FINANCING ARRANGEMENTS

Financing arrangements are maintained with several financial institutions. These financing arrangements are in the form of long term loans, credit facilities, and lines of credit. The credit facilities allow the Company to borrow up to $77.2 million at December 31, 2015, of which $54.1 million can be borrowed for working capital needs. As of December 31, 2015, $69.8 million was available for borrowing under these arrangements of which $53.2 million was available for working capital needs. Total consolidated borrowings outstanding were $11.8 million at December 31, 2015 and $16.2 million at December 31, 2014. Details of these financing arrangements are discussed below.

Long-term Debt

Long-term debt consists of (in thousands):



	December 31,
	2015			2014
Mortgage loans	$	2,070		$	2,965
Term loans	9,701			13,260
Total long-term debt	$	11,771		$	16,225
Current portion	(5,692		)	(3,972		)
Total long-term debt, less current portion	$	6,079		$	12,253

The annual maturities of long-term debt for each of the years after December 31, 2015, are as follows (in thousands):



Year	Amount
2016	$	5,692
2017	3,023
2018	3,056
	$	11,771

In May 2006, Hardinge Taiwan Precision Machinery Limited, an indirectly wholly-owned subsidiary in Taiwan, entered into a mortgage loan with a local bank. The principal amount of the loan is 180.0 million New Taiwanese Dollars ("TWD") ($5.7 million equivalent). The loan, which matures in June 2016, is secured by real property owned and requires quarterly principal payment in the amount of TWD 4.5 million ($0.1 million equivalent). The loan interest rate, 1.75% at December 31, 2015 and December 31, 2014, is based on the bank's one year fixed savings rate plus 0.4%. The principal amount outstanding was TWD 9.0 million ($0.3 million equivalent) at December 31, 2015 and TWD 27.0 million ($0.9 million equivalent) at December 31, 2014.

In May 2013, the Company and Hardinge Holdings GmbH, a direct wholly-owned subsidiary, entered into a term loan agreement with a bank pursuant to which the bank provided a $23.0 million secured term loan facility for the acquisition of Forkardt. The agreement, which matures in April 2018, calls for scheduled annual principal repayments of $2.1 million, $2.1 million, and $1.0 million in 2016, 2017, and 2018, respectively. In October 2013, the term loan agreement was amended. The amendment reduced mandatory principal payments associated with the sale of the Company's common stock under the stock offering program as described in Note 13. "Shareholders' Equity" from 75% of net proceeds to 25% of net proceeds. This amendment was retroactive for all sales of common stock under this stock offering program. The Company made principal payments of $2.1 million in 2014 with stock offering proceeds. The interest rate on the term loan is determined from a pricing grid with the London Interbank Offered Rate ("LIBOR") and base rate options based on the Company's leverage ratio and was 2.56% and 2.44% at December 31, 2015 and 2014 respectively. LIBOR is the average interest rate estimated by leading banks in London that they would be charged when borrowing from other banks. The principal amount outstanding at December 31, 2015 and 2014 was $5.1 million and $6.8 million, respectively.

In November 2013, the Company and Hardinge Holdings GmbH entered into a replacement term note agreement with the same bank pursuant to which the bank converted $10.8 million of the outstanding principal on the term loan to CHF 3.8 million ($3.8 million equivalent) and EUR 5.0 million ($5.4 million equivalent) borrowings. The agreement calls for scheduled annual principal repayments in CHF and EUR. The remaining scheduled annual principal repayments in CHF is CHF 0.6 million ($0.6 million equivalent) in 2016. The scheduled annual principal repayments in EUR are as follows: EUR 0.9 million ($1.0 million equivalent) in 2016 and 2017, and EUR 1.9 million ($2.0 million equivalent) in 2018. The interest rate on the CHF and EUR portion of the term loan is determined from a pricing grid with the Swiss franc LIBOR ("CHF LIBOR") or the Euro Interbank Offered Rate ("EURIBOR") and base rate options based on the Company's leverage ratio and was 2.25% and 2.18% at December 31, 2015, respectively. The interest rate on the CHF and EUR portion of the term loan was 2.27% and 2.46% at December 31, 2014, respectively. The principal amounts outstanding at December 31, 2015 were CHF 0.6 million ($0.6 million equivalent), and EUR 3.7 million ($4.0 million equivalent). The principal amounts outstanding at December 31, 2014 were CHF 1.2 million ($1.2 million equivalent), and EUR 4.4 million ($5.3 million equivalent).

The term loan is secured by (i) liens on all of the Company's U.S. assets (exclusive of real property); (ii) a pledge of 65% of the Company's investment in Hardinge Holdings GmbH; (iii) a negative pledge on the Company's headquarters in Elmira, New York; (iv) liens on all of the personal property assets of Usach, Forkardt Inc. (Formerly Cherry Acquisition Corporation) and Hardinge Technology Systems Inc., a wholly-owned subsidiary and owner of the real property comprising the Company's world headquarters in Elmira, New York ("Technology"); and (v) negative pledges on the intellectual property of the Revolving Credit Borrowers and Technology.

The loan agreement contains financial covenants requiring a minimum fixed charge coverage ratio of not less than 1.15 to 1.00 (tested quarterly on a rolling four-quarter basis), a maximum consolidated total leverage ratio of 3.00 to 1.00 (tested quarterly on a rolling four-quarter basis), and maximum annual consolidated capital expenditures of $10.0 million. The loan agreement also contains such other representations, affirmative and negative covenants, prepayment provisions and events of default that are customary for these types of transactions. At December 31, 2015, the Company was in compliance with the covenants under the loan agreement.

In July 2013, Hardinge Holdings GmbH, a direct wholly-owned subsidiary, and Kellenberger & Co. AG, an indirect wholly-owned subsidiary of the Company, entered into a credit facility agreement with a bank whereby the bank made available a CHF 2.6 million ($2.6 million equivalent) mortgage loan facility. This facility is to be used by Kellenberger and replaces an existing mortgage loan that Kellenberger maintained with the same bank. Interest on the facility accrues at a fixed rate of 2.50% per annum. Principal payments of CHF 0.2 million ($0.2 million equivalent) are due in June and December in each year of the term, with the remaining outstanding balance of principal and accrued interest due in full at the final maturity in December 2016. The principal amount outstanding was CHF 1.8 million ($1.8 million equivalent) at December 31, 2015, and CHF 2.1 million ($2.1 million equivalent) at December 31, 2014.

The terms of the credit facility contains customary representations, affirmative, negative and financial covenants and events of default. The credit facility is secured by a mortgage on the subsidiary's facility in Romanshorn, Switzerland. The facility is subject to a minimum equity covenant requirement whereby the economic equity of the subsidiary must be at least 35% of the subsidiary's total assets on its balance sheet. At December 31, 2015, the Company was in compliance with the covenants under the loan agreement.

Foreign Credit Facilities

In December 2012, Hardinge Jiaxing entered into a secured credit facility with a local bank. This facility provided up to CNY 34.2 million ($5.3 million equivalent) or its equivalent in other currencies for working capital and letter of credit purposes. In January 2014, Hardinge Jiaxing amended this facility, which increased the total availability under the facility to CNY 59.0 million ($9.1 million equivalent) or its equivalent in other currencies. This facility was subsequently amended in December 2015, which changed the total availability under the facility to CNY 20.0 million ($3.1 million equivalent) or its equivalent in other currencies and expires in December, 2016. Borrowings available for working capital purposes were CNY 20.0 million ($3.1 million equivalent). Borrowings under the credit facility are secured by real property owned by the subsidiary. The interest rate on the credit facility is based on the basic interest rate as published by the People's Bank of China, plus a 10% mark-up, amounting to 4.79% and 6.16% at December 31, 2015 and December 31, 2014, respectively. There was no principal amount outstanding under this facility at December 31, 2015 or December 31, 2014.

In July 2013, Hardinge Machine Tools B.V., Taiwan Branch, an indirectly wholly-owned subsidiary in Taiwan, entered into a new unsecured credit facility, which was renewed in June 2014 and subsequently in June 2015. This facility, which expires in June 2016, provides up to $12.0 million, or its equivalent in other currencies, for working capital and export business purposes. This credit facility's interest is subject to change by the lender based on market conditions, carries no commitment fees on unused funds. The facility's interest rate was a variable rate at December 31, 2015 and 1.44% at December 31, 2014. There were no principal amounts outstanding under this facility at December 31, 2015 or December 31, 2014.

In September 2014, Hardinge Machine (Shanghai) Co., Ltd., an indirectly wholly-owned subsidiary in China, entered into a credit facility. This facility was renewed and amended in September 2015, provides up to CNY 30.0 million ($4.6 million equivalent) for letters of guarantee and expires in August 2016. Individual letters of guarantee issued under this facility require a cash deposit at the bank of 30% of the letter’s face value. The total issued letters of guarantee at December 31, 2015 and December 31, 2014 had a face value of CNY 0.6 million (approximately $0.1 million) and CNY 0.7 million (approximately 0.1 million ), respectively.

In July 2015, Hardinge Machine (Shanghai) Co., Ltd. entered into a new credit facility, which expires in July 2016. This facility provides up to CNY 10.0 million ($1.5 million equivalent) for letters of guarantee. Individual letter of guarantee issued under this facility are collateralized by the subsidiary's notes receivable for 100% of letter's face value. There were no letters of guarantee issued at December 31, 2015.

In July 2013, Hardinge Holdings GmbH, a direct wholly-owned subsidiary, and Kellenberger, an indirect wholly-owned subsidiary, entered into a credit facility agreement with a bank whereby the bank made available a CHF 18.0 million ($18.0 million equivalent) multi-currency revolving working capital facility. This facility matures in July 2018.

The facility is to be used by Hardinge Holdings GmbH and its subsidiaries (the "Holdings Group") for general corporate and working capital purposes, including standby letters of credit and standby letters of guarantee. In addition to Swiss Francs, loan proceeds available under the facility can be drawn upon in Euros, British Pounds Sterling and United States Dollars. Under the terms of the facility, the maximum amount of borrowings available to the Holdings Group (on an aggregate basis) for working capital purposes shall not exceed CHF 8.0 million ($8.0 million equivalent) or its equivalent in Optional Currencies, as applicable. The interest rate on the borrowings drawn in the form of fixed term advances (excluding Euro-based fixed term advances) is calculated based on the applicable LIBOR. With respect to fixed term advances in Euros, the interest rate on borrowings is calculated based on the applicable EURIBOR, plus an applicable margin, (initially set at 2.25% per annum) that is determined by the bank based on the financial performance of the Holdings Group. At December 31, 2015 and 2014, there were no outstanding borrowings on this facility. The total issued letters of guarantee on this facility at December 31, 2015 had a face value of $5.4 million. The letters were issued in various currencies.

The terms of the credit facilities contain customary representations, affirmative, negative and financial covenants and events of default. The credit facilities are secured by mortgage notes in an aggregate amount of CHF 9.2 million ($9.2 million equivalent) on two buildings owned by Kellenberger. In addition to the mortgage notes provided by Kellenberger, Holdings Group serves as a guarantor with respect to this facility. The facility is also subject to a minimum equity covenant requirement whereby the equity of both the Holdings Group and Kellenberger must be at least 35% of the subsidiary's balance sheet total assets. At December 31, 2015, the Company was in compliance with the covenants under the loan agreement.

Kellenberger also maintains a credit agreement with another bank. This agreement, entered into in October 2009, provides a credit facility of up to CHF 7.0 million ($7.0 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades and of which up to CHF 3.0 million ($3.0 million equivalent) is available for working capital purposes. The facility is secured by the subsidiary's certain real property up to CHF 3.0 million ($3.0 million equivalent). This agreement was amended in August 2010. The amendment increased the total funds available under the facility to CHF 9.0 million ($9.0 million equivalent), increased the funds available for working capital purposes to CHF 5.0 million ($5.0 million equivalent) and increased the secured amounts to CHF 4.0 million ($4.0 million equivalent). The agreement was again amended in May 2013 and reverted to the terms in place prior to the August 2010 amendment. The interest rate, currently at LIBOR plus 2.50% for a 90-day borrowing, is determined by the bank based on the prevailing money and capital market conditions and the bank's assessment of the subsidiary. This facility is subject to annual renewal and carries no commitment fees on unused funds. At December 31, 2015 and 2014, there were no borrowings outstanding under this facility. There were no issued letters of guarantee on this facility at December 31, 2015.

The above credit facility is subject to a minimum equity covenant requirement where the minimum equity for the subsidiary must be at least 35% of its balance sheet total assets. At December 31, 2015, the Company was in compliance with the required covenant.

In January 2014, Hardinge China Limited, an indirectly wholly-owned subsidiary in China, entered into a revised credit facility with a local bank. This facility, which expired in August 2015, provided up to $2.0 million for letters of guarantee. This facility was amended in October 2015, which increased the letter of guarantee amount to $3.0 million and it expires in August 2016. The facility requires Hardinge China Limited to maintain net worth of at least RMB 22.0 million. The total issued letters of guarantee at December 31, 2015 had a face value of CNY 6.0 million ($0.9 million equivalent).

Domestic Credit Facilities

In December 2009, the Company entered into a $10.0 million revolving credit facility with a bank. This facility was subject to an annual renewal requirement. In December 2011, the Company modified the existing facility and increased the facility from $10.0 million to $25.0 million, reduced the interest rate from the daily one-month LIBOR plus 5.00% per annum to daily one-month LIBOR plus 3.50% per annum, and extended the maturity date of the facility from March 31, 2012 to March 31, 2013. In December 2012, the maturity date of the facility was extended to March 31, 2014 and the interest rate was reduced from the daily one-month LIBOR plus 3.50% per annum to daily one-month LIBOR plus 2.75% per annum. In May 2013, the Company, Usach, and Forkardt amended and restated the existing $25.0 million revolving credit agreement. The amendment added Usach and Forkardt as additional borrowers and extended the maturity of the credit facility from March 2014 to April 2018. The interest rate on the term loan is determined from a pricing grid with LIBOR and base rate options, based on the Company's leverage ratio and was 2.50% and 2.44% at December 31, 2015 and December 31, 2014 respectively.

This credit facility is secured by substantially all of the Company's U.S. assets (exclusive of real property), a negative pledge on its worldwide headquarters in Elmira, NY, and a pledge of 65% of their investment in Hardinge Holdings GmbH. The credit facility is guaranteed by one of the Company's wholly-owned subsidiaries, which is the owner of the real property comprising the Company's world headquarters. The credit facility does not include any financial covenants. There were no borrowings outstanding under this facility at December 31, 2015 and 2014.

The Company has a $3.0 million unsecured short-term line of credit from a bank with interest based on the prime rate with a floor of 5.0% and a ceiling of 16.0%. The agreement is negotiated annually, requires no commitment fee and is payable on demand. There were no borrowings outstanding under this line of credit at December 31, 2015 and 2014.

The Company maintains a standby letter of credit for potential liabilities pertaining to self-insured workers compensation exposure. It renews annually. The amount of the letter of credit was $0.7 million at December 31, 2015 and $0.8 million at December 31, 2014. It expires in March 2016. In total, there were various outstanding letters of credit totaling $7.4 million and $8.7 million at December 31, 2015 and 2014, respectively.

Interest paid in 2015, 2014 and 2013 totaled $0.3 million, $0.8 million and $1.0 million respectively.