HDNG Hardinge Inc. (delisted)

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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 March 31, 2013

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.

One Hardinge Drive

Elmira, NY 14902

(Address of principal executive offices)  (Zip code)

(607) 734-2281

(Registrant’s telephone number including area code)

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

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

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

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

As of March 31, 2013 there were 11,758,543 shares of Common Stock of the registrant outstanding.

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HARDINGE INC. AND SUBSIDIARIES

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See accompanying notes to the consolidated financial statements

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See accompanying notes to the consolidated financial statements

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See accompanying notes to the consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2013

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(1) Represents the aggregate value of the trade name, trademarks and copyrights associated with the former worldwide operations of Bridgeport. We use the Bridgeport brand name on all of our machining center lines. After consideration of legal, regulatory, contractual, competitive, economic and other factors, the asset has been determined to have an indefinite useful life. The $0.2 million decrease in the balance from 2012 was the impact of foreign currency exchange.

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

Amortization expense related to these amortizable intangible assets was $0.3 million and $0.2 million for the three months ended March 31, 2013 and March 31, 2012, respectively.

NOTE 5.  INCOME TAXES

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

Each quarter, we estimate our full year tax rate for jurisdictions not subject to valuation allowances based upon our most recent forecast of full year anticipated results and adjust year-to-date tax expense to reflect our full year anticipated tax rate.  The rate is an estimate based upon projected results for the year, estimated annual permanent differences, the statutory tax rates in the various jurisdictions in which we operate, and the non-recognition of tax benefits for entities with full valuation allowances. The overall effective tax rate was 84.7% for the three months ended March 31, 2013.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2013

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

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

Warranty liabilities are reported as accrued expenses on our Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2013

NOTE 8.  FAIR VALUE AND DERIVATIVE INSTRUMENTS

Fair Value

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2013

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

The fair value of cash and cash equivalents and restricted cash are based on the fair values of identical assets in active markets.  The fair value of notes payable to bank and variable interest rate debt are based on the present value of expected future cash flows. Due to the short period to maturity or the nature of the underlying liability, the fair value of notes payable to bank and variable interest rate debt approximates their respective carrying amounts. The contingent purchase price payment represents the contingent liabilities associated with the earn-out provisions from the 2012 acquisition of Usach Technologies, Inc. and 2010 acquisition of Jones & Shipman. During the first quarter of 2013, the contingent purchase price payment related to the Jones & Shipman acquisition was paid.  The fair value of the contingent purchase price payment is based on the present value of the estimated aggregated payment amount. The fair value of foreign currency forward contracts is measured using internal models based on observable market inputs such as spot and forward rates. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments to be active. As of March 31, 2013 and December 31, 2012, there were no transfers in and out of Level 1, Level 2 or Level 3.

Derivative Instruments

We utilize foreign currency forward contracts to mitigate the impact of currency fluctuations on assets and liabilities denominated in foreign currencies as well as on forecasted transactions denominated in foreign currencies. These contracts are considered derivative instruments and are recognized as either assets or liabilities and measured at fair value. For contracts that are designated and qualify as cash flow hedges, the gain or loss on the contracts is reported as a component of other comprehensive income (“OCI”) and reclassified from accumulated other comprehensive income (“AOCI”) into “Sales” or “Other expense” line items on the Consolidated Statements of Operations when the hedged transaction affects earnings.  As of March 31, 2013, we do not expect material amount of the gain or loss will be reclassified from AOCI into “Sales” or “Other expense” in the next 12 months.  For contracts that are not designated as hedges, the gain and loss on the contract is recognized in current earnings as “Other expense” line item on the Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2013

As of March 31, 2013 and December 31, 2012, the notional amounts of the derivative financial instruments not qualifying or otherwise designated as hedges were $57.4 million and $60.5 million, respectively.  For the three months ended March 31, 2013 and March 31, 2012, we recorded a loss of $0.7 million and $0.2 million, respectively, related to this type of derivative financial instruments.

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

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

NOTE 9.  COMMITMENTS AND CONTINGENCIES

The Company is a defendant in various lawsuits as a result of normal operations and in the ordinary course of business.  Management believes the outcome of these lawsuits will not have a material effect on our financial position or results of operations.

Our operations are subject to extensive federal, state, local and foreign laws and regulations relating to environmental matters. Certain environmental laws can impose joint and several liabilities for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal.  Hazardous substances and adverse environmental effects have been identified with respect to real property we own and on adjacent parcels of real property.

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March 31, 2013

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

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

A substantial portion of the Pond is located on our property.  The Company, along with Beazer East, Inc., the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS Corporation and Toshiba America, Inc., the PRPs, have agreed to voluntarily participate in the Remedial Investigation and Feasibility Study (“RI/FS”) by signing an Administrative Settlement Agreement and Order of Consent on September 29, 2006.  On September 29, 2006, the Director of Emergency and Remedial Response Division of the EPA, Region II, approved and executed the Agreement on behalf of the EPA.  The PRPs also signed a PRP Member Agreement, agreeing to share the cost of the RI/FS study on a per capita basis.

The EPA approved the RI/FS Work Plan in May of 2008. On September 7, 2011, the PRPs submitted the draft Remedial Investigation Report to the EPA and on January 10, 2013, the draft Feasibility Study.  The draft Feasibility Study identified alternative remedial actions with estimated life-cycle costs ranging from $0.7 million to $3.4 million. We estimate that our portion of the potential costs range from $0.1 million to $0.5 million.

Based on the current estimated costs of the various remedial alternatives now under consideration by the EPA, we have recorded a reserve of $0.2 million for the Company’s share of remediation expenses at the Pond.  This reserve is reported as an accrued expense on the Consolidated Balance Sheets.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2013

NOTE 10.  STOCK BASED COMPENSATION

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

A summary of stock based compensation expense is as follows:

We did not grant any RSAs in the first quarter of 2013.  During the first quarter of 2012, we granted 18,000 RSAs. The fair value of the 2012 grant was $0.2 million.  The deferred compensation is being amortized on a straight-line basis over the specified service period. Unrecognized compensation and the expected weighted-average recognition periods with respect to the outstanding RSAs as of March 31, 2013 and December 31, 2012, are as follows:

During the first quarter of 2013 and 2012, we did not grant any PSIs. The deferred compensation with respect to the PSI is being recognized into earnings based on the passage of time and achievement of performance targets.  All outstanding PSIs are unvested.

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March 31, 2013

63,613 and 177,859 shares of certain stock-based awards were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2013 and March 31, 2012, respectively, as they were anti-dilutive.

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March 31, 2013

Details about reclassification out of AOCI for the period ended March 31, 2013 are as follows:

(a)  These AOCI components are included in the computation of net period pension and post retirement costs. See Note 7 - Pension and Post Retirement Plans for details.

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March 31, 2013

NOTE 13.  NEW ACCOUNTING STANDARDS

In December 2011, Financial Accounting Standards Board (the “FASB”) issued authoritative guidance on the presentation of netting assets and liabilities as a single amount in the balance sheet. This pronouncement amends and expands current disclosure requirements on offsetting and requires companies to disclose information about offsetting and related arrangements. We adopted this pronouncement on January 1, 2013.  The adoption of this pronouncement did not have a material effect on our consolidated results of operations and financial condition.

In February 2013, the FASB issued authoritative guidance that requires companies to report, in one place, information about reclassification of items out of accumulated other comprehensive income. We adopted this pronouncement on January 1, 2013.  The adoption of this pronouncement did not have a material effect on our consolidated results of operations and financial condition other than additional disclosure provided in Note 12.