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 $74.7 million at December 31, 2016, of which $53.0 million can be borrowed for working capital needs. As of December 31, 2016, $67.1 million was available for borrowing under these arrangements of which $51.9 million was available for working capital needs. Total consolidated term borrowings outstanding, net of unamortized debt issuance fees were $5.9 million at December 31, 2016 and $11.6 million at December 31, 2015. Additionally, the Company had borrowings under revolving credit facilities of $0.7 million at December 31, 2016. Details of these financing arrangements are discussed below.

Long-term Debt

Long-term debt consists of (in thousands):



	December 31,
	2016			2015
Mortgage loans	$	—		$	2,070
Term loans, net of unamortized debt issuance fees	5,893			9,536
Total long-term debt	$	5,893		$	11,606
Current portion, net of unamortized debt issuance fees	(2,923		)	(5,621		)
Total long-term debt, less current portion	$	2,970		$	5,985

In January 2016 we adopted guidance which requires that debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. As a result, the Company reclassified $0.07 million and $0.09 million of debt issuance cost as of December 31, 2015 into "Current portion of long-term debt" and "Long-term debt", respectively, to reduce the carrying amount of debt liability, from "Other current assets" and "Other non-current assets" on the Consolidated Balance Sheets. Debt issuance costs associated with line of credit arrangements remained in the "Other current assets" and "Other non-current assets" on the Consolidated Balance Sheets. Unamortized debt issuance costs of $0.07 million and $0.02 million were recorded as "Current portion of long-term debt" and "Long-term debt" respectively to reduce the carrying amount of debt liability, on the Consolidated Balance Sheets at December 31, 2016. The Company's debt issuance cost amortization was not affected by the adoption of the new guidance.

The annual maturities of long-term debt for each of the years after December 31, 2016, are as follows (in thousands):



Year	Amount
2017	$	2,993
2018	2,993
	$	5,986

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 was $180.0 million New Taiwanese Dollars ("TWD") ($5.6 million equivalent). The loan, which matured and was paid in full in June 2016, was secured by real property owned and required quarterly principal payment in the amount of TWD 4.5 million ($0.1 million equivalent). The loan interest rate, 1.75% at June 30, 2016 and December 31, 2015, was 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.

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 was amended in October 2013 and matures in April 2018, calls for scheduled annual principal repayments of $2.1 million and $1.0 million in 2017 and 2018, respectively. 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 2.81% and 2.50% at December 31, 2016 and 2015 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, 2016 and 2015 was $3.1 million and $5.1 million, respectively.

In November 2013, the Company and Hardinge Holdings GmbH entered into a replacement term loan agreement with the same bank pursuant to which the bank converted $10.8 million of the then outstanding principal on the term loan to CHF 3.8 million ($3.7 million equivalent) and EUR 5.0 million ($5.3 million equivalent) borrowings. The agreement calls for scheduled annual principal repayments in CHF and EUR. The CHF principal balance outstanding at December 31, 2015 was CHF 0.6 million ($0.6 million historic equivalent) and was paid in full in November 2016. The scheduled annual principal repayments in EUR are EUR 0.9 million ($0.9 million equivalent) in 2017 and EUR 1.9 million ($2.0 million equivalent) in 2018. The interest rate on the EUR portion of the term loan is determined with a pricing grid with the Euro Interbank Offered Rate ("EURIBOR") and base rate options based on the Company's leverage ratio and was 1.88% and 2.18% at December 31, 2016 and December 31, 2015, respectively. The principal amounts outstanding were EUR $2.8 million ($2.9 million equivalent) and EUR $3.7 million ($4.0 million equivalent) at December 31, 2016 and 2015, respectively.

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 Hardinge Grinding Group (formerly 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, 2016, 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. Interest on the facility accrued at a fixed rate of 2.50% per annum. The remaining outstanding balance of principal and accrued interest was paid 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.

Foreign Credit Facilities

In December 2012, Hardinge Jiaxing entered into a secured credit facility with a local bank for working capital purposes, which was subsequently amended in December 2015. The total availability under the facility is CNY 20.0 million ($2.9 million equivalent) or its equivalent in other currencies. The facility renews annually and currently expires in December 2017. 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% at December 31, 2016 and December 31, 2015. There was no principal amount outstanding under this facility at December 31, 2016 or December 31, 2015.

