6. Financing Arrangements

We maintain financing arrangements 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 us to borrow up to $76.6 million at December 31, 2013, of which $58.0 million can be borrowed for working capital needs. As of December 31, 2013, $70.0 million was available for borrowing under these arrangements of which $56.8 million was available for working capital needs. Total consolidated borrowings outstanding were $26.6 million at December 31, 2013 and $20.0 million at December 31, 2012. Details of these financing arrangements are discussed below.

Long-term Debt

Long-term debt consists of:

	December 31,

	2013			2012
	(in thousands)
Mortgage loans	$	4,191		$	5,119
Construction loan		1,486			3,370
Term loan		20,958			—


Total long-term debt		26,635			8,489
Current portion		(7,850	)		(2,873	)


Total long-term debt, less current portion	$	18,785		$	5,616

The annual maturities of long-term debt for each of the five years after December 31, 2013, are as follows:

Year	Amounts

	(in thousands)
2014	$	7,850
2015		4,222
2016		6,270
2017		3,281
2018		5,012
Thereafter		—


	$	26,635

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") ($6.0 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 ($0.2 million equivalent). The loan interest rate, 1.75% at December 31, 2013 and December 31, 2012, is based on the bank's one year fixed savings rate plus 0.4%. The principal amount outstanding was TWD 45.0 million ($1.5 million equivalent) at December 31, 2013 and TWD 63.0 million ($2.2 million equivalent) at December 31, 2012.

In August 2011, Hardinge Precision Machinery (Jiaxing) Company Ltd.("Hardinge Jiaxing"), an indirectly wholly-owned subsidiary in China, entered into a loan agreement with a local bank. This agreement, which expires in January 2014, provides up to 25.0 million in Chinese Yuan ("CNY") ($4.1 million equivalent) for plant construction and fixed assets acquisition purposes. The interest rate, 7.38% at December 31, 2013 and December 31, 2012, is the bank base rate plus a 20% mark-up and is subject to adjustment annually. The principal amount outstanding was CNY 9.0 million ($1.5 million equivalent) at December 31, 2013 and CNY 21.0 million ($3.4 million equivalent) at December 31, 2012. The remaining outstanding principal of CNY 9.0 million ($1.5 million equivalent) is due in January 2014.

This loan agreement contains financial covenants pursuant to which the subsidiary is required to continually maintain a ratio of total liabilities to total assets less than 0.65:1.00 and a current ratio of more than 1.0:1.0. In addition, the subsidiary is not allowed to act as a guarantor to any third party. The loan agreement contains customary events of default and acceleration clauses. Additionally, the loan is secured by substantially all the real property and improvements owned by the subsidiary. At December 31, 2013, the Company was in compliance with the covenants under the loan agreement.

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 five-year $23.0 million secured term loan facility for the acquisition of Forkardt. The agreement calls for scheduled annual principal repayments of $1.2 million, $1.7 million, $2.1 million, $2.1 million, and $2.5 million in 2014, 2015, 2016, 2017, and 2018 respectively. In October 2013, we amended the terms of Term Loan. The amendment reduced mandatory principal payments associated with the sale of our common stock under the Company's stock offering program as described in Footnote 14 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. In 2013, the Company made principal payments of $1.5 million 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 2.44% at December 31, 2013. 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, 2013 was $10.1 million.

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 ($4.1 million equivalent) and EUR 5.0 million ($6.7 million equivalent) borrowings. The agreement calls for scheduled annual principal repayments in CHF and EUR. The scheduled annual principal repayments in CHF are as follows: CHF 0.4 million ($0.4 million equivalent) in 2014, CHF 0.6 million ($0.6 million equivalent) in 2015, and CHF 0.6 million ($0.7 million equivalent) in 2016. The scheduled annual principal repayments in EUR are as follows: EUR 0.5 million ($0.7 million equivalent) in 2014, EUR 0.7 million ($1.0 million equivalent) in 2015, EUR 0.9 million ($1.2 million equivalent) in 2016 and 2017, and EUR 1.9 million ($2.6 million equivalent) in 2018. Additionally, the Company is required to pay a portion of the proceeds of the sale of Forkardt Switzerland against the CHF portion of the loan. The Company made a CHF 2.2 million ($2.4 million equivalent) principal payment in January, 2014, to fulfill this obligation. 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 2.27% and 2.48% at December 31, 2013, respectively. The principal amounts outstanding at December 31, 2013 were CHF 3.7 million ($4.2 million equivalent), and EUR 4.9 million ($6.7 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 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 3.0 to 1.0 (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, 2013, 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 ($2.9 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, compared to 2.65% fixed interest rate on the previous mortgage loan. 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 2.4 million ($2.7 million equivalent) at December 31, 2013. The principal amount outstanding on the previous mortgage loan was CHF 2.7 million ($3.0 million equivalent) at December 31, 2012.

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 equity of the subsidiary must be at least 35% of the subsidiary's balance sheet total assets. At December 31, 2013, the Company was in compliance with the covenants under the loan agreement.

Credit Facilities and Other Financing Arrangements

Foreign Credit Facilities

In December 2012, Hardinge Jiaxing entered into a secured credit facility with a local bank. This facility, which expires in December 2014, provides up to CNY 34.2 million ($5.6 million equivalent) or its equivalent in other currencies for working capital and letter of credit purposes. Borrowings for working capital purposes are limited to CNY 20.0 million ($3.3 million equivalent). Borrowings under the credit facility are secured by real property owned by the subsidiary. The interest rate on the credit facility, currently at 6.60%, is based on the basic interest rate as published by the People's Bank of China, plus a 10% mark-up. As of December 31, 2013, there were no borrowings outstanding under this facility.

In July, 2013, Hardinge Machine Tools B.V., Taiwan Branch, an indirectly wholly-owned subsidiary in Taiwan, entered into a new unsecured credit facility. This facility, which expires in June 2014, provides up to $12.0 million, or its equivalent in other currencies, for working capital and export business purposes. This credit facility charges interest at 1.54% and is subject to change by the lender based on market conditions and carries no commitment fees on unused funds. This facility replaced the $12.0 million facility entered into in June 2012, which expired on May 30, 2013. There was no principal amount outstanding under this facility at December 31, 2013. The principal amount outstanding at December 31, 2012 was $9.0 million, which was included in the notes payable to bank on the Consolidated Balance Sheets.

In July 2013, Hardinge Holdings GmbH, a direct wholly-owned subsidiary, and Kellenberger, an indirect wholly-owned subsidiary, entered into a credit facilities agreement with a bank whereby the bank made available a CHF 18.0 million ($20.2 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 ($9.0 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.

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 ($10.2 million equivalent) on two buildings owned by Kellenberger. In addition to the mortgage notes provided by Kellenberger, Holdings 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, 2013, the Company was in compliance with the covenants under the loan agreement

This facility replaces two separate credit facilities that Kellenberger previously maintained with the same Swiss bank. The first facility had provided for borrowing of up to CHF 7.5 million ($8.2 million equivalent) to be used for guarantees, documentary credit, or margin cover for foreign exchange hedging activity with maximum terms of 12 months. The second facility had provided for borrowings of up to CHF 6.0 million ($6.6 million equivalent) to be used for working capital purposes as a limit for cash credits in CHF and/or in any other freely convertible foreign currencies. At December 31, 2012 there were no borrowings outstanding under these facilities.

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 ($7.8 million equivalent) for guarantees, documentary credit and margin cover for foreign exchange trades and of which up to CHF 3.0 million ($3.4 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 ($3.4 million equivalent). This agreement was amended in August 2010. The amendment increased the total funds available under the facility to CHF 9.0 million ($9.8 million equivalent), increased the funds available for working capital purposes to CHF $5.0 million ($5.5 million equivalent) and increased the secured amounts to CHF 4.0 million ($4.4 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, 2013 and 2012, there were no borrowings outstanding under this facility.

The above Kellenberger credit facilities are subject to a minimum equity covenant requirement where the minimum equity for the subsidary must be at least 35% of its balance sheet total assets. At December 31, 2013, the Company was in compliance with the required covenant.

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, we extended the maturity date of the facility to March 31, 2014 and reduced the interest rate 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, a direct wholly-owned subsidiary of the Company, 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 May, 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 2.44% at December 31, 2013.

This credit facility is secured by substantially all of our U.S. assets (exclusive of real property), a negative pledge on our worldwide headquarters in Elmira, NY, and a pledge of 65% of our investment in Hardinge Holdings GmbH. The credit facility is guaranteed by one of our wholly-owned subsidiaries, which is the owner of the real property comprising our world headquarters. The credit facility does not include any financial covenants. There were no borrowings outstanding under this facility at December 31, 2013. The principal amount outstanding under this facility was $2.5 million at December 31, 2012

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, 2013 or December 31, 2012.

The Company maintains a standby letter of credit for potential liabilities pertaining to self-insured workers compensation exposure. The amount of the letter of credit was $0.9 million at December 31, 2013 and $1.0 million at December 31, 2012. It expires in March, 2014. In total, we had various outstanding letters of credit totaling $9.9 million and $15.6 million at December 31, 2013 and 2012, respectively.

Deferred financing costs of $0.7 million were incurred in 2013. These costs, which were associated with our financing arrangements above, are recorded in other non-current assets on the consolidated balance sheets and are being amortized over the term of the related debt using the straight line method which approximates the effective interest method. Deferred financing costs incurred in 2012 were not material.

Interest paid in 2013, 2012 and 2011 totaled $1.0 million, $0.9 million and $0.4 million, respectively.