UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September~~March 3031, ~~2017~~2018



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 incorporation or organization)		(I.R.S. Employer Identification No.)

One Hardinge Drive Elmira, NY		14903
(Address of principal executive offices)		(Zip Code)

(607) 734-2281

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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. ýYes oNo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ýYes oNo

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



Large accelerated filer o		Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o
		Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes ýNo

As of ~~November~~April 330, ~~2017~~2018 there were 12,~~947~~966,~~752~~986 shares of Common Stock of the registrant outstanding.

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).
	Consolidated Balance Sheets at September 30, 2017 and December 31, 2016 (Audited)	3
	Consolidated Balance Sheets at March 31, 2018 and December 31, 2017 (Audited)	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016	4
	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2016	5
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2730
Item 4.	Controls and Procedures.	2730
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.	2831
Item 1A.	Risk Factors.	2831
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2831
Item 3.	Defaults Upon Senior Securities.	2831
Item 4.	Mine Safety Disclosures.	2831
Item 5.	Other Information.	2831
Item 6.	Exhibits.	2932
SIGNATURES		3033
Certifications

Table of Contents

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, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
	(Unaudited)
Assets
Cash and cash equivalents	$	3239,~~327~~478		$	2844,~~255~~958
Restricted cash	23,~~115~~712			2,~~923~~717
Accounts receivable, net	6062,~~750~~136			5561,~~573~~800
Inventories, net	~~114~~109,~~420~~445			~~107~~104,~~018~~502
Other current assets	109,~~815~~313			69,~~926~~076
Assets held for sale	5,~~682~~770			—5,647
Total current assets	~~226~~229,~~109~~854			~~200~~228,~~695~~700
Property, plant and equipment, net	5051,~~569~~673			5650,~~961~~790
Goodwill	6,~~641~~646			6,~~579~~677
Other intangible assets, net	26,~~434~~340			26,~~730~~386
Other non-current assets	6,~~163~~621			6,~~585~~396
Total non-current assets	8991,~~807~~280			9690,~~855~~249
Total assets	$	~~315~~321,~~916~~134		$	~~297~~318,~~550~~949
Liabilities and shareholders’ equity
Notes payable to bank	$	—		$	703
Accounts payable	27,671			26,362
Accounts payable	25,542			24,217
Accrued expenses	27,502			31,695
Accrued expenses	32,595			25,629
Customer deposits	24,623			23,852
Customer deposits	26,182			18,215
Accrued income taxes	1,542			1,370
Accrued income taxes	1,590			1,160
Total current liabilities	81,338			83,279
Current portion of long-term debt	—			2,923
Pension and postretirement liabilities	46,255			49,122
Total current liabilities	85,909			72,847
Deferred income taxes	5,539			5,217
Long-term debt	—			2,970
Other liabilities	2,366			2,405
Pension and postretirement liabilities	56,023			58,840
Total non-current liabilities	54,160			56,744
Deferred income taxes	4,088			3,800
Commitments and contingencies (see Note 11)
Other liabilities	1,167			3,152
Common stock ($0.01 par value, 20,000,000 authorized; shares issued 12,966,148 and 12,963,164)	130			130
Total non-current liabilities	61,278			68,762
Additional paid-in capital	122,546			122,140
Commitments and contingencies (see Note 10)
Retained earnings	96,702			94,882
Common stock ($0.01 par value, 20,000,000 authorized; shares issued 12,949,525 and 12,903,037)	129			129
Treasury shares (at cost, 2,000 and 0)	(22		)	—
Additional paid-in capital	121,925			121,015
Accumulated other comprehensive loss	(33,720		)	(38,226		)
Retained earnings	91,709			89,557
Total shareholders’ equity	185,636			178,926
Treasury shares (at cost, 6,850 and 9,243)	(71		)	(104		)
Total liabilities and shareholders’ equity	$	321,134		$	318,949
Accumulated other comprehensive loss	(44,963		)	(54,656		)
Total shareholders’ equity	168,729			155,941
Total liabilities and shareholders’ equity	$	315,916		$	297,550

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016			2017			2016
	2018			2017
	(Unaudited)						~~(Unaudited)~~
Sales	$	8479,~~991~~882		$	6764,~~211~~557		$	~~227,745~~		$	~~205,218~~
Cost of sales	5651,~~376~~744			4443,~~060~~388			~~151,114~~			~~135,770~~
Gross profit	28,~~615~~138			2321,~~151~~169			~~76,631~~			~~69,448~~
Selling, general and administrative expenses	20,~~701~~361			1917,~~992~~574			~~58,804~~			~~60,221~~
Research & development	3,~~887~~281			3,~~296~~559			~~11,222~~			~~9,953~~
Restructuring	~~789~~1,352			~~182~~1,436			~~2,767~~			~~608~~
Other expense, net	276			321			468			249
Other operating expense, net	509			155
Income (loss) from operations	2,~~962~~635			(~~640~~1,555		)	~~3,370~~			~~(1,583~~		)
Interest expense	135			142			346			427
Other non-operating (income) expense, net	(99		)	230
Interest income	(37		)	(56		)	(116		)	(192		)
Interest expense	49			105
Income (loss) before income taxes	2,864			(726		)	3,140			(1,818		)
Interest income	(51		)	(40		)
Income tax expense	665			657			466			666
Income (loss) before income taxes	2,736			(1,850		)
Net Income (loss)	$	2,199		$	(1,383	)	$	2,674		$	(2,484	)
Income tax expense	917			198
Per share data:
Net income (loss)	$	1,819		$	(2,048	)
Basic earnings (loss) per share:	$	0.17		$	(0.11	)	$	0.21		$	(0.19	)
Per share data:
Diluted earnings (loss) per share:	$	0.17		$	(0.11	)	$	0.21		$	(0.19	)
Basic earnings (loss) per share:	$	0.14		$	(0.16	)
Cash dividends declared per share:	$	—		$	0.02		$	0.04		$	0.06
Diluted earnings (loss) per share:	$	0.14		$	(0.16	)
Cash dividends declared per share:	$	—		$	0.02

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016			2017			2016
	2018			2017
	(Unaudited)						~~(Unaudited)~~
Net income (loss)	$	21,~~199~~819		$	(12,~~383~~048	)	$	~~2,674~~		$	~~(2,484~~	)
Other comprehensive income (loss):
Other comprehensive income:
Foreign currency translation adjustments	~~266~~4,058			~~(368~~4,258		)	~~9,199~~			~~531~~
Retirement plans related adjustments	~~1,058~~61			~~3,031~~276			~~807~~			~~4,333~~
Unrealized (loss) gain on cash flow hedges	(442		)	78			(510		)	210
Unrealized gain on cash flow hedges	422			231
Other comprehensive income (loss) before tax	882			2,741			9,496			5,074
Other comprehensive income before tax	4,541			4,765
Income tax (benefit) expense	(178		)	322			(197		)	427
Income tax expense	35			419
Other comprehensive income (loss), net of tax	1,060			2,419			9,693			4,647
Other comprehensive income, net of tax	4,506			4,346
Total comprehensive income (loss)	$	3,259		$	1,036		$	12,367		$	2,163
Total comprehensive income	$	6,325		$	2,298

See accompanying notes to the unaudited consolidated financial statements.

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HARDINGE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016
	2018			2017
	(Unaudited)
Operating activities
Net income (loss)	$	21,~~674~~819		$	(2,~~484~~048	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Impairment	~~1,401~~—			—1,401
Depreciation and amortization	62,~~694~~131			62,~~095~~157
Debt issuance costs amortization	~~139~~15			9832
Deferred income taxes	~~(229~~113		)	~~(705~~143		)
(Gain) loss on sale of assets	(3663		)	23(2		)
Unrealized foreign currency transaction (gain) loss	(489		)	219
Unrealized foreign currency transaction loss (gain)	137			(387		)
Changes in operating assets and liabilities:
Accounts receivable	(21,~~793~~021		)	9,~~761~~786
Restricted cash	941			(1,313		)
Inventories	(2,963		)	(8,208		)
Inventories	(4,037		)	(9,458		)
Other assets	323			(3,287		)
Other assets	(2,255		)	(988		)
Accounts payable	734			1,056
Accounts payable	172			(586		)
Customer deposits	91			2,887
Customer deposits	6,928			(1,604		)
Accrued expenses	(7,056		)	(4,823		)
Accrued expenses	1,747			(3,338		)
Accrued pension and postretirement liabilities	(124		)	(14		)
Accrued pension and postretirement liabilities	131			(65		)
Net cash used in operating activities	(3,822		)	(1,307		)
Net cash generated from (used in) operating activities	10,988			(4,345		)
Investing activities
Capital expenditures	(1,~~737~~417		)	(~~1,543~~480		)
Deposit on assets held for sale	516			—
Proceeds from sales of assets	63			3
Proceeds from sales of assets	57			38
Net cash used in investing activities	(1,354		)	(477		)
Net cash used in investing activities	(1,164		)	(1,505		)
Financing activities
Proceeds from short-term notes payable to bank	172,~~960~~454			357,~~974~~535
Repayments of short-term notes payable to bank	(182,~~705~~454		)	(357,~~974~~463		)
Repayments of long-term debt	~~(6,090~~—		)	(~~3,186~~762		)
Dividends paid	~~(516~~—		)	(~~792~~258		)
Net cash used in financing activities	~~(7,351~~—		)	(~~3,978~~948		)
Effect of exchange rate changes on cash	~~1,599~~691			(31,036		)
Net increase (decrease) in cash	4,072			(9,831		)
Net decrease in cash, cash equivalents, and restricted cash	(4,485		)	(1,696		)
Cash and cash equivalents at beginning of period	28,255			32,774
Cash, cash equivalents, and restricted cash at beginning of period	47,675			31,178
Cash and cash equivalents at end of period	$	32,327		$	22,943
Cash, cash equivalents, and restricted cash at end of period (1)	$	43,190		$	29,482

⁽¹⁾Restricted cash is held at various banks to collateralize outstanding letters of credit, which are held by customers as performance, bid, or pre-payment guarantees.

See accompanying notes to the unaudited consolidated financial statements.

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~March 3031, ~~2017~~2018

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

The Company operates through two reportable segments, Metalcutting Machine Solutions (“MMS”) and Aftermarket Tooling and Accessories (“ATA”). The MMS segment includes high precision computer controlled metalcutting turning machines, vertical machining centers, horizontal machining centers, grinding machines, and repair parts related to those machines. The ATA segment includes products, primarily collets and chucks, that are purchased by manufacturers throughout the lives of their Hardinge or other branded machines.

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 the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017. The preparation of financial statements in conformity with U.S. GAAP requires management 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 these estimates. All adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods have been presented and recorded. Due to differing business conditions and some seasonality, operating results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ended December 31, ~~2017~~2018.

Certain amounts in the ~~September~~March 3031, ~~2016~~2017 consolidated financial statements have been reclassified to conform to the current presentation.

~~NOTE~~In January 2018, the Company adopted Accounting Standards Update ("ASU") No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result, the Company reclassified $0.2 million from Cost of sales and $0. ~~FAIR~~1 ~~VALUE~~million OFfrom ~~FINANCIAL~~Selling, ~~INSTRUMENTS~~general and administrative expenses for the three months ended March 31, 2017, which represents the non-service component of the periodic net benefit cost, into Other non-operating expense on the Consolidated Statement of Operations. We recorded $0.1 million of income in Other non-operating income related to periodic benefit costs, other than service costs, for the three months ended March 31, 2018.

In January 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers. Accordingly, we have updated the following significant accounting policy:

Revenue Recognition

Beginning January 1, 2018, the Company has implemented the provisions of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("the new standard"), using the modified retrospective transition method applied to contracts not completed as of January 1, 2018.

The modified retrospective method allows for initial implementation of the revenue standard without restating prior years’ operational results. Our revenue accounting is similar under old and new standards, and consequently, we did not have any opening adjustment to Retained Earnings. See Note 16. "Revenue Recognition" to our unaudited financial statements included in this quarterly report.

We sell precision computer controlled metalcutting turning machines, grinding machines, machining centers, and repair parts and services related to those machines. We also supply high precision, standard and specialty workholding devices, and other machine tool accessories. We recognize revenue in a manner that depicts the transfer of promised goods and services

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2018

to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Our sales revenue is recognized at a point in time, when control of products is transferred to our customers based on contract terms. Transfer of control depends on contract terms and may be upon shipment from our facility, from a port near our facility, or upon delivery to our customers.

Revenue is recognized when the performance obligation under the terms of a contract with our customer is satisfied; generally, this occurs with the transfer of control of our machines, workholding devices, parts, or completion of a service. We typically have one performance obligation associated with each contract. Contract terms may include down-payments at the time the order is placed, and at other times during fulfillment. However, these payments do not impact our basic recognition policy.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Any variable consideration is estimated and included in the amount we will be entitled to in exchange for transferring promised goods or services, and is typically constrained and/or insignificant.

We sell repair parts for machines we have manufactured. We also provide technical support and repair services, generally related to our own machines. Our service contracts are typically for a defined single service (e.g. replace a damaged machine part) and a given price.

Our warranties are a simple guarantee that we will repair or replace a defective product and do not typically extend beyond one year. Warranties are generally included as part of the machine or parts sale.

We have adopted a number of simplifying assumptions allowed by the new standard:


•	Sales, value add, and other taxes which we collect concurrent with revenue-producing activities are excluded from revenue.


•	There is no adjustment required for any revenues from performance obligations satisfied in prior reporting periods.


•	In cases of advance payments, interest on contract financing payments are not recorded as income or disclosed because contracts are satisfied with one year.

NOTE 2. MERGERS AND ACQUISITIONS

Recent Merger Announcement

On February 12, 2018, Hardinge announced that it had entered into an Agreement and Plan of Merger (the “Merger

Agreement”) with Hardinge Holdings, LLC, a Delaware limited liability company (“Parent”), and Hardinge Merger Sub, Inc., a

New York corporation (“Acquisition Sub”), which are affiliates of Privet Fund LP and Privet Fund Management LLC

(collectively, “Privet”). Pursuant to the Merger Agreement, Parent has agreed to acquire the shares of Hardinge that Privet does

not beneficially own in an all-cash merger transaction (the “Merger”) for $18.50 per share valued at approximately $245.0

million, subject to approval of Hardinge shareholders and other customary closing conditions.

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

The following table presents the carrying amount, fair values, and classification level within the fair value hierarchy of financial instruments measured or disclosed at fair value on a recurring basis (in thousands):

September 30, 2017

December 31, 2016

Level of Fair Value Hierarchy

March 31, 2018

December 31, 2017

Level of Fair Value Hierarchy

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Assets:

Cash and cash equivalents

3239,~~327~~478

2844,~~255~~958

Level 1

Restricted cash

23,~~115~~712

2,~~923~~717

Level 1

Foreign currency forward contracts

~~404~~658

~~308~~583

Level 2

Liabilities:

Notes payable to bank

—

703

Level 2

Foreign currency forward contracts

935

1,048

Level 2

Variable interest rate debt

—

5,986

Level 2

Foreign currency forward contracts

1,254

566

Level 2

The fair value of cash and cash equivalents and restricted cash are based on the fair values of identical assets in active markets. ~~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 fair value of foreign currency forward contracts is measured using models based on observable market inputs such as spot and forward rates. Based on the Company’s continued ability to enter into forward contracts, the markets for the fair value instruments are considered to be active. As of ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, there were no significant transfers in and/or out of Level 1 and Level 2.

NOTE 34. INVENTORIES

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

Net inventories consist of the following (in thousands):

	September 30, 2017		December 31, 2016
	March 31, 2018		December 31, 2017
Raw materials and purchased components	$	3327,~~286~~578	$	3328,~~822~~557
Work-in-process	3439,~~506~~382		3133,~~799~~355
Finished products	4642,~~628~~485		4142,~~397~~590
Inventories, net	$	~~114~~109,~~420~~445	$	~~107~~104,~~018~~502

NOTE 45. DERIVATIVE FINANCIAL INSTRUMENTS

Foreign currency forward contracts are utilized 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 the “Sales” or “Cost of sales” line item on the Consolidated Statements of Operations when the underlying hedged transaction affects earnings, or “Other operating expense, net” when the hedging relationship is deemed to be ineffective. As of ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, the notional amounts of the derivative financial instruments designated to qualify for cash flow hedges were $3343.73 million and $4538.52 million, respectively. The Company expects approximately $0.51 million of expense, net of income tax effect, to be reclassified from AOCI to earnings within the next 12 months.

As of ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, the notional amounts of the derivative financial instruments not qualifying or otherwise designated as hedges were $3035.68 million and $3530.43 million, respectively. For the three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, losses of $0.84 million and gains of $0.56 million, respectively, were recorded related to this type of derivative financial instrument. For ~~the~~contracts ~~nine~~that ~~months~~are ~~ended~~not ~~September 30~~designated as hedges, ~~2017~~the ~~and~~gain ~~2016~~or loss on the contract is recognized in current earnings in the “Other operating expense, ~~losses~~net” ofline ~~$0.4~~item ~~million~~on ~~and~~the ~~gains~~Consolidated Statements of Operations.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

$0.03 million, respectively, were recorded related to this type of derivative financial instrument. For contracts that are not designated as hedges, the gain or loss on the contract is recognized in current earnings in the “Other expense, net” line item on the Consolidated Statements of Operations.

The following table presents the fair value on the Consolidated Balance Sheets of the foreign currency forward contracts (in thousands):

	September 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
Foreign currency forwards designated as hedges:
Other current assets	$	~~317~~333		$	~~153~~413
Accrued expenses	(~~903~~564		)	(~~264~~686		)
Foreign currency forwards not designated as hedges:
Other current assets	87325			~~155~~170
Accrued expenses	(~~351~~371		)	(~~302~~362		)
Foreign currency forwards, net	$	(~~850~~277	)	$	(~~258~~465	)

NOTE 56. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

	September 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
Land, buildings and improvements	$	7173,~~610~~018		$	8171,~~311~~914
Machinery, equipment and fixtures	7779,~~035~~204			7578,~~177~~168
Office furniture, equipment and vehicles	23,~~408~~949			2223,~~471~~633
Construction in progress	~~379~~789			~~272~~300
	172,432			179,231
	176,960			174,015
Accumulated depreciation	(~~121~~125,~~863~~287		)	(~~122~~123,~~270~~225		)
Property, plant and equipment, net	$	5051,~~569~~673		$	5650,~~961~~790

NOTE 67. GOODWILL AND INTANGIBLE ASSETS

Detail and activity of goodwill by segment is presented below (in thousands):

	MMS			ATA			Total
Goodwill	$	32,434		$	6,~~579~~677		$	39,~~013~~111
Accumulated impairment losses	(32,434		)	—			(32,434		)
Balance at December 31, 2016	—			6,579			6,579
Balance at December 31, 2017	—			6,677			6,677
Goodwill	32,434			6,~~579~~677			39,~~013~~111
Currency translation adjustments	—			62(31		)	62(31		)
Accumulated impairment losses	(32,434		)	—			(32,434		)
Balance at September 30, 2017	$	—		$	6,641		$	6,641
Balance at March 31, 2018	$	—		$	6,646		$	6,646

910

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

The major components of intangible assets other than goodwill are as follows (in thousands):

	September 30, 2017			December 31, 2016
	March 31, 2018			December 31, 2017
Gross amortizable intangible assets:
Technical know-how	$	12,~~979~~989		$	12,~~944~~997
Customer lists	9,~~011~~017			89,~~981~~026
Land rights	2,~~608~~765			2,~~498~~667
Patents, trade names, drawings, and other	4,~~408~~446			4,~~356~~420
Total gross amortizable intangible assets	29,~~006~~217			2829,~~779~~110
Accumulated amortization:
Technical know-how	(78,~~908~~187		)	(78,~~438~~067		)
Customer lists	(2,~~089~~316		)	(12,~~744~~204		)
Land rights	(~~356~~406		)	(~~304~~378		)
Patents, trade names, drawings, and other	(3,~~630~~717		)	(3,~~490~~670		)
Total accumulated amortization	(1314,~~983~~626		)	(1214,~~976~~319		)
Amortizable intangible assets, net	1514,~~023~~591			1514,~~803~~791
Indefinite lived intangible assets:
Trade names	11,~~411~~749			1011,~~927~~595
Intangible assets other than goodwill, net	$	26,~~434~~340		$	26,~~730~~386

Amortization expense related to the definite-lived intangible assets are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		2017		2016
	2018		2017
Amortization expense	$	~~313~~277	$	~~321~~312	$	~~937~~	$	~~961~~

NOTE 78. WARRANTIES

A reconciliation of the changes in the product warranty accrual, which is included in "Accrued expenses" in the Consolidated Balance Sheets, is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2017			2016			2017			2016
	2018			2017
Balance at the beginning of period	$	3,~~324~~355		$	3,~~824~~556		$	~~3,555~~		$	~~3,802~~
Warranties issued	~~396~~486			~~568~~439			~~1,241~~			~~1,649~~
Warranty settlement costs	58(285		)	(~~533~~420		)	~~(794~~		)	~~(1,680~~		)
Changes in accruals for pre-existing warranties	(~~324~~103		)	(~~141~~365		)	~~(704~~		)	~~(77~~		)
Currency translation adjustments	161			1456			~~157~~			38
Balance at the end of period	$	3,~~455~~514		$	3,~~732~~266		$	~~3,455~~		$	~~3,732~~

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

SEPTEMBER 30, 2017

NOTE 8. RESTRUCTURING CHARGES

In March 2017, management initiated a strategic restructuring program in our MMS segment with the goals of streamlining the Company's cost structure, increasing operational efficiencies and cash generation, and improving shareholder returns. This program consists of rationalizing certain product lines, consolidating certain European manufacturing operations, and selling certain assets. It is projected to be substantially complete by mid-2018 and is expected to generate annual pre-tax savings ranging from approximately $2.0 million to $2.5 million once fully implemented. We expect to incur costs of approximately $4.7 million, of which $1.4 million is a non-cash inventory impairment charge related to the product line rationalization.

As part of the above mentioned program, in September 2017, the Company agreed to sell a manufacturing facility in Biel, Switzerland for $9.8 million, excluding customary closing costs, for which a deposit of $0.5 million was received. The building and the related deposit are included in "Assets Held for Sale" and "Accrued Expenses" in the Consolidated Balance Sheets. The sale is expected to be finalized in the second quarter of 2018.

During September 2017, the Company initiated a strategic global realignment of our selling organization with a focus on unified regional sales channels to improve customer contact and service, a simplified product offering, and the elimination of redundancies. In addition, we have initiated a program to optimize our purchasing and supply chain management practices through consolidation of these teams into a single organization to leverage our global talent and buying power. This program is expected to provide cost savings of approximately $10.0 million per year beyond the March 2017 initiative, of which approximately $5.0 million will be from SG&A, primarily from headcount reductions, and $5.0 million will be from material cost savings. We expect to incur costs of approximately $2.0 million, primarily related to severance, in conjunction with this initiative. These costs will be incurred over the next several quarters.

The combined March 2017 initiative and the September 2017 global strategic program (the combined "Program") is intended to generate annual pre-tax savings ranging from approximately $12.0 million to $12.5 million once fully implemented in the latter part of 2018. The total costs estimates are included in the table below.

Restructuring charges are included in the "Restructuring" line item in the Consolidated Statements of Operations. The table below presents the total costs expected to be incurred in connection with the Program, the amount of costs that have been recognized during the three and nine months ended September 30, 2017 and the cumulative costs recognized to date by the Program (in thousands):

	Total Costs Expected to be Incurred		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017 (Cumulative costs recognized to date)
Restructuring:
Employee termination costs	$	3,319	$	615	$	1,008
Inventory Impairment	1,401		—		1,401
Facility related costs	1,373		43		158
Other related costs	561		131		200
Total Restructuring Activity	$	6,654	$	789	$	2,767

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

~~The~~NOTE ~~amounts accrued associated with the Program are included in "Accrued expenses" and "Inventory" in the Consolidated Balance Sheets~~9. RESTRUCTURING ACHARGES ~~rollforward of the accrued restructuring costs is presented below (in thousands):~~

Balance at December 31, 2016	$	—
Restructuring charges:
Employee termination costs	1,008
Inventory Impairment	1,401
Facility related costs	158
Other related costs	200
Total restructuring charges for the period	2,767
Cash expenditures	(882		)
Other adjustments to accrual	—
Foreign currency translation adjustment	131
Balance at September 30, 2017	$	2,016

~~NOTE~~As part of the above mentioned program, in September 2017, the Company agreed to sell a manufacturing facility in Biel, Switzerland for $9. ~~INCOME~~8 ~~TAXES~~million, excluding customary closing costs, for which a deposit of $0.5 million was received. The building and the related deposit are included in "Assets Held for Sale" and "Accrued Expenses" in the Consolidated Balance Sheets. The sale is expected to be finalized in the second quarter of 2018.

ADuring ~~valuation~~September ~~allowance~~2017, isthe ~~recorded~~Company ~~against~~initiated ~~all~~a orstrategic aglobal ~~portion~~realignment of ~~the~~our ~~deferred~~selling ~~tax~~organization ~~assets~~with ina ~~the~~focus ~~U.S.~~on unified regional sales channels to improve customer contact and service, ~~Canada~~a simplified product offering, Uand the elimination of redundancies.~~K.,~~ In ~~Germany~~addition, we have initiated a program to optimize our purchasing and ~~the~~supply ~~Netherlands~~chain management practices through consolidation of these teams into a single organization to leverage our global talent and buying power. This initiative is expected to be substantially completed in 2018.

~~Each~~The ~~quarter,~~combined aMarch ~~full~~2017 ~~year~~strategic ~~tax~~restructuring ~~rate~~program isand ~~estimated~~the ~~for~~September ~~jurisdictions~~2017 ~~not~~strategic ~~subject~~global torealignment ~~valuation~~program ~~allowances~~(together, ~~based upon~~ the ~~most~~"Program") ~~recent~~is ~~forecast~~intended ofto ~~full~~generate ~~year~~annual ~~anticipated results and the year~~pre-~~to-date~~ tax ~~expense~~savings isranging ~~adjusted~~from toapproximately ~~reflect~~$12.0 ~~the~~million ~~full~~to ~~year anticipated tax rate~~$12. ~~The~~5 ~~rate~~million isonce anfully ~~estimate~~implemented ~~based~~in ~~upon projected results for~~ the ~~year,~~latter ~~estimated~~part ~~annual~~of ~~permanent~~2018. ~~differences,~~We ~~the~~expect ~~statutory~~to ~~tax~~incur ~~rates~~total incosts ~~the~~of ~~various~~approximately ~~jurisdictions~~$7.5 inmillion, of which ~~the~~$1.4 ~~Company~~million ~~operates,~~is ~~and~~a ~~the~~ non-~~recognition~~cash ofinventory ~~tax~~impairment ~~benefits~~charge ~~for~~related ~~entities~~to ~~with~~product ~~full~~line ~~valuation allowances~~rationalization. The ~~overall~~total ~~effective~~costs ~~tax~~estimates ~~rate~~are ~~was~~included ~~23.2%~~in ~~and 14.8% for~~ the ~~three~~table ~~and nine months ended September 30, 2017~~below.

