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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2013

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 x  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, 2013 there were 11,885,515 shares of Common Stock of the registrant outstanding.

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HARDINGE INC. AND SUBSIDIARIES

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In Thousands Except Share and Per Share Data)

See accompanying notes to the consolidated financial statements

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In Thousands Except Per Share Data)

See accompanying notes to the consolidated financial statements

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In Thousands)

See accompanying notes to the consolidated financial statements

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands)

See accompanying notes to the consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2013

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 accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the timing and amount of assets, liabilities, equity, revenue, and expenses reported and disclosed.  Actual amounts could differ from our estimates.  In our opinion, we made all adjustments that are necessary for a fair presentation, and those adjustments are of a normal recurring nature unless otherwise noted.  Due to differing business conditions and some seasonality, our operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ended December 31, 2013.

Certain amounts in the 2012 consolidated financial statements have been reclassified to conform to the current presentation.

NOTE 2.  NEW FINANCING ARRANGEMENT

On July 12, 2013, Hardinge Holdings GmbH (“Holding GmbH”) and L. Kellenberger & Co. AG, an indirect wholly-owned subsidiary of the Company (“Kellenberger”, and together with Holdings GmbH, the “Borrower”), entered into a Credit Facilities Agreement with Credit Suisse AG (the “Lender”) whereby the Lender has made available CHF 2,550,000 (approximately $2.8 million) mortgage loan facility (“Facility A”) and a CHF 18,000,000 (approximately $19.9 million) multi-currency revolving working capital facility (“Facility B”) for the purposes described below.

Facility A is used by Kellenberger and replaced an existing mortgage loan that Kellenberger maintained with the Lender. Interest on Facility A accrues at a fixed rate of 2.50% per annum, compared to 2.65% fixed interest rate on the existing mortgage loan. Effective as of December 2013, payments of principal in the amount of CHF 150,000 (approximately $0.2 million) will due on June 30 and December 31 in each year of the term, with the remaining outstanding balance of principal and accrued interest due in full at the final maturity date of December 23, 2016.

Facility B, which matures on July 31, 2018, is used by Holdings GmbH and its subsidiaries (collectively, the “Holdings Group”) for general corporate and working capital purposes, including without limitation standby letters of credit and standby letters of guarantee. In addition to Swiss Francs, Facility B can be drawn upon in Euros, British Pounds Sterling and United States Dollars (“Optional Currencies”).  Under the terms of Facility B, the maximum amount of borrowings available to Holdings Group (on an aggregate basis) under the facility for working capital purposes shall not exceed CHF 8,000,000 (approximately $8.8 million) or its equivalent in Optional Currencies, as applicable. The interest rate on the borrowings drawn in the form of fixed term advances (excluding Euro-based fixed term advances) is calculated based on the applicable London Interbank Offered Rate (“LIBOR”). With respect to fixed term advances in Euros, the interest rate on borrowings is calculated based on the applicable Euro Interbank Offered Rate (“EURIBOR”), plus an applicable margin, (initially set at 2.25% per annum) that is determined by the Lender based on the financial performance of the Borrower.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

The terms of the credit facilities also contain customary representations, affirmative, negative and financial covenants and events of default. The credit facilities are also secured by a series of mortgage notes in an aggregate amount of CHF 9,175,000 (approximately $10.1 million) on two buildings owned by Kellenberger. In addition to the mortgage notes provided by Kellenberger to the Lender, Holdings GmbH serves as a guarantor with respect to Facility B.

As of September 30, 2013, the principal amount outstanding was CHF 2,550,000 (approximately $2.8 million) under Facility A and CHF 500,000 (approximately $0.6 million) under Facility B.  At September 30, 2013, we were in compliance with the required covenant.

NOTE 3.  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 Company will pay the Agent a commission of up to 3% of the gross sales price per share sold as well as reimbursement of fees incurred by the Agent  for certain  specified expenses up to $50,000.

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.

As of September 30, 2013, we have sold 115,972 Shares for aggregated net proceeds of $1.7 million. All the Shares sold were from shares of common stock held by the Company in treasury.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

NOTE 4.  ACQUISITION

On May 9, 2013, Forkardt Inc. (“Forkardt”, formerly Cherry Acquisition Corporation) and 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 $34.5 million, net of cash acquired. The acquisition was funded through $24.3 million in bank debt and $10.0 million in cash. 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 Switzerland.  The results of operations of Forkardt have been included in the consolidated financial statements from the date of acquisition. During the three and nine months ended September 30, 2013, we recorded $10.4 million and $16.9 million in sales, and $0.4 million and $0.3 million in net income, respectively, related to Forkardt since the date of acquisition. We expensed acquisition related costs of $0.3 million and $1.9 million for the three months and nine months ended September 30, 2013 and reported them in selling, general and administration expenses in the Consolidated Statements of Operations.

The purchase price has been preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values.  The identifiable intangible assets acquired, which primarily consist of customer relationships, trade name and technical know-how, were valued using an income approach. The weighted average life of the acquired identifiable intangible assets subject to amortization was estimated at 17.3 years at the time of acquisition. The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as goodwill, of which $0.3 million is deductible for tax purposes. At September 30, 2013, the purchase price allocation is preliminary pending the finalization of the fair value of the net assets acquired and working capital adjustment, if any.

The preliminary allocation of purchase price to the assets acquired and liabilities assumed is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

Supplemental Pro Forma Information

The following table illustrates the unaudited pro forma effect on operating results as if the Forkardt acquisition had been completed as of January 1, 2012.

For purposes of the unaudited pro forma disclosures, incremental expenses associated with fixed asset depreciation, intangible asset amortization, inventory step up in basis and interest expense on the borrowings associated with the acquisition have been reflected in the applicable periods. Additionally, expenses associated with the acquisition of Forkardt have been excluded from the three and nine months ended September 30, 2013.

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition 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.

NOTE 5.  NET INVENTORIES

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

Net inventories consist of the following:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

NOTE 6.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

NOTE 7.  GOODWILL AND INTANGIBLE ASSETS

A summary of goodwill follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

The major components of intangible assets other than goodwill are as follows:

(1) Represents the aggregate value of the trade name, trademarks and copyrights associated with the former worldwide operations of Bridgeport. We use the Bridgeport brand name on all of our 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. The $0.1 million decrease in the balance from 2012 was the impact of foreign currency exchange.

(2) Represents the value of the trade names associated with Usach and Forkardt which the Company acquired in 2012 and 2013, respectively. We use the Usach trade name on all of the grinding machines and grinding systems manufactured by Usach. We use the Forkardt trade name on all of the workholding 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 $0.4 million and $1.1 million for the three and nine months ended September 30, 2013, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2012, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

NOTE 8.  INCOME TAXES

We continue to maintain a valuation allowance against all or a portion of our deferred tax assets in the U.S., Canada, U.K., Germany, Switzerland, and the Netherlands.

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 rate is an estimate based upon projected results for the year, estimated annual permanent differences, the statutory tax rates in the various jurisdictions in which we operate, and the non-recognition of tax benefits for entities with full valuation allowances. The overall effective tax rates were 44.0% and 31.6% for the three and nine months ended September 30, 2013, respectively.

The tax years 2011 and 2012 remain open to examination by the U.S. federal taxing authorities.  The tax years 2008 through 2012 remain open to examination by the U.S. state taxing authorities.  For our other major jurisdictions (Switzerland, U.K., Taiwan, France, Germany, Netherlands and China); the tax years between 2006 and 2012 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

The increase to the accrued liability associated with uncertain tax positions in the three and nine months ended September 30, 2013 is $0.1 million and $0.5 million, respectively. The increase is primarily attributable to the acquisition of Forkardt.  At September 30, 2013 and December 31, 2012, we recorded a $3.0 million and $2.5 million liability, respectively, with respect to uncertain income tax positions, which included related interest and penalties of $1.0 million at September 30, 2013 and $0.9 million at December 31, 2012.  If recognized, essentially all of the uncertain tax positions and related interest at September 30, 2013 would be recorded as a benefit to income tax expense on the Consolidated Statement of Operations.  It is reasonably possible that certain of our uncertain tax positions pertaining to our foreign operations may change within the next 12 months due to audit settlements and statute of limitations expirations.  We estimate the change in uncertain tax positions for these items to be between $0.1 million and $0.8 million.

NOTE 9.  WARRANTIES

Warranty liabilities are reported as accrued expenses on our Consolidated Balance Sheets. A reconciliation of the changes in our product warranty accrual is as follows:

(1) Represents the warranty liabilities assumed in connection with the Forkardt acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

NOTE 10.  PENSION AND POST RETIREMENT PLANS

A summary of the components of net periodic pension benefit costs for the three and nine months ended September 30, 2013 and 2012 is presented below.

A summary of the components of net postretirement benefits costs for the three and nine months ended September 30, 2013 and 2012 is presented below.

NOTE 11.  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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

The following table presents the carrying amount, fair values and classification of our financial instruments measured or disclosed at fair value on a recurring basis:

The fair value of cash and cash equivalents and restricted cash are based on the fair values of identical assets in active markets.  The fair value of notes payable to bank and variable interest rate debt are based on the present value of expected future cash flows. 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 purchase price payment represents the contingent liabilities associated with the earn-out provisions from the 2012 acquisition of Usach Technologies, Inc. and 2010 acquisition of Jones & Shipman. During the first quarter of 2013, the contingent purchase price payment related to the Jones & Shipman acquisition was paid.  The fair value of the contingent purchase price payment 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 our continued ability to enter into forward contracts, we consider the markets for our fair value instruments to be active. As of September 30, 2013 and December 31, 2012, there were no transfers in and out of Level 1, Level 2 or Level 3.

As described in Note 4, Acquisition, the Company completed the acquisition of Forkardt in May 2013.  The fair value measurements for the acquired intangible assets were calculated using a discounted cash flow analysis which relies upon significant unobservable Level 3 inputs which include the following:

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September 30, 2013

Derivative Instruments

We utilize foreign currency forward contracts 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 “Sales” or “Other (income) expense” line item on the Consolidated Statements of Operations when the hedged transaction affects earnings.  As of September 30, 2013, we do not expect material amount of the gain or loss will be reclassified from AOCI into “Sales” or “Other (income) expense” in the next 12 months.  For contracts that are not designated as hedges, the gain and loss on the contract is recognized in current earnings as “Other (income) expense” line item on the Consolidated Statements of Operations.

As of September 30, 2013 and December 31, 2012, the notional amounts of the derivative financial instruments not qualifying or otherwise designated as hedges were $57.1 million and $60.5 million, respectively.  For the three and nine months ended September 30, 2013, we recorded losses of $0.3 million and $1.7 million, respectively, related to this type of derivative financial instruments. For the three and nine months ended September 30, 2012, we recorded an immaterial loss and $0.2 million gain, respectively, related to this type of derivative financial instruments.

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

The following table presents the fair value on our Consolidated Balance Sheets of the foreign currency forward contracts:

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September 30, 2013

NOTE 12.  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 our financial position or results of operations.

Our 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 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.  Hazardous substances and adverse environmental effects have been identified with respect to real property we own and on adjacent parcels of real property.

In particular, our 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 our 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 our operations or property have contributed or are contributing to the contamination. 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.

A substantial portion of the Pond is located on our 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.  The PRPs are currently working with the EPA to finalize the Feasibility Study.

The draft Feasibility Study identified alternative remedial actions with estimated life-cycle costs ranging from $0.7 million to $3.4 million. We estimate that our portion of the potential costs 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, we have recorded a reserve of $0.2 million for the Company’s share of remediation expenses at the Pond as of September 30, 2013.  This reserve is reported as an accrued expense on the Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2013

We believe, based upon information currently available that, except as described in the preceding paragraphs, we will 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 13.  STOCK BASED COMPENSATION

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

A summary of stock based compensation expense is as follows: