10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from ___________ to ___________

Commission file number: 000-15760

Hardinge Inc.

(Exact name of Registrant as specified in its charter)

New York	16-0470200
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X  No ____

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

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

Large accelerated filer	Accelerated filer   X
Non-accelerated filer	Smaller reporting company

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

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

HARDINGE INC. AND SUBSIDIARIES

INDEX

Part I	Financial Information		Page
	Item 1.	Financial Statements
		Consolidated Balance Sheets at September 30, 2011 and December 31, 2010	3
		Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010	4
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	25
	Item 4.	Controls and Procedures	25
Part II	Other Information
	Item 1.	Legal Proceedings	26
	Item 1a.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 3.	Defaults upon Senior Securities	26
	Item 4.	(Removed and Reserved)	26
	Item 5.	Other Information	26
	Item 6.	Exhibits	27
	Signatures		28
	Certifications		29

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In Thousands Except Share and Per Share Data)

	September 30,		December 31,
	2011		2010
	(Unaudited)
Assets
Cash and cash equivalents	$	21,261	$	30,945
Restricted cash	6,510		5,225
Accounts receivable, net	58,678		47,572
Inventories, net	125,788		105,306
Deferred income taxes	1,423		1,364
Prepaid expenses	13,727		11,518
Total current assets	227,387		201,930
Property, plant and equipment, net	64,996		56,628
Deferred income taxes	966		451
Intangible assets, net	12,837		13,642
Pension assets	2,406		2,111
Other long-term assets	62		85
Total non-current assets	81,267		72,917
Total assets	$	308,654	$	274,847
Liabilities and shareholders’ equity
Accounts payable	$	38,811	$	33,533
Notes payable to bank	12,000		1,650
Accrued expenses	30,704		22,791
Customer deposits	14,819		10,468
Accrued income taxes	3,144		3,656
Deferred income taxes	2,769		2,546
Current portion of long-term debt	1,214		617
Total current liabilities	103,461		75,261
Long-term debt	3,225		2,777
Accrued pension liability	26,499		29,949
Accrued postretirement liability	2,116		2,274
Accrued income taxes	2,746		2,106
Deferred income taxes	2,718		2,516
Other liabilities	2,013		2,062
Total non-current liabilities	39,317		41,684
Common stock ($0.01 par value, 12,472,992 issued)	125		125
Additional paid-in capital	114,118		114,183
Retained earnings	62,032		53,637
Treasury shares (813,980 and 865,703 shares at September 30, 2011 and December 31, 2010, respectively)	(10,379)		(11,022)
Accumulated other comprehensive (loss) income	(20)		979
Total shareholder’s equity	165,876		157,902
Total liabilities and shareholders’ equity	$	308,654	$	274,847

See accompanying notes to the consolidated financial statements

3

HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In Thousands Except Per Share Data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(Unaudited)				(Unaudited)
Net sales	$	90,389	$	71,931	$	250,527	$	174,999
Cost of sales	64,840		53,994		182,599		133,451
Gross profit	25,549		17,937		67,928		41,548
Selling, general and administrative expenses	18,943		18,717		54,609		49,156
Gain on sale of assets	(5)		(732)		(23)		(960)
Impairment charge recovery	-		(25)		-		(25)
Other expense (income)	284		16		389		(627)
Income (loss) from operations	6,327		(39)		12,953		(5,996)
Interest expense	97		103		268		334
Interest income	(45)		(18)		(132)		(87)
Income (loss) before income taxes	6,275		(124)		12,817		(6,243)
Income tax expense	2,025		1,074		4,073		915
Net income (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Per share data:
Basic earnings (loss) per share	$	0.37	$	(0.11)	$	0.75	$	(0.63)
Diluted earnings (loss) per share	$	0.36	$	(0.11)	$	0.75	$	(0.63)
Cash dividends declared per share	$	0.02	$	0.005	$	0.03	$	0.015

See accompanying notes to the consolidated financial statements

4

HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands)

	Nine Months Ended September 30,
	2011		2010
	(Unaudited)
Operating activities
Net income (loss)	$	8,744	$	(7,158)
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities:
Impairment charge (recovery)	-		(25)
Depreciation and amortization	5,885		5,364
Debt issuance amortization	78		234
Provision for deferred income taxes	(411)		856
Gain on sale of assets	(23)		(960)
Gain on purchase of Jones & Shipman	-		(647)
Unrealized intercompany foreign currency translation loss	(748)		94
Changes in operating assets and liabilities:
Accounts receivable	(11,362)		(7,215)
Inventories	(20,485)		(11,049)
Prepaids and other assets	(2,700)		(4,121)
Accounts payable	6,051		15,395
Customer deposits	4,209		5,847
Accrued expenses	2,190		706
Accrued postretirement benefits	(423)		(441)
Net cash used in operating activities	(8,995)		(3,120)
Investing activities
Capital expenditures	(13,520)		(2,154)
Proceeds from sale of assets	908		1,469
Purchase of Jones & Shipman	-		(2,949)
Net cash used in investing activities	(12,612)		(3,634)
Financing activities
Proceeds from short-term notes payable to bank	20,447		8,666
Repayments of short-term notes payable to bank	(9,504)		(4,799)
Proceeds from long-term debt	1,616		-
Payments on long-term debt	(464)		(423)
Dividends paid	(349)		(174)
Other financing activities	42		(97)
Net cash provided by financing activities	11,788		3,173
Effect of exchange rate changes on cash	135		451
Net decrease in cash and cash equivalents	(9,684)		(3,130)
Cash and cash equivalent at beginning of period	30,945		20,419
Cash and cash equivalent at end of period	$	21,261	$	17,289

See accompanying notes to the consolidated financial statements

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2011

NOTE 1.  BASIS OF PRESENTATION

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

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

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

NOTE 2 .  SIGNIFICANT RECENT EVENT

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

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

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

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 3 .  NET INVENTORIES

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

Net inventories consisted of the following:

	September 30,		December 31,
	2011		2010
	(in thousands)
Raw materials and purchased components	$	47,780	$	34,113
Work-in-process	28,047		22,834
Finished products	49,961		48,359
Inventory, net	$	125,788	$	105,306

NOTE 4.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	September 30,		December 31,
	2011		2010
	(in thousands)
Land, buildings and improvements	$	70,963	$	68,871
Machinery, equipment and fixtures	69,418		69,882
Office furniture, equipment and vehicles	17,884		17,389
Construction in progress	10,737		567
	169,002		156,709
Less accumulated depreciation	104,006		100,081
Property, plant and equipment, net	$	64,996	$	56,628

NOTE 5.  INTANGIBLE ASSETS

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

NOTE 6.  INCOME TAXES

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

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 6.  INCOME TAXES

(Continued)

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

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

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

NOTE 7.  WARRANTIES

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Balance at beginning of period	$	3,995	$	2,766	$	3,297	$	2,470
Warranties issued	951		1,168		3,146		3,040
Warranty settlement costs	(763)		(541)		(1,945)		(1,371)
Changes in accruals for pre-existing warranties	(322)		(329)		(823)		(1,012)
Currency translation adjustment	(193)		163		(7)		100
Balance at end of period	$	3,668	$	3,227	$	3,668	$	3,227

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

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 8.  PENSION AND POST RETIREMENT PLANS

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

	Pension Benefits
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Service cost	$	422	$	466	$	1,203	$	1,118
Interest cost	2,182		2,025		6,453		6,269
Expected return on plan assets	(2,575)		(2,363)		(7,592)		(7,026)
Amortization of prior service cost	(20)		(30)		(57)		(89)
Amortization of transition asset	(76)		(56)		(215)		(161)
Amortization of loss	472		218		1,356		638
	$	405	$	260	$	1,148	$	749

	Postretirement Benefits
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Service cost	$	5	$	5	$	14	$	13
Interest cost	34		39		103		117
Amortization of prior service cost	(89)		(93)		(265)		(278)
	$	(50)	$	(49)	$	(148)	$	(148)

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

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

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

Derivative Instruments

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

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

(Continued)

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

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

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

	September 30, 2011				December 31, 2010
	Notional Amount		Unrealized (Loss)		Notional Amount		Unrealized (Loss)
	(in thousands)
Foreign currency forward contracts	$	84,330	$	(2,853)	$	2,161	$	(90)

Fair Value

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

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

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

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

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

	As of September 30, 2011
	Classification	Total		Level 1		Level 2		Level 3
		(in thousands)
Foreign currency forwards designated as hedges:
Prepaid expenses		$	225	$	-	$	225	$	-
Accrued expenses		$	3,078	$	-	$	3,078	$	-
Foreign currency forwards not designated as hedges:
Prepaid expenses		$	449	$	-	$	449	$	-
Accrued expenses		$	1,295	$	-	$	1,295	$	-

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

(Continued)

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

	As of December 31, 2010
	Classification	Total		Level 1		Level 2		Level 3
		(in thousands)
Foreign currency forwards designated as hedges:
Prepaid expenses		$	-	$	-	$	-	$	-
Accrued expenses		$	90	$	-	$	90	$	-
Foreign currency forwards not designated as hedges:
Prepaid expenses		$	254	$	-	$	254	$	-
Accrued expenses		$	16	$	-	$	16	$	-

NOTE 10.  COMMITMENTS AND CONTINGENCIES

Certain environmental laws can impose joint and several liabilities for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal.  Hazardous substances and adverse environmental effects have been identified with respect to properties we own or previously owned and on adjacent areas.

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

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

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

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

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

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 10.  COMMITMENTS AND CONTINGENCIES

(Continued)

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

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

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

NOTE 11.  STOCK-BASED COMPENSATION

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

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

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

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

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

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 11.  STOCK-BASED COMPENSATION

(Continued)

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

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

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

	September 30,		December 31,
	2011		2010
	(in thousands)
Unrecognized compensation cost	$	1,002	$	821
Expected weighted-average recognition period for unrecognized compensation cost, in years	1.4		1.4

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 12.  EARNINGS PER SHARE

The computation of earnings per share is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands except per share data)
Basic earnings (loss) per share computation:
Net earnings (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Earnings allocated to participating awards	56		1		120		3
Net earnings (loss) applicable to common shareholders	$	4,194	$	(1,199)	$	8,624	$	(7,161)
Weighted-average common shares outstanding	11,467		11,409		11,461		11,409
Basic earnings (loss) per share	$	0.37	$	(0.11)	$	0.75	$	(0.63)
Diluted earnings (loss) per share computation:
Net earnings (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Earnings allocated to participating awards	56		1		120		3
Net earnings (loss) applicable to common shareholders	$	4,194	$	(1,199)	$	8,624	$	(7,161)
Weighted average common shares outstanding	11,467		11,409		11,461		11,409
Assumed exercise of stock options	25		-		26		-
Assumed satisfaction of restricted stock conditions	1		-		-		-
Assumed satisfaction of performance share conditions	40		-		40		-
Weighted-average diluted shares outstanding	11,533		11,409		11,527		11,409
Diluted earnings (loss) per share	$	0.36	$	(0.11)	$	0.75	$	(0.63)

For the three months ended September 30, 2011 and 2010, 186,753 and 161,419 shares, respectively, of certain stock-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive. For the nine months ended September 30, 2011 and 2010, 175,225 and 141,380 shares, respectively, of certain stock-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 13.  COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2011 and 2010 are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Net income (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Foreign currency translation adjustment	(9,902)		9,766		887		4,265
Retirement plans related adjustment(1)	1,428		(992)		261		(401)
Unrealized loss on cash flow hedges(2)	(2,060)		-		(2,147)		-
Other comprehensive loss (income)	(10,534)		8,774		(999)		3,864
Total comprehensive (loss) income	$	(6,284)	$	7,576	$	7,745	$	(3,294)

(1)   Tax effects on retirement plans related adjustments, in thousands, were $(326) and $173 for three months ended September 30, 2011 and 2010, respectively, and $(62) and $61 for nine months ended September 30, 2011 and 2010, respectively.

