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EX-23 - EXHIBIT 23 CONSENT OF EY - HARDINGE INCexhibit23consentofey.htm
EX-21 - EXHIBIT 21 SUBSIDIARIES OF THE COMPANY - HARDINGE INCexhibit21-subsidiariesofth.htm
EX-10.15 - EXHIBIT 10.15 MASTER CREDIT AGREEMENT - HARDINGE INCexhibit1015mastercreditagr.htm
EX-3.1 - EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF HARDINGE INC. - HARDINGE INCexhibit31restatedcertifica.htm
EX-32 - EXHIBIT 32 CERTIFICATION - HARDINGE INChdng-12312014x10kxex32.htm
EX-31.2 - EXHIBIT 31.2 MALONE CERTIFICATION - HARDINGE INChdng-12312014x10kxex312.htm
EX-31.1 - EXHIBIT 31.1 SIMONS CERTIFICATION - HARDINGE INChdng-12312014x10kxex311.htm
EXCEL - IDEA: XBRL DOCUMENT - HARDINGE INCFinancial_Report.xls
EX-10.34 - EXHIBIT 10.34 SEPANIK EMPLOYMENT AGREEMENT - HARDINGE INCexhibit1034sepanikemployme.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014

or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
 
Commission File Number: 000-15760
 
Hardinge Inc.
(Exact name of registrant as specified in its charter) 
New York
 
16-0470200
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
One Hardinge Drive
Elmira, NY
 
14902
(Address of principal executive offices)
 
(Zip Code)

(607) 734-2281
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
NASDAQ Global Select Market
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     oYes  ýNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     oYes  ýNo
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                      ýYes  oNo  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                      ýYes  oNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     oYes  ýNo
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2014 was $157.1 million, based on the closing price of common stock on the NASDAQ Global Select Market on June 30, 2014.
As of March 6, 2015 there were 12,847,716 shares of common stock of the registrant outstanding.
 DOCUMENTS INCORPORATED BY REFERENCE
Portions of Hardinge Inc.'s Proxy Statement for its 2015 Annual Meeting of Shareholders to be filed with the Commission on or about March 26, 2015 are incorporated by reference to Part III of this Form 10-K.
 



HARDINGE INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certifications
 


2


PART I

Item 1. Business.

General

Hardinge Inc.'s principal executive office is located within Chemung County at One Hardinge Drive, Elmira, New York 14902-1507. Unless otherwise mentioned or unless the context requires otherwise, all references to "Hardinge," "we," "us," "our," "the Company" or similar references mean Hardinge Inc. and its subsidiaries.

Our website, www.hardinge.com, provides links to all of the Company's filings with the Securities and Exchange Commission. A copy of this annual report on Form 10-K and our other annual, quarterly, current reports, and amendments thereto filed with SEC are available on the website or can be obtained free of charge by contacting the Investor Relations Department at our principal executive office. Alternatively, such reports may be accessed at the Internet address of the SEC, which is www.sec.gov, or at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information about the operation of the SEC's Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

We are a global designer, manufacturer and distributor of machine tools, specializing in precision computer numerically controlled metalcutting machines and workholding technology solutions. The Company has the following direct and indirect wholly owned subsidiaries:
North America:
 
 
Canadian Hardinge Machine Tools, Ltd.
 
Toronto, Canada
Forkardt Inc.
 
Traverse City, Michigan
Hardinge Technology Systems, Inc.
 
Elmira, New York
Usach Technologies Inc.
 
Elgin, Illinois
Europe:
 
 
Forkardt Deutschland GmbH
 
Ekrath, Germany
Forkardt SAS
 
Noisy le Sec, France
Hardinge GmbH
 
Krefeld, Germany
Hardinge Holdings GmbH
 
St. Gallen, Switzerland
Hardinge Holdings B.V.
 
Amsterdam, Netherlands
Hardinge Machine Tools B.V.
 
Raamsdonksveer, Netherlands
Jones & Shipman Hardinge Limited
 
Leicester, England
Jones & Shipman SARL
 
Bron, France
L. Kellenberger & Co., AG
 
St. Gallen, Switzerland
Asia and Other:
 
 
Forkardt India LLP
 
Hyderabad, India
Hardinge China Limited
 
Hong Kong, People's Republic of China
Hardinge Machine (Shanghai) Co., Ltd.
 
Shanghai, People's Republic of China
Hardinge Machine Tools B.V., Taiwan Branch
 
Nan Tou City, Taiwan, Republic of China
Hardinge Precision Machinery (Jiaxing) Company, Limited
 
Jiaxing, People's Republic of China
Hardinge Taiwan Precision Machinery Limited
 
Nan Tou City, Taiwan, Republic of China
    
We have manufacturing facilities located in China, Switzerland, Taiwan, Germany, France, India, the United Kingdom ("U.K.") and the United States ("U.S."). We manufacture the majority of the products we sell.


3


Products

We supply high precision computer controlled metalcutting turning machines, grinding machines, machining centers, and repair parts related to those machines. The Company also engineers and supplies high precision, standard and specialty workholding devices, and other machine tool accessories. We believe our products are known for accuracy, reliability, durability and value.

Segments

The Company has two unique business segments: Metalcutting Machine Solutions ("MMS") and Aftermarket Tooling and Accessories ("ATA").

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 forty thousand dollars for some high volume products to around two million dollars 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 have been a manufacturer of industrial-use high precision and general precision turning machine tools since 1890. 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.

Grinding is a machining process in which a part's surface is shaped to closer tolerances with a rotating abrasive wheel or tool when compared with other available metalcutting technologies. Grinding machines can be used to finish parts of various shapes and sizes. The grinding machines of our Kellenberger subsidiary 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. The Kellenberger grinding machines are generally purchased by the same type of customers as other Hardinge equipment and further our ability to be a primary source for our customers.

Our Kellenberger precision grinding technology is complemented by our Hauser, Tschudin, Jones & Shipman, Usach, and Voumard grinding brands. Hauser machines are jig grinders used to make demanding contour components, primarily for tool and mold-making applications. Tschudin product technology is focused on the specialized grinding of cylindrical parts when the customer requires high volume production. Our Tschudin machines are generally equipped with automatic loading and unloading mechanisms for the part being machined. These loading and unloading mechanisms significantly reduce the level of involvement a machine operator has to perform in the production process. Our Jones & Shipman brand represents a line of high-quality grinding (surface, creep feed, and cylindrical) machines. These super-abrasive machines and machining systems are used by a diverse range of industries. Usach and Voumard machines are high quality internal diameter cylindrical grinding systems used in production and job shop environments.

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.

Our machines are generally computer controlled and use commands from an integrated computer to control the movement of cutting tools, grinding wheels, part positioning, and in the case of turning and grinding machines, the rotation speeds of the part being shaped. The computer control enables the operator to program operations such as part rotation, tooling selection, and tooling movement for a specific part and then stores that program in memory for future use. The machines are able to produce parts while left unattended when connected to automatic bar-feeding, robotics equipment, or other material handling devices designed to supply raw materials and remove machined parts from the machine.


4


New products are critical to our growth plans. We gain access to new products through internal product development, acquisitions, joint ventures, license agreements, and partnerships. Products are introduced each year to both broaden our product offering, to take advantage of new technologies available to us, and to replace older models nearing the end of their respective product life cycles. These technologies generally allow our machines to run at higher speeds and with more power, thus increasing their efficiency. Customers routinely replace old machines with newer machines that can produce parts faster and with less time to set up the machine when converting from one type of part to another. Generally, our machines can be used to produce parts from all of the standard ferrous and non-ferrous metals, as well as plastics, composites, and exotic materials.

We focus on products and solutions for companies making parts from hard-to-machine materials with hard to sustain close tolerances and hard to achieve surface finishes that may be hard to hold in the machine. We believe that with our high precision and super precision lathes, our grinding machines, and our rugged machining centers, combined with our accessory products and our technical expertise, we are uniquely qualified to be the supplier of choice for customers manufacturing to demanding specifications.

Multiple options are available on many of our machines, which allows customers to customize their machines to their specific operating performance and cost objectives. We produce machines for stock with popular option combinations for immediate delivery, as well as design and produce machines to specific customer requirements. In addition to our machines, we provide the necessary tooling, accessories, and support services to assist customers in maximizing their return on investment.

The sale of repair parts is important to our business. Certain parts on machines wear out, fail, or need to be replaced due to misuse over time. Customers will buy parts from us throughout the life of the machine, which typically extends over many years. There are thousands of machines in operation in the world for which we provide those repair parts and in many cases the parts are available exclusively from us.

We offer various warranties on our equipment and consider post-sale support to be a critical element of our business. Warranties on machines typically extend for twelve months after purchase. Services provided include operation and maintenance training, in-field maintenance, and in-field repair. We offer these post sales support services on a paid basis throughout the life of the machine. In territories covered by distributors, this support and service is offered through the distributor.

Aftermarket Tooling and Accessories (ATA)

This segment includes products that are purchased by manufacturers throughout the lives of their machines. The selling prices of these 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. While considered to be consumable, these products are more durable in nature, with replacement due to wear over time. 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 therefore accessories are still needed as they wear out or they are needed for a change in production requirements.

The two primary product groups in ATA 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.

 In May of 2013, the Company acquired Forkardt, a global provider of specialty chucks. Forkardt is based in Traverse City, Michigan with operations in the United States, Europe, and Asia that provide unique solutions for demanding workholding applications. This acquisition positions Hardinge as one of the largest manufacturers of rotating workholding solutions in the world. In December of 2013, we divested the Forkardt Swiss operations due to potential customer conflicts.

We offer an extensive line of workholding and toolholding solutions that are available in tens of thousands of shapes and sizes to meet unique customer application needs. These solutions can be used on virtually all types and brands of metalcutting machines, as well as non-traditional uses in many industrial applications. The Company continues to explore opportunities to expand this business organically and through acquisitions.


5


Sales, Markets and Distribution

We sell our products in most of the industrialized countries of the world through a combination of distributors, agents, and manufacturers' representatives. In certain areas of China, France, Germany, North America, and the United Kingdom, we have also used a direct sales force for portions of our product lines. Generally, our distributors have an exclusive right to sell our products in a defined geographic area. Our distributors operate as independent businesses and purchase products from us at discounted prices for their customers, while agents and representatives sell products on our behalf and receive commissions on sales. Our discount schedule is adjusted to reflect the level of pre and post sales support offered by our distributors. Our direct sales personnel earn a fixed salary plus commission. Sales through distributors are made only on standard commercial open account terms or through letters of credit. Distributors generally take title to products upon shipment from our facilities and do not have any special return privileges.

 Our standard ATA products are sold through direct telephone orders and via our web site at www.shophardinge.com. Custom or special solutions are sold through direct sales and agents. In most cases, we are able to package and ship in-stock tooling, accessories, and repair parts within 24 hours of receiving orders. We can package and ship items with heavy demand within a few hours. In other parts of the world, these products are sold on either a direct sales basis or through distributor arrangements.

We promote recognition of our products in the marketplace through advertising in trade publications, web presences, email newsletters, and participation in industry trade shows. In addition, we market our non-machine products and capabilities through publication of general catalogs and other targeted catalogs, which we distribute to existing and prospective customers. We have a considerable presence on the internet at www.hardinge.com and www.forkardt.com, where customers can obtain information about our products and place orders for accessories, tooling, knee mill products and repair parts.

A substantial portion of our end use customers are small and medium-sized independent job shops, which in turn sell machined parts to their industrial customers. Industries directly and indirectly served by us include aerospace, automotive, computer, communications, consumer-electronics, construction equipment, defense, energy, farm equipment, medical equipment, recreational equipment, and transportation.

No single customer or related group of customers accounted for more than 6% of our consolidated sales in 2014 or 2013. While valuing our relationship with each customer, we do not believe that the loss of any single customer, or any few customers, would have an adverse material effect on our business.

Competitive Conditions

In our industry, the barriers to entry for competition vary based on the level of product performance required. For the products with the highest performance in terms of accuracy and productivity, the barriers are generally technical in nature. For basic products, often the barriers are not technical; they are tied to product availability, competitive price position, and an effective distribution model that offers the pre and post sales support required by customers. Another significant barrier in the global machine tool industry is the high level of working capital that is required to operate the business.

We compete in various sectors of the machine tool market within the products of turning, milling, grinding, tooling and accessories. We compete with numerous vendors in each market sector we serve. The primary competitive factors in the marketplace for our machine tools are reliability, price, delivery time, service, and technological characteristics. Our management considers our segment of the industry to be extremely competitive. There are many manufacturers of machine tools in the world. They can be categorized by the size of material their products can machine and the precision level their products can achieve. For our high precision, multi-tasking turning and milling equipment, competition comes primarily from companies such as DMG Mori Seiki, Mazak, and Okuma. Competition in our more standard turning and milling equipment comes, in part, from those companies as well as Doosan, which is based in South Korea, and Haas which is based in the U.S., as well as many Taiwanese companies. Our internal and outer diameter (ID/OD) cylindrical grinding machines compete primarily with Studer, a Swiss company as well as Toyoda and Shigiya, which are based in Japan. Our Hauser jig grinding machines compete primarily with Moore Tool, which is based in the U.S., and some Japanese suppliers. Our surface grinding machines compete with Okamoto in Japan and Chevalier in Taiwan. Our ATA products compete with many smaller companies.


6


The overall number of our competitors providing product solutions serving our target markets may increase. Also, the overall composition of companies with which we compete may change as we broaden our product offerings and the geographic markets we serve. As we expand into new market areas, we will face competition not only from our existing competitors but from other competitors as well, including existing companies with strong technological, marketing and sales positions in those markets. In addition, several of our competitors may have greater resources, including financial, technical, and engineering resources, than we do.

Sources and Availability of Components

Our machines within the MMS segment are produced around the world. We produce certain of our lathes, knee mills, and related products at our Elmira, New York plant. The Kellenberger and Voumard grinding machines and related products are manufactured at our St. Gallen, Switzerland plant and Hauser and Tschudin products are produced at our Biel, Switzerland facility. The Jones & Shipman grinding machines are manufactured at our Leicester, England plant. The Usach grinding machines are manufactured at our Elgin, Illinois plant. We produce machining centers and lathes at our Hardinge Taiwan facility in Nan Tou, Taiwan and our Hardinge Precision Machinery (Jiaxing) Company, Ltd. facility in Jiaxing, China. The Company's Forkardt and Hardinge branded ATA segment products and solutions are engineered and produced in our plants located in Traverse City, Michigan, Elmira, New York, Kirchentellinsfurt, Germany, Noisy le Sec, France, and Hyderabad, India. We manufacture products from various raw materials, including cast iron, sheet metal, and bar steel. We purchase a number of components, sub-assemblies and assemblies from outside suppliers, including the computer and electronic components for our computer controlled lathes, grinding machines, and machining centers. There are multiple suppliers for virtually all of our raw material, components, sub-assemblies and assemblies and historically, we have not experienced a serious supply interruption. However, in 2011, because of the increase in demand driven by early 2011 worldwide order activity, producers of bearings, ball screws, and linear guides had difficulty meeting the rise in demand. Similar demand increase in the future could impact our production schedules.

A major component of our computer controlled machines is the computer and related electronics package. We purchase these components from Fanuc Limited, a Japanese electronics company, Heidenhain, a German control supplier, Mitsubishi Electric, a Japanese electronics company, or from Siemens, another German control manufacturer. While we believe that design changes could be made to our machines to allow sourcing from several other existing suppliers, and we occasionally do so for special orders, a disruption in the supply of the computer controls from one of our suppliers could cause us to experience a substantial disruption of our operations, depending on the circumstances at the time. We purchase parts from these suppliers under normal trade terms. There are no agreements with these suppliers to purchase minimum volumes per year.

Research and Development

Our ongoing research and development program involves creating new products, modifying existing products to meet market demands, and redesigning existing products, both to add new functionality and to reduce the cost of manufacturing. The research and development departments throughout the world are staffed with experienced design engineers with varying levels of education, ranging from technical to doctoral degrees.

The worldwide cost of research and development, all of which has been charged to cost of goods sold, amounted to $13.9 million, $12.5 million and $12.3 million, in 2014, 2013 and 2012, respectively.

Patents

Although we hold several patents with respect to certain of our products, we do not believe that our business is dependent to any material extent upon any single patent or group of patents.

Seasonal Trends and Working Capital Requirements

Hardinge's business and that of the machine tool industry in general, is cyclical. It is not subject to significant seasonal trends. However, our quarterly results are subject to fluctuation based on the timing of our shipments of machine tools, which are largely dependent upon customer delivery requirements. Given that a large percentage of our sales are from Asia, the impact of plant shutdowns in that region by us and our customers due to the celebration of the Lunar New Year holiday may impact the first quarter sales, income from operations, and net income, and result in the first quarter being the lowest quarter of the year.


7


The ability to deliver products within a short period of time is an important competitive criterion. We must have inventory on hand to meet customers' delivery expectations, which for standard machines typically range from immediate to eight weeks delivery. Meeting this requirement is especially difficult with some of our products, where delivery is extended due to time associated with shipping on ocean-going vessels, depending on the location of the customer. This creates a need to have inventory of finished machines available in our major markets to serve our customers in a timely manner.

We deliver many of our machine products within one to two months after the order. Some orders, especially multiple machine orders, are delivered on a turnkey basis with the machine or group of machines configured to make certain parts for the customer. This type of order often includes the addition of material handling equipment, tooling and specific programming. In those cases, the customer usually observes and inspects the parts being made on the machine at our facility before it is shipped and the timing of the sale is dependent upon the customer's schedule and acceptance. Therefore, sales from quarter-to-quarter can vary depending upon the timing of those customers' acceptances and the significance of those orders.

We feel it is important, where practical, to provide readily available accessories and replacement parts for the machines we sell and we carry inventory at levels sufficient to meet these customer requirements.

Governmental Regulations

We believe that our current operations and our current uses of property, plant and equipment conform in all material respects to applicable laws and regulations in the various countries in which we conduct business.

Governmental Contracts

No material portion of our business is subject to government contracts.

Environmental Matters

Our operations are subject to extensive federal, state, local and foreign laws and regulations relating to environmental matters. Certain environmental laws can impose joint and several liability for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal. Hazardous substances and adverse environmental effects have been identified with respect to real property we own and on adjacent parcels of real property.

In particular, our Elmira, NY manufacturing facility is located within the Kentucky Avenue Wellfield on the National Priorities List of hazardous waste sites designated for cleanup by the United States Environmental Protection Agency ("EPA") because of groundwater contamination. The Kentucky Avenue Wellfield Site (the "Site") encompasses an area which includes sections of the Town of Horseheads and the Village of Elmira Heights in Chemung County, NY. In February 2006, the Company received a Special Notice Concerning a Remedial Investigation/Feasibility Study ("RI/FS") for the Koppers Pond (the "Pond") portion of the Site. The EPA documented the release and threatened release of hazardous substances into the environment at the Site, including releases into and in the vicinity of the Pond. The hazardous substances, including metals and polychlorinated biphenyls, have been detected in sediments in the Pond.

Until receipt of this Special Notice in February 2006, the Company had never been named as a potentially responsible party ("PRP") at the Site nor had the Company received any requests for information from the EPA concerning the Site. Environmental sampling on our property within this Site under supervision of regulatory authorities had identified off-site sources for such groundwater contamination and sediment contamination in the Pond, and found no evidence that our operations or property have contributed or are contributing to the contamination. We have notified all appropriate insurance carriers and are actively cooperating with them, but whether coverage will be available has not yet been determined and possible insurance recovery cannot now be estimated with any degree of certainty.

A substantial portion of the Pond is located on our property. The Company, along with Beazer East, Inc., the Village of Horseheads, the Town of Horseheads, the County of Chemung, CBS Corporation and Toshiba America, Inc., (collectively, the "PRPs"), have agreed to voluntarily participate in the RI/FS by signing an Administrative Settlement Agreement and Order of Consent on September 29, 2006. On September 29, 2006, the Director of Emergency and Remedial Response Division of the EPA, Region II, approved and executed the Agreement on behalf of the EPA. The PRPs also signed a PRP Member Agreement, agreeing to share the cost of the RI/FS study on a per capita basis.


8


The EPA approved the RI/FS Work Plan in May of 2008. On September 7, 2011, the PRPs submitted the draft Remedial Investigation Report to the EPA and on January 10, 2013, the draft Feasibility Study was submitted to the EPA. The PRPs are preparing a revised draft feasibility study to update site information and to address issues raised by the EPA.

The draft Feasibility Study identified alternative remedial actions with estimated life-cycle costs ranging from $0.7 million to $3.4 million. The proposed revised draft feasibility study is identifying an estimated life-cycle range from $0.9 million to $3.7 million. We estimate that our portion of the potential costs, based upon the proposed revised feasibility study, are estimated to range from $0.1 million to $0.5 million. Based on the current estimated costs of the various remedial alternatives now under consideration by the EPA, we have recorded a reserve of $0.2 million for the Company's share of remediation expenses at the Pond as of December 31, 2014. This reserve is included in "Accrued expenses" in the Consolidated Balance Sheets.

We believe, based upon information currently available that, except as described in the preceding paragraphs, we will not have material liabilities for environmental remediation. Though the foregoing reflects the Company's current assessment as it relates to environmental remediation obligations, it is possible that future remedial requirements or changes in the enforcement of existing laws and regulations, which are subject to extensive regulatory discretion, will result in material liabilities to the Company.

Employees

As of December 31, 2014, Hardinge Inc. employed 1,478 persons, 493 of whom were located in the United States. Management believes that relations with our employees are good.

Foreign Operations and Export Sales

Information related to foreign and domestic operations and sales is included in Note 17. "Segment Information" to the Consolidated Financial Statements contained in this Annual Report. Our strategy has been to diversify our sales and operations geographically so that the impact of economic trends in different regions can be balanced.

The risks associated with conducting business on an international basis are discussed further in Item 1A. "Risk Factors".

Item 1A. Risk Factors.

The various risks related to the Company's business include the risks described below. The business, financial condition or results of operations of Hardinge could be materially adversely affected by any of these risks. The risks and uncertainties described below or elsewhere in this Form 10-K are not the only ones to which we are exposed. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business and operations. If any of the matters included in the following risks were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected.

Our customers' activity levels and spending for our products and services have been impacted by global economic conditions, especially deterioration in the credit markets.

For many of our customers, the purchase of our machines represents a significant capital expenditure. For others, the purchase of our machines is a part of a larger improvement or expansion of manufacturing capability. For all, the purchase represents a long term commitment of capital raised by incurrence of debt, issuance of equity or use of cash flow from operations. Global economic and financial difficulties across the world in recent years have been well documented. Governments in Europe, Asia and the U.S. subsequently intervened in an effort to improve economic conditions. These interventions may have reduced the overall impact of the crisis, but also created instability, uncertainty and doubt. During this period, many of our customers experienced uncertain cash flows and reduced access to credit and equity markets, all of which made commitment to larger long term capital projects difficult. While global conditions appear to have improved, similar conditions in the future could negatively impact our operating results.


9


Changes in general economic conditions and the cyclical nature of our business could harm our operating results.

Our business is cyclical in nature, following the strength and weakness of the manufacturing economies in the geographic markets we serve. As a result of this cyclicality, we have experienced, and in the future we can be expected to experience, significant fluctuations in sales and operating income, which may affect our business, operating results, financial condition and the market price of our common shares.

The following factors, among others, significantly influence demand for our products:

Fluctuations in capacity at both OEMs and job shops;
The availability of skilled machinists;
The need to replace machines that have reached the end of their useful life;
The need to replace older machines with new technology that increases productivity, reduces general manufacturing costs, and machines parts in a new way;
The evolution of end-use products requiring machining to more specific tolerances;
Our customers' use of new materials requiring machining by different processes;
General economic and manufacturing industry expansions and contractions; and
Changes in manufacturing capabilities in developing regions.

Our competitive position and prospects for growth may be diminished if we are unable to develop and introduce new and enhanced products on a timely basis that are accepted in the market.

The machine tool industry is subject to technological change, rapidly evolving industry standards, changing customer requirements, and improvements in and expansion of product offerings, especially with respect to computer-controlled products. Our ability to anticipate changes in technology, industry standards, customer requirements and product offerings by competitors, and to develop and introduce new and enhanced products on a timely basis that are accepted in the market, will be significant factors in our ability to compete and grow. Moreover, if technologies or standards used in our products become obsolete or fail to gain widespread commercial acceptance, our business would be materially adversely affected. Developments by our competitors or others may render our products or technologies obsolete or noncompetitive. Failure to effectively introduce new products or product enhancements on a timely basis could materially adversely affect our business, operating results, and financial condition.

We rely on a limited number of suppliers to obtain certain components, sub-assemblies, assemblies and products. Delays in deliveries from or the loss of any of these suppliers may cause us to incur additional costs, result in delays in manufacturing and delivering our products or cause us to carry excess or obsolete inventory.

Some components, sub-assemblies, or assemblies we use in the manufacturing of our products are purchased from a limited number of suppliers. Our purchases from these suppliers are generally not made pursuant to long-term contracts and are subject to additional risks associated with purchasing products internationally, including risks associated with potential import restrictions and exchange rate fluctuations, as well as changes in tax laws, tariffs, and freight rates. Although we believe that our relationships with these suppliers are good, there can be no assurance that we will be able to obtain these products from these suppliers on satisfactory terms indefinitely. The present economic environment could also pose the risk of one of these key suppliers going out of business, or cause delays in delivery times of critical components as business conditions rebound and demand increases.

We believe that design changes could be made to our machines to allow sourcing of components, sub-assemblies, assemblies or products from several other suppliers; however, a disruption in the supply from any of our suppliers could cause us to experience a material adverse effect on our operations.