~~The~~Restructuring ~~tax~~charges ~~years~~are ~~2014~~included ~~through~~in ~~2016~~the ~~remain~~"Restructuring" ~~open~~line toitem ~~examination~~in by the ~~U.S.~~Consolidated ~~federal~~Statements ~~taxing~~of ~~authorities~~Operations. The ~~tax~~table ~~years~~below ~~2011~~presents ~~through~~the ~~2016~~total ~~remain~~costs ~~open~~expected to ~~examination~~be byincurred ~~the~~in ~~U.S.~~connection ~~state~~with ~~taxing~~the ~~authorities. For other major jurisdictions (Switzerland~~Program, ~~U.K.,~~the ~~Taiwan,~~amount ~~France,~~of ~~Germany,~~costs ~~Netherlands,~~that ~~China~~have ~~and~~been ~~India),~~recognized during the ~~tax~~three ~~years~~months ~~between~~ended ~~2009~~March 31, 2018, and ~~2016~~the ~~generally~~cumulative ~~remain~~costs ~~open~~recognized to ~~routine~~date ~~examination~~ by ~~foreign~~the ~~taxing~~Program ~~authorities,~~(in ~~depending on the jurisdiction.~~thousands):

At September 30, 2017, a liability of $1.4 million is recorded with respect to uncertain income tax positions, which includes related interest of $0.1 million. If recognized, essentially all of the uncertain tax positions and related interest at September 30, 2017 would be recorded as a benefit to income tax expense on the Consolidated Statements of Operations. It is reasonably possible that some of the uncertain tax positions pertaining to foreign operations may change within the next 12 months due to audit settlements and statute of limitations expirations. The change in uncertain tax positions for these potential settlements is estimated to be up to $1.2 million.



	Total Costs Expected to be Incurred		Costs Recognized for Three Months Ended March 31, 2018		Cumulative Costs Recognized to Date
Restructuring:
Employee termination costs	$	2,897	$	404	$	2,674
Inventory Impairment	1,401		—		1,401
Consulting fees	1,715		902		1,217
Facility related costs	862		11		206
Other related costs	663		35		360
Total Restructuring Activity	$	7,538	$	1,352	$	5,858

NOTE 10. 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 the financial position or results of operations.

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

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

In particular, the 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~~amounts ~~Avenue~~accrued ~~Wellfield~~associated ~~Site~~with (the ~~“Site”)~~Program ~~encompasses~~are anincluded ~~area~~in ~~which~~"Accrued ~~includes~~expenses" ~~sections of the Town of Horseheads and the Village of Elmira Heights~~ in ~~Chemung County, NY. In February 2006,~~ the ~~Company~~Consolidated ~~received~~Balance ~~a Special Notice Concerning a Remedial Investigation/Feasibility Study (“RI/FS”) for the Koppers Pond (the “Pond”) portion of the Site~~Sheets. ~~The~~ ~~EPA~~A ~~documented~~roll ~~the~~forward ~~release and threatened release~~ of ~~hazardous substances into~~ the ~~environment~~accrued atrestructuring ~~the~~costs ~~Site,~~is ~~including~~presented ~~releases~~below ~~into and~~ (in ~~the vicinity of the Pond. The hazardous substances, including metals and polychlorinated biphenyls, have been detected in sediments in the Pond.~~thousands):

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 the Company’s 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 the Company’s operations or property have contributed or are contributing to the contamination. All appropriate insurance carriers have been notified, and the Company is actively cooperating with them, but whether coverage will be available has not yet been determined and possible insurance recovery cannot be estimated with any degree of certainty at this time.



	Total
Balance at December 31, 2017	$	1,097
Restructuring charges:
Employee termination costs	404
Consulting fees	902
Facility related costs	11
Other related costs	35
Total restructuring charges	1,352

Cash expenditures	1,186
Foreign currency translation adjustment	(11		)
Balance at March 31, 2018	$	1,274

ANOTE ~~substantial portion of the Pond is located on the Company’s property~~10. ~~The~~ INCOME Company, along with Beazer East, Inc., the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS Corporation and Toshiba America, Inc., (collectively, the "PRP's"), agreed to voluntarily participate in the 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 PRP's also signed a PRP Member Agreement, agreeing to share the costs associated with the RI/FS study on a per capita basis. TAXES

~~The~~On ~~EPA~~December ~~approved~~22, 2017, the ~~RI/FS Work Plan in May of 2008~~U.S. Ingovernment ~~July~~enacted ~~of 2012~~ the ~~PRP's~~Tax ~~submitted~~Cuts aand ~~Remedial~~Jobs ~~Investigation~~Act (~~RI) to respond to EPA issues raised in~~ the ~~initial~~"Tax ~~draft RI~~Act"). InAt ~~January~~December ~~2016~~31, ~~the PRP's submitted a draft Feasibility Study (FS)~~2017, ~~also~~the toCompany ~~respond~~recorded toestimated ~~issues~~provisional ~~raised~~amounts byfor the ~~EPA~~deemed ~~about~~repatriation ~~previous~~transition ~~drafts~~tax ofimplemented ~~the~~by ~~FS. In July 2016,~~ the ~~EPA~~Tax ~~announced its proposed remediation plan based on an alternative put forth in a July 2016 Woodruff & Curran FS with an estimated total clean-up phase cost of $1~~Act.9 Staff ~~million.~~Accounting ~~The~~Bulletin ~~preferred~~118 ~~remedy~~("SAB ~~consists of the placement of a continuous six-inch thick soil and sand cap~~118"), ~~including~~provides aan ~~geotextile~~extended ~~membrane~~measurement ~~to act as a demarcation layer, over the Pond. The preferred remedy includes long-term monitoring and institutional controls. After a public comment~~ period, onto ~~December~~finalize ~~13, 2016,~~ the ~~EPA~~effect ~~issued a Certificate~~ of ~~Completion confirming that~~ the ~~RI/FS~~Tax ~~was~~Act ~~complete,~~for ~~confirming that all PRP obligations related to~~ the ~~RI/FS~~period ~~had~~of ~~been~~enactment. Tax ~~performed~~expense infor ~~accordance with~~ the ~~provisions~~three ofmonths ~~the~~ended ~~Administrative~~March ~~Settlement Agreement and Order on Consent~~31, ~~and~~2018 ~~approving~~includes ~~the~~no ~~remedy~~changes ~~selected~~from inthese ~~the~~initial ~~FS as the final response action for the Pond~~assessments.

InThe ~~June~~Financial ~~2017,~~Accounting ~~the~~Standards ~~EPA~~Board ~~issued~~("FASB") aStaff ~~Special~~Q&A, ~~Notice~~Topic ~~letter to~~No. ~~the~~5, ~~original~~Accounting ~~PRP’s~~for ~~and~~Global ~~two~~Intangible ~~new~~Low-Taxed ~~additional~~Income ~~parties~~ (~~Eaton Corporation and Elmira Water Board~~"GILTI") ~~requesting these PRPs to fund~~, ~~undertake,~~allows ~~and~~for ~~complete~~an ~~the~~election ~~remedy~~to account for ~~the~~GILTI ~~Pond. Shortly~~under ~~after,~~ the ~~EPA~~deferred ~~provided~~method awhich ~~proposed~~requires ~~Statement~~recognizing ofdeferred ~~Work~~taxes for ~~completion~~basis ofdifferences ~~the~~which ~~remedy~~will ~~(“SOW”)~~impact ~~and~~GILTI ~~the~~inclusion ~~EPA~~upon ~~agreed~~reversal toor ~~waive~~as ~~the~~a ~~past~~period ~~response~~cost. ~~costs~~The asCompany ~~defined~~is instill ~~the~~evaluating ~~RI/FS~~this ~~Order~~election ofand ~~Consent~~will incomplete ~~full~~its ifaccounting for the ~~parties~~Tax ~~could~~Act, ~~reach~~including athis ~~settlement~~election, ~~with~~within the ~~EPA~~measurement byperiod ~~September~~prescribed ~~30,~~by ~~2017~~SAB 118.

InA ~~September~~valuation ~~2017~~allowance ~~the~~is ~~nine~~recorded ~~participating~~against ~~PRPs~~all ~~privately~~or ~~negotiated~~a ~~and~~portion ~~finalized an allocation~~ of ~~costs amongst themselves, with 10.75% of~~ the ~~costs~~deferred ~~being~~tax ~~allocated~~assets toin the ~~Company~~U. ~~Based on the estimated cost of the present remedy of $1~~S.~~9 million~~, ~~and with credit for costs previously paid by the Company for the RI/FS~~Canada, ~~the remaining costs that have been allocated to the Company will not exceed $0~~U.~~2 million~~K., ~~The Company has the entire amount reserved as of September 30~~Germany, ~~2017.~~and ~~This reserve is reported in "Accrued expenses" in~~ the ~~Consolidated Balance Sheets~~Netherlands.

~~Based~~Each ~~upon~~quarter, ~~information~~a ~~currently~~full ~~available,~~year ~~except~~tax asrate ~~described~~is inestimated ~~the~~for ~~preceding~~jurisdictions ~~paragraphs,~~not ~~the~~subject ~~Company~~to ~~does~~valuation ~~not~~allowances ~~have~~based ~~material~~upon ~~liabilities~~the ~~for~~most ~~environmental~~recent ~~remediation.~~forecast ~~Though~~of ~~the~~full ~~foregoing~~year ~~reflects~~anticipated ~~the~~results ~~Company’s~~and ~~current~~the ~~assessment~~year-to-date astax itexpense ~~relates~~is adjusted to ~~environmental~~reflect ~~remediation~~the ~~obligations,~~full ityear anticipated tax rate. The rate is ~~possible~~an ~~that~~estimate ~~future~~based ~~remedial~~upon ~~requirements~~projected orresults ~~changes~~for the year, estimated annual permanent differences, the statutory tax rates in the ~~enforcement~~various ofjurisdictions ~~existing~~in ~~laws~~which ~~and~~the ~~regulations~~Company operates, ~~which~~and ~~are~~the ~~subject~~non-recognition toof ~~extensive~~tax ~~regulatory~~benefits ~~discretion,~~for ~~will~~entities ~~result~~with infull ~~material~~valuation ~~liabilities~~allowances. toThe overall effective tax rate was 33.5% for the ~~Company~~three months ended March 31, 2018.

The tax years 2014 through 2017 remain open to examination by the U.S. federal taxing authorities. The tax years 2012 through 2017 remain open to examination by the U.S. state taxing authorities. For other major jurisdictions (Switzerland, U.K., Taiwan, France, Germany, Netherlands, China, and India), the tax years between 2010 and 2017 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

At March 31, 2018, a liability of $1.2 million is recorded with respect to uncertain income tax positions, which includes related interest of $0.1 million. If recognized, essentially all of the uncertain tax positions and related interest at March 31, 2018 would be recorded as a benefit to income tax expense on the Consolidated Statements of Operations. It is reasonably possible that some of the uncertain tax positions pertaining to foreign operations may change within the next 12 months due to audit settlements and statute of limitations expirations. The change in uncertain tax positions for these potential settlements is estimated to be up to $0.9 million.

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

NOTE 11. ~~PENSION~~COMMITMENTS AND ~~POSTRETIREMENT PLANS~~CONTINGENCIES

	Pension Benefits						Postretirement Benefits
	Three Months Ended September 30,						Three Months Ended September 30,
	2017			2016			2017			2016
Service cost	$	493		$	566		$	3		$	3
Interest cost	1,510			1,662			18			19
Expected return on plan assets	(2,143		)	(2,305		)	—			—
Amortization of prior service credit	(79		)	(64		)	—			—
Amortization of transition asset	—			(78		)	—			—
Amortization of actuarial loss (gain)	943			951			(11		)	(14		)
Settlement loss (gain)	45			765			—			—
Net periodic cost	$	769		$	1,497		$	10		$	8
	Pension Benefits						Postretirement Benefits
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Service cost	$	1,467		$	1,695		$	9		$	9
Interest cost	4,511			5,010			54			57
Expected return on plan assets	(6,379		)	(6,942		)	—			—
Amortization of prior service credit	(233		)	(191		)	—			—
Amortization of transition asset	—			(234		)	—			—
Amortization of actuarial loss (gain)	2,810			2,850			(33		)	(42		)
Settlement loss (gain)	75			765			—			—
Net periodic cost	$	2,251		$	2,953		$	30		$	24

~~NOTE~~The 12Company’s operations are subject to extensive federal, state, local, and foreign laws and regulations relating to environmental matters. ~~STOCK~~ ~~BASED~~Certain ~~COMPENSATION~~environmental laws can impose joint and several liability for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal. Hazardous substances and adverse environmental effects have been identified with respect to real property owned by the Company, and on adjacent parcels of real property.

~~The~~In ~~Company's~~particular, ~~2011~~the ~~Incentive~~Elmira, ~~Stock~~NY ~~Plan~~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 "~~Plan~~Site"), asencompasses ~~amended~~an onarea ~~May~~which 6,includes ~~2014,~~sections ~~permits~~of the ~~grant~~Town of ~~several~~Horseheads ~~types~~and the Village of ~~incentives,~~Elmira ~~including~~Heights ~~share~~in ~~options~~Chemung County, ~~non-qualified~~NY. ~~stock~~In ~~options~~February 2006, ~~stock~~the ~~appreciation~~Company ~~rights,~~received ~~restricted~~a ~~stock~~Special ~~awards~~Notice Concerning a Remedial Investigation/Feasibility ~~units~~Study (~~“RSAs”~~"RI/FS") ~~and~~for ~~performance~~the ~~share~~Koppers ~~incentives~~Pond (the “~~PSIs~~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.

