9. Segment Information

The Company operates through segments for which separate financial information is available, and for which operating results are evaluated regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance. In 2013, the Company changed its reportable business segment from one reportable segment to two reportable segments, Metalcutting Machine Solutions (MMS) and Aftermarket Tooling and Accessories (ATA). The Company has recast its segment information disclosure for all periods presented to conform to this segment presentation.

The Company has two reportable business segments, Metalcutting Machine Solutions and Aftermarket Tooling and Accessories which are described below:

Metalcutting Machine Solutions (MMS)

This segment includes operations related to grinding, turning, and milling, as discussed below, and related repair parts. The products are considered to be capital goods with sales prices ranging from approximately sixty thousand dollars for some high volume products to around $1.5 million for some lower volume grinding machines or other specialty built turnkey systems of multiple machines. Sales are subject to economic cycles and, because they are most often purchased to add manufacturing capacity, the cycles can be severe with customers delaying purchases during down cycles and then aggressively requiring machine deliveries during up cycles. Machines are purchased to a lesser extent during down cycles as our customers are looking for productivity improvements or they have new products that require new machining capabilities.

We engineer and sell high precision computer controlled metalcutting turning machines, vertical machining centers, horizontal machining centers, grinding machines, and repair parts related to those machines.

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Turning Machines or lathes are power-driven machines used to remove material from either bar stock or a rough-formed part by moving multiple cutting tools against the surface of a part rotating at very high speeds in a spindle mechanism. The multi-directional movement of the cutting tools allows the part to be shaped to the desired dimensions. On parts produced by our machines, those dimensions are often measured in millionths of an inch. We consider Hardinge to be a leader in the field of producing machines capable of consistently and cost-effectively producing parts to very close dimensions.

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Machining centers are designed to remove material from stationary, prismatic or box-like parts of various shapes with rotating tools that are capable of milling, drilling, tapping, reaming and routing. Machining centers have mechanisms that automatically change tools based on commands from a built-in computer control without the assistance of an operator. Machining centers are generally purchased by the same customers who purchase other Hardinge equipment. We supply a broad line of machining centers under our Bridgeport brand name addressing a range of sizes, speeds, and powers.

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Grinding machines are used in a machining process in which a part's surface is shaped to closer tolerances with a rotating abrasive wheel or tool. Grinding machines can be used to finish parts of various shapes and sizes. Our Kellenberger and Usach grinding machines are used to grind the inside and outside diameters of cylindrical parts. Such grinding machines are typically used to provide a more exact finish on a part that has been partially completed on a lathe. Our Hauser jig grinding machines are used to make demanding contour components, primarily for tool and mold-making applications. Our Jones & Shipman brand represents a line of high quality grinders (surface, creepfeed, and cylindrical) machines used by a wide range of industries.

Aftermarket Tooling and Accessories (ATA)

This segment includes products that are purchased by manufacturers throughout the lives of their machines. The prices of units are relatively low per piece with prices ranging from fifty dollars on high volume collets to twenty thousand dollars or more for specialty chucks, and they typically are considered to be a fairly consumable, but durable, product. Our products are used on all types and brands of machine tools, not limited to our own. Sales levels are affected by manufacturing cycles, but not to the severity of the capital goods lines. While customers may not purchase large dollar machines during a down cycle, their factories are operating with their existing equipment and accessories are still needed as they wear out or they are needed for a change in production requirements.

The two primary product groups are collets and chucks. Collets are cone-shaped metal sleeves used for holding circular or rod like pieces in a lathe or other machine that provide effective part holding and accurate part location during machining operations. Chucks are a specialized clamping device used to hold an object with radial symmetry, especially a cylindrical object. It is most commonly used to hold a rotating tool or a rotating work piece. Some of our specialty chucks can also hold irregularly shaped objects that lack radial symmetry. While our products are known for accuracy and durability, they are consumable in nature.

We measure segment income for internal reporting purposes by excluding corporate expenses, interest income, interest expense, and income taxes. Corporate expenses consist primarily of executive employment costs, certain professional fees, and costs associated with our global headquarters. Financial results of our reportable segments are as follows:

	MMS		ATA		Inter Segment Eliminations			Total

	(in thousands)
For the year ended December 31, 2013
Sales	$	278,377	$	51,553	$	(471	)	$	329,459
Depreciation & Amortization		6,897		1,985					8,882
Segment income		14,850		5,689					20,539
Capital expenditures		2,376		1,491					3,867
Segment assets⁽¹⁾		249,999		53,209					303,208
For the year ended December 31, 2012
Sales	$	306,328	$	28,989	$	(904	)	$	334,413
Depreciation & amortization		6,041		706					6,747
Segment income		20,808		5,128					25,936
Capital expenditures		15,732		636					16,368
Segment assets⁽¹⁾		275,894		18,315					294,209
For the year ended December 31, 2011
Sales	$	316,062	$	27,055	$	(1,544	)	$	341,573
Depreciation & amortization		6,088		750					6,838
Segment income		16,904		4,243					21,147
Capital expenditures		18,886		331					19,217
Segment assets⁽¹⁾		266,983		18,699					285,682

⁽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 from operations before taxes follows:

	2013			2012			2011

	(in thousands)
Segment income	$	20,539		$	25,936		$	21,147
Unallocated corporate expense		(3,075	)		(5,419	)		(4,619	)
Acquisition related inventory step-up charge		(1,927	)		—			—
Acquisition related expenses		(2,154	)		(290	)		—
Impairment charges		(6,239	)		—			—
Interest expense, net		(1,064	)		(741	)		(238	)
Other unallocated expense		(148	)		(145	)		69


Income from continuing operations before income taxes	$	5,932		$	19,341		$	16,359

A reconciliation of segment assets to consolidated total assets follows:

	December 31,

	2013		2012
	(In Thousands)
Total segment assets	$	303,208	$	294,209
Unallocated assets		40,760		31,445


Total assets	$	343,968	$	325,654

Unallocated assets include cash of $34.7 million, $26.9 million and $21.7 million for December 31, 2013, 2012 and 2011, respectively.

We have no single customer who accounted for more than 10% of our consolidated sales in 2013, 2012 or 2011. We sell our products throughout the world and we attribute sales to countries based on the country where our products are shipped to. Information concerning our principal geographic areas is follows:

	2013				2012				2011

	Sales		Long-lived Assets⁽¹⁾		Sales		Long-lived Assets⁽¹⁾		Sales		Long-lived Assets⁽¹⁾
	(in thousands)
North America
United States	$	105,764	$	49,132	$	79,013	$	33,564	$	84,673	$	16,811
Other		3,693		—		4,533		—		5,327		—


Total North America		109,457		49,132		83,546		33,564		90,000		16,811
Europe
Switzerland		6,063		37,055		9,622		38,121		10,117		36,540
England		21,090		645		28,328		739		24,421		1,082
Germany		40,277		1,943		39,595		267		26,483		299
Other		32,696		143		43,463		10		43,804		25


Total Europe		100,126		39,786		121,008		39,137		104,825		37,946
Asia
China		96,532		12,468		102,550		12,405		111,684		10,705
Taiwan		4,541		15,197		5,474		16,010		11,454		15,507
Other		18,803		—		21,835		—		23,610		—


Total Asia		119,876		27,665		129,859		28,415		146,748		26,212


Consolidated Total	$	329,459	$	116,583	$	344,413	$	101,116	$	341,573	$	80,969

⁽¹⁾: Long-lived assets consist of property, plant and equipment, goodwill and other intangible assets