 and 1999, respectively. Dividends paid on those shares were
$201,000 and $149,000 in 2000 and 1999 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 8.5% at December 31, 1999, 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 8.0% at December 31, 2000, 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 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 not increase the accumulated postretirement benefit
obligation but would increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for 2000 by $9,000.
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 $342,000,
$376,000, and $363,000 in 2000, 1999 and 1998 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.
35
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. EMPLOYEE BENEFITS (CONTINUED)
During 2000, certain officers were awarded a total of 23,000 restricted
shares of common stock. In 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, 98,500 shares of restricted common stock were awarded. In
2000, restrictions on 72,521 shares from the Incentive Stock Plans were released
and 8,875 shares were forfeited. In 1999, restrictions on 236,183 shares were
released and 26,100 shares were forfeited. Restrictions on 99,725 shares were
released during 1998.
As of December 31, 2000, a total of 444,696 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 $316,000, $1,573,000, and
$2,486,000 in 2000, 1999 and 1998, respectively. This deferred compensation is
being amortized on a straight-line basis over the specified service period. The
unamortized deferred compensation at December 31, 2000, 1999 and 1998, totaled
$2,651,000, $4,128,000,and $4,842,000, respectively, and is included in deferred
employee benefits as a reduction of shareholders' equity.
Stock options for 5,250, 5,250, and 15,750, shares were issued in 2000, 1999
and 1998, respectively under the 1996 Plan. As of December 31, 2000, a total of
102,500 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.
8. FINANCIAL INSTRUMENTS
At December 31, 2000 and 1999, 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 agreement and of
mortgages 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 3). At December 31, 2000 and
1999, the fair market value of this instrument was $(53,000) and $211,000,
respectively.
36
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
8. FINANCIAL INSTRUMENTS (CONTINUED)
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-currency interest rate swap
agreement (see Note 3). In December 2000 this agreement was terminated and
re-written as two separate agreements, a currency swap, and a separate interest
rate swap. At December 31, 2000 the fair market values of the separate currency
and interest rate swaps were $2,017,000 and $(38,000), respectively. The fair
value of the combined instrument was $2,633,000 at December 31, 1999. The fair
market values of these instruments are 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, 2000 and
1999 the carrying value of these notes approximated the fair value.
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, 2000 and
1999, the Company had notional principal amounts of approximately $6,410,000 and
$5,746,000 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, 2000 and
1999, 6% and 12%, respectively, of the accounts receivable were from the three
major U.S. automobile manufacturers, with receivables from one representing 5%
of consolidated accounts receivable at December 31, 1999. In addition, at
December 31, 2000 and 1999, receivables from the Company's distributor in France
totaled 7% and 10%, 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.
9. 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.
37
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
2000
Net sales............................................... $47,836 $47,773 $45,335 $48,535
Gross profit............................................ 15,702 15,796 14,432 15,018
Income from operations.................................. 3,781 3,686 2,424 2,778
Net income.............................................. 2,162 1,983 1,369 2,018
Basic earnings per share:
Weighted average shares outstanding................... 8,852 8,680 8,715 8,718
Earnings per share.................................... .24 .23 .16 .23
Diluted earnings per share:
Weighted average shares outstanding................... 8,934 8,680 8,715 8,718
Earnings per share.................................... .24 .23 .16 .23
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
</TABLE>
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
38
<PAGE>
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 14, 2001.
Additional information required to be furnished by Item 401 of Regulation S-K is
as follows:
<TABLE>
<CAPTION>
LIST OF EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------
EXECUTIVE
OFFICER
NAME AGE SINCE POSITIONS AND OFFICES HELD
- ---- -------- --------- --------------------------
<S> <C> <C> <C>
Robert E. Agan....................... 62 1978 Chairman of the Board, and Chief Executive
Officer since April, 2000; Chairman of the
Board, President and Chief Executive Officer
1998-1999; 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..................... 43 1996 President and Chief Operating Officer since
April, 2000; Executive Vice
President--Operations, August 1998--March 2000;
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.................... 45 1996 Executive Vice President, Chief Financial
Officer and Assistant Secretary since April,
2000; Senior Vice President, Chief Financial
Officer and Assistant Secretary, in 1999; Vice
President--Finance 1996-1998; Controller
1987-1996; Assistant Treasurer 1985-1987;
Manager Financial Accounting 1983-1984.