In July 2013, Hardinge Machine Tools B.V., Taiwan Branch, an indirectly wholly-owned subsidiary in Taiwan, entered into an unsecured credit facility subject to annual renewal. The facility, which expires in June 2017, provides up to $12.0 million, or its equivalent in other currencies, for working capital and export business purposes. This credit facility's interest rate is subject to change by the lender based on market conditions, and carries no commitment fees on unused funds. The facility's interest rate was 1.40% at December 31, 2016 and was a variable rate at December 31, 2015. The principal amount outstanding at December 31, 2016 was NTD 22.0 million ($0.7 million equivalent). There were no principal amounts outstanding under this facility at December 31, 2015.

In September 2014, Hardinge Machine (Shanghai) Co., Ltd., an indirectly wholly-owned subsidiary in China, entered into a credit facility with a bank, subject to annual renewal. The facility provides up to CNY 30.0 million ($4.3 million equivalent) for letters of guarantee, and expires in August 2017. 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 both December 31, 2016 and December 31, 2015 had a face value of CNY 0.6 million (approximately $0.1 million).

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 ($17.7 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 (collectively the "Holdings Group") for general corporate and working capital purposes, including standby letters of credit and standby letters of guarantee. Borrowings against the facility can be drawn upon in Swiss Francs, Euros, British Pounds Sterling and United States Dollars ("Optional Currencies"). 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 ($7.8 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. This facility also charges a commitment fee on the average unutilized amount of the facility of 30% of the applicable margin. At December 31, 2016 and 2015, there were no outstanding borrowings on this facility. The total issued letters of guarantee on this facility had a face value of $5.0 million and $5.4 million at December 31, 2016 and December 31, 2015, respectively. The letters were issued in various currencies.

The terms of the credit facility contains customary representations, affirmative, negative and financial covenants and events of default. The credit facility is secured by mortgage notes in an aggregate amount of CHF 9.2 million ($9.0 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, 2016, the Company was in compliance with the covenants under the loan agreement.

Kellenberger also maintains a credit agreement with another bank. This agreement, which was originally entered into in October 2009 was most recently amended in May 2013 and is subject to annual renewal. This agreement provides a credit facility of up to CHF 7.0 million ($6.9 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades, of which up to CHF 3.0 million ($2.9 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 ($2.9 million equivalent). 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 carries no commitment fees on unused funds. At December 31, 2016 and 2015, there were no working capital borrowings outstanding under this facility. The outstanding letters of guarantee on this facility at December 31, 2016 had a face value of CHF $0.2 million ($0.2 million equivalent). There were no issued letters of guarantee 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, 2016, the Company was in compliance with the required covenant.

In October 2015, Hardinge China Limited, an indirectly wholly-owned subsidiary in China, entered into a revised credit facility with a bank, subject to annual renewal. This facility, which provides up to $3.0 million for letters of guarantee, required Hardinge China Limited to maintain net worth of at least CNY 22.0 million ($3.2 million equivalent). The facility was amended in August 2016 to remove the net worth requirement for Hardinge China Limited, and expires in August 2017. The total issued letters of guarantee at December 31, 2016 and December 31, 2015 had a face value of CNY 4.2 million ($0.6 million equivalent) and CNY 6.0 million ($0.9 million equivalent), respectively.

Domestic Credit Facilities

In May 2013, the Company entered into an amended revolving credit facility for $25.0 million with a bank, which includes Hardinge Grinding Group and Forkardt as additional borrowers. The facility matures in April 2018. The interest rate is determined from a pricing grid with LIBOR and base rate options, based on the Company's leverage ratio and was 2.94% and 2.50% at December 31, 2016 and December 31, 2015 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 our investment in Hardinge Holdings GmbH. The credit facility is guaranteed by Hardinge Technology Inc., 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 charges a 0.25% commitment fee on unused funds and does not include any financial covenants. There were no borrowings outstanding under this facility at December 31, 2016 and 2015. Letters of guarantee outstanding under this facility had a face value of $1.1 million and $0.9 million at December 31, 2016 and December 31, 2015, respectively.

The Company has a $3.0 million unsecured short-term line of credit from a bank with an interest rate 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. Outstanding borrowings on this line of credit were immaterial at December 31, 2016 and there were no outstanding borrowings on this line of credit at December 31, 2015.

The Company maintains a standby letter of credit for potential liabilities pertaining to self-insured workers compensation exposure, which is renewed annually. The amount of the letter of credit was $0.7 million at December 31, 2016 and December 31, 2015. The letter of credit expires in March 2017.

Interest paid in 2016, 2015 and 2014 totaled $0.4 million, $0.3 million and $0.8 million respectively.