(2)   Tax effects on unrealized gain (loss) on cash flow hedges, in thousands, were $260 and $-0- for three months ended September 30, 2011 and 2010, respectively, and $321 and $-0- for nine months ended September 30, 2011 and 2010, respectively.

Balances of the components of accumulated other comprehensive income (loss), net of accumulated tax effect, are as follows:

	September 30,		December 31,
	2011		2010
	(in thousands)
Foreign currency translation adjustments	$	34,702	$	33,815
Retirement plans related adjustments	(32,485)		(32,746)
Unrealized loss on cash flow hedges	(2,237)		(90)
Accumulated other comprehensive income	$	(20)	$	979

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2011

NOTE 14.  NEW ACCOUNTING STANDARDS

On January 1, 2011, we adopted Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition ASC Topic 605: Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 addresses the accounting for sales arrangements that include multiple products or services by revising the criteria for when deliverables may be accounted for separately rather than as a combined unit. Specifically, this guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is necessary to separately account for each product or service. This hierarchy provides more options for establishing selling price than existing guidance. The adoption of this standard did not have material impact on our consolidated results of operations and financial condition.

In June 2011, the Financial Accounting Standards Board issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires companies to present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate but consecutive statements.  ASU 211-05 will be effective for our fiscal year beginning January 1, 2012. ASU 2011-05 is to be applied retrospectively, and early adoption is permitted. Adoption of this pronouncement is not expected to have a material effect on our consolidated 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 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, 2010.

Our primary business is designing, manufacturing, and distributing high-precision computer controlled metal-cutting turning machines, grinding machines, vertical machining centers, and related accessories. We are geographically diversified with manufacturing facilities in Switzerland, Taiwan, the United States, China, and the United Kingdom, with sales to most industrialized countries. Approximately 77% of our 2010 sales were to customers outside of North America, 78% of our 2010 products sold were manufactured outside of North America, and 69% of our employees in 2010 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 as compared to industry measurement of market activity.

During the nine months ended September 30, 2011, global economic conditions continued to improve as compared to the same period in 2010. As a result, we experienced higher levels of incoming orders and higher sales activity in almost all of the regions in which we conduct business.

Metrics on machine tool market activity monitored by our management include world machine tool consumption (domestic production plus imports, less exports) as reported annually by Gardner Publications in the Metalworking Insiders Report and 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 are among the set of prospective customers for our products. One such measurement is the Purchasing Manager’s Index (“PMI”), 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 consumption in foreign countries is published by trade associations in those countries.

Non-machine sales, which include collets, accessories, repair parts, and services, have typically accounted for approximately 24% of overall sales and are an important part of our business, especially in the U.S. where Hardinge has an installed base of thousands of machines.  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 and orders, gross profit as a percent of net 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. The current global economic conditions, though improved from prior periods, have 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 cash equivalents. Our emphasis is primarily on safety of principal. Our cash and cash equivalents are diversified among depository institutions to minimize exposure to any one of these entities.

17

We are also subject to credit risks relating to the ability of hedging transactions counterparties 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 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, in alphabetical order, 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. During the third quarter of 2011, as compared to the respective average values of those functional currencies in the third quarter of 2010, the value of USD decreased by a range of 4% to 25%. On a year to date basis, the value of USD decreased by a range of 5% to 22%, as compared to the respective year to date average values of those of functional currencies in the same period of 2010. The weaker USD resulted in favorable currency translation impact of approximately $5.4 million on orders and approximately $7.4 million on net sales in the three months September 30, 2011, and approximately $16.2 million on orders and approximately $18.3 million on net sales in the nine months ended September 30, 2011. We also purchase computer controls and other components from suppliers throughout the world, with purchase costs reflecting currency changes.

18

Results of Operations

Summarized selected financial data for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2011		2010		$ Change		% Change	2011		2010		$ Change		% Change
	(in thousands, except per share data)
Orders	$	81,474	$	70,563	$	10,911	16%	$	303,377	$	213,714	$	89,663	42%
Net sales	90,389		71,931		18,458		26%	250,527		174,999		75,528		43%
Gross profit	25,549		17,937		7,612		42%	67,928		41,548		26,380		64%
% of net sales	28.3%		24.9%		3.4 pts.			27.1%		23.7%		3.4 pts
Selling, general & administrative expenses	18,943		18,717		226		1%	54,609		49,156		5,453		11%
% of net sales	21.0%		26.0%		(5.0) pts.			21.8%		28.1%		(6.3) pts.
Gain on sale of assets	(5)		(732)		727		(99)%	(23)		(960)		937		(98)%
Other expense (income)	284		16		268		N/M	389		(627)		1,016		N/M
Income (loss) from operations	6,327		(39)		6,366		N/M	12,953		(5,996)		18,949		N/M
% of net sales	7.0%		(0.1)%		7.1 pts.			5.2%		(3.4)%		8.6 pts.
Income (loss) before income taxes	6,275		(124)		6,399		N/M	12,817		(6,243)		19,060		N/M
Net income (loss)	4,250		(1,198)		5,448		N/M	8,744		(7,158)		15,902		N/M
% of net sales	4.7%		(1.7)%		6.4 pts.			3.5%		(4.1)%		7.6 pts.

N/M – The percentage calculation is not meaningful.

Reconciliation of Net Income to EBITDA

		Three Months Ended September 30,						Nine Months Ended September 30,
		2011		2010		$ Change		2011		2010		$ Change
		(in thousands)
GAAP net income (loss)		$	4,250	$	(1,198)	$	5,448	$	8,744	$	(7,158)	$	15,902
Plus:	Interest expense, net	52		85		(33)		136		247		(111)
	Income tax expense	2,025		1,074		951		4,073		915		3,158
	Depreciation & amortization	1,989		1,755		234		5,885		5,364		521
EBITDA (1)		$	8,316	$	1,716	$	6,600	$	18,838	$	(632)	$	19,470

(1)   EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business.

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Orders:    Comparison of orders by geographical region for the three and nine months ended September 30, 2011 and 2010 is summarized below:

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2011		2010		$ Change		% Change	2011		2010		$ Change		% Change
	(in thousands)							(in thousands)
North America	$	20,167	$	15,462	$	4,705	30%	$	72,788	$	48,052	$	24,736	51%
Europe	29,735		22,366		7,369		33%	93,490		58,591		34,899		60%
Asia & Other	31,572		32,735		(1,163)		(4)%	137,099		107,071		30,028		28%
	$	81,474	$	70,563	$	10,911	15%	$	303,377	$	213,714	$	89,663	42%

Orders for the three months ended September 30, 2011 were $81.5 million, an increase of $10.9 million or 15% compared to the same period in 2010. Orders for the nine months ended September 30, 2011 were $303.4 million, an increase of $89.7 million or 42% compared to the same period in 2010. On a year to date basis, worldwide machine tools demand improved considerably compared to the same period in 2010 as the global economy recovered from the recent recessionary conditions.  Further, certain countries in Asia, particularly China, have had strong economic growth which also led to increased demand for machine tools. This increased demand contributed to the improved order levels in all of our major markets and product lines. In addition, favorable foreign currency impact added approximately $5.4 million and $16.2 million to the overall increase for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010.

North American orders increased by $4.7 million, or 30%, and $24.7 million, or 51%, for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010. The increase in both periods was primarily in the U.S. and was driven by the improved economic environment as the U.S. economy rebounded from recessionary conditions and our distribution partners continued to gain traction in the market-place with our product lines.

European orders increased by $7.4 million, or 33%, and $34.9 million, or 60%, for the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010. The increase in both periods was driven by favorable foreign currency impact and an improved manufacturing environment in the region.  Foreign currency had a favorable impact of approximately $4.3 million and $11.8 million to the overall European increase for the three and nine months ended September 30, 2011, respectively, when compared to the same periods in 2010. In addition, the current year impact of the Jones & Shipman acquisition contributed $0.2 million and $5.1 million to the increase in orders for the three and nine months ended September 30, 2011, respectively, when compared to the corresponding periods in 2010.

Asia & Other orders represented 39% and 45%, respectively, of the total orders for the three and nine months ended September 30, 2011. Compared to the same period in 2010, Asia & Other orders for the three months ended September 30, 2011 decreased by $1.2 million, or 4%.  Orders from a China-based supplier to the consumer electronics industry were $1.5 million and $4.6 million for the three months ended September 30, 2011 and 2010, respectively. Excluding the orders from this customer, Asia & Other orders increased by $1.9 million, or 7%, in the third quarter of 2011 compared to the same quarter in 2010. When compared to the corresponding nine months period in 2010, Asia & Other orders for the nine months ended September 30, 2011 increased by $30.0 million, or 28%. Orders from the China-based customer were $12.5 million and $30.3 million for the nine months ended September 30, 2011 and 2010, respectively. Excluding the orders from this customer, Asia & Other orders increased by $47.8 million, or 62%, during the nine months ended September 30, 2011 compared to the corresponding period in 2010. The increase was driven by strong demand for machine tools in Asia, particularly in China. In addition, favorable foreign currency impact contributed approximately $1.1 million and $4.4 million to the Asia & Other increase in orders for the three and nine months ended September 30, 2011, respectively, when compared to the same periods in 2010.

20

Net Sales:    Comparison of sales by geographical region for the three and nine months ended September 30, 2011 and 2010 is summarized below:

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2011		2010		$  Change		% Change	2011		2010		$  Change		% Change
	(in thousands)							(in thousands)
North America	$	22,480	$	12,877	$	9,603	75%	$	58,204	$	43,124	$	15,080	35%
Europe	33,293		18,230		15,063		83%	78,376		44,161		34,215		77%
Asia & Other	34,616		40,824		(6,208)		(15)%	113,947		87,714		26,233		30%
	$	90,389	$	71,931	$	18,458	26%	$	250,527	$	174,999	$	75,528	43%

Net sales for the three months ended September 30, 2011 were $90.4 million, an increase of $18.5 million or 26% compared to the same period in 2010. The increase was driven by higher demand for machine tools as the global economy rebounded from the recent economic crisis.  In addition, favorable foreign currency impact contributed approximately $7.4 million to the overall increase for the three months ended September 30, 2011, when compared to the same period in 2010.

Net sales for the nine months ended September 30, 2011 were $250.5 million, an increase of $75.5 million or 43% compared to the same period in 2010. The increase was driven by higher demand for machine tools as the global economy rebounded from the recent economic crisis. The increased sales levels were noted in almost all of our regions particularly in Asia & Other which was primarily driven by sales activity in China. In addition, favorable foreign currency impact contributed approximately $18.3 million to the overall increase for nine months ended September 30, 2011, when compared to the same period in 2010.

North American net sales increased by $9.6 million, or 75%, and $15.1 million, or 35%, for the three and nine months ended September 30, 2011, respectively, when compared to the same periods in 2010.  The increase was primarily driven by the impact of improved economic conditions in the U.S. and the favorable impact of our new distribution partners.  Sales during the nine months ended September 30, 2010 were negatively impacted as our new distribution partner did not enter into the market until the end of the first quarter 2010.

European net sales increased by $15.1 million, or 83%, and $34.2 million, or 77%, for the three and nine months ended September 30, 2011, respectively, when compared to the same periods in 2010.  The increase in both periods was driven by favorable foreign currency impact and higher demand for machine tools as the manufacturing environment in Europe improved. Foreign currency had a favorable impact of approximately $5.8 million and $14.4 million to the overall European increase for the three and nine months ended September 30, 2011, respectively, when compared to the same periods in 2010. In addition, the current year impact of our Jones & Shipman acquisition added $2.8 million and $5.3 million to the increases in net sales for the three and nine months ended September 30, 2011, respectively, when compared to the corresponding periods in 2010.

Asia & Other net sales for the three months ended September 30, 2011 decreased by $6.2 million, or 15% when compared to the same period in 2010. Sales to a China-based supplier to the consumer electronics industry were $1.3 million and $14.2 million for the three months ended September 30, 2011 and 2010, respectively. Excluding the sales to this customer, Asia & Other sales increased by $6.7 million, or 25%, in the third quarter of 2011 compared to the same quarter in 2010. When compared to the corresponding nine months period in 2010, Asia & Other sales for the nine months ended September 30, 2011 increased by $26.2 million, or 30%. Sales to the China-based customer were $16.7 million and $21.5 million for the nine months ended September 30, 2011 and 2010, respectively. Excluding the sales to this customer, Asia & Other sales increased by $31.0 million, or 47%, during the nine months ended September 30, 2011 compared to the same period in 2010. The increase was driven by strong demand for machine tools in Asia, particularly in China. In addition, favorable foreign currency impact contributed approximately $1.6 million and $3.9 million to the Asia & Other increase in net sales for the three and nine months ended September 30, 2011, respectively, when compared to the same periods in 2010.

21

Gross Profit:    Gross profit for the three months ended September 30, 2011 was $25.5 million, an increase of $7.6 million, or 42.4%, when compared to the same period in 2010. Gross profit for the nine months ended September 30, 2011 was $67.9 million, an increase of $26.4 million, or 63.5%, when compared to the nine months ended September 30, 2010. The increased gross profit is primarily attributable to the increase in sales as well as higher manufacturing volumes against fixed manufacturing cost.  Gross margin for the three and nine months ended September 30, 2011 were 28.3% and 27.1%, respectively, compared to 24.9% and 23.7% for the corresponding periods in 2010.

Selling, General and Administrative Expenses:     Selling, general and administrative (SG&A) expenses were $18.9 million, or 21.0% of net sales for the three months ended September 30, 2011, an increase of $0.2 million, or 1.2%, compared to $18.7 million, or 26.0% of net sales for the three months ended September 30, 2010. SG&A expenses were $54.6 million, or 21.8% of net sales for the nine months ended September 30, 2011, an increase of $5.5 million or 11.1%, compared to $49.2 million, or 28.1% of net sales for the nine months ended September 30, 2010. With respect to the applicable three and nine month periods, the increase in SG&A expenses is primarily attributable to increased sales levels.

SG&A expense as a percentage of sales decreased by 5.0 percentage points and 6.3 percentage points, respectively, for the three and nine months ended September 30, 2011 as compared to the same periods in 2010. For both the three and nine month periods, the decrease is reflective of increasing sales volume and the impact associated with the successful transformational changes to our business model and continued focus on cost control.

SG&A expenses for the three months ended September 30, 2010 included charges of $1.5 million for professional service expenses related to the unsolicited tender offer initiated by Industrias Romi S.A and $0.6 million charge associated with the settlement of a tax audit concerning a foreign subsidiary of the Company. Exclusive of these charges, SG&A for the three months ended September 30, 2010 would have been $16.6 million, or 23.1% of net sales. SG&A expenses for the nine months ended September 30, 2010 included charges of $3.5 million for professional service expenses related to the unsolicited tender offer initiated by Industrias Romi S.A, $0.6 million charge associated with the settlement of a tax audit at a foreign subsidiary, and $0.3 million related to Jones & Shipman acquisition costs. Exclusive of these charges, SG&A for the nine months ended September 30, 2010 would have been $44.8 million, or 25.6% of net sales.

Foreign currency translation had unfavorable impact of approximately $1.5 million and $3.9 million for the three and nine months ended September 30, 2011, respectively.

Gain On Sale Of Assets:    Gain on sale of assets for the three and nine months ended September 30, 2011 were not material. Gain on sale of assets for the three and nine months ended September 30, 2010 was primarily related to a $0.8 million gain on sale of certain fixed assets.

Other (Income) Expense:    Other expenses for the three and nine months ended September 30, 2011 were $0.3 million and $0.4 million respectively.  Other (income) expense for the three and nine months ended September 30, 2010 were $0.02 million and $(0.7) million, respectively.  Other income for the nine months ended September 30, 2010 was primarily related to $0.7 million gain associated with the purchase of Jones & Shipman in the second quarter of 2010.

Income (Loss) From Operations:    Income from operations was $6.3 million and $13.0 million for the three and nine months ended September 30, 2011, respectively, compared to a loss of $0.04 million and $6.0 million for the same periods in 2010.

Income Taxes:    The provision for income taxes was $2.0 million and $4.1 million for the three and nine months ended September 30, 2011, compared to $1.1 million and $0.9 million for same periods in 2010. The effective tax rates were 32.3% and 31.8% for the three and nine months ended September 30, 2011, compared to (866.1)% and (14.7)% for the same periods in 2010.

This difference was driven by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded, by the mix of earnings by country, and by changes in our liabilities for uncertain tax positions.

22

Each quarter, an estimate of the full year tax rate for jurisdictions not subject to a full valuation allowance 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 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., German, and Canadian deferred tax assets related to tax loss carryforwards in those jurisdictions, as well as all other deferred tax assets of those entities.

The effective tax rates for the three and nine months ended September 30, 2011 differ from the U.S. statutory rate primarily due to no tax benefit being recorded for certain entities in a loss position for which a full valuation allowance has been recorded, and due to an increase to the accrued liability associated with uncertain tax positions.

Net Income (Loss):   Net income for the three and nine months ended September 30, 2011 was $4.3 million and $8.7 million, respectively, compared to a net loss of $1.2 million and $7.2 million for the respective periods in 2010.  Net income as a percentage of sales was 4.7% and 3.5% for the three and nine months ended September 30, 2011, respectively. Net loss as a percentage of sales was 1.7% and 4.1%, for the three and nine months ended September 30, 2010, respectively. The increase in net income is attributed to higher sales levels, improved gross profit, and effective cost control in SG&A expenses.

Summary of Cash Flows for the nine months ended September 30, 2011 and 2010:

	Nine Months Ended September 30,
	2011		2010
	(in thousands)
Net cash used in operating activities	$	(8,995)	$	(3,120)
Net cash used in investing activities	(12,612)		(3,634)
Net cash provided by financing activities	11,788		3,173
Effect of exchange rate changes on cash and cash equivalents	135		451
Decrease in cash and cash equivalents	$	(9,684)	$	(3,130)
Capital expenditures (included in investing activities)	$	(13,520)	$	(2,154)

During the nine months ended September 30, 2011, we used $9.0 million net cash in operating activities. Cash was primarily used for inventory growth which increased due to higher demand for our products and the related increase in production levels. Cash was also used to fund account and notes receivables, and prepaids and other assets as business activity levels increased.  The outflow of cash was offset by cash provided by accounts payable and accrued expenses which increased due to higher production levels and higher customer deposits related to order activity.

During the nine months ended September 30, 2010, cash used in operating activities was $3.1 million, primarily as a result of improving business conditions.  During this period, approximately $22.4 million cash was used to purchase inventory and to fund receivables and other current assets as a result of higher order volumes and resulting improved sales.  The outflow of cash was offset by $22.0 million cash provided by accounts payable and accrued expenses/other liabilities which increased due to higher production activity and customer deposits.

Net cash used in investing activities was $12.6 million for the nine months ended September 30, 2011 compared to $3.6 million for the same period in 2010. The majority of the cash used in 2011 was related to investment in facilities and equipment in Switzerland and China. In 2010, we used $2.9 million to purchase Jones & Shipman.

23

Cash flow provided by financing activities was $11.8 million for the nine months ended September 30, 2011 compared to $3.2 million for the same period in 2010. The increase was due to additional borrowings under our existing loan and credit facilities to fund our facility expansion in China and working capital needs.

Liquidity and Capital Resources

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 cash available under various credit facilities and other financing arrangements. Cash flows from operating activities are primarily driven by earnings before noncash charges and changes in working capital needs.  During the nine months ended September 30, 2011, cash flows from financing activities and available cash were sufficient to fund our investment activities, primarily capital expenditures for property, plant and equipment and other productive assets. We had additional borrowing capacity of $25.7 million at September 30, 2011, and $31.4 million at December 31, 2010, available under various credit facilities maintained by the Company and certain subsidiaries.

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.

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.

24

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

There have been no material changes to our market risk exposures during the first nine months of 2011. For a discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained in our 2010 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 September 30, 2011, 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.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2011 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.

25

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None

Item 1.a.  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, 2010.

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

None

Item 3.  Default upon Senior Securities

None

Item 4.  (Removed and Reserved)

Item 5.  Other Information

None

26

PART II.  OTHER INFORMATION

Item 6.  Exhibits

The following exhibits are submitted electronically and filed with this report:

10.1	-	Summary Sheet reflecting the changes made to Director Compensation Arrangements, incorporate by reference from the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2011.
10.2	-	Credit Agreement dated July 26, 2011 between Hardinge Machine Tools B.V., Taiwan Branch, and Mega International Commercial Bank Co., Ltd.
10.3	-	Loan Agreement dated August 31, 2011 between Hardinge Precision Machinery (Jiaxing) Co., Ltd., and China Construction Bank.
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.

The following exhibits are submitted electronically and furnished with this report:

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

27

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.

November 9, 2011	By:	/s/ Richard L. Simons
Date		Richard L. Simons
		President and Chief Executive Officer
		(Principal Executive Officer)
November 9, 2011	By:	/s/ Edward J. Gaio
Date		Edward J. Gaio.
		Vice President and Chief Financial Officer
		(Principal Financial Officer)
November 9, 2011	By:	/s/ Douglas J. Malone
Date		Douglas J. Malone
		Corporate Controller and Chief Accounting Officer
		(Principal Accounting Officer)

28

EX-10.2

(Translation; for Reference Only) Exhibit 10.2

General Credit Facility Agreement

This General Credit Facility Agreement (“this Agreement”) is entered into by Hardinge Machine Tools B.V., Taiwan Branch (“the Applicant”) and Mega International Commercial Bank Co., Ltd. (“the Bank”) in consideration of various credit facility transactions between the parities.  It is hereby agreed that any and all credit facility transactions between the parties shall be governed by the following terms and conditions in addition to the executed individual credit facility letter and other agreements:

Article 1: Types of Credit Facilities

The types of credit facilities as ticked below shall be extended under this Agreement (please tick the appropriate boxes):

x	Bank loans for purchase of raw materials	o	Overdrafts
x	Bank loans for export business	o	Authorized bill guarantees
x	Bank loans for working capital	o	Authorized bill acceptance
o	Discounts		o	Authorized guarantees

Article 2: Total Amount of Credit Facility

The total amount of the credit facilities extended hereunder shall be US$12,000,000 or its equivalent in other foreign currencies.

The total amount of the credit facilities referred to in the preceding paragraph shall mean the limit on the sum of all the drawings actually made under all the facilities referred to in Article 1 hereof.  The total amount of all the drawings made under all the facilities herein shall not exceed the total amount of credit facilities set forth in this Article.

The amount of each of the credit facilities shall mean the individual amount of that facility.  The drawings made by the Applicant under that particular type of facility shall not exceed the individual amount of that facility.

Any credit balance under former credit facility agreements shall be added to the total amount and individual amount in the two preceding paragraphs as applicable.

In the event that the drawn amount exceeds the individual amount of each facility or total amount of all facilities due to fluctuating exchange rates or other reasons, the Applicant shall repay the portion exceeding the individual amount or total amount immediately.

Article 3: Drawdown Period

The drawdown period for all types of facilities hereunder shall commence from July 27 , 2011 and end on      May 30      , 2012.  Subject to the terms and conditions hereof, the Applicant may, within the drawdown period, apply to the Bank for approval of making a drawdown in accordance with the requirements agreed between the parties.

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Article 4: Base Interest Rate and Adjustment

The base rate of the Bank shall be the interbank overnight interest rate plus the Bank’s operational costs and reasonable profits.  The Bank may adjust its operational costs and reasonable profits based on the market conditions, funding costs and its business operations.