~~Stock~~Until ~~Options~~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 the Company’s property within the 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 the Company’s operations or property have contributed or are contributing to the contamination. All appropriate insurance carriers have been notified, and the Company is actively cooperating with them, but whether coverage will be available has not yet been determined and possible insurance recovery cannot be estimated with any degree of certainty at this time.

~~There~~A ~~were~~substantial ~~255~~portion of the Pond is located on the Company’s property. The Company,~~000~~ ~~non-qualified~~along ~~stock~~with ~~options~~Beazer ~~granted~~East, inInc., the ~~nine~~Village ~~months~~of ~~ended~~Horseheads, ~~September 30~~the Town of Horseheads, ~~2017~~the County of Chemung, CBS Corporation and Toshiba America, Inc., ~~There~~(collectively, ~~are~~the no"PRP's"), ~~other~~agreed ~~vested~~to orvoluntarily ~~unvested~~participate ~~stock~~in ~~options~~the ~~outstanding~~RI/FS by signing an Administrative Settlement Agreement and Order of Consent (the "Settlement Agreement") on September 29, 2006. On ~~The~~September ~~fair~~29, ~~market~~2006, ~~value~~the Director of ~~stock~~Emergency ~~options~~and isRemedial ~~estimated~~Response ~~using~~Division of the ~~Black-Scholes~~EPA, ~~valuation~~Region ~~model~~II, ~~using~~approved and executed the ~~following~~Agreement ~~assumptions:~~on behalf of the EPA. The PRP's also signed a PRP Member Agreement, agreeing to share the costs associated with the RI/FS study on a per capita basis.

The EPA approved the RI/FS Work Plan in May of 2008. In July of 2012 the PRP's submitted a Remedial Investigation (RI) to respond to issues raised by the EPA in the initial draft RI. In January 2016, the PRP's submitted a draft Feasibility Study (FS), also to respond to issues raised by the EPA about previous drafts of the FS. In July 2016, the EPA announced its proposed remediation plan based on an alternative put forth in a July 2016 Woodruff & Curran FS with an estimated total clean-up phase cost of $1.9 million. The preferred remedy consists of the placement of a continuous six-inch thick soil and sand cap, including a geotextile membrane to act as a demarcation layer, over the Pond. The preferred remedy includes long-term monitoring and institutional controls. After a public comment period, on December 13, 2016, the EPA issued a Certificate of Completion confirming that the RI/FS was complete, confirming that all PRP obligations related to the RI/FS had been performed in accordance with the provisions of the Settlement Agreement, and approving the remedy selected in the FS as the final response action for the Pond.

In June 2017, the EPA issued a Special Notice letter to the original PRP’s and two new additional parties (Eaton Corporation and Elmira Water Board) requesting these PRPs to fund, undertake, and complete the remedy for the Pond. Shortly after, the EPA provided a proposed Statement of Work for completion of the remedy (“SOW”) and the EPA agreed to waive the past response costs as defined in the Settlement Agreement in full if the parties could reach a settlement with the EPA by September 30, 2017.

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

	Nine Months Ended September 30, 2017
Expected volatility	37.0% - 38.5%
Expected dividend yield	0.0% - 0.66%
Risk free rate	1.32% - 1.97%
Expected term (in years)	6.0 - 6.5
Weighted average grant date fair value	$4.52
Weighted average exercise price	$12.05

In September 2017 the nine participating PRPs privately negotiated and finalized an allocation of costs amongst themselves, with 10.75% of the costs being allocated to the Company. Based on the estimated cost of the present remedy of $1.9 million, and with credit for costs previously paid by the Company for the RI/FS, the remaining costs that have been allocated to the Company will not exceed $0.2 million. The Company has the entire amount reserved as of March 31, 2018. This reserve is reported in "Accrued expenses" in the Consolidated Balance Sheets.

~~Stock~~In ~~options~~February ~~vest~~2018 ~~over~~the aPRP ~~two~~Group orselected ~~three-year period based on either~~ a ~~service~~Site ~~period or a combination of service period~~ and ~~performance~~Project ~~measures. Deferred~~Coordinator ~~compensation~~to ~~for~~assist ~~stock~~in ~~options~~implementation isof ~~amortized~~the onSOW ~~a straight-line basis~~ for ~~stock~~the ~~options~~remedy. ~~which~~It ~~vest over a specified service period, and~~ is ~~recognized~~contemplated ~~ratably for stock options, which also have a performance requirement to the extent~~ that itmost isof ~~probable that~~ the ~~performance~~required ~~target~~work will be ~~met.~~completed in ~~All stock options granted have a ten-year contractual term~~2018.

~~The~~Based ~~aggregate~~upon ~~intrinsic~~information ~~value~~currently ofavailable ~~stock~~the ~~options~~Company atdoes ~~September 30,~~not ~~2017~~have ~~was~~material ~~$0.8~~liabilities ~~million,~~for ~~which~~environmental isremediation, ~~calculated~~except as described in the ~~difference~~preceding ~~between~~paragraphs. Though the ~~stock~~foregoing ~~price~~reflects the Company’s current assessment as ofit ~~September 30~~relates to environmental remediation obligations, ~~2017~~it ~~and~~is ~~the~~possible ~~exercise~~that ~~price~~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 ~~option~~Company.

~~Restricted~~Litigation ~~Stock/~~Relating ~~Unit~~to ~~Awards~~the ~~("RSAs")~~Merger

~~There~~On ~~were~~April 424,~~350~~ ~~RSAs~~2018, ~~granted~~a ~~during~~purported class action complaint relating to the ~~nine~~Merger ~~months~~was ~~ended~~filed ~~September 30,~~in ~~2017,~~the United States District Court for the Western District of New York on behalf of a putative class of Hardinge’s public shareholders (the “federal case”). The complaint in the federal case alleges that Hardinge and noits ~~awards~~directors breached federal securities laws by failing to disclose material information in the ~~same~~preliminary ~~period~~form of ~~2016~~the 2018 proxy statement filed on February 13, 2018. ~~There~~ ~~were~~In 6addition,~~850~~ ~~RSAs~~on ~~forfeited~~April ~~during~~16, 2018, a purported class action complaint relating to the ~~nine~~Merger ~~months~~was ~~ended~~filed ~~September 30~~in the Supreme Court of the State of New York, ~~2017.~~County of Chemung (the “state case”). The ~~deferred~~complaint ~~compensation~~in ~~for~~the ~~RSAs~~state iscase ~~amortized~~alleges onthat aHardinge ~~straight-line~~and ~~basis~~its ~~over~~directors breached their fiduciary duties by entering into the ~~specified~~Merger ~~service~~Agreement ~~period~~and by failing to disclose allegedly material information in connection with the Merger. The complaints seek, ~~which~~among ~~ranges~~other ~~from~~things, ~~three~~injunctive torelief ~~four~~preventing ~~years~~the consummation of the merger, damages and an award of plaintiff’s expenses and attorneys’ fees. We believe that the claims asserted are without merit.

~~Performance~~NOTE ~~Share~~12. PENSION ~~Incentives~~AND ~~("PSIs")~~POSTRETIREMENT PLANS

A summary of the components of net periodic pension and postretirement benefit costs for the three months ended March 31, 2018 and 2017 is presented below (in thousands):

There were 42,350 PSIs granted during the nine months ended September 30, 2017, and no awards in the same period of 2016. There were 8,161 PSIs forfeited during the nine months ended September 30, 2017. The deferred compensation with respect to the PSIs is being recognized into earnings based on the passage of time and achievement of performance targets.



	Pension Benefits						Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2018			2017
Service cost	$	505		$	487		$	3		$	3
Interest cost	1,385			1,498			16			18
Expected return on plan assets	(2,224		)	(2,110		)	—			—
Amortization of prior service credit	(81		)	(76		)	—			—
Amortization of transition asset	—			—			—			—
Amortization of actuarial loss (gain)	805			932			(10		)	(11		)
Settlement loss (gain)	10			—			—			—
Net periodic cost	$	400		$	731		$	9		$	10

~~Compensation~~The ~~Costs~~components of net periodic benefit cost other than the service cost component are included in "Other non-operating expense, net" in the Consolidated Statement of Operations.

Stock based compensation costs are based on estimated fair values. The fair value of service and performance based stock awards are based on the market value on the date of the grant. The fair value of stock options are estimated using a Black-Scholes valuation model. All stock based compensation to employees is recorded as "Selling, general and administrative expenses" in the Consolidated Statements of Operations. These non-cash compensation costs are included in the depreciation and amortization amounts in the Consolidated Statements of Cash Flows.

A summary of stock based compensation expense is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Stock Options	$	103	$	—	$	135	$	—
Restricted stock/unit awards (“RSA”)	57		67		164		190
Performance share incentives (“PSI”)	28		—		67		—
Total stock based compensation	$	188	$	67	$	366	$	190

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

~~Unrecognized~~NOTE ~~compensation~~13. STOCK ~~and~~BASED ~~the expected weighted-average recognition periods with respect to the outstanding RSAs and PSIs as of September 30, 2017 and December 31, 2016, are as follows:~~COMPENSATION

	September 30, 2017						December 31, 2016
	Stock Options		RSAs		PSIs		Stock Options		RSAs		PSIs
Unrecognized compensation cost (in thousands)	$	1,019	$	335	$	818	$	—	$	113	$	520
Expected weighted-average recognition period for unrecognized compensation cost (in years)	2.44		1.30		1.20		N/A		0.92		0.97

The Company's 2011 Incentive Stock Plan (the "Plan"), as amended on May 6, 2014, permits the grant of several types of incentives, including share options, non-qualified stock options, stock appreciation rights, restricted stock awards/ units (“RSAs”) and performance share incentives ("PSIs").

~~NOTE~~Stock ~~13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS~~Options

~~Changes~~There inwere ~~AOCI~~310,000 bynon-qualified ~~component~~stock ~~for~~options ~~the~~outstanding ~~three~~at ~~and~~March 31, ~~nine~~2018. There were no non-qualified stock options granted or forfeited in the three months ended ~~September~~March 3031, ~~2017~~2018. ~~and~~The ~~2016~~fair ~~are~~market asvalue ~~follows~~of ~~(in~~stock ~~thousands)~~options is estimated using the Black-Scholes valuation model using the following assumptions:

	Three Months ended September 30, 2017
	Three Months Ended March 31, 2018
	Foreigncurrencytranslationadjustments			Retirementplans relatedadjustments			Unrealizedgain (loss) oncash flowhedges			Accumulatedothercomprehensiveloss
Expected volatility	36.6% - 38.5%
Beginning balance, net of tax	$	24,228		$	(70,188	)	$	(63	)	$	(46,023	)
Expected dividend yield	0.0% - 0.66%
Other comprehensive income (loss) before reclassifications	266			160			(84		)	342
Risk free rate	1.32% - 2.02%
Less: (Loss) income reclassified from AOCI	—			(898		)	358			(540		)
Expected term (in years)	6.0 - 6.5
Net other comprehensive income (loss)	266			1,058			(442		)	882
Weighted average grant date fair value	$4.81
Income taxes	(259		)	147			(66		)	(178		)
Weighted average exercise price	$12.64
Ending balance, net of tax	$	24,753		$	(69,277	)	$	(439	)	$	(44,963	)

	Three Months Ended September 30, 2016
	Foreigncurrencytranslationadjustments			Retirementplans relatedadjustments			Unrealizedgain (loss) oncash flowhedges			Accumulatedothercomprehensiveloss
Beginning balance, net of tax	$	21,359		$	(67,815	)	$	(29	)	$	(46,485	)
Other comprehensive (loss) income before reclassifications	(368		)	1,471			204			1,307
Less: (loss) income reclassified from AOCI	—			(1,560		)	126			(1,434		)
Net other comprehensive (loss) income	(368		)	3,031			78			2,741
Income taxes	256			53			13			322
Ending balance, net of tax	$	20,735		$	(64,837	)	$	36		$	(44,066	)

Stock options vest over a two or three-year period based on either a service period or a combination of service period and performance measures. Deferred compensation for stock options is amortized on a straight-line basis for stock options which vest over a specified service period, and is recognized ratably for stock options, which also have a performance requirement, to the extent that it is probable that the performance target will be met. Deferred compensation on stock options is adjusted for actual forfeitures when they occur. All stock options granted have a ten-year contractual term.

The aggregate intrinsic value of stock options at March 31, 2018 was $1.8 million, which is calculated as the difference between the stock price as of March 31, 2018 and the exercise price of the option. There are currently no vested and exercisable stock options outstanding.

Restricted Stock/ Unit Awards

There were 37,875 RSAs outstanding at March 31, 2018, all of which are unvested. There were no RSAs granted, and 2,625 RSAs forfeited, during the three months ended March 31, 2018. The deferred compensation for RSAs is amortized on a straight-line basis over the specified service period and is adjusted for actual forfeitures when they occur.

Performance Share Incentives

There were 40,378 PSIs outstanding at March 31, 2018, all of which are unvested. There were no PSIs granted, and 4,207 PSIs forfeited, during the three months ended March 31, 2018. The deferred compensation for PSIs is amortized based on the passage of time and achievement of performance targets and is adjusted for actual forfeitures when they occur.

Compensation Costs

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

	Nine Months Ended September 30, 2017
	Foreigncurrencytranslationadjustments			Retirementplans relatedadjustments			Unrealizedgain (loss) oncash flowhedges			Accumulatedothercomprehensiveloss
Beginning balance, net of tax	$	15,483		$	(70,102	)	$	(37	)	$	(54,656	)
Other comprehensive income (loss) before reclassifications	9,199			(1,812		)	(263		)	7,124
Less: (loss) income reclassified from AOCI	—			(2,619		)	247			(2,372		)
Net other comprehensive income (loss)	9,199			807			(510		)	9,496
Income taxes	(71		)	(18		)	(108		)	(197		)
Ending balance, net of tax	$	24,753		$	(69,277	)	$	(439	)	$	(44,963	)

A summary of stock based compensation expense is as follows (in thousands):

	Nine Months Ended September 30, 2016
	Three Months Ended March 31,
	Foreigncurrencytranslationadjustments		Retirementplans relatedadjustments			Unrealizedgain (loss) oncash flowhedges			Accumulatedothercomprehensiveloss
	2018		2017
Beginning balance, net of tax	$	20,529	$	(69,100	)	$	(142	)	$	(48,713	)
Stock Options	$	139	$	—
Other comprehensive income (loss) before reclassifications	531		1,185			320			2,036
Restricted stock/unit awards (“RSA”)	30		41
Less: (loss) income reclassified from AOCI	—		(3,148		)	110			(3,038		)
Performance share incentives (“PSI”)	39		7
Net other comprehensive income (loss)	531		4,333			210			5,074
Total stock based compensation	$	208	$	48
Income taxes	325		70			32			427
Ending balance, net of tax	$	20,735	$	(64,837	)	$	36		$	(44,066	)

Deferred compensation and the expected weighted-average recognition periods with respect to the outstanding Stock Options, RSAs and PSIs as of March 31, 2018 and December 31, 2017, are as follows:



	March 31, 2018						December 31, 2017
	Stock Options		RSAs		PSIs		Stock Options		RSAs		PSIs
Unrecognized compensation cost (in thousands)	$	1,067	$	305	$	317	$	1,207	$	362	$	412
Expected weighted-average recognition period for unrecognized compensation cost (in years)	2.01		2.08		2.08		2.26		1.97		2.31

NOTE 14. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in AOCI by component for the three months ended March 31, 2018 and 2017 are as follows (in thousands):



	Three Months Ended March 31, 2018
	Foreign currency translation adjustments		Retirement plans related adjustments			Unrealized gain (loss) on cash flow hedges			Accumulated other comprehensive loss
Beginning balance, net of tax	$	25,349	$	(63,203	)	$	(372	)	$	(38,226	)
Other comprehensive income (loss) before reclassifications	4,058		(663		)	591			3,986
Less: (loss) income reclassified from AOCI	—		(724		)	169			(555		)
Net other comprehensive income (loss)	4,058		61			422			4,541
Income taxes	15		(47		)	67			35
Ending balance, net of tax	$	29,392	$	(63,095	)	$	(17	)	$	(33,720	)



	Three Months Ended March 31, 2017
	Foreign currency translation adjustments		Retirement plans related adjustments			Unrealized gain (loss) on cash flow hedges			Accumulated other comprehensive loss
Beginning balance, net of tax	$	15,483	$	(70,102	)	$	(37	)	$	(54,656	)
Other comprehensive income (loss) before reclassifications	4,258		(569		)	82			3,771
Less: (loss) income reclassified from AOCI	—		(845		)	(149		)	(994		)
Net other comprehensive income (loss)	4,258		276			231			4,765
Income taxes	417		(10		)	12			419
Ending balance, net of tax	$	19,324	$	(69,816	)	$	182		$	(50,310	)

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

Details about reclassification out of AOCI for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017 are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,						Affected line item on the Consolidated Statements of Operations
	Three Months Ended March 31,						Affected line item on the Consolidated Statements of Operations
Details of AOCI components	~~2017~~2018			~~2016~~2017			~~2017~~			~~2016~~
Unrealized gain (loss) on cash flow hedges:
	$	~~342~~(266	)	$	39(138	)	$Sales	~~222~~		$	62		~~Sales~~
	16			87			25			48			Other expense, net
	435			(11		)	Other operating expense, net
	358			126			247			110			Total before tax
	169			(149		)	Total before tax
	69			21			60			18			Income taxes
	111			(24		)	Income taxes
	$	~~427~~280		$	~~147~~(173	)	$Net of tax	~~307~~		$	~~128~~		~~Net of tax~~
Retirement plans related adjustments:
Amortization of prior service credit	$	7981		$	6476		$(a)	~~233~~		$	~~191~~		~~(a)~~
Amortization of transition asset	—			78—			—(a)			~~234~~			~~(a)~~
Amortization of actuarial loss	(~~932~~795		)	(~~937~~921		)	(~~2,777~~a)		)	~~(2,808~~		)	~~(a)~~
Settlement loss	(4510		)	~~(765~~—		)	(75a)		)	~~(765~~		)	~~(a)~~
	(898		)	(1,560		)	(2,619		)	(3,148		)	Total before tax
	(724		)	(845		)	Total before tax
	100			228			284			396			Income taxes
	59			88			Income taxes
	$	(~~798~~665	)	$	(~~1,332~~757	)	$Net of tax	~~(2,335~~	)	$	~~(2,752~~	)	~~Net of tax~~

(a) These AOCI components are included in the computation of net periodic pension and post retirement costs. See Note 1112. "Pension and Postretirement Plans" for ~~details~~more information.

NOTE 1415. EARNINGS (LOSS) PER SHARE

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Numerator for basic and diluted loss per share:
Net earnings (loss) applicable to common shareholders	$	2,199	$	(1,383	)	$	2,674	$	(2,484	)
Denominator for basic and diluted loss per share:
Denominator for basic and diluted loss per share — weighted average shares	12,907		12,835			12,894		12,815
Assumed exercise of stock options	21		—			7		—
Assumed satisfaction of restricted stock conditions	56		—			43		—
Denominator for diluted earnings per share — adjusted weighted average shares	12,984		12,835			12,944		12,815

Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. In periods of earnings, the weighted average number of shares used in the diluted calculation includes common stock equivalents related to stock options and restricted stock. The following table presents the basis of the earnings per share computation (in thousands):

Common stock equivalents of certain stock-based awards totaling 221,076 and 99,384 were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2017, respectively, as they were anti-dilutive. There is no dilutive effect of the restricted stock and stock options for the three and nine months ended



	Three Months Ended March 31,
	2018		2017
Numerator for basic and diluted loss per share:
Net earnings (loss) applicable to common shareholders	$	1,819	$	(2,048	)

Denominator for basic and diluted loss per share:
Denominator for basic and diluted loss per share — weighted average shares	12,941		12,880
Assumed exercise of stock options	96		—
Assumed satisfaction of restricted stock conditions	29		—
Denominator for diluted earnings per share — adjusted weighted average shares	13,066		12,880

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

~~September~~Common stock equivalents of certain stock-based awards totaling 209,907 were excluded from the calculation of diluted earnings per share for the three months ended March 3031, ~~2016~~2018 as they were anti-dilutive. There is no dilutive effect of the restricted stock and stock options for the three months ended March 31, 2017 due to the net loss in ~~these~~this ~~periods~~period. There would have been 9033,~~405~~728 ~~and 93,245~~ of these shares included in the diluted calculation for the three ~~and nine~~ months ended ~~September 30,~~March ~~2016~~31, ~~respectively~~2017, had there been earnings in this period.

NOTE 1516. ~~SEGMENT~~ ~~INFORMATION~~REVENUE RECOGNITION

~~Segment~~Adoption ~~income (loss) is measured for internal reporting purposes by excluding corporate expenses, impairment charges, interest income, interest expense, and income taxes. Corporate expenses consist primarily~~ of ~~executive~~ASC ~~employment~~Topic ~~costs~~606, ~~certain~~“Revenue ~~professional~~from ~~fees,~~Contracts ~~and costs associated~~ with ~~the~~Customers” ~~Company’s global headquarters. Financial results for each reportable segment are as follows (in thousands):~~

	Three Months ended September 30, 2017
	MMS		ATA		Inter-SegmentEliminations			Total
Sales	$	67,994	$	17,142	$	(145	)	$	84,991
Depreciation and amortization	1,438		478					1,916
Segment income	1,546		3,406					4,952
Capital expenditures	657		112					769

On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts and Customers (the "new standard"), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under the new standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under ASC Topic 605, Revenue Recognition (the "old standard").

	Three Months Ended September 30, 2016
	MMS			ATA		Inter-SegmentEliminations			Total
Sales	$	52,089		$	15,270	$	(148	)	$	67,211
Depreciation and amortization	1,433			498					1,931
Segment income	(984		)	1,847					863
Capital expenditures	433			118					551

The Company’s revenue accounting is similar under the old and new standards, and consequently, there was no opening adjustment to Retained Earnings. The Company did not have a difference in first quarter 2018 reported revenues based on the adoption of the new standard.

	Nine Months Ended September 30, 2017
	MMS		ATA		Inter-SegmentEliminations			Total
Sales	$	178,842	$	49,303	$	(400	)	$	227,745
Depreciation and amortization	4,267		1,481		0			5,748
Segment (loss) income	805		8,437					9,242
Capital expenditures	1,425		312					1,737
Segment assets(1)	232,767		46,527					279,294

Revenue Recognition

	Nine Months Ended September 30, 2016
	MMS			ATA		Inter-SegmentEliminations			Total
Sales	$	158,718		$	46,773	$	(273	)	$	205,218
Depreciation and amortization	4,353			1,562					5,915
Segment (loss) income	(1,864		)	5,342					3,478
Capital expenditures	1,119			424					1,543
Segment assets(1)	226,618			48,341					274,959

Company sales revenue is recognized at a point in time, when control of products is transferred to customers based on contract terms. Transfer of control depends on contract terms and may be upon shipment from the Company’s facility, from a port near our facility, or upon delivery to customers.

~~____________________~~Revenue is recognized when the performance obligation under the terms of a contract with customers are satisfied; generally, this occurs with the transfer of control of machines, workholding devices, parts, or completion of a service. There is typically one performance obligation associated with each contract. Contract terms may include down-payments at the time the order is placed, and at other times during fulfillment. However, these payments are financing in nature fulfilled in a year, and do not impact recognition policy. There are no contract assets, and accounts receivable are reported in the Company balance sheet. Contract liabilities are primarily for customer deposits, although there is an insignificant amount of deferred revenue and deferred installation in costs of sales.

~~(1)~~The ~~Segment~~following ~~assets~~table ~~primarily~~includes ~~consist~~contract ~~of restricted cash, accounts receivable, inventories, prepaid and other~~ assets, ~~property, plant~~ and ~~equipment,~~liability ~~and~~balances ~~intangible assets. Unallocated assets primarily include, cash~~ and ~~cash~~activity ~~equivalents,~~for ~~corporate~~the ~~property,~~three ~~plant~~months ~~and~~ended ~~equipment,~~March ~~deferred income taxes~~31, ~~and~~2018 ~~other~~(in ~~non-current assets.~~thousands):



	December 31, 2017		Additions	Deductions⁽¹⁾	March 31, 2018
Contract Assets	$	—	—	—	$	—

Contract Liabilities	$	25,459	15,584	15,198	$	25,844

⁽¹⁾ Included in this is $14.4 million of revenue and $0.8 million in cost of sales.

Table of Contents

HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~SEPTEMBER~~March 3031, ~~2017~~2018

ANOTE ~~reconciliation~~17. SEGMENT ~~of segment income to consolidated income (loss) before income taxes for the three and nine months ended September 30, 2017 and 2016 are as follows (in thousands):~~INFORMATION

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Segment income	$	4,952		$	863		$	9,242		$	3,478
Unallocated corporate expense	(1,990		)	(1,503		)	(5,872		)	(5,061		)
Interest expense, net	(98		)	(86		)	(230		)	(235		)
Income (loss) before income taxes	$	2,864		$	(726	)	$	3,140		$	(1,818	)

Segment income is measured for internal reporting purposes by excluding corporate expenses, impairment charges, interest income, interest expense, and income taxes. Corporate expenses consist primarily of executive employment costs, certain professional fees, and costs associated with the Company’s global headquarters. Financial results for each reportable segment are as follows (in thousands):



	Three Months Ended March 31, 2018
	MMS		ATA		Inter-Segment Eliminations			Total
Sales	$	61,880	$	18,131	$	(129	)	$	79,882
Depreciation and amortization	1,281		464		0			1,745
Segment income	2,866		4,101					6,967
Capital expenditures	692		520					1,212
Segment assets⁽¹⁾	229,300		48,759					278,059



	Three Months Ended March 31, 2017
	MMS			ATA		Inter-Segment Eliminations			Total
Sales	$	48,833		$	15,858	$	(134	)	$	64,557
Depreciation and amortization	1,400			508					1,908
Segment (loss) income	(2,669		)	2,285					(384		)
Capital expenditures	336			144					480
Segment assets⁽¹⁾	223,349			45,512					268,861

____________________


⁽¹⁾	Segment assets primarily consist of restricted cash, accounts receivable, inventories, prepaid and other assets, property, plant and equipment, and intangible assets. Unallocated assets primarily include, cash and cash equivalents, corporate property, plant and equipment, deferred income taxes, and other non-current assets.

A reconciliation of segment income to consolidated income (loss) before income taxes for the three months ended March 31, 2018 and 2017 are as follows (in thousands):



	Three Months Ended March 31,
	2018			2017
Segment income	$	6,967		$	(384	)
Unallocated corporate expense	(4,233		)	(1,401		)
Interest expense, net	2			(65		)
Income (loss) before income taxes	$	2,736		$	(1,850	)

A reconciliation of segment assets to consolidated total assets follows (in thousands):

	September 30, 2017		December 31, 2016
	March 31, 2018		December 31, 2017
Total segment assets	$	~~279~~278,~~294~~059	$	~~265~~269,~~279~~679
Unallocated assets	3643,~~622~~075		3249,~~271~~270
Total assets	$	~~315~~321,~~916~~134	$	~~297~~318,~~550~~949

Unallocated assets include cash of $3239.35 million and $2845.30 million at ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, respectively.

