NOTE 2. ACQUISITION

On May 9, 2013, Forkardt Inc. (“Forkardt”, formerly Cherry Acquisition Corporation) and Hardinge Holdings GmbH (“Holdings GmbH”), direct wholly owned subsidiaries of the Company, and Hardinge GmbH, an indirect wholly owned subsidiary of the Company, acquired the Forkardt operations from Illinois Tool Works for $34.5 million, net of cash acquired. The acquisition was funded through $24.3 million in bank debt and $10.0 million in cash. Forkardt is a leading global provider of high-precision, specialty workholding devices with headquarters in Traverse City, Michigan. Forkardt has operations in the U.S., France, Germany, and Switzerland. The results of operations of Forkardt have been included in the consolidated financial statements from the date of acquisition. During the three and six months ended June 30, 2013, we recorded $6.5 million in sales and $0.1million in net loss related to Forkardt. We expensed acquisition related costs of $1.0 million and $1.6 million for the three months and six months ended June 30, 2013 and reported them in selling, general and administration expenses in the Consolidated Statements of Operations.

The purchase price has been preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values. The identifiable intangible assets acquired, which primarily consist of customer relationships, trade name and technical know-how, were valued using an income approach. The weighted average life of the acquired identifiable intangible assets subject to amortization was estimated at 17.3 years at the time of acquisition. The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as goodwill, of which $0.3 million is deductible for tax purposes. At June 30, 2013, the purchase price allocation is preliminary pending the finalization of the fair value of the net assets acquired and working capital adjustment, if any.

The preliminary allocation of purchase price to the assets acquired and liabilities assumed is as follows:

	May 9,
	2013
	(in thousands)

Assets Acquired
Accounts receivable	5,521
Inventory	5,357
Other current assets	1,180
Property, plant and equipment	6,271
Other non-current assets	105
Trade name, customer list, and other intangible assets	14,614
Total assets acquired	33,048
Liabilities Assumed
Accounts payable and other current liabilities	3,342
Other non-current liabilities	1,211
Net assets acquired	28,495
Total estimated purchase price	34,504
Goodwill	$	6,009

Supplemental Pro Forma Information

The following table illustrates the unaudited pro forma effect on operating results as if the Forkardt acquisition had been completed as of January 1, 2012.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(unaudited)				(unaudited)

Sales	$	85,018	$	98,108	$	162,934	$	185,053
Net income	2,973		4,213		4,162		6,755
Diluted earnings per share	$	0.25	$	0.36	$	0.35	$	0.58

For purposes of the unaudited pro forma disclosures, incremental expenses associated with fixed asset depreciation, intangible asset amortization, inventory step up in basis and interest expense on the borrowings associated with the acquisition have been reflected in the applicable periods. Additionally, expenses associated with the acquisition of Forkardt have been excluded from the three and six months ended June 30, 2013.

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.