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Hardinge Reports Fourth Quarter and Full Year 2015 Results

ELMIRA, N.Y., Feb. 11, 2016 (GLOBE NEWSWIRE) -- Hardinge Inc. (NASDAQ:HDNG), a leading international provider of advanced metal-cutting solutions and accessories, reported financial results for its fourth quarter and year ended December 31, 2015.

Net sales (“sales”) for 2015 increased 1% to $315.2 million, compared with $311.6 million in 2014. Adjusting for $11.4 million of unfavorable foreign currency translation, 2015 sales increased 5% over the prior year. Fourth quarter sales of $87.0 million decreased $6.0 million, or 7%, from the prior-year period. Adjusting for unfavorable foreign currency translation of $2.6 million, fourth quarter sales were down 4%.

Non-GAAP(1) adjusted net income for 2015 more than doubled to $6.9 million, or $0.54 per diluted share, compared with adjusted net income of $2.8 million, or $0.22 per diluted share, in 2014. Net income in 2015 of $2.6 million, or $0.20 per diluted share, improved $4.7 million over the prior year net loss of $2.1 million, or $0.17 loss per diluted share. Fourth quarter non-GAAP adjusted net income increased 26%, or $1.2 million, to $5.9 million, or $0.45 per diluted share, over adjusted net income of $4.7 million, or $0.36 per diluted share, in the prior year’s fourth quarter. Net income for the quarter was $2.8 million, or $0.21 per diluted share, compared with $4.5 million, or $0.35 per diluted share, in the prior-year period.

Richard L. Simons, President and Chief Executive Officer, commented, "Our results for 2015 demonstrate Hardinge’s ability to generate cash and deliver growth in a globally challenged economy through continuous product innovation grounded in a deep understanding of what our customers value. These efforts more than offset the impact on sales of the strengthened U.S. dollar and the general weakness in North America. Importantly, we finished the year by delivering impressive fourth quarter gross profit margin in the low thirties, validating that our business can produce this level of margin, given our focus on cost controls and initiatives to drive a more favorable product mix.”

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(1)Management believes that the use of non-GAAP measures helps in the understanding of the Company's operating performance. See pages 9 and 10 of this release for the reconciliation tables between reported amounts and non-GAAP measures discussed in this document.

He also noted that “As we look into 2016, our visibility is masked by the uncertainty in both the North American and Asian machine tool markets given weak industrial economies. We are, however, energized by the quote activity in Europe as that market recovers from its recession. While the lack of visibility makes it difficult to forecast 2016 sales at this point, we remain focused on continuing to build a more profitable company as we complete our current restructuring initiatives.”

2015-2016 Hardinge Restructuring Program
(pre-tax, in millions)
Estimated Total Restructuring
Charges
Charges
To-date
Estimated
Annualized Savings
Q4 and YTD
2015 Savings
$4.5 $3.6 $4.5 $0.3


Mr. Simons added, "We have made solid progress with our restructuring program and began to see early benefits of these efforts in the fourth quarter." The previously announced restructuring program, which was initiated in the second half of 2015, is progressing according to plan and expected to be completed by the end of the second quarter of 2016.

Fourth Quarter Review

Quarterly Sales by Region
($ in thousands)
Quarter Ended
December 31, 2015December 31, 2014September 30, 2015
Sales to Customers in $% of Total $Year-over-Year
% Change
$Sequential
% Change
North America28,431 33%28,636 (1)%24,661 15%
Europe30,716 35%31,102 (1)%21,569 42%
Asia27,813 32%33,270 (16)%30,575 (9)%
Total86,960 93,008 (7)%76,805 13%

____________________
Note: Fluctuations in Hardinge’s consolidated sales and orders among geographic locations and industries can vary from quarter to quarter based on the timing and magnitude of orders and projects. Hardinge does not believe that such quarter-to-quarter fluctuations are necessarily indicative of larger business trends. Rather, the Company believes that such business trends can be discerned from the Company’s performance during a longer period of time, such as a trailing twelve-month period.

Fourth quarter sales to the North America market declined modestly from the prior-year period as new product introductions in North America compensated for the impact of a weakened industrial economy. Higher sales volume to Europe helped to offset unfavorable foreign exchange translation of $1.6 million resulting in a moderate $0.4 million decline in sales from the prior-year period. After adjusting for foreign currency impacts, fourth quarter sales to Europe increased 4%. Fourth quarter sales to Asia were impacted by timing of shipments to the region and the decline in China’s economy, as well as $1.0 million in unfavorable foreign currency translation.

Gross profit of $26.9 million in the fourth quarter was unchanged from the prior-year period, on lower sales. Gross margin as a percentage of sales increased 1.9 points to 31.0%, compared with 29.1% in the fourth quarter of 2014. The measurable expansion in gross margin was the result of a higher volume of grinding machines, a richer configuration mix of grinding products and the 0.3 point benefit from the early effects of restructuring activities.

Selling, general and administrative (“SG&A”) expense was down by $1.0 million from the prior-year period, to $20.7 million. The quarter included $0.4 million of professional fees associated with the Company's previously announced strategic review process while foreign currency translation resulted in a favorable $1.1 million impact in the quarter. SG&A as a percentage of sales was 23.8% compared with 23.3% in the prior-year period.

Non-GAAP adjusted operating income in the fourth quarter increased 21% to $6.3 million, or 7.2% of sales, from $5.2 million, or 5.6% of sales, in the prior-year period. Product mix, increased production efficiencies and cost control were the primary drivers of increased adjusted operating income despite lower sales. Operating income was $3.2 million, or 3.7% of sales, compared with $5.1 million, or 5.5% of sales, in the prior-year period.

Full Year 2015 Review

Sales by Region
($ in thousands)
Twelve months ended
December 31, 2015December 31, 2014
Sales to Customers in $% of Total $Year-over-Year
% Change
North America108,470 34%100,894 8%
Europe97,269 31%103,063 (6)%
Asia109,510 35%107,676 2%
Total315,249 311,633 1%


Sales of $315.2 million in 2015 were up 1% from 2014 sales of $311.6 million. Sales increased 4.8% excluding $11.4 million for unfavorable foreign currency translation. Sales to the North America market increased over the prior-year period as a result of new product launches and improved demand for grinding machines. Increased sales to Asia were driven by ongoing demand for Hardinge’s high precision machines, partially offset by the
$2.1 million impact of unfavorable foreign currency translation. Sales to Europe were down $5.8 million due to $9.3 million unfavorable foreign exchange translation. Excluding the currency impact, sales to Europe increased $3.5 million, or 3%, primarily driven by higher demand for grinding machines.

Gross profit of $90.4 million in 2015 increased $3.5 million compared with gross profit of $86.9 million in 2014. Gross profit was favorably impacted by higher volumes of machine production, particularly at the Company’s Swiss grinding facilities, as well as improved product mix. This was partially offset by $0.8 million for the integration of the Voumard product line, which was acquired in September 2014, and a first quarter inventory valuation adjustment of approximately $0.7 million. Gross margin as a percent of sales improved 0.8 points to 28.7% when compared with gross margin of 27.9% in 2014.

SG&A expense increased $0.2 million to $81.3 million compared with the prior year. The increase included
$0.8 million for investments to grow the Voumard product line and $0.4 million for the expansion of the Company’s Forkardt businesses in China and India, as well as $0.8 million of professional fees associated with the Company's previously announced strategic review process. These increases were offset by $3.8 million of favorable foreign currency translation when compared with the prior-year period.

Non-GAAP adjusted operating income for 2015, which excludes restructuring charges of $3.6 million and $0.8 million of professional fees, was $9.3 million, an 83% increase from $5.1 million in the prior year. Included in 2015 adjusted operating income were $1.5 million of expenses for investments in the Voumard product line. As a percent of sales, adjusted operating income margin was 2.9%, a 1.2 point improvement year-over-year. Operating income was $4.9 million, or 1.6% of sales, compared with an operating loss of $0.4 million, in the prior-year period.

Strong Cash Generation

Cash generated by operating activities in the fourth quarter of 2015 improved measurably to $17.7 million from $4.0 million in the prior-year period. For the full year, cash from operations increased to $26.7 million in 2015 from $3.2 million in 2014. Cash and cash equivalents at December 31, 2015 more than doubled over the prior year to $32.8 million. Total debt was $11.8 million at the end of the year and had been reduced by $4.5 million from December 31, 2014 and $1.4 million from September 30, 2015.

Orders by Region
($ in thousands)
Quarter Ended
December 31, 2015December 31, 2014September 30, 2015
Orders from Customers in $% of Total $Year-over-Year
% Change
$Sequential
% Change
North America24,305 33%31,467 (23)%20,105 21%
Europe20,610 28%31,302 (34)%23,234 (11)%
Asia29,133 39%31,582 (8)%28,612 2%
Total74,048 94,351 (22)%71,951 3%


Twelve months ended
December 31, 2015December 31, 2014
Orders from Customers in $% of Total $Year-over-Year
% Change
North America98,809 31%105,152 (6)%
Europe97,223 31%109,122 (11)%
Asia120,045 38%116,416 3%
Total316,077 330,690 (4)%


Fourth quarter orders of $74.0 million declined from the prior-year period. The prior-year period had unusually high order levels across all regions, particularly North America. Additionally, fourth quarter orders were impacted by $2.6 million of unfavorable foreign exchange translation.

Orders for 2015 of $316.1 million were down 4% when compared with 2014. Excluding $11.9 million for unfavorable foreign currency translation, 2015 orders decreased 1% over the prior year. The Company’s order backlog at December 31, 2015 was $101.8 million compared with $105.3 million at the end of 2014.

Webcast and Conference Call

Hardinge will host a conference call and webcast today at 11:00 a.m. ET. During the conference call and webcast, Richard L. Simons, President and CEO, and Douglas J. Malone, Vice President and CFO, will review the financial and operating results for the quarter, as well as the Company’s outlook. A question and answer session will follow the formal discussion. Their review will be accompanied by a slide presentation which will be available on Hardinge’s website at ir.hardinge.com/events.cfm.

The conference call can be accessed by calling (315) 625-6888. The listen-only audio webcast can be monitored at ir.hardinge.com/events.cfm.

A telephonic replay will be available from 2:00 p.m. ET the day of the call through Thursday, February 18, 2016. To listen to the archived call, dial (404) 537-3406 and enter conference ID #27663940. Alternatively, the archive can be heard on the Company’s website at ir.hardinge.com/events.cfm. A transcript will also be posted to the website, once available.

About Hardinge

Hardinge is a leading global designer and manufacturer of high precision, computer-controlled machine tool solutions developed for critical, hard-to-machine metal parts and of technologically advanced workholding accessories. The Company’s strategy is to leverage its global brand strength to further penetrate global market opportunities where customers will benefit from the technologically advanced, high quality, reliable products Hardinge produces. With approximately two-thirds of its sales outside of North America, Hardinge serves the worldwide metal working market. Hardinge’s machine tool and accessory solutions can also be found in a broad base of industries to include aerospace, agricultural, automotive, construction, consumer products, defense, energy, medical, technology and transportation.

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

The Company regularly posts information on its website: http://www.hardinge.com.

Safe Harbor Statement

This news release contains forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). Such statements are based on management's current expectations that involve risks and uncertainties. Any statements that are not statements of historical fact or that are about future events may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. The Company's actual results or outcomes and the timing of certain events may differ significantly from those discussed in any forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

FINANCIAL TABLES FOLLOW.


HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended December 31, Year Ended December 31,
2015 2014 2015 2014
(unaudited)
Sales$86,960 $93,008 $315,249 $311,633
Cost of sales60,033 65,988 224,851 224,755
Gross profit26,927 27,020 90,398 86,878
Gross profit margin31.0% 29.1% 28.7% 27.9%
Selling, general and administrative expenses20,675 21,669 81,271 81,045
Restructuring charges2,681 3,558
Impairment charges 5,766
Other expense, net356 265 632 514
Income (loss) from operations3,215 5,086 4,937 (447)
Operating margin3.7% 5.5% 1.6% (0.1)%
Interest expense183 168 655 737
Interest income(76) (12) (156) (59)
Income (loss) from continuing operations before income taxes3,108 4,930 4,438 (1,125)
Income taxes349 388 1,828 1,233
Net income (loss) from continuing operations2,759 4,542 2,610 (2,358)
Gain from disposal of discontinued operation, net of tax 218
Net income (loss)$2,759 $4,542 $2,610 $(2,140)
Per share data:
Basic earnings (loss) per share:
Continuing operations$0.22 $0.36 $0.20 $(0.19)
Disposal of discontinued operation 0.02
Basic earnings (loss) per share$0.22 $0.36 $0.20 $(0.17)
Diluted earnings (loss) per share:
Continuing operations$0.21 $0.35 $0.20 $(0.19)
Disposal of discontinued operation 0.02
Diluted earnings (loss) per share$0.21 $0.35 $0.20 $(0.17)
Cash dividends declared per share:$0.02 $0.02 $0.08 $0.08
Weighted avg. shares outstanding: Basic12,793 12,716 12,776 12,661
Weighted avg. shares outstanding: Diluted12,886 12,832 12,872 12,661



HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2015
December 31,
2014
Assets
Cash and cash equivalents$32,774 $16,293
Restricted cash2,192 3,151
Accounts receivable, net56,945 62,877
Inventories, net110,232 111,821
Other current assets9,385 10,545
Total current assets211,528 204,687
Property, plant and equipment, net62,025 65,874
Goodwill6,620 6,698
Other intangible assets, net28,018 30,217
Other non-current assets3,109 3,844
Total non-current assets99,772 106,633
Total assets$311,300 $311,320
Liabilities and shareholders’ equity
Accounts payable$24,696 $25,592
Accrued expenses27,964 25,071
Customer deposits19,845 12,736
Accrued income taxes1,919 646
Deferred income taxes2,164 2,332
Current portion of long-term debt5,692 3,972
Total current liabilities82,280 70,349
Long-term debt6,079 12,253
Pension and postretirement liabilities57,322 53,119
Deferred income taxes1,121 2,516
Other liabilities3,393 3,487
Total non-current liabilities67,915 71,375
Commitments and contingencies
Common stock ($0.01 par value, 20,000,000 authorized; 12,856,716 issued and 12,838,227 outstanding as of December 31, 2015, and 12,825,468 issued and 12,821,768 outstanding as of December 31, 2014)128 128
Additional paid-in capital120,524 120,538
Retained earnings89,368 87,777
Treasury shares (at cost, 18,489 as of December 31, 2015, and 3,700 as of December 31, 2014)(202) (46)
Accumulated other comprehensive loss(48,713) (38,801)
Total shareholders’ equity161,105 169,596
Total liabilities and shareholders’ equity$311,300 $311,320



HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Year Ended
December 31,
2015
December 31,
2014
Operating activities
Net income (loss)$2,610 $(2,140)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment charge 5,766
Depreciation and amortization8,509 9,847
Debt issuance costs amortization38 42
Deferred income taxes(768) 446
Gain on sale of assets(26) (82)
Gain on sale of business (218)
Gain on purchase of business (462)
Unrealized foreign currency transaction loss404 350
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable3,942 (7,860)
Restricted cash827 973
Inventories(1,442) (1,303)
Other assets1,245 682
Accounts payable450 2,211
Customer deposits7,762 (1,783)
Accrued expenses3,250 (3,281)
Accrued pension and postretirement liabilities(74) (9)
Net cash provided by operating activities26,727 3,179
Investing activities
Acquisition of businesses, net of cash acquired (5,683)
Capital expenditures(4,210) (3,186)
Proceeds from disposal of business 218
Proceeds from sales of assets69 151
Net cash used in investing activities(4,141) (8,500)
Financing activities
Payment of contingent consideration (7,500)
Proceeds from short-term notes payable to bank32,502 21,143
Repayments of short-term notes payable to bank(32,502) (21,143)
Repayments of long-term debt(4,464) (9,296)
Dividends paid(1,037) (1,012)
Purchases of treasury stock(201)
Net proceeds from sales of common stock 5,678
Net cash used in financing activities(5,702) (12,130)
Effect of exchange rate changes on cash(403) (978)
Net increase (decrease) in cash16,481 (18,429)
Cash and cash equivalents at beginning of period16,293 34,722
Cash and cash equivalents at end of period$32,774 $16,293


Hardinge believes that providing non-GAAP financial measures such as adjusted operating income, adjusted net income, and adjusted earnings per diluted share is important for investors and other readers of Hardinge's financial statements, as they are used as an analytical indicator by Hardinge management to better understand its operating performance.


HARDINGE INC. AND SUBSIDIARIES
Reconciliation of GAAP Operating Income (Loss) to Non-GAAP Operating Income (Loss)
(in thousands)
Three Months Ended
December 31, 2015
Three Months Ended
December 31, 2014
Amount % of Sales Amount % of Sales
Operating income as reported$3,215 3.7% $5,086 5.5%
Adjustments to reported operating income:
Acquisition-related expenses 121 0.1
Restructuring charges2,681 3.1
Professional fees for strategic review process414 0.4
Non-GAAP operating income as adjusted$6,310 7.2% $5,207 5.6%
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Amount % of Sales Amount % of Sales
Operating income (loss) as reported$4,937 1.6% $(447) (0.1)%
Adjustments to reported operating income (loss):
Impairment charge 5,766 1.9
Gain on purchase of business (462) (0.1)
Acquisition-related inventory step-up charge 86
Acquisition-related expenses 121
Restructuring charges3,558 1.1
Professional fees for strategic review process756 0.2
Non-GAAP operating income as adjusted$9,251 2.9% $5,064 1.7%



HARDINGE INC. AND SUBSIDIARIES
Reconciliation of GAAP Net (Loss) Income to Non-GAAP Net Income
(in thousands, except per share data)
Three Months Ended
December 31, 2015
Three Months Ended
December 31, 2014
Amount EPS Amount EPS
Net income as reported$2,759 $0.21 $4,542 $0.35
Adjustments to reported net loss, net of taxes:
Acquisition-related expenses 121 0.01
Restructuring charges2,681 0.21
Professional fees for strategic review process414 0.03
Non-GAAP net income as adjusted$5,854 $0.45 $4,663 $0.36
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Amount EPS Amount EPS
Net income (loss) as reported$2,610 $0.20 $(2,140) $(0.17)
Adjustments to reported net income (loss), net of taxes:
Impairment charge 5,437 0.43
Gain on purchase of business (462) (0.04)
Gain from disposal of discontinued operation, net of tax (218) (0.02)
Acquisition-related inventory step-up charge 86 0.01
Acquisition-related expenses 121 0.01
Restructuring charges3,558 0.28
Professional fees for strategic review process756 0.06
Non-GAAP net income as adjusted$6,924 $0.54 $2,824 $0.22


For more information contact: Company: Douglas J. Malone Chief Financial Officer Phone: (607) 378-4140 Investor Relations: Deborah K. Pawlowski, Kei Advisors LLC Phone: (716) 843-3908 Email: dpawlowski@keiadvisors.com

Source:Hardinge Inc.