Douglas C. Tifft..................... 46 1988 Senior Vice President--Administration since
April, 2000; Vice President--Administration
1998-1999; Vice President--Employee Relations
since 1988. Various other Company positions
1978-1988.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
LIST OF EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------
EXECUTIVE
OFFICER
NAME AGE SINCE POSITIONS AND OFFICES HELD
- ---- -------- --------- --------------------------
<S> <C> <C> <C>
Joseph T. Colvin..................... 57 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.
Thomas T. Connelly................... 53 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.
</TABLE>
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 14, 2001.
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 14, 2001.
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 14, 2001
40
<PAGE>
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. The financial statement
schedule required by Regulation S-X (17 CFR 210) is filed as part of this
report:
(a) Schedule II--Valuation and Qualifying Accounts
HARDINGE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO:
BALANCE ---------------------- BALANCE
AT BEG. COSTS & OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
--------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 2000:
Allowance for Bad Debts....................... $ 562 $1,243 $ (5)(1) $ 837 (2) $ 963
Reserve for Obsolete Inventory................ 2,258 1,092 (8)(1) 642 (3) 2,700
------ ------ ----- ------ ------
Total....................................... $2,820 $2,335 $ (13) $1,479 $3,663
====== ====== ===== ====== ======
Year ended December 31, 1999:
Allowance for Bad Debts....................... $ 463 $1,412 $ (49)(1) $1,264 (2) $ 562
Reserve for Obsolete Inventory................ 2,331 432 (73)(1) 432 (3) 2,258
------ ------ ----- ------ ------
Total....................................... $2,794 $1,844 $(122) $1,696 $2,820
====== ====== ===== ====== ======
Year ended December 31, 1998:
Allowance for Bad Debts....................... $1,115 $ 699 $ 22 (1) $1,373 (2) $ 463
Reserve for Obsolete Inventory................ 2,299 359 32 (1) 359 (3) 2,331
------ ------ ----- ------ ------
Total......................................... $3,414 $1,058 $ 54 $1,732 $2,794
====== ====== ===== ====== ======
</TABLE>
(1) Currency translation for balances recorded in foreign currencies,
charged to Cumulative Translation Adjustment.
(2) Uncollectable accounts written off, net of recoveries.
(3) Slow-moving parts inventories written down to net recoverable market
value.
(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:
Current Report on 8-K, regarding an October 26, 2000 press release
announcing earnings for the third quarter 2000.
Current Report on 8-K, regarding a December 20, 2000 press release
announcing that Hardinge Inc. had reached a definitive agreement to Purchase
100% of the stock ownership of HTT Hauser Tripet Tschudin AG, a leading
manufacturer of precision grinding machines based in Biel, Switzerland.
41
<PAGE>
(c) Exhibits required by Item 601 of Regulation S-K filed as a part of this
Report on Form 10-K:
<TABLE>
<CAPTION>
ITEM DESCRIPTION
---- -----------
<C> <S> <C>
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 -- Amendment to the By-Laws of Hardinge Inc. dated
February 22, 2000 incorporated by reference from the
Registrant's Form 10-Q for the quarter ended March 31, 2000.
4.4 -- Section 719 through 726 of the New York Business Corporation
Law, incorporated by reference from the Registrant's
Form 10, effective June 29, 1987.
4.5 -- 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.
4.6 -- 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.
4.7 -- 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.
4.8 -- Stock Repurchase Program incorporated by reference from the
Registrant's Form 8-K filed with the Securities & Exchange
Commission on April 16, 1999.
