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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 June 30, 2009

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)

Hardinge Inc.

One Hardinge Drive

Elmira, NY 14902

(Address of principal executive offices)  (Zip code)

(607) 734-2281

(Registrant’s telephone number including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  o  No  o

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

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

As of June 30, 2009 there were 11,532,252 shares of Common Stock of the Registrant outstanding.

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HARDINGE INC. AND SUBSIDIARIES

INDEX

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

See accompanying notes.

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HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands)

See accompanying notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2009

NOTE 1—BASIS OF PRESENTATION

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

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

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

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

NOTE 2 — REVENUE RECOGNITION

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 3 — SIGNIFICANT RECENT EVENTS

On March 16, 2009, we entered into a new financing arrangement with Manufacturers and Traders Trust Company (“M&T”), which provided the Company a $10 million term loan due March 16, 2010 secured by substantially all of the Company’s U.S. assets, as well as two thirds of the Company’s investment in Hardinge Holdings GmbH. Proceeds from the term loan were used to repay $8.0 million of Company indebtedness under the multi-currency secured credit facility entered into in June 2008. The multi-currency secured credit facility has been paid in full and terminated. The Company is currently evaluating long-term financing alternatives to replace the term loan with a flexible credit facility that could adjust to working capital needs as business volumes dictate.

At June 30, 2009, the Company had borrowings of $8.4 million outstanding under the term loan. At December 31, 2008, the Company had borrowings of $24.0 million outstanding under the former multi-currency secured credit facility. Total consolidated outstanding borrowings at June 30, 2009 and December 31, 2008 were $12.2 million and $28.1 million, respectively.  The reduction in debt was funded with cash flow from operations.  The Company had access of up to $27.4 million at June 30, 2009.

In response to the global economic recession, the Company is continually assessing and implementing cost reduction initiatives.

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

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

In May 2009, the Company implemented a series of actions in response to the continued weakness in the machine tool industry.  These actions included: a pay reduction for all U.S. based salaried employees, including corporate officers, by 5%, which, when combined with a similar action in February 2009, brings the year to date pay decreases to 10%; a reduction to the Board of Directors’ cash compensation of 10%; suspension of benefits under the U.S. defined benefit pension plan (which was closed to new participants in 2004), and suspension of Company contributions to the 401(K) program as of June 15, 2009.  The Company also implemented a ten week furlough for approximately 80 employees in the Elmira, NY machine manufacturing division.  The furlough ran from May 11 to July 17, 2009, with furloughed employees returning to work on July 20, 2009.

In June 2009, the Company announced it was closing its Exeter, England facility and consolidating operations into its Leicester, England facility. The Exeter facility was primarily used for back office support operations. In addition to cost savings, the consolidation with the Leicester facility will provide operational efficiencies.  In conjunction with the closure, the Company has also announced involuntary lay-offs and early retirements, reducing staff by 7 employees.  The Company expects to cease operational activities in Exeter by September 2009 and will exit the facility in December 2009, when the lease for the facility expires.  In connection with the closing of the Exeter facility, the Company recorded a charge of $0.2 million for severance related expenses in SG&A in the quarter ended June 30, 2009.  The Company also announced that it will be consolidating its German and Holland operations into a new technical center near Dusseldorf, Germany which will serve as the European hub of technical and warehousing support for turning, milling and workholding products.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 3 — SIGNIFICANT RECENT EVENTS (continued)

On July 21, 2009 the Company implemented additional involuntary lay-offs in North America, reducing staffing by 44 employees. The Company expects to record a $0.1 million charge for severance related expenses during the third quarter of 2009.

NOTE 4—STOCK-BASED COMPENSATION

We account for stock based compensation under Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R), which requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on the grant date fair value of the award.

We did not issue any new stock options during the first half of 2009 or 2008. We issued 46,000 stock options in December of 2008. The three months and six months ended June 30, 2009 expense recognized on these options was immaterial. All of the other previously awarded stock option grants were fully vested at the date of the adoption of SFAS 123R, thus, we did not recognize any share-based compensation expense related to those stock options.

