Hardinge Inc. Announces Third Quarter 2009 Results

Hardinge Inc. (Elmira, NY) recently reported net sales of $50.1 million for the quarter and $157.4 million for the nine months ended September 30, 2009. Sales for the comparable periods in 2008 were $86.6 million and $268.8 million, respectively. Orders for the three and nine months ended September 30, 2009 were $46.7 million and $124.1 million, respectively, down from $92.1 million and $294.6 million for the comparable periods in 2008.

The company realized a net loss of ($14.7) million, or ($1.29) per share for the third quarter, compared with a net loss of ($8.3) million, or ($0.74) per share, for the third quarter of 2008. Third quarter 2009 results include one-time charges of $7.6 million, or ($0.67) per share, which included severance related expense of $2.6 million, or ($0.23) per share, and inventory write-downs related to the strategic decision to cease production of non-critical manufacturing parts and certain machine models of $5.0 million, or ($0.44) per share. In addition to the one-time charges there were lower of cost or market write-downs of $1.1 million, or ($0.10) per share on machine inventory as a result of current market conditions as many manufacturers and distributors discounted prices below cost to reduce inventories.

"Worldwide demand for machine tools remains severely depressed which is reflected in our sales and order numbers for the third quarter and for 2009 to date," said Richard L. Simons, president and chief executive officer. "We are aggressively competing for the limited order opportunities available and remain focused on improving operating efficiencies and increasing cash flow which has positioned Hardinge to effectively compete when industry demand recovers."

In August 2009, the company announced that it was moving to a more variable cost business model in its Elmira, NY facility, and therefore would begin the process of outsourcing many of the components and subassemblies for machines made in the Elmira facility. The company also announced that it would close significant sections of the Elmira manufacturing operation involved in non-critical parts production, further reduce the company's U.S. workforce by approximately 15 percent, and record severance related expenses of between $1.3 million and $2.0 million and asset write-downs of up to $10 million during the second half of 2009.

During the third quarter, the company recorded one-time charges of $1.6 million for severance and $5.0 million for inventory write-downs related to this initiative. The company intends to identify certain machinery and equipment related to non-critical parts manufacturing in its Elmira, NY facility as available for sale in the fourth quarter of 2009, and will record an impairment charge at that time, which is not expected to exceed $2.5 million.

"Approximately 120 positions were eliminated in the U.S. and Europe during the third quarter and worldwide staffing will be further reduced by approximately 90 positions during fourth quarter 2009," Mr. Simons continued. "We continue to review every aspect of our cost structure and to make the adjustments necessary to simplify and focus our operations and to maintain our financial strength and flexibility going forward."

Third quarter and nine month order and sales results were down significantly across all regions compared with the same periods in 2008, consistent with the slowdown in global manufacturing activity. Currency exchange rates had an unfavorable impact on new orders of approximately $0.8 million for the quarter, and $4.1 million for the nine months ended September 30, 2009 compared to the same periods in the prior year. Currency exchange rates had an unfavorable impact on sales of approximately $0.8 million for the quarter, and approximately $8.5 million for the nine months compared to the same periods in 2008.

Gross profit for the quarter was $3.7 million compared to $18.1 million in 2008. The decreased gross profit is primarily due to the $36.6 million reduction in sales for the quarter compared to the same period in 2008. Third quarter gross profit also reflected an inventory write down of $5.0 million resulting from the discontinuance of the production of non-critical manufacturing parts and certain machines in our Elmira, NY facility that was discussed in the company's second quarter release, as well as $1.1 million related to lower of cost or market write-downs on machines as a result of the current competitive market conditions as many manufacturers and distributors cut prices to reduce inventories.

Gross profit was $30.7 million for the nine months ended September 30, 2009, compared with $73.5 million for the prior year period. The gross margin was 7.5 percent for the third quarter, and 19.5 percent for the nine month period, compared to 20.9 percent and 27.4 percent, respectively, in 2008. Gross profit for the quarter and nine months ended September 30, 2008 was negatively impacted by an inventory charge of $6.3 million related to the discontinuance of certain machines lines.

Selling, general and administrative (SG&A) expenses for the quarter were $17.9 million, down 21 percent from third quarter 2008, despite additional one-time severance and restructuring related costs. Third quarter SG&A expense includes $2.6 million primarily related to severance costs associated with the discontinuance of the production of non-critical manufacturing parts and certain machines in our Elmira, NY facility as well as workforce reductions in Europe. Exclusive of the one-time charges, the 32 percent decrease in SG&A was driven by the impact of lower commissions and strategic actions taken by the company to manage operating expenses as a result of the current order and sales activity levels. Foreign currency translation favorably impacted third quarter SG&A by approximately $0.6 million compared to the prior year.

SG&A for the nine months ended September 30, 2009 declined by 28 percent to $53.1 million compared to $73.9 million for the same period last year. SG&A for the nine months ended September 30, 2009 included $4.1 million primarily related to severance costs. As a result of the reduced global demand for machine tools, the company implemented workforce reduction programs in all subsidiaries except China during 2009. Exclusive of the one-time charges, the 34 percent decrease in SG&A was driven by the impact of lower commissions and strategic actions taken by the company to manage operating expenses as a result of the current order and sales activity levels. Foreign currency translation had a favorable impact of approximately $3.3 million compared to the same period in 2008.

Mr. Simons concluded, "We remain focused on cash flow as we anticipate that the market will continue to be difficult for the foreseeable future. Actions we have taken over the past 15 months have permanently changed the cost structure of the company, which puts us in a stronger position to compete when the market does recover."

The Hardinge board of directors declared a cash dividend of $0.005 per share on the company's common stock, payable on December 10, 2009 to stockholders of record as of December 1, 2009.

Hardinge is a global designer, manufacturer and distributor of machine tools, specializing in Super PrecisionTM and precision CNC Lathes, high performance machining centers, high-end cylindrical and jig grinding machines, and technologically advanced workholding and rotary products. The company's products are distributed to most of the industrialized markets around the world, with approximately 69 percent of the 2008 sales outside of North America.

Hardinge has a very diverse international customer base and serves a wide variety of end-user markets. This customer base includes metalworking manufacturers which make parts for a variety of industries, as well as a wide range of end users in the aerospace, agricultural, transportation, basic consumer goods, communications and electronics, construction, defense, energy, pharmaceutical and medical equipment, and recreation industries, among others. The company has manufacturing operations in the U.S., Switzerland, Taiwan, and China. Hardinge's common stock trades on NASDAQ Global Select Market under the symbol, "HDNG."

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www.hardinge.com