10


Our business, financial condition, and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business and other factors related to our international operations.

We manufacture a substantial portion of our products overseas and sell our products throughout the world. In 2014, approximately 68% of our products were sold in countries outside of North America. In addition, a majority of our employees are located outside of the United States. Multiple factors relating to our international operations and to particular countries in which we operate could have a material adverse effect on our business, financial condition, results of operations, and cash flows. These factors include:

A prolonged world-wide economic downturn or economic uncertainty in our principal international markets including Asia and Europe;
Changes in political, regulatory, legal, or economic conditions;
Restrictive governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments and trade protection measures, including export duties and quotas, customs duties and tariffs, or trade barriers erected by either the United States or other countries where we do business;
Disruptions of capital and trading markets;
Changes in import or export licensing requirements;
Transportation delays;
Civil disturbances or political instability;
Geopolitical turmoil, including terrorism or war;
Currency restrictions and exchange rate fluctuations;
Changes in labor standards;
Limitations on our ability under local laws to protect our intellectual property;
Nationalization and expropriation;
Changes in domestic and foreign tax laws;
Difficulty in obtaining distribution and support; and
Health epidemics and other localized health risks.

Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other local laws prohibiting corrupt payments to government officials, and anti-corruption regulations. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, restrictions on our business conduct and on our ability to offer products in one or more countries, and could adversely affect our reputation, our ability to attract and retain employees, our international operations, our business and our operating results. Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors or agents, as well as those companies to which we outsource certain of our business operations, will not violate these policies.

Our business is highly competitive, and increased competition could reduce our sales, earnings and profitability.

The markets in which our machines and other products are sold are extremely competitive and highly fragmented. In marketing our products, we compete primarily with other businesses on quality, reliability, price, value, delivery time, service, and technological characteristics. We compete with a number of U.S., European, and Asian competitors, many of which are larger, have greater financial and other resources, and are supported by governmental or financial institution subsidies. Increased competition could force us to lower our prices or to offer additional product features or services at a higher cost to us, which could reduce our earnings.

The greater financial resources or the lower amount of debt of certain of our competitors may enable them to commit larger amounts of capital in response to changing market conditions. Certain competitors may also have the ability to develop product innovations that could put us at a disadvantage. If we are unable to compete successfully against other manufacturers in our marketplace, we could lose customers, and our sales may decline. There can also be no assurance that customers will continue to regard our products favorably, that we will be able to develop new products that appeal to customers, that we will be able to improve or maintain our profit margins on sales to our customers, or that we will be able to continue to compete successfully in our core markets. While we believe our product lines compete effectively in their markets, we may not continue to do so.


11


Acquisitions could disrupt our operations and harm our operating results.

We may elect to increase our product offerings and the markets we serve through acquisitions of other companies, product lines, technologies and personnel. Acquisitions involve numerous risks, including the following:

Difficulties in integrating the operations, technologies, products and personnel of the acquired companies;
Diversion of management's attention from normal daily operations of the business;
Potential difficulties in completing projects associated with in-process research and development;
Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
Initial dependence on unfamiliar supply chains or relatively small supply partners;
Difficulties in predicting market demand for acquired products and technologies and the resultant risk of acquiring excess or obsolete inventory;
Insufficient revenues to offset increased expenses associated with acquisitions; and
The potential loss of key employees of the acquired companies.

Acquisitions may also cause us to:

Issue common stock that would dilute our current shareholders' percentage ownership;
Increase our level of indebtedness;
Assume liabilities;
Record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges;
Incur amortization expenses related to certain intangible assets;
Incur large and immediate write-offs and restructuring and other related expenses; and
Become subject to litigation.

Acquisitions are inherently risky, and no assurance can be given that our recent or future acquisitions, if any, will be successful and will not have material adverse effect on our business, operating results or financial condition. Failure to manage and successfully integrate acquisitions we make could harm our business and operating results in a material way. Additionally, we may incur significant expenses related to potential acquisitions that are not completed. Prior acquisitions have resulted in a wide range of outcomes, from successful introduction of new products, technologies, facilities, and personnel to an inability to do so. Even when an acquired business has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.

If we are unable to access additional capital on favorable terms, our liquidity, business, and results of operations could be adversely affected.

The ability to raise financial capital, either in public or private markets or through commercial banks, is critical to our current business and future growth. Our business is generally working capital intensive requiring a long cash-out to cash-in cycle. In addition, we will rely on the availability of longer-term debt financing or equity financing to make investments in new opportunities. Our access to the financial markets could be adversely impacted by various factors including the following:

Changes in credit markets that reduce available credit or the ability to renew existing facilities on acceptable terms;
A deterioration in our financial condition that would violate current loan agreement covenants or prohibit us from obtaining additional capital from banks, financial institutions, or investors;
Extreme volatility in credit markets that increase margin or credit requirements; and
Volatility in our results that would substantially increase the cost of our capital.

We are subject to significant foreign exchange and currency risks that could adversely affect our operations and our ability to reinvest earnings from operations.

Our international operations generate sales in a number of foreign currencies including British Pound Sterling ("GBP"), Chinese Renminbi ("CNY"), Euros ("EUR"), Indian Rupee ("INR"), New Taiwanese Dollars ("TWD"), and Swiss Francs ("CHF"). Therefore, our results of operations and financial condition are affected by fluctuations in exchange rates between these currencies and the U.S. dollar ("USD"). In addition, our purchases of components in CNY, EUR, TWD, CHF, and Japanese Yen ("JPY") are affected by inter-currency fluctuations in exchange rates.

12



We prepare our financial statements in USD in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), but a sizable portion of our revenue and operating expenses are in foreign currencies. As a result, we are subject to significant risks, including:

Foreign exchange risks resulting from changes in foreign exchange rates and the implementation or termination of exchange controls; and
Limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries.

Changes in exchange rates will result in increases or decreases in our revenues, costs, and earnings, and may also affect the book value of our assets located outside of the United States and the amount of our invested equity. Although we may seek to decrease our currency exposure by engaging in hedges against significant transactions and balance sheet currency exposures where we deem it appropriate, we do not hedge against translation risks. Though we monitor and manage our exposures to changes in currency exchange rates, and utilize currency exchange forward contracts and swaps to mitigate the impact of changes in currency values, changes in exchange rates nonetheless cannot always be predicted or hedged. Consequently, we cannot assure that any efforts to minimize our risk to currency movements will be successful. To the extent we sell our products in markets other than the market in which they are manufactured, currency fluctuations may result in our products becoming too expensive for customers in those markets.

Prices of some raw materials, especially steel and iron, fluctuate, which can adversely affect our sales, costs, and profitability.

We manufacture products with a relatively high iron casting or steel content, commodities for which worldwide prices fluctuate. The availability of and prices for these and other raw materials are subject to volatility due to worldwide supply and demand forces, speculative actions, inventory levels, exchange rates, production costs, and anticipated or perceived shortages. In some cases, raw material cost increases can be passed on to customers in the form of price increases; in other cases, they cannot. If raw material prices increase and we are not able to charge our customers higher prices to compensate, it would adversely affect our business, results of operations and financial condition.

Our expenditures for post-retirement pension obligations could be materially higher than we have predicted if our underlying assumptions prove to be incorrect or we are required to use different assumptions.

We provide defined benefit pension plans to eligible employees. Our pension expense, the funding status of our plans and related charges in other comprehensive income (loss), and required contributions to our pension plans are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets and the actuarial assumptions we use to measure our defined benefit pension plan obligations, including the rate at which future obligations are discounted to a present value, or the discount rate. Should the assets earn a return less than the assumed rate of return over time, it is likely that future pension expenses and funding requirements would increase. Investment earnings in excess of the assumed rate of return may reduce future pension expenses and funding requirements. A change in the discount rate would impact the funded status of our plans. An increase to the discount rate would generally reduce the pension liability and future pension expense and, conversely, a lower discount rate would generally increase the pension liability and the future pension expense.

The market-related value of assets for our U.S. qualified defined benefit pension plan recognizes asset losses and gains over a five-year period, which we believe is consistent with the long-term nature of our pension obligations. As a result, the effect of changes in the market value of assets on our pension expense may be experienced in future years rather than fully reflected in the expense for the year immediately following the year in which the fluctuations actually occurred.

In addition, we cannot predict whether changing market or economic conditions, regulatory changes or other factors will increase our pension expenses or our funding obligations, diverting funds we would otherwise apply to other uses. Contribution levels are largely contingent on asset returns and corporate bond yields. If the performance of the assets in our U.S. qualified defined benefit pension plan does not meet our expectations and/or corporate bond yields decrease, our future contributions to the plan could increase.


13


If we are unable to attract and retain skilled employees to work at our manufacturing facilities, our operations and growth prospects would be adversely impacted.

We conduct substantially all of our manufacturing operations in less densely populated urban areas, which, in many cases, may represent a relatively small market for skilled labor force. Our continued success depends on our ability to attract and retain a skilled labor force at these locations. If we are not able to attract and retain the personnel we require, we may be unable to develop, manufacture, and market our products, or to expand our operations in a manner that best exploits market opportunities and capitalizes on our investment in our business. This would materially adversely affect our business, operating results and financial condition.

Due to future technological changes, changes in market demand, or changes in market expectations, portions of our inventory may become obsolete or excessive.

The technologies incorporated in our products change and generally new versions of machines are brought to market in three to five year cycles. The phasing out of an old product involves both estimating the amount of inventory to hold to satisfy the final demand for those machines as well as to satisfy future repair part needs. Based on changing customer demand and expectations of delivery times for repair parts, we may find that we have either obsolete or excess inventory on hand. Because of unforeseen changes in technology, market demand, or competition, we may have to write off unusable inventory at some time in the future, which may adversely affect our results of operations and financial condition.

Major changes in the economic situation of our customer base could require us to write off significant portion of our receivables from customers.

In difficult economic periods, our customers lose work and find it difficult if not impossible to pay for products purchased from us. Although appropriate credit reviews are done at the time of sale, rapidly changing economic conditions can have sudden impacts on our customers' ability to pay. We run the risk of bad debt on existing time payment contracts and open accounts. If we write off significant parts of our customer accounts or notes receivable because of unforeseen changes in their business condition, it would adversely affect our results of operations, financial condition, and cash flows.

If we suffer damage to our factories, facilities or distribution system due to catastrophe, our operations could be seriously harmed.

Our factories, facilities, and distribution system are subject to the risk of catastrophic loss due to fire, flood, terrorism, or other natural or man-made disasters. In particular, several of our facilities could be subject to a catastrophic loss caused by earthquake due to their locations. Our facilities in Southeast Asia are located in areas with above average seismic activity. If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue, and result in large expenses to repair or replace the facility.

Our business operations may be adversely affected by interruptions or failures of our technology information systems.

We are dependent on multiple information technology systems throughout our company to operate our business. An interruption or failure of our information technology systems, or a cybersecurity attack, such as unauthorized access, malicious software or other intrusion, may result in a significant disruption of our business operations and materially increase our costs of operations.

We rely in part on independent distributors and the loss of these distributors could adversely affect our business.

In addition to our direct sales force, we depend on the services of independent distributors and agents to sell our products and provide service and aftermarket support to our customers. We support an extensive distributor and agent network worldwide. In 2014, approximately 66% of our sales were through distributors and agents. No distributor accounted for more than 5% of our consolidated sales in 2014. Rather than serving as passive conduits for delivery of product, many of our distributors are active participants in the sale and support of our products. Many of the distributors with whom we transact business offer competitive products and services to our customers. In addition, the distribution agreements we have are typically cancelable by the distributor after a relatively short notice period. The loss of a substantial number of our distributors or an increase in the distributors' sales of our competitors' products to our customers could reduce our sales and profits.


14


We rely on estimated forecasts of our customers' needs, and inaccuracies in such forecasts could adversely affect our business.

We generally sell our products pursuant to individual purchase orders instead of long-term purchase commitments. Therefore, we rely on estimated demand forecasts, based upon input from our customers and the general economic environment, to determine how much material to purchase and product to manufacture. Because our sales are based on purchase orders, our customers may cancel, delay, or otherwise modify their purchase commitments with little or no consequence to them and with little or no notice to us. For these reasons, we generally have limited visibility regarding our customers' actual product needs. The quantities or timing required by our customers for our products could vary significantly. Whether in response to changes affecting the industry or a customer's specific business pressures, any cancellation, delay, or other modification in our customers' orders could significantly reduce our revenue, cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a cancellation or reduction of a customer order, we may not have enough time to reduce inventory purchases or our workforce to minimize the effect of the lost revenue on our business. Order cancellations typically average approximately 2% of sales. Cancellations could vary significantly during times of global economic uncertainty.

We could face potential product liability claims relating to products we manufacture, which could result in us having to expend significant time and expense to defend these claims and to pay material amounts in damages or settlement.

We face a business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other adverse effects. We currently maintain product liability insurance coverage; however, such insurance does not cover all types of damages that could be assessed against us in a product liability claim and the coverage amounts are subject to certain limitations under the applicable policies. We may not be able to obtain product liability insurance on acceptable terms in the future. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, financial condition, results of operations or prospects. In addition, we believe our business depends on the strong brand reputation we have developed. In the event that our reputation is damaged, we may face difficulty in maintaining our pricing positions with respect to some of our products, which would reduce our sales and profitability.

Current employment laws or changes in employment laws could increase our costs and may adversely affect our business.

Various federal, state and foreign labor laws govern the relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers' compensation rates, citizenship requirements, and costs to terminate or layoff employees. Significant additional government-imposed increases in the following areas could materially affect our business, financial condition, operating results, or cash flow:

minimum wages;
mandated health benefits;
paid leaves of absence;
mandatory severance payments; and
employment taxes.

We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.

Our operations are subject to extensive federal, state, local and foreign laws and regulations relating to environmental matters. Certain environmental laws can impose joint and several liability for releases or threatened releases of hazardous substances upon certain statutorily defined parties regardless of fault or the lawfulness of the original activity or disposal. Hazardous substances and adverse environmental effects have been identified with respect to real property we own and on adjacent parcels of real property.

We believe, based upon information currently available that, except with respect to the environmental matter concerning the Kentucky Avenue Wellfield Site as described in Part I Item 1. "Business - Environmental Matters", we will not have material liabilities for environmental remediation. Though the foregoing reflects the Company's current assessment as it relates to environmental remediation obligations, it is possible that future remedial requirements or changes in the enforcement of existing laws and regulations, which are subject to extensive regulatory discretion, will result in material liabilities to the Company.


15


The loss of current members of our senior management team and other key personnel may adversely affect our operating results.

The loss of senior management and other key personnel could impair our ability to carry out our business plan. We believe our future success will depend in part on our ability to attract and retain highly skilled and qualified personnel. The loss of senior management and other key personnel may adversely affect our operating results as we incur costs to replace the departing personnel and potentially lose opportunities in the transition of important job functions.

If we fail to maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud.

Effective internal controls are necessary for us to provide reliable financial reports, to prevent fraud and to operate successfully as a publicly traded company. Our efforts to maintain an effective system of internal controls may not be successful, and we may be unable to maintain adequate controls over our financial processes and reporting in the future. Ineffective internal controls subject us to regulatory scrutiny and a loss of confidence in our reported financial information, which could have an adverse effect on our business and would likely have a negative effect on the trading price of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to periodically furnish a report by our management regarding, among other things, the effectiveness of our internal control over financial reporting. Our management has concluded that, as of December 31, 2014, the Company's internal control over financial reporting was effective.

Anti-takeover provisions in our charter documents and under New York law may discourage a third party from acquiring us.

Certain provisions of our certificate of incorporation and bylaws may have the effect of discouraging a third party from making a proposal to acquire us and, as a result, may inhibit a change in control of the Company under circumstances that could give the shareholders the opportunity to realize a premium over the then-prevailing market price of our common shares. These include:

Staggered Board of Directors. Our certificate of incorporation and bylaws provide that our Board of Directors, currently consisting of seven members, is divided into three classes of directors, with each class consisting of two or three directors, and with the classes serving staggered three-year terms. This classification of the directors has the effect of making it more difficult for shareholders, including those holding a majority of our outstanding shares, to force an immediate change in the composition of our Board of Directors.

Removal of Directors and Filling of Vacancies. Our certificate of incorporation provides that a member of our Board of Directors may be removed only for cause and upon the affirmative vote of the holders of 75% of the securities entitled to vote at an election of directors. Newly created directorships and Board of Director vacancies resulting from retirement, death, removal or other causes may be filled only by a majority vote of the then remaining directors. Accordingly, it is more difficult for shareholders, including those holding a majority of our outstanding shares, to force an immediate change in the composition of our Board of Directors.

Supermajority Voting Provisions for Certain Business Combinations. Our certificate of incorporation requires the affirmative vote of at least 75% of all of the securities entitled to vote and at least 75% of shareholders who are not Major Shareholders (defined as 10% beneficial holders) in order to effect certain mergers, sales of assets or other business combinations involving the Company. These provisions could have the effect of delaying, deferring or preventing a change of control of the Company.

In addition, as a New York corporation we are subject to provisions of the New York Business Corporation Law which may make it more difficult for a third party to acquire and exercise control over us pursuant to a tender offer or request or invitation for tenders. These provisions could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.


16


Our shareholders may experience further dilution as a result of future equity offerings or issuances.

In order to raise additional capital or pursue strategic transactions, we may in the future offer, issue or sell additional shares of our common stock or other equity securities. Our shareholders may experience significant dilution as a result of future equity offerings or issuances. Investors purchasing shares or other securities in the future could have rights superior to existing shareholders.

In addition, we have filed a registration statement with the Securities and Exchange Commission, allowing us to offer, from time to time and at any time, up to $100.0 million of equity securities (including common or preferred shares), subject to market conditions and other factors. The shares sold under the controlled equity offerings are the only equity securities sold pursuant to such registration statement thus far. Accordingly, we may, from time to time and at any time, seek to offer and sell our equity securities, including sales of shares of common stock, based upon market conditions and other factors.

Under a Controlled Equity Offering Sales Agreement entered into with Cantor Fitzgerald & Co. on August 9, 2013, we have sold approximately $14.6 million of shares of our common stock, as of December 31, 2014, through "at-the-market" offerings, and may offer and sell, from time to time through such offerings an additional amount of up to an aggregate offering price of $25.0 million of shares of our common stock.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Pertinent information concerning the principal properties of the Company and its subsidiaries is as follows:

Owned Properties:
Location
 
Type of Facility
 
Acreage (Land)
Square Footage
(Building)
Horseheads, New York
 
Manufacturing, Engineering, Turnkey Systems, Marketing, Sales, Demonstration, Service, and Administration
 
80 acres
515,000 sq. ft.
Jiaxing, China
 
Manufacturing, Engineering, Demonstration, and Administration (Buildings and improvements are owned by the Company; land is under 50-year lease expiring in November 2060)
 
7 acres
223,179 sq. ft
St. Gallen, Switzerland
 
Manufacturing, Engineering, Turnkey Systems, Marketing, Sales, Demonstration, Service, and Administration
 
8 acres
162,924 sq. ft.
Nan Tou City, Taiwan
 
Manufacturing, Engineering, Marketing, Sales, Demonstration, Service, and Administration
 
3 acres
123,204 sq. ft.
Romanshorn, Switzerland
 
Manufacturing
 
2 acres
42,324 sq. ft.
Biel, Switzerland
 
Manufacturing, Engineering, Service, and Turnkey Systems
 
4 acres
41,500 sq. ft.
Traverse City, Michigan
 
Manufacturing, Engineering, Marketing, Sales, Service, and Administration
 
2.4 acres
38,800 sq. ft.


17


Leased Properties:
Location
 
Type of Facility
 
Square Footage
 
Lease
Expiration
Date
Leicester, England
 
Manufacturing, Sales, Marketing, Engineering, Turnkey Systems, Demonstration, Service, and Administration
 
55,000 sq. ft.
 
3/31/19
Ekrath, Germany
 
Sales, Service, Administration, Engineering, and Marketing
 
45,025 sq. ft.
 
4/30/2016
Reutlingen, Germany
 
Manufacturing and Engineering
 
39,547 sq. ft.
 
8/31/19
Shanghai, China
 
Marketing, Engineering, Turnkey Systems, Sales, Service, Demonstration, and Administration
 
38,820 sq. ft.
 
5/31/18
Elgin, Illinois
 
Manufacturing, Sales, Marketing, Engineering, Turnkey Systems, Demonstration, Service, and Administration
 
34,000 sq. ft.
 
12/31/17
Krefeld, Germany
 
Sales, Turnkey Systems, Service, Demonstration, and Administration
 
14,402 sq. ft.
 
3/31/20
Hyderabad, India
 
Manufacturing, Engineering, Marketing, Sales, Service, and Administration
 
10,000 sq. ft.
 
9/30/16
Biel, Switzerland
 
Manufacturing, Sales, Engineering, Turnkey Systems, Service, and Administration
 
7,995 sq. ft.
 
6/30/15
Noisy le Sec, France
 
Manufacturing, Engineering, Marketing, Sales, Administration, and Service
 
7,320 sq. ft.
 
12/31/19
St. Gallen, Switzerland
 
Manufacturing
 
7,136 sq. ft.
 
12/31/19
Bron, France
 
Marketing, Sales, Administration, and Service
 
2,680 sq. ft.
 
4/1/23

Item 3. Legal Proceedings.
 
The Company is from time to time involved in routine litigation incidental to its operations. None of the litigation in which we are currently involved, individually or in the aggregate, is anticipated to be material to our financial condition, results of operations, or cash flows.
 
Item 4. Mine Safety Disclosures.
 
Not Applicable.
 

18


PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The following table reflects the highest and lowest values at which our common stock traded in each quarter of the last two years. Our common stock trades on the NASDAQ Global Select Market under the symbol "HDNG". The table also includes dividends per share, by quarter:
 
2014
 
2013
 
Values
 
Values
 
High
 
Low
 
Dividends
 
High
 
Low
 
Dividends
Quarter Ended
 

 
 

 
 

 
 

 
 

 
 

March 31,
$
14.86

 
$
12.86

 
$
0.02

 
$
13.95

 
$
10.00

 
$
0.02

June 30,
14.66

 
11.40

 
0.02

 
14.97

 
11.91

 
0.02

September 30,
13.00

 
10.75

 
0.02

 
16.88

 
13.63

 
0.02

December 31,
12.59

 
9.77

 
0.02

 
15.68

 
13.79

 
0.02

    
At March 6, 2015, there were 228 shareholders of record of our common stock.

Issuer Purchases of Equity Securities

None.

Performance Graph

The graph below compares the five-year cumulative total return for Hardinge Inc. common stock with the comparable returns for the NASDAQ Stock Market (U.S.) Index and a group of 16 peer issuers, and our old peer group of 15 peer issuers. The companies included in our new peer group were selected based on comparability to Hardinge with respect to market capitalization, sales, manufactured products and international presence. Our new peer group includes Altra Holding, Inc., Cohu, Inc., Columbus McKinnon Corporation, Dynamic Materials Corporation, Electro Scientific Industries Inc., Global Power Equipment Group Inc., Hurco Companies Inc., Kadant Inc., Nanometrics Inc., Newport Corporation, NN, Inc., PMFG, Inc., Rudolph Technologies, Inc., Sifco Industries Inc., Transcat Inc., and Twin Disc Inc. Our old peer group included Flow International Corporation and Zygo Corporation, both of which were acquired during 2014 and were no longer publicly traded. We replaced these two companies with Dynamic Materials Corporation, PMFG, Inc., and Rudolph Technologies. Cumulative total return represents the change in stock price and the amount of dividends received during the indicated period, assuming reinvestment of dividends. The graph assumes an investment of $100 on December 31, 2009. The stock performance shown in the graph is included in response to SEC requirements and is not intended to forecast or to be indicative of future performance.


19


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hardinge Inc., the NASDAQ Composite Index,
Old Peer Group and New Peer Group

____________________
*$100 invested on 12/31/09 in stock or index, including reinvestment of dividends.

Fiscal year ended December 31,
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Hardinge Inc. 
$
100.00

 
$
177.92

 
$
147.94

 
$
184.21

 
$
269.72

 
$
223.60

NASDAQ Composite
100.00

 
118.02

 
117.04

 
137.47

 
192.62

 
221.02

Old Peer Group
100.00

 
159.20

 
149.42

 
138.66

 
189.30

 
185.28

New Peer Group
100.00

 
149.81

 
140.26

 
128.68

 
173.15

 
161.12


20


Item 6. Selected Financial Data.

The following selected financial data is derived from the audited consolidated financial statements of the Company. The data should be read in conjunction with the audited consolidated financial statements, related notes and other information included herein (amounts in thousands except per share data):
 
2014
 
2013
 
2012
 
2011
 
2010
STATEMENT OF OPERATIONS DATA:
 

 
 

 
 

 
 

 
 

Sales
$
311,633

 
$
329,459

 
$
334,413

 
$
341,573

 
$
257,007

Cost of sales
224,755

 
236,220

 
237,576

 
250,545

 
195,717

Gross profit
86,878

 
93,239

 
96,837

 
91,028

 
61,290

Selling, general and administrative expenses
81,045

 
79,533

 
76,196

 
73,599

 
65,650

Impairment charges(1)
5,766

 
6,239

 

 

 
(25
)
Other expense (income), net
514

 
471

 
559

 
832

 
(1,605
)
Operating (loss) income
(447
)
 
6,996

 
20,082

 
16,597

 
(2,730
)
Interest expense, net
678

 
1,064

 
741

 
238

 
336

(Loss) income from continuing operations before
   income taxes
(1,125
)
 
5,932

 
19,341

 
16,359

 
(3,066
)
Income taxes
1,233

 
1,537

 
1,486

 
4,373

 
2,168

(Loss) income from continuing operations
(2,358
)
 
4,395

 
17,855

 
11,986

 
(5,234
)
Gain from disposal of discontinued operation, and
   income from discontinued operations, net of tax(2)
218

 
5,532

 

 

 

Net (loss) income
$
(2,140
)
 
$
9,927

 
$
17,855

 
$
11,986

 
$
(5,234
)
PER SHARE DATA:
 

 
 

 
 

 
 

 
 

Basic (loss) earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(0.19
)
 
$
0.37

 
$
1.53

 
$
1.03

 
$
(0.46
)
Discontinued operations
0.02

 
0.47

 

 

 

Basic (loss) earnings per share
$
(0.17
)
 
$
0.84

 
$
1.53


$
1.03

 
$
(0.46
)
Weighted average basic shares outstanding
12,661

 
11,801

 
11,557

 
11,463

 
11,409

 
 
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(0.19
)
 
$
0.37

 
$
1.53

 
$
1.02

 
$
(0.46
)
Discontinued operations
0.02

 
0.46

 

 

 

Diluted (loss) earnings per share
$
(0.17
)
 
$
0.83

 
$
1.53

 
$
1.02

 
$
(0.46
)
Weighted average diluted shares outstanding
12,661

 
11,891

 
11,596

 
11,548

 
11,409

 
 

 
 

 
 

 
 

 
 

Cash dividends declared per share
$
0.08

 
$
0.08

 
$
0.08

 
$
0.05

 
$
0.02

BALANCE SHEET DATA:
 

 
 

 
 

 
 

 
 

Working capital
$
134,338

 
$
136,931

 
$
128,069

 
$
126,851

 
$
126,669

Total assets
311,320

 
344,183

 
325,654

 
311,669

 
274,847

Total debt
16,225

 
26,635

 
19,989

 
21,537

 
5,044

Shareholders' equity
169,596

 
203,788

 
161,207

 
147,023

 
157,902

____________________
(1)  
2014 and 2013 results include non-cash charges of $5.8 million and $6.2 million, respectively, for impairment of goodwill and other intangible assets. $5.8 million and $5.1 million in 2014 and 2013, respectively, was related to the impairment in the value of goodwill and the trade name associated with the purchase of Usach, and $1.1 million in 2013 was related to the impairment of the Forkardt trade name as a result of the Forkardt Swiss business divestiture.
(2)  
On December 31, 2013, the Company divested its Forkardt operations in Switzerland for CHF 5.6 million, net of cash sold ($6.3 million equivalent), resulting in a gain of $4.9 million. In March 2014, the Company recognized $0.2 million of additional consideration as a result of final working capital adjustments.


21


Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
Overview. We supply high precision computer controlled metalcutting turning machines, grinding machines, vertical machining centers, and repair parts related to those machines. The Company also engineers and supplies high precision, standard and specialty workholding devices, and other machine tool accessories. We believe our products are known for accuracy, reliability, durability and value. We are geographically diversified with manufacturing facilities in China, France, Germany, India, Switzerland, Taiwan, the United States (“U.S.”), and the United Kingdom (“U.K.”), with sales to most industrialized countries. Approximately 68% of our 2014 sales were to customers outside of North America, 71% of our 2014 products sold were manufactured outside of North America, and 67% of our employees in 2014 were employed outside of North America.
 
Metrics on machine tool market activity monitored by our management include world machine tool shipments, as reported annually by Gardner Publications in the Metalworking Insiders Report, and metal-cutting machine orders, as reported by the Association of Manufacturing Technology, the primary industry group for U.S. machine tool manufacturers. Other closely followed U.S. market indicators are tracked to determine activity levels in U.S. manufacturing plants that are prospective customers for our products. One such measurement is the Purchasing Managers Index, as reported by the Institute for Supply Management. Another measurement is capacity utilization of U.S. manufacturing plants, as reported by the Federal Reserve Board. Similar information regarding machine tool shipments and economic indicators in foreign countries is published by trade associations, government agencies, and economic services in those countries.
 
Non-machine sales, which include collets, chucks, accessories, repair parts and service revenue, accounted for approximately 34% of overall sales in 2014 and are an important part of our business due to an installed base of thousands of machines, and the growing needs demanded by specialty workholding applications. In the past, sales of these products and services have not fluctuated on a year-to-year basis as significantly as the sales of our machines have from time to time, but demand for these products and services typically track the direction of the related machine metrics.
 
Other key performance indicators are geographic distribution of net sales (“sales”) and net orders (“orders”), gross profit as a percent of sales, income from operations, working capital changes, and debt level trends. In an industry where constant product technology development has led to an average model life of three to five years, effectiveness of technological innovation and development of new products are also key performance indicators.
 
We are exposed to financial market risk resulting from changes in interest and foreign currency rates. Global economic conditions and related disruptions within the financial markets have also increased our exposure to the possible liquidity and credit risks of our counterparties. We believe we have sufficient liquidity to fund our foreseeable business needs, including cash and cash equivalents, cash flows from operations, our bank financing arrangements, and equity financing arrangements.
 
We monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal. Our cash and cash equivalents are diversified among counterparties to minimize exposure to any one of these entities.
 
We are subject to credit risks relating to the ability of counterparties of hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and non-performance has been considered in the fair value measurements of our foreign currency forward exchange contracts.
 
We expect that some of our customers and vendors may experience difficulty in maintaining the liquidity required to buy inventory or raw materials. We continue to monitor our customers’ financial condition in order to mitigate the risk associated with our ability to collect on our accounts receivable.
 

22


Foreign currency exchange rate changes can be significant to reported results for several reasons. Our primary competitors, particularly for the most technologically advanced products, are now largely manufacturers in Japan, Germany, Switzerland, Korea, and Taiwan, which causes the worldwide valuation of their respective currencies to be central to competitive pricing in all of our markets. The major functional currencies of our subsidiaries are the British Pound Sterling (“GBP”), Chinese Renminbi (“CNY”), Euro (“EUR”), New Taiwanese Dollar (“TWD”), and Swiss Franc (“CHF”). Under US GAAP, results of foreign subsidiaries are translated into U.S. Dollars (“USD”) at the average exchange rate during the periods presented. Period-to-period changes in the exchange rate between their local currency and the USD may affect comparative data significantly. We also purchase computer controls and other components from suppliers throughout the world, with purchase costs reflecting currency changes.
 
For the year ended December 31, 2014, foreign currency fluctuations did not have a material impact on sales when compared to 2013.

Results of Operations
 
Presented below is summarized selected financial data for the years ended December 31, 2014 and 2013 (in thousands): 
 
2014
 
% of Sales
 
2013
 
% of Sales
 
$
Change
 
%
Change
Sales
$
311,633

 


 
$
329,459

 
 
 
$
(17,826
)
 
(5.4
)%
Gross profit
86,878

 
27.9
 %
 
93,239

 
28.3
%
 
(6,361
)
 
(6.8
)%
Selling, general and administrative expenses
81,045

 
26.0
 %
 
79,533

 
24.1
%
 
1,512

 
1.9
 %
Impairment charges
5,766

 


 
6,239

 
 
 
(473
)
 
(7.6
)%
Other expense, net
514

 
 
 
471

 
 
 
43

 
9.1
 %
(Loss) income from operations
(447
)
 
(0.1
)%
 
6,996

 
2.1
%
 
(7,443
)
 
(106.4
)%
Interest expense, net
678

 
 
 
1,064

 
 
 
(386
)
 
(36.3
)%
(Loss) income from continuing operations before
   income taxes
(1,125
)
 


 
5,932

 
 
 
(7,057
)
 
(119.0
)%
Income taxes
1,233

 
 
 
1,537

 
 
 
(304
)
 
(19.8
)%
Net (loss) income from continuing operations
(2,358
)
 
(0.8
)%
 
4,395

 
1.3
%
 
(6,753
)
 
(153.7
)%
Gain from disposal of discontinued operation and
   income from discontinued operations, net of tax
218

 
 
 
5,532

 
 
 
(5,314
)
 
(96.1
)%
Net (loss) income
$
(2,140
)
 
(0.7
)%
 
$
9,927

 
3.0
%
 
$
(12,067
)
 
(121.6
)%

Sales. The table below summarizes sales by each corresponding geographical region for the year ended December 31, 2014 compared to the year ended December 31, 2013 (in thousands):
 
 
2014
 
2013
 
Change
 
$
 
%
 
$
 
%
 
$
 
%
Sales to customers in:
North America
$
100,894

 
32.3
%
 
$
109,457

 
33.2
%
 
$
(8,563
)
 
(7.8
)%
Europe
103,063

 
33.1
%
 
100,126

 
30.4
%
 
2,937

 
2.9
 %
Asia
107,676

 
34.6
%
 
119,876

 
36.4
%
 
(12,200
)
 
(10.2
)%
Total
$
311,633

 
100.0
%
 
$
329,459

 
100.0
%
 
$
(17,826
)
 
(5.4
)%

Sales for the year ended December 31, 2014 were $311.6 million, a decrease of $17.8 million, or 5.4% when compared to the prior year. The leading cause of the overall decline in sales as compared to the prior year was primarily a result of lower sales volume at Usach of $17.9 million, due to the unusually strong shipments in 2013 that resulted from the significant backlog acquired at the end of 2012, combined with an overall decline in sales of the Company's other machine solutions of $15.4 million. These decreases were offset in part by the full year impact of the acquisition of Forkardt, which contributed $15.3 million in incremental sales during the year ended December 31, 2014
 

23


North America sales were $100.9 million and $109.5 million, respectively, for the years ended December 31, 2014 and 2013, a decrease of $8.6 million, or 7.8%. The current year decrease is driven by the reduction in Usach sales as mentioned above of $8.2 million, combined with reduced sales levels of the company’s other grinding machines of $7.7 million, partially offset by the full year impact of the acquisition of Forkardt, which contributed $6.2 million in incremental sales during the year ended December 31, 2014.
 
Europe sales were $103.1 million and $100.1 million for the years ended December 31, 2014 and 2013, respectively, an increase of $2.9 million, or 2.9%. The full year impact of the acquisition of Forkardt contributed $7.7 million in incremental sales, offset by lower turning and milling machine sales of $5.3 million in 2014.
 
Asia sales were $107.7 million and $119.9 million for the years ended December 31, 2014 and 2013, respectively, a decrease of $12.2 million, or 10.2%. This decrease was primarily due to the decrease in Usach sales of $9.7 million, combined with an overall decrease in other grinding machine sales of $1.9 million, along with an unfavorable impact from currency exchange rate fluctuations of $1.1 million. The full year impact of the acquisition of Forkardt partially offset the overall decrease in sales, contributing $1.4 million in incremental sales. Demand from customers in China is the key driver of the performance of the machine tool industry, and while recent machine tool industry data from China is reporting a current year decline in demand, Hardinge has been able to maintain sales volume levels in the primary customer segments that it serves.
 
Sales of machines accounted for approximately 66% of the consolidated sales for the year ended December 31, 2014, compared to 72% in 2013. Sales of non-machine products and services, primarily consisting of collets, chucks, accessories, repair parts, and service revenue, accounted for 34% of the consolidated sales for the year ended December 31, 2014, compared to 28% in 2013. The increase in the portion of non-machine sales over total sales during the year ended December 31, 2014 when compared to 2013 was primarily driven by sales activity from the acquired Forkardt business.
 
Gross Profit. Gross profit was $86.9 million, or 27.9% of sales for the year ended December 31, 2014, compared to $93.2 million, or 28.3% of sales in 2013. The decline in gross margin was primarily a result of lower production levels in the Company’s grinding facilities, which resulted in lower factory absorption.
 
Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses were $81.0 million, or 26.0% of net sales for the year ended December 31, 2014, an increase of $1.5 million or 1.9%, compared to $79.5 million, or 24.1% of net sales for the year ended December 31, 2013. SG&A for the year ended December 31, 2014 included $4.3 million of incremental SG&A expense from our Forkardt acquisition, offset in part by the impact of $2.2 million of acquisition related expenses included in prior year, $0.6 million of additional SG&A from our Voumard acquisition, and $0.4 million of unfavorable impact from changes in currency exchange rates. Excluding the impact of the acquisitions and foreign currency rate fluctuations, SG&A decreased by $1.6 million compared to 2013, primarily as a result of charges recorded in 2013 related to the change in our sales distribution in the United Kingdom, for which there are no correlated charges in 2014.

Impairment Charges. An impairment charge to goodwill of $4.8 million and the Usach trade name of $0.9 million was recorded in the third quarter of 2014 as a result of impairment indicators being present in our Usach reporting unit. In 2013, we recorded a non-cash impairment charge of $5.1 million to reduce the value of goodwill and the trade name associated with the purchase of Usach. As a result of these charges in 2014 and 2013, all of the goodwill related to the Usach acquisition has been written off. In addition, in conjunction with the divestiture of the Forkardt Swiss business in 2013, we recorded a $1.1 million non-cash charge associated with the Forkardt trade name.

(Loss) Income from Continuing Operations Before Income Taxes. As a result of the foregoing, net loss from continuing operations was $1.1 million for the year ended December 31, 2014, compared to net income from continuing operations of $5.9 million in 2013.
 
Income Taxes. The provision for income taxes was $1.2 million for the year ended December 31, 2014, compared to $1.5 million in 2013. The effective tax rates were (109.6)% for the year ended December 31, 2014, compared to 25.9% in 2013, which differ from the U.S. statutory rate primarily due to the mix of earnings by country and by the non-recognition of tax benefits for certain entities in a loss position for which a full valuation allowance has been recorded. The effective tax rate was influenced by the previously aforementioned impairment charges.
 
We continually assess all available positive and negative evidence in accordance with ASC Topic 740 to evaluate whether deferred tax assets are realizable. To the extent that it is more likely than not that all or a portion of our deferred tax assets in a particular jurisdiction will not be realized, a valuation allowance is recorded. We currently maintain a valuation allowance against all or a portion of our deferred tax assets in the U.S., Canada, U.K., Germany, and the Netherlands.
 

24


Gain from Disposal of Discontinued Operation and Income from Discontinued Operations, net of tax. On December 31, 2013, we sold our Forkardt Swiss business for CHF 5.6 million, net of cash sold ($6.3 million equivalent) and recognized a gain of $4.9 million. In March 2014, the Company recognized $0.2 million of additional consideration as a result of final working capital adjustments associated with the sale of our Forkardt Swiss business. Net income associated with the Forkardt Swiss business was $0.6 million, net of tax, for the year ended December 31, 2013.

Net (Loss) Income. As a result of the foregoing, net loss for the year ended December 31, 2014 was $2.1 million, or 0.7% of net sales, compared to net income of $9.9 million, or 3.0% of net sales in 2013. Both basic and diluted loss per share for the year ended December 31, 2014 were $0.17, compared to basic earnings per share of $0.84 and diluted earnings per share of $0.83 in 2013.

Business Segment Information — Comparison of the years ended December 31, 2014 and 2013
 
Metalcutting Machine Solutions Segment (in thousands):
 
Year Ended 
 December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
Sales
$
243,199

 
$
278,377

 
$
(35,178
)
 
(12.6
)%
Segment income
3,950

 
16,338

 
(12,388
)
 
(75.8
)%
 
MMS sales declined by $35.2 million, or 12.6% in the year ended December 31, 2014 when compared with 2013. The primary driver was the previously lower sales volume at Usach of $17.9 million, due to the unusually strong shipments in 2013 that resulted from the significant backlog acquired at the end of 2012, combined with lower levels of machine sales throughout the world due to economic uncertainty, which impacted levels of capital investment made in our major markets.
 
Segment income was $4.0 million for the year ended December 31, 2014, or $12.4 million below 2013 performance. The main factor contributing to the decline in segment income was the impact of lower sales volumes, combined with lower production levels due to lower machine demand that resulted in under absorption of factory costs.
 
Aftermarket Tooling and Accessories Segment (ATA) (in thousands):
 
Year Ended 
 December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
Sales
$
68,788

 
$
51,553

 
$
17,235

 
33.4
%
Segment income
6,708

 
5,689

 
1,019

 
17.9
%
 
ATA sales for the year ended December 31, 2014 were $68.8 million, an increase of $17.2 million when compared to 2013. Virtually all of the additional sales were generated from the full year impact of the acquired Forkardt business in May of 2013.
 
Segment income for the year ended December 31, 2014 was $6.7 million, a 17.9% increase over 2013. The additional income was driven by the incremental Forkardt sales volume, offset in part by lower productivity in Germany, which resulted in lower profitability.


25


Segment Summary For the Year Ended December 31, 2014 (in thousands):
 
Year Ended December 31, 2014
 
MMS
 
ATA
 
Inter-Segment
Eliminations
 
Total
Sales
$
243,199

 
$
68,788

 
$
(354
)
 
$
311,633

Segment income
3,950

 
6,708

 
 

 
10,658

Unallocated corporate expense
 

 
 

 
 

 
(5,540
)
Acquisition related inventory step-up charge
 
 
 
 
 
 
(86
)
Acquisition related expenses
 
 
 
 
 
 
(178
)
Impairment charges
 
 
 
 
 
 
(5,766
)
Interest expense, net
 

 
 

 
 

 
(678
)
Other unallocated income
 

 
 

 
 

 
465

Loss from continuing operations, before income taxes
 
 
 
 
 
 
$
(1,125
)

Comparison of the years ended December 31, 2013 and 2012

Presented below is summarized selected financial data for the years ended December 31, 2013 and 2012 (in thousands): 
 
2013
 
% of Sales
 
2012
 
% of Sales
 
$
Change
 
%
Change
Sales
$
329,459

 
 
 
$
334,413

 
 
 
$
(4,954
)
 
(1.5
)%
Gross profit
93,239

 
28.3
%
 
96,837

 
29.0
%
 
(3,598
)
 
(3.7
)%
Selling, general and administrative expenses
79,533

 
24.1
%
 
76,196

 
22.8
%
 
3,337

 
4.4
 %
Impairment charges
6,239

 
 
 

 
 
 
6,239

 
NM

Other expense, net
471

 
 
 
559

 
 
 
(88
)
 
(15.7
)%
Income from operations
6,996

 
2.1
%
 
20,082

 
6.0
%
 
(13,086
)
 
(65.2
)%
Interest expense, net
1,064

 
 
 
741

 
 
 
323

 
43.6
 %
Income from continuing operations before income
   taxes
5,932

 
 
 
19,341

 
 
 
(13,409
)
 
(69.3
)%
Income taxes
1,537

 
 
 
1,486

 
 
 
51

 
3.4
 %
Net income from continuing operations
4,395

 
1.3
%
 
17,855

 
5.3
%
 
(13,460
)
 
(75.4
)%
Gain from disposal of discontinued operation and
   income from discontinued operations, net of tax
5,532

 
 
 

 
 
 
5,532

 
NM

Net income
$
9,927

 
3.0
%
 
$
17,855

 
5.3
%
 
$
(7,928
)
 
(44.4
)%
____________________
NM = Not Meaningful

Sales. Sales for 2013 were $329.5 million, a decrease of $5.0 million compared to 2012 sales of $334.4 million. Foreign currency translation had a favorable impact of approximately $2.9 million when compared to 2012. Sales from the newly acquired businesses contributed $47.8 million in 2013. Excluding the sales from the newly acquired businesses and the favorable foreign currency impact, sales decreased by $55.7 million, or 17%, when compared to 2012. The sales reduction was primarily a result of unfavorable market conditions for capital spending on machine tools in our European and Asian markets.

    

26


The table below summarizes sales by each corresponding geographical region for the years ended December 31, 2013 compared to the year ended 2012 (in thousands):
 
 
2013
 
2012
 
Change
 
$
 
%
 
$
 
%
 
$
 
%
Sales to customers in:
North America
$
109,457

 
33.2
%
 
$
83,546

 
25.0
%
 
$
25,911

 
31.0
 %
Europe
100,126

 
30.4
%
 
121,008

 
36.2
%
 
(20,882
)
 
(17.3
)%
Asia
119,876

 
36.4
%
 
129,859

 
38.8
%
 
(9,983
)
 
(7.7
)%
Total
$
329,459

 
100.0
%
 
$
334,413

 
100.0
%
 
$
(4,954
)
 
(1.5
)%

North America sales increased by $25.9 million or 31% for the year ended December 31, 2013 compared to 2012. Included in the North American results were $26.8 million of sales from the newly acquired businesses. Excluding those sales, organic sales would have been down by $0.9 million or 1% when compared with 2012. This organic sales performance had the benefit of a strong machine backlog at the end of 2012 for North American demand.

Europe sales decreased $20.9 million or 17% for the year 2013 compared to 2012. Included in these sales were $10.0 million of sales from the newly acquired businesses. 2013 sales to this region were favorably influenced by foreign currency translation of approximately $1.0 million. Exclusive of the currency impact and sales from acquisitions, Europe sales decreased by $31.9 million, or 26%, compared to 2012. The decrease is primarily attributable to continued economic uncertainty throughout most of Europe, especially for high end machine tools. In addition, changes made in sales channel strategies for the UK, resulted in providing discounts to a new distribution partner, while at the same time, enabling a $5.9 million reduction in selling expenses.

Asia sales decreased by $10.0 million or 8% for the year 2013 compared to 2012. Sales from the newly acquired businesses contributed $11.0 million of sales. Sales in this region in 2013 were favorably influenced by foreign currency translation of approximately $1.9 million. Exclusive of the impact of the newly acquired businesses and the impact of currency, organic sales declined by $22.9 million or 18%, compared to 2012. This decline is primarily as result of a decelerating Chinese economy, in addition to the non-recurrence of $16.0 million in sales for several large specialty multi-machine orders to the consumer electronics industry in 2012.

Machine sales represented approximately 72% and 78% of sales in 2013 and 2012, respectively. Sales of non-machine products and services, primarily workholding, repair parts, and accessories made up the balance.

Gross Profit. Gross profit was $93.2 million or 28.3% of sales in 2013, compared to $96.8 million, or 29.0% of sales in 2012. Included in the reported gross profit was $1.9 million of inventory step-up charges related to the purchase accounting adjustments for the Usach and Forkardt acquisitions. Excluding those charges, gross profit would have been $95.1 million or 28.9%, which is down by 0.1 points compared to 2012. The decrease in gross profit is primarily attributable to lower volume in our machine business, which resulted in lower factory absorption offset by the increased volume in our workholding and accessories business.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expense for the year 2013 was $79.5 million, or 24.1% of sales, compared to $76.2 million, or 22.8% of sales in 2012. The 2013 increase in SG&A included expenses associated with the newly acquired businesses of $9.7 million in addition to $2.2 million associated with due diligence and transaction costs for the Forkardt acquisition. Excluding those costs, the organic business reduced expenses by $8.6 million, of which $5.9 million is related to the change in our sales distribution in the UK that was previously discussed. Excluding the due diligence and transaction costs, SG&A as a percent of sales would have been 23.5%, or 0.7 points higher than 2012 performance. On an adjusted basis, the increase in SG&A as a percentage of sales for 2012 was primarily driven by reduced sales volume in our machine business.
    
Impairment charges. As part of the company's review of goodwill and other intangible assets under Accounting Standards Codification (ASC) 350, the Company recorded a non-cash charge of $5.1 million reducing the value of goodwill and the trade name associated with the purchase of Usach. In addition, in conjunction with the divestiture of the company's Forkardt Swiss business, the Company recorded a $1.1 million non-cash charge associated with the Forkardt trade name.

Other Expense, net. Other expense was $0.5 million in 2013 and $0.6 million in 2012. The expense in both years is primarily related to foreign currency losses.


27


Income from Operations. Income from operations in 2013 was $7.0 million, compared to $20.1 million in 2012. The decrease in income from operations was driven by lower organic sales volume, $6.2 million in impairment charges, and $4.1 million in acquisition and inventory step up costs.

Interest Expense, net. Interest expense includes interest incurred on borrowings under our credit facilities, amortization of deferred financing costs associated with these facilities and related commitment fees. Interest expense for 2013 was $1.1 million compared to $0.9 million for 2012. The increase in interest expense for 2013 compared to 2012 is mainly attributable our higher average outstanding indebtedness related to the term loan associated with the Forkardt acquisition.

Income from Continuing Operations before income taxes. Income from continuing operations before tax was $5.9 million in 2013 compared to $19.3 million in 2012. The decrease in income from continuing operations before tax was driven by lower organic sales volume, $6.2 million in impairment charges, and $4.1 million in acquisition and inventory step up costs.

 Income Taxes. Income tax expense was $1.5 million in 2013 and 2012. The effective tax rate was 25.9% in 2013 and 7.7% in 2012. Generally, income tax expense represents tax expense on profits in certain of the Company's foreign subsidiaries. The effective tax rate in 2013 was unfavorably influenced by the previously aforementioned impairment charges that did not provide a tax benefit. Excluding the impairment charge, the effective tax rate would have been 14.5%. In addition, in 2012, the Company recorded a $2.7 million reduction of valuation allowances required on certain deferred tax assets as a result of the acquisition of Usach. Excluding the valuation allowance adjustment, the effective tax rate in 2012 would have been 21.7%.

We continually assess all available positive and negative evidence in accordance with ASC Topic 740 to evaluate whether deferred tax assets are realizable. To the extent that it is more likely than not that all or a portion of our deferred tax assets in a particular jurisdiction will not be realized, a valuation allowance is recorded. We currently maintain a valuation allowance against all or a portion of our deferred tax assets in the U.S., Canada, U.K., Germany, and the Netherlands.

Net Income from Continuing Operations. Income from continuing operations in 2013 was $4.4 million compared with $17.9 million in 2012. The decrease was a result of lower organic sales volume, $6.2 million in impairment charges, and $4.1 million in acquisition and inventory step up costs, in addition to the non-recurrence of the 2012 $2.7 million tax valuation adjustment.

Gain from Disposal of Discontinued Operation and Income from Discontinued Operations, net of tax. On December 31, 2013, we sold our Forkardt Swiss business for CHF 5.6 million, net of cash sold ($6.3 million equivalent) and recognized a gain of $4.9 million. Net income associated with the Forkardt Swiss business was $0.6 million, net of tax, for the year ended December 31, 2013.

Net Income. Net income for 2013 was $9.9 million, or 3.0% of sales, compared to $17.9 million, or 5.3% of sales in 2012. Basic earnings per share were $0.84 for 2013 and $1.53 for 2012. Diluted earnings per share were $0.83 for 2013 and $1.53 for 2012.

Business Segment Information — Comparison of the years ended December 31, 2013 and 2012

Metalcutting Machine Solutions Segment (in thousands):
 
Year Ended 
 December 31,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
Sales
$
278,377

 
$
306,328

 
$
(27,951
)
 
(9.1
)%
Segment income
16,338

 
22,556

 
(6,218
)
 
(27.6
)%

MMS sales declined by $28.0 million or 9.1% in 2013 when compared with 2012. The primary driver was softer demand for machine tool consumption in Europe and North America. This was partially offset by $26.0 million of acquired grinding backlog from Usach in December of 2012 that was shipped to customers in 2013.

Segment profitability in 2013 was $16.3 million, or $6.2 million below 2012 performance. The primary factor in reduced profitability was lower demand for Swiss and Taiwanese made product which resulted lower utilization of our factories, and lower profitability. The impact of lower utilization was partially offset by income generated by sales from the Usach acquisition.


28


Aftermarket Tooling and Accessories Segment (ATA) (in thousands):
 
Year Ended 
 December 31,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
Sales
$
51,553

 
$
28,989

 
$
22,564

 
77.8
%
Segment income
5,689

 
5,128

 
561

 
10.9
%

ATA sales were $51.6 million, an increase of $22.6 million when compared with 2012. Virtually all of the additional sales were generated from the newly acquired Forkardt business in May of 2013.

Segment profitability in 2013 was $5.7 million or 10.9% over prior year. The additional income was driven by the Forkardt sales volume, and was negatively influenced by unfavorable product mix and supply chain disruption for Forkardt Europe as well as productivity investments in the U.S., which resulted in lower than expected profitability.

Segment Summary For the Year Ended December 31, 2013 (in thousands):
 
Year Ended December 31, 2013
 
MMS
 
ATA
 
Inter-Segment
Eliminations
 
Total
Sales
$
278,377

 
$
51,553

 
$
(471
)
 
$
329,459

Segment income
16,338

 
5,689

 
 

 
22,027

Unallocated corporate expense
 

 
 

 
 

 
(4,563
)
Acquisition related inventory step-up charge
 
 
 
 
 
 
(1,927
)
Acquisition related expenses
 
 
 
 
 
 
(2,154
)
Impairment charges
 
 
 
 
 
 
(6,239
)
Interest expense, net
 

 
 

 
 

 
(1,064
)
Other unallocated expense
 
 
 
 
 
 
(148
)
Income from continuing operations, before income taxes
 

 
 

 
 

 
$
5,932


Liquidity and Capital Resources

The Company's principal capital requirements are to fund its operations, including working capital, to purchase and fund improvements to its facilities, machines and equipment, and to fund acquisitions.

At December 31, 2014, cash and cash equivalents were $16.3 million, compared to $34.7 million at December 31, 2013. The current ratio at December 31, 2014 was 2.91:1 compared to 2.62:1 at December 31, 2013.

At December 31, 2014 and 2013, total debt outstanding, including notes payable, was $16.2 million and $26.6 million, respectively.

Summary of Cash Flows for the Year Ended December 31, 2014, 2013 and 2012:
 
During the year ended December 31, 2014, we generated $3.2 million net cash from operating activities. The net cash generated was driven by a net loss (as adjusted for depreciation and amortization expense and impairment loss), an increase in accounts payable due to timing of purchases and payment activity, and decreases in other assets. These cash inflows were offset in part by an increase in customer receivables due to the timing of sales and collection activity, a decrease in accrued expenses, primarily as a result of lower accrued commissions and bonuses as a result of lower current year sales, a decrease in customer deposits due to timing of shipments and new orders received, and an increase in inventories based on orders and associated production levels.

During the year ended December 31, 2013, we generated $25.8 million net cash in operating activities. The generation of net cash was primarily driven by a decrease in inventory levels, combined with net income, as adjusted for impairment charges and depreciation and amortization expense. The cash inflow was offset in part by a decrease in accrued expenses and accounts payable, primarily as a result of slowing business activities as a result of lower order levels, and a decrease in customer deposits, driven by the fulfillment of customer orders.

29



During the year ended December 31, 2012, we generated $23.4 million net cash in operating activities. The generation of net cash was primarily driven by collections on customer receivables, reduced inventory levels, and releases of restricted cash. The cash inflow was offset in part by a decrease in accounts payable and accrued expenses, which decreased due to slowing business activities as a result of lower order levels, and lower customer deposits, which decreased as customer orders were fulfilled and delivered.
 
Net cash used in investing activities was $8.5 million for the year ended December 31, 2014. The primary uses of cash was for the acquisitions of Forkardt India and Voumard totaling $5.7 million, combined with capital expenditures during the year of $3.2 million, which were made primarily for maintenance capital purchases. These cash outflows were offset in part by additional consideration of $0.2 million received during the current year as a result of the final working capital adjustments on the sale of the Forkardt Switzerland operations, and proceeds from the sale of fixed assets made during the ordinary course of business of $0.2 million.

Net cash used in investing activities was $31.7 million for the year ended December 31, 2013. In May of 2013, we used $34.3 million net cash to acquire Forkardt. In addition, we used $3.9 million in cash for capital expenditures, which were made primarily for maintenance capital purchases. These cash outflows were offset in part by $6.3 million in proceeds generated from Forkardt Swiss business divestiture.

Net cash used in investing activities was $15.9 million for the year ended December 31, 2012. In December of 2012, we used $8.8 million net cash to acquire Usach. In addition, we used $7.6 million in cash for capital expenditures, primarily for the expansion of manufacturing facilities in Switzerland and China, combined with purchases made during the ordinary course of business.
 
Net cash flow used by financing activities was $12.1 million for the year ended December 31, 2014. Cash used was primarily attributable to $9.3 million of payments on long-term debt due to the mandatory principal payments in connection with the at-the-market stock offering program, pay down of debt with a portion of the proceeds from the sale of the Forkardt Switzerland operations, and normal scheduled payment activity, combined with a $7.5 million payment of contingent consideration in connection with the Usach acquisition, and year-to-date dividends paid of $1.0 million. These cash outflows were offset in part by $5.7 million of proceeds from sale of common stock in connection with the at-the-market stock offering sales agreement entered into on August 9, 2013.

During the year ended December 31, 2013, net cash provided by financing activities was $13.7 million. Cash provided by financing activities was primarily due to $33.8 million in term loan proceeds used to partially fund the acquisition of Forkardt, as well as additional borrowings under our existing credit facilities to align financing activities to current working capital needs. Additionally, we received $8.9 million of proceeds from sale of common stock in connection with the at-the-market stock offering sales agreement entered into on August 9, 2013. These cash inflows were partially offset by payments on long-term debt of $15.7 million, and net payments on notes payable of $11.3 million.

During the year ended December 31, 2012, net cash used in financing activities was $3.1 million. Cash used in financing activities was mainly the result of net payments on notes payable of $1.9 million, and pay down of long-term debt of $1.6 million, offset in part by borrowings on long-term debt of $1.3 million.

Credit Facilities and 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 the Company to borrow up to $82.1 million at December 31, 2014, of which $57.3 million can be borrowed for working capital needs. As of December 31, 2014, $74.9 million was available for borrowing under these arrangements of which $56.5 million was available for working capital needs. Total consolidated borrowings outstanding were $16.2 million at December 31, 2014 and $26.6 million at December 31, 2013. Details of these financing arrangements are discussed below.


30


Long-term Debt

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, 2014 and December 31, 2013, is based on the bank's one year fixed savings rate plus 0.4%. The principal amount outstanding was TWD 27.0 million ($0.9 million equivalent) at December 31, 2014 and TWD 45.0 million ($1.5 million equivalent) at December 31, 2013.

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 expired in January 2014, provided up to 25.0 million in Chinese Yuan ("CNY") ($4.0 million equivalent) for plant construction and fixed assets acquisition purposes. The interest rate, 7.38% at December 31, 2013, was the bank base rate plus a 20% mark-up and was subject to adjustment annually. The principal amount outstanding was CNY 9.0 million ($1.5 million equivalent) at December 31, 2013. This balance was paid off in 2014 and the facility was not renewed.

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 $1.7 million, $2.1 million, $2.1 million, and $1.0 million, in 2015, 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 12. "Shareholders' Equity" of the Notes to the Consolidated Financial Statements set forth in Item 8 of this Form 10-K 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 and $1.5 million in 2014 and 2013, respectively, 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 both December 31, 2014 and 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, 2014 and 2013 was $6.8 million and $10.1 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 ($6.0 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 0.6 million ($0.6 million equivalent) in 2015, and CHF 0.6 million ($0.6 million equivalent) in 2016. The scheduled annual principal repayments in EUR are as follows: EUR 0.7 million ($0.9 million equivalent) in 2015, EUR 0.9 million ($1.1 million equivalent) in 2016 and 2017, and EUR $1.9 million ($2.3 million equivalent) in 2018. Additionally, the Company was 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 2.46% at December 31, 2014, respectively. The interest rate on the CHF and EUR portion of the term loan was 2.27% and 2.48% at December 31, 2013, respectively. 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 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.


31


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, 2014, 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, 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 2.1 million ($2.1 million equivalent) at December 31, 2014, and CHF 2.4 million ($2.7 million equivalent) at December 31, 2013.

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 balance sheet total assets. At December 31, 2014, 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 ($5.5 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 ($9.5 million equivalent) or its equivalent in other currencies, and expires on December 20, 2015. Borrowings for working capital purposes were increased from a limit of CNY 20.0 million ($3.2 million equivalent) to CNY 39.0 million (approximately $6.3 million). 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 6.16% and 6.60% at December 31, 2014 and December 31, 2013, respectively. There was no principal amount outstanding under this facility at December 31, 2014 or December 31, 2013.

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. This facility, which expires in June 2015, provides up to $12.0 million, or its equivalent in other currencies, for working capital and export business purposes. This credit facility charged interest at 1.44% at December 31, 2014 and 1.54% at December 31, 2013, is subject to change by the lender based on market conditions, and carried no commitment fees on unused funds. There were no principal amounts outstanding under this facility at December 31, 2014 or December 31, 2013.

In September 2014, Hardinge Machine (Shanghai) Co., Ltd., an indirectly wholly-owned subsidiary in China, entered into a new credit facility. This facility, which expires in July 2015, provides up to CNY 34.0 million ($5.5 million equivalent) for letters of guarantee. 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, 2014 had a face value of CNY 0.7 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 ($18.1 million equivalent) multi-currency revolving working capital facility. This facility matures in July 2018.

    

32


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, 2014 and 2013 there were no outstanding borrowings on this facility. The total issued letters of guarantee on this facility at December 31, 2014 had a face value of $5.1 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 ($9.3 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, 2014, 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 ($9.1 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, 2014 and 2013, there were no borrowings outstanding under this facility. The total issued letters of guarantee on this facility at December 31, 2014 had a face value of less than $0.1 million.

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, 2014, 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 expires in August 2015, provides up to $2.0 million for letters of guarantee. The facility requires Hardinge China Limited to maintain a $1.0 million deposit with the bank. The total issued letters of guarantee at December 31, 2014 had a face value of CNY 6.9 million ($1.1 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 2.44% at both December 31, 2014 and December 31, 2013.

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 their 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, 2014 and 2013.

33



We have 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, 2014 and 2013.

We maintain a standby letter of credit for potential liabilities pertaining to self-insured workers compensation exposure. The amount of the letter of credit was $0.8 million at December 31, 2014 and $0.9 million at December 31, 2013. It expires in March 2015. In total, there were various outstanding letters of credit totaling $8.7 million and $9.9 million at December 31, 2014 and 2013, respectively.

We lease space for some of our manufacturing, sales and service operations with lease terms up to 16 years and use certain office equipment and automobiles under lease agreements expiring at various dates. Rent expense under these leases totaled $3.0 million, $3.2 million and $3.0 million during the years ended December 31, 2014, 2013, and 2012, respectively.

The following table shows our future commitments in effect as of December 31, 2014 (in thousands):
    
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Long-term debt
$
3,972

 
$
5,832

 
$
3,134

 
$
3,287

 
$

 
$

 
$
16,225

Operating lease obligations
2,356

 
1,677

 
1,228

 
788

 
386

 
101

 
6,536

Purchase commitments
25,046

 
93

 
38

 

 

 

 
25,177

Standby letters of credit
8,612

 
66

 

 

 

 

 
8,678

Total
$
39,986

 
$
7,668

 
$
4,400

 
$
4,075

 
$
386

 
$
101

 
$
56,616

    

We have not included the liabilities for uncertain tax positions in the above table as we cannot make a reliable estimate of the period of cash settlement. We have not included pension obligations in the above table as we cannot make a reliable estimate of the timing of employer contributions. In 2015, we expect to make approximately $2.4 million in contributions to our foreign defined benefit pension plans and $0.2 million contributions to our domestic supplemental retirement plans. We expect to make no cash contributions to our qualified domestic defined benefit pension plan in 2015.

We believe that the current available funds and credit facilities, along with internally generated funds, will provide sufficient financial resources for ongoing operations throughout 2015.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Change in Accounting Policy

During the quarter ended June 30, 2014, we voluntarily changed the date of the annual goodwill and indefinite-lived intangible assets impairment testing from the last day of the fiscal year to the first day of the fourth quarter. This voluntary change is preferable under the circumstances as it provides additional time to complete the annual goodwill and indefinite-lived intangible asset impairment testing in advance of year-end reporting. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change was not applied retrospectively, as doing so would require the use of significant estimates and assumptions that include hindsight. Accordingly, the change was applied prospectively.


34


Discussion of Critical Accounting Policies

The preparation of our financial statements requires the application of a number of accounting policies, which are described in the notes to the financial statements. These policies require the use of assumptions or estimates, which, if interpreted differently under different conditions or circumstances, could result in material changes to the reported results. Following is a discussion of those accounting policies that were reviewed with our audit committee, and which we feel are most susceptible to such interpretation.

Accounts Receivable. We assess the collectability of our trade accounts receivable using a combination of methods. We review large individual accounts for evidence of circumstances that suggest a collection problem might exist. Such situations include, but are not limited to, the customer's past history of payments, its current financial condition as evidenced by credit ratings, financial statements or other sources, and recent collection activities. We provide a reserve for losses based on current payment trends in the economies where we hold concentrations of receivables and provide a reserve for what we believe to be the most likely risk of collectability. In order to make these allowances, we rely on assumptions regarding economic conditions, equipment resale values, and the likelihood that previous performance will be indicative of future results.

Inventories. We use a number of assumptions and estimates in determining the value of our inventory. An allowance is provided for the value of inventory quantities of specific items that are deemed to be excessive based on an annual review of past usage and anticipated future usage. While we feel this is the most appropriate methodology for determining excess quantities, the possibility exists that customers will change their buying habits in the future should their own requirements change. Changes in metalcutting technology can render certain products obsolete or reduce their market value. We continually evaluate changes in technology and adjust our products and inventory carrying values accordingly, either by write-off or by price reductions. Changes in market conditions and realizable selling prices for our machines could reduce the value of our inventory. We continually evaluate the carrying value of our machine inventory against the estimated selling price, less related costs to sell and adjust our inventory carrying values accordingly. However, the possibility exists that a future technological development, currently unanticipated, might affect the marketability of specific products produced by the Company.

We include in the cost of our inventories a component to cover the estimated cost of manufacturing overhead activities associated with production of our products.

We believe that being able to offer immediate delivery on many of our products is critical to our competitive success. Likewise, we believe that maintaining an inventory of service parts, with a particular emphasis on purchased parts, is especially important to support our policy of maintaining serviceability of our products. Consequently, we maintain significant inventories of repair parts on many of our machine models, some of which are no longer in production. Our ability to accurately determine which parts are needed to maintain this serviceability is critical to our success in managing this element of our business.

Goodwill Impairment Testing. We review goodwill for impairment at least annually or when indicators of impairment are present. These events or circumstances could include a significant long-term adverse change in the business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.

We test goodwill at the reporting unit level, which is one level below our operating segments. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. We also aggregate components that have similar economic characteristics into single reporting units (for example, similar products and/or services, similar long-term financial results, product processes, classes of customers, etc.). We have three reporting units, only one of which currently has goodwill. Our ATA reporting unit had goodwill totaling $6.7 million as of December 31, 2014.

When we evaluate the potential for goodwill impairment, we assess a range of qualitative factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a two-step impairment test.

During the quarter ended September 30, 2014, as a result of lower than expected performance in our Usach reporting unit, combined with a downward revision in the anticipated future results, the Company determined that there were indicators of an impairment of that reporting unit. Accordingly, we performed an assessment of the fair value using the expected present value of future cash flows, recent industry transaction multiples and using estimates, judgments and assumptions that management believed were appropriate in the circumstances, which resulted in the carrying amount of the Usach reporting unit exceeding its fair value. As a result, the full carrying value of the Usach goodwill ($4.8 million) was written off.

35



Our annual goodwill impairment review was performed as of October 1, 2014. As a result of this assessment we determined that the fair value of our reporting units that have goodwill exceeded the carrying value.

Net Deferred Tax Assets. We regularly review the recent results and projected future results of our operations, as well as other relevant factors, to reconfirm the likelihood that existing deferred tax assets in each tax jurisdiction would be fully recoverable.

Retirement Plans. We sponsor various defined benefit pension plans, defined contribution plans, and one postretirement benefit plan, all as described in Note 13. "Employee Benefits" to the Consolidated Financial Statements set forth in Item 8 of this Form 10-K. The calculation of our plan expenses and liabilities require the use of a number of critical accounting estimates. Changes in the assumptions can result in different plan expense and liability amounts, and actual experience can differ from the assumptions. We believe that the most critical assumptions are the discount rate and the expected rate of return on plan assets.

We annually review the discount rate to be used for retirement plan liabilities. In the U.S., we use bond pricing models based on high grade U.S. corporate bonds constructed to match the projected liability benefit payments. We discounted our future plan liabilities for our U.S. plan using a rate of 4.28% and 5.24% at our plan measurement date of December 31, 2014 and 2013, respectively. We discounted our future plan liabilities for our foreign plans using rates appropriate for each country, which resulted in a blended rate of 1.43% and 2.75% at their measurement dates of December 31, 2014 and 2013, respectively. A change in the discount rate can have a significant effect on retirement plan obligations. For example, a decrease of one percent would increase U.S. pension obligations by approximately $15.6 million. Conversely, an increase of one percent would decrease U.S. pension obligations by approximately $12.8 million. A decrease of one percent in the discount rate would increase the Swiss pension obligations by approximately $14.2 million. Conversely, an increase of one percent would decrease the Swiss pension obligations by approximately $16.9 million.

A change in the discount rate can also have an effect on retirement plan expense. For example, a decrease of one percent would increase U.S. pension expense by less than $0.1 million. Conversely, an increase of one percent would decrease U.S. pension expense by less than $0.1 million. A decrease of one percent would increase the Swiss pension expense by approximately $2.0 million. Conversely, an increase of one percent would decrease the Swiss pension expense by approximately $1.4 million.

The expected rate of return on plan assets varies based on the investment mix of each particular plan and reflects the long-term average rate of return expected on funds invested or to be invested in each pension plan to provide for the benefits included in the pension liability. We review our expected rate of return annually based upon information available to us at that time, including the current level of expected returns on risk free investments (primarily government bonds in each market), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the asset allocation to develop the expected long-term rate of return on assets assumption. For our domestic plans, the expected rate of return during fiscal 2015 is 7.50%, which is the same rate used for fiscal 2014. For our foreign plans, we used rates of return appropriate for each country which resulted in a blended expected rate of return of 3.95% for fiscal 2015, compared to 3.91% for fiscal 2014. A change in the expected return on plan assets can also have a significant effect on retirement plan expense. For example, a decrease of one percent would increase U.S. pension expense by approximately $0.8 million. Conversely, an increase of one percent would decrease U.S. pension expense by approximately $0.8 million. A decrease of one percent would increase the Swiss pension expense by approximately $0.9 million. Conversely, an increase of one percent would decrease the Swiss pension expense by approximately $0.9 million.


36


Accounting Guidance Not Yet Adopted

We are currently assessing the financial impact to our consolidated financial statements of accounting guidance not yet adopted. For further information on accounting guidance not yet adopted, refer to Note 19. "New Accounting Standards" to the Consolidated Financial Statements set forth in Item 8 of this 10-K.
 
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Accordingly, there can be no assurance that our expectations will be realized. Such statements are based upon information known to management at this time. The Company cautions that such statements necessarily involve uncertainties and risk and deal with matters beyond the Company’s ability to control, and in many cases the Company cannot predict what factors would cause actual results to differ materially from those indicated. Among the many factors that could cause actual results to differ from those set forth in the forward-looking statements are fluctuations in the machine tool business cycles, changes in general economic conditions in the U.S. or internationally, the mix of products sold and the profit margins thereon, the relative success of the Company’s entry into new product and geographic markets, the Company’s ability to manage its operating costs, actions taken by customers such as order cancellations or reduced bookings by customers or distributors, competitors’ actions such as price discounting or new product introductions, governmental regulations and environmental matters, changes in the availability and cost of materials and supplies, the implementation of new technologies and currency fluctuations. Any forward-looking statement should be considered in light of these factors. The Company undertakes no obligation to revise its forward-looking statements if unanticipated events alter their accuracy.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is incorporated herein by reference to the section entitled "Market Risk" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations", of this Form 10-K.
 

37


Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Hardinge Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Hardinge Inc. and Subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hardinge Inc. and Subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hardinge Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 12, 2015 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP

Buffalo, New York
March 12, 2015


38


HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
December 31,
2014
 
December 31,
2013
Assets
 

 
 

Cash and cash equivalents
$
16,293

 
$
34,722

Restricted cash
3,151

 
4,124

Accounts receivable, net
62,877

 
57,137

Inventories, net
111,821

 
114,064

Other current assets
10,545

 
11,563

Total current assets
204,687

 
221,610

 
 
 
 
Property, plant and equipment, net
65,874

 
74,656

Goodwill
6,698

 
10,002

Other intangible assets, net
30,217

 
32,063

Other non-current assets
3,844

 
5,852

Total non-current assets
106,633

 
122,573

Total assets
$
311,320

 
$
344,183

 
 
 
 
Liabilities and shareholders’ equity
 

 
 

Accounts payable
$
25,592

 
$
24,418

Accrued expenses
25,071

 
26,346

Customer deposits
12,736

 
15,166

Accrued income taxes
646

 
830

Deferred income taxes
2,332

 
2,569

Contingent consideration

 
7,500

Current portion of long-term debt
3,972

 
7,850

Total current liabilities
70,349

 
84,679

 
 
 
 
Long-term debt
12,253

 
18,785

Pension and postretirement liabilities
53,119

 
28,188

Deferred income taxes
2,516

 
4,968

Other liabilities
3,487

 
3,775

Total non-current liabilities
71,375

 
55,716

Commitments and contingencies (see Note 11)


 


Common stock ($0.01 par value, 20,000,000 authorized; 12,825,468 issued and
12,821,768 outstanding as of December 31, 2014, and 12,472,992 issued and
12,397,867 outstanding as of December 31, 2013)
128

 
125

Additional paid-in capital
120,538

 
114,951

Retained earnings
87,777

 
90,937

Treasury shares (at cost, 3,700 as of December 31, 2014, and 75,125 as of
December 31, 2013)
(46
)
 
(806
)
Accumulated other comprehensive loss
(38,801
)
 
(1,419
)
Total shareholders’ equity
169,596

 
203,788

Total liabilities and shareholders’ equity
$
311,320

 
$
344,183

 
See accompanying notes to the consolidated financial statements.


39


HARDINGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Year Ended December 31,
 
2014
 
2013
 
2012
Sales
$
311,633

 
$
329,459

 
$
334,413

Cost of sales
224,755

 
236,220

 
237,576

Gross profit
86,878

 
93,239

 
96,837

 
 
 
 
 
 
Selling, general and administrative expenses
81,045

 
79,533

 
76,196

Impairment charges
5,766

 
6,239

 

Other expense, net
514

 
471

 
559

(Loss) income from operations
(447
)
 
6,996

 
20,082

 
 
 
 
 
 
Interest expense
737

 
1,128

 
859

Interest income
(59
)
 
(64
)
 
(118
)
(Loss) income from continuing operations before
income taxes
(1,125
)
 
5,932

 
19,341

Income taxes
1,233

 
1,537

 
1,486

Net (loss) income from continuing operations
(2,358
)
 
4,395

 
17,855

 
 
 
 
 
 
Gain from disposal of discontinued operation, net of tax
218

 
4,890

 

Income from discontinued operations, net of tax

 
642

 

 
 
 
 
 
 
Net (loss) income
$
(2,140
)
 
$
9,927

 
$
17,855

 
 
 
 
 
 
Per share data:
 

 
 

 
 
 
 
 
 
 
 
Basic (loss) earnings per share:
 

 
 

 
 
Continuing operations
$
(0.19
)
 
$
0.37

 
$
1.53

Disposal of discontinued operation
0.02

 
0.41