NOTE 16. NEW ACCOUNTING STANDARDS

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This update provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. We have the option of using either a full retrospective or modified approach to adopt this guidance. Between August 2015 and May 2016, the FASB issued four additional updates to 1) ASU No. 2015-14, Deferral of the Effective Date, 2) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), 3) ASU No. 2016-10, Identifying Performance Obligations and Licensing, and 4) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients to provide further guidance and clarification in accounting for revenue arising from contracts with customers. The new guidance is effective for annual reporting periods beginning after December 15, 2017, and all annual and interim periods thereafter. In the first quarter 2017 the Company developed a project plan and timeline to complete a diagnostic assessment to begin developing solutions. This assessment has progressed and has included an initial training of key personnel, sampling of contracts, and revenue stream evaluation. The Company expects to implement and test any changes in policy, processes, systems and internal controls and compute required transition adjustments and disclosures. The Company expects to adopt the standard on a modified retrospective basis in 2018. We do not expect the adoption of this standard to have a material impact on our financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which establishes a comprehensive new lease accounting model. This update clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within the fiscal year, and requires modified retrospective application. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on the financial statements.

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2018

NOTE 18. NEW ACCOUNTING STANDARDS

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This update provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. We have the option of using either a full retrospective or modified approach to adopt this guidance. Between August 2015 and May 2016, the FASB issued four additional updates to 1) ASU No. 2015-14, Deferral of the Effective Date, 2) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), 3) ASU No. 2016-10, Identifying Performance Obligations and Licensing, and 4) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients to provide further guidance and clarification in accounting for revenue arising from contracts with customers. The new guidance is effective for annual reporting periods beginning after December 15, 2017, and all annual and interim periods thereafter. During 2017, the Company completed an evaluation of all revenue streams, processes and internal controls relating to the recognition of revenue. Based on this evaluation we updated our internal accounting policies to reflect the new standard and have completed training for all key personnel. We adopted this standard in January 2018 using the modified retrospective approach. See Note 16. "Revenue Recognition" to our unaudited financial statements included in this quarterly report.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - a Consensus of the FASB’s Emerging

Issues Task Force, which provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which specifies that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. We adopted this guidance in January 2018. The adoption of this guidance did not have a material impact on our financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. We adopted this standard in January 2018 and determined that no opening balance adjustments were required for the adoption of this guidance.

In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). ASU 2017-07 requires entities to (1) disaggregate the current-service cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, ASU 2017-07 requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The amendment should be applied retrospectively for the presentation of the service cost component and prospectively for the capitalization of the service cost component, and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. In January 2018, the Company adopted this guidance. As a result, the Company reclassified $0.2 million from Cost of sales and $0.1

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HARDINGE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2018

million from Selling, general and administrative expenses for the three months ended March 31, 2017, which represents the non-service component of the periodic net benefit cost, into Other non-operating (income) expense on the Consolidated Statement of Operations. We recorded $0.1 million in Other non-operating income related to periodic benefit costs, other than service costs, for the three months ended March 31, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"). The standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within the fiscal year. We adopted this standard in January 2018. The adoption of this standard did not have an effect on our current financial statements.

In February 2018, FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Reform Act that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. ASU 2018-02 does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018-02 will be effective for our fiscal year 2020, with the option to early adopt at any time prior to the effective date. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company is evaluating the impact that this guidance will have on the financial statements.

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 attain 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, ~~2016~~2017.

We supply high precision computer controlled metalcutting turning machines, grinding machines, vertical and horizontal machining centers, and repair parts related to those machines. The Company also engineers and supplies high precision, standard and specialty workholding devices, and other machine tool accessories. We believe our products are known for accuracy, reliability, durability, and value. We are geographically diversified with manufacturing facilities in China, France, Germany, India, Switzerland, Taiwan, the United States (“U.S.”), and the United Kingdom (“U.K.”), with sales to most industrialized countries. Approximately 6869% of our ~~2016~~2017 sales were to customers outside of North America, 71% of our ~~2016~~2017 products sold were manufactured outside of North America, and 68% of our employees asin of2017 ~~December 31, 2016~~ were employed outside of North America. In the ~~nine~~first ~~months~~quarter of ~~2017~~2018, approximately 6976% of our sales were to customers outside of North America, 7271% of our products sold were manufactured outside of North America, and, ~~as of September 30, 2017,~~ 68% of our employees were outside of North America.

Metrics on machine tool market activity monitored by our management include world machine tool shipments, as reported annually by Gardner Publications in the Metalworking Insiders Report, and metal-cutting machine orders, as reported by the Association of Manufacturing Technology, 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 prospective customers for our products. One such measurement is the Purchasing Managers Index, 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 shipments and economic indicators in foreign countries is published by trade associations, government agencies, and economic services in those countries.

Non-machine sales, which include collets, chucks, accessories, repair parts and service revenue, accounted for approximately 3335% of overall sales through the ~~third~~first quarter of ~~2017~~2018 and are an important part of our business due to an installed base of thousands of machines, and the growing needs demanded by specialty workholding applications. 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 (“sales”) and net orders (“orders”), gross profit as a percent of 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. Global economic 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, our bank financing arrangements, and equity 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 counterparties to minimize exposure to any one of these entities.

We are 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 non-performance has been considered in the fair value measurements of our foreign currency forward exchange contracts.

We 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 the risk associated with our ability to collect on our accounts receivable.

2123

Foreign currency exchange rate changes can significantly affect 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 the British Pound Sterling (“GBP”), Chinese Yuan (“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. We also purchase computer controls and other components from suppliers throughout the world, with purchase costs reflecting currency changes.

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, foreign currency fluctuations resulted in favorable currency translation impact of approximately $04.~~8 million and unfavorable $~~2.3 million, ~~respectively,~~ on sales when compared to the same ~~periods~~period in ~~2016~~2017.

Recent Merger Announcement. On February 12, 2018, Hardinge announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Hardinge Holdings, LLC, a Delaware limited liability company (“Parent”), and Hardinge Merger Sub, Inc., a New York corporation (“Acquisition Sub”), which are affiliates of Privet Fund LP and Privet Fund Management LLC (collectively, “Privet”). Pursuant to the Merger Agreement, Parent has agreed to acquire the shares of Hardinge that Privet does not beneficially own in an all-cash merger transaction (the “Merger”) for $18.50 per share valued at approximately $245.0 million, subject to approval of Hardinge shareholders and other customary closing conditions.

Results of Operations

Presented below is summarized selected financial data for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017 (in thousands):

	Three Months Ended September 30,						$Change				%Change		Nine Months Ended September 30,						$Change				%Change
	Three Months Ended March 31,						$Change				%Change
	2017			2016									2017			2016
	2018			2017
Sales	$	8479,~~991~~882		$	6764,~~211~~557		$	1715,~~780~~325			2624	%	$	~~227,745~~		$	~~205,218~~		$	~~22,527~~			11	%
Gross profit	28,~~615~~138			2321,~~151~~169			56,~~464~~969				2433	%	~~76,631~~			~~69,448~~			~~7,183~~				10	%
% of sales	3335.72		%	3432.48		%	(02.74		)	pts.			~~33.6~~		%	~~33.8~~		%	~~(0.2~~		)	~~pts.~~
Selling, general and administrative expenses	20,~~701~~361			1917,~~992~~574			~~709~~2,787				416	%	~~58,804~~			~~60,221~~			~~(1,417~~		)		(2	)%
% of sales	2425.45		%	2927.72		%	(51.37		)	pts.			~~25.8~~		%	~~29.3~~		%	~~(3.5~~		)	~~pts.~~
Research & development	3,~~887~~281			3,~~296~~559			~~591~~(278		)		18(8	)%	~~11,222~~			~~9,953~~			~~1,269~~				13	%
Restructuring	~~789~~1,352			~~182~~1,436			~~607~~(84		)		~~334~~(6	)%	~~2,767~~			~~608~~			~~2,159~~				~~355~~	%
Other expense, net	276			321			(45		)		(14	)%	468			249			219				88	%
Other operating expense, net	509			155			354				228	%
Income (loss) from operations	2,~~962~~635			(~~640~~1,555		)	34,~~602~~190				~~563~~269	%	~~3,370~~			~~(1,583~~		)	~~4,953~~				~~313~~	%
% of sales	3.53		%	(12.04		)%	4.5.7			pts.			~~1.5~~		%	~~(0.8~~		)%	~~2.3~~			~~pts.~~
Interest expense, net	98			86			12				14	%	230			235			(5		)		(2	)%
Other non-operating (income) expense, net	(99		)	230			(329		)		(143	)%
Income (loss) before income taxes	2,864			(726		)	3,590				494	%	3,140			(1,818		)	4,958				273	%
Interest (income) expense, net	(2		)	65			(67		)		(103	)%
Income tax expense	665			657			8				1	%	466			666			(200		)		(30	)%
Income (loss) before income taxes	2,736			(1,850		)	4,586				(248	)%
Net income (loss)	$	2,199		$	(1,383	)	$	3,582			259	%	$	2,674		$	(2,484	)	$	5,158			208	%
Income tax expense	917			198			719				363	%
% of sales	2.6		%	(2.1		)%	4.7			pts.			1.2		%	(1.2		)%	2.4			pts.
Net income (loss)	$	1,819		$	(2,048	)	$	3,867			189	%
% of sales	2.3		%	(3.2		)%	5.5			pts.

~~Sales. The table below summarizes sales by each corresponding geographical region for the three and nine months ended September 30, 2017 compared to the same period in 2016 (in thousands):~~ 24

	Three Months Ended September 30,				$		%	Nine Months Ended September 30,				$			%
	2017		2016		Change		Change	2017		2016		Change			Change
Sales to customers in:
North America	$	27,465	$	24,780	$	2,685	11%	$	71,268	$	62,924	$	8,344		13%
Europe	22,437		18,271		4,166		23%	62,379		64,355		(1,976		)	(3)%
Asia and other	35,089		24,160		10,929		45%	94,098		77,939		16,159			21%
Total	$	84,991	$	67,211	$	17,780	26%	$	227,745	$	205,218	$	22,527		11%

Sales. The table below summarizes sales by each corresponding geographical region for the three months ended March 31, 2018 compared to the same period in 2017 (in thousands):

Sales for the three months ended September 30, 2017 were $85.0 million, an increase of $17.8 million, or 26%, compared to the same period in 2016. The increase in sales was driven by higher demand in all regions. Sales for the three months ended September 30,



	Three Months Ended March 31,				$		%
	2018		2017		Change		Change
Sales to customers in:
North America	$	21,499	$	19,583	$	1,916	10%
Europe	21,173		17,702		3,471		20%
Asia and other	37,210		27,272		9,938		36%
Total	$	79,882	$	64,557	$	15,325	24%

22Sales for the three months ended March 31, 2018 were $79.9 million, an increase of $15.3 million, or 24%, compared to the same period in 2017. The increase in sales was driven by higher demand in all regions. Sales for the three months ended March 31, 2018 included favorable foreign currency translation of approximately $4.2 million. Excluding the translation impact, sales would have increased 17%.

~~2017~~North ~~also~~America ~~included~~sales ~~favorable~~were ~~foreign~~$21.5 ~~currency~~million ~~translation~~during the three months ended March 31, 2018, an increase of $01.89 million., ~~Excluding~~or 10%, when compared to the ~~translation~~same ~~impact~~period in 2017, ~~the~~reflecting an improved industrial market. The increase in sales ~~would~~was ~~have~~the ~~been~~result 25of 17%. increase in MMS and a 5% increase in ATA segment sales.

~~Sales~~Europe ~~for~~sales were $21.2 million during the ~~nine~~three months ended ~~September~~March 3031, ~~2017 were $227.7 million~~2018, an increase of $223.5 million, or 1120%, when compared to the same period in ~~2016~~2017. The increase in sales was ~~driven~~a byresult ~~increases~~of 16% increase in ~~Asia~~MMS and ~~North~~a ~~America~~36% ~~machine~~increase ~~sales, partially offset by decreases~~ in ~~machine~~ATA segment sales. inForeign ~~Europe~~currency ~~and~~translation anadjustments ~~unfavorable~~resulted ~~foreign~~in ~~currency~~a ~~translation~~favorable impact of approximately of $21.37 million. ~~Excluding~~to ~~the translation impact, the increase in~~ sales ~~would have been 12%~~.

~~North~~Asia ~~America~~and other sales were $2737.52 million ~~and $71.3 million~~ during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, ~~respectively,~~ an increase of $29.79 million, or 1136%, ~~and~~when $8compared to the same period in 2017.3 ~~million,~~The orincrease 13in sales was a result of 36%, ~~when~~increase ~~compared~~in toMMS ~~the~~segment ~~same~~sales ~~periods~~and a 53% increase in ~~2016~~ATA sales. Foreign currency translation adjustments resulted in a favorable impact of approximately of $2.5 million to sales.

~~Europe~~Sales ~~sales~~of ~~were~~machines ~~$22.4~~accounted ~~million~~for ~~and~~approximately ~~$62.4~~65% ~~million~~of ~~during~~ the ~~three~~consolidated ~~and~~sales ~~nine months ended September 30, 2017, respectively. Sales~~ for the three months ended ~~September 30~~March 31, ~~2017 increased $4.2 million~~2018, ~~or 23%,~~ compared to ~~the~~63% ~~prior~~of ~~year~~the same period~~. Sales~~ ~~for~~in ~~the~~2017. ~~nine~~Sales ~~month~~of ~~period~~non-machine ~~ended~~products ~~September~~and 30services, ~~2017~~primarily ~~decreased~~consisting byof ~~$2.0~~collets, ~~million~~chucks, oraccessories, 3%repair parts, ~~due~~and toservice ~~first~~revenue, ~~quarter~~accounted ~~weakness~~for inapproximately ~~the~~35% ~~European~~of ~~industrial~~the ~~markets.~~consolidated ~~Sales~~sales for the three ~~and nine~~ months ended ~~September~~March 31, 302018, ~~2017~~compared ~~had~~to ~~favorable~~37% ~~foreign~~for ~~currency~~the ~~translation~~same ofperiod ~~approximately~~in $02017.~~5 million and unfavorable of $0.6 million, respectively.~~

~~Asia~~Gross ~~and~~Profit. ~~other~~Gross ~~sales~~profit ~~were~~was $3528.1 million, ~~and~~or ~~$94.1~~35% ~~million~~of ~~during~~sales, for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, ~~respectively,~~compared anto ~~increase of~~ $1021.92 million, or 4533%, ~~and~~of ~~$16.2 million~~sales, orfor ~~21%, when compared to~~ the same ~~periods~~period in ~~2016~~2017. The ~~sales~~increase ~~increases over prior year~~ in ~~both~~gross ~~three~~profit ~~and~~was ~~nine~~attributable ~~month comparative periods were due~~ to ahigher ~~significant increase in machine~~ sales ~~in China and other parts of Asia~~volume, ~~which~~favorable ~~was~~mix ~~partially~~and ~~offset~~strong inmargins ~~the nine month period by unfavorable foreign currency translation of approximately $1.6 million. Foreign currency translation did not have a material incremental effect~~ on ~~sales~~our inworkholding ~~Asia during the three months ended September 30, 2017~~products.

~~Sales~~Selling, ofGeneral ~~machines~~and ~~accounted~~Administrative ~~for~~Expenses. ~~approximately~~Selling, ~~69%~~general and ~~67%~~administrative of(“SG&A”) ~~the~~expenses ~~consolidated~~were $20.4 million, or 25% of sales, for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2017~~2018, ~~and~~an 65increase of $2.8 million, or 16%, ~~for~~compared ~~the~~to ~~both~~$17.6 ~~the~~million, ~~three~~or ~~and~~27% ~~nine~~of sales, for the three months ended ~~September~~March 3031, ~~2016~~2017. ~~Sales~~Foreign currency translation adjustments resulted in an unfavorable impact of ~~non-machine~~$1.0 ~~products~~million. ~~and~~We ~~services,~~incurred ~~primarily~~$0.9 ~~consisting~~million of ~~collets,~~unusual ~~chucks,~~charges ~~accessories,~~in ~~repair~~the ~~parts~~current-year quarter, ~~and~~primarily ~~service~~related ~~revenue,~~to ~~accounted~~professional services for ~~approximately~~our ~~31%~~pending merger, and ~~33%~~$0.1 ofmillion in the ~~consolidated~~prior-year ~~sales~~quarter, ~~for~~related to our CEO search. Without the ~~three~~impact ~~and~~of ~~nine~~foreign ~~months~~currency ~~ended~~translation ~~September 30~~and unusual costs, ~~2017~~SG&A ~~and~~increased ~~35%~~by ~~for~~$1.0 ~~both~~million ~~the~~due ~~three~~to ~~and~~higher ~~nine~~commissions ~~months~~on ~~ended~~increased ~~September 30,~~sales ~~2016~~volume.

~~Gross Profit~~Restructuring. ~~Gross~~ ~~profit~~Restructuring ~~was~~expenses were $281.64 million, ~~or 34% of sales,~~ for both the three months ended ~~September~~March 3031, 2018 and 2017. In March 2017, ~~compared~~management toinitiated ~~$23~~a strategic restructuring program in our MMS segment.2 ~~million~~In September 2017, orwe ~~34%~~expanded ofour ~~sales~~restructuring ~~for~~efforts ~~the~~in ~~same~~order ~~period~~to inimprove ~~2016~~earnings asby ~~unfavorable~~optimizing ~~mix~~our footprint and ~~lower~~improving ~~absorption~~operational onefficiencies ~~machines~~to ~~were~~reduce ~~offset~~our bycost ~~strong~~structure. ~~workholding~~We ~~margins~~expect to realize total cost savings related to these programs of approximately $12.0 ~~The~~million ~~increase~~to in$12.5 ~~gross~~million ~~profit~~annually. ~~was~~Both ~~attributable~~of these initiatives are expected to ~~higher~~be ~~sales~~substantially ~~volume~~completed ~~for~~in ~~the~~2018. ~~three~~For ~~months~~further ~~ended~~information ~~September~~regarding 30restructuring activities, ~~2017~~refer asto ~~compared~~Note 9. "Restructuring Charges" to the ~~same~~unaudited ~~period~~Consolidated Financial Statements included in ~~2016.~~this quarterly report.

~~Gross~~Research ~~profit~~and ~~was~~Development Expenses. Research and Development ("R&D") expenses were $763.63 million, or 344% of sales, for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, compared to $693.46 million, or 346% of sales, for the ~~same~~three period in 2016 as unfavorable mix and lower absorption on machines were offset by strong workholding margins, including a $0.6 million improvement due to incremental savings generated by the restructuring program initiated in late 2015. The increase in gross profit was attributable to higher sales volume for the nine months ended ~~September 30, 2017 as compared to the same period in 2016.~~

Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses were $20.7 million, or 24% of sales, for the three months ended September 30, 2017, an increase of $0.7 million, or 4%, compared to $20.0 million, or 30% of sales, for the three months ended September 30, 2016. We incurred $1.1 million of unusual charges in the prior-year quarter related to severance and a pension obligation settlement. Without the impact of these unusual costs, SG&A would have increased by $1.7 million in the current quarter compared to the prior-year quarter. The increase was due to higher commissions of $0.8 million related to increased volume and higher incentive based compensation of $0.9 million from stronger financial results.25

~~SG&A expenses were $58.8 million, or 26% of sales, for the nine months ended September~~March 3031, 2017~~, compared to $60~~.2 million, or 29% of sales, for the nine months ended September 30, 2016. We incurred $1.4 million of unusual charges in the current period related to strategic initiatives, executive search and severance charges, and $2.3 million of unusual charges in the prior-year period primarily associated with strategic review, severance charges and a pension obligation settlement. Without the impact of these unusual costs, SGR&AD ~~would~~expenses have decreased byfrom ~~$0.6 million in~~ the ~~current period compared to the~~ prior- year period. ~~The~~primarily ~~decrease was~~ due to ~~lower~~restructuring ~~sales~~activities ~~and~~initiated ~~marketing~~in ~~expenses~~September of2017 ~~$1.9~~to ~~million,~~reduce ~~partially~~redundancies ~~offset~~and bygain ~~increased~~operational ~~incentive based compensation of $1~~efficiencies.~~0 million.~~

~~Restructuring.~~Income ~~Restructuring~~(Loss) ~~expenses~~Before ~~were~~Income $0Taxes.8 ~~million~~As ~~and~~a ~~$2.8~~result ~~million~~of ~~for~~ the ~~three and nine months ended September 30~~foregoing, ~~2017,~~income ~~respectively.~~before Inincome ~~March~~taxes ~~2017,~~was ~~management initiated a strategic restructuring program in our MMS segment. We expect to realize approximately~~ $2.07 ~~to $2.5~~ million offor ~~annual~~the ~~cost~~three ~~savings~~months ~~related~~ended toMarch 31, ~~this program. In addition~~2018, wecompared ~~have recently expanded our restructuring efforts in order~~ to ~~improve~~loss ~~earnings~~before byincome ~~optimizing~~taxes ~~our~~of ~~footprint~~$1.9 ~~and~~million ~~improving~~for ~~operational~~the ~~efficiencies~~same toperiod ~~reduce~~in ~~our~~2017. ~~cost structure and~~

23Income Taxes. The income tax provision was an expense of $0.9 million for the three months ended March 31, 2018, compared to an income tax provision expense of $0.2 million for the same period in 2017. The effective tax rate was 33.5% for the three months ended March 31, 2018, compared to (10.7)% for the same period in 2017. Included within the current period tax provision of $0.9 million are withholding taxes and associated foreign tax credits on dividends paid, Taiwanese statutory rate change, and return to provision adjustments. Without these discrete items, the effective tax rate for the three months ended March 31, 2018 would be 24.0%. The effective tax rate differs from the U.S. statutory rate primarily due to the mix of earnings by country and by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded.

reduce annual costs by an additional $10 million. Both of these initiatives are expected to be substantially completed in 2018. For further information regarding restructuring activities, refer to Note 8. "Restructuring Charges" to the unaudited Consolidated Financial Statements in the quarterly report.

Restructuring expense in 2016 were related to the 2015 restructuring program and were $0.2 million and $0.6 million for the three and nine months ended September 30, 2016, respectively.

Research and Development Expenses. Research and Development ("R&D") expenses were $3.9 million, or 5% of sales, for the three months ended September 30, 2017, compared to $3.3 million, or 5% of sales, for the three months ended September 30, 2016. R&D expenses were $11.2 million, or 5% of sales, for the nine months ended September 30, 2017, compared to $10.0 million, or 5% of sales, for the nine months ended September 30, 2016.

Income (Loss) Before Income Taxes. As a result of the foregoing, income before income taxes was $2.9 million for the three months ended September 30, 2017, compared to loss before income taxes of $0.7 million for the same period in 2016. For the nine months ended September 30, 2017, income before income taxes was $3.1 million compared to loss before income taxes of $1.8 million for the same period in 2016.

Income Taxes. The income tax provision was an expense of $0.7 million and $0.5 million for the three and nine months ended September 30, 2017, compared to an income tax provision expense of $0.7 million for both the three and nine month periods in 2016. The effective tax rate was 23.2% and 14.8% for the three and nine months ended September 30, 2017, respectively, compared to (90.5)% and (36.6)% for the same periods in 2016. The effective tax rate differs from the U.S. statutory rate primarily due to the mix of earnings by country and by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded.

Each quarter, an estimate of the full year tax rate 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 valuation allowance on all or a portion of the tax benefits of our U.S., ~~Canada,~~ U.K., Germany, and Netherlands 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 is sustained in the respective jurisdiction.

~~Net~~On ~~Income~~December ~~(Loss). As~~22, a2017 ~~result~~the ofTax Cuts and Jobs Act (the ~~foregoing,~~"Tax ~~net~~Act") ~~income~~was ~~for~~enacted. ~~the~~The ~~three~~Tax ~~months~~Act ~~ended~~made ~~September 30,~~significant ~~2017~~changes ~~was~~to $2U.2S. ~~million,~~federal ortaxable 3%income oflaws ~~sales,~~including ~~compared~~permanently tolowering athe ~~net~~federal ~~loss~~statutory ofrate ~~$1.4~~from ~~million,~~35% orto ~~2.1~~21% ofeffective ~~sales~~January 1, ~~for~~2018. At December 31, 2017, the ~~same~~Company ~~period~~recorded inestimated ~~2016. Net~~provisional ~~income~~amounts for the ~~nine~~deemed ~~months~~repatriation ~~ended~~transition ~~September 30,~~tax ~~2017~~implemented ~~was~~by $2the Tax Act.7 Staff ~~million,~~Accounting orBulletin ~~1.2%~~118 of("SAB ~~sales~~118"), ~~compared~~provides toan ~~net~~extended ~~loss~~measurement ofperiod ~~$2.5~~to ~~million,~~finalize orthe ~~1.2%~~effect of ~~sales,~~the Tax Act for the ~~same~~ period inof ~~2016~~enactment. ~~Both~~Tax ~~basic~~expense ~~and diluted income (loss) per share~~ for the three ~~and nine~~ months ended ~~September 30,~~March ~~2017 were $0.17 and $0.21~~31, ~~compared~~2018 toincludes ~~$(0.11)~~no ~~and~~changes ~~$(0.19)~~from ~~for~~these ~~the~~initial ~~same periods in 2016~~assessments.

~~Business~~Net ~~Segment~~Income ~~Information~~(Loss). —As ~~Comparison~~a result of the ~~three~~foregoing, ~~and~~net ~~nine~~income for the three months ended ~~September~~March 3031, 2018 was $1.8 million, or 2% of sales, compared to a net loss of $2.0 million, or 3.2% of sales, for the same period in 2017. Both basic and ~~2016~~diluted income (loss) per share for the three months ended March 31, 2018 were $0.14, compared to $(0.16) for the same period in 2017.

Business Segment Information — Comparison of the three months ended March 31, 2018 and 2017

Metalcutting Machine Solutions Segment (MMS) (in thousands):

	Three Months Ended September 30,									Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016			$ Change		% Change		2017		2016			$ Change		% Change
	2018		2017			$ Change		% Change
Sales	$	6761,~~994~~880	$	5248,~~089~~833		$	1513,~~905~~047	3127	%	$	~~178,842~~	$	~~158,718~~		$	~~20,124~~	13	%
Segment income (loss)	12,~~546~~866		(~~984~~2,669		)	25,~~530~~535		~~257~~207	%	~~805~~		~~(1,864~~		)	~~2,669~~		~~143~~	%

MMS sales were $6861.09 million for the three months ended ~~September~~March 3031, ~~2017~~2018, an increase of $1513.90 million, or 3127% when compared to the corresponding period in ~~2016~~2017. The increase was driven by ~~sales~~double indigit ~~Asia~~growth ~~and~~across ~~Europe~~all regions, with ~~sales in North America up slightly, and a favorable foreign currency translation of approximately $0.6 million. For~~ the ~~nine~~most ~~months~~significant ~~ended September 30, 2017, MMS sales were $178.8 million, an~~ increase ~~of $20.1 million, or 13%, when compared to the same period~~ in ~~2016. The increase was driven by sales in~~ Asia, and to a ~~lesser~~favorable ~~extent North America, and partially offset by a decrease in sales in Europe, and unfavorable~~ foreign currency translation of approximately $2.3.7 million.

Segment income for the three months ended ~~September~~March 3031, ~~2017~~2018 was $12.59 million, an increase of $25.5 million, compared to a net loss of $2.7 ~~The~~million ~~increase~~in isthe ~~due~~prior toyear ~~increased~~quarter. Increased profit ~~related~~relates to ~~increased~~higher sales volume, lower restructuring costs of $1.0 million, and decreased costs in the current year period due to restructuring savings from reduced redundancies and operational efficiencies. This was partially offset by ~~restructuring~~higher ~~charges~~commissions ofand ~~$0.8~~incentive ~~million~~compensation on increased sales volume.

2426

For the nine months ended September 30, 2017, segment income was $0.8 million, an improvement of $2.7 million, or 143%, when compared to the segment loss of $1.9 million in the same period of 2016. The volume related increases in gross profit and lower agent commissions due to changes in channel mix were partially offset by increased restructuring charges of $2.8 million.

Aftermarket Tooling and Accessories Segment (ATA) (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended March 31,
	2017		2016		$ Change		% Change		2017		2016		$ Change		% Change
	2018		2017		$ Change		% Change
Sales	$	1718,~~142~~131	$	15,~~270~~858	$	12,~~872~~273	1214	%	$	~~49,303~~	$	~~46,773~~	$	~~2,530~~	5	%
Segment income	3,406		1,847		1,559		84	%	8,437		5,342		3,095		58	%
Segment income (loss)	4,101		2,285		1,816		79	%

ATA sales for the three months ended ~~September~~March 3031, ~~2017~~2018 were $1718.1 million, an increase of $12.93 million, or 1214%, when compared to the corresponding period in ~~2016~~2017. AnATA ~~increase~~sales inincreased ~~North~~across ~~America~~all ~~was~~regions, ~~partially~~with ~~offset~~double bydigit agrowth ~~small decrease~~ in Europe. ~~ATA~~and ~~sales~~Asia ~~for~~and ~~the~~a ~~nine~~favorable ~~months~~foreign ~~ended~~currency ~~September 30,~~translation ~~2017 were $49.3 million, an increase~~ of $20.5 million~~, or 5%, when compared to the corresponding period in 2016~~. ~~The increase was largely driven by North America with a small increase in Europe.~~

Segment income for the three months ended ~~September~~March 3031, ~~2017~~2018 was $3.4.1 million, a $1.68 million, or 8479%, increase from the prior year period due to higher sales volume, reduced manufacturing costs, and operating expenses~~. Segment income for the nine months ended September 30~~, ~~2017~~which was ~~$8.4~~partially ~~million,~~offset aby ~~$3.1~~increased ~~million,~~incentive orcompensation ~~58%,~~on ~~increase~~increased ~~from~~sales ~~the prior year. ATA experienced higher~~ volumes~~, reduced manufacturing costs, lower restructuring charges of $0~~.6 ~~million and incremental restructuring savings of $0.5 million compared to the prior-year period.~~

Segment Summary For the Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017 (in thousands):

Three Months ended September 30, 2017

Three Months Ended September 30, 2016

Three Months Ended March 31, 2018

Three Months Ended March 31, 2017

MMS

ATA

Inter-SegmentEliminations

Total

MMS

ATA

Inter-SegmentEliminations

Total

Sales

6761,~~994~~880

1718,~~142~~131

(~~145~~129

)

8479,~~991~~882

5248,~~089~~833

15,~~270~~858

(~~148~~134

)

6764,~~211~~557

Segment income

12,~~546~~866

34,~~406~~101

46,~~952~~967

(~~984~~2,669

)

12,~~847~~285

~~863~~(384

)

Unallocated corporate expense

(14,~~990~~233

)

(1,~~503~~401

)

Interest expense, net

~~(98~~2

)

(8665

)

Other unallocated expense

—

Income before income taxes

2,~~864~~736

(~~726~~1,850

)

	Nine Months Ended September 30, 2017										Nine Months Ended September 30, 2016
	MMS		ATA		Inter-SegmentEliminations			Total			MMS			ATA		Inter-SegmentEliminations			Total
Sales	$	178,842	$	49,303	$	(400	)	$	227,745		$	158,718		$	46,773	$	(273	)	$	205,218
Segment (loss) income	805		8,437					9,242			(1,864		)	5,342					3,478
Unallocated corporate expense								(5,872		)									(5,061		)
Interest expense, net								(230		)									(235		)
Other unallocated expense								—											—
(Loss) income before income taxes								$	3,140										$	(1,818	)

Summary of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (in thousands):



	Three Months Ended March 31,
	2018			2017
Net cash used in operating activities	$	(3,822	)	$	(1,307	)
Net cash used in investing activities	$	(1,354	)	$	(477	)
Net cash used in financing activities	$	—		$	(948	)

~~Summary~~During ofthe ~~Cash~~three ~~Flows~~months ended March 31, 2018, we used $3.8 million net cash for ~~the~~operating ~~Nine~~activities. ~~Months~~The ~~Ended~~net ~~September 30~~cash used was primarily due to increased inventory costs on a higher backlog and a decrease in accrued liabilities, ~~2017~~including higher commissions and ~~2016~~compensation (costs related to higher sales levels, which were partially offset by net income, improvements in ~~thousands):~~ net working capital, other than inventory, and non-cash adjustments for depreciation and amortization.

	Nine Months Ended September 30,
	2017			2016
Net cash provided by (used in) operating activities	$	10,988		$	(4,345	)
Net cash used in investing activities	$	(1,164	)	$	(1,505	)
Net cash used in financing activities	$	(7,351	)	$	(3,978	)

During the three months ended March 31, 2017, we used $1.3 million net cash for operating activities. The net cash used was the result of largely offsetting movements in operating results and net working capital as the net loss for the quarter was offset by non-cash adjustments for depreciation and amortization and an inventory impairment. Decreased receivables and higher customer deposits were offset by increased inventory and prepaid assets and reduced payables and accrued liabilities.

~~During~~Net ~~the~~cash ~~nine~~used ~~months~~in ~~ended~~investing ~~September 30,~~activities ~~2017,~~was ~~we generated~~ $111.04 million ~~net~~and ~~cash from operating activities~~$0.5 ~~The~~million ~~net~~for ~~cash generated was~~ the ~~result~~three ofmonths ~~positive~~ended ~~operating~~March 31, ~~results~~2018 and ~~improvements~~2017, ~~in net working capital~~respectively. InThe ~~the~~primary ~~first~~use ~~nine months~~ of ~~2017,~~ cash was ~~provided~~for bycapital ~~net income of $2.7 million~~expenditures, ~~non-cash~~which ~~adjustments~~were ofmade ~~$6.7~~mainly ~~million~~ for ~~depreciation~~maintenance ~~and~~capital ~~amortization and $1~~purchases.4 ~~million~~We ~~for~~also ~~inventory~~added ~~impairment, and total changes in operating assets and liabilities of~~ $0.85 million. ~~The~~of ~~prior~~production ~~year~~equipment ~~cash used~~ in ~~operating~~our ~~activities~~ATA ofsegment ~~$4.3~~in ~~million was~~ the ~~result~~current ~~of a net loss of $2~~period.5 ~~million and total changes in operating assets and liabilities using cash of $7.6 million, partially offset by sources from non-cash adjustments of $6.1 million for depreciation and amortization.~~

Net cash used in investing activities was $1.2 million and $1.5 million for the nine months ended September 30, 2017 and 2016, respectively. The primary use of cash was for capital expenditures during these periods, which were made mainly for maintenance capital purchases. In the nine months ended September 30, 2017 cash used was partially offset by the receipt of $0.5 million in deposit proceeds for a building which we have agreed to sell, which is expected to close in the second quarter of 2018.27

Net cash flow ~~used~~for in financing activities was $70.40 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018. Cash used was primarily attributable to $6.1 million of payments on long-term debt which we paid off early, $0.7 million of net payments on short term borrowings and year-to-date dividends paid of $0.5 million.

Net cash flow used in financing activities was $4.0.9 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017. Cash used for financing activities was primarily driven by $30.2 million ofin ~~payments~~dividends onpaid ~~long-term debt due to normal scheduled payment activity~~ and ~~year-to-date~~repayments ~~dividends paid~~ of $0.87 million in debt.

Liquidity and Capital Resources

We maintain financing arrangements with several financial institutions. These financing arrangements are in the form of credit facilities and lines of credit. The credit facilities allow us to borrow up to $7468.82 million at ~~September~~March 3031, ~~2017~~2018 and $7468.76 million at December 31, ~~2016~~2017, of which $5450.35 million and $5351.03 million, respectively, can be borrowed for working capital needs. As of ~~September~~March 3031, ~~2017~~2018 and December 31, ~~2016~~2017, $6759.37 million and $6759.16 million was available for borrowing under these respective arrangements, of which $5350.91 million and $5150.98 million, respectively, was available for working capital needs. InThere ~~the~~were ~~third~~no ~~quarter~~borrowings ofoutstanding ~~2017 we paid the remaining balance of our long term debt and~~ at ~~September~~March 3031, ~~2017~~2018 weor ~~had no outstanding borrowings under any of our revolving credit facilities. At~~ December 31, ~~2016 we had total consolidated borrowings outstanding of $6~~2017.0 ~~million and we had borrowings under revolving credit facilities of $0.7 million.~~

Our financing arrangements contain certain debt covenant requirements, including financial covenants, representations, affirmative and negative covenants, prepayment provisions and events of default. As of ~~September~~March 3031, ~~2017~~2018, we were in compliance with all of our debt covenants.

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 availability under various credit facilities and other financing arrangements. Cash flows from operating activities are primarily driven by earnings before non-cash charges and change in working capital needs. During the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, cash flows from operating activities and available cash were sufficient to fund our normal investment activities, primarily capital expenditures for property, plant and equipment and other productive assets.

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.

Discussion of Critical Accounting Policies

Revenue Recognition

Beginning January 1, 2018, we have implemented the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (the "new standard"), using the modified retrospective transition method applied to those contracts not completed as of January 1, 2018.

The modified retrospective method allows for initial implementation of the revenue standard without restating prior years’ operational results. Our revenue accounting is similar under old and new standards, and consequently, we did not have an opening adjustment to Retained Earnings. See Note 16. "Revenue Recognition" to our unaudited financial statements included in this quarterly report.

Revenue is recognized when the performance obligation under the terms of a contract with our customer is satisfied. Generally, this occurs with the transfer of control of our machines, workholding devices, parts, or completion of a service. We typically have one performance obligation associated with each contract. Contract terms may include down-payments at the time the order is placed, and at other times during fulfillment. However, these payments do not impact our basic recognition policy.

We have adopted a number of simplifying assumptions allowed by the new standard:


•	Sales, value add, and other taxes which we collect concurrent with revenue-producing activities are excluded from revenue.


•	There is no adjustment required for any revenues from performance obligations satisfied in prior reporting periods.


•	In cases of advance payments, interest on contract financing payments are not recorded as income or disclosed because contracts are satisfied with one year.

Accounting Guidance Not Yet Adopted

We are currently assessing the financial impact to our consolidated financial statements of accounting guidance not yet adopted. For further information on accounting guidance not yet adopted, refer to Note 1618. "New Accounting Standards" of the Consolidated Financial Statements.

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, our expectations and estimates relating to restructuring charges and operational savings from the Company's strategic restructuring program 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.

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 the possibility that the proposed Merger is delayed or does not close, including due to the failure to receive required shareholder approval, due to litigation in respect of the Merger ,due to alternative acquisition proposals, the taking of governmental action (including the passage of legislation) to block the proposed Merger, the failure of Privet to obtain the equity and debt financing or other funds required to finance the proposed Merger, or the failure of other closing conditions, disruptions of our business as a result of the announcement and pursuit of the Merger, the possibility that the expected financial impacts will not be realized, or will not be realized within the expected time period, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our market risk exposures during the first ~~nine~~three months of ~~2017~~2018. For a discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained in our ~~2016~~2017 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~~March 3031, ~~2017~~2018, 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~~March 3031, ~~2017~~2018 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

2730

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

Information regarding certain legal proceedings in which we are involved is incorporated by reference from Note 1011. "Commitments and Contingencies" to the unaudited Consolidated Financial Statements included in this quarterly report.

Item 1A. 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, ~~2016~~2017.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

2831

Item 6.		Exhibits.
10.1		Non-qualified Option Agreement dated as of July 31, 2017, between Hardinge Inc. and Douglas J. Malone (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed with the Commission on August 3, 2017).
2.1	†	Agreement and Plan of Merger, dated as of February 12, 2018, by and among Hardinge Inc., Hardinge Holdings, LLC and Hardinge Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K, filed with the Commission on February 13, 2018).
10.2		Non-qualified Option Agreement dated as of July 31, 2017, between Hardinge Inc. and Douglas J. Malone (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, filed with the Commission on August 3, 2017).
10.1		Support Agreement, dated as of February 12, 2018, by and among Hardinge Inc., Privet Fund LP and Privet Fund Management, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed with the Commission on February 13, 2018).
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.
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

29† Certain schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished to the Securities Exchange Commission upon request.

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.
		Registrant
November 9, 2017	By:	/s/ Charles P. Dougherty
May 3, 2018	By:	/s/ Charles P. Dougherty
Date		Charles P. Dougherty
		President and Chief Executive Officer
		(Principal Executive Officer)
November 9, 2017	By:	/s/ Douglas J. Malone
May 3, 2018	By:	/s/ Douglas J. Malone
Date		Douglas J. Malone
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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