4.9 -- Stock Repurchase Program incorporated by reference from the
Registrant's Form 8-K filed with the Securities & Exchange
Commission on August 3, 2000.
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 -- Amendment Number One dated December 11, 2000 to the Credit
Agreement dated as of August 1, 1997 among Hardinge Inc. and
the Bank's signatory thereto and the Chase Manhattan Bank as
Agent.
10.4 -- 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.
10.5 -- 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.
10.6 -- Amendment Number Two dated December 11, 2000 to the Credit
Agreement dated as of February 28, 1996 and amended
August 1, 1997 among Hardinge Inc. and the Banks signatory
thereto and The Chase Manhattan Bank as Agent.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
ITEM DESCRIPTION
---- -----------
<C> <S> <C>
10.7 -- $8,000,000 Master Note 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 Joseph T. Colvin effective
January 1, 1997, incorporated by reference from the
Registrant's Form 10-Q for the quarter ended March 31, 1997.
*10.12 -- 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.
*10.13 -- 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.
*10.14 -- 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.
*10.15 -- 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).
*10.16 -- 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).
*10.17 -- Hardinge Inc. 1993 Incentive Stock Plan, incorporated by
reference from the Registrant's Form 10-K for the year ended
December 31, 1993.
*10.18 -- 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.
*10.19 -- 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.
*10.20 -- Hardinge Inc. Executive Supplemental Pension Plan,
incorporated by reference from the Registrant's Form 10-K
for the year ended December 31, 1993.
*10.21 -- Form of Deferred Directors Fee Plan, incorporated by
reference from the Registrant's Registration Statement on
Form S-2 (No. 33-91644).
*10.22 -- 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.
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
43
<PAGE>
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.
<TABLE>
<S> <C>
HARDINGE INC.
---------------------------------------------
(REGISTRANT)
February 20, 2001 /s/ ROBERT E. AGAN
---------------------------------------------
Robert E. Agan
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
</TABLE>
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.
<TABLE>
<S> <C>
February 20, 2001 /s/ J. PATRICK ERVIN
---------------------------------------------
J. Patrick Ervin
PRESIDENT AND CHIEF OPERATING OFFICER
February 20, 2001 /s/ RICHARD L. SIMONS
---------------------------------------------
Richard L. Simons
EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL
OFFICER AND ASSISTANT SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
February 20, 2001 /s/ RICHARD B. HENDRICK
---------------------------------------------
Richard B. Hendrick
CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
February 20, 2001 /s/ DANIEL J. BURKE
---------------------------------------------
Daniel J. Burke
DIRECTOR
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
February 20, 2001 /s/ RICHARD J. COLE
---------------------------------------------
Richard J. Cole
DIRECTOR
February 20, 2001 /s/ JAMES L. FLYNN
---------------------------------------------
James L. Flynn
DIRECTOR
February 20, 2001 /s/ E. MARTIN GIBSON
---------------------------------------------
E. Martin Gibson
DIRECTOR
February 20, 2001 /s/ DOUGLAS A. GREENLEE
---------------------------------------------
Douglas A. Greenlee
DIRECTOR
February 20, 2001 /s/ J. PHILIP HUNTER
---------------------------------------------
J. Philip Hunter
DIRECTOR AND SECRETARY
February 20, 2001 /s/ ALBERT W. MOORE
---------------------------------------------
Albert W. Moore
DIRECTOR
</TABLE>
45
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>2
<FILENAME>a2040520zex-4_3.txt
<DESCRIPTION>EXHIBIT 4.3
<TEXT>
<PAGE>
EXHIBIT 4.3
AMENDMENT TO THE BY-LAWS OF HARDINGE INC.
DATED FEBRUARY 20, 2001
Effective February 20, 2001, the first sentence of Article III,
Section 3. of the By-Laws of Hardinge Inc. was amended to read:
"THE NUMBER OF DIRECTORS CONSTITUTING THE ENTIRE BOARD SHALL BE TEN
(10)."
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>3
<FILENAME>a2040520zex-10_3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>
<PAGE>
EXHIBIT 10.3
AMENDMENT NUMBER ONE
This Amendment Number One is dated as of December 11, 2000 and is to
the Credit Agreement among the Hardinge Inc., the Bank's signatory thereto and
The Chase Manhattan Bank as Agent, dated August 1, 1997 (the Agreement). Terms
used but not otherwise defined herein shall have the meanings ascribed thereto
in the AGREEMENT.
In order the amend the Agreement, the parties agree as follows:
1. Section 1.01 of the Agreement shall be amended by adding the
following definitions:
Acquisition Agreement means the Stock Purchase Agreement by and
between Ziersch Beteiligungs GmbH as seller, HTT Hauser Tripet
Tschudin AG, and Hardinge Inc, as purchaser, with respect to the
sale and purchase of all of the issued and outstanding shares of
stock of HTT Hauser Tripet Tschudin AG.
Acquisition Date means the date the Acquisition Agreement has
been signed by all parties thereto.
2. The definition of "Margin" as set forth in Section 1.01 of the
Agreement shall be amended effective as of the Acquisition Date to read as
follows:
"Margin" means for each Variable Rate Loan zero (0) Basis Points
and for each Eurodollar Loan seventy-five (75) Basis Points.
3. The definition of Reference Banks as set forth in Section 1.01
of the Agreement shall be amended in its entirety to read as follows:
"Reference Banks" means The Chase Manhattan Bank and Fleet
National Bank, and their respective successors.
4. Article 6 of the Agreement shall be amended by adding Section
6.10 as follows:
Section 6.10 ACQUISITION AGREEMENT. Provide the Agent with a
true copy of the signed Acquisition Agreement within three (3)
days of the Acquisition Date.
<PAGE>
5. Section 2.11 (a) of the Agreement shall be amended in its
entirety to read as follows:
(a) The Borrower shall pay to the Agent for the account of each
Bank a commitment fee on the daily average unused Commitment of
such Bank for the period from and including August 1, 1997 to
the earlier of the date the Commitments are terminated or the
day prior to the Acquisition Date, at a rate per annum equal to
fifteen (15) Basis Points if the ratio of Total Funded Debt to
Earnings Before Interest, Taxes, Depreciation and Amortization
is equal to or less than 1.0 to 1.0, twenty (20) Basis Points if
the ratio Funded Debt to Earnings Before Interest, Taxes,
Depreciation and Amortization is greater than 1.0 to 1 and less
than or equal to 2.0 to 1.0, and twenty-five (25) Basis Points
if the ratio Funded Debt to Earnings Before Interest, Taxes,
Depreciation and Amortization is greater than 2.0 to 1.0. The
Borrower shall pay to the Agent for the account of each Bank a
Commitment Fee on a daily average unused Commitment of such Bank
for the period from and including the Acquisition Date to the
earlier of the date the Commitments are terminated or the
Termination Date at a rate per annum equal to twenty-five (25)
Basis Points. The accrued commitment fee shall be due and
payable in arrears upon any reduction or termination of the
Commitments and on each Quarterly Date, and shall be calculated
on the basis of a year of 360 days for the actual number of days
elapsed. Where required, computation shall be based upon
Borrower's financial statements for the immediately preceding
four (4) fiscal quarters for income statement items and the most
recent fiscal quarter for balance sheet items.
6. Section 7.01(h) of the Agreement shall be amended by adding the
following at the end thereof:
Notwithstanding the foregoing, and subject to and upon the
closing of the transaction governed by the Acquisition
Agreement, (i) the amount of Liens against property other than
inventory and receivables shall not exceed Thirteen Million
Dollars ($13,000,000.00) in the aggregate and (ii) Liens against
the receivables of HTT Hauser Tripet Tschudin AG shall be
permitted.
7. The last paragraph of Section 7.05 of the Agreement shall be
amended in its entirety to read as follows;
-2-
<PAGE>
Notwithstanding the foregoing, the aggregate amount of
acquisitions (net of amounts paid for with the Borrower's stock)
permitted under this section without the prior written consent
of the Required Banks shall not be greater than Fifteen Million
Dollars ($15,000,000.00) in any consecutive twenty-four (24)
month period, except that for the twenty-four (24) month period
next following the Acquisition Date the amount shall be the
lower of Thirty-six Million Dollars ($36,000,000.00) or the
amount paid as provided under the Acquisition Agreement.
8. Section 7.07 of the Agreement shall be amended by adding the
following at the end thereof:
Notwithstanding the foregoing, the Borrower shall be permitted
during the period commencing on the closing of the transaction
covered by the Acquisition Agreement and continuing for ninety
(90) calendar days thereafter to lend to L. Kellenberger & Co.,
AG, or other wholly owned Subsidiary, up to Thirty-six Million
Dollars ($36,000,000.00) for the sole purpose of purchasing all
the issued and outstanding shares of stock of HTT Hauser Tripet
Tschudin AG and the retirement of shareholder debt. Any Loans
made to the Borrower for purposes of funding such loan shall be
repaid within ninety (90) days of the date made.
9. This Amendment Number One may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any patties hereto may execute this Amendment Number One by
signing such counterpart.
10. Other than as set forth in this Amendment Number One, the terms
and conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, THE PARTIES HERETO have caused this
Amendment Number One to be executed by their duly authorized officers as of the
day and year first above written.
HARDINGE INC.
By: /s/ Robert E. Agan
------------------------------
Robert E. Agan, Chairman of
the Board and Chief Executive
Officer
-3-
<PAGE>
AGENT:
THE CHASE MANHATTAN BANK,
By: /s/ Christine M. McLeod
------------------------------
Christine M. McLeod,
Vice President
-4-
<PAGE>
BANKS:
THE CHASE MANHATTAN BANK,
By: /s/ Christine M. McLeod
------------------------------
Christine M. McLeod,
Vice President
FLEET NATIONAL BANK
Successor to Fleet Bank
By: /s/ Joanna Teasdale
------------------------------
Joanna Teasdale,
Vice President
MANUFACTURERS & TRADERS TRUST
COMPANY
By: /s/ Peter Newman
------------------------------
Peter Newman, Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>4
<FILENAME>a2040520zex-10_6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>
<PAGE>
EXHIBIT 10.6
AMENDMENT NUMBER TWO
This Amendment Number Two is dated as of December 11. 2000 and is to
the Credit Agreement among Hardinge Inc., the Bank's signatory thereto and The
Chase Manhattan Bank (National Association) (now The Chase Manhattan Bank) as
Agent, dated as of February 28, 1996 and amended as of August 1, 1997 (as
amended the Agreement). Terms used but not otherwise defined herein shall have
the meanings ascribed thereto in the Agreement.
In order to further amend the Agreement, the parties agree as follows:
1. Section 1.01 of the Agreement shall be amended by adding the
following definitions:
Acquisition Agreement means the Stock Purchase Agreement by and
among Ziersch Beteiligungs GmbH as seller, HTT Hauser Tripet
Tschudin AG, and Hardinge Inc. as purchaser, with respect to the
sale and purchase of all of the issued and outstanding shares of
stock of HTT Hauser Tripet Tschudin AG.
Acquisition Date means the date the Acquisition Agreement has
been signed by all parties thereto.
2. The definition of Margin as set forth in Section 1.01 of the
Agreement shall be amended effective as of the Acquisition Date to read as
follows:
Margin means for each Variable Rate Loan zero (0) Basis Points
and for each Eurodollar Loan seventy-five (75) Basis Points.
3. The definition of Reference Banks as set forth in Section 1.01
of the Agreement shall be amended in its entirety to read as follows:
Reference Banks means The Chase Manhattan Bank and HSBC Bank
USA, and their respective successors.
4. Article 6 of the Agreement shall be amended by adding Section
6.10 as follows:
Section 6.10 ACQUISITION AGREEMENT. Provide the Agent with a
true copy of the signed Acquisition Agreement within three (3)
days of the Acquisition Date.
<PAGE>
5. Section 7.01(h) of the Agreement shall be amended by adding the
following at the end thereof:
Notwithstanding the foregoing. and subject to and upon the
closing of the transaction governed by the Acquisition
Agreement, (i) the amount of Liens against property other than
inventory and receivables shall not exceed Thirteen Million
Dollars ($13,000.000.00) in the aggregate, and (ii) Liens
against the receivables of HTT Hauser Tripet Tschudin AG shall
be permitted.
6. The last paragraph of Section 7.05 of the Agreement shall be
amended to read as follows:
Notwithstanding the foregoing. the aggregate amount of
acquisition (net of amounts paid for with the Borrower's stock)
permitted under this section without the prior written consent
of the Required Banks shall be not greater than Fifteen Million
Dollars ($15,000,000.00) in any consecutive twenty-four (24)
month period. except that for the twenty-four (24) months next
following the Acquisition Date the amount shall be the lower of
Thirty-six Million Dollars ($36,000,000.00) or the amount paid
as provided under the Acquisition Agreement.
7. Section 7.07 of the Agreement shall be amended by adding the
following at the end of that Section:
Notwithstanding the foregoing, the Borrower shall be permitted
during the period commencing on the closing of the transaction
covered by the Acquisition Agreement and continuing for ninety
(90) calendar days thereafter, to lend to L. Kcllenberger & Co.,
AG, or other wholly owned Subsidiary, up to Thirty-six Million
Dollars ($36,000,000.00) for the sole purpose of purchasing all
of the issued and outstanding shares of stock of HTT Hauser
Tripet Tschudin AG and the retirement of shareholder debt.
8. This Amendment Number Two may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any parties hereto may execute this Amendment Number Two by
signing any such counterpart.
9. Other than as set forth in this Amendment Number Two, the terms
and conditions of the Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment Number Two
to be executed by their duly authorized officers as of the day and year first
above written.
HARDINGE INC.
By: /s/ Robert E. Agan
------------------------------
Robert E. Agan, Chairman of
the Board and Chief Executive
Officer
AGENT:
THE CHASE MANHATTAN BANK
Successor to The Chase Manhattan
Bank (National Association)
By: /s/ Christine M. McLeod
------------------------------
Christine M. McLeod,
Vice President
3
<PAGE>
BANKS:
THE CHASE MANHATTAN BANK,
Successor to The Chase Manhattan
Bank (National Association)
By: /s/ Christine M. McLeod
------------------------------
Christine M. McLeod,
Vice President
THE CHASE MANHATTAN BANK
f/k/a Chemical Bank
By: /s/ Christine M. McLeod
------------------------------
Christine M. McLeod,
Vice President
HSBC BANK USA
f/k/a Marine Midland Bank
By: /s/ Ronald W. Lesch
------------------------------
Name: Ronald W. Lesch
----------------------------
Title: V.P.
---------------------------
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>a2040520zex-21.txt
<DESCRIPTION>EXHIBIT 21
<TEXT>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction of
Company Incorporation or Organization
------- -----------------------------
<S> <C>
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
HTT Hauser Tripet Tschudin Switzerland
L. Kellenberger & Co., AG Switzerland
Hardinge EMAG GmbH (50%) Federal Republic of Germany
Hardinge Taiwan Precision Machinery Limited (51%) Republic of China (Taiwan)
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>a2040520zex-23.txt
<DESCRIPTION>EXHIBIT 23
<TEXT>
<PAGE>
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 19, 2001, 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, 2000.
Buffalo, New York
February 13, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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