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

The value of the restricted stock awarded in the six months ended June 30, 2009 and 2008 was $0.1 million and $0.5 million, respectively. Total share-based compensation expense relating to restricted stock for the three months and six months ended June 30, 2009 was $0.1 million and $0.2 million, respectively. Total share-based compensation expense for the three months and six months ended June 30, 2008 was $0.1 million and $0.2 million, respectively. At June 30, 2009, the compensation cost not yet recognized on these shares was $1.2 million, which will be amortized over a weighted average term of 2.5 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 5—EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING

Earnings per share are computed in accordance with Statement of Financial Accounting Standards No. 128 Earnings per Share (SFAS 128).   Basic (loss) earnings per share are computed using the weighted average number of shares of common stock outstanding during the period. For diluted earnings per share, the weighted average number of shares includes common stock equivalents related to stock options and restricted stock.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations required by SFAS 128: (dollars in thousands except for per share data)

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

NOTE 6—INVENTORIES

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS

We account for goodwill and intangibles in accordance with Statements of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible Assets.  SFAS 142 provides that goodwill and other separately recognized intangible assets with indefinite lives are no longer amortized, but reviewed at least annually for impairment or will be reviewed for impairment between annual tests if an event occurs or circumstances change that more likely than not would indicate the carrying amount may be impaired. Intangible assets that are determined to have a finite life will continue to be amortized over their estimated useful lives and are also subject to review for impairment.

At June 30, 2009, we do not have any goodwill on our balance sheet.  During 2008, we conducted impairment testing and noted that the implied fair value of our remaining goodwill and a portion of our intangible assets were $0, accordingly we recorded a goodwill impairment charge of $23.7 million in 2008 as well as $0.6 million impairment on other intangible assets.

Other intangible assets include $6.6 million representing the value of the name, trademarks and copyrights associated with the former worldwide operations of Bridgeport, which were acquired in 2004.  We use the Bridgeport brand name on all of our machining center lines, and therefore, the asset has been determined to have an indefinite useful life. These assets are reviewed annually for impairment under the provisions of SFAS 142. Amortizable intangible assets of $3.9 million include the Bridgeport technical information, patents, distribution agreements, and other items. The estimated useful lives of these intangible assets range from five to ten years.

NOTE 8—WARRANTIES

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 8—WARRANTIES (continued)

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

NOTE 9—INCOME TAXES

We continue to maintain a full valuation allowance on the tax benefits of our U.S. net deferred tax assets and we expect to continue to record a full valuation allowance on future tax benefits until an appropriate level of profitability in the U.S. is sustained. We also maintain a valuation allowance on our U.K., Germany, and Canadian deferred tax assets related to tax loss carryforwards in those jurisdictions, as well as all other deferred tax assets of those entities.

Each quarter, we estimate our full year tax rate for jurisdictions not subject to valuation allowances based upon our most recent forecast of full year anticipated results and adjust year to date tax expense to reflect our full year anticipated tax rate.  The effective tax rate was (2.2)%  and 1.7% for the three months and six months ended June 30, 2009, respectively.  The anticipated full year tax rate has been affected by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded.

The tax years 2005 to 2008 remain open to examination by United States taxing authorities, and for our other major jurisdictions (Switzerland, UK, Taiwan, Germany, Canada, and China), the tax years 2003 to 2008 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

At June 30, 2009 and December 31, 2008, we had a $2.3 million and $2.2 million liability recorded for uncertain income tax positions, respectively, which included interest and penalties of $0.6 and $0.5 million, respectively. If recognized, the liability with related penalties and interest at June 30, 2009 and December 31, 2008 would be recorded as a benefit to income tax expense on the Consolidated Statement of Operations.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 10—PENSION AND POST RETIREMENT PLANS

We account for defined benefit pension and other postretirement benefits in accordance with Statements of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of SFAS No. 87, 88, 106 and 132(R).

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

A summary of the components of net postretirement benefits costs for the consolidated company for the three and six months ended June 30, 2009 and 2008 is presented below:

The expected contributions to be paid during the year ending December 31, 2009 to the domestic defined benefit plan are $2.4 million.  Contributions to the domestic plans as of June 30, 2009 and 2008 were $1.3 million and $2.0 million, respectively.  The Company also provides defined benefit pension plans or defined contribution pension plans for some of its foreign subsidiaries.  The expected contributions to be paid during the year ending December 31, 2009 to the foreign defined benefit plans are $2.4 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.  As of June 30, 2009 and 2008, $1.2 million and $2.4 million of contributions have been made to the foreign plans, respectively. Each of the foreign plans requires employee and employer contributions, except for Taiwan, to which only employer contributions are made.  The postretirement plan special termination benefits are part of the voluntary early retirement plan discussed in Note 2.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 10—PENSION AND POST RETIREMENT PLANS (continued)

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

NOTE 11—REPORTING COMPREHENSIVE INCOME (LOSS)

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 12— DERIVATIVE FINANCIAL INSTRUMENTS

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161) an amendment to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.  The statement requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. We adopted SFAS 161 in the first quarter of fiscal 2009. Since SFAS 161 only required additional disclosure, the adoption did not impact our consolidated financial position, results of operations or cash flows.

We principally use derivative financial instruments to manage foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize foreign exchange risk. We have foreign currency exposure on receivables and payables that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the statement of operations. To minimize foreign currency exposure, we have foreign currency forwards with notional amounts of approximately $32.6 million and $22.1 million at June 30, 2009 and December 31, 2008, respectively.

The foreign currency forwards are recorded in the balance sheet at fair value and resulting gains or losses are recorded in the statements of operations, generally offsetting the gains or losses from the adjustments on the foreign currency denominated transactions and revaluation of the foreign currency denominated assets and liabilities. At June 30, 2009, the fair value of the foreign currency forwards was a $0.2 million asset, which was included in prepaid expenses and a $0.5 million liability which was included in accrued expenses. At December 31, 2008, the fair value of the foreign currency forwards was a $0.7 million asset, which was included in prepaid expenses. The (gain) loss recognized for derivative instruments in the statement of operations for the three and six month periods ended June 30, 2009 of ($0.2) and $0.4 million, respectively, was included in other (income) expense.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurement. SFAS No. 157 emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement. We adopted SFAS 157 as of  January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities, which was delayed by FSP FAS 157-2 to fiscal years beginning after November 15, 2008, which we adopted as of January 1, 2009. As of June 30, 2009, we do not have any significant non-recurring measurements of nonfinancial assets and nonfinancial liabilities.

Fair value is defined by SFAS No. 157 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. SFAS No. 157 defines the following fair value hierarchy:

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

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

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

The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis as of  June 30, 2009:

Fair value of foreign currency derivative assets and liabilities are determined by using market prices obtained from the banks using foreign currency spot rate and forward rates.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159) permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We have elected not to measure any additional financial instruments and other items at fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

In April 2009, the Company adopted the provisions of FSP SFAS No. 107-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS 107-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and APB Opinion No. 28, “Interim Financial Reporting.” FSP SFAS No. 107-1 requires disclosures about fair value of financial instruments in financial statements for interim reporting periods and in annual financial statements of publicly-traded companies. This FSP also requires entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim and annual basis and to highlight any changes from prior periods. The adoption of FSP SFAS 107-1 did not have a material impact on the Company’s consolidated financial position or results of operations.

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

NOTE 14—COMMITMENTS AND CONTINGENCIES

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

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

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

In particular, our Elmira, New York manufacturing facility is located within the Kentucky Avenue Wellfield on the National Priorities List of hazardous waste sites designated for cleanup by the United States Environmental Protection Agency (“EPA”) because of groundwater contamination.  The Kentucky Avenue Wellfield site encompasses an area of approximately three square miles which includes sections of the Town of Horseheads and the Village of Elmira Heights in Chemung County, New York. In February 2006, we received a Special Notice Concerning a Remedial Investigation/Feasibility Study (“RI/FS”) for the Koppers Pond (the “Pond”) portion of the Kentucky Avenue Wellfield site.  The EPA has documented the release and threatened release of hazardous substances into the environment at the Kentucky Avenue Wellfield Superfund site, including releases into and in the vicinity of the Pond.  The hazardous substances, including metals and polychlorinated biphenyls, have been detected in sediments in the Pond.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 14—COMMITMENTS AND CONTINGENCIES (continued)

A substantial portion of the Pond is located on our property.  We, along with Beazer East, Inc., the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS Corporation, and Toshiba America, Inc., the Potentially Responsible Parties (the “PRPs”) have agreed to voluntarily participate in the Remedial Investigation and Feasibility Study (“RI/FS”) by signing an Administrative Settlement Agreement and Order of Consent on September 29, 2006.  On September 29, 2006, the Director of Emergency and Remedial Response Division of the U.S. Environmental Protection Agency, Region II, approved and executed the Agreement on behalf of the EPA.  The PRPs also signed a PRP Member Agreement, agreeing to share the cost of the RI/FS study on a per capita basis.  The cost of the RI/FS was estimated to be approximately $0.8 million. We estimated our portion of the study to be $0.11 million for which we established a reserve. As of June 30, 2009 we have incurred expenses of $0.1 million, thus the remaining reserve balance at June 30, 2009 was $0.01 million. The PRPs developed a Draft RI/FS with their consultants and, following EPA comments, submitted a Revised RI/FS on December 6, 2007. In April 2008, the PRPs were notified that the EPA approved the RI/FS Work Plan which now includes the PRPs’ responses to EPA’s comments on their December 6th submission.

The PRPs commenced field work in the spring of 2008 and completed the field investigations that June. In the fall of 2008, the PRPs forwarded the results of the investigation to the EPA and the New York State Department of Environmental Conservation (“DEC”). During the winter and spring of 2009, the PRPs have been working with the EPA and the DEC to respond to comments and to clarify and resolve technical issues.

Until receipt of this notice, we had never been named as a PRP at the site or received any requests for information from the EPA concerning the site.  Environmental sampling on our property within this site under supervision of regulatory authorities has identified off-site sources for such groundwater contamination and sediment contamination in the Pond and has found no evidence that our operations or property have or are contributing to the contamination. Other than as described above, we have not established a reserve for any potential costs relating to this site, as it is too early in the process to determine our responsibility as well as to estimate any potential costs to remediate. We have notified all appropriate insurance carriers and are actively cooperating with them, but whether coverage will be available has not yet been determined and possible insurance recovery cannot now be estimated with any degree of certainty.

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

On May 22, 2008 the Company President and CEO separated from Hardinge Inc. In conjunction with his departure, the Company recognized $1.6 million in severance related expenses during the second quarter of 2008. At June 30, 2009 the liability on our balance sheet for this reserve was $0.6 million.

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

In February 2009, the Company re-offered a VERP which provided 10 weeks of severance pay in addition to the post-retirement health care costs.  The Company recorded a charge for the VERP of approximately $0.9 million during the quarter ended March 31, 2009. At June 30, 2009, the liability associated with these VERP’s was $1.7 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 15—SUBSEQUENT EVENTS

On July 21, 2009 the Company implemented additional involuntary lay-offs in North America, reducing staffing by 44 employees. The Company expects to record a $0.1 million charge for severance related expenses during the third quarter of 2009.

On August 4, 2009, in its Switzerland based operations, the Company announced a reduced work schedule resulting in cutbacks of 40% in most manufacturing and support operations. The Company is also planning a workforce reduction of approximately 65 employees in those operations, which would be effective near the end of the year after the statutorily mandated notification period.  The Company anticipates that it will record a charge for severance related expenses of between $0.3 million and $0.5 million in the second half of 2009.

On August 6, 2009, the Company announced strategic changes within the Elmira, NY manufacturing facility.  This facility has long been a vertically integrated operation with machining operations converting parts from raw castings to finished goods, the costs of which have proven to be prohibitive.  During the third quarter, the Company will begin moving towards a more variable cost business model, outsourcing many of the components and subassemblies for machines currently made in this facility.  In conjunction with this change, the Company will be closing significant sections of the manufacturing operation involved in parts production.  The Company expects that these changes will further reduce the Elmira workforce by approximately 70 employees.  The Company anticipates that it will record a charge for severance related expenses of between $1.0 million and $1.5 million in the second half of the year as a result of these strategic actions. In conjunction with these strategic changes, the Company anticipates that it will record a charge of up to $10.0 million for asset write-downs during the second half of the year.

NOTE 16—NEW ACCOUNTING STANDARDS

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“FAS 141R”). FAS 141R establishes principles and requirements for how an acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures goodwill acquired in a business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination. In addition, FAS 141R requires that changes in the amount of acquired tax attributes be included in the Company’s results of operations. FAS 141R became effective for the Company on January 1, 2009 and will be applied to business combinations that have an acquisition date on or after January 1, 2009. While FAS 141R applies only to business combinations with an acquisition date after its effective date, the amendments to FASB Statement No. 109, “Accounting for Income Taxes” (“FAS 109”), with respect to deferred tax asset valuation allowances and liabilities for income tax uncertainties, are being applied to all deferred tax valuation allowances and liabilities for income tax uncertainties recognized in prior business combinations. The adoption of FAS 141R has not impacted the Company’s consolidated financial statements for prior periods; however, the Company’s financial statements may be impacted to the extent the Company acquires entities in a purchase business combination in the future.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 16—NEW ACCOUNTING STANDARDS (continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This statement requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. We adopted SFAS 161 in the first quarter of fiscal 2009. Since SFAS 161 only required additional disclosure, the adoption did not impact our consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3 “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), and other U.S. Generally Accepted Accounting Principles (GAAP). This FSP applies to all intangible assets, whether acquired in a business combination or otherwise and shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and applied prospectively to intangible assets acquired after the effective date. The adoption of this statement did not have a material impact on our financial statements.

In June 2008, the FASB issued Staff Position (“FSP”) EITF Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”), in which the FASB concluded that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends or dividend equivalents are considered participating securities. Because the awards are considered participating securities, the issuing entity is required to apply the two-class method of computing basic and diluted earnings per share. The provisions of FSP EITF 03-6-1 became effective for the Company on January 1, 2009 and are being applied retrospectively to all prior-period earnings per share computations. The adoption of FSP EITF 03-6-1 did not impact net income attributable to the Company’s per common share for prior periods and is not expected to have a material impact on future periods.

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employer’s Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends FASB Statement No. 132 (Revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. Required disclosures address: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and significant concentrations of risk within plan assets. Disclosures required by this FSP shall be provided for fiscal years ending after December 15, 2009, and are not required for earlier periods presented for comparative purposes. We are currently evaluating the disclosure requirements of this new FSP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2009

NOTE 16—NEW ACCOUNTING STANDARDS (Continued)

In April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This FSP shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2009, the Company adopted the provisions of FSP SFAS No. 107-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS 107-1”), which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and APB Opinion No. 28, “Interim Financial Reporting.” FSP SFAS No. 107-1 requires disclosures about fair value of financial instruments in financial statements for interim reporting periods and in annual financial statements of publicly-traded companies. This FSP also requires entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim and annual basis and to highlight any changes from prior periods. The adoption of FSP SFAS 107-1 did not have a material impact on the Company’s consolidated financial position or results of operations. Disclosures required by SFAS 107 are included in Note 13.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are available to be issued (“subsequent events”). More specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that should be made about events or transactions that occur after the balance sheet date. SFAS 165 provides largely the same guidance on subsequent events which previously existed only in auditing literature. The Company adopted SFAS 165 in the second quarter of 2009.  We have evaluated subsequent events through August 6, 2009, the date this quarterly report on Form 10-Q was filed with the U.S. Securities and Exchange Commission. We made no significant changes to our condensed consolidated financial statements as a result of our subsequent events evaluation. Disclosures required by SFAS 165 are included in Note 15.

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PART I - ITEM 2

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

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

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

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

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

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

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

In May 2009, the Company implemented a series of actions in response to the continued weakness in the machine tool industry.  These actions included: a pay reduction for all U.S. based salaried employees, including corporate officers, by 5%, which, when combined with a similar action in February 2009, brings the year to date pay decreases to 10%; a reduction to the Board of Directors’ cash compensation of 10%; suspension of benefits under the U.S. defined benefit pension plan (which was closed to new participants in 2004), and suspension of Company contributions to the 401(K) program as of June 15, 2009.  The Company also implemented a ten week furlough for approximately 80 employees in the Elmira, NY machine manufacturing division.  The furlough ran from May 11 to July 17, 2009, with furloughed employees returning to work on July 20, 2009.

In June 2009, the Company announced it was closing its Exeter, England facility and consolidating operations into its Leicester, England facility.  The Exeter facility was primarily used for back office support operations. In addition to cost savings, the consolidation with the Leicester facility will provide operational efficiencies.  In conjunction with the closure, the Company has also announced involuntary lay-offs and early retirements, reducing staff by 7 employees.  The Company expects to cease operational

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activities in Exeter by September 2009 and will exit the facility in December 2009, when the lease for the facility expires. In connection with our closure of the Exeter facility, we recorded a charge of $0.2 million in SG&A for severance related expenses in the quarter ended June 30, 2009.

On July 21, 2009 the Company announced additional involuntary lay-offs in North America, reducing staffing by 44 employees. The Company expects to record a $0.1 million charge for severance related expenses during the third quarter of 2009.

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

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

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

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

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

We also expect that some of our customers and vendors may experience difficulty in maintaining the liquidity required to buy inventory or raw materials. We continue to monitor our customers’ financial condition in order to mitigate our accounts receivable collectibility risks.

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

On March 16, 2009, we entered into an agreement with a bank for a 366 day $10.0 million term loan.  This term loan replaced a multi-currency secured credit facility, which as of March 15, 2009 had an outstanding balance of $8.0 million. The term loan is secured by substantially all of the Company’s assets, a negative pledge on the Company’s headquarters in Elmira, NY and a pledge of  66 and 2/3% of the Company’s investment in Hardinge Holdings GmbH. Interest is based on one-month London Interbank

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Offered Rates (“LIBOR”) plus 5.0%.  The interest rate will increase by 1.0% to LIBOR plus 6.0% on September 30, 2009, with a minimum interest rate of 5.5% at all times.  The Company is currently evaluating long-term financing alternatives to replace the term loan with a flexible credit facility that could adjust to working capital needs as business volumes dictate.

Results of Operations

Summarized selected financial data for the three months and six months ended June 30, 2009 and 2008: