UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 000-15760

Hardinge Inc.

(Exact name of Registrant as specified in its charter)

One Hardinge Drive

Elmira, NY 14902

(Address of principal executive offices)  (Zip code)

(607) 734-2281

(Registrant’s telephone number including area code)

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 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 whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  X      No____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 in the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined by Exchange Act Rule 12b-2).  Yes        No X

As of September 30, 2011 there were 11,659,012 shares of Common Stock of the registrant outstanding.

HARDINGE INC. AND SUBSIDIARIES

INDEX

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In Thousands Except Share and Per Share Data)

See accompanying notes to the consolidated financial statements

3

HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In Thousands Except Per Share Data)

See accompanying notes to the consolidated financial statements

4

HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands)

See accompanying notes to the consolidated financial statements

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2011

NOTE 1.  BASIS OF PRESENTATION

In these notes, the terms “Hardinge,” “Company,” “we,” “us,” or “our” mean Hardinge Inc. and its subsidiaries.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the timing and amount of assets, liabilities, equity, revenue, and expenses reported and disclosed. Actual amounts could differ from our estimates. In our opinion, we made all adjustments that are necessary for a fair presentation, and those adjustments are of a normal recurring nature unless otherwise noted. Our operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected in subsequent quarters or the full year ended December 31, 2011.

We operate in one business segment – industrial machine tools. Certain amounts in the December 31, 2010 consolidated financial statements have been reclassified to conform to the September 30, 2011 presentation.

NOTE 2 .  SIGNIFICANT RECENT EVENT

On July 26, 2011, our Taiwan subsidiary, Hardinge Machine Tools B.V., Taiwan Branch, entered into a new unsecured general credit facility agreement replacing its existing $10.0 million facility. This agreement, which expires on May 30, 2012, provides a $12.0 million facility, or its equivalent in other currencies, for working capital, raw material purchases, and export business purposes. This credit facility charges interest at the Bank’s current base rate of 2.75%, which is subject to change by the Bank based on market conditions. It carries no commitment fees on unused funds. The principal amount outstanding for these facilities was $12.0 million and $1.7 at September 30, 2011 and December 31, 2010, respectively.

On August 31, 2011, our Chinese subsidiary, Hardinge Precision Machinery (Jiaxing) Co., Ltd., entered into a loan agreement with a local bank. This agreement, which expires on January 30, 2014, provides up to 25.0 million in Chinese Renminbi (“RMB”), or $3.9 million equivalent, that the Company may draw for plant construction and fixed assets acquisition purposes. The interest rate is the base rate as published by the People’s Bank of China, currently at 6.65%, plus a 20% mark-up making the effective interest rate 7.98%.  The interest rate is recalculated annually. The agreement calls for scheduled principal repayments in the amounts of RMB 4.0 million, RMB 6.0 million, RMB 6.0 million and RMB 9.0 million on July 20, 2012, January 20, 2013, July 20, 2013, and January 30, 2014, respectively, however, if on any such date the outstanding principal of the loan is less than the scheduled repayment amount, the Company is required to repay the entire outstanding principal balance on such date. The principal amount outstanding was $1.6 million at September 30, 2011.

The Chinese subsidiary’s loan agreement contains financial covenants pursuant to which the subsidiary is required to continually maintain total liabilities to total assets ratio of less than 0.65:1.00 and a current ratio of more than 1.0:1.0. In addition, the subsidiary is not allowed to act as a guarantor to any third party. The loan agreement contains customary events of default and acceleration clauses. The loan is secured by substantially all of the real property and improvements owned by the subsidiary, including improvements currently under construction.  At September 30, 2011, we are in compliance with the covenants under the loan agreement.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 3 .  NET INVENTORIES

Net inventories are stated at the lower of cost (computed in accordance with the first-in, first-out method) or market. Elements of the cost include materials, labor and overhead.

Net inventories consisted of the following:

NOTE 4.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

NOTE 5.  INTANGIBLE ASSETS

Total net intangible assets were $12.8 million at September 30, 2011 and $13.6 million at December 31, 2010.  At September 30, 2011, the intangible assets not subject to amortization were valued at $7.2 million, representing the value of the name, trademarks, and copyrights associated with the former worldwide operations of Bridgeport. At September 30, 2011, the amortizable intangible assets were valued at $5.6 million, representing the value of the Jones & Shipman trade name, Bridgeport technical information, patents, customer lists, land use rights, and other items.

NOTE 6.  INCOME TAXES

We continue to maintain a full valuation allowance on the net deferred tax assets in our subsidiaries in the United States, the United Kingdom, Germany, and Canada, related to tax loss carryforwards in those jurisdictions and other deferred tax assets of those entities.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 6.  INCOME TAXES

(Continued)

Each quarter, we estimate our full year effective tax rate for jurisdictions not subject to valuation allowances based upon our most recent forecast of full year anticipated results, and adjust year-to-date tax expense to reflect our full year anticipated tax rate. The rate is an estimate based upon projected results for the year, estimated annual permanent differences, the statutory tax rates in the various jurisdictions in which we operate, and the non-recognition of tax benefits for entities with full valuation allowances. The overall effective tax rates were 32.3% and 31.8% for the three and nine months ended September 30, 2011, respectively. The effective tax rates for the three and nine months ended September 30, 2011 differ from the U.S. statutory rate primarily due to no tax benefit being recorded for certain entities in a loss position for which a full valuation allowance has been recorded.

The tax years 2008 to 2010 remain open to examination by United States taxing authorities. Tax years between 2005 and 2010 generally remain open to routine examinations by foreign taxing authorities in our other major jurisdictions, including Switzerland, United Kingdom, Taiwan, Germany, and China.

We recorded an increase of $0.5 million to the accrued liability associated with uncertain tax positions in the three months ended September 30, 2011. At September 30, 2011, the accrued liability for uncertain income tax positions was $2.8 million, of which approximately $0.9 million was related to interest and penalties. At December 31, 2010, the accrued liability for uncertain tax positions was $2.1 million, of which $0.8 million was related to interest and penalties. If recognized, the uncertain tax benefits, with related penalties and interest at September 30, 2011 and December 31, 2010, would be recorded as a benefit to income tax expense on the consolidated statement of operations.

NOTE 7.  WARRANTIES

A reconciliation of the changes in our product warranty accrual is as follows:

Warranty liabilities are reported as accrued expenses on our consolidated balance sheets.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 8.  PENSION AND POST RETIREMENT PLANS

The following tables summarize the components of net periodic pension and postretirement costs for the three and nine months ended September 30, 2011 and 2010.

The expected contributions to be paid during the year ending December 31, 2011 to the domestic defined benefit plans are $2.1 million. Contributions to the domestic plans were $1.7 million and $0.3 million during the nine months ended September 30, 2011 and 2010, respectively. The Company also provides defined benefit pension plans for some of its foreign subsidiaries. The expected contributions to be paid during the year ending December 31, 2011 to the foreign defined benefit plans are $2.4 million. For each of the Company’s foreign plans, contributions are made on a monthly or quarterly basis and are determined by applicable governmental regulations. Contributions to the foreign plans were $1.8 million and $1.5 million during the nine months ended September 30, 2011 and 2010, respectively. Each of the foreign plans requires employee and employer contributions, except for Taiwan, to which only employer contributions are made.

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, notes payable to bank, and variable interest rate debt approximate their fair values either due to the short period to maturity of the instruments or due to the nature of underlying assets or liabilities.

Derivative Instruments

We utilize foreign currency forward contracts to mitigate the impact of currency fluctuations on monetary assets and liabilities denominated in currencies other than the applicable functional currency as well as on forecasted transactions denominated in currencies other than the applicable functional currency. These contracts are considered derivative instruments and are recorded as either assets or liabilities which are measured at fair value using internal models based on observable market inputs such as spot and forward rates.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

(Continued)

For contracts that are designated and qualify as cash flow hedges, the unrealized gains or losses on the contracts are reported as a component of other comprehensive income (“OCI”) and are reclassified from accumulated other comprehensive income (“AOCI”) into earnings on the consolidated statement of operations when the hedged transaction affects earnings.  As of September 30, 2011, $2.2 million of the unrealized loss is expected to be reclassified from AOCI into earnings over the next 12 months. For contracts that are not designated as hedges, the gains and losses on the contract are recognized in current earnings as other (income) expense.

Notional amounts of the derivative financial instruments not qualifying or designated as hedges were $47.1 million at September 30, 2011 and $20.0 million at December 31, 2010. For the three and nine months ended September 30, 2011, losses related to this type of derivative financial instruments were $1.0 million and $1.3 million, respectively. For the three and nine months ended September 30, 2010, losses related to this type of derivative financial instruments were $0.36 million and $0.04 million, respectively. The losses were recorded as other expense in our consolidated statement of operations.

Derivative financial instruments qualifying and designated as hedges are as follows:

Fair Value

The inputs to the valuation techniques used to measure fair value are classified into the following categories:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.

Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.

The following table presents the fair values and classification of our financial instruments measured on a recurring basis as of September 30, 2011:

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

(Continued)

The following table presents the fair values and classification of our financial instruments measured on a recurring basis as of December 31, 2010:

NOTE 10.  COMMITMENTS AND CONTINGENCIES

Certain environmental laws can impose joint and several liabilities 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.  Hazardous substances and adverse environmental effects have been identified with respect to properties we own or previously owned and on adjacent areas.

In particular, our Elmira, New York manufacturing facility is located within the Kentucky Avenue Wellfield on the National Priorities List of Hazardous Waste Sites (the “Site”) designated for cleanup by the United States Environmental Protection Agency (“EPA”) because of groundwater contamination.

In February 2006, we received a Special Notice Concerning a Remedial Investigation/Feasibility Study (“RI/FS”) for the Koppers Pond (the “Pond”) portion of the Site.  The Notice stated that the EPA had documented the release and threatened release of hazardous substances into the environment at the Site, including releases into and in the vicinity of the Pond. The hazardous substances included metals and polychlorinated biphenyls.

A substantial portion of the Pond is located on our property.  Hardinge, along with Beazer East, Inc., the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS Corporation, and Toshiba America, Inc., the Potentially Responsible Parties (the “PRPs”) have agreed to voluntarily participate in the Remedial Investigation and Feasibility Study (“RI/FS”) by signing an Administrative Settlement Agreement and Order of Consent (the “Order”) on September 29, 2006; the EPA approved and executed the Order that day.

The PRPs also signed a PRP Member Agreement to share the cost of the RI/FS Study on a per capita basis.  We estimated our portion of the cost to be $0.12 million for which we established a reserve. As of September 30, 2011, we have spent $0.12 million with respect to the study and other activities relating to the Site.

The PRPs, with their consultants, developed and submitted a Revised RI/FS on December 6, 2007. In May 2008, the EPA approved the RI/FS Work Plan.  On September 7, 2011, the PRPs submitted a draft Remedial Investigation Report to the EPA.  The PRPs are continuing to address the EPA comments and to perform the tasks required by the Work Plan and the Order.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 10.  COMMITMENTS AND CONTINGENCIES

(Continued)

Until receipt of this Special Notice, Hardinge had never been named as a PRP at the Site nor had we received any requests for information from the EPA concerning the Site.  Environmental sampling on our property within this Site under supervision of regulatory authorities had identified off-site sources for such groundwater contamination and contamination in the Pond, and had found no evidence that our operations or property have contributed or are contributing to the contamination. Other than as described above, we have not established a reserve for any potential costs relating to this Site, as the issue whether remediation is necessary, and if so to what extent and cost, has yet to be determined.

We have notified all appropriate insurance carriers, but whether coverage will be available has not yet been determined and possible insurance recovery cannot now be estimated with any degree of certainty.

Although we believe, based upon information currently available, that, except as described in the preceding paragraphs, we will not have material liabilities for environmental remediation, it is possible that future remedial requirements or changes in the enforcement of existing laws and regulations, which are subject to extensive regulatory discretion, may result in material liabilities to Hardinge.

NOTE 11.  STOCK-BASED COMPENSATION

On May 3, 2011, our shareholders approved the 2011 Incentive Stock Plan (the “Plan”).  The Plan’s purpose is to enhance the profitability and value of the Company for the benefit of its shareholders by attracting, retaining and motivating officers and other key employees who make important contributions to the success of the Company.  The Plan reserves 750,000 shares of the Company’s Common Stock (as such amount may be adjusted in accordance with the terms of the Plan, the “Authorized Plan Amount”) to be issued for grants of several different types of incentives including incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock incentives and performance share incentives.  Any shares of Common Stock granted under options or stock appreciation rights shall be counted against the Authorized Plan Amount on a one-for-one basis and any shares of Common Stock granted as awards other than options or stock appreciation rights shall be counted against the Authorized Plan Amount as two (2) shares of Common Stock for every one (1) share of Common Stock subject to such award.  Authorized and issued shares of Common Stock or previously issued shares of Common Stock purchased by the Company for purposes of the Plan may be issued under the Plan.

Our 2002 Incentive Stock Plan authorized various long-term incentives (the “2002 Plan”).  Subsequent to May 3, 2011, no grants have been made or will in the future be made under the 2002 Plan.  However, all outstanding awards and grants under the 2002 Plan will remain in effect until the end of the corresponding terms of such awards and grants.

All of our stock-based compensation to employees is recorded as selling, general and administrative expenses in our statement of operations based on the fair value at the grant date of the award.

During the nine months ended September 30, 2011 and 2010, we did not issue any new stock options. Expenses related to stock options were not material for the three months and nine months ended September 30, 2011 and 2010.

During the nine months ended September 30, 2011 and 2010, we granted 57,780 and 70,340 restricted stock/units awards (the “RSA”), respectively. The total deferred compensation expenses associated with these awards, which were measured based on the fair value at the grant date, were $0.6 million and $0.4 million, respectively, which were being amortized over the specific service period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 11.  STOCK-BASED COMPENSATION

(Continued)

During the nine months ended September 30, 2011, we granted 54,000 performance share incentives (the “PSI”). We did not grant any PSIs during the same period in 2010. The total deferred compensation expenses associated with these PSI awards, which were measured based on the fair value at the grant date, were $0.7 million, which were being realized into earnings based on passage of time and achievement of performance criteria.

Total stock-based compensation expenses related to the RSAs and PSIs were $0.2 million and $0.1 million for the three months ended September 30, 2011 and 2010, respectively, and $0.5 million and $0.4 million for the nine months ended September 30, 2011 and 2010, respectively.

Unrecognized compensation and the expected weighted-average recognition periods as of September 30, 2011 and December 31, 2010, related to RSAs are as follows:

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 12.  EARNINGS PER SHARE

The computation of earnings per share is as follows: