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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2009

OR

For the transition period from              to             

Commission file number: 000-15760

Hardinge Inc.

(Exact name of Registrant as specified in its charter)

Hardinge Inc.

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 o

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 o  No o

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 o  No x

As of  September  30, 2009 there were 11,522,252 shares of Common Stock of the Registrant outstanding.

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HARDINGE INC. AND SUBSIDIARIES

INDEX

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In Thousands)

See accompanying notes.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

See accompanying notes.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands)

See accompanying notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2009

NOTE 1—BASIS OF PRESENTATION

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three month period and the nine month period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.  We operate in only one business segment — industrial machine tools.

The consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Certain amounts in the 2008 consolidated financial statements have been reclassified to conform to the September 30, 2009 presentation.

NOTE 2 — REVENUE RECOGNITION

Revenue from product sales is generally recognized upon shipment, provided persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collectibility is reasonably assured and the title and risk of loss have passed to the customer. Sales are recorded net of discounts, customer sales incentives and returns.  Discounts and customer sales incentives are typically negotiated as part of the sales terms at the time of sale and are recorded.  The Company does not routinely permit customers to return machines.  In the rare case that a machine return is permitted, a restocking fee is typically charged.  Returns of spare parts and workholding products are limited to a period of 90 days subsequent to purchase, excluding special orders which are not eligible for return.  An estimate of returns, which is not significant, is recorded as a reduction of revenue and is based on historical experience. Transfer of ownership and risk of loss are generally not contingent upon contractual customer acceptance. Prior to shipment, each machine is tested to ensure the machine’s compliance with standard operating specifications as listed in our promotional literature. On an exception basis, where larger multiple machine installations are delivered which require run-offs and customer acceptance at their facility, revenue is recognized in the period of customer acceptance.

Revenue from extended warranties is deferred and recognized on a pro-rata basis across the term of the warranty contract.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 3 — SIGNIFICANT RECENT EVENTS

On March 16, 2009, we entered into a new financing arrangement with a bank, which provided the Company a $10 million term loan (“term loan”) due March 16, 2010 secured by substantially all of the Company’s U.S. assets (exclusive of real property), a negative pledge on the Company’s headquarters in Elmira, NY and a pledge of 66 and 2/3% of the Company’s investment in Hardinge Holdings GmbH. Proceeds from the term loan were used to repay $8.0 million of Company indebtedness under the multi-currency secured credit facility entered into in June 2008. The multi-currency secured credit facility has been paid in full and terminated. The Company is currently evaluating long-term financing alternatives to replace the term loan with a flexible credit facility that could adjust to working capital needs as business volumes dictate.

On August 20, 2009, our Swiss subsidiary Kellenberger, AG entered into two new credit facilities with a bank.  These new agreements provide Kellenberger with a CHF 5.0 million ($4.8 million equivalent) working capital facility secured by substantially all of the Company’s real estate in St. Gallen, Switzerland and a CHF 7.5 million ($7.2 million equivalent) unsecured credit facility to provide for guarantees, documentary credit, and margin cover for foreign exchange trades. The two new facilities replaced a CHF 7.5 million ($7.2 million equivalent) credit facility with the same bank that provided CHF 3 million ($2.9 million equivalent) for working capital and up to CHF 7.5 million ($7.2 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades.  There were no borrowings on these facilities at September 30, 2009. The credit facilities contain a minimum equity ratio covenant.

At September 30, 2009, the Company had borrowings of $8.4 million outstanding under the term loan. At December 31, 2008, the Company had borrowings of $24.0 million outstanding under the former multi-currency secured credit facility. Total consolidated outstanding borrowings at September 30, 2009 and December 31, 2008 were $12.1 million and $28.1 million, respectively.  The reduction in debt was funded with cash flow from operations.  The Company had access of up to $32.7 million at September 30, 2009 and availability of $14.5 million net of current borrowings and letters of credit, of which $8.3 million is available for working capital purposes.

In response to the global economic recession and the weakness in the machine tool industry, the Company is continually assessing and implementing cost reduction initiatives. During 2009, the Company has implemented the following cost reduction actions:

In February 2009, the Company implemented a Voluntary Early Retirement Program (VERP). The VERP was offered to employees whose sum of current age and length of service equaled 94 years or more as of April 1, 2009. This VERP covers post-retirement health care costs for 60 months or until Medicare coverage begins, whichever occurs first. This VERP also provided 10 weeks of severance pay.  The Company recorded a charge for the VERP of approximately $0.9 million during the quarter ended March 31, 2009.

In March 2009, the Company implemented voluntary and involuntary lay-offs in North America and Europe, reducing staffing by 72 employees. The Company recorded a $0.6 million charge for severance related expenses during the quarter ended March 31, 2009.

In May 2009, the Company implemented a series of further cost reduction initiatives as a result of the continued weakness in the machine tool industry.  These actions included: a pay reduction for all U.S. based salaried employees, including corporate officers, by 5%, which, when combined with a similar action in February 2009, brings the year to date pay decreases to 10%; a reduction to the Board of Directors’ cash compensation of 10%; suspension of the accrual of benefits for active employees under the U.S. defined

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 3 — SIGNIFICANT RECENT EVENTS (continued)

benefit pension plan (which was closed to new participants in 2004), and suspension of Company contributions to the 401(K) program as of June 15, 2009.  The Company also implemented a ten week furlough for approximately 80 employees in the Elmira, NY machine manufacturing division. The furlough ran from May 11 to July 17, 2009, with furloughed employees returning to work on July 20, 2009.

In June 2009, the Company announced the closure of its Exeter, England facility, which was used primarily for back office support operations, and consolidated the operation into its Leicester, England facility. The consolidation with the Leicester facility provides operational efficiencies, as well as cost savings. In conjunction with the closure, the Company reduced staff by 7 employees through involuntary lay-offs and early retirements. The Company ceased operational activities in Exeter and exited the facility in September 2009.  The Company recorded a charge of $0.8 million and $1.0 million in SG&A for these severance related and restructuring expenses in the quarter and nine months ended September 30, 2009, respectively.

In August 2009, in our Switzerland based operations, the Company announced an involuntary lay-off reducing the workforce by approximately 65 employees, effective near the end of the year, which is after the statutorily mandated notification period.  The Company recorded a $0.2 million charge for severance related expenses in the quarter ended September 30, 2009. We anticipate that we will record an additional charge for severance related expenses of approximately $0.1 million in the fourth quarter of 2009.

In July 2009, the Company implemented additional involuntary lay-offs in North America.  On August 6, 2009 the Company announced strategic changes within the Elmira, NY manufacturing facility. Historically, this facility has been a vertically integrated operation converting raw material to parts and components and ultimately finished goods, the costs of which have proven to be prohibitive at today’s volumes. During the third quarter, the Company began moving towards a variable cost business model, outsourcing many of the non-critical components and subassemblies for machines currently manufactured in the Elmira facility. As a result of this strategic change, the Company will be closing significant sections of the Elmira manufacturing operation involved in parts production. These changes will reduce the Elmira workforce by approximately 112 employees by December 31, 2009. During the third quarter of 2009, the Elmira workforce was reduced by 82 employees.  The Company recorded a charge for severance related expenses of $1.6 million in the quarter ended September 30, 2009. The Company also recorded a charge of $5.0 million for inventory write-downs during the third quarter of 2009 as a result of these strategic actions. The Company intends to identify certain Elmira-based machinery and equipment as available for sale in the fourth quarter of 2009, and will record an impairment charge at that time, which is not expected to exceed $2.5 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 4—STOCK-BASED COMPENSATION

All of our equity-based payments to employees, including grants of employee stock options are recognized in our statement of operations based on the grant date fair value of the award.

We did not issue any new stock options during the first nine months of 2009 or 2008. We issued 46,000 stock options in December of 2008. During the three months and nine months ended September 30, 2009, expense recognized on these options was immaterial. All of the other previously awarded stock option grants were fully vested at the date of the adoption of the revised FASB standard, thus, we did not recognize any share-based compensation expense related to those stock options.

For restricted stock awards issued, the cost is equal to the fair value of the award at the date of grant and compensation expense is recognized for those awards over the requisite service period of the grant.  A summary of the restricted stock activity under the Incentive Stock Plan for the three month and nine month periods ended September 30, 2009 and 2008 is as follows:

The value of the restricted stock awarded in the nine months ended September 30, 2009 and 2008 was $0.1 million and $0.5 million, respectively. Total share-based compensation expense relating to restricted stock for the three months and nine months ended September 30, 2009 was $0.1 million and $0.3 million, respectively. Total share-based compensation expense for the three months and nine months ended September 30, 2008 was $0.1 million and $0.3 million, respectively. At September 30, 2009, the compensation cost not yet recognized on these shares was $1.0 million, which will be amortized over a weighted average term of 2.3 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 5—EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING

Basic (loss) earnings per share are 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 is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations:

There is no dilutive effect of the restrictive stock and stock options for the three month periods and the nine month periods ended September 30, 2009 and 2008, since the impact would be anti-dilutive.

NOTE 6—INVENTORIES

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other separately recognized intangible assets with indefinite lives are not amortized, but rather reviewed at least annually for impairment or reviewed for impairment between annual tests if an event occurs or circumstances change that more likely than not would indicate the carrying amount may be impaired. Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are also subject to review for impairment.

At September 30, 2009, we do not have any amounts recorded as goodwill on our balance sheet. During 2008, we conducted impairment testing and concluded that the implied fair value of our remaining goodwill and a portion of our intangible assets were $0. Therefore, we recorded a goodwill impairment charge of $23.8 million as well as $0.6 million impairment on other intangible assets in 2008.

Other intangible assets include $6.8 million representing the value of the name, trademarks and copyrights associated with the former worldwide operations of Bridgeport, which were acquired in 2004.  We use the Bridgeport brand name on all of our machining center lines, and therefore, the asset has been determined to have an indefinite useful life. These assets are reviewed annually for impairment. Amortizable intangible assets of $3.7 million include the Bridgeport technical information, patents, distribution agreements, and other items. These assets are tested for impairment when indicators of impairment are present. The estimated useful lives of these intangible assets range from five to ten years.

NOTE 8—WARRANTIES

We offer warranties for our products.  The specific terms and conditions of those warranties vary depending upon the product sold and the country in which we sold the product.  We generally provide a basic limited warranty, including parts and labor for a period of up to one year.  We estimate the costs that may be incurred under the basic limited warranty, based largely upon actual warranty repair cost history, and record a liability for such costs in the month that product revenue is recognized. The resulting accrual balance is reviewed during the year. Factors that affect our warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim.

We also sell extended warranties for some of our products.  These extended warranties usually cover a 12-24 month period that begins up to 12 months after time of sale.  Revenues for these extended warranties are recognized monthly as a portion of the warranty expires.

These liabilities are reported as accrued expenses on our consolidated balance sheet.

A reconciliation of the changes in our product warranty accrual during the three and nine month periods ended September 30, 2009 and 2008 is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 9—INCOME TAXES

We continue to maintain a full valuation allowance on the tax benefits of our U.S. 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. We also maintain a valuation allowance on our U.K., Germany, and Canadian deferred tax assets related to tax loss carryforwards in those jurisdictions, as well as all other deferred tax assets of those entities.

Each quarter, we estimate our full year 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 effective tax rate was .6 % and 1.1% for the three months and nine months ended September 30, 2009, respectively.  The anticipated full year tax rate has been affected by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded.

The tax years 2006 to 2008 remain open to examination by United States taxing authorities, and for our other major jurisdictions (Switzerland, UK, Taiwan, Germany, Canada, and China), the tax years 2003 to 2008 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

At September 30, 2009 and December 31, 2008, we had a $2.4 million and $2.2 million liability recorded for uncertain income tax positions, respectively, which included interest and penalties of $0.7 million and $0.6 million, respectively. If recognized, the liability with related penalties and interest at September 30, 2009 and December 31, 2008 would be recorded as a benefit to income tax expense on the Consolidated Statement of Operations.

During the quarter ended June 30, 2009, we reviewed the historical tax filing positions at one of our foreign subsidiaries, and determined that more likely than not that $0.47 million of its deferred tax assets can be used to generate refund claims, and thus that portion of the existing valuation allowance has been released.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 10—PENSION AND POST RETIREMENT PLANS

A summary of the components of net periodic pension costs for the consolidated company for the three and nine months ended September 30, 2009 and 2008 is presented below:

A summary of the components of net post-retirement benefits costs for the consolidated company for the three and nine months ended September 30, 2009 and 2008 is presented below:

The expected contributions to be paid during the year ending December 31, 2009 to the domestic defined benefit plan are $1.8 million.  Contributions to the domestic plans as of September 30, 2009 and 2008 were $1.8 million and $5.8 million, respectively.  The Company also provides defined benefit pension plans or defined contribution pension plans for some of its foreign subsidiaries.  The expected contributions to be paid during the year ending December 31, 2009 to the foreign defined benefit plans are $2.5 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.  As of September 30, 2009 and 2008, $1.8 million and $3.1 million of contributions have been made to the foreign plans, respectively. Each of the foreign plans requires employee and employer contributions, except for Taiwan, to which only employer contributions are made.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 10—PENSION AND POST RETIREMENT PLANS (continued)

In May 2009, the Company announced that future accrual of benefits under its U.S. defined benefit pension plan (which was closed to new participants in 2004) would be suspended as of June 15, 2009 and Company contributions to the 401(K) program would be suspended as of the same date.

NOTE 11—REPORTING COMPREHENSIVE INCOME (LOSS)

The components of other comprehensive income (loss), net of tax, for the three months and nine months ended September 30, 2009 and 2008 consisted of the following:

Accumulated balances of the components of other comprehensive (loss) consisted of the following at September 30, 2009 and December 31, 2008:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 12— DERIVATIVE FINANCIAL INSTRUMENTS

We principally use derivative financial instruments to manage foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize foreign exchange risk. We have foreign currency exposure on receivables and payables that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the statement of operations. To minimize foreign currency exposure, we have foreign currency forwards with notional amounts of approximately $17.3 million and $22.1 million at September 30, 2009 and December 31, 2008, respectively.

The foreign currency forwards are recorded in the balance sheet at fair value and resulting gains or losses are recorded in the statements of operations, generally offsetting the gains or losses from the adjustments on the foreign currency denominated transactions and revaluation of the foreign currency denominated assets and liabilities. At September 30, 2009, the fair value of the foreign currency forwards was a $0.2 million asset, which was included in prepaid expenses and a $0.01 million liability which was included in accrued expenses. At December 31, 2008, the fair value of the foreign currency forwards was a $0.7 million asset, which was included in prepaid expenses. The (gain) loss recognized for derivative instruments in the statement of operations for the three and nine month periods ended September 30, 2009 of ($0.03) and $0.4 million, respectively, was included in other (income) expense.

NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. We are using the following fair value hierarchy definition:

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 assets and liabilities measured on a recurring basis as of September 30, 2009:

Fair value of foreign currency derivative assets and liabilities are determined by using market prices obtained from the banks using foreign currency spot rate and forward rates. We have elected not to measure any additional financial instruments and other items at fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The carrying amounts of cash and cash equivalents, trade receivables, notes receivable, and trade payables approximate fair value because of the short maturity of these financial instruments.  The fair value of our debt also approximates its carrying value.

As of September 30, 2009, we do not have any significant non-recurring measurements of nonfinancial assets and nonfinancial liabilities.

NOTE 14—COMMITMENTS AND CONTINGENCIES

On October 28, 2008, a putative class-action lawsuit was filed in the United States District Court for the Western District of New York against the Company and certain former officers.  This complaint, as amended, alleges that during the period from January 16, 2007 to February 21, 2008 the defendants made misleading statements and/or omissions relating to our business and operating results in violation of the Federal securities laws.  On May 29, 2009, the Company filed a motion to dismiss the complaint. While the Company believes the lawsuit to be without merit and intends to vigorously defend itself, the impact of the lawsuit on the Company cannot be assessed at this time.

Our operations are subject to extensive federal and state legislation and regulation relating to environmental matters.

Certain environmental laws can impose joint and several liability for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal.  Activities at properties we own or previously owned and on adjacent areas have resulted in environmental impacts.

In particular, our Elmira, New York 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 encompasses an area of approximately three square miles which includes sections of the Town of Horseheads and the Village of Elmira Heights in Chemung County, New York. 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 Kentucky Avenue Wellfield site.  The EPA has documented the release and threatened release of hazardous substances into the environment at the Kentucky Avenue Wellfield Superfund 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.

A substantial portion of the Pond is located on our property.  We, 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 on September 29, 2006.  On September 29, 2006, the Director of Emergency and Remedial Response Division of the U.S. Environmental Protection Agency, 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 cost of the RI/FS was estimated to be approximately $0.8 million. We estimated our portion of the study to be $0.11 million for which we established a reserve. As of September 30, 2009 we have incurred expenses of $0.1 million, thus the remaining reserve balance at September 30, 2009 was $0.01 million. The PRPs developed a Draft RI/FS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 14—COMMITMENTS AND CONTINGENCIES (continued)

with their consultants and, following EPA comments, submitted a Revised RI/FS on December 6, 2007. In April 2008, the PRPs were notified that the EPA approved the RI/FS Work Plan which now includes the PRPs’ responses to EPA’s comments on their December 6th submission.

The PRPs commenced fieldwork in the spring of 2008 and completed the field investigations that June. In the fall of 2008, the PRPs forwarded the results of the investigation to the EPA and the New York State Department of Environmental Conservation (“DEC”). During the winter and spring of 2009, the PRPs worked with the EPA and the DEC to respond to comments and to clarify and resolve technical issues. Throughout the summer and fall of 2009, the PRPs continued to address technical issues and risk assessments with the EPA and DEC, all in accordance with the Work Plan.

Until receipt of this notice, we had never been named as a PRP at the site or received any requests for information from the EPA concerning the site.  Environmental sampling on our property within this site under supervision of regulatory authorities has identified off-site sources for such groundwater contamination and sediment contamination in the Pond and has found no evidence that our operations or property have 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 it is too early in the process to determine our responsibility as well as to estimate any potential costs to remediate. We have notified all appropriate insurance carriers and are 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.

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, will result in material liabilities to us.

In May 2008, the Company President and CEO separated from Hardinge Inc. In conjunction with his departure, the Company recognized $1.6 million in severance related expenses during the second quarter of 2008. At September 30, 2009 the liability on our balance sheet for this reserve was $0.5 million.

In 2008, the Company offered a Voluntary Early Retirement Program (VERP) to employees whose sum of current age and length of service equaled 94 or more as of November 1, 2008.  The VERP covers post-retirement health care costs for 60 months or until Medicare coverage begins, which ever occurs first. We recorded a charge for the VERP of approximately $1.0 million during 2008.

In February 2009, the Company re-offered a VERP which provided 10 weeks of severance pay in addition to the post-retirement health care costs.  The Company recorded a charge for the VERP of approximately $0.9 million during the quarter ended March 31, 2009.

In June 2009, the Company announced the closure of its Exeter, England facility, which was used primarily for back office support operations, and consolidated the operation into its Leicester, England facility. In conjunction with the closure, the Company reduced staff by 7 employees through involuntary lay-offs and early retirements. The Company recorded a charge of $0.8 million and $1.0 million in SG&A for these severance related and restructuring expenses in the quarter and nine months ended September 30, 2009, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 14—COMMITMENTS AND CONTINGENCIES (continued)

In August 2009, in our Switzerland based operations, the Company announced an involuntary lay-off reducing the workforce by approximately 65 employees, effective near the end of the year, which is after the statutorily mandated notification period.  The Company recorded a $0.2 million charge for severance related expenses in the quarter ended September 30, 2009. We anticipate that we will record an additional charge for severance related expenses of approximately $0.1 million in the fourth quarter of 2009.

In July 2009, the Company implemented additional involuntary lay-offs in North America. On August 6, 2009 the Company announced strategic changes within the Elmira, NY manufacturing facility. Historically, this facility has been a vertically integrated operation converting raw material to parts and components and ultimately finished goods, the costs of which have proven to be prohibitive at today’s volumes.  During the third quarter, the Company began moving towards a variable cost business model, outsourcing many of the non-critical components and subassemblies for machines currently manufactured in the Elmira facility. As a result of this strategic change, the Company will be closing significant sections of the Elmira manufacturing operation involved in parts production. These changes will reduce the Elmira workforce by approximately 112 employees by December 31, 2009.  During the third quarter of 2009, the Elmira workforce was reduced by 82 employees.  The Company recorded a charge for severance related expenses of $1.6 million in the quarter ended September 30, 2009.

Total severance related charges for all of the items discussed above for the three and nine months ended September 30, 2009 were $2.6 million and $4.1 million, respectively. These charges were recorded in SG&A in our Statement of Operations.  At September 30, 2009, the remaining liability associated with all of the severance related charges was $3.7 million. The Company also recorded a charge of $5.0 million for inventory write-downs during the third quarter of 2009 as a result of these strategic actions. The Company intends to identify certain Elmira-based machinery and equipment related to parts manufacturing as available for sale in the fourth quarter of 2009, and will record an impairment charge at that time, which is not expected to exceed $2.5 million.

NOTE 15—SUBSEQUENT EVENTS

On October 30, 2009, our Swiss subsidiary Kellenberger, entered into a new credit facility with a bank.  This new agreement provides Kellenberger a CHF 7.0 million ($6.8 million equivalent) facility that provides for up to CHF 3.0 million ($2.9 million equivalent) working capital facility and up to CHF 7.0 million ($6.8 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades.  This facility is secured by the Company’s real estate in Biel Switzerland up to CHF 3.0 million ($2.9 million equivalent). This new facility replaced a CHF 4.0 million ($3.9 million equivalent) credit facility with the same bank that provided up to CHF 4.0 million ($3.9 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades and of which up to CHF 0.5 million ($0.5 million equivalent) of this facility could be used for working capital. This new credit facility charges interest at competitive short-term interest rates and carries no commitment fees on unused funds. The credit facility contains a minimum equity ratio covenant.

On October 30, 2009, our Taiwanese subsidiary, entered into a new unsecured credit facility with a bank.  This new agreement provides a NT $100.0 million ($3.1 million equivalent) facility for working capital purposes. This new credit facility charges interest at competitive short-term interest rates and carries no commitment fees on unused funds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2009

NOTE 16—NEW ACCOUNTING STANDARDS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing two levels of U.S. generally accepted accounting principles (“GAAP”) — authoritative and nonauthoritative — and making the Accounting Standards Codification (“ASC”) the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission.  This guidance, which was incorporated into ASC Topic 105, “Generally Accepted Accounting Principles,” was effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption changed certain disclosure references to U.S. GAAP, but did not have any other impact on the Company’s Consolidated Financial Statements.

In May 2009, the FASB issued authoritative guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  This guidance, which was incorporated into ASC Topic 855, “Subsequent Events,” was effective for interim or annual financial periods ending after June 15, 2009. The Company adopted ASC Topic 855 in the second quarter of 2009.  The Company has evaluated subsequent events through November 5, 2009, the date this quarterly report on Form 10-Q was filed with the U.S. Securities and Exchange Commission. We made no significant changes to our consolidated financial statements as a result of our subsequent events evaluation. Disclosures required by ASC Topic 850 are included in Note 15.

In December 2008, the FASB issued changes to “Employer’s Disclosures about Postretirement Benefit Plan Assets.”  ASC Topic 715-20 provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. Required disclosures address: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and significant concentrations of risk within plan assets. These changes become effective for fiscal years ending after December 15, 2009, and are not required for earlier periods presented for comparative purposes. We are currently evaluating the disclosure requirements of this new standard.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview.  The following Management’s Discussion and Analysis (“MD&A”) is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed financial statements, the accompanying condensed financial statement notes (“Notes”) appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2008, as amended.

Our primary business is designing, manufacturing, and distributing high precision computer controlled metal-cutting turning, grinding, and milling machines, and related accessories. We are geographically diversified with manufacturing facilities in the U.S., Switzerland, Taiwan, and China, with sales to most industrialized countries. Approximately 69% of our 2008 sales were to customers outside North America, and 70% of our 2008 products were manufactured outside of North America.  At September 30, 2009 approximately 67% of our employees were located outside of North America.

Our machine products are considered to be capital goods and are part of what has historically been a highly cyclical industry. Our management believes that a key performance indicator is our order level compared to industry measures of market activity levels.

The global economic recession, which began in 2008, continues to impact the industries in which we conduct business.  The reduced availability of credit has impacted our customers’ ability to obtain financing.  As a result, we continue to experience order cancellations and low levels of incoming orders and related sales activity. Due to these conditions, management is continually assessing and implementing cost reduction initiatives throughout the Company to preserve cash flow.

Beginning in late 2008 and during the first nine months of 2009, the Company has implemented a series of actions in response to the continued weakness in the machine tool industry.  These actions included: a Voluntary Early Retirement Program (VERP) covering post-retirement health care costs for 60 months or until Medicare coverage begins, whichever occurs first; voluntary and involuntary lay-offs as well as workforce reductions at our U.S. and European operations; a pay reduction for all U.S. based salaried employees, including corporate officers of 10%; a reduction to the Board of Directors’ cash compensation of 10%; suspension of the accrual of benefits for active employees under the U.S. defined benefit pension plan (which was closed to new participants in 2004), and suspension of Company contributions to the 401(K) program as of June 15, 2009; furloughs of employees and reduced work schedules.  The Company closed its Exeter, England facility, which was used primarily for back office support operations, and consolidated the operations into its Leicester, England facility. The consolidation with the Leicester facility provides operational efficiencies, as well as cost savings.

In August of 2009, the Company announced strategic changes within the Elmira, NY manufacturing facility. Historically, this facility has long been a vertically integrated operation with machining operations converting parts from raw castings to finished goods, the costs of which proven to be prohibitive at today’s volumes. During the third quarter, the Company began moving towards a more variable cost business model, outsourcing many of the components and subassemblies for machines currently made in the Elmira facility. The Company will be closing significant sections of the Elmira manufacturing operation involved in parts production with this change.

Total severance related charges for all of the items discussed above for the three and nine months ended September 30, 2009 were $2.6 million and $4.1 million, respectively. These charges were recorded in SG&A in our Statement of Operations.  At September 30, 2009, the remaining liability associated with the severance related charges was $3.7 million. The Company also recorded a charge of $5.0 million for inventory write-downs during the third quarter ended September 30, 2009 as a result of these strategic

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actions. This charge was recorded in cost of goods sold in our Statement of Operations. The Company intends to identify certain Elmira-based machinery and equipment as available for sale in the fourth quarter of 2009, and will record an impairment charge at that time, which is not expected to exceed $2.5 million.

The U.S. market activity metric most closely watched by our management has been metal-cutting machine orders as reported by the Association of Manufacturing Technology (AMT), 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 might purchase our products. One such measurement is the PMI (Purchasing Manager’s Index), as reported by the Institute for Supply Management. Another is capacity utilization of U.S manufacturing plants, as reported by the Federal Reserve Board. Similar information regarding machine tool consumption in foreign countries is published in various trade journals.

Other key performance indicators are geographic distribution of sales and orders, 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. The current global recessionary 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, and our bank financing arrangements.

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

We are also 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 nonperformance have been considered in the fair value measurements of our foreign currency forward exchange contracts.

We also 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 our accounts receivable collectability risks.

Foreign currency exchange rate changes can be significant to our reported financial results for several reasons. Our primary competitors are now largely manufacturers in Japan, Germany, Switzerland, Korea and Taiwan which causes the worldwide valuation of the Japanese Yen, Euro, Swiss Franc, Korean Won, and New Taiwanese Dollar to be central to competitive pricing in all of our markets. Also, we translate the financial results of our Swiss, Taiwanese, Chinese, British, German, Dutch and Canadian subsidiaries into U.S. Dollars for consolidation and financial reporting purposes. Period to period changes in the exchange rate between their local currency and the U.S. Dollar may affect comparative data significantly. We also purchase computer controls and other components from suppliers throughout the world, with purchase costs reflecting currency changes.

During March 2009, we entered into an agreement with a bank for a 366 day $10.0 million term loan.  This term loan replaced a multi-currency secured credit facility, which as of March 15, 2009 had an outstanding balance of $8.0 million.  During August 2009, we entered into two new credit facilities at our Swiss subsidiary.  These new facilities provide a working capital line of credit up to CHF 5.0 million ($4.8 million equivalent) and up to CHF 7.5 million ($7.2 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades.  These two new facilities replaced a CHF 7.5 million ($7.2 million equivalent) facility with the same bank that provided up to CHF 3 million ($2.9 million equivalent) for working capital and up to CHF 7.5 million ($7.2 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades.  Refer to Liquidity and Capital Resources for further details.

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On October 30, 2009, we entered into a new CHF 7.0 million ($6.8 million equivalent) credit facility in our Swiss subsidiary.  This new facility provides a working capital line of credit up to CHF 3.0 million ($2.9 million equivalent) and up to CHF 7.0 million ($6.8 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades.  This facility replaced a CHF 4.0 million ($3.9 million equivalent) with the same bank that provided up to CHF 0.5 million ($.05 million equivalent) for working capital and up to CHF 4.0 million ($3.9 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades.  Additionally, on October 30, 2009, we entered into a NT $100.0 million ($3.1 million equivalent) unsecured credit facility in our Taiwanese subsidiary.  This new facility is for working capital purposes.  Refer to Liquidity and Capital Resources for further details.

Results of Operations

Summarized selected financial data for the three months and nine months ended September 30, 2009 and 2008: