HARDINGE INC - FORM 10-Q - August 7, 2014

Attached files

file	filename
EX-18.1 - EX-18.01 PREFERABILITY LETTER - HARDINGE INC	ex181preferabilityletter.htm
EX-31.1 - EX-31.1 SECTION 302 CERTIFICATION - HARDINGE INC	hdng-6302014x10qxex311.htm
EX-31.2 - EX-31.2 SECTION 302 CERTIFICATION - HARDINGE INC	hdng-6302014x10qxex312.htm
EXCEL - IDEA: XBRL DOCUMENT - HARDINGE INC	Financial_Report.xls
EX-32 - EX-32 SECTION 906 CERTIFICATION - HARDINGE INC	hdng-6302014x10qxex32.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2014



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)



New York		16-0470200
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Hardinge Drive Elmira, NY		14902
(Address of principal executive offices)		(Zip Code)

(607) 734-2281

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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. ýYes oNo

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 Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ýYes oNo

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



Large accelerated filer o		Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes ýNo

As of August 1, 2014 there were 12,825,468 shares of Common Stock of the registrant outstanding.

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HARDINGE INC. AND SUBSIDIARIES

TABLE OF CONTENTS



		PAGE
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).
	Consolidated Balance Sheets at June 30, 2014 and December 31, 2013	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013	4
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	30
Item 4.	Controls and Procedures.	30

	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.	31
Item 1A.	Risk Factors.	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31
Item 3.	Defaults Upon Senior Securities.	31
Item 4.	Mine Safety Disclosures.	31
Item 5.	Other Information.	31
Item 6.	Exhibits.	32

SIGNATURES		33

Certifications

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share data)



	June 30, 2014			December 31, 2013
	(Unaudited)
Assets
Cash and cash equivalents	$	22,290		$	34,722
Restricted cash	3,469			4,124
Accounts receivable, net	55,301			57,137
Inventories, net	119,330			114,064
Other current assets	11,731			11,563
Total current assets	212,121			221,610

Property, plant and equipment, net	71,898			74,656
Goodwill	11,624			10,002
Other intangible assets, net	32,425			32,063
Other non-current assets	6,543			5,852
Total non-current assets	122,490			122,573
Total assets	$	334,611		$	344,183

Liabilities and shareholders’ equity
Accounts payable	$	27,968		$	24,418
Accrued expenses	23,050			26,346
Customer deposits	12,287			15,166
Accrued income taxes	180			830
Deferred income taxes	2,650			2,569
Contingent consideration	1,500			7,500
Current portion of long-term debt	3,468			7,850
Total current liabilities	71,103			84,679

Long-term debt	15,636			18,785
Pension and postretirement liabilities	27,778			28,188
Deferred income taxes	5,063			4,968
Other liabilities	3,913			3,775
Total non-current liabilities	52,390			55,716
Commitments and contingencies (see Note 10)
Common stock ($0.01 par value, 20,000,000 authorized; 12,825,468 issued and outstanding as of June 30, 2014, and 12,472,992 issued and outstanding as of December 31, 2013)	128			125
Additional paid-in capital	120,381			114,951
Retained earnings	91,325			90,937
Treasury shares (at cost, none as of June 30, 2014, and 75,125 as of December 31, 2013)	—			(806		)
Accumulated other comprehensive loss	(716		)	(1,419		)
Total shareholders’ equity	211,118			203,788
Total liabilities and shareholders’ equity	$	334,611		$	344,183

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Unaudited)						(Unaudited)
Sales	$	78,851		$	79,355		$	149,701		$	146,574
Cost of sales	56,890			56,588			108,520			104,834
Gross profit	21,961			22,767			41,181			41,740

Selling, general and administrative expenses	20,133			19,963			39,253			38,208
Other expense, net	192			139			583			415
Income from operations	1,636			2,665			1,345			3,117

Interest expense	155			311			398			516
Interest income	(12		)	(14		)	(32		)	(29		)
Income from continuing operations before income taxes	1,493			2,368			979			2,630
Income taxes	144			312			301			534
Net income from continuing operations	1,349			2,056			678			2,096

Gain from disposal of discontinued operation and income from discontinued operations, net of tax	—			209			218			209

Net income	$	1,349		$	2,265		$	896		$	2,305

Per share data:

Basic earnings per share:
Continuing operations	$	0.11		$	0.18		$	0.05		$	0.18
Discontinued operations	—			0.01			0.02			0.02
Basic earnings per share	$	0.11		$	0.19		$	0.07		$	0.20

Diluted earnings per share:
Continuing operations	$	0.11		$	0.18		$	0.05		$	0.18
Discontinued operations	—			0.01			0.02			0.02
Diluted earnings per share	$	0.11		$	0.19		$	0.07		$	0.20

Cash dividends declared per share:	$	0.02		$	0.02		$	0.04		$	0.04

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)



	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014			2013
	(Unaudited)					(Unaudited)
Net income	$	1,349	$	2,265		$	896		$	2,305
Other comprehensive income (loss):
Foreign currency translation adjustments	1,242		215			383			(4,844		)
Retirement plans related adjustments	116		484			234			1,928
Unrealized gain (loss) on cash flow hedges	206		58			(91		)	(98		)
Other comprehensive income (loss) before tax	1,564		757			526			(3,014		)
Income tax expense (benefit)	16		(244		)	(177		)	334
Other comprehensive income (loss), net of tax	1,548		1,001			703			(3,348		)
Total comprehensive income (loss)	$	2,897	$	3,266		$	1,599		$	(1,043	)

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)



	Six Months Ended June 30,
	2014			2013
	(Unaudited)
Operating activities
Net income	$	896		$	2,305
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,049			4,350
Debt issuance costs amortization	23			34
Provision for deferred income taxes	207			(20		)
Gain on sale of assets	(92		)	(11		)
Gain on sale of Forkardt Switzerland	(218		)	—
Unrealized intercompany foreign currency transaction loss	318			67
Changes in operating assets and liabilities, net of business acquired:
Accounts receivable	1,945			1,263
Inventories	(4,672		)	311
Other assets	728			(49		)
Accounts payable	3,548			(1,174		)
Customer deposits	(2,853		)	3,901
Accrued expenses	(4,619		)	(8,771		)
Accrued pension and postretirement liabilities	93			(197		)
Net cash provided by operating activities	353			2,009

Investing activities
Acquisition of business, net of cash acquired	(3,533		)	(34,250		)
Capital expenditures	(1,124		)	(1,627		)
Proceeds from disposal of business	218			—
Proceeds on sales of assets	122			102
Net cash used in investing activities	(4,317		)	(35,775		)

Financing activities
Payment of contingent consideration	(6,000		)	—
Proceeds from short-term notes payable to bank	6,204			32,458
Repayments of short-term notes payable to bank	(6,204		)	(26,674		)
Proceeds from long-term debt	—			23,000
Repayments of long-term debt	(7,585		)	(1,432		)
Dividends paid	(503		)	(467		)
Net proceeds from sale of common stock	5,678			—
Other financing activities	—			(667		)
Net cash (used in) provided by financing activities	(8,410		)	26,218

Effect of exchange rate changes on cash	(58		)	(591		)
Net decrease in cash	(12,432		)	(8,139		)

Cash and cash equivalents at beginning of period	34,722			26,855

Cash and cash equivalents at end of period	$	22,290		$	18,716

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

NOTE 1. BASIS OF PRESENTATION

In these notes, the terms “Hardinge,” or “the Company,” mean Hardinge Inc. and its predecessors together with its subsidiaries.

The Company operates through two reportable segments, Metalcutting Machine Solutions (“MMS”) and Aftermarket Tooling and Accessories (“ATA”). The MMS segment includes high precision computer controlled metalcutting turning machines, vertical machining centers, horizontal machining centers, grinding machines, and repair parts related to those machines. The ATA segment includes products, primarily collets and chucks that are purchased by manufacturers throughout the lives of their Hardinge or other branded machines.

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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The preparation of financial statements in conformity with U.S. GAAP requires management 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 these estimates. All adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods have been presented and recorded. Due to differing business conditions and some seasonality, operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ended December 31, 2014.

Certain amounts in the 2013 consolidated financial statements have been reclassified to conform to the current presentation.

During the quarter ended June 30, 2014, the Company voluntarily changed the date of the annual goodwill and indefinite-lived intangible assets impairment testing from the last day of the fiscal year to the first day of the fourth quarter. This voluntary change is preferable under the circumstances as it provides the Company with additional time to complete the annual goodwill and indefinite-lived intangible asset impairment testing in advance of year-end reporting. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change was not applied retrospectively, as doing so would require the use of significant estimates and assumptions that include hindsight. Accordingly, the change will be applied prospectively.

NOTE 2. ACQUISITION

Acquisition of Forkardt

On May 9, 2013, Forkardt, Inc. (“Forkardt”, formerly Cherry Acquisition Corporation) and Hardinge Holdings GmbH, direct wholly owned subsidiaries of the Company, and Hardinge GmbH, an indirect wholly owned subsidiary of the Company, acquired the Forkardt operations from Illinois Tool Works for $34.3 million, net of cash acquired. The acquisition of Forkardt strengthens and expands the Company’s leadership position in specialty workholding solutions around the world. The acquisition, which was funded through $24.3 million in bank debt and $10.0 million in cash, has been included in the ATA business segment. Forkardt is a leading global provider of high-precision, specialty workholding devices with headquarters in Traverse City, Michigan. Forkardt has operations in the U.S., France, Germany, and India. The results of operations of Forkardt have been included in the consolidated financial statements from the date of acquisition.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

All purchase accounting adjustments were finalized in the current quarter. The final allocation of purchase price to the assets acquired and liabilities assumed is as follows (in thousands):



	May 9, 2013
Assets Acquired
Accounts receivable	$	5,521
Inventories	5,357
Other current assets	1,257
Property, plant and equipment	6,271
Other non-current assets	105
Trade name, customer list, and other intangible assets	14,614
Total assets acquired	33,125
Liabilities assumed
Accounts payable and other current liabilities	3,413
Other non-current liabilities	1,278
Net assets acquired	28,434
Total purchase price	34,250
Goodwill	$	5,816

On April 2, 2014, the Company acquired the Forkardt India operations, which had an immaterial impact to the consolidated financial statements.

Disposal of Forkardt, Switzerland operations

On December 31, 2013, the Company divested its Forkardt operations in Switzerland for CHF 5.6 million, net of cash sold ($6.3 million equivalent). The sale was subject to working capital adjustments. The Forkardt Swiss business had net assets of $1.2 million as of the sale date. In March 2014, the Company recognized $0.2 million of additional consideration as a result of final working capital adjustments, which is included in gain from disposal of discontinued operation and income from discontinued operation, net of tax line in the Statement of Operations for the six months ended June 30, 2014.

Supplemental Pro Forma Information

The following table illustrates the unaudited pro forma effect on the Company’s consolidated operating results for the three and six months ended June 30, 2014 and 2013, as if the Forkardt acquisition and related financing occurred on January 1, 2012 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Sales	$	78,851	$	82,556	$	149,701	$	160,034
Net income from continuing operations	1,415		2,687		823		3,756
Diluted earnings per share from continuing operations	$	0.11	$	0.23	$	0.06	$	0.32

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the results of operations would have been had the acquisition been completed on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 3. 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 consist of the following (in thousands):



	June 30, 2014		December 31, 2013
Raw materials and purchased components	$	32,993	$	32,046
Work-in-process	30,595		28,591
Finished products	55,742		53,427
Inventories, net	$	119,330	$	114,064

NOTE 4. FAIR VALUE AND DERIVATIVE INSTRUMENTS

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 carrying amount, fair values, and classification level within the fair value hierarchy of financial instruments measured or disclosed at fair value on a recurring basis (in thousands):



	June 30, 2014				December 31, 2013				Level of Fair Value Hierarchy
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Level of Fair Value Hierarchy
Assets:
Cash and cash equivalents	$	22,290	$	22,290	$	34,722	$	34,722	Level 1
Restricted cash	3,469		3,469		4,124		4,124		Level 1
Foreign currency forward contracts	306		306		285		285		Level 2
Liabilities:
Variable interest rate debt	19,104		19,104		26,635		26,635		Level 2
Contingent consideration	1,500		1,500		7,500		7,500		Level 3
Foreign currency forward contracts	378		378		872		872		Level 2

The fair value of cash and cash equivalents and restricted cash are based on the fair values of identical assets in active markets. Due to the short period to maturity or the nature of the underlying liability, the fair value of notes payable to bank and variable interest rate debt approximates their respective carrying amounts. The contingent consideration represents the contingent liabilities associated with the earn-out provisions from the 2012 acquisition of Usach. The fair value of the contingent purchase price liability is based on the present value of the estimated aggregated payment amount. The fair value of foreign currency forward contracts is measured using internal models based on observable market inputs such as spot and forward rates. Based on the Company’s continued ability to enter into forward contracts, the markets for the fair value instruments are considered to be active. As of June 30, 2014 and December 31, 2013, there were no significant transfers in and/or out of Level 1 and Level 2.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

The following table presents a reconciliation of the changes during the period ended June 30, 2014 for items categorized within level 3 of the fair value hierarchy:



	Contingent Consideration
Balance at December 31, 2013	$	7,500
Current period settlement (payment)	(6,000		)
Balance at June 30, 2014	$	1,500

Derivative Instruments

Foreign currency forward contracts are utilized to mitigate the impact of currency fluctuations on assets and liabilities denominated in foreign currencies as well as on forecasted transactions denominated in foreign currencies. These contracts are considered derivative instruments and are recognized as either assets or liabilities and measured at fair value. For contracts that are designated and qualify as cash flow hedges, the gain or loss on the contracts is reported as a component of other comprehensive income (“OCI”) and reclassified from accumulated other comprehensive income (“AOCI”) into the “Sales” or “Cost of sales” line item on the Consolidated Statements of Operations when the underlying hedged transaction affects earnings, or “Other expense, net” when the hedging relationship is deemed to be no longer effective. As of June 30, 2014 and December 31, 2013, the notional amounts of the derivative financial instruments designated to qualify for cash flow hedges were $24.1 million and $37.0 million, respectively. The Company expects less than $0.1 million of net losses, net of income tax effect, to be reclassified from AOCI to earnings within the next 12 months.

As of June 30, 2014 and December 31, 2013, the notional amounts of the derivative financial instruments not qualifying or otherwise designated as hedges were $43.5 million and $45.5 million, respectively. For the three months ended June 30, 2014 and 2013, gains of $0.3 million and losses of $0.7 million, respectively, were recorded related to this type of derivative financial instruments. For the six months ended June 30, 2014 and 2013, losses of $0.5 million and $1.3 million, respectively, were recorded related to this type of derivative financial instruments. For contracts that are not designated as hedges, the gain or loss on the contract is recognized in current earnings in the “Other expense, net” line item on the Consolidated Statements of Operations.

The following table presents the fair value on the Consolidated Balance Sheets of the foreign currency forward contracts (in thousands):



	June 30, 2014			December 31, 2013
Foreign currency forwards designated as hedges:
Other current assets	$	103		$	144
Accrued expenses	(78		)	(249		)
Foreign currency forwards not designated as hedges:
Other current assets	203			141
Accrued expenses	(300		)	(623		)
Foreign currency forwards, net	$	(72	)	$	(587	)

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following⁽¹⁾(in thousands):



	June 30, 2014			December 31, 2013
Land, buildings and improvements	$	88,461		$	88,295
Machinery, equipment and fixtures	80,268			80,584
Office furniture, equipment and vehicles	22,827			23,421
Construction in progress	112			217
	191,668			192,517
Accumulated depreciation	(119,770		)	(117,861		)
Property, plant and equipment, net	$	71,898		$	74,656

____________________


⁽¹⁾	During the six months ended June 30, 2014, the Company reclassified balances related to cost and accumulated depreciation. The net property, plant and equipment balance was not impacted by this adjustment. The December 31, 2013 balances have been reclassified to reflect the proper presentation.

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

Detail and activity of goodwill by segment is presented below (in thousands):



	MMS		ATA			Total
Balance at December 31, 2013⁽¹⁾	$	4,848	$	5,154		$	10,002
Acquisition of Forkardt India	—		1,626			1,626
Currency translation adjustments	—		(4		)	(4		)
Balance at June 30, 2014	$	4,848	$	6,776		$	11,624

____________________

⁽¹⁾

In accordance with business combination guidance, changes to the purchase price allocation are adjusted retrospectively to the consolidated financial results. The values above include measurement period adjustments recorded in the six months ended June 30, 2014 to primarily revise the fair value of other current assets, accrued expenses and AOCI. The December 31, 2013 balances included in the consolidated balance sheets have been revised to include the effect of the measurement period adjustments.

The gross carrying value of goodwill at June 30, 2014 and December 31, 2013 was $39.2 million and $37.6 million respectively. Accumulated impairment losses at both June 30, 2014 and December 31, 2013 were $27.6 million.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

The major components of intangible assets other than goodwill are as follows (in thousands):



	June 30, 2014			December 31, 2013
Gross amortizable intangible assets:
Land rights	$	2,797		$	2,865
Patents	3,052			3,030
Technical know-how, customer lists, and other	22,661			21,375
Total gross amortizable intangible assets	28,510			27,270

Accumulated amortization:
Land rights	(200		)	(177		)
Patents	(2,918		)	(2,884		)
Technical know-how, customer lists, and other	(6,058		)	(5,220		)
Total accumulated amortization	(9,176		)	(8,281		)
Amortizable intangible assets, net	19,334			18,989

Indefinite lived intangible assets:
Assets associated with Bridgeport acquisition⁽¹⁾	7,371			7,354
Usach trade name⁽²⁾	1,550			1,550
Forkardt trade name⁽³⁾	4,170			4,170
	13,091			13,074
Intangible assets other than goodwill, net	$	32,425		$	32,063

____________________


⁽¹⁾	Represents the aggregate value of the trade name, trademarks and copyrights associated with the former worldwide operations of Bridgeport. The Bridgeport brand name is used on all of the machining center lines. After consideration of legal, regulatory, contractual, competitive, economic and other factors, the asset has been determined to have an indefinite useful life.


⁽²⁾	Represents the value of the trade name associated with Usach, which the Company acquired in 2012. The Usach trade name is used on all of the grinding machines and grinding systems manufactured by Usach. After consideration of legal, regulatory, contractual, competitive, economic and other factors, the asset has been determined to have an indefinite useful life.


⁽³⁾	Represents the value of the trade name associated with Forkardt, which the Company acquired in 2013. The Forkardt trade name is used on all of the products manufactured by Forkardt. After consideration of legal, regulatory, contractual, competitive, economic and other factors, the asset has been determined to have an indefinite useful life.

Amortization expense related to these amortizable intangible assets was $0.5 million and $0.4 million for the three months ended June 30, 2014 and 2013, respectively, and $0.9 million and $0.7 million for the six months ended June 30, 2014 and 2013, respectively.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 7. WARRANTIES

A reconciliation of the changes in the product warranty accrual, which is included in accrued expenses, is as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Balance at the beginning of period	$	3,403		$	3,094		$	3,601		$	3,432
Warranties issued	613			707			1,212			1,395
Warranty settlement costs	(512		)	(706		)	(1,132		)	(1,328		)
Changes in accruals for pre-existing warranties	(105		)	(183		)	(284		)	(470		)
Other adjustments⁽¹⁾	—			331			—			331
Currency translation adjustments	10			6			12			(111		)
Balance at the end of period	$	3,409		$	3,249		$	3,409		$	3,249

____________________


⁽¹⁾	Represents the warranty liabilities assumed in connection with the Forkardt acquisition. Refer to Note 2. "Acquisition" for details.

NOTE 8. FINANCING ARRANGEMENTS

See Note 6. “Financing Arrangements” of the 2013 Annual Report on Form 10-K for a description of the financing arrangements in place as of December 31, 2013.

In January 2014, Hardinge Jiaxing amended its secured credit facility with a local bank. The amendment increased the total availability under the facility from CNY 34.2 million (approximately $5.5 million) to CNY 59.0 million (approximately $9.5 million) or its equivalent in other currencies. The facility, which expires on December 20, 2014, is available for working capital and letter of credit purposes. Borrowings for working capital purposes are limited to CNY 39.0 million (approximately $6.3 million). The facility is secured by real property owned by the subsidiary. The interest rate on the credit facility, currently at 6.60%, is based on the basic interest rate as published by the People’s Bank of China, plus a 10% mark-up.

In June 2014, Hardinge Machine Tools B.V., Taiwan Branch, a wholly-owned subsidiary in Taiwan, renewed its unsecured credit facility, which will expire in June 2015 under the renewal. This facility provides up to $12.0 million, or its equivalent in other currencies, for working capital and export business purposes. This credit facility charges interest at 1.5% and is subject to change by the lender based on market conditions and carries no commitment fees on unused funds. There was no principal amount outstanding under this facility at June 30, 2014.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 9. INCOME TAXES

A valuation allowance is recorded against all or a portion of the deferred tax assets in the U.S., Canada, U.K., Germany, and the Netherlands.

Each quarter, a full year tax rate is estimated for jurisdictions not subject to valuation allowances based upon the most recent forecast of full year anticipated results and the year-to-date tax expense is adjusted to reflect the 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 the Company operates, and the non-recognition of tax benefits for entities with full valuation allowances. The overall effective tax rates were tax expense of 9.6% and 30.7% for the three and six months ended June 30, 2014, respectively.

The tax years 2011, 2012 and 2013 remain open to examination by the U.S. federal taxing authorities. The tax years 2009 through 2013 remain open to examination by the U.S. state taxing authorities. For other major jurisdictions (Switzerland, U.K., Taiwan, France, Germany, Netherlands and China); the tax years between 2007 and 2013 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

At June 30, 2014, a liability of $2.8 million is recorded with respect to uncertain income tax positions, which includes related interest and penalties of $1.0 million. If recognized, essentially all of the uncertain tax positions and related interest at June 30, 2014 would be recorded as a benefit to income tax expense on the Consolidated Statement of Operations. It is reasonably possible that some of the uncertain tax positions pertaining to foreign operations may change within the next 12 months due to audit settlements and statute of limitations expirations. The change in uncertain tax positions for these items is estimated to be between $0.3 million and $1.1 million.

NOTE 10. COMMITMENTS AND 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.

The Company’s operations are subject to extensive federal, state, local and foreign laws and regulations relating to environmental matters. 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 real property owned by the Company, and on adjacent parcels of real property.

In particular, the Elmira, NY manufacturing facility is located within the Kentucky Avenue Wellfield 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 Wellfield Site (the “Site”) encompasses an area which includes sections of the Town of Horseheads and the Village of Elmira Heights in Chemung County, NY. In February 2006, the Company received a Special Notice Concerning a Remedial Investigation/Feasibility Study (“RI/FS”) for the Koppers Pond (the “Pond”) portion of the Site. The EPA 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, including metals and polychlorinated biphenyls, have been detected in sediments in the Pond.

Until receipt of this Special Notice in February 2006, the Company had never been named as a potentially responsible party (“PRP”) at the Site nor had the Company received any requests for information from the EPA concerning the Site. Environmental sampling on the Company’s property within this Site under supervision of regulatory authorities had identified off-site sources for such groundwater contamination and sediment contamination in the Pond, and found no evidence that the Company’s operations or property have contributed or are contributing to the contamination. All appropriate insurance carriers have been notified, and the Company is actively cooperating with them, but whether coverage will be available has not yet been determined and possible insurance recovery cannot now be estimated with any degree of certainty.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

A substantial portion of the Pond is located on the Company’s property. The Company, along with Beazer East, Inc., the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS Corporation and Toshiba America, Inc., 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 on September 29, 2006. On September 29, 2006, the Director of Emergency and Remedial Response Division of the EPA, Region II, approved and executed the Agreement on behalf of the EPA. The PRPs also signed a PRP Member Agreement, agreeing to share the cost of the RI/FS study on a per capita basis.

The EPA approved the RI/FS Work Plan in May of 2008. On September 7, 2011, the PRPs submitted the draft Remedial Investigation Report to the EPA and on January 10, 2013, the draft Feasibility Study was submitted to the EPA.

The draft Feasibility Study identified alternative remedial actions with estimated life-cycle costs ranging from $0.7 million to $3.4 million. The Company’s portion of the potential costs are estimated to range from $0.1 million to $0.5 million. Based on the current estimated costs of the various remedial alternatives now under consideration by the EPA, a reserve of $0.2 million has been recorded for the Company’s share of remediation expenses at the Pond as of June 30, 2014. This reserve is reported as an accrued expense on the Consolidated Balance Sheets.

Based upon information currently available, except as described in the preceding paragraphs, the Company does not have material liabilities for environmental remediation. Though the foregoing reflects the Company’s current assessment as it relates to environmental remediation obligations, it is possible that future remedial requirements or changes in the enforcement of existing laws and regulations, which are subject to extensive regulatory discretion, will result in material liabilities to the Company.

NOTE 11. STOCK BASED COMPENSATION

All stock based compensation to employees is recorded as selling, general and administrative expenses in the Consolidated Statements of Operations based on the fair value at the grant date of the award. These non-cash compensation costs are included in the depreciation and amortization amounts in the Consolidated Statements of Cash Flows.

A summary of stock based compensation expense is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Restricted stock/unit awards (“RSA”)	$	109	$	92	$	218	$	191
Performance share incentives (“PSI”)	—		43		—		61
	$	109	$	135	$	218	$	252

There were no RSAs granted during the six months ended June 30, 2014, and 2013, respectively. The deferred compensation is being amortized on a straight-line basis over the specified service period. There were no PSIs granted during the six months ended June 30, 2014 and 2013, respectively. The deferred compensation with respect to the PSIs is being recognized into earnings based on the passage of time and achievement of performance targets. All outstanding RSAs and PSIs are unvested.

Unrecognized compensation and the expected weighted-average recognition periods with respect to the outstanding RSAs as of June 30, 2014 and December 31, 2013, are as follows:



	June 30, 2014		December 31, 2013
Unrecognized compensation cost (in thousands)	$	961	$	1,179

Expected weighted-average recognition period for unrecognized compensation cost (in years)	2.1		2.6

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 12. STOCK OFFERING

On August 9, 2013, the Company entered into a sales agreement (the “Agreement”) with an independent sales agent (“Agent”), under which the Company may, from time to time, sell shares of its common stock, par value $0.01 per share (the “Shares”), having an aggregate offering price of up to $25.0 million through the Agent. Under the Agreement, the Agent may sell the Shares by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on the NASDAQ Global Select Market, on any other existing trading market for the common stock or to or through a market maker. In addition, with the prior consent of the Company, the Agent may sell the common stock by any other method permitted by law, including in privately negotiated transactions.

The Agreement will terminate upon the earlier of (i) sale of the Shares under the Agreement having an aggregate offering price of $25.0 million and (ii) the termination of the Agreement as permitted therein. The Agreement may be terminated by the Agent or the Company at any time upon 10 days notice to the other party, or by the Agent at any time in certain circumstances, including the occurrence of a material adverse change in the Company. The Board has authorized this program for a period of one year ending August 8, 2014.

As of June 30, 2014, 1,014,252 Shares have been sold for aggregated net proceeds of $14.6 million, of which 663,276 of the shares sold were issued from treasury. During the three months ended June 30, 2014, 33,492 Shares of common stock have been sold under the “at-the-market” stock offering program for aggregate net proceeds of $0.4 million, none of which were issued from treasury. During the six months ended June 30, 2014, 403,863 Shares of common stock have been sold under the “at-the-market” stock offering program for aggregate net proceeds of $5.7 million, of which 52,887 of the shares sold were issued from treasury.

NOTE 13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in AOCI by component for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):



	Three Months Ended June 30, 2014
	Foreign currency translation adjustments			Retirement plans related adjustments			Unrealized gain (loss) on cash flow hedges			Accumulated other comprehensive loss
Beginning balance, net of tax	$	37,957		$	(40,074	)	$	(147	)	$	(2,264	)
Other comprehensive income before reclassifications	1,242			365			261			1,868
Less income reclassified from AOCI	—			249			55			304
Net other comprehensive income	1,242			116			206			1,564
Income taxes	(17		)	(1		)	34			16
Ending balance, net of tax	$	39,216		$	(39,957	)	$	25		$	(716	)



	Three Months Ended June 30, 2013
	Foreign currency translation adjustments			Retirement plans related adjustments			Unrealized gain (loss) on cash flow hedges			Accumulated other comprehensive loss
Beginning balance, net of tax	$	31,309		$	(61,115	)	$	(52	)	$	(29,858	)
Other comprehensive income before reclassifications	215			1,048			138			1,401
Less income reclassified from AOCI	—			564			80			644
Net other comprehensive income	215			484			58			757
Income taxes	(322		)	26			52			(244		)
Ending balance, net of tax	$	31,846		$	(60,657	)	$	(46	)	$	(28,857	)

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014



	Six Months Ended June 30, 2014
	Foreign currency translation adjustments			Retirement plans related adjustments			Unrealized gain (loss) on cash flow hedges			Accumulated other comprehensive loss
Beginning balance, net of tax	$	38,663		$	(40,213	)	$	131		$	(1,419	)
Other comprehensive income (loss) before reclassifications	383			731			(113		)	1,001
Less income (loss) reclassified from AOCI	—			497			(22		)	475
Net other comprehensive income (loss)	383			234			(91		)	526
Income taxes	(170		)	(22		)	15			(177		)
Ending balance, net of tax	$	39,216		$	(39,957	)	$	25		$	(716	)



	Six Months Ended June 30, 2013
	Foreign currency translation adjustments			Retirement plans related adjustments			Unrealized gain (loss) on cash flow hedges			Accumulated other comprehensive loss
Beginning balance, net of tax	$	36,830		$	(62,375	)	$	36		$	(25,509	)
Other comprehensive (loss) income before reclassifications	(4,844		)	3,060			(108		)	(1,892		)
Less income (loss) reclassified from AOCI	—			1,132			(10		)	1,122
Net other comprehensive (loss) income	(4,844		)	1,928			(98		)	(3,014		)
Income taxes	140			210			(16		)	334
Ending balance, net of tax	$	31,846		$	(60,657	)	$	(46	)	$	(28,857	)

Details about reclassification out of AOCI for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,						Affected line item on the Consolidated Statements of Operations
Details of AOCI components	2014			2013			2014			2013
Unrealized gain (loss) on cash flow hedges:
	$	52		$	55		$	81		$	(44	)	Sales
	3			25			(103		)	34			Other expense, net
	55			80			(22		)	(10		)	Total before tax
	15			(13		)	13			5			Tax (expense) benefit
	$	70		$	67		$	(9	)	$	(5	)	Net of tax
Retirement plans related adjustments:
Amortization of prior service credit	$	(102	)	$	(165	)	$	(204	)	$	(332	)	(a)
Amortization of transition asset	(71		)	(67		)	(142		)	(135		)	(a)
Amortization of actuarial loss	422			796			843			1,599			(a)
	249			564			497			1,132			Total before tax
	2			(42		)	4			(85		)	Tax benefit (expense)
	$	251		$	522		$	501		$	1,047		Net of tax

____________________

(a) These AOCI components are included in the computation of net period pension and post retirement costs. See Note 14. "Pension and Postretirement Plans" for details.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 14. PENSION AND POSTRETIREMENT PLANS

A summary of the components of net periodic pension benefit costs for the three and six months ended June 30, 2014 and 2013 is presented below (in thousands):



	Pension Benefits						Postretirement Benefits
	Three Months Ended June 30,						Three Months Ended June 30,
	2014			2013			2014			2013
Service cost	$	362		$	342		$	3		$	4
Interest cost	2,124			1,835			22			23
Expected return on plan assets	(2,501		)	(2,352		)	—			—
Amortization of prior service credit	(102		)	(101		)	—			(64		)
Amortization of transition asset	(71		)	(67		)	—			—
Amortization of actuarial loss (gain)	436			797			(14		)	(1		)
Net periodic cost (benefit)	$	248		$	454		$	11		$	(38	)



	Pension Benefits						Postretirement Benefits
	Six Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Service cost	$	726		$	690		$	6		$	8
Interest cost	4,244			3,678			44			46
Expected return on plan assets	(4,996		)	(4,717		)	—			—
Amortization of prior service credit	(204		)	(204		)	—			(128		)
Amortization of transition asset	(142		)	(135		)	—			—
Amortization of loss (gain)	871			1,601			(28		)	(2		)
Net periodic cost (benefit)	$	499		$	913		$	22		$	(76	)

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 15. EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. For diluted earnings per share, the weighted average number of shares includes common stock equivalents related to stock options and restricted stock. The following table presents the basis of the earnings per share computation (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Numerator for basic and diluted earnings per share:
Earnings from continuing operations	$	1,349	$	2,056	$	678	$	2,096
Gain from disposal of discontinued operation and income from discontinued operations, net of tax	—		209		218		209
Net earnings applicable to common shareholders	$	1,349	$	2,265	$	896	$	2,305

Denominator:
Denominator for basic earnings per share — weighted average shares	12,715		11,663		12,607		11,662
Assumed exercise of stock options	24		27		24		27
Assumed satisfaction of restricted stock conditions	81		64		78		60
Denominator for diluted earnings per share — adjusted weighted average shares	12,820		11,754		12,709		11,749

Shares of certain stock-based awards totaling 45,033 and 49,166 were excluded from the calculation of diluted earnings per share for three months ended June 30, 2014 and 2013, respectively, as they were anti-dilutive. For the six months ended June 30, 2014 and 2013, there were 48,053 shares and 56,390 shares, respectively, of certain stock-based compensation awards excluded from the calculation of diluted earnings per share, as they were anti-dilutive.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

NOTE 16. SEGMENT INFORMATION

Segment income is measured for internal reporting purposes by excluding corporate expenses, interest income, interest expense, and income taxes. Corporate expenses consist primarily of executive employment costs, certain professional fees, and costs associated with the Company’s global headquarters. Financial results for each reportable segment are as follows (in thousands):



	Three Months Ended June 30, 2014
	MMS		ATA		Inter-Segment Eliminations			Total
Sales	$	61,435	$	17,495	$	(79	)	$	78,851
Depreciation and amortization	1,756		647					2,403
Segment income	964		1,926					2,890
Capital expenditures	421		378					799



	Three Months Ended June 30, 2013
	MMS		ATA		Inter-Segment Eliminations			Total
Sales	$	66,817	$	12,665	$	(127	)	$	79,355
Depreciation and amortization	1,686		540					2,226
Segment income	3,213		1,783					4,996
Capital expenditures	628		148					776



	Six Months Ended June 30, 2014
	MMS			ATA		Inter-Segment Eliminations			Total
Sales	$	115,624		$	34,228	$	(151	)	$	149,701
Depreciation and amortization	3,534			1,287					4,821
Segment (loss) income	(13		)	3,734					3,721
Capital expenditures	679			445					1,124
Segment assets⁽¹⁾	250,002			57,333					307,335



	Six Months Ended June 30, 2013
	MMS		ATA		Inter-Segment Eliminations			Total
Sales	$	126,890	$	19,986	$	(302	)	$	146,574
Depreciation and amortization	3,360		723					4,083
Segment income	4,075		2,900					6,975
Capital expenditures	1,136		491					1,627
Segment assets⁽¹⁾	264,704		58,086					322,790

____________________


⁽¹⁾	Segment assets primarily consist of restricted cash, accounts receivable, inventories, prepaid and other assets, property, plant and equipment, and intangible assets. Unallocated assets primarily include, cash and cash equivalents, corporate property, plant and equipment, deferred income taxes, and other non-current assets.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2014

A reconciliation of segment income to consolidated income from operations before income taxes for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Segment income	$	2,890		$	4,996		$	3,721		$	6,975
Unallocated corporate expense	(1,170		)	(492		)	(2,292		)	(1,516		)
Interest expense, net	(143		)	(297		)	(366		)	(487		)
Other unallocated expense	(84		)	(1,839		)	(84		)	(2,342		)
Income from continuing operations before income taxes	$	1,493		$	2,368		$	979		$	2,630

A reconciliation of segment assets to consolidated total assets follows (in thousands):



	June 30, 2014		December 31, 2013
Total segment assets	$	307,335	$	303,423
Unallocated assets	27,276		40,760
Total assets	$	334,611	$	344,183

Unallocated assets include cash of $22.3 million and $34.7 million at June 30, 2014 and December 31, 2013, respectively.

NOTE 17. NEW ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance on accounting for revenue recognition. The objective of this guidance is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This guidance applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. Entities have the option of using either a full retrospective or modified approach to adopt this guidance. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on the financial statements, nor decided upon the method of adoption.

In April 2014, FASB issued authoritative guidance on the presentation and disclosure of discontinued operations. This guidance is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been previously reported in financial statements. Management does not believe that the adoption of this accounting guidance will have a material impact on the financial statements.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview. The following Management’s Discussion and Analysis (“MD&A”) contains information that the Company believes is necessary to attain an understanding of the Company’s financial condition and associated matters, including the Company’s liquidity, capital resources and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited financial statements, the accompanying notes to the financial statements (“Notes”) appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2013.

We supply high precision computer controlled metalcutting turning machines, grinding machines, vertical machining centers, and repair parts related to those machines. The Company also engineers and supplies high precision, standard and specialty workholding devices, and other machine tool accessories. We believe our products are known for accuracy, reliability, durability and value. We are geographically diversified with manufacturing facilities in China, France, Germany, Switzerland, Taiwan, the United States (“U.S.”), the United Kingdom (“U.K.”), and India, with sales to most industrialized countries. Approximately 67% of our 2013 sales were to customers outside of North America, 68% of our 2013 products sold were manufactured outside of North America, and 66% of our employees were employed outside of North America.

Metrics on machine tool market activity monitored by our management include world machine tool shipments, as reported annually by Gardner Publications in the Metalworking Insiders Report, and metal-cutting machine orders, as reported by the Association of Manufacturing Technology, the primary industry group for U.S. machine tool manufacturers. Other closely followed U.S. market indicators are tracked to determine activity levels in U.S. manufacturing plants that are prospective customers for our products. One such measurement is the Purchasing Managers Index, as reported by the Institute for Supply Management. Another measurement is capacity utilization of U.S. manufacturing plants, as reported by the Federal Reserve Board. Similar information regarding machine tool shipments and economic indicators in foreign countries is published by trade associations, government agencies, and economic services in those countries.

Non-machine sales, which include collets, chucks, accessories, repair parts and service revenue, accounted for approximately 36% of overall sales through the second quarter of 2014 and are an important part of our business due to an installed base of thousands of machines, and the growing needs demanded by specialty workholding applications. In the past, sales of these products and services have not fluctuated on a year-to-year basis as significantly as the sales of our machines have from time to time, but demand for these products and services typically track the direction of the related machine metrics.

Other key performance indicators are geographic distribution of net sales (“sales”) and net orders (“orders”), gross profit as a percent of sales, income from operations, working capital changes, and debt level trends. In an industry where constant product technology development has led to an average model life of three to five years, effectiveness of technological innovation and development of new products are also key performance indicators.

We are exposed to financial market risk resulting from changes in interest and foreign currency rates. Global economic conditions and related disruptions within the financial markets have also increased our exposure to the possible liquidity and credit risks of our counterparties. We believe we have sufficient liquidity to fund our foreseeable business needs, including cash and cash equivalents, cash flows from operations, our bank financing arrangements, and equity financing arrangements.

We monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal. Our cash and cash equivalents are diversified among counterparties to minimize exposure to any one of these entities.

We are subject to credit risks relating to the ability of counterparties of hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and non-performance has been considered in the fair value measurements of our foreign currency forward exchange contracts.

We expect that some of our customers and vendors may experience difficulty in maintaining the liquidity required to buy inventory or raw materials. We continue to monitor our customers’ financial condition in order to mitigate the risk associated with our ability to collect on our accounts receivable.

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Foreign currency exchange rate changes can be significant to reported results for several reasons. Our primary competitors, particularly for the most technologically advanced products, are now largely manufacturers in Japan, Germany, Switzerland, Korea, and Taiwan, which causes the worldwide valuation of their respective currencies to be central to competitive pricing in all of our markets. The major functional currencies of our subsidiaries are the British Pound Sterling (“GBP”), Chinese Renminbi (“CNY”), Euro (“EUR”), New Taiwanese Dollar (“TWD”), and Swiss Franc (“CHF”). Under U.S. generally accepted accounting principles, results of foreign subsidiaries are translated into U.S. Dollars (“USD”) at the average exchange rate during the periods presented. Period-to-period changes in the exchange rate between their local currency and the USD may affect comparative data significantly. We also purchase computer controls and other components from suppliers throughout the world, with purchase costs reflecting currency changes.

The fluctuations of the foreign currency exchange rates during the three and six months ended June 30, 2014 resulted in favorable currency translation impact of approximately $0.3 million and $1.1 million, respectively, on sales as compared to the same periods in 2013.

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Results of Operations

Summarized selected financial data for the three and six months ended June 30, 2014 and 2013 (in thousands):



	Three Months Ended June 30,												Six Months Ended June 30,
	2014			2013			$ Change				% Change		2014			2013			$ Change				% Change
Sales	$	78,851		$	79,355		$	(504	)		(1	)%	$	149,701		$	146,574		$	3,127			2	%
Gross profit	21,961			22,767			(806		)		(4	)%	41,181			41,740			(559		)		(1	)%
% of sales	27.9		%	28.7		%	(0.8		)	pts.			27.5		%	28.5		%	(1.0		)	pts.
Selling, general and administrative expenses	20,133			19,963			170				1	%	39,253			38,208			1,045				3	%
% of sales	25.5		%	25.2		%	0.3			pts.			26.2		%	26.1		%	0.1			pts.
Other expense, net	192			139			53				38	%	583			415			168				40	%
Income from operations	1,636			2,665			(1,029		)		(39	)%	1,345			3,117			(1,772		)		(57	)%
% of sales	2.1		%	3.4		%	(1.3		)	pts.			0.9		%	2.1		%	(1.2		)	pts.
Interest expense, net	143			297			(154		)		(52	)%	366			487			(121		)		(25	)%
Income from continuing operations before income taxes	1,493			2,368			(875		)		(37	)%	979			2,630			(1,651		)		(63	)%
Income taxes	144			312			(168		)		(54	)%	301			534			(233		)		(44	)%
Net income from continuing operations	1,349			2,056			(707		)		(34	)%	678			2,096			(1,418		)		(68	)%
Gain from disposal of discontinued operation and income from discontinued operation, net of tax	—			209			(209		)		(100	)%	218			209			9				4	%
Net income	$	1,349		$	2,265		$	(916	)		(40	)%	$	896		$	2,305		$	(1,409	)		(61	)%
% of sales	1.7		%	2.9		%	(1.2		)	pts.			0.6		%	1.6		%	(1.0		)	pts.

Sales. The table below summarizes sales by each corresponding geographical region for the three and six months ended June 30, 2014 compared to the same periods in 2013 (in thousands):



	Three Months Ended June 30,									Six Months Ended June 30,
	2014		2013		$ Change			% Change		2014		2013		$ Change			% Change
Sales to customers in:
North America	$	25,029	$	26,116	$	(1,087	)	(4	)%	$	48,232	$	50,964	$	(2,732	)	(5	)%
Europe	25,370		23,284		2,086			9	%	50,675		44,280		6,395			14	%
Asia	28,452		29,955		(1,503		)	(5	)%	50,794		51,330		(536		)	(1	)%
Total	$	78,851	$	79,355	$	(504	)	(1	)%	$	149,701	$	146,574	$	3,127		2	%

Sales for the three months ended June 30, 2014 were $78.9 million, a decrease of $0.5 million, or 1% when compared to the same period in 2013. Sales for the six months ended June 30, 2014 were $149.7 million, an increase of $3.1 million, or 2% when compared to the same period in 2013. The acquisition of Forkardt contributed $4.5 million and $13.5 million in incremental sales during the three and six months ended June 30, 2014, respectively. Currency exchange rates fluctuations had a favorable impact of approximately $0.3 million and $1.1 million during the three and six months ended June 30, 2014, respectively, when compared to the same periods in 2013. Excluding sales from Forkardt and the impact of currency exchange

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rate fluctuations, sales decreased by $5.3 million and $11.4 million during the three and six months ended June 30, 2014, respectively, which was primarily the result of lower machine sales in North America and Asia.

North America sales were $25.0 million and $48.2 million, respectively, during the three and six months ended June 30, 2014. North America sales decreased by $1.1 million, or 4%, and $2.7 million, or 5%, for the respective three and six months ended June 30, 2014 when compared to the same periods in 2013. The acquisition of Forkardt contributed $1.6 million and $5.8 million in incremental sales during the respective three and six months ended June 30, 2014. Excluding sales from Forkardt, North America sales decreased by $2.7 million and $8.5 million during the three and six months ended June 30, 2014, respectively. The current quarter shortfall was within the normal variation of scheduled shipments, while the year to date decline was primarily due to reduced sales levels of the company’s high-end grinding solutions.

Europe sales were $25.4 million and $50.7 million, respectively, during the three and six months ended June 30, 2014. Europe sales increased by $2.1 million, or 9%, and $6.4 million, or 14%, for the respective three and six months ended June 30, 2014 when compared to the same periods in 2013. The acquisition of Forkardt contributed $2.3 million and $6.7 million in incremental sales during the three and six months ended June 30, 2014, respectively. Currency exchange rate fluctuations had a favorable impact of approximately $0.9 million and $1.7 million on sales, respectively, during the three and six months ended June 30, 2014, when compared to the same periods in 2013. Excluding sales from Forkardt and the impact of currency exchange rate fluctuations, Europe sales were lower by $1.1 million and $2.0 million for the three and six months ended June 30, 2014, respectively, as compared to the prior year comparable periods.

Asia sales were $28.5 million and $50.8 million during the three and six months ended June 30, 2014, respectively. Asia sales decreased by $1.5 million, or 5%, and $0.5 million, or 1%, for the respective three and six months ended June 30, 2014 when compared to the same periods in 2013. The acquisition of Forkardt contributed $0.6 million and $1.0 million in incremental sales during the three and six months ended June 30, 2014. Currency exchange rate fluctuations had an unfavorable impact of approximately $0.6 million on sales for both the three and six months ended June 30, 2014, when compared to the same periods in 2013. Excluding sales from Forkardt and the impact of currency exchange rate fluctuations, Asia sales decreased by $1.5 million and $0.9 million during the three and six months ended June 30, 2014, respectively, as compared to the prior year periods. Demand from customers in China is the key driver of the performance of the machine tool industry, and while machine tool industry data from China has been subdued, Hardinge has been able to maintain sales volume levels in the customer segments that it serves.

Sales of machines accounted for approximately 66% and 64% of the consolidated sales for the three and six months ended June 30, 2014, respectively, compared to 72% for both of the same periods in 2013. Sales of non-machine products and services, primarily consisting of collets, chucks, accessories, repair parts, and service revenue, accounted for 34% and 36% of the consolidated sales for the respective three and six months ended June 30, 2014, compared to 28% for both of the same periods in 2013. The increase in the portion of non-machine sales over total sales during the three and six months ended June 30, 2014 when compared to the corresponding periods in 2013 was primarily driven by sales activity from the acquired Forkardt business.

Gross Profit. Gross profit was $22.0 million, or 27.9% of sales for the three months ended June 30, 2014, compared to $22.8 million, or 28.7% of sales for the same period in 2013. Gross profit was $41.2 million, or 27.5% of sales for the six months ended June 30, 2014, compared to $41.7 million, or 28.5% of sales for the same period in 2013. The decrease in gross margins was mainly attributable to lower production levels in the Company’s grinding facilities, which resulted in lower factory absorption.

Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses were $20.1 million, or 25.5% of net sales for the three months ended June 30, 2014, an increase of $0.2 million or 1%, compared to $20.0 million, or 25.2% of net sales for the three months ended June 30, 2013. SG&A expenses were $39.3 million, or 26.2% of net sales for the six months ended June 30, 2014, an increase of $1.0 million or 3%, compared to $38.2 million, or 26.1% of net sales for the six months ended June 30, 2013. SG&A expenses for the three and six months ended June 30, 2014 included $0.3 million and $2.3 million, respectively, of incremental SG&A expense from our Forkardt acquisition, and $0.3 million and $0.7 million, respectively, due to unfavorable changes in currency exchange rates. Excluding the impact of the Forkardt acquisition and foreign currency rate fluctuations, SG&A decreased by $0.4 million and $2.0 million compared to the same periods in 2013, primarily as a result of charges recorded in the prior year related to the change in our sales distribution in the United Kingdom, for which there are no correlated charges in the current year.

Income from Continuing Operations Before Income Taxes. As a result of the foregoing, net income from continuing operations was $1.5 million and $1.0 million for the three and six months ended June 30, 2014, respectively, compared to $2.4 million and $2.6 million for the same periods in 2013.

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Income Taxes. The provision for income taxes was $0.1 million and $0.3 million for the three and six months ended June 30, 2014, respectively, compared to $0.3 million and $0.5 million for the same periods in 2013. The effective tax rates were 9.6% and 30.7% for the three and six months ended June 30, 2014, respectively, compared to 13.2% and 20.3% for the same periods in 2013, which differ from the U.S. statutory rate primarily due to the mix of earnings by country and by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded.

Each quarter, an estimate of the full year tax rate is developed based upon anticipated annual results and an adjustment is made, if required, to the year-to-date income tax expense to reflect the full year anticipated effective tax rate.

We continue to maintain a valuation allowance on all or a portion of the tax benefits of our U.S., Canada, U.K., Germany, and the Netherlands net deferred tax assets and we expect to continue to record a full valuation allowance on future tax benefits until an appropriate level of profitability in the U.S. is sustained.

Net Income. As a result of the foregoing, net income for the three months ended June 30, 2014 was $1.3 million, or 1.7% of net sales, compared to net income of $2.3 million, or 2.9% of net sales, for the same period in 2013. Net income for the six months ended June 30, 2014 was $0.9 million, or 0.6% of net sales, compared to net income of $2.3 million, or 1.6% of net sales, for the same period in 2013. Both basic and diluted earnings per share for the three and six months ended June 30, 2014 were $0.11 and $0.07, respectively, compared to $0.19 and $0.20, respectively for the same periods in 2013.

Business Segment Information — Comparison of the three and six months ended June 30, 2014 and 2013

In 2013, the Company changed its reportable business segment from one reportable segment to two reportable segments, Metalcutting Machine Solutions (“MMS”) and Aftermarket Tooling and Accessories (“ATA”). The Company has recast its disclosures for all periods presented to conform to this segment presentation.

Metalcutting Machine Solutions Segment (in thousands):



	Three Months Ended June 30,									Six Months Ended June 30,
	2014		2013		$ Change			% Change		2014			2013		$ Change			% Change
Sales	$	61,435	$	66,817	$	(5,382	)	(8	)%	$	115,624		$	126,890	$	(11,266	)	(9	)%
Segment income (loss)	964		3,213		(2,249		)	(70	)%	(13		)	4,075		(4,088		)	(100	)%

MMS sales declined by $5.4 million, or 8% in the three months ended June 30, 2014 when compared with the same period in 2013. MMS sales declined by $11.3 million, or 9% in the six months ended June 30, 2014 when compared with the same period in 2013. The primary driver was lower levels of machine order backlog entering into 2014, driven by softer demand for machine tool consumption in North America.

Segment income for the three months ended June 30, 2014 was $1.0 million, or $2.2 million below 2013 performance. Segment results were essentially break-even for the six months ended June 30, 2014, or $4.1 million below 2013 performance. The primary factor in reduced profitability was lower production levels due to lower machine demand, which resulted in under absorption of factory costs due to lower utilization of our factories.

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Aftermarket Tooling and Accessories Segment (ATA) (in thousands):



	Three Months Ended June 30,								Six Months Ended June 30,
	2014		2013		$ Change		% Change		2014		2013		$ Change		% Change
Sales	$	17,495	$	12,665	$	4,830	38	%	$	34,228	$	19,986	$	14,242	71	%
Segment income	1,926		1,783		143		8	%	3,734		2,900		834		29	%

ATA sales for the three months ended June 30, 2014 were $17.5 million, an increase of $4.8 million when compared to 2013. ATA sales for the six months ended June 30, 2014 were $34.2 million, an increase of $14.2 million when compared to 2013. Virtually all of the additional sales were generated from the newly acquired Forkardt business in May of 2013.

Segment income for the three months ended June 30, 2014 was $1.9 million, an 8% increase over prior year. Segment income for the six months ended June 30, 2014 was $3.7 million, a 29% increase over prior year. The additional income was driven by the Forkardt sales volume, offset in part by unfavorable product mix and productivity investments in the U.S., which resulted in lower profitability.

Segment Summary For the Three and Six Months Ended June 30, 2014 (in thousands):



	Three Months Ended June 30, 2014										Three Months Ended June 30, 2013
	MMS		ATA		Inter-Segment Eliminations			Total			MMS		ATA		Inter-Segment Eliminations			Total
Sales	$	61,435	$	17,495	$	(79	)	$	78,851		$	66,817	$	12,665	$	(127	)	$	79,355
Segment income	964		1,926					2,890			3,213		1,783					4,996
Unallocated corporate expense								(1,170		)								(492		)
Interest expense, net								(143		)								(297		)
Other unallocated expense								$	(84	)								(1,839		)
Income from continuing operations, before income taxes								$	1,493									$	2,368



	Six Months Ended June 30, 2014											Six Months Ended June 30, 2013
	MMS			ATA		Inter-Segment Eliminations			Total			MMS		ATA		Inter-Segment Eliminations			Total
Sales	$	115,624		$	34,228	$	(151	)	$	149,701		$	126,890	$	19,986	$	(302	)	$	146,574
Segment (loss) income	(13		)	3,734					3,721			4,075		2,900					6,975
Unallocated corporate expense									(2,292		)								(1,516		)
Interest expense, net									(366		)								(487		)
Other unallocated expense									(84		)								(2,342		)
Income from continuing operations, before income taxes									$	979									$	2,630

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Summary of Cash Flows for the Six Months Ended June 30, 2014 and 2013:

During the six months ended June 30, 2014, we generated $0.4 million net cash from operating activities. The net cash generated was driven by net income (as adjusted for depreciation and amortization expense), an increase in accounts payable due to timing of purchases and payment activity, a decrease in customer receivables due to the timing of sales and collection activity, and decreases in other assets. These cash inflows were offset in part by an increase in inventories based on orders and associated production levels, a decrease in accrued expenses, primarily as a result of payment of the annual bonus as well as the payment of the annual Company contribution to the 401(k) Plan, and a decrease in customer deposits due to timing of shipments and new orders received.

During the six months ended June 30, 2013, we generated $2.0 million net cash in operating activities. The generation of net cash was primarily driven by a decrease in customer receivables due to the timing of sales and collection activity, decreases in inventory levels, as well as an increase in customer deposits as a result of improving order activities in North America and Asia. The cash inflow was offset in part by a decrease in accrued expenses, primarily as a result of payment of the annual bonus as well as the payment of the annual Company contribution to the 401(k) Plan, and a decrease in accounts payable due to timing of purchases and payment activity.

Net cash used in investing activities was $4.3 million for the six months ended June 30, 2014. The primary uses of cash was for the acquisition of Forkardt India, combined with capital expenditures during the period, made during the ordinary course of business. These cash outflows were offset in part by additional consideration received during the current year as a result of the final working capital adjustments on the sale of the Forkardt Switzerland operations.

Net cash used in investing activities was $35.8 million for the six months ended June 30, 2013. In May of 2013, we used $34.3 million net cash to acquire Forkardt. In addition, we used $1.6 million in cash for capital expenditures made during the ordinary course of business.

Net cash flow used by financing activities was $8.4 million for the six months ended June 30, 2014. Cash used was primarily driven by $7.6 million of payments on long-term debt due to the mandatory principal payments in connection with the at-the-market stock offering program, pay down of debt as a result of the sale of the Forkardt Switzerland operations, and normal scheduled payment activity, combined with a $6.0 million payment of contingent consideration in connection with a prior acquisition, and year-to-date dividends paid of $0.5 million. These cash outflows were offset in part by $5.7 million of proceeds from sale of common stock in connection with the at-the-market stock offering sales agreement entered into on August 9, 2013.

During the six months ended June 30, 2013, net cash provided by financing activities was $26.2 million. Cash provided by financing activities was primarily due to $23.0 million in term loan proceeds used to partially fund the acquisition of Forkardt, as well as additional borrowings under our existing credit facilities to align financing activities to current working capital needs.

Liquidity and Capital Resources

We maintain financing arrangements with several financial institutions. These financing arrangements are in the form of long term loans, credit facilities, and lines of credit. The credit facilities allow us to borrow up to $77.7 million at June 30, 2014 and $76.6 million at December 31, 2013, of which $58.7 million and $58.0 million, respectively, can be borrowed for working capital needs. As of June 30, 2014 and December 31, 2013, $70.2 million and $70.0 million was available for borrowing under these respective arrangements, of which $57.7 million and $56.8 million, respectively, was available for working capital needs. Total consolidated borrowings outstanding were $19.1 million and $26.6 million at June 30, 2014 and December 31, 2013, respectively.

Our financing arrangements contain certain debt covenant requirements, including financial covenants, representations, affirmative and negative covenants, prepayment provisions and events of default. As of June 30, 2014, we were in compliance with all of our debt covenants.

Our liquidity requirements primarily include funding for operations, including working capital requirements, and funding for capital investments and acquisitions. We expect to meet these requirements in the long term through cash provided by operating activities and availability under various credit facilities and other financing arrangements. Cash flows from operating activities are primarily driven by earnings before noncash charges and change in working capital needs. During the six months ended June 30, 2014, cash flows from operating activities and available cash were sufficient to fund our normal investment activities, primarily capital expenditures for property, plant and equipment and other productive assets.

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We assess on an ongoing basis our portfolio of operations, as well as our financial and capital structures, to ensure we have sufficient capital and liquidity to meet our strategic objectives. As part of this process, from time to time we evaluate and pursue acquisition opportunities that we believe will enhance our strategic position.

On August 9, 2013, the Company entered into a sales agreement with an independent sales agent, under which we may sell shares of our common stock with an aggregate price of up to $25.0 million in sales deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended. As of August 1, 2014 we have sold 1,014,252 shares of our common stock for aggregate net proceeds of $14.6 million.

Change in Accounting Policy

During the quarter ended June 30, 2014, we voluntarily changed the date of the annual goodwill and indefinite-lived intangible assets impairment testing from the last day of the fiscal year to the first day of the fourth quarter. This voluntary change is preferable under the circumstances as it provides additional time to complete the annual goodwill and indefinite-lived intangible asset impairment testing in advance of year-end reporting. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change was not applied retrospectively, as doing so would require the use of significant estimates and assumptions that include hindsight. Accordingly, the change will be applied prospectively.

Accounting Guidance Not Yet Adopted

We are currently assessing the financial impact to our consolidated financial statements of accounting guidance not yet adopted. For further information on accounting guidance not yet adopted, refer to Note 17 of the Financial Statements.

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Accordingly, there can be no assurance that our expectations will be realized. 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our market risk exposures during the first six months of 2014. For a discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained in our 2013 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

Management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2014, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, and determined that these controls and procedures were effective.

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2013, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2013, due to a material weakness in the Company’s internal control over financial reporting related to the computation of the Company’s gain from the sale of the Forkardt Swiss operations in December 2013. Specifically, management review over complex, non-routine transactions that could have a significant impact on financial reporting was not operating effectively as of December 31, 2013. The Company has implemented new controls and procedures in the current year to address the material weakness identified as of December 31, 2013, including engaging third-party specialists to provide additional review when significant non-routine transactions of a complex nature occur. As of June 30, 2014, the Company has not entered into any significant complex non-routine transactions. Accordingly, we were not able to test the newly-implemented controls for effectiveness, and as a result, based on our current evaluation, we are unable to conclude that the disclosure controls and procedures have been remediated as of June 30, 2014.

Except as discussed above, there have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2014 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There is no change to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6.		Exhibits.

3.1		Restated Certificate of Incorporation of Hardinge Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on March 15, 2010 (File No. 001-34639)).

3.2		Certificate of Amendment of the Restated Certificate of Incorporation of Hardinge Inc. (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 23, 2010 (File No. 000-15760)).

3.3		By-Laws of Hardinge Inc. (incorporated by reference to Exhibit 3.3 to Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2014).

4.1		Specimen of certificate for shares of Common Stock, par value $.01 per share, of Hardinge Inc. (incorporated by reference to Exhibit 3 to Registrant’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on May 19, 1995 (File No. 000-15760)).

18.1		Preferability Letter from Independent Registered Public Accounting Firm.

31.1		Chief Executive Officer Certification pursuant to Rule 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification pursuant to Rule 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		HARDINGE INC.
		Registrant

August 7, 2014	By:	/s/ Richard L. Simons
Date		Richard L. Simons
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)


August 7, 2014	By:	/s/ Douglas J. Malone
Date		Douglas J. Malone
		Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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