The Applicant agrees that in the event that the interest rate for each facility hereunder is computed on the basis of the base rate plus certain margins (where the Bank’s base rate is 2.75% per annum at the time of the signing of this Agreement), the base rate shall be immediately adjusted according to that adjusted by the Bank.  The Applicant further agrees that in the event of any adjustments after the signing of this Agreement, such adjustments shall be binding on the Applicant provided that they have been publicly announced by the Bank at its place of business.

Article 5: Penalty and Default Interest

If the Applicant fails to repay the principal(s) or pay interest on the due date, it shall pay, staring from the due dates thereof, a penalty calculated at 10% of the applicable interest rate for the first six months of delay, or 20% of the applicable interest rate for the period starting from the seventh month of delay.

If the Applicant fails to repay the principal(s) in accordance with this Agreement, it shall pay, in addition to the penalty prescribed in the preceding paragraph, a default interest on the unpaid principal(s) at the rate of the sum of 1% per annum the applicable interest rate.  If the Bank has provided any guarantees, in addition to the penalty prescribed in the preceding paragraph, the aggregate sum of 1% per annum and the base rate of the Bank shall be imposed on the Applicant as default interest from the date on which the Bank performs the guarantee obligations hereunder.

Article 6: Exchange Risk

For those debts incurred by the Applicant in foreign currencies, the Applicant may elect to pay the debts due in any foreign currency or New Taiwan dollars.  The Applicant agrees that if the debts it owes to the Bank are to be repaid in New Taiwan dollars, the Bank may elect the spot exchange rate prevailing on the due day or the payment day; provided, however, that if the Applicant intends to prepay the debts, it must obtain the prior consent of the Bank.

Article 7: Terms and Conditions of Each Type of Facilities

lBank loans for purchase of raw materials

(1)Purpose of Loan: For the purchases of raw materials and assets or payments of intangible transaction payments.

(2)Credit Line: US$12,000,000 or its equivalent in other foreign currencies (revolving).

(3)Calculation and Payment of Interest:

(a)Calculation of Interest:

(i)US dollars: 6-month SIBOR plus 1% per annum and then to be divided by 0.946.

(ii)NT dollars: the Bank’s base rate, floating, subject to adjustments as set forth in Article 4 above.

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(iii)Other foreign currencies: the Bank’s funding costs plus 1% per annum and then to be divided by 0.946, floating.

(b)Payment Method of Interest:

Interest shall be paid on a monthly basis.  The monthly period for accruing interest shall start from the 21st day of each month and end on the 20th day of the following month.  Interest on loan in foreign currency may be converted into New Taiwan dollars at the spot selling exchange rate of the Bank prevailing at the time of conversion.

(c)Interest shall accrue from the day on which the Bank advances the loan(s) or the foreign bank pays the money.

(d)In the event of the Bank’s acceptance of drafts issued by the Applicant, the Applicant shall pay processing fees in accordance with the following fee schedule and method:  to be calculated in accordance with the Bank’s the current requirements.

(4)Maturity Date

(a)The Applicant agrees to repay the loan within 180 days of advancing the loan by the Bank.

(b)In the event of the Bank’s acceptance of drafts (issued by the Applicant), the period between the acceptance date and the expiry date thereof shall not exceed 180 days.  When such loan becomes due and payable, it shall be repaid by the Applicant or with a separate loan extended by the Bank; provided, however, that the periods covering the entire loan shall not exceed 180 days in total.

(c)For domestic goods purchased by the Applicant, subject to the prior consent of the Bank, the Applicant may authorize the Bank to issue domestic L/Cs or to accept or pay for the drafts or other certificates issued by the Applicant for the beneficiary of such L/Cs; provided, however, that the loan must be repaid within 150 days of the Bank’s issuance, acceptance, or payment thereof.

(d)If the goods that have been purchased under this facility are sold earlier than scheduled, the loan shall be repaid early.

(5)Method, Terms and Conditions of Drawdowns

(a)Each application for a letter of credit shall be deemed a drawdown on the loan hereunder.  After the Applicant deposits a security bond in the amount required by the Bank, the Applicant may apply to the Bank for a drawdown by submitting a loan drawdown application or an application for a letter of credit together with relevant transaction documents.

(b)If the Applicant pays a third party for goods through methods other than a letter of credit, including D/P, D/A, O/A, T/T or other means, it may, subject to the Bank’s consent, submit a loan drawdown application and transaction documents to apply to draw down an amount equivalent to    % of the value of the transaction(s) concerned; provided, however, that the repayment period for each loan shall not exceed      days.

(6)If it is so required in the processing procedure, the Applicant may, subject to the Bank’s consent, use the exclusive chop registered with the competent authorities for import/export instead of the chop or signature that appears on the credit facility agreement.

(7)Subject to the Bank’s consent, the currency hereof may be converted into another currency; provided, however, that no further conversion shall be made after it is converted into New Taiwan dollars. If any payment is to cover both the principal and interest, the Applicant shall, simultaneously upon the currency

- 3 -

conversion, pay the interest then accrued on the loan.

The conversion date and rate shall be otherwise agreed between the parties. In the event that the amount exceeds the individual amount of this facility due to currency conversion, the Applicant shall pay the portion exceeding the individual amount immediately.

(8)If the negotiated value of the letters of credit hereunder exceeds the total amount of the Bank’s loans that have been extended to the Applicant at the time when the letters of credit are issued and the Bank agrees to provide a further loan, the excessive portion shall also be included the drawn amount hereunder and the Applicant shall be responsible for the repayment thereof.

(9)For the procedures, liabilities and obligations in association with the letters of credit hereunder, the Applicant agrees that the Uniform Customs and Practice for Documentary Credits promulgated by the International Chamber of Commerce and the relevant clauses for interpreting trade terms in international rules shall apply and form a part of this Agreement.

(10)The goods under the letters of credit hereof shall be insured at the Applicant’s expense based on terms and conditions satisfactory to the Bank, with the Bank as a preferred beneficiary.

lBank loans for export business

(1)Purpose of Loan: For the Applicant’s export of goods or services.

(2)Credit Line: US$12,000,000 or its equivalent in other foreign currencies (revolving).

(3)Calculation and Payment of Interest: Same as those for bank loans for purchase of raw materials.

(4)Maturity Date: The due date of each loan shall be the expiry day of the relevant document required for borrowing the loan; provided, however, that the loan shall be repaid within 180 days of the extension of the loan.

(5)Method, Terms and Conditions of Drawdowns

(a)The Applicant may apply to draw down on the loan by submitting the loan drawdown application along with the documents set forth in (b) and (c) below two business days before the scheduled advance date.

(b)The Bank agrees that a loan shall be extended to the Applicant after the amounts stated in irrevocable letters of credit with the Applicant being named as the beneficiary, export purchase orders, sale and purchase contracts, D/A, D/P or other documents are converted into New Taiwan dollars in accordance with the agreed limit and exchange rate.  The Applicant shall submit the originals of said documents (including amendments thereto) to the Bank and shall repay the loan that is converted in New Taiwan dollars in accordance with the Bank’s spot rate prevailing at the time of conversion or the rate agreed between the parties at the time when the Bank handles the negotiation or acceptance of such documents.

(c)Subject to the Bank’s consent, the Applicant may use a D/A, D/P, or other documents for borrowing loans within the limit set by the Bank in the currency stated therein.

(6)The Applicant shall perform the obligations under the aforementioned letters of credit, export purchase orders, or sale and purchase contracts, and shall not modify or cancel them without the Bank’s written consent.

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lBank loans for working capital

(1)Purpose of Loan: For the Applicant’s regular working capital.

(2)Credit Line: NT$40,000,000 (revolving).

(3)Calculation and Payment of Interest: Interest shall be calculated at the Bank’s base rate, subject to adjustments as set forth in Article 4 above.  Interest shall be paid on a monthly basis.  The monthly interest period shall start from the 21st day of each month and end on the 20th day of the following month.

(4)Maturity Date: The Applicant shall repay each loan within 180 days of advancing the loan by the Bank.

(5)Method, Terms and Conditions of Drawdowns: It should be handled in accordance with the relevant loan drawdown application.

lDiscounts

(1)Purpose of Loan: For the Applicant’s assignment of the undue and unaccepted drafts or notes it has obtained received from business transactions for the Bank’s discounts.

(2)Credit Line: NT$                     (revolving/non-revolving).

(3)Calculation and Payment of Interest:

(4)Maturity Date: The period between the date of granting the discounts by the Bank and the expiry dates of the notes and drafts shall not exceeddays.  The expiry dates of the discounted notes and drafts shall be deemed the repayment date.

(5)Method, Terms and Conditions of Drawdowns:

(6)The Applicant shall submit to the Bank the usance drafts or notes received from business transactions conducted by the Applicant two business days before the drawdown along with the relevant sale and purchase contract, supply contract, invoices and documents evidencing the nature of the transactions.  Subject to the Bank’s approval, the loan to be extended shall be      % of the value of the discounted drafts and notes.

(7)In the event that the discounted drafts and notes are issued outside the jurisdiction where the Bank is situated, interest shall be accrued until the Bank collects the money under such drafts and notes.  The expenses for accepting such drafts and notes shall be borne by the Applicant.

(8)With respect to the drafts and notes for which the Applicant applies for discounts from the Bank, the Applicant agrees that if the loan is unpaid when due or the drafts and notes cannot be accepted or presented for payment, the Applicant shall, upon receiving the Bank’s notice, repay the loan immediately, including the principal, default interest, penalties and all relevant expenses and compensate the Bank for its loss, if any.  Even if the discounted drafts and notes are flawed or forged, the notice requirement is not duly met, or the statute of limitations has expired, the Applicant shall repay the loan in accordance with the terms and conditions hereof.

lOverdrafts

(1)Purpose of Loan: For the Applicant’s overdrafts under the checking account of No.     with the Bank.

(2)Credit Line: NT$                     (revolving/non-revolving).

(3)Calculation and Payment of Interest:

(4)When the sum of the principal and interest exceeds the limit of this facility, the

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Applicant shall pay the exceeding portion immediately.

lAuthorized bill acceptance

(1)Purpose of Loan: For the Applicant’s application with the Bank for the Bank’s acceptance of the drafts issued by the Applicant.

(2)Credit Line: NT$                     (revolving/non-revolving).

(3)Processing Fees:

(4)Acceptance Period: With respect to the drafts for which the Applicant applies for the Bank’s acceptance, the period between the expiry date thereof and the acceptance date shall not exceed 180 days; provided, however, that if the drafts are issued for repayment of the loan borrowed for purchasing raw materials hereunder, the expiry date thereof shall not go beyond the due date for repaying such loan.

(5)When applying for draft acceptance, the Applicant shall submit the drafts indicating the Bank as the payee and the Bank’s place of business as the location of payment along with the authorization letter for draft acceptance and other transaction documents for the Bank’s approval and acceptance.  When applying for acceptance, the Applicant shall separately issue drafts at amounts and expiry dates same as those to be accepted for preparation of compensation.  If, after the Bank’s payment of the accepted drafts, the drafts for preparation of compensation cannot be accepted for payment, the Applicant should repay the loan in full immediately.

(6)For those drafts accepted by the Bank, the Applicant shall authorize a broker acceptable to the Bank to sell the drafts.  The Applicant also agrees that the Bank may, at the broker’s request, deliver to the broker the drafts duly affixed with the necessary chops one business day before the issuance date of the drafts.

lAuthorized Guarantees

(1)Purpose of Loan: For the Applicant’s application with the Bank for the Bank’s provision of guarantees for the purposes designated by the Applicant.

(2)Credit Line: NT$                     (revolving/non-revolving).

(3)Processing Fees:

(4)Scope of Guarantees:

(5)Application Method: The Applicant shall submit a guarantee drawdown application and the relevant guarantee letter for the Bank’s approval provided that the guarantee to be provided falls within the aforementioned scope of guarantee.

(6)In the event that the guarantees are provided in the form of letters of credit, the Uniform Customs and Practice for Documentary Credits and the International Standby Practice promulgated by the International Chamber of Commerce shall apply.

(7)When the Bank performs its guarantee obligations, it shall make independent judgments based on the papers provided by the guarantee beneficiary without considering the goods, services or other actions covered by the guarantees.

(8)As soon as the guarantee beneficiary requests the Bank to perform its guarantee obligations, the Applicant shall repay the loan immediately.  In the event that foreign currencies are required, the Applicant shall be sole responsible for repaying the loan in the designated foreign currencies.

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Article 8: Miscellaneous

(1)If the credit facilities hereunder are to be extended to any other co-borrower(s), the Applicant hereby represents that each co-borrower shall be responsible for repaying any and all debts owed to the Bank in accordance with this Agreement.

(2)If the joint guarantor acts as a director or supervisor of the Applicant at the time when it provides guarantee under this Agreement, and subsequently resigns or being discharged in accordance with the applicable laws, the Bank may, without any prior notice, at any time reduce the amount of credit facilities granted to the Applicant or cease proceeding with the Applicant’s drawdown.  The Applicant shall notify the Bank immediately of the aforementioned resignation/discharge.  In case the Applicant fails to notify the Bank, it shall be liable for damages incurred by the Bank as a result therefrom.

(3)The Applicant shall obtain the approval of the board of directors of Hardinge Machine Tools B.V. (“Parent Company”) and an authorization letter from its chairman (for this Agreement).  The signatures of the chairman and directors attending the meeting (approving this Agreement) shall be authenticated by an ROC representative office or certificated by a local branch of the Bank.

(4)The Applicant agrees that the drawdowns hereunder shall be made only if the application documents bear the chops as designated in the board resolution of the Parent Company, which shall be limited to the chops of the branch and the manager as shown in the Applicant’s Branch Registration Form issued by the Ministry of Economic Affairs.

(5)The Applicant agrees that the amount of foreign exchange transactions (the amount of negotiation under L/C and the amount of inward remittance) should reach three times of the credit line, which will be a basis for deciding the renewal of this Agreement in the future.

(6)When the Applicant applies for issuing L/Cs under this Agreement, the seal/specimen which will be used by the Bank on said application (“Seal of Mega International Commercial Bank exclusively used for importation/exportation purposes”) shall have the same effect as the seal used and stamped by the Bank in this Agreement.  The Applicant and the joint guarantor agree to be bound by the effect of the aforesaid seal accordingly.

(7)Upon the expiry of the drawdown period set forth in Article 3 hereof, unless either party notifies the other party of its intention not to renew this Agreement, this Agreement shall be automatically extended once for another year; provided, however, that the Bank may terminate this Agreement or reduce the credit line granted herein in the event that the Applicant’s assets or creditability is in bad condition and that the Applicant fails to improve the situation within a specific reasonable period set by the Bank.

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Mega International Commercial Bank Co., Ltd.

/s/ Ming Guang Li

Responsible Person: Ming Guang Li, Manager of Nantou Branch

Address: No. 45, Wenchen Street, Nantou City

The Applicant hereby certifies that the Applicant has read all the above terms and conditions within a reasonable period of time and fully understood them before signing this Agreement.  Hardinge Machine Tools B.V., Taiwan Branch

/s/ Paul Ling

Branch Manager: Paul Ling

Address: No. 4, Tse-Chiang San Road, Nantou City

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EX-10.3

Exhibit 10.3

(Translation; for Reference Only)

Loan Contract

Hardinge Precision Machinery (Jiaxing) Co., Ltd

Address :No 2489 East Dong Sheng Road, Jiaxing, Zhejiang Province, P.R.China

Post Code :314000

Legal Representative : RICHARD LEIGH SIMONS

TEL :0573-82601088

as Borrower

and

CHINA CONSTRUCTION BANK JIAXING BRANCH

Addres :No 208 Ziyang Street, Jiaxing, Zhejiang Province

Post Code :314000

Principal Officer :Chen Qiang

FAX :0573-82032605TEL :0573-82032536

as Lender

RMB LOAN CONTRACT

This RMB Loan Contract (the “Contract”) is entered into on 31st of Aug 2011 by and between:

(i)Hardinge Precision Machinery (Jiaxing) Co., Ltd, located at No 2489 East Dong Sheng Road, Jiaxing, Zhejiang Province, P.R.China, Post Code:314000 with Mr. RICHARD LEIGH SIMONS as its legal representative (or principal officer) and its fax number being [/] and its telephone number being 0573-82601088 as borrower (“Party A”); and

(ii)CHINA CONSTRUCTION BANK [JIAXING] BRANCH, located at Address:No 208 Ziyang Street, Jiaxing, Zhejiang Province, Post Code:314000 with Mr. CHEN QIANG as its principal officer and its fax number being 0573-82032605 and its telephone number being 0573-82032536 as lender (“Party B”).

WHEREAS

(1)Party A wishes to apply to Party B for a loan, and Party B agrees to extend to Party A such loan.

(2)NOW THEREFORE upon consultation in accordance with applicable laws and regulations, both parties hereto agree as follows:

1.LOAN AMOUNT

The amount of the loan that Party B provides to Party A hereunder shall be RMB twenty-five million [amount (in words)] (the “Loan”).

2.PURPOSE OF THE LOAN

Party A shall utilize the Loan for the purpose of Fixed Assets. Party A may not utilize any part of the Loan for any other purpose without Party B’s written consent.

3.TERM OF THE LOAN

The term of the Loan shall be  29 months , commencing from     31/08/2011     (d/m/y) and expiring on     30/01/2014   (d/m/y) (the “Term”).

Where the above commencement date is inconsistent with the date set forth on the loan-to deposit certificate (the “LDC”, or “Loan Receipt”), the date set forth on the LDC for the first advance of the Loan shall be the commencement date of the Term and the expiry date of the Term shall be adjusted accordingly.  The LDC shall constitute an integral part of the Contract and have the equal legal force as the Contract.

4.INTEREST RATE ON THE LOAN, DEFAULT INTEREST RATE, INTEREST CALCULATION AND SETTLEMENT

4.1Interest Rate on the Loan (the “Loan Rate”)

The Loan Rate hereunder shall be an annual rate set forth in item  (3)  below:

(1)a fixed interest rate of         % which shall remain the same during the Term;

(2)a fixed interest rate equal to (100%      [choose “plus” or “minus]                  % ) of the Base Rate (as defined below) on the date when interest commences to accrue (the “Interest Commencement Date”). Such interest rate shall remain the same during the Term; or

(3)a floating interest rate equal to (100%   plus   [choose “plus” or “minus] a floating percentage of 20%) (the “Floating Percentage”)  of the Base Rate (as defined below) on the date when interest commences to accrue (the “Interest

3

Commencement Date”).  The Loan Rate shall, during the period between the Interest Commencement Date and the date when all the principal amount and interest accrued thereon under the Contract have been fully repaid, be adjusted once every [12 ] months in accordance with the Base Rate on the interest rate adjustment date and the Floating Percentage. The interest rate adjustment date shall be a date corresponding to the Interest Commencement Date in the month when such interest is adjusted. If there is no such a date corresponding to the Interest Commencement Date in such month, the adjustment date for the interest rate shall be the last day of such month.

4.2Default Interest Rate

(1)If Party A does not use the Loan hereunder for purposes set forth herein (“Misappropriation”), the default interest rate on such Loan shall be (100% plus       100        % ) of the Loan Rate. If the Loan Rate is adjusted according to Article 4.1(3) above, the default interest rate shall be adjusted in accordance with the adjusted Loan Rate and the upward floating percentage set out in this Article 4.2(1).

(2)The default interest rate on overdue Loan shall be (100% plus         50      % ) of the  Loan Rate. If the Loan Rate is adjusted according to Article 4.1 (3) above, such default interest rate shall be adjusted in accordance with the adjusted Loan Rate and the upward floating percentage set out in this Article 4.2(2).

(3)If Misappropriation and overdue payment occur concurrently, the default interest shall be calculated and compounded in accordance with the higher of the two default interest rates provided for in Articles 4.2(1) and 4.2(2) herein.

4.3The Interest Commencement Date provided in this Article 4 refers to the date on which the proceeds of the first advance have been deposited into the bank account designated by Party A.

For the first advance of the Loan, the Base Rate refers to the lending interest rate quoted by the People’s Bank of China (the “PBOC”) on the Interest Commencement Date for loans with the same tenor and within the same category. If the lending interest rate on other advances of the Loan is adjusted in accordance with Article 4.1(3), the Base Rate refers to the lending interest rate quoted by the PBOC on the interest rate adjustment date for loans with the same tenor and within the same category.  If the PBOC no longer publishes such lending interest rate, the Base Rate shall mean, unless agreed otherwise between the parties, the lending interest rate with the same tenor and within the same category generally accepted by the banking industry on the interest rate adjustment date or an interest rate commonly used for a loan with the same tenor and within the same category.

4.4The interest on the Loan shall commence to accrue as of the date when such Loan proceeds have been deposited into the bank account designated by Party A. Interest on the Loan shall be computed daily with the daily interest rate equal to 1/360 of the annual interest rate. If Party A can not pay interest on the interest settlement date as provided herein, the interest shall be compounded as of the date immediately following the applicable interest settlement date.

4.5Interest Settlement

4.5.1For a loan subject to a fixed interest rate, the interest accrued thereon shall be calculated in accordance with the agreed fixed interest rate. For a loan subject to a floating interest rate, the interest accrued thereon shall be calculated in accordance with the interest rate determined for each interest rate floating

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period. If the interest rate has been adjusted more than once during a single interest settlement period, the interest during each interest rate floating period shall be calculated first and the total interest accrued during such interest settlement period shall be the aggregate amount of all the interest accrued during each interest rate floating period within such interest settlement period.

4.5.2The interest accrued on the Loan hereunder shall be settled in accordance with  (i)  of the following:

(i)on a monthly basis and the interest settlement date shall be the 20th day of each month;

(ii)on a quarterly basis and the interest settlement date shall be the 20th day of the last month of the relevant quarter;

(iii)other method:                    /                   .

5.ADVANCE AND DRAWDOWN

5.1Conditions Precedent to Advance

Unless Party B waives all or part of the following conditions, Party B shall be obligated to advance any amount of the Loan only if all the following conditions continuously remain satisfied:

(1)Party A has completed all the approval, registration, delivery, insurance and other statutory procedures in relation to the Loan hereunder;

(2)the security has become and remains effective, if a security is established for the Contract;

(3)Party A has opened the bank accounts for drawdown and debt service purposes as Party B requests;

(4)Party A has not triggered any event of default hereunder or any event that may adversely impact Party B’s rights as a creditor;

(5)the advance to be made by Party B is not prohibited or restricted by any laws, regulations, rules or competent authorities; and

(6)Invested capital and project processing have been up to the required percentage.

(7)Key financial ratios meet the requirements of attached Appendix 2-”financial covenants”

(8)Every single loan release as below, related documents should be provided to Party B by Party A in advance,

(1)Every single payment over 5% of total investment (RMB6.5 million);

(2)Every single payment over RMB5.0 million;

(3)                    /                   

(4)                    /                   

Any of above situation, documents below from Party A should be provided,

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(1)Payments documents confirmed by Party A (as payment voucher, payment application forms etc);

(2)Supporting documents to the transactions of payment related (as contracts, invoices etc);

(3)                    /                   

(4)Other documents to be required;

(9)Payments that not in above (8) described, payment plan together with required supporting documents be provided from Party A to Party B.

(10)All documents from Party A to Party B should be,

(1)Legal, complete, exact and valid;

(2)                    /                   ;

(3)                    /                   ;

(4)Other requirements from Party B.

(11)Other requirements:                     /                   

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5.2Drawdown Schedule

The drawdown schedule hereunder shall be item  (3)  of the following:

(1)The drawdown schedule shall be as follows:

	Drawdown Date(d/m/y)	Amount
1
2
3
4
5
6

(2)                          /                           .

(3)Party A shall draw the loan under project requirements from time to time.

5.3Party A shall draw the Loan in accordance with the drawdown schedule under Article 5.2.  Without Party B’s written consent, Party A shall not accelerate, postpone or cancel any drawdown of the Loan.

5.4If Party A draws the Loan in installments, the expiration date of the Term shall be determined in accordance with Article 3 hereunder.

6.ACCOUNTS USE AND MONITOR

6.1Loan release account

The account for loan release to be decided under item (1) of the following,

(1)Within one day of this loan agreement coming effective and before the 1st loan release, Party A needs to open a specific account for loan release and payments through the loan.

(2)To use other accounts Party A opened at Party B (A/C number:   /   )

6.2Account for repayment reserve

Within one day of this agreement effective, Party A needs to open an account or use current account (A/C number: 33001638047059023189) as the loan repayment reserve account, which should meet requirements below,

(1)100% of Cash flow from sales of Party A (but not limited to) should be into A/C number: 33001638047059023189.

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(2)Average cash balance in this account should be no less than matured amount of principal plus interest in the year.

(3)                          /                           .

(4)Without agreement from Party B, Party A could not transfer (but not limited to) the cash in the account.

6.3Party B is authorized to monitor accounts Party A opened at Party B below,

(1)A/C number: 33001638047059023189.

(2)A/C number: 33001638047059023189-3001.

(3)                          /                           .

Monitor of the accounts from Party B includes but not limited to,

(1)The cash Party A uses under monitoring from Party B.

(2)                          /                           .

(3)                          /                           .

Without agreement from Party B, Party A could not transfer (but not limited to) the cash in the accounts above.

7.REPAYMENT

7.1General Principles for Repayment

Party A shall repay the Loan in accordance with the following principles: Party B has the right to apply Party A’s repayment first towards payment of any expense which shall be borne by Party A as provided hereunder but has been advanced by Party B and the expenses incurred by Party B for realizing its creditor’s rights. Party B shall apply the balance of such repayment in the order of interest first and then principal adhering to the principle that the interest shall be fully repaid concurrently with the repayment in full of the entire principal amounts.

For any advance of which the principal has become due but unpaid for more than ninety days, or any advance on which the interest has become due but unpaid for more than ninety days, or any advance otherwise provided by the laws, regulations or rules, Party B may first apply Party A’s repayment towards those payments and expenses set out in the first paragraph of this article. Then Party B may apply the balance of such repayment towards payment in the order of principal first and then interest.

7.2Payment of Interest

Party A shall pay due interest to Party B on the interest settlement date. The first interest payment date shall be the first interest settlement date after the release of an advance.

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All the interest and principal amounts outstanding shall be paid in full on the last repayment date.

7.3Schedule for Repayment of the Principal

The repayment schedule hereunder shall be determined in accordance with item  (1)  below:

(1)The repayment schedule shall be as follows:

	Repayment Date(d/m/y)	Amount
1	20/07/2012	RMB             FOUR
		MILLION
2	20/01/2013	RMB SIX MILLION
3	20/07/2013	RMB SIX MILLION
4	30/01/2014	RMB NINE MILLION
5	/
6	/

(2)                          /                           .

7.4Repayment Method

Party A shall deposit sufficient amount into its bank account at Party B before the repayment date provided hereunder and transfer such amount to repay the Loan (Party B may also debit such amount from such account to repay the Loan), or transfer such amount from another bank account of Party A to repay the Loan.

7.5Prepayment

Party A may prepay the principals in full or in part upon approval by Party B of a written application submitted to Party B  30     working days in advance.

The interest accrued on the principals to be prepaid shall be calculated on the basis of the actual number of days lapsed and the Loan Rate provided herein.

If Party B approves the prepayment by Party A, Party B shall have the right to charge Party A a compensation fee in an amount to be determined in accordance with (1) of the following methods:

(1)compensation fee=amount of the principal prepaid × number of  months remaining until the scheduled repayment date(the “Remaining Period”)×    1    ‰; provided, however, that the part of the Remaining Period that falls short of a month shall be calculated as a full month; or

(2)                          /                           .

If Party A is required to repay the Loan in installments and prepays part of the principal, the prepaid amount shall be applied in the reverse order of the repayment schedule.

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After any partial prepayment, the outstanding Loan shall still be subject to the Loan Rate provided herein.

8.PARTY A’S RIGHTS AND OBLIGATIONS

8.1Party A’s Rights

Party A has the rights to:

(1)request Party B to release each advance of the Loan as provided hereunder;

(2)utilize the Loan for the purposes provided for hereunder;

(3)apply to Party B for extension of the Term hereunder provided that it has satisfied all the conditions as Party B requests;

(4)require Party B to keep confidential the relevant financial information and manufacturing and operating trade secrets furnished by Party A except provided otherwise by law, regulations and rules, or required otherwise by the competent authorities, or agreed otherwise between the both parties hereto;

(5)reject Party B or its employees asking for bribe; it shall have the right to lodge complaint with the competent authority about such misconduct and any other act of Party B that may violate the laws and regulations relating to the lending interest rate and service charges.

8.2Party A’s Obligations

(1)Party A shall draw the Loan and repay the principal and interest in full as provided herein, and bear the expenses and fees as provided herein;

(2)Party A shall provide its financial, accounting as well as  manufacturing and operating information as the Party B may request, and among other things, on or before the   15       working day of the first month of each quarter, Party A shall provide to Party B with the balance sheet and the profit and loss statement (or the income and expenditure statement, if Party A is a public institution) up to the end of the preceding quarter;  and shall provide the cash flow statement at the end of each year in a timely fashion. Party A shall be responsible for the accuracy, completeness and validity of the information it provides, and shall not provide false information or conceal material facts with respect to its financial and operation status;

(3)In case of any change in Party A’s name, legal representative (or principal officer), registered address, business scope, registered capital, articles of association or any other registration with local industrial and commercial authority, Party A shall notify Party B in writing of the same with relevant documents together with such notification evidencing the changes within   3   working days thereafter;

(4)Party A shall utilize the Loan in accordance with the purposes as provided herein, and shall not misappropriate the Loan or utilize the Loan to carry out any transactions in violation of the laws and regulations. Party A shall cooperate with Party B in its inspection of Party A’s manufacturing, operating and financial activities and utilization of the Loan herein. Party A shall not try to evade its repayment obligations owing to Party B by means of withdrawing capital it has injected, transferring assets or entering into related-party transactions. Further, Party A shall not attempt to obtain loans or credit

10

facilities from Party B by using dummy contracts with its related parties or by pledging such rights as notes receivable or accounts receivable without actual underlying transactions or  by applying to Party B for discounting the same;

(5)Party A shall comply with the regulations relating to environmental protection, if the Loan hereunder shall be utilized for manufacturing or project construction;

(6)Without Party B’s consent, Party A shall not mortgage or pledge any assets acquired by utilizing the Loan hereunder for the benefit of a third party before full repayment of the principals and interest accrued thereon;

(7)If Party A qualifies as a group customer, it shall promptly report to Party B any related-party transactions involving more than 10% of Party A’s net assets, including (1) the relationship among all the parties to such transaction; (2) the transaction and its nature; (3) the transaction amount or the relevant ratio; and (4) pricing policy (also applicable to the transactions with no price or merely nominal price);

(8)If the Loan is for fixed assets or project financing, Party A shall procure that the proposed project have been approved by the competent governmental authorities, there be nothing in violation of laws or regulations, the capital or other funds available be fully put in place in accordance with the timetable and proportion as provided, and the project milestone be achieved as scheduled.

9.PARTY B’S RIGHTS AND OBLIGATIONS

9.1Party B is entitled to request Party A to repay the principal, interest accrued thereon and expenses when due. Party B may exercise any other rights hereunder and demand Party A to perform any other obligations hereunder.

9.2Party B shall advance the Loan as provided herein unless the delay in advancing the Loan is caused by any reason attributable to Party A or any other reason that can not be attributed to Party B.

9.3Party B shall keep confidential the relevant financial documents and manufacturing and operating trade secrets furnished by Party A except otherwise provided by the laws, regulations and rules, or required by the competent authorities, or agreed between the parties hereto.

9.4Party B shall not bribe Party A or its employees, nor request any bribe or accept any bribe offered by Party A.

9.5Party B shall not engage in any activity which is dishonest or will be detrimental to Party A’s lawful interests.

10.DEFAULT AND REMEDY

10.1Events of Default by Party B and Liabilities

(1)If Party B does not advance the Loan as provided herein without justifiable reason, Party A may request Party B to advance the Loan in accordance with the Contract.

(2)If Party B charges any interest or fee which is prohibited by the laws or regulations, Party A may request Party B to refund the interest or fee charged.

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10.2Events of Default by Party A

The events of default by Party A shall include:

(1)Party A breaches any statutory obligation or any contractual obligation hereunder; and

(2)Party A has repudiated its obligations hereunder expressly or by its conduct.

10.3Events that may Adversely Impact Creditor’s Rights

(1)the occurrence of the following events upon Party A which Party B believes may adversely impact its creditor’s rights:

contracting, trustee(receiver) being appointed, lease, shareholding restructuring, decrease of its registered capital, investment, joint operation, mergers and acquisitions, acquisition and restructuring, division, joint venture, applying for (or subject to an application for) temporary cessation of operation or dissolution, revocation, applying for (or  subject to an application for) bankruptcy, change of controlling shareholders/actual controllers, transfer of material assets, suspension of production or operation, significant penalty imposed by regulatory authorities, cancellation of registration, revocation of business license, involvement in material legal proceedings, severe deterioration in operation and financial condition, legal representative/principal officer being unable to perform their duties;

(2)the occurrence of the following events which Party B believes may adversely impact its creditor’s rights:

Party A fails to repay any other due debts, including such debts owed to any other branch or organization of China Construction Bank or to any other third party; Party A transfers assets at a low price or for free; Party A relieves or waives any debt of a third party; Party A fails to exercise its creditor’s rights or any other rights; or Party A provides security for a third party;

(3)Party A’s shareholder manipulates the independence status of Party A as a legal person or the limited liability status of the shareholder in order to evade debts, and Party B believes this manipulation may adversely impact its creditor’s rights;

(4)any of the conditions precedent to advance the Loan has not been satisfied continuously;

(5)the occurrence of the following events upon the guarantor which Party B believes may adversely impact its creditor’s rights:

(i)the guarantor breaches any provision of the guarantee contract, or any of the representations and warranties it has made proves to be false, wrong or incomplete;

(ii)contracting, trustee(receiver) appointed, lease, shareholding restructuring, decrease of its registered capital, investment, joint operation, mergers and acquisitions, acquisition and restructuring, division, joint venture, applying for (or subject to an application for) temporary cessation of operation or dissolution, revocation, applying for (or subject to an application for) bankruptcy, change of controlling shareholders/actual controllers, transfer of material assets, suspension

12

of production or operation, significant penalty imposed by regulatory authorities, cancellation of registration, revocation of business license, involvement in material legal proceedings, severe deterioration in operation and financial condition, legal representative/principal officer’s inability to perform their duties, which may adversely impact its capability as a guarantor;

(iii)other events in which the guarantor has lost or may lose its capability as guarantor;

(6)the occurrence of the following events on the mortgage or pledge which Party B believes may adversely impact its creditor’s rights:

(i)the mortgaged or pledged property is damaged, destroyed or its value is reduced as a result of a third-party’s action, expropriation, confiscation, eminent domain or redevelopment and relocation by the government, market change, or any other reason;

(ii)the mortgaged or pledged property has been seized, impounded, frozen, mandatorily debited, put on lien, sold by auction, subject to administration order by a government authority, or a dispute over the ownership of the mortgaged or pledged property;

(iii)the mortgagor or pledgor breaches any provision of the mortgage/pledge contract, or any of the representations and warranties it has made proves to be false, wrong or incomplete;

(iv)other events that may adversely impact Party B’s ability to realize its mortgage or pledge;

(7)the security is not effected, becomes ineffective, invalid, or is rescinded or terminated, or the security provider defaults or repudiates its obligations expressly or by conduct, or the security provider has lost its capability to perform its obligations as a security provider in whole or in part, or the value of the collateral is reduced, which Party B believes may adversely impact its creditor’s rights; or

(8)other events which Party B believes may adversely impact its creditor’s rights.

10.4Party B’s Remedy

Upon occurrence of any event under Article 9.2 or 9.3, Party B may exercise one or more of the following rights:

(1)to stop extending the Loan;

(2)to declare the Loan immediately due and payable, and request Party A to repay immediately all the due and undue principal, interest and fees;

(3)if Party A fails to make any drawdown in accordance with the Contract, Party B may hold Party A liable to pay a penalty equal to   5  % of the Loan proceeds not drawn and may reject Party A’s request for drawing such Loan;

(4)if Party A utilizes any part of the Loan for any purpose other than as provided herein, interest on the misappropriated amount shall be calculated and compounded for the period from the date of the misappropriation to the date when all the principal and interest have been fully paid in accordance with the

13

relevant default interest rate and the interest settlement method as provided herein;

(5)if any principal is overdue, the interest on such principal and on any overdue interest (including whole or part of the principal and interest which have been accelerated), shall be calculated and compounded for the period from the first date such principal becomes overdue to the date when all the principal and interest have been fully paid, in accordance with the relevant default interest rate and the interest settlement method as provided herein;

“Overdue” herein means that Party A fails to repay the Loan on the repayment date or, in case of repayment in installments, fails to repay the relevant installments in accordance with the repayment schedule as provided herein.

Before any principal is overdue, the overdue interest shall be compounded in accordance with the interest rate and the interest settlement method as provided herein;

(6)other remedies, including but not limited to:

(i)to debit Party A’s accounts at China Construction Bank in RMB or other currencies with corresponding amount without prior notice to Party A;

(ii)to exercise its rights under the security interest;

(iii)to request Party A to provide new security satisfactory to Party B for all the debts of Party A hereunder;

(iv)to terminate the Contract.

11.MISCELLANEOUS

11.1Cost Allocation

Unless otherwise agreed by the parties, the expenses in association with the legal service, insurance, valuation/appraisal, registration, custody, authentication and notarization arising in connection with the Contract or the security relating to the Contract shall be borne by Party A.

All the expenses incurred by Party B regarding realization of its creditor’s rights, such as court fees, arbitration fees, property preservation fees, travel expenses, enforcement expenses, valuation/appraisal fees, auction fees, notary fees, service fees, public announcement costs, legal fees, etc, shall be borne by Party A.

11.2Use of Party A’s Information

Party A agrees that Party B is entitled to inquire about Party A’s creditworthiness with the Credit Database or relevant authorities established or approved by the People’s Bank of China and the Credit Reference Agency, and that Party B is entitled to provide Party A’s information to such Credit Database.  Party A further agrees that Party B may reasonably use and disclose Party A’s information for business purpose.

11.3Collection by Public Announcement

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In the event that Party A fails to repay on time any principal or interest or breaches any other contractual obligations hereunder, Party B is entitled to report to relevant authorities and demand repayments by means of public announcement via press.

11.4Party B’s Record as Evidence

Unless there is reliable and definitive evidence to the contrary, Party B’s internal records of principal, interest, expenses and repayment, receipts, vouchers made or retained by Party B during the course of  drawdown, repayment and interest payment, and records and vouchers relating to the collections by Party B shall constitute valid evidence of the creditor-debtor relationship between the two parties. Party A shall not raise any objection merely because the above records, receipts, vouchers are made or retained by Party B.

11.5No Waivers

Party B’s rights hereunder shall not prejudice or exclude any other rights Party B is entitled to under applicable laws, regulations and other contracts.  No forbearance, extension of time limit, preferential treatment or delay in exercising any right hereunder shall be deemed to constitute a waiver of rights and interests hereunder or permit or recognition of any breach of the Contract.  Nor shall it restrict, prevent or interfere with the continuous exercise of such right at a later time or any other right, nor shall the foregoing cause Party B to be liable in any way to the Borrower.

11.6If Party A owes Party B any other due and payable debts in addition to the debts hereunder, Party B may debit any of Party A’s account at China Construction Bank in RMB or other currencies and may choose to repay any of the due and payable debts in the order it deems appropriate. Party A agrees not to raise any objection with respect thereto.

11.7In the event of any change to the address or other contact information, Party A shall promptly notify Party B of such change in writing.  Party A shall be liable for any loss caused by its failure of giving prompt notice of such change.

11.8Direct Debit Right

Party B is entitled to debit, without prior notice to Party A, any account of Party A at China Construction Bank in RMB or other currencies to pay all amounts payable under the Contract. Party A shall assist Party B to complete any procedures for foreign exchange settlement or sale, and Party A shall bear the risk of exchange rate fluctuation.

11.9Dispute Resolution

Any dispute arising from the performance of the Contract may be settled by consultation.  If the dispute can not be resolved through consultation, such dispute shall be submitted to   (i)    [please select from below]:

(i)the People’s court within the jurisdiction where Party B is located.

(ii)[name of the arbitration committee] for arbitration at              [place of arbitration] in accordance with the then prevailing arbitration rules.  The arbitration award shall be final and binding on both Party A and Party B.

The undisputed provisions shall remain enforceable during the process of litigation or arbitration.

11.10Effectiveness of the Contract

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The Contract shall become effective upon:

(i)execution by the legal representative/(principal officer) or authorized representative of Party A and being affixed with the company chop of Party A; and

(ii)execution by the principal officer or authorized representative of Party B and being affixed with the company chop of Party B.

11.11The Contract shall be executed in  5  counterparts.

11.12Other Provisions:

(i)                   /                    ;

(ii)                   /                    ;

(iii)                   /                    ;

(iv)                   /                    .

12.REPRESENTATIONS

12.1Party A clearly understands the business scope and authorization limit of Party B.

12.2Party A has read the Contract.  Party B, at Party A’s request, has explained the terms of the Contract, and Party A fully understands their meanings and corresponding legal consequences.

12.3The execution and performance of the Contract by Party A is in compliance with laws, administrative regulations, rules and Party A’s articles of association (or its other internal constitutional documents) and has been approved by its internal competent organization and/or the competent governmental authorities.

12.4Party A represents that, at the time of execution of this Contract, there exists no action or event that violates any applicable laws, regulations or rules in relation to environmental protection, energy saving and emission/pollution reduction (the “Environmental Laws”).  Party A further warrants that it shall strictly comply with such Environmental Law after the execution of this Contract.  If any of the above representations or warranties is untrue, or Party A defaults on any of the above undertakings, or there is any potential risk of energy dissipation or pollution by Party A, Party B is entitled to stop advancing loans, to declare an acceleration of the principal and interest not yet due hereunder, or adopt other remedial measures provided hereunder or permitted by laws.

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Party A      Hardinge Precision Machinery (Jiaxing) Co., Ltd

By the legal representative (principal officer) or authorized representative:

Signature:		/s/ PETER CHIOU
Date:	31ST Aug 2011

Party B  China Construction BanK Jiaxing Branch

By the principal officer or authorized representative:

Signature:		/s/ CHENG NENGPING
Date:	31ST Aug 2011

[No Text Below]

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Appendix 1

Basic introduction of Loan Project

1.Name of the Project: Construction Project of Hardinge Precision Machinery (Jiaxing) Co., Ltd for Annual Production of 3000 Units CNC Precision Machines

2.Total investment amount of the project: RMB130.45 Million

Say: RMB ONE HUNDRED AND THIRTY MILLION FORU HUNDRED AND FIFTY THOUSAND ONLY, Unless any confirmative written documents from Party A and accepted by Party B, the total project investment amount will not be increased from party A.

3.Project Location: Southwest of Jiaxing Economy & Technology Development Zone, east of Wan Guo Road, and South of Tian Dai Qiao Road

4.Project Construction and Operation Period: Construction in 2011 and starts operating since 2012

5.Purpose of the loan in this contract used for: plant construction, equipments purchase etc

6.Cash for loan repayment

(1)Cash to repay the loan of this contract is from: sales revenue and other cash flow after the operation starts.

(2)Party A agrees to repay the loan under agreed schedule, details as “(1)” of Article 6.3. party A should ensure the adequate cash flow for loan repayment.

7.Others:                     /                 

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Appendix 2

Financial Covenants

Financial ratios of Party A should continually meet the requirements below,

1.Percentage of total liabilities to total assets less than 65%;

2.Current Ratio more than 1;

3.No any guaranty to other 3rd parties;

4.                     /                      .

Party B has the right to amend above financial covenants with condition to provide notice to Party A 30 Work Days in advance.

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EX-31.1

EXHIBIT 31.1

HARDINGE INC.

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard L. Simons, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Hardinge Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2011	/s/ Richard L. Simons
	Richard L. Simons
	President and
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

HARDINGE INC.

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward J. Gaio, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Hardinge Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2011	/s/ Edward J. Gaio
	Edward J. Gaio
	Vice President and
	Chief Financial Officer

EX-32

EXHIBIT 32

HARDINGE INC.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hardinge Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard L. Simons, President and Chief Executive Officer of the Company and I, Edward J. Gaio, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Richard L. Simons

Richard L. Simons

President and

Chief Executive Officer

November 9, 2011

/s/ Edward J. Gaio

Edward J. Gaio

Vice President and

Chief Financial Officer

November 9, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to Hardinge Inc. and will be retained by Hardinge Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Net sales	$ 90,389	$ 71,931	$ 250,527	$ 174,999
Cost of sales	64,840	53,994	182,599	133,451
Gross profit	25,549	17,937	67,928	41,548
Selling, general and administrative expenses	18,943	18,717	54,609	49,156
Gain on sale of assets	(5)	(732)	(23)	(960)
Impairment charge recovery		(25)		(25)
Other expense (income)	284	16	389	(627)
Income (loss) from operations	6,327	(39)	12,953	(5,996)
Interest expense	97	103	268	334
Interest income	(45)	(18)	(132)	(87)
Income (loss) before income taxes	6,275	(124)	12,817	(6,243)
Income tax expense	2,025	1,074	4,073	915
Net income (loss)	$ 4,250	$ (1,198)	$ 8,744	$ (7,158)
Per share data:
Basic earnings (loss) per share (in dollars per share)	$ 0.37	$ (0.11)	$ 0.75	$ (0.63)
Diluted earnings (loss) per share (in dollars per share)	$ 0.36	$ (0.11)	$ 0.75	$ (0.63)
Cash dividends declared per share (in dollars per share)	$ 0.02	$ 0.005	$ 0.03	$ 0.015

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Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Operating activities
Net income (loss)	$ 8,744	$ (7,158)
Adjustment to reconcile net income (loss) to net cash (used in) provided by operating activities:
Impairment charge (recovery)		(25)
Depreciation and amortization	5,885	5,364
Debt issuance amortization	78	234
Provision for deferred income taxes	(411)	856
Gain on sale of assets	(23)	(960)
Gain on purchase of Jones & Shipman		(647)
Unrealized intercompany foreign currency translation loss	(748)	94
Changes in operating assets and liabilities:
Accounts receivable	(11,362)	(7,215)
Inventories	(20,485)	(11,049)
Prepaids and other assets	(2,700)	(4,121)
Accounts payable	6,051	15,395
Customer deposits	4,209	5,847
Accrued expenses	2,190	706
Accrued postretirement benefits	(423)	(441)
Net cash used in operating activities	(8,995)	(3,120)
Investing activities
Capital expenditures	(13,520)	(2,154)
Proceeds from sale of assets	908	1,469
Purchase of Jones & Shipman		(2,949)
Net cash used in investing activities	(12,612)	(3,634)
Financing activities
Proceeds from short-term notes payable to bank	20,447	8,666
Repayments of short-term notes payable to bank	(9,504)	(4,799)
Proceeds from long-term debt	1,616
Payments on long-term debt	(464)	(423)
Dividends paid	(349)	(174)
Other financing activities	42	(97)
Net cash provided by financing activities	11,788	3,173
Effect of exchange rate changes on cash	135	451
Net decrease in cash and cash equivalents	(9,684)	(3,130)
Cash and cash equivalent at beginning of period	30,945	20,419
Cash and cash equivalent at end of period	$ 21,261	$ 17,289

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Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 21,261	$ 30,945
Restricted cash	6,510	5,225
Accounts receivable, net	58,678	47,572
Inventories, net	125,788	105,306
Deferred income taxes	1,423	1,364
Prepaid expenses	13,727	11,518
Total current assets	227,387	201,930
Property, plant and equipment, net	64,996	56,628
Deferred income taxes	966	451
Intangible assets, net	12,837	13,642
Pension assets	2,406	2,111
Other long-term assets	62	85
Total non-current assets	81,267	72,917
Total assets	308,654	274,847
Liabilities and shareholders' equity
Accounts payable	38,811	33,533
Notes payable to bank	12,000	1,650
Accrued expenses	30,704	22,791
Customer deposits	14,819	10,468
Accrued income taxes	3,144	3,656
Deferred income taxes	2,769	2,546
Current portion of long-term debt	1,214	617
Total current liabilities	103,461	75,261
Long-term debt	3,225	2,777
Accrued pension liability	26,499	29,949
Accrued postretirement liability	2,116	2,274
Accrued income taxes	2,746	2,106
Deferred income taxes	2,718	2,516
Other liabilities	2,013	2,062
Total non-current liabilities	39,317	41,684
Common stock ( $0.01 par value, 12,472,992 issued)	125	125
Additional paid-in capital	114,118	114,183
Retained earnings	62,032	53,637
Treasury shares (813,980 and 865,703 shares at September 30, 2011 and December 31, 2010, respectively)	(10,379)	(11,022)
Accumulated other comprehensive (loss) income	(20)	979
Total shareholder's equity	165,876	157,902
Total liabilities and shareholders' equity	$ 308,654	$ 274,847

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PENSION AND POST RETIREMENT PLANS

9 Months Ended

Sep. 30, 2011

PENSION AND POST RETIREMENT PLANS

PENSION AND POST RETIREMENT PLANS

NOTE 8.  PENSION AND POST RETIREMENT PLANS

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

	Pension Benefits
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Service cost	$	422	$	466	$	1,203	$	1,118
Interest cost	2,182		2,025		6,453		6,269
Expected return on plan assets	(2,575)		(2,363)		(7,592)		(7,026)
Amortization of prior service cost	(20)		(30)		(57)		(89)
Amortization of transition asset	(76)		(56)		(215)		(161)
Amortization of loss	472		218		1,356		638
	$	405	$	260	$	1,148	$	749

	Postretirement Benefits
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Service cost	$	5	$	5	$	14	$	13
Interest cost	34		39		103		117
Amortization of prior service cost	(89)		(93)		(265)		(278)
	$	(50)	$	(49)	$	(148)	$	(148)

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

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COMPREHENSIVE INCOME (LOSS)

9 Months Ended

Sep. 30, 2011

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

NOTE 13.  COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2011 and 2010 are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Net income (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Foreign currency translation adjustment	(9,902)		9,766		887		4,265
Retirement plans related adjustment(1)	1,428		(992)		261		(401)
Unrealized loss on cash flow hedges(2)	(2,060)		-		(2,147)		-
Other comprehensive loss (income)	(10,534)		8,774		(999)		3,864
Total comprehensive (loss) income	$	(6,284)	$	7,576	$	7,745	$	(3,294)

(1)   Tax effects on retirement plans related adjustments, in thousands, were $(326) and $173 for three months ended September 30, 2011 and 2010, respectively, and $(62) and $61 for nine months ended September 30, 2011 and 2010, respectively.

(2)   Tax effects on unrealized gain (loss) on cash flow hedges, in thousands, were $260 and $-0- for three months ended September 30, 2011 and 2010, respectively, and $321 and $-0- for nine months ended September 30, 2011 and 2010, respectively.

Balances of the components of accumulated other comprehensive income (loss), net of accumulated tax effect, are as follows:

	September 30,		December 31,
	2011		2010
	(in thousands)
Foreign currency translation adjustments	$	34,702	$	33,815
Retirement plans related adjustments	(32,485)		(32,746)
Unrealized loss on cash flow hedges	(2,237)		(90)
Accumulated other comprehensive income	$	(20)	$	979

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PROPERTY, PLANT AND EQUIPMENT

9 Months Ended

Sep. 30, 2011

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

NOTE 4.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	September 30,		December 31,
	2011		2010
	(in thousands)
Land, buildings and improvements	$	70,963	$	68,871
Machinery, equipment and fixtures	69,418		69,882
Office furniture, equipment and vehicles	17,884		17,389
Construction in progress	10,737		567
	169,002		156,709
Less accumulated depreciation	104,006		100,081
Property, plant and equipment, net	$	64,996	$	56,628

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 10.  COMMITMENTS AND CONTINGENCIES

Certain environmental laws can impose joint and several liabilities for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal.  Hazardous substances and adverse environmental effects have been identified with respect to properties we own or previously owned and on adjacent areas.

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

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

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

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

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

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

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

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

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Document and Entity Information	9 Months Ended
	Sep. 30, 2011
Document and Entity Information
Entity Registrant Name	HARDINGE INC
Entity Central Index Key	0000313716
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding	11,659,012
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 11.  STOCK-BASED COMPENSATION

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

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

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

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

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

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

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

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

	September 30,		December 31,
	2011		2010
	(in thousands)
Unrecognized compensation cost	$	1,002	$	821
Expected weighted-average recognition period for unrecognized compensation cost, in years	1.4		1.4

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DERIVATIVE INSTRUMENTS & FAIR VALUE

9 Months Ended

Sep. 30, 2011

DERIVATIVE INSTRUMENTS & FAIR VALUE

DERIVATIVE INSTRUMENTS & FAIR VALUE

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

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

Derivative Instruments

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

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

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

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

	September 30, 2011				December 31, 2010
	Notional Amount		Unrealized (Loss)		Notional Amount		Unrealized (Loss)
	(in thousands)
Foreign currency forward contracts	$	84,330	$	(2,853)	$	2,161	$	(90)

Fair Value

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

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

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

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

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

	As of September 30, 2011
	Classification	Total		Level 1		Level 2		Level 3
		(in thousands)
Foreign currency forwards designated as hedges:
Prepaid expenses		$	225	$	-	$	225	$	-
Accrued expenses		$	3,078	$	-	$	3,078	$	-
Foreign currency forwards not designated as hedges:
Prepaid expenses		$	449	$	-	$	449	$	-
Accrued expenses		$	1,295	$	-	$	1,295	$	-

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

	As of December 31, 2010
	Classification	Total		Level 1		Level 2		Level 3
		(in thousands)
Foreign currency forwards designated as hedges:
Prepaid expenses		$	-	$	-	$	-	$	-
Accrued expenses		$	90	$	-	$	90	$	-
Foreign currency forwards not designated as hedges:
Prepaid expenses		$	254	$	-	$	254	$	-
Accrued expenses		$	16	$	-	$	16	$	-

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SIGNIFICANT RECENT EVENT

9 Months Ended

Sep. 30, 2011

SIGNIFICANT RECENT EVENT

SIGNIFICANT RECENT EVENT

NOTE 2 .  SIGNIFICANT RECENT EVENT

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

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

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

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2011

INTANGIBLE ASSETS

INTANGIBLE ASSETS

NOTE 5.  INTANGIBLE ASSETS

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

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INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES

INCOME TAXES

NOTE 6.  INCOME TAXES

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

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

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

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

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NEW ACCOUNTING STANDARDS

9 Months Ended

Sep. 30, 2011

NEW ACCOUNTING STANDARDS.

NEW ACCOUNTING STANDARDS

NOTE 14.  NEW ACCOUNTING STANDARDS

On January 1, 2011, we adopted Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition ASC Topic 605: Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 addresses the accounting for sales arrangements that include multiple products or services by revising the criteria for when deliverables may be accounted for separately rather than as a combined unit. Specifically, this guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is necessary to separately account for each product or service. This hierarchy provides more options for establishing selling price than existing guidance. The adoption of this standard did not have material impact on our consolidated results of operations and financial condition.

In June 2011, the Financial Accounting Standards Board issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires companies to present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate but consecutive statements.  ASU 211-05 will be effective for our fiscal year beginning January 1, 2012. ASU 2011-05 is to be applied retrospectively, and early adoption is permitted. Adoption of this pronouncement is not expected to have a material effect on our consolidated financial statements.

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WARRANTIES

9 Months Ended

Sep. 30, 2011

WARRANTIES

WARRANTIES

NOTE 7.  WARRANTIES

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands)
Balance at beginning of period	$	3,995	$	2,766	$	3,297	$	2,470
Warranties issued	951		1,168		3,146		3,040
Warranty settlement costs	(763)		(541)		(1,945)		(1,371)
Changes in accruals for pre-existing warranties	(322)		(329)		(823)		(1,012)
Currency translation adjustment	(193)		163		(7)		100
Balance at end of period	$	3,668	$	3,227	$	3,668	$	3,227

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

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2011

BASIS OF PRESENTATION

BASIS OF PRESENTATION

NOTE 1.  BASIS OF PRESENTATION

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

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

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

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NET INVENTORIES

9 Months Ended

Sep. 30, 2011

NET INVENTORIES

NET INVENTORIES

NOTE 3 .  NET INVENTORIES

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

Net inventories consisted of the following:

	September 30,		December 31,
	2011		2010
	(in thousands)
Raw materials and purchased components	$	47,780	$	34,113
Work-in-process	28,047		22,834
Finished products	49,961		48,359
Inventory, net	$	125,788	$	105,306

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2011

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 12.  EARNINGS PER SHARE

The computation of earnings per share is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(in thousands except per share data)
Basic earnings (loss) per share computation:
Net earnings (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Earnings allocated to participating awards	56		1		120		3
Net earnings (loss) applicable to common shareholders	$	4,194	$	(1,199)	$	8,624	$	(7,161)
Weighted-average common shares outstanding	11,467		11,409		11,461		11,409
Basic earnings (loss) per share	$	0.37	$	(0.11)	$	0.75	$	(0.63)
Diluted earnings (loss) per share computation:
Net earnings (loss)	$	4,250	$	(1,198)	$	8,744	$	(7,158)
Earnings allocated to participating awards	56		1		120		3
Net earnings (loss) applicable to common shareholders	$	4,194	$	(1,199)	$	8,624	$	(7,161)
Weighted average common shares outstanding	11,467		11,409		11,461		11,409
Assumed exercise of stock options	25		-		26		-
Assumed satisfaction of restricted stock conditions	1		-		-		-
Assumed satisfaction of performance share conditions	40		-		40		-
Weighted-average diluted shares outstanding	11,533		11,409		11,527		11,409
Diluted earnings (loss) per share	$	0.36	$	(0.11)	$	0.75	$	(0.63)

For the three months ended September 30, 2011 and 2010, 186,753 and 161,419 shares, respectively, of certain stock-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive. For the nine months ended September 30, 2011 and 2010, 175,225 and 141,380 shares, respectively, of certain stock-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Consolidated Balance Sheets
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, issued	12,472,992	12,472,992
Treasury shares	813,980	865,703