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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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x

☒

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 20172021 or

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¨

☐

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________.

_________

Commission File No. 0-9143

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HURCO COMPANIES, INC.INC.

(Exact name of registrant as specified in its charter)

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Indiana

35-1150732

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification Number)

incorporation or organization)

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One Technology Way

Indianapolis, Indiana

46268

(Address of principal executive offices)

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(Zip code)

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Registrant’s telephone number, including area code (317) 293–5309

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Securities registered pursuant to Section 12(b) of the Act:

Registrant’s telephone number, including area code(317) 293-5309
Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, No Par Valueno par value

HURC

The Nasdaq Global SelectStock Market LLC

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Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-knownwell–known seasoned issuer, as defined in Rule 405 of theSecurities Act.

Yes¨◻ Nox⌧

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 orSection 15(d).

 of the Act.

Yes¨◻ Nox⌧

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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 thesuch filing requirements for the past 90 days.

Yesx⌧ No¨◻

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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-TS–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). Yes ⌧ No ◻

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Yesx       No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.       ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednon–accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-212b–2 of the Exchange Act.

◻    Large accelerated filer⌧   Accelerated filer

¨Large accelerated filer
xAccelerated filer
¨Non-accelerated filer (Do not check if a smaller reporting company)  
¨◻    Non–accelerated filer☐Smaller reporting company
¨Emerging growth company

☐    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨◻

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ⌧

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b–2 of theExchange Act).

Yes¨☐ Nox⌧

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The aggregate market value of the registrant’s voting stock held by non-affiliatesnon–affiliates as of April 28, 201730, 2021 (the last business day of our most recently completed second quarter) was $192,102,000.$226,758,000.

The number of shares of the registrant’s common stock outstanding as of December 18, 201731, 2021 was 6,641,197.6,613,699.

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DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its 20182022 Annual Meeting of Shareholders (Part III).

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Forward-Looking Statements

This report contains certain statements that are forward-looking statements within the meaning of federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this report, the words “may”, “will”, “should”, “would” ,“could”, “anticipate”, “expect”, “plan”, “seek”, “believe”, “predict”, “estimate”, “potential”, “project”, “target”, “forecast”, “intend”, “strategy”, “future”, “opportunity”, “assume”, “guide”, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These risks and uncertainties include, but are notamong others, the impact of the COVID-19 pandemic and other public health epidemics and pandemics on the global economy, our business and operations, our employees and the business, operations and economies of our customers and suppliers; the cyclical nature of the machine tool industry; uncertain economic conditions, which may adversely affect overall demand, in the Americas, Europe and Asia Pacific markets; the risks of our international operations; governmental actions, initiatives and regulations, including import and export restrictions, duties and tariffs and changes to tax laws; the effects of changes in currency exchange rates; competition with larger companies that have greater financial resources; the United Kingdom’s withdrawal from the European Union (Brexit); our dependence on new product development; the need and/or ability to protect our intellectual property assets; the limited number of our manufacturing and supply chain sources; increases in the prices of raw materials, especially steel and iron products; the effect of the loss of members of senior management and key personnel; our ability to integrate acquisitions; acquisitions that could disrupt our operations and affect operating results; failure to comply with data privacy and security regulations; breaches of our network and system security measures; possible obsolescence of our technology and the need to make technological advances; impairment of our assets; negative or unforeseen tax consequences; uncertainty concerning our ability to use tax loss carryforwards; and changes in the LIBOR rate, SOFR rate, and/or other benchmarking interest rates; and the risks and other important factors under the heading “Risk Factors” in Part I, Item 1A of this report. You should understand that it is not possible to predict or identify all factors that could cause actual results to differ materially from forward-looking statements. Consequently, you should not consider any list or discussion of such factors to be a complete set of all potential risks or uncertainties. Readers of this report are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other filings with the Securities and Exchange Commission (“SEC”).

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PART I

Item 1.BUSINESS

Item 1.GeneralBUSINESS

General

Hurco Companies, Inc. is an international, industrial technology company.  We design, manufacture, and sell computerized (i.e., Computer Numeric Control (“CNC”)) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service, and distribution network.  Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.  Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.  We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, and training, and applications support.  As used in this report, the words “we”, “us”, “our”, “Hurco” and the “Company” refer to Hurco Companies, Inc. and its consolidated subsidiaries.

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Since our founding in 1968, we have been a leader in the introduction of interactive computer control systems that automate manufacturing processes and improve productivity in the metal parts manufacturing industry. We pioneered the application of microprocessor technology and conversational programming software for use in machine tools.  Our Hurco brand computer control systems can be operated by both skilled and unskilled machine tool operators and, yet, are capable of instructing a machine to perform complex tasks.  The combination of microprocessor technology and patented interactive, conversational programming software in our proprietary computer control systems enables operators on the production floor to quickly and easily create a program for machining a particular part from a blueprint or computer aided design file, and immediately begin machining that part.

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Our executive offices and principal design and engineering operations are headquartered in Indianapolis, Indiana, U.S.  Sales,We have sales, application engineering, and service subsidiaries are located in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and the U.S. We have manufacturing and assembly operations in Taiwan, the U.S., Italy, and China, and distribution facilities in the U.S., the Netherlands, and Taiwan.

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Our strategy is to design, manufacture, and sell a comprehensive line of computerized machine tools that help customers in the worldwide metal cutting market increase productivity and profitability.  The majority of our machine tools employ proprietary, interactive computer control technology that increases productivity through ease of operation via interactive conversational and graphical programming software. All of our machine tools, regardless of brand, deliver high levels of machine performance (speed, accuracy and surface finish quality) that increases productivity. We routinely expand our product offerings to meet customer needs, which has led us to design and manufacture more complex machining centers with advanced capabilities.  We bring a disciplined approach to strategically enter new geographic markets, as appropriate.

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Industry​

Our strategic plans focus on market expansion to reach more customers with more products on a global basis.  We have made five acquisitions since 2013, and the products we have added through these acquisitions have given us more advanced products with unprecedented improvements in our machine tool accuracy and precision, allow us to seek higher productivity in complex manufacturing environments, provide automation for machine tending solutions, and minimize dependencies associated with volatilities from economic and geographic cyclicality.  While the Hurco-branded computer control systems have been, and continue to be, our premium flagship product line, we have added other products to our portfolio that provide product diversity and market penetration opportunity priced from entry-level to high performance serving a variety of different industries.  We have not changed our overall strategy to design, manufacture, and sell a comprehensive line of computerized machine tools; rather, we have enhanced this strategy through growth both organically and through acquisitions in an effort to attain long-term stability and profitability.

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During fiscal 2021, our sales and service fees were $235.2 million, an increase of $64.6 million, or 38%, compared to fiscal 2020 and included a favorable currency impact of $7.7 million, or 5%, when translating foreign sales to U.S. Dollars for financial reporting purposes.  For fiscal 2021, we reported net income of $6.8 million, or $1.01 per diluted share, compared to a net loss of $6.2 million, or $(0.93) per diluted share, for fiscal 2020.   During fiscal 2021, sales increased year-over-year for all product brands and in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions put in place in fiscal 2020.  The net loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

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Industry

Machine tool products are considered capital goods, which makes them part of an industry that has historically been highly cyclical.

Industry association data for the U.S. machine tool market is available, and that market accounts for approximately 9%13% of worldwide consumption.  Reports available for the U.S. machine tool market include:

•United States Machine Tool Consumption – generated by the Association for Manufacturing Technology, this report includes metal cutting machines of all types and sizes, including segments in which we do not competecompete;
•Purchasing Manager’s Index -– developed by the Institute for Supply Management, this report includes activity levels in U.S. manufacturing plants that purchase machine tools tools; and
•Capacity Utilization of Manufacturing Companies – issued by the Federal Reserve BoardBoard.

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A limited amount of information is available for foreign markets, and different reporting methodologies are used by various countries.  Machine tool consumption data, published by Gardner Publications, Inc.the Association of Manufacturing Technology (“AMT”), calculates machine tool consumption annually by country.  It is important to note that data for foreign countries are based on government reports that may lag 6 to 12 months behind real-time and, therefore, are unreliable for forecasting purposes.

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Demand for capital equipment can fluctuate significantly during periods of changing economic conditions.  Manufacturers and suppliers of capital goods, such as our company, are often the first to experience these changes in demand. Additionally, since build to stock and our typical order backlog is approximately 45 days, it is difficult to estimate demand with any reasonable certainty. Therefore, we do not have the benefit of relying on the common leading indicators that other industries use for market analysis and forecasting purposes.

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Products

Products

Our core products consist of general purposegeneral-purpose, computerized machine tools for the metal cutting industry, principally, vertical and horizontal machining centers (mills) and, turning centers (lathes). and toolroom machines. The majority of our machine tools are equipped andwith our fully integrated fully withcomputer control systems that are powered by our proprietary software, and computer control systems, while the remaining machine tools are equipped with industry standard controls. Additionally, we produce and distribute software options, control upgrades, hardware accessories and replacement parts for our machine tool product lines, and we provide operator training and support services to our customers. We also produce computer control systems and related software for press brake applications that are sold as retrofit units for installation on existing or new press brake machines.machines and we own an automation integration company that specializes in job shop automation.

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The following table sets forth the contribution of each of our product groups and services to our total revenues during each of the past three fiscal years (in thousands):

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Net Sales and Service Fees by Product Category

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 Year Ended October 31, 
 2017  2016  2015 
Computerized Machine Tools* $209,311   86% $195,618   86% $189,712   87%

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Year Ended October 31, 

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2021

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2020

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2019

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Computerized Machine Tools

    

$

198,602

    

85

%  

$

139,577

    

82

%  

$

223,735

    

85

%

Computer Control Systems and Software†  2,324   1%  2,078   1%  3,085   1%

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2,528

 

1

%  

 

1,699

 

1

%  

 

2,818

 

1

%

Service Parts  24,255   10%  21,908   10%  19,375   9%

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26,425

 

11

%  

 

22,484

 

13

%  

 

27,854

 

11

%

Service Fees  7,777   3%  7,685   3%  7,211   3%

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7,640

 

3

%  

 

6,867

 

4

%  

 

8,970

 

3

%

Total $243,667   100% $227,289   100% $219,383   100%

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$

235,195

 

100

%  

$

170,627

 

100

%  

$

263,377

 

100

%

*Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective dates of those acquisitions during the third quarter of fiscal 2015.
††Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.

Product Portfolio by Brand

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We have three brands of CNC machine tools in our product portfolio:portfolio.  Hurco is the premiumtechnology and innovation brand focused on sophisticatedfor customers who want to increase productivity and profitability by selecting a brand with the latest software and motion technology.  Milltronics is the entry levelvalue-based brand with a simplified controlfor shops that want easy-to-use machines at competitive prices.  The Takumi brand is for customers that need precision and straightforward feature sets.very high speed, high efficiency performance, such as that required in the die and mold, aerospace, and medical industries.  Takumi is an industry standard brand with machines that are equipped with industry standard controls instead of the proprietary controls found on Hurco and Milltronics machines.  Typically, manufacturing facilitiesProCobots, LLC (“ProCobots”) is our wholly-owned subsidiary that use industry standard controls focus on medium to high production, wherein they run large batches of a few types of parts instead of small batches of many different types of parts.provides practical automation solutions, such as feeders and collaborative robots (cobots). In addition, through our wholly–ownedwholly-owned subsidiary LCM Precision Technology S.r.l. (“LCM”), we produce high-value machine tool components and accessories. The main product categories of each brand are outlined below.

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The Hurco, Milltronics, and Takumi product lines represent a comprehensive product portfolio with more than 150 different CNC machine models.  The combined machine tool product lines also provide benefits related to the development of product enhancements, technologies, and models duemodels. Due to leverage of shared resources and cross-utilization of proven engineering designs, that allow us towe achieve manufacturing cost reductions from economies of scale and manufacturing efficiencies.

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Hurco CNC Machine Tools

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Hurco computerized machine tools are equipped with a fully integrated interactive computer control system that features our proprietary WinMax®software. Our computer control system enables a machine tool operator to create complex two-dimensional (“2D”) or three-dimensional (“3D”) machining programs directly from an engineering drawing or computer-aided design geometry file.file, such as a solid model. An operator with little or no machine tool programming experience can successfully create a program with minimal training and begin machining the part in a short period of time.  The control features an operator console with active touch,a touch-screen, and incorporates an upgradeable personal computer (PC)(“PC”) platform using a high speedhigh-speed processor with solid rendering graphical programming.  In addition, WinMax® has a Windows®† based operating system that enables users to improve shop floor flexibility and software productivity.  Companies using computer controlledcomputer-controlled machine tools are better able to:

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•●maximize the efficiency of their human resources;
•●make more advanced and complex parts from a wide range of materials using multiple processes;

†Windows®is a registered trademark of Microsoft Corporation in the United States and other countries.

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•●incorporate fast moving changes in technology into their operations to keep their competitive edge; and
•●integrate their business into the global supply chain of their customers by supporting small to medium lot sizes for “just in time” initiatives.

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Our Windows®based Hurco control facilitates our ability to meet these customer needs. The familiar Windows® operating system coupled with our intuitive conversational style of program creation allows our customers’ operators to create and edit part-making programs without incurring the incremental overhead of specialized computer aided design (“CAD”) and computer aided manufacturing (“CAM”) programmers. With the ability to transfer most computer aided designCAD data directly into a Hurco program, programming time can be significantly reduced.

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Machine tool products today are beingmust be designed to meet thecustomer demand for machiningto machine complex parts with greater part accuracies.  Our proprietary controls with WinMax® software and high speedhigh-speed processors efficiently handle the large amounts of data these complex part-making programs require whichand enable our customers to create parts with higher accuracy at faster speeds. We continue to add technology to our control design as it becomes available.  For example, UltiMotion®, our patented motion control system, provides significant cycle time reductions and increases the quality of a part’s surface finish.  This technology differentiates us in the marketplace and is incorporated into our control.

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Our offering of Hurco machining centers, currently equipped with either a dual touch-screen console or a single touch-screen console, consists of the following product lines:

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HTM/HTLVMi Product Line

The HTM/HTL product line includes a tool room mill and tool room lathe. These models are designed for easy access to the table or chuck and are popular in tool room, prototype and maintenance applications. There is a 30 inch X-travel mill and an 8-inch chuck lathe.

VM Product Line

The VM product line consists of moderately priced vertical machining centers for the entry-level market.market, while still offering the advantage of our advanced control and motion systems.  The design premise of the machining center with a large work cube and a small footprint optimizes the use of available floor space. The VM line consists of fiveeight models in fourthree sizes with X-axis (horizontal) travels of 18, 26 (four models), 40 (two models), and 50 inches.inches (two models).

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VMX​

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†Windows® is a registered trademark of Microsoft Corporation in the United States and other countries.

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VMXi Product Line

The VMX product line is our flagship series of machining centers and consists of higher performing vertical machining centers aimed at manufacturers that require faster speeds and greater part accuracy. It is our flagship series of machining centers.The small and medium size models are available with either belted or inline (direct drive) spindles and the larger models are offered as either #40 or #50 taper.  The VMX line consists of 1214 models in eight sizes with X-axis travels of 24, 26, 30, 42, 50, 60, 64, and 84 inches.

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Five-AxisHSi Product Line

The five-axis product line is targeted at manufacturers seeking to produce multi-sided parts or true five-axis in a single setup. Machines in this product line can yield significant productivity gains for manufacturers that previously had to process each side of a part separately. Additionally, investing in five-axis technology helps our customers to expand their customer base, as they are able to bid on more complex projects that require simultaneous five-axis operations. The five-axis product line consists of 18 models with three different configurations: swivel head, trunnion table, and cantilever.

HS Product Line

Due to the integral, motorized spindle with a basemaximum speed of 18,000 rpm, the HS product line is desirable for the die and mold industry because of that industry’s particular interest in the improvement of surface finish quality and the reduction of cycle time. Additionally, this product line offers us the opportunity to expand our customer base to manufacturers that produce larger batches. The HS product line consists of four models with X-axis travels of 24, 30, 42, and 60 inches.

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BXUi Series Product Line

This product line features five-axis trunnion tables integrated onto familiar C-frame style machines, making an easy entry into five-axis for first-time users.  U Series models are offered with 8, 10, and 14-inch diameter rotary tables with either standard (belted) or direct drive (inline) spindles.

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SRTi/SWi Product Line

The SRT Series of five-axis machines utilizes motor spindles and a swivel head with a C-axis rotary table embedded into and flush with the machine table, making them among the most flexible machines in the industry.  The SW model utilizes the swivel head and a traditional machine table that can be then fitted with an A-axis rotary table to machine long five-axis parts.  These models are available in either 42 or 60-inch X-axis travels.  Customers can choose between standard and high-speed spindles.

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VCi/VCXi Product Line

The B-axis configuration of the VC/VCX Series provides greater undercut capability in both positive and negative directions, allowing users to access more part surface area for machining.  These cantilever models are available in a 20-inch pallet, moderately-priced model, as well as a high speed, high performance model, with a torque motor-driven 23.6-inch-diameter rotary table.

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BXi Product Line

The BX product line is for customers that require higher accuracy parts, as they are built with an extremely rigid double column design that offers superior vibration dampening and excellent thermal characteristics.  ThreeFour models are available, two with 40 inch X-travel40-inch X-axis travels (a three-axis version and a five-axis version), as well as a 53 inch X-travel model.53-inch and 63-inch X-axis travel models.

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HM/HMXHMi Product Line

The HM product line offers customers moderately priced horizontal machining centers designed for small lot sizes.  Two models are available, one with a rotary table and one with a plain table.  They both have X-travelX-axis travels of 67 inches.  The HMX product line is beneficial to manufacturers entering production manufacturing versus small batch manufacturing. The HMX machines have expanded tool capacity,These products are designed for high-mix, low-volume applications that benefit from a comprehensive chip managementhorizontal spindle configuration, but do not require an expensive pallet switching system a built-in pallet changer, and a box-in-box design supported at both the top and bottom to increase rigidity for long production runs and heavy cuts. The HMX product line consists of three models in three sizes with X-axis travels of 24, 32, and 41 inches. typically found on competitive horizontal machines.

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HBMX​

HBMXi Product Line

The HBMX product line is beneficial to manufacturers that build custom machinery and parts for a multitude of industries, such as packaging, pharmaceutical, automotive, energy, and medical. Additionally, boring mills are also used to repair and/or rebuild large components. The HBMX boring mill product line consists of four models with X-axis travels of 55, 79, 94, and 120 inches.

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TM/TMMDCXi Product Line

The double column DCX series includes six models in four sizes. Based on 2-meter, 3-meter, and 4-meter X-axis travels, these machining centers are designed to facilitate production of large parts and molds often required by the aerospace, energy, and custom machinery industries.  The 3-meter model is available as a five-axis machine equipped with an articulating head.  DCX machines are the largest models offered by Hurco that feature the powerful and flexible WinMax® control.

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TMi/TM-Mi Product Line

The TM/TMMTM-M product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract manufacturers seeking efficient processing of small to medium lot sizes. There is one TM model in sevenfour sizes, measured by chuck size: the TM6, TM8, TM10, TM12, TM18, TM18L,6, 8, 10, and TM18BB. The TM18BB big bore turning center targets the energy and aerospace industries because it has a larger chuck diameter and bigger bar capacity for larger parts.12 inches.  We added motorized tooling on the lathe turret to further enhance the capability of the TM turning centers and designated it as the TMMTM-M product line.  These turning centers with live tooling allow our customers to complete a number of secondary milling, drilling, and tapping operations while the part is still held in the chuck after the turning operations are complete, which provides significant productivity gains. The TMMTM-M product line consists of three models: TMM8, TMM10,TM8Mi, TM10Mi, and TMM12.TM12Mi.

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TMXTMXi Product Line

The TMX product line consists of high performancehigh-performance turning centers.   There are six models in two sizes. The TMXMYTMX-MY models are equipped with an additional axis and motorized live tooling while the TMXMYSTMX-MYS models also have an additional spindle. These products are designed for customers who want to reduce part handling and complete complex components that require speed, accuracy, and superior surface finish in a single set-up. They are available in either 8 or 10 inch main chuck sizes.

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DCX Product LineDevelopment

The double column DCX series includes fiveSince Hurco is the technology and innovation brand of our corporate portfolio, we have focused our attention on product enhancements of existing models in three sizes. These 2-meter, 3-meter,an effort to align the Hurco brand with the newest engineering innovations and 4-meter machining centers are designedcomponents available to facilitate productioncompete with other premium brands in the marketplace. Examples of large parts and molds often required by the aerospace, energy and custom machinery industries.

New Product Lines

In fiscal 2017, we introduced the VC500, a moderately-priced cantilever five-axis machine that features a generous 20-inch diameter table. Additionally,product enhancements completed in 2021 include a new feature for Solid Model Import, which allows customers to create Conversational Data Blocks with 3D attributes and new lathe programming features, such as radius wear offsets for live tools.  New hardware options included expanded capacity automatic tool room lathe calledchangers (60 ATC) and 24,000 rpm high-speed spindles for SRT/SW Series.  New models include VMX42UDi and VMX60HSRTi.  We also upgraded our Industry 4.0 websites for Hurco’s UltiMonitor and Milltronics Shop View (MSV) options.  These tools allow users to collect data and optimize efficiency of their machine tools using the HTL8-60 was introduced for tool room applications. This open bed lathe provides easy access to the workpiece. Hurco has designed and offers a 3D print head technology that allows a Hurco CNC machine to be used for 3D printing, which is advantageous for prototyping. In fiscal 2017, we launched the second generationInternet of this technology which better integrates the device into the WinMax® control software. It is used as an attachment to an existing machine and requires no external power supply.Things (“IoT”).  

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Milltronics CNC Machine Tools

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Our Milltronics line of CNC machine tools is designed for excellent value with more standard features for the price versus market leaders.competitors. We manufacture and sell these machine tools with a fully integrated interactive computer control systems that are alsosystem called the Milltronics 9000 Series DGI CNC.  The control is compatible with G & M Code programs (generated from CAD/CAM software) and also features onboard conversational visual aid programming. These straightforward and easy-to-use control systems are available in two versions, the Series 8200-B for tool room products and the more advanced Series 9000 offered on our new vertical machining centers and bridge mills.

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The Milltronics portfolio consists of the following product lines:

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VK Series

The VK is our CNC knee mill designed for prototype, R&D, maintenance, and other general-purpose applications.  It offers the easy table access of a conventional knee mill, with the power and flexibility of the 9000 DGI CNC control and motion system.  Unlike most competitive models, it is not a retrofit kit but rather designed from the ground up as a CNC.

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TRQ/TRM Product Line

Products with the TRQ or TRM designation are part of the tool room bed mill category, which are machines that are available without an enclosure, also referred to as open bed machines, that provide easy access to the work table.  Typical applications for these machines include general machining, job shops, prototype, or maintenance and repair.  Available with quill-head or rigid-head designs, there are six models in four sizes with X-axis travels of 30, 40, 60 and 78 inches.  The 60 inch model is also available with a high-torque option.

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VM General Purpose (GP) Product Line

The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops, prototype, research and development, and other general machining applications.  These belt-driven models are 40-taper spindles and are available in four different sizes – all with the Series 9000 control.sizes.  Customers can choose models with X-axis (horizontal) travels of 25, 30, 40, or 50 inches. There is also a model with extended spindle nose-to-table dimensions for large fourth-axis rotary applications.

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VM Inline Performance (IL) Product Line

The VM-IL product line consists of moderately-priced performance vertical machining centers for high-speed applications, such as tool, die and mold, aerospace, orand medical machining.  Featuring heavier castings, faster motion, and inline spindles, these 40-taper machines include the Series 9000 control and are available in four sizes.  Models include X-axis travels of 30, 42, 50, or 60 inches.

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VM Extra Power (XP) Product Line

The VM-XP product line consists of moderately-priced, vertical machining centers for more demanding metal removal applications, such as castings or forgings.  These heavy-duty, 50-taper models are either gear driven or heavy-duty belt drivendesigned for applications that require more power and include the Series 9000 control.torque.  Customers can choose from three different models with X-axis travels of 43, 50, 60, or 6084 inches.

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BR Product Line

The BR product line consists of high-speed bridge mills that are used in pattern shops and the aerospace industry, in addition to job shops, due to the large table and travels that support a wide range of part sizes. BR machines have inline spindles and are available as six models with up to 200 inches in three sizes with X-axis travels of 100, 150, and 200 inches. BR machines offer the Series 8200-B control.travel by 80 inches in Y-axis travel.

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MM/MB/RH Product Line

Products with the MM/MB or RH designation are part of the tool room bed mill category, which are machines that do not have an enclosure, also referred to as open bed machines. Typical applications include general machining, job shops, prototype or maintenance and repair. Available with quill head or rigid head designs, there are six models in four sizes with X-axis travels of 30, 40, 60 and 78 inches. These easy-to-use machines feature the Series 8200-B control.

SL Product Line

The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract manufacturers seeking efficient processing of small to medium lot sizes. There are two models with chuck sizes of 6 and 10 inches. These compact machines feature the Series 8200-B control.

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ML Product Line

The ML product line consists of combination lathes that the customer can configure for either tool room or production applications with the option to add live tooling.   There are 17 models available in a variety of thru hole sizes and in the following six swing-over bed diameters: 17, 19, 23, 27, 36, and 39.7 inches.

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SL Product Line

The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract manufacturers seeking efficient processing of small to medium lot sizes. These flexiblecompact machines feature the Series 8200-B control.are available with chuck sizes of 6, 8, and 10 inches.  

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New Product LinesProducts

In fiscal 2017, we introduced2021, Milltronics launched a new CNC knee millhigh torque version of its 60 inch TRM model called the VK4-II featuringTRM30HT.  Hardware upgrades included a new semi-enclosure option for the 8200-B control, designedBR Series and expanded capacity automatic tool changers (24 ATC) for entry level or tool room applications. The first model of the next generation of SL lathes was also introduced, called the SL8-II. This new series will eventually replace the SL Series with more fully featured models and the 9000 Series control.GP Series.

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Takumi CNC Machine Tools

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OurThe Takumi machine tools featurebrand features machines designed for applications requiring precision and high speed, high efficiency milling.  Market segments that require such applications include die and mold, aerospace, medical, and energy, or any customer that needs to produce very high-accuracy parts quickly.  Takumi machines are available with a variety of industry standard CNC controls, including Fanuc®*, Siemens®, Mitsubishi®, or Heidenhain®.  Models include drill and tap machines; three-axis vertical machining centers with linear guides; three-axis vertical machining centers with box ways; high-speed, double column vertical machining centers; and heavy duty, double column andheavy-duty, double-column machining centers, five-axis machining centers and high-speed horizontal machining centers.  The Takumi brand allows usmachines are hand built and fitted to expand our customer baseexacting standards to include manufacturers who opt for industrial controls. Generally, manufacturers who use industrial controls have production-oriented operations where they run medium to large batches of just a few different types of parts.produce high accuracies and superior surface finishes.

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The Takumi portfolio consists of the following product lines:

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VTPV Series

The VTPV Series includes one high-speed drillare entry-level vertical machining centers, yet feature high-performance direct drive spindles and tap machine. Model VT500 features fast tool change times and rapid spindle acceleration/deceleration. This three-axis machine isrobust roller way technology.  PV machines are available in two sizes with X-axis travels of either 26 or 41 inches.  They are designed for high volume production applications such as automotive parts or electronics components.general purpose and job shop applications.

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VC Series

The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for customers doing batch or production work.a variety of different parts, including die and mold, medical, automotive, and job shops. The VC machines are available in twothree sizes with X-axis travels of 34, 42, and 4250 inches.  An extended Y-axis travel version of the 42-inch model is offered for mold shops making square mold bases.

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*Fanuc® is a registered trademark of GE Fanuc Automation Americas, Inc.  Siemens® is a registered trademark of Siemens AG. Mitsubishi® is a registered trademark of Mitsubishi Electric Corporation.  Heidenhain® is a registered trademark of HEIDENHAIN CORPORATION, a wholly-owned subsidiary of the German company DR. JOHANNES HEIDENHAIN GmbH.

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V Series

The V Series vertical machining centers are heavy duty, box wayheavy-duty, box-way machines built for tough applications such as roughing cast iron.  These three-axis, massive machines feature belt or geared spindles to provide maximum torque.  The V Series product line includes eight models with X-axis travels of 39, 43, 47, 60, 70, 78, 86, and 126 inches.

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H Series

Designed to produce parts that require high precision and superior surface finishes, H Series machines offer an extremely rigid and thermally stable double columnthermally-stable double-column design.  These three-axis models feature high-speed, direct drivedirect-drive spindles, or built-in HSK spindles, with up to 20,000 rpm, and offer ain addition to spindle speed options of 24,000 rpm spindle and 36,000 rpm spindle as options.rpm. The H Series product line consists of eight11 models in seven different sizes with X-axis travels of 30, 35,24, 40, 53,49, 63, 86, 126, 157, and 126 inches.197 inches, with select models available with extended Y-axis travel and/or high-speed spindles.  These machines are specifically targeted for die and mold and aerospace customers.

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*Fanuc® is a registered trademark ofGE Fanuc Automation Americas, Inc. Siemens® is a registered trademark of Siemens AG. Mitsubishi® is a registered trademark of Mitsubishi Electric Corporation. Heidenhain® is a registered trademark of HEIDENHAIN CORPORATION, a wholly owned subsidiary of the German company DR. JOHANNES HEIDENHAIN GmbH.

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U Series

Designed with trunnion tables andor swivel heads, these five-axis simultaneous machining centers offerprovide versatility, as well as savereduce setup time and process time.  Most models are offered with double columna double-column structure for superior stability and performance.  The U-SeriesU Series product line consists of fivesix models, four of which offer trunnion table sizes of 10, 16, 24, and 31.5 inches.  One addition model, theThe UB version is equipped with a B/C swivel head and HSK100, 12Ka 12,000 rpm built-in spindle.  The UB’s double columnIts double-column design provides a spacious X-axis travel of 126 inches.  An additional model called the UR1000 has a two-axis head and a 39-inch rotary table integrated into a double-column machine, designed for large and heavy five-axis parts, such as those found in die and mold, aerospace, and energy applications.

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G Series

Designed specifically for the machining of graphite or copper electrodes used in electrical discharge machining (EDM), G Series machines offer the same extremely rigid and thermally stable double columndouble-column design of the H Series featuringwith high-speed, direct drivedirect-drive spindles, or built-in HSK spindles, withthat have up to 20,000 rpm.rpm, but are also equipped with a graphite dust extraction system. The G Series product line consists of twothree models with X-axis travels of 22, 30, and 40 inches.

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BC Series

The BC Series machine is amachines are double column, three-axis machining centercenters designed for heavy cutting and applications that require high power and torque, such as molddie and die. This model includesmold.  These models include a heavy cutting, 6,000 rpm geared-head design withspindle for maximum cutting power.  The BC Series models are available in eight sizes, including X-axis travels of 82 inches.83, 122, 126, 157 and 197 inches, with several models featuring different choices of Y-axis travel.  

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HMX Series

The HMX Series are high-speed horizontal machining centers that are capable of up to 1G acceleration.  These models include twin pallets to maximize cutting time along with very fast pallet exchange times and rapid traverse rates.  Available in 400, 500, and 630 mm pallet sizes, they can also be fitted with expandable automatic tool changers that hold up to 220 tools.

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SL Lathes

SL slant-bed lathes are turning centers equipped with box ways and designed for heavy cutting to provide superior part finishes. The SL Series includes three models: the SL200, SL250, both available with 10 inch chucks; and the SL300, which has a 12 inch chuck.  

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New Products

In 2021, Takumi redesigned its popular H12 double column machining center.  Now called the H12E, improvements include faster rapid traverses and trimmed dimensions to reduce shipping cost, as the redesigned model can now fit inside a standard high cube shipping container.  The new H12E is also available with an optional 15,000 rpm high-speed spindle.  Another new model is the H27S, a 106 inch X-axis travel, high-speed, bridge type machining center.  Hardware upgrades include expanded automatic tool changer (32 ATC) for #50 taper models and new high-torque #50 taper options for V-Series box way machines. Takumi also developed software to become the first CNC machine with a FANUC control that provides a seamless interface with the Renishaw Set & Inspect program to facilitate on-machine inspection probing that doesn’t require macro-programming.

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Other Control Systems, Software, and Accessories

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The following machine tool computer control systems and software products are sold directly to end-users and/or to other original equipment manufacturers.manufacturers (“OEM”).

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Autobend®

Our Autobend®computer control systems are applied to metal bending press brake machines that form parts from sheet metal and steel plate.  They consist of a microprocessor-based computer control and back gauge (an automated gauging system that determines where the bend will be made).  We have manufactured and sold the Autobend® product line since 1968.  We currently market two models of our Autobend® computer control systems for press brake machines, in combination with six different back gauges as retrofit units for installation on existing or new press brake machines.

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Software Products

In addition to our standard computer control features, we offer software option products for part programming.  These products are sold to users of our Hurco computerized machine tools equipped with our dual touch-screen or single touch-screen consoles featuring WinMax® control software.  Each international division packages the options as appropriate for its market. The most common options include: Advanced Verification Graphics, Swept Surface, DXF Transfer, 3D DXF and Solid Model Import, UltiMonitor, UltiPocket with Helical Ramp Entry and Insert Pockets, Conversational Part and Tool Probing, Tool and Material Library, NC/Conversational Merge, Job List, Automation Job Manager, Stream Load, LinearActive Thermal Compensation, Thread Repair, and Simultaneous Five-Axis Contouring.

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The Advanced Verification Graphics option displays a picture of the rendered part on the screen of the control that can be viewed from any angle. The detail allows the customer to evaluate how the part is programmed to be machined before cutting commences, which eliminates the need to scrap expensive material.

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Solid Model Import with 3D DXF Technology automatically uses geometry from a 3D CAD model to easily create conversational programs for 2D and 3D parts or even 3+2 and 5-sided parts.  

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Our Swept Surface software option simplifies programming of 3D contours and significantly reduces programming time.

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The DXF Transfer software option increases operator productivity because it eliminates manual data entry of part features by transferring AutoCAD®* drawing files directly into our computer control or into our desktop programming software, WinMax®Desktop.

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Designed to take advantage of the IoT, UltiMonitor is a web-based productivity, management, and service tool that enables customers to monitor, inspect, and receive notifications about their Hurco machines from any location where they can access the internet.  Customers can transfer part designs, receive event notifications via email orfor text, access diagnostic data, monitor the machine via webcam, and communicate with the machine operator.

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UltiPocket with Helical Ramp Entry and Insert Pockets automatically calculates the tool path around islands, eliminating the arduous task of plotting these shapes.  Islands can also be rotated, scaled and repeated.

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Conversational Part and Tool Probing options permit the computerized dimensional measurement of machined parts and the associated cutting tools.  This “on-machine” technique improves the throughput of the measurement process when compared to traditional "off-machine"“off-machine” approaches.

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The Tool and Material Library option stores the tool and material information with the machine instead of storing it with each individual part program. The user enters the tool data and geometry one time and chooses the particular tool from the list when it is needed. Additionally, the library reads the part program and automatically locates the tool or displays an alert if the tool does not exist. In addition to saving time, the Tool and Material Library eliminates the need to enter information repeatedly and can prevent common tool crash conditions.

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NC/Conversational Merge lets the user incorporate conversational features, such as tool probing, pattern operations, and scaling, intoexisting G-Code programs.

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Job List provides an intuitive way to group files together and run them sequentially without operator intervention, which promotes automation, lights-out machining, program stitching, file bundling, and adaptive processes.

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Automation Job Manager is a software feature designed specifically for seamless integration of the Hurco control to our automation package called Job Shop Automation, which promotes intuitive programming of collaborative robots for machine tending applications.

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Stream Loadallows the user to run very large NC files without the need to upload the entire file into the control’s memory to avoid exceeding memory limits.

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LinearActive Thermal Compensation is a feature that allows the useruses sensors to specify corrections to compensatemeasure head casting temperature growth and software that automatically compensates for the effects of thermalthat growth, in high speed machining applications.improving part accuracy.

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Thread Repair is a feature for turning applications that provides an efficient way to repair existing threads, which is especially beneficial for large pipes and other parts manufactured for the oil/energy sector.

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* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.

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Simultaneous Five-Axis Contouring software enables a five-axis machine to command motion concurrently on all axes. This allows the user to create continuous tool-paths along complex geometries with only a single machine/part setup, providing increased productivity along with the performance benefits of using shorter cutting tools. The sale of simultaneous five-axis contouring software is subject to government export licensing requirements.

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3D Print HeadProCobots CNC Automation

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ProCobots provides automation solutions including collaborative robots (cobots), grippers, material handling, and Industry 4.0-capable software and controls.  Designed to be easy to use, safe, and flexible, ProCobots solutions are standardized systems aimed at customers who are in the high-mix, low-volume manufacturing environment.  Products include portable models, such as the ER Work and ProFeeder Table, as well as flexible cell solutions, including the ProFeeder, ProFeeder Flex, ProFeeder Compact, and ProFeeder X.  ProCobots solutions are available for any Hurco, has designed and offers a 3D print head technology that allows a HurcoMilltronics or Takumi machine.

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Non-Hurco Branded Products & Technologies

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While our three brands of CNC machine tools are responsible for the vast majority of our revenue, we have added other products to be used for 3D printing, which is advantageous for prototyping. It is used as an attachmentour portfolio that have contributed to an existingour top and bottom line growth and provide product diversity; and market penetration opportunity – while minimizing the impact of geographic cyclicality – with products priced from entry-level to high performance serving a variety of different industries.  We believe these non-Hurco branded products help us partially offset the cyclical nature of the machine tool market by diversifying our product offering. These non-Hurco branded products are sold by our wholly-owned distributors and requires no external power supply.are comprised primarily of other general-purpose vertical machining centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machining centers, metal cutting saws, and CNC Swiss lathes.

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* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.

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LCM Machine Tool Components and Accessories

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Based in Italy, LCM designs, manufactures, and sells mechanical and electro-mechanical components and accessories for machine tools.tools for a wide variety of machine tool OEMs. LCM’s direct drive spindle, swivel head, and rotary torque table are used in ourthe Hurco SRT line of five-axis machining centers to achieve simultaneous five-axis machining.

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CNC Rotary Tables

LCM has fiveseveral lines of CNC rotary tables for both horizontal and vertical-horizontal positioning.  Customers can choose rotary tables with either hydraulic or pneumatic clamping systems. Additionally, LCM offers CNC rotary tables powered by either a torque motor or a high-precision mechanical transmission.

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CNC Tilt Tables

LCM has sevenseveral lines of CNC tilting rotary tables, of which four lines are intended specifically for five-axis machining centers. Each of the seven lines is differentiated by the technology used for clamping (hydraulic or pneumatic) and by the type of transmission (either mechanical transmission or torque motor).

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Swivel Heads and Electro-spindles

LCM has two primary lines of swivel heads that enable the spindle axis to be tilted with continuousmotion and one line of electro-spindlesseveral electro-spindle (built-in motors for swivel heads). options.  The two lines of swivel heads are differentiated by the type of transmission (either mechanical transmission or torque motor).

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Product Development

In 2021, LCM developed a new high performance tilting rotary table called BRATT400, with the tilting axis positioned at 45 degrees.  It is powered by new LCM torque motors and designed for specific applications on highly dynamic five-axis machines.

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Parts and Service

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Our service organization provides installation, warranty, operator training, and customer support for our products on a worldwide basis.  In the United States, our principal distributors generally have the primary responsibility for machine installation and warranty service and support for product sales.  Our service organization also sells software options, computer control upgrades, accessories, and replacement parts for our products.  OurWe believe our after-sales parts and service business strengthens our customer relationships and provides continuous information concerning the evolving requirements of end-users.

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Manufacturing

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Our computerized metal cutting machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiaries in Taiwan (Hurco Manufacturing Limited (“HML”) and Waconia, Minnesota (Milltronics USA, Inc. (“Milltronics”)).  HML and Milltronics conductconducts final assembly operations and areis supported by a network of contract suppliers of components and sub-assemblies that manufacture components for our products.  Our facility in Ningbo, China (Ningbo Hurco Machine Tool Co. Ltd (“NHML”)) focuses on the machining of castings to support HML’s production in Taiwan.  The LCM line of electro-mechanical components and accessories for machine tools is designed and manufactured in Italy.  Our facility in Indianapolis, Indiana, also conducts final assembly operations for certain Hurco VMX machines and Milltronics bridge mills for the American market and manufactures certain electro-spindle components for LCM.

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We have a contract manufacturing agreement for computer control systems with Hurco Automation, Ltd. (“HAL”), a Taiwanese company in which we have a 35% ownership interest.  This company produces all of our computer control systems to our specifications, sources industry standard computer components and our proprietary parts, performs final assembly, and conducts test operations.

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We work closely with our subsidiaries, key component suppliers, and HAL to ensure that their production capacity will be sufficient to meet the projected demand for our machine tool products.  Many of the key components used in our machines can be sourced from multiple suppliers. However, any prolonged interruption of operations or significant reduction in the capacity or performance capability at any of our manufacturing facilities, or at any of our key component suppliers, could have a material adverse effect on our operations.

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Marketing and Distribution

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We principally sell our products through more than 193180 independent agents and distributors throughout North and South America (the Americas)“Americas”), Europe, and Asia.  Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally.  We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world'sworld’s principal machine tool consuming markets. Our selling divisions in the United States have responsibility for the Americas, which includes Canada, Mexico, Central America, South America, and the U.S.

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Approximately 91%87% of the worldwide demand for computerized machine tools and computer control systems is outside of the U.S.  In fiscal 2017,2021, approximately 71%63% of our revenues were derived from customers outside of the U.S.Americas.  No single end-user or distributor of our products accounted for more than 5% of our total sales and service fees.The end-users of our products are precision tool, die and mold manufacturers, independent job shops, specialized short-run production applications within large manufacturing operations, and manufacturing facilities that focus on medium to high run production, wherein they run large batches of a few types of parts instead of small batches of many different parts.  Industries served include aerospace, defense, medical equipment, energy, automotive/ transportation, electronics, and computer industries.

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We also sell our Autobend® computer control systems to original equipment manufacturersOEMs of new metal fabrication machine tools that integrate them with their own products prior to the sale of those products to their own customers, to retrofitters of used metal fabrication machine tools that integrate them with those machines as part of the retrofitting operation, and to end-users that have an installed base of metal fabrication machine tools, either with or without related computer control systems.

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Demand

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We believe demand for our products is driven by advances in industrial technology and the related demand for automated process improvements.  Other factors affecting demand include:

•●the need to continuously improve productivity and shorten cycle time;
•●an aging machine tool installed base whichthat will require replacement with more advanced technology;
•●the industrial development of emerging markets in Latin America, Asia, and Eastern Europe; and
•●the declining supply of skilled machinists.

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Demand for our products is also highly dependent upon economic conditions and the general level of business confidence, as well as such factors as production capacity utilization and changes in governmental policies regarding tariffs, corporate taxation, fluctuations in foreign currencies, and other investment incentives.

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Competition

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We compete with many other machine tool producers in the United States and foreign countries.   Most of our competitors are larger and have greater financial resources than our company.  Major worldwide competitors include DMG Mori Seiki Co., Ltd., Mazak Corporation, Haas Automation, Inc., Hardinge Inc., Doosan Corporation, Okuma Machinery Works, Ltd, HyundaiLtd., Fryer Machine Systems, ProtoTRAK CNC Machines, Quick Jet Machine, Co., Ltd., Gentiger Machinery Industrial, Co., Ltd., and Feeler.Yeong Chin Machinery Industries, Co., Ltd. (YCM).  

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Through our subsidiary LCM, we compete with manufacturers of machine tool components and accessories such as IBAG, Kessler, Peron Speed, GSA Technology Co., LTDLTD., and Duplomatic Automation.

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We strive to compete by developing patentable software and other proprietary features that offer enhanced productivity, technological capabilities, and ease of use.  We offer our products in a range of prices and capabilities to target a broad potential market.  We also believe that our competitiveness is aided by our reputation for reliability and quality, our strong international sales and distribution organization, and our extensive customer service organization.

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Intellectual Property

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We consider the majority of our products to be proprietary.  Various features of our Hurco and Milltronics control systems and machine tools employ technologies covered by patents and trademarks that are material to our business.  We also own additional patents covering new technologies that we have acquired or developed, and that we are planning to incorporate into our control systems or products in the future.

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ResearchHuman Capital Resources

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Hurco is committed to attracting and Development

Inretaining the fiscal years set forth below, we incurred both (i) non-capitalized researchbrightest and development expenditures for new productsbest talent. Therefore, investing, developing, and significant product improvements and (ii) capitalized expenditures relatedmaintaining human capital is critical to software development projects as follows (in thousands):

Fiscal Year Non-Capitalized
Research and
Development		  Capitalized
Software Development		 
2017 $4,200  $2,300 
2016 $4,900  $2,200 
2015 $3,900  $1,400 

Employees

Weour success. As of October 31, 2021, Hurco had approximately 749706 full-time employees, atof which approximately 28% were in the endAmericas, and 72% in other global regions.  As a global industrial technology company, a large number of fiscal 2017, noneour employees are engineers or trained trade or technical workers focusing on advanced manufacturing, and many of whomthem hold masters’, doctorate, or equivalent advanced degrees. Hurco emphasizes a number of measures and objectives in managing its human capital assets, including, among others, employee safety and wellness, talent acquisition and retention, employee engagement, development, and training, diversity and inclusion, and compensation and pay equity.  None of our employees are covered by a collective-bargaining agreement or represented by a union.agreement.  We have not experienced noany employee-generated work stoppages or disruptions, and we consider our employee relations to be satisfactory.

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Geographic AreasCOVID-19 and Employee Safety and Wellness

During the COVID-19 pandemic, the safety and well-being of our employees and their families has been a top priority as we continue to serve our customers – many of which are involved in the installation, production, and/or maintenance of critical infrastructure. Our global pandemic efforts include leveraging the advice and recommendations of infectious disease experts and organizations to establish appropriate safety standards and secure appropriate levels of personal protective equipment for our workforce. Based upon this advice and recommendations, we have adopted and implemented the Hurco COVID-19 Exposure Prevention, Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to outline our policies and procedures designed to mitigate the potential for transmission of COVID-19 and prevent exposure to illness from certain other infectious diseases. Among other things, the Hurco COVID Response Plan memorializes employee, manager, and company responsibilities related to house-keeping and sanitization, hygiene and respiratory etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work and/or when to return to work upon potential and/or confirmed COVID-19 exposure or infection. In addition to procuring personal protective equipment, automatic screening stations, and other preventative resources, we also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco products during fiscal 2020 and distributed the same to our personnel and customers around the world.

Financial information concerning​

We have also implemented a wellness program aimed at engaging employees with healthcare providers to promote the geographic areasproactive evaluation, tracking, and management of major health and wellness indicators, such as blood pressure, weight, and routine blood laboratory analysis.

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Employee Engagement, Development, and Training

We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. We advance continual learning and career development through ongoing performance and development conversations or evaluations with employees, internally and externally developed training programs, and educational reimbursement programs. In connection with the latter, reimbursement is available to employees enrolled in whichpre-approved degree or certification programs at accredited institutions that teach skills or knowledge relative to our business or otherwise to the development of the employee’s skill set or knowledge base. In addition, we sellroutinely invest in seminar, conference, and other training or continuing education events for our products isemployees.

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Diversity and Inclusion

We are committed to fostering work environments that value and promote diversity and inclusion. This commitment includes a policy to provide equal access to, and participation in, equal employment opportunities, programs, and services without regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identity, stereotypes or assumptions based thereon. We pride ourselves on policies and programs designed for the development and fair treatment of our global workforce, including generous healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-harassment, workforce safety, and anti-retaliation policies, and implementation of affirmative action programs. We welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse, and inclusive workforce.

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Ethical Business Practices

We also foster a strong corporate culture that promotes high standards of ethics and compliance for our businesses, including policies that set forth in Item 7. Management’s Discussionprinciples to guide employee, officer, director, and Analysisvendor conduct, such as our Code of Financial ConditionBusiness Conduct and ResultsEthics. We also maintain a whistleblower policy and anonymous hotline for the confidential reporting of Operationsany suspected policy violations or unethical business conduct on the part of our businesses, employees, officers, directors, or vendors and in Note 14provide training and education to our global workforce with respect to our Code of NotesBusiness Conduct and Ethics and anti-corruption and anti-bribery policies. We intend to Consolidated Financial Statements. Somedisclose any amendment to, or a waiver from, a provision of the risksour Code of doing businessBusiness Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting such information on a global basis are described in Item 1A. Risk Factors below.our website at www.hurco.com.

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Backlog

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For information on orders and backlog, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations in this report.

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Availability of Reports and Other Information

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Our website can be found atwww.hurco.com. www.hurco.com.  We use this website as a means of disclosing pertinent information about the Company, free of charge, including:

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•●Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy materials, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC;

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•●pressPress releases on quarterly earnings, product announcements, legal developments and other material news that we may post from time to time;
•●corporateCorporate governance information including our Corporate Governance Principles, Code of Business Conduct and Ethics, information concerning our Board of Directors and its committees, including the charters of the Audit Committee, Compensation Committee, Nominating and Governance Committee and other governance-related policies; and
•●

opportunitiesOpportunities to sign up for email alerts and RSS feeds to have information provided in real time.

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The information available on our website is not incorporated by reference in, or a part of, this or any other report we file with, or furnish to, the SEC.

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Item 1A.

Item 1A.​ ​RISK FACTORS

RISK FACTORS

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In this section, we describe what we believe to be the material risks related to our business.  The risks and uncertainties described below or elsewhere in this report are not the only ones to which we are exposed. Additional risks and uncertainties not presently known and/or risks we currently deem immaterial may also adversely affect our business and operations. If any of the developments included in the following risks were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected.

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Risks Related to the COVID-19 Pandemic

Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and could continue to disrupt, our operations and materially and adversely affect our business, financial condition, and results of operations.

Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic, have had, and could continue to have, a material adverse effect on our business, financial condition, and results of operations. As a result of the COVID-19 pandemic, governmental authorities in jurisdictions where our facilities, customers, and suppliers are located have imposed mandatory closures, stay-at-home orders, and social distancing protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business operations or consumption patterns.

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The COVID-19 pandemic has disrupted our operations and will likely continue to affect our business. Specifically, many of our sales and service organizations throughout the Americas, Europe, and Asia Pacific have, at one time or another, been subject to temporary closures or otherwise been required to adopt remote work strategies. We may continue to experience additional temporary facility closures in response to government mandates and/or the incidence of additional spread.

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Additionally, the COVID-19 outbreak has disrupted and could in the future disrupt our ability to deliver and/or install machines, our procurement of supplies for our operations, and our customers’ purchasing behavior or decisions. The COVID-19 pandemic has resulted in significantly reduced demand for our products, which could continue for an extended period of time. Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or business partners are located have had and could continue to have a material adverse effect on our business, results of operations, cash flows, and financial condition. In addition, fluctuations in demand and other implications associated with the COVID-19 pandemic have resulted in, and could continue resulting in, certain supply chain constraints and challenges. Specifically, we have begun to experience vendor delays, bottlenecks and significant cost increases in transportation and freight services, and inflationary and similar cost increases for the cost of our materials and components. These issues could impact our ability to timely ship products to meet customer demand and/or impose pricing pressures on our product margin. Should these pressures continue for a significant period of time, and if we are unable to pass on cost or inflationary input increases to customers, our future operations, operating results, and cash flows could be materially adversely impacted.

Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both our company and our customers and suppliers. In addition, resulting changes in our access to or cost of capital, expected cash flows, or other factors could cause our intangible assets to be impaired, resulting in a non-cash charge against results of operations to write down the intangible assets for the amount of the impairment. The duration and scope of the COVID-19 pandemic remains uncertain and, therefore, we cannot reasonably estimate its potential impact on our business, financial condition, or results of operations, but such impact has been, and could continue to be, material.

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Risks Related to Our Industry and International Operations

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The cyclical nature of our business causes fluctuations in our operating results.

The machine tool industry is highly cyclical and changes in demand can occur abruptly in the geographic markets we serve.  As a result of this cyclicality, we have experienced significant fluctuations in our sales, which, in periods of reduced demand, have adversely affected our results of operations and financial condition, which could re-occur in the future.

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Uncertain global economic conditions may adversely affect overall demand.

We typically sell the majority of our larger, high-performance VMX machines in Europe, which makes us particularly sensitive to economic and market conditions in that region.  Economic uncertainty and business downturns in the U.S., European, and Asian Pacific markets have adversely affected, and may in the future adversely affect, our results of operations and financial condition.

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Our international operations pose additional risks that may adversely impact sales and earnings.

During fiscal 2017,2021, approximately 71%63% of our revenues were derived from sales to customers located outside of the U.S. Americas.  In addition, our main manufacturing facilities are located outside of the U.S.  Our international operations are subject to a number of risks, including:

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•●trade barriers;
•●regional economic uncertainty;uncertainty and nationalistic trade strategies;
•●differing labor regulation;
•●governmental expropriation;
•●domestic and foreign customs and tariffs;

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•●current and changing regulatory environments affecting the importation and exportation of products and raw materials;
•●difficulty in obtaining distribution support;
•●difficulty in staffing and managing widespread operations;
•●differences in the availability and terms of financing;
•●political instability and unrest;
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negative or unforeseen consequences resulting from the introduction, termination, modification, or renegotiation of international trade agreements or treaties;

treaties or the imposition of countervailing measures or anti-dumping duties or similar tariffs;
•●foreign exchange controls that make it difficult to repatriate earnings and cash;
●changes in tax regulations and rates in foreign countries; and
•●changes in the European Union and Asia may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial and foreign exchange markets, as well as disruptingdisrupt the free movement of goods, services, and people between countries.

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Quotas, tariffs, taxes, or other trade barriers could require us to attempt to change manufacturing sources, reduce prices, increase spending on marketing or product development, withdraw from or not enter certain markets, or otherwise take actions that could be adverse to us.us and/or that we might not be able to accomplish in a timely manner or at all.  Also, in some foreign jurisdictions, we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met.  These factors may adversely affect our future operating results.  The vast majority of our products are shipped from our manufacturing facility in Taiwan from the Port of Taichung to four ports of destination: Los Angeles, California,California; Tacoma, Washington,Washington; Venlo, the Netherlands,Netherlands; and Shanghai, China.  Changes in customs requirements, as a result of national security or other constraints put upon these ports, may also have an adverse impact on our results of operations. Similarly, significant delays at one or more of the ports where our products are shipped or received has impacted, and could continue to impact, the amount of time required to ship our products to customers, which could materially adversely impact our business, demand for our product, our ability to meet quoted delivery dates, our results of operations, future operations, and/or financial condition.

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Additionally, we must comply with complex foreign and U.S. laws and regulations in a multitude of jurisdictions, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other foreign laws prohibiting corrupt payments to governmental officials, and anti-competition regulations. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, tariffs or duties, restrictions on our business conduct and on our ability to offer our products in one or more countries, and could also materially adversely affect our brand, 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 in foreign countries will not violate our policies.

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We depend onFinally, a significant portion of our manufacturing, production, and assembly operations are located in certain limited sources for our products.

We depend on our wholly-owned subsidiaries, HML, Ningbo Hurco Manufacturing Limited, Milltronics,geographic territories, including the People’s Republic of China (“China”) and LCM, to produce our machine tools and electro-mechanical components and accessories in Taiwan,the Republic of China the U.S. and Italy, respectively. We also depend on our 35% owned affiliate, HAL, and other key third party suppliers to produce our computer control systems and key components, such as motors and drives for our machine tools.(“Taiwan”). An unplanned interruption in manufacturing wouldor supply, or significant increase in price from third party suppliers, could have a material adverse effect on our business, results of operations, and financial condition. Such an interruption or increase in price could result from various factors, including a change in the political environment, such as trade wars or tariffs, a natural disaster, such as an earthquake, typhoon, or tsunami.tsunami, or vulnerabilities in our technology or cyber-attacks against our information systems, such as ransomware attacks. Also, any interruption in service by one of our key component suppliers, if prolonged, could have a material adverse effect on our business, results of operations and financial condition. Additionally, the geopolitical environment and ongoing sovereign relationship between China and Taiwan could have a material impact on our business. Specifically, if a trade war, tariff, physical or economical blockade, or war ensued and impacted access to or from the Taiwan or Chinese markets or workforce, we could have challenges maintaining production plans or output, accessing the skilled labor necessary to produce our products without interruption, accessing and/or shipping our finished goods, work in progress, or other inventories located in either of those territories, accessing or maintaining our supply base that is located in those territories or elsewhere, and/or otherwise experience significant disruptions in our business. Such disruptions, if prolonged, could have a material adverse effect on our business, results of operations, and financial condition. In such a case, we may be forced to relocate and/or shift production facilities to other geographic territories to mitigate the risks associated with consolidating our manufacturing operations in such territories, which would likely result in disruptions to our production plans and/or our ability to meet forecasted customer demand in the near term, all of which could have a material adverse effect on our business, financial results, future operations, and/or financial position.

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Fluctuations in the exchange rates between the U.S. Dollar and any of several foreign currencies can increase our costs and decrease our revenues.

Our sales to customers located outside of the U.S.,Americas, which generated approximately 71%63% of our revenues in fiscal 2017,2021, are invoiced and received in several foreign currencies, primarily the Euro, Pound Sterling and Chinese Yuan. Therefore, our results of operations and financial condition are affected by fluctuations in exchange rates between these currencies and the U.S. Dollar, both for purposes of actual conversion and for financial reporting purposes. In addition, we are exposed to exchange risk associated with our purchases of materials and components for our Taiwan manufacturing operations, which are primarily made in the New Taiwan Dollar and the Euro.  We hedge a portion of our foreign currency exposure with the purchase of forward exchange contracts. These hedge contracts only mitigate the impact of changes in foreign currency exchange rates that occur during the term of the related contract period and carry risks of counter-partycounterparty failure.  There can be no assurance that our hedges will have their intended effects.

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We compete with larger companies that have greater financial resources, and our business could be harmed by competitors’ actions.

The markets in which our products are sold are extremely competitive and highly fragmented. In marketing our products, we compete with other manufacturers in terms of quality, reliability, price, value, delivery time, service, and technological characteristics. We compete with a number of U.S., European, and Asian competitors, most of which are larger and have substantially greater financial resources and some of which have been supported by governmental or financial institution subsidies and, therefore, may have competitive advantages over us. Our financial resources are limited compared to those of most of our competitors, making it challenging to remain competitive.

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The United Kingdom's withdrawal from the European Union could have an adverse impact on our business, financial condition, operating results, and cash flows.

On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly referred to as “Brexit.” On or around that time, the U.K. and E.U. agreed to participate in a transition period (the “Transition Period”), which expired on December 31, 2020, to negotiate a trade agreement and other aspects of their relationship after the Transition Period. During the Transition Period, free trade continued between the U.K. and E.U. without checks or extra charges. Following the Transition Period, the U.K. is no longer a part of the single market and customs union of the E.U. However, immediately prior to expiration of the Transition Period, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues (the “December 2020 Brexit Deal”) – avoiding some of the anticipated disruption of a no-deal, “hard” Brexit.

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We have operations in the U.K. related to Hurco Europe Ltd. (“HEL”), our sales and service business unit located there. Changes resulting from Brexit,  the December 2020 Brexit Deal, and/or subsequent transition agreements or arrangements could subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold between the U.K. and the E.U., extra charges, and/or difficulty staffing. We have evaluated the impact of Brexit on us, our subsidiaries, including HEL, our business, and our future operations, operating results, and cash flows and it has not materially change our business to date.

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In addition, we do not know if the U.K. and E.U. will succeed in negotiating all material terms not otherwise addressed or covered by the December 2020 Brexit Deal or subsequent transition agreements or arrangements and/or if previously agreed upon items will be renegotiated in the future. Changes in these or other terms resulting from Brexit could, similarly, subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold between the U.K. and the E.U., extra charges, and/or difficulty staffing.

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Brexit may also cause fluctuations in the value of the Pound Sterling and the Euro. Fluctuations in exchange rates between the U.S. Dollar and foreign currencies may adversely affect our expenses, earnings, cash flows, results of operations, and revenues. Although we attempt to mitigate our exposure to some of our foreign currency exchange risks through hedging arrangements, our hedging arrangements may not target the potential impacts associated with fluctuations in currency resulting from Brexit or otherwise effectively offset the adverse financial impacts.

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Operational and Strategic Risks

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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, evolving industry standards, changing customer requirements, and improvements in and expansion of product offerings. Our ability to anticipate changes in technology, industry standards, customers’ requirements, and competitors’ product offerings, and to develop and introduce new and enhanced products on a timely basis that are accepted in the market, are significant factors in maintaining and improving our competitive position and growth prospects.prospects, and we may not be able to accomplish those actions on a timely basis or at all.  If the 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 others may render our products or technologies obsolete or noncompetitive.

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We compete with larger companies that have greater financial resources, and our business could be harmed by competitors’ actions.

The markets in which our products are sold are extremely competitive and highly fragmented. In marketing our products, we compete with other manufacturers in terms of quality, reliability, price, value, delivery time, service and technological characteristics. We compete with a number of U.S., European and Asian competitors, most of which are larger, have substantially greater financial resources and have been supported by governmental or financial institution subsidies and, therefore, may have competitive advantages over us. Our financial resources are limited compared to those of most of our competitors, making it challenging to remain competitive.

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Fluctuations in the price of raw materials, especially steel and iron, could adversely affect our sales, costs and profitability.

We manufacture products with a high iron and steel content. The availability and price 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, those cost increases can be passed on to customers in the form of price increases; in other cases they cannot. If the prices of raw materials increase and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected.

Regulations related to “conflict minerals” may cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.

The SEC requires disclosure by public companies of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. The rule requires a disclosure report to be filed annually with the SEC, and requires companies to perform due diligence and to disclose and report whether or not such minerals originate from the Democratic Republic of Congo or an adjoining country. The rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of components that are incorporated into our products, including tin, tantalum, gold and tungsten. The number of suppliers that provide conflict-free minerals may be limited. In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to the due diligence process of determining the source of certain minerals used in our products, as well as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. We may not be able to sufficiently verify the origins of the relevant minerals used in components manufactured by third parties through our due diligence procedures, which may harm our reputation. We may also encounter challenges to satisfy those customers that require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so.

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

The technology within our products evolves, and we periodically bring new versions of our machines to market. The phasing out of an old product involves estimating the amount of inventory required to satisfy the final demand for those machines and 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 future changes in technology, market demand or competition, we might have to write off unusable inventory, which would adversely affect our results of operations.

Acquisitions could disrupt our operations and harm our operating results.

We may seek opportunities to expand our product offerings or the markets we serve by acquiring other companies, product lines, technologies and personnel. Acquisitions involve numerous risks, including the following:

•difficulties integrating the operations, technologies, products, and personnel of an acquired company;
•diversion of management’s attention from normal daily operations of the business;
•potential difficulties completing projects associated with in-process research and development;
•difficulties entering markets in which we have no or limited prior experience, especially when competitors in such markets have stronger market positions;

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•initial dependence on unfamiliar supply chains or relatively small supply partners;
•insufficient revenues to offset increased expenses associated with acquisitions;
•the potential loss of key employees of the acquired companies; and
•potential for recording goodwill and intangible assets that later can be subject to impairment.

Acquisitions may also cause us to:

•issue common stock that would dilute our current shareholders’ percentage ownership;
•assume liabilities of an acquired company;
•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 acquisition and integration costs, immediate write-offs, and restructuring and other related expenses; and
•become subject to litigation.

Mergers and acquisitions are inherently risky. No assurance can be given that our acquisitions will be successful. Further, no assurance can be given that an acquisition will not adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate an acquisition could harm our business and operating results in a material way. Even when an acquired company has already developed and marketed products, there can be no assurance that enhancements to those products will be made in a timely manner or that pre-acquisition due diligence will identify all possible issues that might arise with respect to such products.

Risks related to new product development also apply to acquisitions. For additional information, please see the risk factor above entitled, “Due to future changes in technology, changes in market demand, or changes in market expectations, portions of our inventory may become obsolete or excessive.”

Assets may become impaired, requiring us to record a significant charge to earnings.

We review our assets, including intangible assets such as goodwill, for indications of impairment annually and when events or changes in circumstances indicate the carrying value may not be recoverable. We could be required to record a significant charge to earnings in our financial statements for the period in which any impairment of these assets is determined, which would adversely affect our results of operations for that period.

We may experience negative or unforeseen tax consequences.

We may experience negative or unforeseen tax consequences, which could materially adversely affect our results of operations.  We review the probability of the realization of our net deferred tax assets each period based on forecasts of taxable income in both the U.S. and foreign jurisdictions.  This review uses historical results, projected future operating results based upon approved business plans, eligible carryforward periods, tax-planning opportunities and other relevant considerations.  Adverse changes in the profitability and financial outlook in the U.S. or foreign jurisdictions may require the creation of a valuation allowance to reduce our net deferred tax assets.  Such changes could result in material non-cash expenses in the period in which the changes are made and could have a material adverse impact on our results of operations and financial condition. We also earn a significant amount of our operating income from outside the U.S., and any repatriation of funds representing earnings of foreign subsidiaries may significantly impact our effective tax rates. 

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change. Our effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing statutory taxes, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including tax laws in the U.S. Similarly, changes in tax laws or regulations, including those in the U.S., could negatively impact our effective tax rate and results of operations. A change in a statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit recorded in our Consolidated Statements of Income for that period.

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In December 2017, both houses of the U.S. Congress passed legislation that was approved and signed into law. This legislation could have a material benefit or material adverse impact on our effective tax rate, tax expense and cash flow. The Company is in the process of analyzing the potential aggregate impact the enactment of this passed legislation will have on our financial condition, cash flows and results of operations. Any benefits associated with lower U.S. corporate tax rates could be reduced or outweighed by other tax changes adverse to our business or operations, such as new or additional taxes imposed on earnings and/or reinvested earnings of our foreign subsidiaries. The aggregate impact of such legislation could have a material adverse impact on our cash flows and results of operations.

Our continued success depends on our ability to protect our intellectual property.

Our future success depends, in part, upon our ability to protect our intellectual property.  We rely principally on nondisclosure agreements, other contractual arrangements, trade secret law, trademark registration and patents to protect our intellectual property. However, these measures may be inadequate to protect our intellectual property from infringement by others or prevent misappropriation of our proprietary rights.  In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do U.S. laws. Our inability to protect our proprietary information and enforce our intellectual property rights through infringement proceedings could have a material adverse effect on our business, financial condition, and results of operations.

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We are also subject to claims that we may be infringing certain patent or other intellectual property rights of third parties. While it is not possible to predict the outcome of patent and other intellectual property litigation, such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, reduce the market value of our products and services, lower our profits, and could otherwise have an adverse effect on our business, financial condition, and results of operations.

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Finally, certain subcontractors, vendors, and third parties provide inputs, components, code, and/or similar items that are complimentary and compatible with our products, software, and controls. If we are unable to secure access and/or rights to any such inputs, components, code, or similar items, our ability to continue to produce our products without interruption could be challenged, which could materially and adversely impact our business, financial condition, results of operation, and demand for our products.

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Disruptions in our manufacturing operations or the supply of materials and components could adversely affect our business, results of operations and financial condition.  

We depend on our wholly owned subsidiaries, HML, NHML, Milltronics, and LCM, to produce our machine tools and electro-mechanical components and accessories in Taiwan, China, the U.S., and Italy, respectively.  We also depend on our 35% owned affiliate, HAL, and other key third-party suppliers to produce our computer control systems and key components, such as motors and drives, for our machine tools. An unplanned interruption in manufacturing or supply, or significant increase in price from third party suppliers, would have a material adverse effect on our business, results of operations, and financial condition. Such an interruption or increase in price could result from various factors, including a change in the political environment, such as trade wars or tariffs, a natural disaster, such as an earthquake, typhoon, or tsunami, or vulnerabilities in our technology or cyber-attacks against our information systems, such as ransomware attacks. Also, any interruption in service by one of our key component suppliers, if prolonged, could have a material adverse effect on our business, results of operations and financial condition.

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Fluctuations in the price of raw materials, especially steel and iron, could adversely affect our sales, costs and profitability.

We manufacture products with a high iron and steel content. The availability and price 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, anticipated or perceived shortages, and tariffs or other trade restrictions. In some cases, those cost increases can be passed on to customers in the form of price increases, in other cases, they cannot. If the prices of raw materials increase and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected.  Recent inflationary pressures and other factors have resulted in increases to the cost of the inputs or materials for our products. Similarly, recently, costs associated with transportation and freight services have increased significantly due limited capacity and/or availability of containers, shipping vessels, and/or receiving port services. If prolonged, and if they cannot be passed on to customers in the form of price increases, these fluctuations in the price of raw materials, product components, and/or transportation services could adversely affect our sales, costs, margin, and profitability.

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

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

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Acquisitions could disrupt our operations and harm our operating results.

We may seek additional opportunities to expand our product offerings or the markets we serve by acquiring other companies, product lines, technologies, and personnel. Acquisitions involve numerous risks, including the following:

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●difficulties integrating the operations, technologies, products, and personnel of an acquired company or being subjected to liability for the target’s pre-acquisition activities or operations as a successor in interest;
●diversion of management’s attention from normal daily operations of the business;
●potential difficulties completing projects associated with in-process research and development;

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●difficulties entering markets in which we have no or limited prior experience, especially when competitors in such markets have stronger market positions;
●initial dependence on unfamiliar supply chains or relatively small supply partners;
●insufficient revenues to offset increased expenses associated with acquisitions;
●the potential loss of key employees of the acquired companies; and
●the potential for recording goodwill and intangible assets that later can be subject to impairment.

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Acquisitions may also cause us to:

●issue common stock that would dilute our current shareholders’ percentage ownership;
●borrow and subject us to increasing interest rates;
●assume or otherwise be subject to liabilities of an acquired company;
●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 acquisition and integration costs, immediate write-offs, and restructuring and other related expenses; and
●become subject to litigation.

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For example, in the fourth quarter of fiscal 2020, we recorded a one-time $4.9 million non-cash impairment charge on goodwill arising from prior acquisitions.  The goodwill impairment charge was attributable primarily to the prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

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Mergers and acquisitions are inherently risky. No assurance can be given that our acquisitions will be successful. Further, no assurance can be given that an acquisition will not adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate an acquisition could harm our business and operating results in a material way. Even when an acquired company has already developed and marketed products, there can be no assurance that enhancements to those products will be made in a timely manner or that pre-acquisition due diligence will identify all possible issues that might arise with respect to such products or the acquired business.

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Risks related to new product development also apply to acquisitions. For additional information, please see the risk factor entitled, “Due to future changes in technology, changes in market demand, or changes in market expectations, portions of our inventory may become obsolete or excessive.”

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Failure to comply with data privacy and security laws and regulations could adversely affect our operating results and business.

A number of U.S. states have enacted data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of sensitive personal information, such as social security numbers, financial information and other personal information. For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individual victims, and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive personal data. Other state laws include the California Consumer Privacy Act (“CCPA”), which gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights. Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA. The CPRA also creates a new California data protection agency authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security enforcement. Other states have considered and/or enacted similar privacy laws. We will continue to monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.

Outside of the U.S., data protection laws, including the U.K. and E.U. General Data Protection Regulation (the “GDPR”), also apply to some of our operations. Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue under the E.U. GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K. GDPR). Other governmental authorities around the world are considering and, in some cases, have enacted, similar privacy and data security laws.

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The interpretation and enforcement of the laws and regulations described above are uncertain and subject to change, and may require substantial costs to monitor and implement compliance with any additional requirements. Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business.

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If our network and system security measures are breached and unauthorized access is obtained to our data, to our employees’, customers’ or vendors’ data, or to our critical information technology systems, we may incur legal and financial exposure and liabilities.

As part of our business, we store our data and certain data about our employees, customers and vendors in our information technology systems. If a third party gained unauthorized access to our data, including any data regarding our employees, customers or vendors, the security breach could expose us to risks, including loss of business, litigation and possible liability. Our security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise. Additionally, thirdThird parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names,usernames, passwords or other information to gain access to our customers' data or our data, including our intellectual property and other confidential business information, or our information technology systems. In addition, given their size and complexity, our information systems could be vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors and/or business partners, or from cyber-attacks by malicious third parties attempting to gain unauthorized access to our products, systems or confidential information.

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Like other public, multi-national corporations, we have and/or will continue to be subject to, instances of phishing attacks on our email systems, other cyber-attacks, including state-sponsored cyber-attacks, industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and other malware, wire fraud or other cyber incidents.

Although we work closely with industry recognized manufacturers supporting the security measures we have employed in an effort to keep our technology current with the ongoing threats, the techniques used to obtain unauthorized access, or to sabotage systems, change frequently,are becoming more sophisticated, frequent and adaptive, and therefore we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in: the unauthorized publication of our confidential business or proprietary information; the unauthorized release of employee, customer or vendor data and payment information; a loss of confidence by our customers; damage to our reputation; a disruption to our business; litigation and legal liability; and a negative impact on our future sales.  In addition, the cost and operational consequences of implementing further data protection or data restoration measures could be significant.

​

18

Financial, Credit, and Liquidity Risks

​

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

The technology within our products evolves, and we periodically bring new versions of our machines to market. The phasing out of an old product involves estimating the amount of inventory required to satisfy the final demand for those machines and 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 future changes in technology, market demand or competition, we might have to write off unusable inventory, which would adversely affect our results of operations.

​

29

​

Item 1B.Unresolved Staff Comments

None.

Item 2.PROPERTIES

Assets have become, and may become further, impaired, requiring us to record a significant charge to earnings.  

We review our assets, including intangible assets, for indications of impairment annually and when events or changes in circumstances indicate the carrying value may not be recoverable.  We could be required to record a significant charge to earnings in our financial statements for the period in which any impairment of these assets is determined, which would adversely affect our results of operations for that period.  In the fourth quarter of fiscal 2020, we recorded a one-time $4.9 million non-cash goodwill impairment charge arising from prior acquisitions, and we may be required to record impairment charges on other assets in the future.

​

We may experience negative or unforeseen tax consequences.

We may experience negative or unforeseen tax consequences, which could materially adversely affect our results of operations.  We review the probability of the realization of our net deferred tax assets each period based on forecasts of taxable income in both the U.S. and foreign jurisdictions.  This review uses historical results, projected future operating results based upon approved business plans, eligible carryforward periods, tax-planning opportunities and other relevant considerations.  Adverse changes in our profitability and financial outlook in the U.S. or foreign jurisdictions may require the creation of a valuation allowance to reduce our net deferred tax assets.  Such changes could result in material non-cash expenses in the period in which the changes are made and could have a material adverse impact on our results of operations and financial condition. We also earn a significant amount of our operating income from outside the U.S., and any repatriation of funds representing earnings of foreign subsidiaries may significantly impact our effective tax rates. 

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change. Our effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including tax laws in the U.S. Similarly, changes in tax laws or regulations, including those in the U.S., could negatively impact our effective tax rate and results of operations. A change in a statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit recorded in our Consolidated Statements of Income for that period.

In December 2017, the U.S. passed the Tax Cuts and Jobs Act. The Company has evaluated and recorded the aggregate impact of this passed legislation on our financial condition, cash flows and results of operations. Any benefits associated with lower U.S. corporate tax rates could be reduced or outweighed by other tax changes adverse to our business or operations, such as new or additional taxes imposed on earnings and/or reinvested earnings of our foreign subsidiaries. The aggregate impact of such legislation, including adverse future regulatory guidance, could have a material adverse impact on our cash flows and results of operations.

​

Other changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increase in our tax expense. For example, changes in the tax laws of foreign jurisdictions could arise as a result of the “base erosion and profit shifting” project undertaken by the Organisation for Economic Co-operation and Development (“OECD”). The OECD, which represents a coalition of member countries, has recommended changes to numerous long-standing tax principles. These changes, as adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

​

​

​

30

​

Item 1B.UNRESOLVED STAFF COMMENTS

None.

​

​

Item 2.PROPERTIES

The following table sets forth the principal use, location, and size of each of our facilities:

​

Principal Uses

​

​

Locations

​

​

Square Footage

​

Principal Uses

​

Locations

​

Square Footage

Corporate headquarters, design and engineering, product testing, sales and marketing, application engineering, customer service, manufacturing and assembly

Indianapolis, Indiana, U.S.(1)

165,000

​

Manufacturing, assembly, sales, application engineering and customer service

Taichung, Taiwan

455,200

408,900

​

Waconia, Minnesota, U.S.

97,700

61,000

​

Castell’Alfero, Italy

32,300

​

Manufacturing

Ningbo, China

31,000

​

Sales, application engineering, and customer service, and warehousing

High Wycombe, England

16,000

26,300

​

Benoni, South Africa

Paris, France

3,200

12,800

​

Paris, France9,700

Munich and Verl, Germany

20,100

22,400

​

Milan, Italy

13,800

12,900

​

Venlo, the Netherlands

9,700

​

Toh Guan, Singapore

3,900

​

Shanghai, Dongguan, Qingdao and Kunshan, and Beijing, China

13,300

24,200

​

Chennai Delhi, Coimbatore, and Pune, India

12,800

15,000

​

Liegnitz, Poland

2,900

1,000

​

Grand Rapids, Michigan, U.S.

3,700

​

Los Angeles, California, U.S.

11,400

​

​

​

​

(1)Approximately 4,200 square feet is leased to third-parties under leases that will expire April 30, 2018.

We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various dates ranging from January 20182022 to March 2024.November 2029. We believe that all of our facilities are well maintained and are adequate for our needs now and in the foreseeable future. We do not believe that we would experience anysignificant difficulty in replacing any of the presentcurrently leased facilities if any of our leases were not renewed at expiration.

​

19

31

​

Item 3.Item 3.LEGAL PROCEEDINGSLEGAL PROCEEDINGS

From time to time, we are involved in various claims and lawsuits arising in the normal course of business.  Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim when the estimated outcome is a range of possible loss and no one amount within that range is more likely than another.  We maintain insurance policies for such matters, and we record insurance recoveries when we determine such recovery to be probable.  We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations.  We believe that the ultimate resolution of claims for any losses will not exceed our insurance policy coverages.

Item 4.MINE SAFETY DISCLOSURES

​

None.​

Item 4.MINE SAFETY DISCLOSURES

None.

Information about our Executive Officers of the Registrant

Executive officers are appointed each year by the Board of Directors following the Annual Meeting of Shareholders to serve during the ensuing year and until their respective successors are elected and qualified. There are no family relationships between any of our executive officers or between any of them and any of the members of the Board of Directors.

The following information sets forth as of October 31, 2017,2021, the name of each executive officer and his or her age, tenure as an officer, principal occupation and business experience:

Name

​

​

Age

​

​

​

Name

Age

Position(s) with the Company

Michael Doar

​

62

66

​

Executive Chairman of the Board

Gregory S. Volovic

​

57

​

Director, President and Chief Executive Officer

Gregory S. Volovic53President

Sonja K. McClelland

​

46

50

​

Executive Vice President, Secretary, Treasurer and Chief Financial Officer

HaiQuynh Jamison

​

43

​

Corporate Controller and Principal Accounting Officer

Jonathon D. Wright

​

39

​

General Counsel and Corporate Secretary

​

Michael Doar has been employed by us since November 2001 and has been a member of our Board of Directors since 2000. Mr. Doar was electedappointed as Executive Chairman of the Board in March 2021 and previously served as our Chairman of the Board and Chief Executive Officer onfrom November 14, 2001.2001 to March 2021. Mr. Doar had held various management positions with Ingersoll Milling Machine Company from 1989 until 2001. Mr. Doar has been a director of Hurco since 2000.

Gregory S. Volovic has been employed by us since March 2005 and has been a member of our Board of Directors since 2019.  Mr. Volovic was electedappointed as our President in March 2013.2013, and he served as our Chief Operating Officer from March 2019 until he was appointed as our Chief Executive Officer in March 2021.  Prior to becoming President in 2013, Mr. Volovic previously held the position ofvarious positions within our company including Vice President Software & Controls, Executive Vice President SoftwareEngineering & Technology, and Executive Vice President Engineering until October 2009.& Manufacturing Operations. Prior to joining us, Mr. Volovic held various positions with Thomson, Inc. including Director of E-Business, Engineering and Information Technology.  Prior to that,Thomson, Mr. Volovic was employed by Unisys Corporation.

​

32

​

Sonja K. McClelland has been employed by us since September 1996 and was electedappointed as Executive Vice President, Secretary, Treasurer and Chief Financial Officer in 2014, then as Executive Vice President in March 2014.2017.  She also served as our Corporate Secretary from 2014 until March 2021.  Ms. McClelland servedhas been an executive officer of our company since 2004 when she was appointed as CorporatePrincipal Accounting Manager from September 1996 to 1999, as Division Controller for Hurco USA from September 1999 to November 2004, and as ourOfficer, Corporate Controller and Assistant Secretary from November 2004 to March 2014.Secretary.  Ms. McClelland has held various finance and accounting roles with us between 1996 and 2004.   Prior to joining us, Ms. McClelland was employed for three years by anArthur Andersen LLP.

​

HaiQuynh Jamison has been employed by us since March 2006 and was appointed as Corporate Controller and Principal Accounting Officer in March 2021. Prior to her appointment as Corporate Controller, Ms. Jamison served as the Director of Financial Reporting and Policy from 2014 to 2021 and as Corporate Accounting Manager then Division Controller from 2006 to 2014.  Prior to joining us, Ms. Jamison was employed by various international public accounting firm.firms, including Ernst & Young Global Limited and PricewaterhouseCoopers International Limited.

20

​

Jonathon D. Wright has been employed by us since September 2016, was appointed as Corporate Secretary in March 2021, and has served as our General Counsel since 2016.  Prior to joining us, Mr. Wright served as an attorney for Dentons Bingham Greenebaum LLP, specializing in corporate law, mergers and acquisitions, capital formation, and complex commercial transactions.

​

​

PART II

Item 5.Item 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”. The following table sets forth, for the periods indicated, the high and low sale prices as reported by the Nasdaq Global Select Market and declared dividends per share of our common stock.

Fiscal 2017  Declared  2016  Declared 
Quarter Ended: High  Low  Dividends  High  Low  Dividends 
January 31 $34.55  $24.80  $.09  $28.47  $23.90  $.08 
April 30 $32.25  $26.25  $.10  $33.40  $23.25  $.09 
July 31 $35.83  $27.74  $.10  $33.65  $26.57  $.09 
October 31 $46.75  $32.78  $.10  $30.42  $25.45  $.09 

Holders

On December 18, 2017, the closing price of our common stock on the Nasdaq Global Select Market was $42.15.

Holders

There were 107104 holders of record of our common stock as of December 18, 2017.31, 2021.

Dividend Policy

We began declaring cash dividends on our common stock in the third quarter of fiscal 2013, and we expect to continue to declare dividends on a quarterly basis; however, the declaration and amount of any future cash dividends will be subject to the sole discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed relevant by our Board of Directors.Directors from time to time.

Our payment of dividends is limited by our U.S. credit agreement, as further described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 45 of Notes to Consolidated Financial Statements.

33

​

Other Information

During the period covered by this report, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

The disclosure under the caption “Equity Compensation Plan Information at 20172021 Fiscal Year End” in our 20182022 proxy statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The performance graph information is included in Item 9B. Other Information.

21

Item 6.SELECTED FINANCIAL DATA

​

​

Item 6.SELECTED FINANCIAL DATA

The Selected Financial Data presented below has been derived from our consolidated financial statements for the fiscal years indicated and should be read in conjunction with the consolidated financial statements and related notes set forth elsewhere herein and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

    

2021

    

2020

​

2019

    

2018

    

2017

 Year Ended October 31, 
 2017  2016  2015  2014  2013 

​

 

(In thousands, except per share amounts)

Statement of Operations Data: (In thousands, except per share amounts) 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

           
Sales and service fees $243,667  $227,289  $219,383  $222,303  $192,804 

​

$

235,195

​

$

170,627

​

$

263,377

​

$

300,671

​

$

243,667

Gross profit  70,564   70,440   69,091   68,612   55,056 

​

 

56,249

​

 

36,457

​

 

77,208

​

 

91,806

​

 

70,564

Selling, general and administrative expenses  49,661   50,824   45,287   46,615   41,413 

​

 

46,001

​

 

41,416

​

 

54,668

​

 

58,010

​

 

49,661

Goodwill impairment

​

​

—

​

​

4,903

​

​

—

​

​

—

​

​

—

Operating income (loss)  20,903   19,616   23,804   21,997   13,643 

​

 

10,248

​

 

(9,862)

​

 

22,540

​

 

33,796

​

 

20,903

Other income (expense)  (187)  (731)  (251)  (636)  (1,201)

​

 

(127)

​

 

941

​

 

784

​

 

(1,300)

​

 

(187)

Net income (loss)  15,115   13,292   16,214   15,143   8,190 

​

 

6,764

​

 

(6,247)

​

 

17,495

​

 

21,490

​

 

15,115

Earnings (loss) per common share - diluted $2.25  $1.99  $2.44  $2.30  $1.25 

​

$

1.01

​

$

(0.93)

​

$

2.55

​

$

3.15

​

$

2.25

Weighted average common shares outstanding-diluted  6,680   6,642   6,602   6,538   6,497 

​

 

6,608

​

 

6,670

​

 

6,815

​

 

6,771

​

 

6,680

Dividends declared per common share $0.39  $0.35  $0.31  $0.26  $0.10 

​

$

0.55

​

$

0.51

​

$

0.47

​

$

0.43

​

$

0.39

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

As of October 31, 

​

    

2021

    

2020

    

2019

    

2018

​

2017

 As of October 31, 
 2017  2016  2015  2014  2013 

​

 

(Dollars in thousands)

Balance Sheet Data: (Dollars in thousands) 

​

​

  

​

​

  

​

​

  

​

​

  

​

    

  

           
Current assets $246,415  $218,381  $216,112  $208,691  $182,921 

​

$

289,870

​

$

251,411

​

$

261,861

​

$

281,435

​

$

246,415

Current liabilities  70,899   57,968   65,086   66,803   55,686 

​

​

81,170

​

​

50,437

​

​

54,632

​

​

86,803

​

​

70,889

Working capital  175,526   160,413   151,026   141,888   127,235 

​

$

208,700

​

$

200,974

​

$

207,229

​

$

194,632

​

$

175,526

Current ratio  3.5   3.8   3.3   3.1   3.3 

​

 

3.6

​

 

5.0

​

 

4.8

​

 

3.2

​

 

3.5

Total assets  281,645   251,949   248,577   239,176   212,804 

​

$

332,935

​

$

295,655

​

$

301,065

​

$

315,407

​

$

277,808

Non-current liabilities  7,671   8,506   8,923   7,728   5,627 

​

​

13,346

​

​

14,070

​

​

6,188

​

​

5,751

​

​

3,834

Total debt  1,507   1,476   1,583   3,272   3,665 

​

​

—

​

 

—

​

 

—

​

 

1,434

​

 

1,507

Shareholders’ equity  203,085   185,475   174,568   164,645   151,491 

​

​

238,419

​

 

231,148

​

 

240,245

​

 

222,853

​

 

203,085

​

22

​

34

​

Item 7.Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Hurco Companies, Inc. is an international, industrial technology company operating in a single segment.  We design, manufacture and sell computerized (i.e., Computer Numeric Control, or CNC) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network.  Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.  Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.  We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training and trainingapplications support.

​

The following overview is intended to provide a brief explanation of the principal factors that have contributed to our recent financial performance.  This overview is intended to be read in conjunction with the more detailed information included in our financial statements that appear elsewhere in this report.

​

The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations.  During fiscal 2017,2021, approximately 55%50% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines.  Additionally, approximately 14%13% of our revenues were attributable to customers in the Asia Pacific region, where we sell more of our entry-level, lower-priced machines, but where we also encounter greater pricepricing pressures.

​

We have three brands of CNC machine tools in our product portfolio:portfolio.  Hurco is the premiumtechnology innovation brand focused on sophisticated technology;for customers who want to increase productivity and profitability by selecting a brand with the latest software and motion technology.  Milltronics is the entry-levelvalue-based brand with a simplified controlfor shops that want easy-to-use machines at competitive prices.  The Takumi brand is for customers that need very high speed, high efficiency performance, such as that required in the production, die and straightforward feature sets;mold, aerospace, and medical industries.  Takumi is an industry-standard brand with machines that are equipped with industry-standardindustry standard controls instead of the proprietary controls found on Hurco and Milltronics machines.  Typically, manufacturing facilities that use industry standard controls focus on mediumThese three brands of CNC machine tools are responsible for the vast majority of our revenue.  However, we have added other non-Hurco branded products to high production, wherein they run large batches of a few types of parts instead of small batches of many different types of parts. The Hurco, Milltronics and Takumi product lines represent a comprehensiveour product portfolio that have contributed product diversity and market penetration opportunity.  These non-Hurco branded products are sold by our wholly-owned distributors and are comprised primarily of more than 150 different models.other general-purpose vertical milling centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machines, metal cutting saws and CNC swill lathes. ProCobots is our wholly-owned subsidiary that provides automation solutions. In addition, through our wholly–ownedwholly-owned subsidiary LCM, Precision Technology S.r.l. (“LCM”), we produce high value machine tool components and accessories.

​

35

​

We principally sell our products through more than 193180 independent agents and distributors throughout North and South America (the Americas),the Americas, Europe, and Asia. Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally. We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world's principal machine tool consuming markets. The vast majority of our machine tools are manufactured to our specifications primarily by our wholly-owned subsidiary in Taiwan, Hurco Manufacturing Ltd. (“HML”).HML. Machine castings and components to support HML’s production are manufactured at our wholly-owned subsidiary in Ningbo, China, Ningbo Machine Tool Co., Ltd.NHML. Components to support our SRT line of five-axis machining centers, such as the direct drive spindle, swivel head, and rotary table, are manufactured by our wholly-owned subsidiary in Italy, LCM.

​

Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies in the countries in which those customers are located (primarily the Euro, Pound Sterling, and Chinese Yuan). Our product costs are incurred and paid primarily in the New Taiwan Dollar and the U.SU.S. Dollar.  Changes in currency exchange rates may have a material effect on our operating results and consolidated financial statements as reported under U.S. Generally Accepted Accounting Principles.  For example, when the U.S. Dollar weakens in value relative to a foreign currency, sales made, and expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements, are higher than would be the case when the U.S. Dollar is stronger.  In the comparison of our period-to-period results, we discuss the effect of currency translation on those results, which reflect translation to U.S. Dollars at exchange rates prevailing during the period covered by those financial statements.

23

​

Our high levels of foreign manufacturing and sales also expose us to cash flow risks due to fluctuating currency exchange rates.  We seek to mitigate those risks through the use of various derivative instruments – principally foreign currency forward exchange contracts.

​

We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in many different countries. The COVID-19 pandemic has not had as a significant impact on our business and industry during fiscal 2021 as it did in fiscal 2020. Beginning in early 2020, governmental authorities in many of the major global machine tool markets implemented mandatory stay-at-home or shelter orders requiring most businesses to close or to significantly limit operations, resulting in a sudden decrease in demand for many goods and services. Although the mandatory stay-at-home or shelter orders in many jurisdictions permitted our local operations to continue as an essential business or a supplier to critical infrastructure industries or otherwise with remote work capabilities, many of our customers experienced, and continue to experience, significant disruptions in their business operations and normal purchasing cycles. We cannot predict the duration or scope of impact of the COVID-19 pandemic and the negative financial impact to our results cannot be reasonably estimated, but we believe the impact has been material thus far with regard to revenues, income from operations, and cash flow from operations and could continue to be material in the near future. To date, we have experienced some delays in our supply chain and have not completely ceased operations at any of our global facilities, but have implemented remote working capabilities, as appropriate or otherwise required under local law. We have also implemented adjustments in headcount and discretionary spending, delayed capital expenditures, and monitored production activities closely in an effort to weather the adverse business climate. We have also received stimulus in various countries to support operations and implemented tax deferrals and provisions that were available to us. More recently, we have begun to see inflationary pressures and input cost increases imposed in our supply chains on components for our products. We have also seen capacity for transportation and freight services limited significantly by container or vessel availability and delays at departing and receiving ports, all of which have contributed to significantly increased costs and prices associated with the global shipment of our products.

36

​

We will continue to evaluate and disclose any trends and uncertainties that have had or are reasonably expected to have, a material effect on our consolidated financial position, results of operations, changes in shareholders’ equity and cash flows for and at the end of each interim period.

​

Results of Operations

The following table presents, for the fiscal years indicated, selected items from the Consolidated Statements of IncomeOperations expressed as a percentage of our worldwide sales and service fees and the year-to-year percentage changes in the dollar amounts of those items.

​

 Percentage of Revenues  Year-to-Year % Change 
 2017  2016  2015  Increase/Decrease 
          ’17 vs. ’16  ’16 vs. ’15 

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Percentage of Revenues

    

Year-to-Year % Change

 

​

    

2021

    

2020

    

2019

    

Increase/Decrease

 

​

​

​

​

​

​

​

​

’21 vs. ’20

​

’20 vs. ’19

 

Sales and service fees  100%  100%  100%  7%  4%

​

100

%  

100

%  

100

%  

38

%  

(35)

%

Gross profit  29%  31%  31%  0%  2%

​

24

%  

21

%  

29

%  

54

%  

(53)

%

Selling, general and administrative expenses  20%  22%  21%  -2%  12%

​

20

%  

24

%  

21

%  

11

%  

(24)

%

Goodwill impairment

​

—

​

3

%  

—

​

(100)

%  

100

%

Operating income (loss)  9%  9%  11%  7%  -18%

​

4

%  

(6)

%  

9

%  

204

%  

(144)

%

Net income (loss)  6%  6%  7%  14%  -18%

​

3

%  

(4)

%  

7

%  

208

%  

(136)

%

​

Fiscal 20172021 Compared to Fiscal 20162020

Sales and Service Fees.Sales and service fees for fiscal 20172021 were $243.7$235.2 million, an increase of $16.4$64.6 million, or 7%38%, compared to fiscal 20162020, and included a negativefavorable currency impact of $1.3$7.7 million, or 1%5%, when translating foreign sales to U.S. dollarsDollars for financial reporting purposes. During fiscal 2021, sales increased year-over-year for all product brands and in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions put in place in fiscal 2020.

​

Net Sales and Service Fees by Geographic Region

​

The following table sets forth net sales and service fees by geographic region for the fiscal years ended October 31, 20172021 and 2016 (in2020 (dollars in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

 

​

​

Fiscal Year Ended October 31, 

​

Increase/Decrease

​

​

​

2021

    

2020

    

Amount

    

%

 

Americas

​

$

86,301

    

37

%  

$

67,498

    

39

%  

$

18,803

 

28

%

Europe

​

 

117,522

 

50

%  

 

77,936

 

46

%  

 

39,586

 

51

%

Asia Pacific

​

 

31,372

 

13

%  

 

25,193

 

15

%  

 

6,179

 

25

%

Total

​

$

235,195

 

100

%  

$

170,627

 

100

%  

$

64,568

 

38

%

​

  Fiscal Year Ended October 31,  Increase/Decrease 
  2017  2016  Amount  % 
Americas $75,540   31% $74,386   33% $1,154   2%
Europe  133,671   55%  124,070   54%  9,601   8%
Asia Pacific  34,456   14%  28,833   13%  5,623   20%
Total $243,667   100% $227,289   100% $16,378   7%

Sales in the Americas for fiscal 20172021 increased by 2%28%, compared to fiscal 2016 and reflected improved U.S. market conditions and demand from customers2020. The increase in sales in the Americas for all product lines (Hurco,fiscal 2021 was primarily due to an increased volume of shipments of Hurco, Takumi and Milltronics)Milltronics machines, and an increase in all regionssales of the country where our customers are located. ProCobots automation solutions. The improved sales volume of machines primarily reflected increased shipments of Hurco lathes, VM and VMX machines, as well as Milltronics lathes and toolroom machines.

​

37

​

European sales for fiscal 20172021 increased by 8%51%, compared to fiscal 2016,2020, and included a negativefavorable currency impact of 1%8%, when translating foreign sales to U.S. dollarsDollars for financial reporting purposes. Excluding the negative impact of currency, theThe year-over-year increase in European sales for fiscal 2017 was driven primarily byattributable to an increased salesvolume of Hurco machines in the United Kingdom and Germany. Asian Pacific sales for fiscal 2017 increased by 20%, compared to fiscal 2016, primarily due to increased salesshipments of Hurco and Takumi machines in all Asian Pacific countries whereGermany, the United Kingdom, France and Italy, as well as increased shipments of machine tool components and accessories manufactured by our customers are located, with China contributing the largest increase. wholly owned subsidiary, LCM. The improved sales volume of machines was primarily attributable to increased shipments of Hurco Lathes, VM and VMX machines.

​

Asian Pacific sales for fiscal 20172021 increased by 25%, compared to fiscal 2020, and included a favorable currency impact 1%of 6%, when translating foreign sales to U.S. dollarsDollars for financial reporting purposes. The year-over-year increase in Asian Pacific sales for fiscal 2021 was primarily due to increased volume of shipments of Hurco machines in Southeast Asia and China and Takumi machines in Taiwan.

​

24

Net Sales and Service Fees by Product Category

​

The following table sets forth net sales and service fees by product group and services for the fiscal years ended October 31, 20172021 and 2016 (in2020 (dollars in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

 

​

​

Fiscal Year Ended October 31, 

​

Increase/Decrease

​

​

​

2021

    

2020

    

Amount

    

%

 

Computerized Machine Tools

​

$

198,602

    

85

%  

$

139,577

    

82

%  

$

59,025

 

42

%

Computer Control Systems and Software †

​

 

2,528

 

1

%  

 

1,699

 

1

%  

 

829

 

49

%

Service Parts

​

 

26,425

 

11

%  

 

22,484

 

13

%  

 

3,941

 

18

%

Service Fees

​

 

7,640

 

3

%  

 

6,867

 

4

%  

 

773

 

11

%

Total

​

$

235,195

 

100

%  

$

170,627

 

100

%  

$

64,568

 

38

%

† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.

  Fiscal Year Ended October 31,  Increase/Decrease 
  2017  2016  Amount  % 
Computerized Machine Tools $209,311   86% $195,618   86% $13,693   7%

Computer Control Systems and Software†

  2,324   1%  2,078   1%  246   12%
Service Parts  24,255   10%  21,908   10%  2,347   11%
Service Fees  7,777   3%�� 7,685   3%  92   1%
Total $243,667   100% $227,289   100% $16,378   7%

†Amounts shown do not include computer control systems and software sold as an integrated component of computerizedmachine systems.

Sales of computerized machine tools and computer control systems and software for fiscal 20172021 increased by 7%42% and 12%49%, respectively, compared to fiscal 2016, driven primarily by an increase in2020, and each included a favorable currency impact of 5%, when translating foreign sales volume of Hurco machines in Europe, particularly the United Kingdom and Germany.to U.S. Dollars for financial reporting purposes.  Sales of service parts and service fees for fiscal 2017 increased by 11%18% and 1%11%, respectively, during fiscal 2021, compared to fiscal 2016, due primarily2020, and each included a favorable currency impact of 5%.   During fiscal 2021, sales increased year-over-year for all product categories as countries began to an increaselift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions put in aftermarket sales of Hurco componentsplace in Germany.fiscal 2020.

​

Orders and Backlog. Orders for fiscal 20172021 were $260.6$265.4 million, an increase of $41.4$98.5 million, or 19%59%, compared to fiscal 2016,2020, and included a negativefavorable currency impact of $2.6$8.4 million, or 1%5%, when translating foreign orders to U.S. dollars.Dollars. Similar to sales, orders increased year-over-year for all product brands and in all regions.

​

38

​

The following table sets forth new orders booked by geographic region for the fiscal years ended 2017October 31, 2021 and 20162020 (dollars in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

​

​

 

​

​

Fiscal Year Ended October 31, 

​

Increase/Decrease

​

​

​

2021

    

2020

    

Amount

    

%

 

Americas

​

$

95,767

    

36

%  

$

67,577

    

41

%  

$

28,190

 

42

%

Europe

​

 

133,802

 

50

%  

 

77,079

 

46

%  

 

56,723

 

74

%

Asia Pacific

​

 

35,852

 

14

%  

 

22,282

 

13

%  

 

13,570

 

61

%

Total

​

$

265,421

 

100

%  

$

166,938

 

100

%  

$

98,483

 

59

%

​

  Fiscal Year Ended October 31,  Increase/Decrease 
  2017  2016  Amount  % 
Americas $85,070   33% $70,944   32% $14,126   20%
Europe  137,622   53%  121,519   56%  16,103   13%
Asia Pacific  37,917   14%  26,759   12%  11,158   42%
Total $260,609   100% $219,222   100% $41,387   19%

Orders in the Americas for fiscal 20172021 increased by 20%42%, compared to fiscal 2016 and2020. The increased order level reflected improved U.S. market conditions anda higher demand from customers for all product lines (Hurco,categories of Hurco, Takumi, and Milltronics) and in all regions of the country where our customers are located. Milltronics machines as well as increased demand for ProCobots automation solutions.

​

European orders for fiscal 20172021 increased by 13%74%, compared to fiscal 2016, driven primarily by increased demand for Hurco2020, and Takumi vertical milling machines in Germany, the United Kingdom, and Italy. European orders for fiscal 2017 included a negativefavorable currency impact of 2%9%, when translating foreign orders to U.S. dollars. Asian PacificDollars. The year-over-year increase in orders for fiscal 2017 increased by 42%, compared to fiscal 2016,was driven primarily by increased customer demand for Hurco and Takumi machines in all Asian Pacific countries where our customers are located, with China contributingGermany, the largest increase. United Kingdom, France, and Italy, as well as increased demand for LCM machine tool components and accessories.

​

Asian Pacific orders for fiscal 20172021 increased by 61%, compared to fiscal 2020, and included a favorable currency impact of 1%8%, when translating foreign orders to U.S. dollars.Dollars. The year-over-year increase in Asian Pacific orders for fiscal 2021 was primarily due to increased customer demand for Hurco vertical milling machines in Southeast Asia, China and India, as well as increased customer demand for Takumi machines in Taiwan.

​

Backlog at October 31, 20172021 increased to $52.0$60.0 million compared to $32.3from $29.9 million at October 31, 20162020, primarily due to an increase inincreased customer ordersdemand during fiscal 2017.2021 for all product brands and in all regions. We do not believe backlog is a useful measure of past performance or indicative of future performance. Backlog orders as of October 31, 20172021 are expected to be fulfilled in fiscal 2018.2022.

​

25

Gross Profit. Gross profit for fiscal 20172021 was $70.6$56.2 million, or 29%24% of sales, compared to $70.4$36.5 million, or 31%21% of sales, for fiscal 2016.2020. The decreaseyear-over-year increase in gross profit as a percentage of sales for fiscal 2017 primarily2021 reflected improved leverage of fixed overhead costs through higher levels of machine sales, improved pricing due to changes in demand and more normalized inventory levels, and the negativefavorable impact of foreign currency translation compared fiscal 2020. Additionally, approximately $1.2 million of the gross profit improvement for fiscal 2021 was a result of recording the employee retention credit extended to fiscal 2016, and a sales mix comprised of more entry-level machines, such as thoseHurco under the MilltronicsEconomic Aid to Hard-Hit Small Businesses, Nonprofits, and Takumi brands,Venues Act and the American Rescue Plan Act of 2021 (the “employee retention credit”). The improvement in price competitive geographic regions, suchgross profit as the Americasa percentage of sales in fiscal 2021 was partially offset by inflationary increases in cost of materials and Asia Pacific.higher costs associated with transporting finished goods on a global basis.

​

39

​

Operating Expenses. Selling, general, and administrative expenses for fiscal 20172021 were $49.7$46.0 million, or 20% of sales, compared to $50.8$41.4 million, or 22%24% of sales, for fiscal 2020, and included an unfavorable currency impact of $1.2 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes. Selling, general and administrative expenses for fiscal 2021 trended downward as a percentage of sales from fiscal 2020 as a result of the cost management plans implemented during fiscal 2020 and continued during fiscal 2021. Additionally, approximately $1.7 million of the selling, general, and administrative expense reduction for fiscal 2021 was a result of recording the employee retention credit.

​

Operating Income (Loss). Operating income for fiscal 2021 was $10.2 million, or 4% of sales, compared to an operating loss of $9.9 million, or (6%) of sales, for fiscal 2020. The year-over-year increase in operating income for fiscal 2021 was primarily due to an increase in the sales volume of Hurco, Takumi and Milltronics machines, LCM components and accessories and ProCobots automation solutions. Operating income for fiscal 2021 included a benefit of $2.9 million related to the employee retention credit recorded during fiscal 2021. The operating loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

​

Other Expense, Net. Other expense, net for fiscal 2021 decreased by $0.8 million from fiscal 2020, due mainly to a reduction in foreign currency exchange losses in fiscal 2016,2021, compared to fiscal 2020.

Provision for Income Taxes. We recorded an income tax expense of $3.4 million for fiscal 2021, compared to income tax benefit of $4.6 million for fiscal 2020.  Our effective tax rate for fiscal 2021 was 33%, compared to 42% for fiscal 2020. The year-over-year change in the effective tax rate was primarily due to changes in geographic mix of income and loss that included jurisdictions with differing tax rates, various discrete income tax expense items, and more specifically related to fiscal 2020, changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.

​

Net Income (Loss). Net income for fiscal 2021 was $6.8 million, or $1.01 per diluted share, an increase of $13.0 million from the fiscal 2020 net loss of $6.2 million, or $(0.93)  per diluted share. The year-over-year increase from net loss to net income was primarily due to increased sales volume for all product brands and in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions put in place in fiscal 2020.  The net loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

​

Fiscal 2020 Compared to Fiscal 2019

Sales and Service Fees. Sales and service fees for fiscal 2020 were $170.6 million, a decrease of $92.8 million, or 35%, compared to fiscal 2019, and included a favorable currency impact of $0.2 million when translating foreign expenses to U.S. dollars for financial reporting purposes.

Operating Income. Operating income for fiscal 2017 was $20.9$0.6 million, or 9% of sales, compared to $19.6 million, or 9% of sales, in fiscal 2016. The year-over-year increase in operating income was primarily attributable to a reduction in operating expenses associated with trade show expenses for the International Manufacturing Technology Show (“IMTS”) held in September 2016.

Other Expense, Net. Other expense, net for fiscal 2017 decreased by $0.5 million from fiscal 2016 due mainly to lower foreign currency losses experienced in 2017.

Provision for Income Taxes. Our effective tax rate for fiscal 2017 was 27% in comparison to 30% for fiscal 2016. The decrease in the effective tax rate year-over-year was primarily due to changes in the geographic mix of income and loss among tax jurisdictions.

Net Income. Net income for fiscal 2017 was $15.1 million, or $2.25 per diluted share, an increase of $1.8 million, or 14%, from fiscal 2016 net income of $13.3 million, or $1.99 per diluted share.

Fiscal 2016 Compared to Fiscal 2015

Sales and Service Fees.Sales and service fees for fiscal 2016 were $227.3 million, an increase of $7.9 million, or 4%, compared to fiscal 2015 and included a negative currency impact of $6.4 million, or 3%less than 1%, when translating foreign sales to U.S. dollarsDollars for financial reporting purposes.

​

​

40

​

Net Sales and Service Fees by Geographic Region

​

The following table sets forth net sales and service fees by geographic region for the fiscal yearyears ended October 31, 20162020 and 2015 (in2019 (dollars in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

​

​

​

​

​

​

​

    

​

​

​

​

 

​

​

Fiscal Year Ended October 31, 

​

Increase/Decrease

​

​

    

2020

    

2019

    

Amount

    

%

 

Americas

​

$

67,498

    

39

%  

$

99,064

    

37

%  

$

(31,566)

 

(32)

%

Europe

​

 

77,936

 

46

%  

 

133,675

 

51

%  

 

(55,739)

 

(42)

%

Asia Pacific

​

 

25,193

 

15

%  

 

30,638

 

12

%  

 

(5,445)

 

(18)

%

Total

​

$

170,627

 

100

%  

$

263,377

 

100

%  

$

(92,750)

 

(35)

%

​

  Fiscal Year Ended October 31,  Increase/Decrease 
  2016  2015  Amount  % 
Americas $74,386   33% $70,169   32% $4,217   6%
Europe  124,070   54%  129,335   59%  (5,265)  -4%
Asia Pacific  28,833   13%  19,879   9%  8,954   45%
Total $227,289   100% $219,383   100% $7,906   4%

Sales in the Americas for fiscal 2016 increased2020 decreased by 6%32%, compared to fiscal 2015, as2019, primarily due to a resultreduced volume of year-end promotional activities followingshipments of Hurco, Milltronics, and Takumi machines.  The reduction in shipment volume was mainly attributable to government-mandated COVID-19 stay-at-home or shelter orders imposed across the IMTS in September 2016, as well as the impact of twelve months of Milltronics sales in fiscal 2016 compared to only three months of sales activity from the acquisition of the Milltronics product line in July 2015 until the endregion during portions of fiscal 2015. Sales2020.  Additionally, sales in the Americas forin the first half of fiscal 2016 included $17.9 million2019 benefitted from strong demand and backlog generated in the fourth quarter of sales from the Milltronics product line, compared to $6.7 million in fiscal 2015. 2018.

​

European sales for fiscal 20162020 decreased by 4%42%, compared to fiscal 20152019, and included a negativefavorable currency impact of 5%less than 1%, when translating foreign sales to U.S. dollarsDollars for financial reporting purposes.  The slight year-over-year growthdecrease in European sales for fiscal 2016, excluding2020 was primarily attributable to a reduced volume of shipments of Hurco and Takumi machines and a decrease in sales of electro-mechanical components and accessories manufactured by our wholly-owned Italian subsidiary, LCM.  Like the effectAmericas, the reduction in shipment volume was mainly driven by government-mandated COVID-19 stay-at-home or shelter orders or other similar operating restrictions imposed across the region during portions of fiscal 2020.  Additionally, sales in Europe during the first half of fiscal 2019 benefitted from higher demand and backlog coming off fiscal 2018, the recent peak of the negative currency impact, was driven by increased shipments of higher-performance machines in Germany, France and Italy. European market, particularly for Germany.

​

Asian Pacific sales for fiscal 2016 increased2020 decreased by 45%18%, compared to fiscal 20152019, and included a negativefavorable currency impact of 3%less than 1%, when translating foreign sales to U.S. dollarsDollars for financial reporting purposes. The year-over-year increasedecrease in Asian Pacific sales for fiscal 2016 wasresulted primarily attributable to twelvefrom a reduction in the volume of shipments of Hurco and Takumi machines in all Asian Pacific regions, where our customers are located, as many customers were negatively impacted by government-mandated COVID-19 stay-at-home orders or similar operating restrictions during the first six months of Takumi sales included in fiscal 2016 compared to only three months of sales activity from the acquisition of the Takumi product line in July 2015 until the end of fiscal 2015. Asian Pacific sales for fiscal 2016 included $14.6 million of sales from the Takumi product line, compared to $3.3 million for fiscal 2015.2020.

​

26

​

41

​

Net Sales and Service Fees by Product Category

​

The following table sets forth net sales and service fees by product group and services for the fiscal years ended October 31, 20162020 and 2015 (in2019 (dollars in thousands):

​

​

​

​

​

​

​

���

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

 

​

​

Fiscal Year Ended October 31, 

​

Increase/Decrease

​

​

​

2020

    

2019

    

Amount

    

% 

 

Computerized Machine Tools

​

$

139,577

    

82

%  

$

223,735

    

85

%  

$

(84,158)

 

(38)

%

Computer Control Systems and Software †

​

 

1,699

 

1

%  

 

2,818

 

1

%  

 

(1,119)

 

(40)

%

Service Parts

​

 

22,484

 

13

%  

 

27,854

 

11

%  

 

(5,370)

 

(19)

%

Service Fees

​

 

6,867

 

4

%  

 

8,970

 

3

%  

 

(2,103)

 

(23)

%

Total

​

$

170,627

 

100

%  

$

263,377

 

100

%  

$

(92,750)

 

(35)

%

† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.

  Fiscal Year Ended October 31,  Increase/ Decrease 
  2016  2015  Amount  % 
                   
Computerized Machine Tools* $195,618   86% $189,712   87% $5,906   3%

Computer Control Systems and Software†

  2,078   1%  3,085   1%  (1,007)  -33%
Service Parts  21,908   10%  19,375   9%  2,533   13%
Service Fees  7,685   3%  7,211   3%  474   7%
Total $227,289   100% $219,383   100% $7,906   4%

*Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective dates of those acquisitions.
†Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.

Sales of computerized machine tools and service parts increased duringcomputer control systems and software for fiscal 20162020 decreased by 3%38% and 13%40%, respectively, compared to fiscal 20152019, and each included a favorable currency impact of less than 1%.  Sales of service parts and service fees decreased by 19% and 23%, respectively, during fiscal 2020, compared to fiscal 2019, and each included a favorable currency impact of less than 1%.   The decreases in all product categories were primarily due to a reduced volume of shipments of Hurco, Milltronics and Takumi machines, parts, and services provided, as well as the impact of twelve months of Milltronics and Takumi sales in fiscal 2016 compared to only three months of sales activity from the acquisitions of the Milltronics and Takumi product lines in July 2015 until the end of fiscal 2015, as well as year-end promotional activities following the IMTS in September 2016. Sales of computer control systems and software decreased by 33% during fiscal 2016 compared to fiscal 2015 as a result of a reduction in sales for the Autobend®product line in the Americas and the United Kingdom. Service fees revenue increased during fiscal 2016 by 7% compared to fiscal 2015 primarily due to increased repair needs from customers in the Americas, the United Kingdom and France.government- mandated COVID-19 restrictions across all regions.

​

Orders and Backlog. Orders for fiscal 20162020 were $219.2$166.9 million, a decrease of $4.0$74.2 million, or 2%31%, compared to fiscal 20152019, and included a negativefavorable currency impact of $6.5$1.2 million, or 3%less than 1%, when translating foreign orders to U.S. dollars for financial reporting purposes.Dollars.

The following table sets forth new orders booked by geographic region for the fiscal years ended 2016October 31, 2020 and 20152019 (dollars in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

 

​

​

Fiscal Year Ended October 31, 

​

Increase/Decrease

​

​

​

2020

    

2019

    

Amount

    

%

 

Americas

​

$

67,577

    

41

%  

$

89,136

    

37

%  

$

(21,559)

 

(24)

%

Europe

​

 

77,079

 

46

%  

 

120,191

 

50

%  

 

(43,112)

 

(36)

%

Asia Pacific

​

 

22,282

 

13

%  

 

31,779

 

13

%  

 

(9,497)

 

(30)

%

Total

​

$

166,938

 

100

%  

$

241,106

 

100

%  

$

(74,168)

 

(31)

%

​

  Fiscal Year Ended October 31,  Increase/Decrease 
  2016  2015  Amount  % 
Americas $70,944   32% $72,021   32% $(1,077)  -1%
Europe  121,519   56%  126,511   57%  (4,992)  -4%
Asia Pacific  26,759   12%  24,654   11%  2,105   9%
Total $219,222   100% $223,186   100% $(3,964)  -2%

Orders in the Americas for fiscal 2016 were $70.9 million, a decrease of $1.1 million, or 1%2020 decreased by 24%, compared to fiscal 2015, reflecting an overall softer market2019, primarily due to decreased customer demand for Hurco, Milltronics and Takumi machines during the impact of pricing pressures in this region, partially offset by the impact of twelve months of Milltronics sales in fiscal 2016 compared to only three months in fiscal 2015.COVID-19 pandemic.  Orders in the Americas of $17.2 million for the fourth quarter of fiscal 2016 included $15.72020 reflected a slight improvement over orders in the second and third quarters of fiscal 2020 of $15.9 million and $16.3 million, respectively, but fell short of orders frompre-pandemic order levels in the Milltronics product line, compared to $10.1 million in fiscal 2015,first quarter of which approximately $3.9 million of orders were existing backlog orders acquired with the Milltronics product line in July 2015. $18.2 million.

​

42

​

European orders for fiscal 2016 were $121.5 million, a decrease of $5.0 million, or 4%2020 decreased by 36%, compared to fiscal 2015, primarily due to the negative impact of currency when translating foreign orders to U.S. dollars for financial reporting purposes. Asian Pacific orders for fiscal 2016 were $26.8 million, an increase of $2.1 million, or 9%, compared to fiscal 20152019, and included a negativefavorable currency impact of $1.1 million, or 5%less than 1%, when translating foreign orders to U.S. dollars for financial reporting purposes.Dollars.  The year-over-year increasedecrease in Asian Pacific orders were duewas driven primarily to increasedby decreased customer demand for Hurco and Takumi machines, and a decrease in sales of electro-mechanical components and accessories manufactured by LCM, during the Takumi product line in China. COVID-19 pandemic.  European orders for the fourth quarter of fiscal 2020 were the highest quarter of the fiscal year at $25.6 million, rebounding from the fiscal year low third quarter orders of $14.2 million, second quarter orders of $15.6 million, and first quarter pre-pandemic orders of $21.7 million.  

​

Asian Pacific orders for fiscal 20162020 decreased by 30%, compared to fiscal 2019, and included $12.7 milliona favorable currency impact of less than 1%, when translating foreign orders to U.S. Dollars.  The year-over-year decrease in Asian Pacific orders was driven primarily by a reduction in customer demand for Hurco and Takumi machines during the COVID-19 pandemic throughout the Asian Pacific region where our customers are located. Asian Pacific orders for the fourth quarter of fiscal 2020 reflected the same trend as the European orders, marking the highest quarter of orders of fiscal 2020 at $5.9 million, outpacing the third quarter orders of $5.6 million, second quarter orders of $5.1 million, and first quarter orders of $5.7 million.

​

Backlog at October 31, 2020 decreased to $29.9 million from the Takumi product line, compared to $10.6 million in fiscal 2015, of which approximately $8.6 million of orders were existing backlog orders acquired with the Takumi product line in July 2015.

27

Backlog was $32.3$32.7 million at October 31, 2016 compared2019, primarily due to $41.2 million at October 31, 2015.a reduction in customer demand during fiscal 2020. We do not believe backlog is a useful measure of past performance or indicative of future performance. Backlog orders as of October 31, 2016 are expected to be fulfilled in fiscal 2017.

Gross Profit.Gross profit for fiscal 20162020 was $70.4$36.5 million, or 31%21% of sales, which was consistent withcompared to $77.2 million, or 29% of sales, for fiscal 2019.  The decrease in gross profit for fiscal 2015as a percentage of $69.1 million, or 31%sales was primarily due to lower sales across all sales regions, particularly the European sales region where we typically sell higher-priced, higher-performance machines, competitive pricing pressures on a global basis, and the negative impact of sales.fixed costs leveraged against lower sales and production volumes.  

​

Operating Expenses. Selling, general, and administrative expenses for fiscal 20162020 were $50.8$41.4 million, or 22%24% of sales, compared to $45.3$54.7 million, or 21% of sales, for fiscal 2015. The year-over-year increase in operating2019, and included an unfavorable currency impact of $0.3 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes.  Selling, general, and administrative expenses for fiscal 2016 was primarily2020 trended downward as a percentage of sales from the first half of fiscal 2020 to the second half of fiscal 2020 by approximately 5% due to increased trade show expenses, increasedthe implementation of cost reduction plans, including changes in employee support costs for global sales operations,headcount, decreases in incentive and incremental annualizedperformance compensation, and reductions in other discretionary spending, partially offset by increased operating expenses associated with ProCobots, the acquisitionsU.S.-based automation integration business acquired by Hurco in the fourth quarter of fiscal 2019, and the Milltronics and Takumi product lines since July 2015.unfavorable currency impact when translating foreign expenses to U.S Dollars for financial reporting purposes.  

​

Operating Income.Income (Loss). Operating income The operating loss for fiscal 20162020 was $19.6$9.9 million, or (6%) of sales, compared to operating income of $22.5 million, or 9% of sales, compared to $23.8 million, or 11% of sales, infor fiscal 2015.2019. The year-over-year reduction indecrease from operating income to operating loss was primarily due to reduced sales volume that resulted from government-mandated stay-at-home or shelter orders imposed across the globe during 2020.  The operating loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge attributable primarily to increased operating expenses associated with increased trade show expenses, increased employee support costs forthe prolonged ongoing uncertainty in the global sales operations, and incremental operating expenses associated withmarkets due to the acquisitions of the Milltronics and Takumi product lines since July 2015.COVID-19 pandemic.

​

Other Expense, Net. Other expense, net for fiscal 20162020 increased by $0.5$0.6 million from fiscal 20152019, due mainly to highera reduction in foreign currency exchange losses experienced in 2016 and the elimination of a one-time out-of-period income adjustment recorded in fiscal 2015.2020, compared to fiscal 2019.

43

​

Provision for Income Taxes. Our effectiveWe recorded an income tax ratebenefit of $4.6 million for fiscal 2016 was 30% in comparison2020, compared to 31%income tax expense of $5.8 million for fiscal 2015. The decrease2019.  During the third and fourth quarters of fiscal 2020, we assessed and recorded the year-to-date impact of recent changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in the effectiveU.S. on March 27, 2020.  The CARES Act included economic relief and modifications, most notably the net operating loss carryback provisions. In addition, the year-over-year changes in our income tax rate for fiscal 2016 was due primarily to changesbenefits and expenses reflected the shift in the geographic mix of income orand loss among international tax jurisdictions.jurisdictions, which resulted in changes in foreign tax credits, deductions for foreign derived intangible income, and recording of a provision for global intangible low taxed income. 

​

Net Income.Income (Loss). Net incomeloss for fiscal 20162020 was $13.3$6.2 million, or $1.99$(0.93) per diluted share, a decrease of $2.9$23.7 million, or 18%136%, from fiscal 20152019 net income of $16.2$17.5 million, or $2.44$2.55 per diluted share. The year-over-year decrease from net income to net loss was primarily due to reduced sales volume that resulted from government-mandated stay-at-home or shelter orders imposed across the globe during 2020.  The net loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge attributable primarily to the prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

Liquidity and Capital Resources

At October 31, 2017,2021, we had cash and cash equivalents of $66.3$84.1 million, compared to $41.2$57.9 million at October 31, 2016.2020. The increase in cash and cash equivalents was primarily a result of a reductionincreases in inventoriesaccounts payable, accrued payroll and employee benefits and customer deposits, partially offset by an increase in accounts receivable year-over-year when excluding the negative impact of foreign currency of $7.0 million when translating foreign assets into U.S. dollars for financial reporting purposes.receivable. Approximately 64%34% of our $66.3$84.1 million of cash and cash equivalents is held in the U.S. The balance is attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital (including cash and cash equivalents) was $175.5$208.7 million at October 31, 20172021, compared to $160.4$201.0  million at October 31, 2016.2020. The increase in working capital was primarily due to the increasedriven by increases in cash inventories, and accounts receivable.receivable, partially offset by increases in accounts payable, accrued expenses and customer deposits. Inventories, net were $119.9$148.2 million at October 31, 2017,2021, compared to $117.0$149.9 million at October 31, 2016.2020. Inventory turns at October 31, 20172021 were 1.51.2, compared to 1.40.9 turns at October 31, 2016.2020.

28

Capital expenditures were $4.4$2.4 million in fiscal 20172021, compared to $4.2$1.7 million in fiscal 2016.2020. Capital expenditures for fiscal 20172021 were primarily for software development costs, purchases of factory equipment for production facilities, and purchases of general software and equipment for selling facilities.sales and service divisions. We funded these expenditures with cash flows from operations.

On March 12, 2021, we announced that our Board of Directors approved a share repurchase program in an aggregate amount of up to $7.0 million. Repurchases under the program may be made in the open market or through privately-negotiated transactions from time to time through March 10, 2023, subject to applicable laws, regulations and contractual provisions. The program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We did not repurchase any shares of our common stock under this program during fiscal 2021.

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44

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In addition, during fiscal 2021, we paid cash dividends to our shareholders of $3.7 million. Future dividends are subject to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed relevant by our Board of Directors from time to time.

​

On December 6, 2016,31, 2018, we and our subsidiary Hurco B.V. entered into a fourth amendment to our U.S. credit agreement to, among other things, increasewith Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020 and December 17, 2021 (as amended, the “2018 Credit Agreement”). The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility from $12.5in a maximum aggregate amount of $40.0 million. The 2018 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum amount of outstanding loans made to $15.0our subsidiary Hurco B.V. at any one time may not exceed $20.0 million, to increaseand the cash dividend allowance from $4.0 million per calendar year to $5.0 million per calendar year,maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million. Under the 2018 Credit Agreement, we and to extend theHurco B.V. are borrowers, and certain of our other subsidiaries are guarantors. The scheduled maturity date toof the 2018 Credit Agreement is December 31, 2018. The U.S. credit agreement, as amended, provides for the issuance of up to $5.0 million in letters of credit. We also amended the U.S. credit agreement to increase the minimum working capital and minimum tangible net worth requirements from $90.0 million to $105.0 million and $120.0 million to $125.0 million, respectively.2023.

​

Borrowings under the U.S. credit agreement2018 Credit Agreement bear interest at floating rates based on, at our option, either at(i) a LIBOR-based rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average Reference Rate, the Euro Interbank Offering Rate, or a floatinganother alternative currency-based rate approved by the lender, depending on the term of the loan and the currency in each case with an interest rate floor of 0.00%.  The floating rate equals the greatest of (a) a one month LIBOR-based ratewhich such loan is denominated, plus 1.00% per annum, (b)or (ii) a base rate (which is the highest of (a) the federal funds effective rate plus 0.50% per annum,, (b) the prime rate or (c) the prevailing primeone month SOFR-based rate and (d)plus 1.00%), plus 0.00%.  The rate we must pay for the unutilized portion of the U.S. credit agreement is 0.05% per annum. Outstanding letters of credit will carry an annual rate of 1.00%.

​

The U.S. credit agreement2018 Credit Agreement contains customary financialaffirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $5.0$10.0 million),; (2) requiringrestricting us from making certain payments, including (a) cash dividends, except that we maintain a minimum working capital of $105.0 million, and (3) requiring that we maintain a minimum tangible net worth of $125.0 million. The U.S. credit agreement permits us tomay pay cash dividends in anas long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not to exceed $5.0less than $10.0 million, per calendar year, soand as long as we are not in default before and after giving effect to such dividends.dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $10.0 million; (3) requiring that we maintain a minimum working capital of $125.0 million; and (4) requiring that we maintain a minimum tangible net worth of $176.5 million.  We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes.

​

We have a £1.0 millionIn March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China, NHML, closed on uncommitted revolving credit facility infacilities with maximum aggregate amounts of 150 million New Taiwan Dollars and 32.5 million Chinese Yuan, respectively.  As uncommitted facilities, both the United KingdomTaiwan and aChina credit facilities are subject to review and termination by the respective underlying lending institution from time to time.

​

As of October 31, 2021, our existing credit facilities consisted of the €1.5 million revolving credit facility in Germany. On February 16, 2017, we amended ourGermany, the 150 million New Taiwan Dollars Taiwan credit facility, in China to decrease the credit facility from 40.032.5 million Chinese Yuan to 20.0 million Chinese Yuan (approximately $3.0 million) and renewed the facility with an expiration date of February 15, 2018. We had $1.5 million of borrowings under our China credit facility as of each of October 31, 2017 and 2016.the $40.0 million revolving credit facility under the 2018 Credit Agreement.  We had no other debt or borrowings under any of our other credit facilities at either of those dates. October 31, 2021.

​

45

​

At October 31, 2017,2021, we had an aggregate of approximately $52.2 million available for borrowing under our credit facilities and were in compliance with theall covenants contained in all of ourrelating thereto.

​

We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities and had $19.6 million of available borrowing capacity under those facilities.

when needed in the U.S., Europe or Asia Pacific. We believe our access to cash positionpooling and our borrowing capacity under our credit facilities providesprovide adequate liquidity to fund our global operations over the next twelve months pay quarterly cash dividends and executebeyond and allow us to remain committed to our strategic plan forof product innovation, andacquisitions, targeted penetration of developing markets. markets, payment of dividends and our stock repurchase program.

​

We continue to receive and review information concerningon businesses and assets for potential acquisition, including intellectual property assets that are available for potential acquisition.purchase.  

​

Contractual Obligations and Commitments

The following is a table of contractual obligations and commitments as of October 31, 20172021 (in thousands):

​

 Payments Due by Period 
 Total  Less than
1 Year		  1-3
Years		  3-5
Years		  More than
5 Years		 
Short-term debt $1,507  $1,507  $—  $—  $— 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Payments Due by Period

​

​

​

​

​

​

Less than

​

​

​

​

​

​

​

​

More than

​

    

Total

    

1 Year

    

1-3 Years

    

3-5 Years

    

5 Years

Operating leases  7,968   3,316   2,979   1,210   463 

​

$

11,351

​

$

4,375

​

$

4,424

​

$

1,495

​

$

1,057

Other  3,851   —   133   —   3,718 

Accrued and deferred taxes and credits

​

 

6,562

​

 

222

​

 

677

​

​

917

​

 

4,746

Total $13,326  $4,823  $3,112  $1,210  $4,181 

​

$

17,913

​

$

4,597

​

$

5,101

​

$

2,412

​

$

5,803

29

​

In addition to the contractual obligations and commitments disclosed above, we also have a variety of other obligations for the procurement of materials and services, none of which subject us to any material non-cancelable commitments. While some of these obligations arise under long-term supply agreements, we are not committed under these agreements to accept or pay for requirements that are not needed to meet our production needs. We have no material minimum purchase commitments or “take-or-pay” type agreements or arrangements. Unrecognized tax benefits in the amount of approximately $1.1$0.2 million, excluding any interest and penalties, have been excluded from the table above because we are unable to determine a reasonably reliable estimate of the timing of future payment.

​

We expect capital spending in fiscal 20182022 to be approximately $8.7$5.8 million, which includes investments for capitalizedreal estate development, software development, factory equipment and production facilities, as well as general software and capital equipment for all of our production and selling facilities. We expect to fund these commitments with cash on hand and cash generated from operations.

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​

Off Balance Sheet Arrangements

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow Financial Accounting Standards Board (“FASB”) guidance for accounting for guarantees (codified in Accounting Standards Codification (“ASC”) 460). As of October 31, 2017,2021, we had 27eight outstanding third party payment guarantees totaling approximately $1.0$0.9 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer hasassumes the risk of ownership. The customer does not obtain title, however, until itthe customer has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value, which amounts are insignificant.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of financial statements in conformity with those accounting principles requires us to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Those judgments and estimates have a significant effect on the financial statements because they result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from those estimates. Our accounting policies, including those described below, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that are believedwe believe to be reasonable under the circumstances.

Revenue Recognition -– We recognize revenues from the sale of machine tools, components and accessories, and services and reflect the consideration to which we expect to be entitled. We record revenues based on a five-step model in accordance with FASB guidance codified in ASC 606. In accordance with ASC 606, we have defined contracts as agreements with our customers and distributors in the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories. For each contract, we identify our performance obligations, which is delivering goods or services, determine the transaction price, allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled.

A good or service is transferred when the customer obtains control of that good or service. Our computerized machine tools are general purpose computer-controlled machine tools that are typically used in stand-alone operations. Prior to shipment, we test each machine to ensure the machine’s compliance with standard operating specifications. We deem that the customer obtains control upon delivery of the product and that obtaining control is not contingent upon contractual customer acceptance. Therefore, we recognize revenue from sales of our machine tool systems upon delivery of the product to the customer or distributor, which is normally at the time of shipment, because persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and collectability is reasonably assured. Our computerized machine tools are general purpose computer controlled machine tools that are typically used in stand-alone operations. Transfer of ownership and risk of loss are not contingent upon contractual customer acceptance. Prior to shipment, we test each machine to ensure the machine’s compliance with standard operating specifications.shipment.

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Depending upon geographic location, after shipment, a machine may be installed at the customer’s facilitiesfacility by a distributor, independent contractor, or by one of our service technicians. In most instances, where a machine is sold through a distributor, we have no installation involvement. If sales are direct or through sales agents, we will typically complete the machine installation, which consists of the reassembly of certain parts that were removed for shipping and the re-testing of the machine to ensure that it is performing within the standard specifications. We consider the machine installation process for our three-axis machines to be inconsequential and perfunctory.immaterial within the context of the contract. For our five-axis machines that we install, we estimate the fair value of the installation performance obligation and recognize that installation revenue on a prorata basis over the period of the installation process.

30

From time to time, and depending upon geographic location, we may provide training or freight services. We consider these services to be immaterial within the context of the contract, as the value of these services typically does not rise to a material level as a component of the total contract value. Service fees from maintenance contracts are deferred and recognized in earnings on a pro rataprorata basis over the term of the contract. Salescontract and are generally sold on a stand-alone basis. Customer discounts and estimated product returns are considered variable consideration and are recorded as a reduction of revenue in the same period that the related to software productssales are recognized when shipped in conformity with U.S. Generally Accepted Accounting Principles as promulgated by FASB related to software revenue recognitionrecorded. We have reviewed the overall sales transactions for variable consideration and have determined that requires that at the time of shipment, persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and collectability is reasonably assured. The software doesthese amounts are not require production, modification or customization.significant.

Inventories –We determine at each balance sheet date how much, if any, of our inventory may ultimately prove to be either unsalable or unsalable at its carrying cost. Reserves are established to effectively adjust the carrying value of such inventory to lower of cost (first-in, first-out method) or net realizable value. To determine the appropriate level of valuation reserves, we evaluate current stock levels in relation to historical and expected patterns of demand for all of our products. We evaluate the need for changes to valuation reserves based on market conditions, competitive offerings, and other factors on a regular basis.

Income Taxes – We account for income taxes and the related accounts under the asset and liability method.  Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction in effect for the year in which the temporary differences are expected to be recovered or settled.  These deferred tax assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements. Our judgment regarding the realization of deferred tax assets may change due to future profitability and market conditions, changes in U.S. or foreign tax laws, and other factors.  These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income in the period when such determinations are made.

The determination of our provision for income taxes requires judgment, the use of estimates, and the interpretation and application of complex federal, state and foreign tax laws.  Our provision for income taxes reflects a combination of income earned and taxed at the federal and state level in the U.S., as well as in various foreign jurisdictions. We have not provided for any U.S. income taxes on the undistributed earnings of our foreign subsidiaries based upon our determination that such earnings will be indefinitely reinvested abroad.  Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2017 were approximately $92.9 million. In the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in forward-looking statements is based on currently effective tax laws.  Significant changes in those laws could materially affect these estimates.

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We operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex. The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications. We recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions, and the resolution of such audits may span multiple years. Tax law is complex and often subject to varied interpretations.  Accordingly, the ultimate outcome with respect to taxes we may owe may differ from the amounts recognized.

Impairment of Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be reviewed for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit.  For indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are also subject to review for impairment, if indicators of impairment are identified.

Impairment of Long-Lived Assets –We are required periodically to review the recoverability of certain assets, including property, plant, and equipment, intangible assets, and goodwill, based on projections of anticipated future cash flows, including future profitability assessments of various product lines. We estimate cash flows using internal budgets based on recent sales data.

​

Capitalized Software Development Costs – Costs incurred to develop computer software products and significant enhancements to software features of existing products are capitalized as required by FASB guidance relating to accounting for the costs of computer software to be sold, leased, or otherwise marketed, and such capitalized costs are amortized over the estimated product life of the related software. The determination as to when in the product development cycle technological feasibility has been established, and the expected product life, require judgments and estimates by management and can be affected by technological developments, innovations by competitors, and changes in market conditions affecting demand. We periodically review the carrying values of these assets and make judgments as to ultimate realization considering the above-mentioned risk factors.

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Derivative Financial Instruments– Critical aspects of our accounting policy for derivative financial instruments that we designate as hedging instruments include conditions that require that critical terms of a hedging instrument are essentially the same as a hedged forecasted transaction. Another important element of our policy demands that formal documentation be maintained as required by FASB guidance relating to accounting for derivative instruments and hedging activities. Failure to comply with these conditions would result in a requirement to recognize changes in market value of hedge instruments in earnings. We routinely monitor significant estimates, assumptions, and judgments associated with derivative instruments, and compliance with formal documentation requirements.

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Stock Compensation – We account for share-based compensation according to FASB guidance relating to share-based payments, which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors based on estimated fair values on the grant date. This guidance requires that we estimate the fair value of share-based awards on the date of grant and recognize as expense the value of the portion of the award that is ultimately expected to vest over the requisite service period. In the fourth quarter of fiscal 2017, we elected to early adopt Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718), which simplifies several areas of accounting for share-based compensation arrangements, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The impact of this adoption is further described in Note 15 of Notes to Consolidated Financial Statements.

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Item 7A.Quantitative and Qualitative Disclosures About Market Risk

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Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign interest rates. At October 31, 2017,2021, we had $1.5 million ofno borrowings under our China credit facility. We had no other debt or borrowingsoutstanding under any of our other credit facilities.

Foreign Currency Exchange Risk

In fiscal 2017,2021, we derived approximately 69%63% of our revenues from customers located outside of the Americas.Americas, where we invoiced and received payments in several foreign currencies. All of our computerized machine tools and computer control systems, as well as certain proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies.

Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned subsidiaries in Taiwan, the U.S., Italy, and China or an affiliated contract manufacturer in Taiwan. Our purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency fluctuations on product costs. The predominant portion of the exchange rate risk associated with our product purchases relates to the New Taiwan Dollar and the Euro.

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We enter into foreign currency forward exchange contracts from time to time to hedge the cash flow risk related to forecasted inter-company sales and purchases denominated in, or based on, foreign currencies (primarily the Euro, Pound Sterling, and New Taiwan Dollar). We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on inter-company receivables, payables, and payablesloans denominated in foreign currencies. We do not speculate in the financial markets and, therefore, do not enter into these contracts for trading purposes.

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Forward contracts for the sale or purchase of foreign currencies as of October 31, 2017,2021, which are designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging activities, were as follows:follows (in thousands, except weighted average forward rates):

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  Notional  Weighted  Contract Amount at   
  Amount  Avg.  Forward Rates in U.S. Dollars   
Forward in Foreign  Forward  Contract  October 31,   
Contracts Currency  Rate  Date  2017  Maturity Dates
Sale Contracts:                  
Euro  26,850,000   1.1435   30,704,120   31,567,343  Nov 2017 - Oct 2018
Sterling  6,400,000   1.2973   8,302,715   8,539,006  Nov 2017 - Oct 2018
                   
Purchase Contracts:                  
New Taiwan Dollar  931,000,000   29.99*  31,041,613   31,154,872  Nov 2017 - Oct 2018

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​

​

​

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​

​

​

​

​

​

​

​

​

Contract Amount at

​

​

​

​

Notional

​

Weighted 

​

Forward Rates in 

​

​

​

​

 Amount

​

Avg.

​

U.S. Dollars

​

​

Forward

 

in Foreign

 

Forward

 

Contract

 

October 31, 

​

​

Contracts

    

Currency

    

Rate

    

Date

    

2021

    

Maturity Dates

Sale Contracts:

 

  

 

  

 

  

 

  

​

​

Euro

 

14,850

​

1.1872

​

17,629

​

17,206

​

Nov 2021 - Oct 2022

Sterling

 

6,250

​

1.3764

​

8,603

​

8,537

​

Nov 2021 - Oct 2022

​

​

​

​

​

​

​

​

​

​

​

Purchase Contracts:

 

​

 

​

 

​

 

​

 

​

New Taiwan Dollar

 

720,000

​

27.1551

*

26,514

​

26,163

​

Nov 2021 - Oct 2022

*New Taiwan Dollars per U.S. Dollar

33

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2017,2021, which were entered into to protect against the effects of foreign currency fluctuations on inter-company receivables, payables and payablesloans and are not designated as hedges under this guidance denominated in foreign currencies, were as follows:follows (in thousands, except weighted average forward rates):

  Notional  Weighted  Contract Amount at   
  Amount  Avg.  Forward Rates in U.S. Dollars   
Forward in Foreign  Forward  Contract  October 31,   
Contracts Currency  Rate  Date  2017  Maturity Dates
Sale Contracts:                  
Euro  21,771,037   1.1837   25,770,030   25,607,633  Nov 2017 - Oct 2018
Pound Sterling  1,280,915   1.3274   1,700,276   1,703,319  Nov 2017 - Dec 2017
South African Rand  11,804,200   0.0699   824,777   814,338  Nov 2017 - Apr 2018
                   
Purchase Contracts:                  
New Taiwan Dollar  978,926,016   29.93*  32,706,852   32,605,176  Nov 2017 - Mar 2018

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Contract Amount at

​

​

​

​

Notional 

​

Weighted

​

Forward Rates in

​

​

​

​

Amount

​

 Avg.

​

 U.S. Dollars

​

​

Forward

 

in Foreign

 

Forward

 

Contract

 

October 31, 

​

​

Contracts

    

Currency

    

Rate

    

Date

    

2021

    

Maturity Dates

Sale Contracts:

 

  

 

  

 

  

 

  

 

  

Euro

 

10,533

​

1.1762

​

12,389

​

12,199

​

Nov 2021 - Jul 2022

Sterling

 

1,724

​

1.3676

​

2,357

​

2,358

​

Jan 2022 - Feb 2022

​

​

​

​

​

​

​

​

​

​

​

Purchase Contracts:

 

​

​

​

​

​

​

​

​

​

New Taiwan Dollar

 

654,332

​

27.8115

*

23,527

​

23,533

​

Nov 2021 - Feb 2022

* New Taiwan Dollars per U.S. Dollar

We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2016.2020. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under the FASB guidance related to the accounting for derivativesderivative instruments and hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying hedged net assets. This forward contract matured in November 20172021 and we entered into a new forward contract for the same notional amount that is set to mature in November 2018.2022. As of October 31, 2017,2021, we had $809,000$813,000 of realized gainsgain and $140,000$98,000 of realized losses,unrealized gain, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

51

​

Forward contracts designated as net investment hedges under this guidance as of October 31, 20172021 were as follows:follows (in thousands, except weighted average forward rates):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Notional 

​

Weighted

 

Contract Amount at Forward Rates in 

​

​

​

​

​

Amount

​

 Avg.

​

 U.S. Dollars

​

​

​

Forward

​

in Foreign

​

Forward

​

Contract

​

October 31, 

​

Maturity

​

Contracts

    

Currency

    

Rate

    

Date

    

2021

    

Date

    

Sale Contracts:

 

  

 

  

 

  

 

  

 

  

 

Euro

 

3,000

 

1.1892

 

3,568

 

3,463

 

Nov 2021

 

​

​

  Notional
Amount		  Weighted
Avg.		  

Contract Amount atForward
Rates in U.S. Dollars

   
Forward
Contracts		 in Foreign
Currency		  Forward
Rate		  Contract
Date		  October 31,
2017		  Maturity Date
              
Sale Contracts:                  
Euro  3,000,000   1.0935   3,280,500   3,497,342  Nov 2017

​

34

​

​

52

​

Management’s Annual Report on Internal Control over Financial Reporting

​

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

Management of Hurco Companies, Inc. (the “Company”) has assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2017,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Management is responsible for the Company’s financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.

Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2017,2021, was effective based on the criteria specified above.

Our independent registered public accounting firm, RSM US LLP (“RSM”), which also audited our consolidated financial statements, audited the effectiveness of our internal control over financial reporting as of October 31, 2017.2021. RSM has issued their attestation report, which is included in Part II, Item 8 of this Annual Report on Form 10-K.

​

/s/ Michael Doar

​

​

Michael Doar,

/s/ Gregory S. Volovic

Chairman

Gregory S. Volovic

President and Chief Executive Officer

/s/ Sonja K. McClelland

Sonja K. McClelland

Executive Vice President, Secretary, Treasurer, and

Chief Financial Officer

​

Indianapolis, Indiana
January 5, 2018

Indianapolis, Indiana

35

January 7, 2022

​

​

​

​

​

​

53

​

Item 8.Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

​

Report of Independent Registered Public Accounting Firm

To the Shareholders and

and the Board of Directors

of Hurco Companies, Inc.

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

​

We have audited the accompanying consolidated balance sheetsheets of Hurco Companies, Inc. and its subsidiaries (the Company) as of October 31, 2017,2021 and 2020, and the related consolidated statements of income,operations, comprehensive income (loss), changes in shareholders'shareholders’ equity and cash flows for each of the year then ended. Our audit also includedthree years in the financial statementperiod ended October 31, 2021, and the related notes and schedule listed in Item 15(a). These financial statements and financial statement 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 audit 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 (collectively, the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supportingstatements). We also have audited 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hurco Companies, Inc. and subsidiaries as of October 31, 2017, and the results of their operations and their cash flows for the year then ended, 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 consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hurco Companies, Inc.’s and subsidiaries’Company’s internal control over financial reporting as of October 31, 2017,2021, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated January 5, 2018 expressed an unqualified opinion on the effectiveness of Hurco Companies, Inc. and subsidiaries’ internal control over financial reporting.2013.

/s/ RSM US LLP
Indianapolis, Indiana
January 5, 2018

36

​

Report of Independent Registered Public Accounting Firm

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

We have audited the accompanying consolidated balance sheet of Hurco Companies, Inc. as of October 31, 2016 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended October 31, 2016. Our audits also included the financial statement schedule listed at Item 15(a) for each of the two years in the period ended October 31, 2016. 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 Hurco Companies, Inc. atthe Company as of October 31, 20162021 and 2020, and the consolidated results of itstheir operations and itstheir cash flows for each of the two years in the three-year period ended October 31, 20162021, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America. Also in our opinion, the related financial statement schedule for each of the two years in the period ended October 31, 2016, when considered in relation to the basic financial statements taken as a whole, presents fairlyCompany maintained, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP
Indianapolis, Indiana
January 6, 2017, except for Note 15, as to which the date is January 5, 2018

37

Report of Independent Registered Public Accounting Firm

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

We have audited Hurco Companies, Inc. and subsidiaries’effective internal control over financial reporting as of October 31, 2017,2021, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Hurco Companies, Inc. and subsidiaries’

​

Basis for Opinions

​

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company'sCompany's financial statements and an opinion on the Company's internal control over financial reporting based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

​

54

​

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.opinions.

​

Definition and Limitations of Internal Control Over Financial Reporting

​

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

​

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

​

InCritical Audit Matters

​

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion Hurco Companies, Inc.on the financial statements, taken as a whole, and subsidiaries maintained,we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

​

55

​

Accounting for Income Taxes – Deferred Tax Assets and Liabilities

​

As described in all material respects, effective internal control overNotes 1 and 7 to the consolidated financial reportingstatements, the Company accounts for income taxes under the asset and liability method. The Company operates in both the U.S. and international tax jurisdictions and has recorded deferred tax assets relating to deductible temporary differences, net operating losses and credit carryforwards of $10.4 million as of October 31, 2017,2021, with an offsetting valuation allowance of $1.9 million. The deferred tax assets are further reduced by $5.4 million deferred tax liabilities in tax jurisdictions to record net deferred tax assets of $3.2 million and net deferred tax liabilities of $68 thousand. The Company reduces its deferred tax assets by a valuation allowance, if based on criteria established inInternal Control — Integrated Frameworkissued byupon all the Committee of Sponsoring Organizationsavailable evidence, it is more likely than not that some portion, or all of the Treadway Commissiondeferred tax asset will not be realized. Management evaluated the ability to realize the carrying value of deferred tax assets and liabilities, which involved applying complex tax regulations in 2013.federal, state, local and international tax jurisdictions. Management applied significant judgement in assessing the value of and realizability of its deferred tax assets and liabilities. In determining the amount of deferred tax assets that are more-likely-than-not to be realized, management considers by jurisdiction all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, ability to utilize future carrybacks, tax planning strategies and recent financial operations.

​

We identified management’s evaluation of deferred tax assets and liabilities as well as the evaluation of the realizability of deferred tax assets, as a critical audit matter. The evaluation of gross deferred tax assets and liabilities involves complex tax regulations involving multiple tax jurisdictions. Assessing the realizability of deferred tax assets involves complexities of identifying and adhering to tax regulations in multiple jurisdictions, as well as the subjectivity of evaluating the realizability of the deferred tax assets. Auditing these elements required a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the valuation allowance.

​

Our audit procedures related to the Company’s deferred tax assets and liabilities included the following, among others:

​

●We obtained an understanding of the relevant controls related to the Company’s computation and evaluation of the gross deferred tax assets and liabilities as well as valuation allowance and tested such controls for design and operating effectiveness.

​

●We utilized tax specialists in both domestic and international tax to assist in:

​

oEvaluating the appropriateness and accuracy of the deferred tax assets and liabilities by considering applicable tax law and underlying financial records;
oTesting the projected future reversal of temporary differences by jurisdiction, including the underlying management assumptions;
oAnalyzing management’s application of domestic and foreign tax laws to the Company’s tax provisions; and evaluating i.) the viability of contemplated tax planning strategies, and ii) the Company’s assessment of its ability to carryback net operating losses and/or credits.

​

56

​

●We tested the completeness and accuracy of the data and inputs used to calculate the effective tax rate, current tax provision and deferred tax assets and liabilities.

​

/s/ RSM US LLP

​

We have also audited, in accordance withserved as the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Hurco Companies, Inc. and subsidiaries as of and for the year ended October 31, 2017, and our report dated Company's auditor since 2017.

​

Indianapolis, Indiana

January 5, 2018 expressed an unqualified opinion.7, 2022

​

​

/s/ RSM US LLP
Indianapolis, Indiana
January 5, 2018

38

57

​

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS

​

  Year Ended October 31, 
  2017  2016  2015 
  (In thousands, except per share amounts) 
          
Sales and service fees $243,667  $227,289  $219,383 
             
Cost of sales and service  173,103   156,849   150,292 
             
Gross profit  70,564   70,440   69,091 
             
Selling, general and administrative expenses  49,661   50,824   45,287 
             
Operating income  20,903   19,616   23,804 
             
Interest expense  91   72   198 
             
Interest income  41   40   76 
             
Investment income  138   149   78 
             
Income from equity investments  505   466   474 
             
Other expense, net  780   1,314   681 
             
Income before income taxes  20,716   18,885   23,553 
             
Provision for income taxes  5,601   5,593   7,339 
             
Net income $15,115  $13,292  $16,214 
             
Income per common share – basic $2.27  $2.01  $2.46 
             
Weighted average common shares outstanding – basic  6,615   6,569   6,543 
             
Income per common share – diluted $2.25  $1.99  $2.44 
             
Weighted average common shares outstanding – diluted  6,680   6,642   6,602 
             
Dividends paid per share $0.39  $0.35  $0.31 

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

​

2021

    

2020

    

2019

​

​

(In thousands, except per share amounts)

Sales and service fees

​

$

235,195

​

$

170,627

​

$

263,377

​

​

​

​

​

​

​

​

​

​

Cost of sales and service

​

 

178,946

  

​

134,170

​

 

186,169

​

​

​

​

​

​

​

​

​

​

Gross profit

​

 

56,249

  

​

36,457

​

 

77,208

​

​

​

​

​

​

​

​

​

​

Selling, general and administrative expenses

​

 

46,001

  

​

41,416

​

 

54,668

​

​

​

​

​

​

​

​

​

​

Goodwill impairment

​

 

—

  

​

4,903

​

 

—

​

​

​

​

​

​

​

​

​

​

Operating income (loss)

​

 

10,248

  

​

(9,862)

​

 

22,540

​

​

​

​

​

​

​

​

​

​

Interest expense

​

 

24

  

​

94

​

 

62

​

​

​

​

​

​

​

​

​

​

Interest income

​

 

34

  

​

130

​

 

462

​

​

​

​

​

​

​

​

​

​

Investment income

​

 

173

  

​

133

​

 

356

​

​

​

​

​

​

​

​

​

​

Income from equity investments

​

 

203

  

​

69

​

 

583

​

​

​

​

​

​

​

​

​

​

Other expense, net

​

 

513

  

​

1,179

​

 

555

​

​

​

​

​

​

​

​

​

​

Income (loss) before income taxes

​

 

10,121

​

​

(10,803)

​

​

23,324

​

​

​

​

​

​

​

​

​

​

Provision (benefit) for income taxes

​

 

3,357

  

​

(4,556)

​

 

5,829

​

​

​

​

​

​

​

​

​

​

Net income (loss)

​

$

6,764

​

$

(6,247)

​

$

17,495

​

​

​

​

​

​

​

​

​

​

Income (loss) per common share

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

$ 1.01

​

​

($ 0.93)

​

​

$ 2.57

Diluted

​

​

$ 1.01

​

​

($ 0.93)

​

​

$ 2.55

​

​

​

​

​

​

​

​

​

​

Weighted average common shares outstanding

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic

​

​

6,595

​

​

6,670

​

​

6,759

Diluted

​

​

6,608

​

​

6,670

​

​

6,815

​

​

​

​

​

​

​

​

​

​

Dividends paid per share

​

$

0.55

​

$

0.51

​

$

0.47

​

The accompanying notes are an integral part of the consolidated financial statements.

39

58

​

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

​

  Year Ended October 31, 
  2017  2016  2015 
  (In thousands) 
          
Net Income $15,115  $13,292  $16,214 
             
Other comprehensive income (loss):            
             
Translation gain (loss) of foreign currency financial statements  4,916   (1,441)  (6,333)
             
(Gain) / loss on derivative instruments reclassified into operations,  net of tax of $(745), $(906), and $(431), respectively  (1,354)  (1,647)  (784)
             
Gain / (loss) on derivative instruments, net of tax of  $(390), $787, and $712, respectively  (709)  1,431   1,291 
             
Total other comprehensive income (loss)  2,853   (1,657)  (5,826)
             
Comprehensive income $17,968  $11,635  $10,388 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

    

2021

    

2020

    

2019

​

​

(In thousands)

Net income (loss)

​

$

6,764

​

$

(6,247)

​

$

17,495

​

​

​

​

​

​

​

​

​

​

Other comprehensive income (loss):

​

 

​

  

​

​

​

 

​

​

​

​

​

​

​

​

​

​

​

Translation gain (loss) of foreign currency financial statements

​

 

2,405

  

​

5,969

​

 

550

​

​

​

​

​

​

​

​

​

​

(Gain) / loss on derivative instruments reclassified into operations, net of tax of $(204), $(126) and $(70), respectively

​

 

(679)

  

​

(421)

​

 

(235)

​

​

​

​

​

​

​

​

​

​

Gain / (loss) on derivative instruments, net of tax of $(143), $118 and $183, respectively

​

 

(477)

  

​

395

​

 

615

​

​

​

​

​

​

​

​

​

​

Total other comprehensive income (loss)

​

 

1,249

  

​

5,943

​

 

930

​

​

​

​

​

​

​

​

​

​

Comprehensive income (loss)

​

$

8,013

​

$

(304)

​

$

18,425

​

The accompanying notes are an integral part of the consolidated financial statements.

​

40

59

​

HURCO COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

​

​

​

​

​

​

​

​

​

As of October 31, 

​

    

2021

    

2020

ASSETS

​

(In thousands, except share and per share data)

Current assets:

 

​

​

  

​

  

Cash and cash equivalents

​

$

84,063

​

$

57,859

Accounts receivable, less allowance for doubtful accounts of $1,645 in 2021 and $1,401 in 2020

​

 

42,620

  

​

27,686

Inventories, net

​

 

148,216

  

​

149,864

Derivative assets

​

 

905

  

​

968

Prepaid assets

​

 

13,091

  

​

13,803

Other

​

 

975

  

​

1,231

Total current assets

​

 

289,870

  

​

251,411

Property and equipment:

​

 

​

  

​

​

Land

​

 

868

  

​

868

Building

​

 

7,352

  

​

7,352

Machinery and equipment

​

 

29,533

  

​

29,195

Leasehold improvements

​

 

5,172

  

​

4,754

​

​

 

42,925

  

​

42,169

Less accumulated depreciation and amortization

​

 

(32,318)

  

​

(30,248)

Total property and equipment, net

​

 

10,607

  

​

11,921

Non–current assets:

​

 

​

  

​

​

Software development costs, less accumulated amortization

​

 

7,553

  

​

7,840

Intangible assets, net

​

 

1,565

  

​

1,846

Operating lease - right of use assets, net

​

​

10,624

  

​

11,748

Deferred income taxes

​

 

3,154

  

​

2,479

Investments and other assets, net

​

 

9,562

  

​

8,410

Total non–current assets

​

 

32,458

  

​

32,323

Total assets

​

$

332,935

​

$

295,655

LIABILITIES AND SHAREHOLDERS’ EQUITY

​

 

​

  

​

​

Current liabilities:

​

 

​

  

​

​

Accounts payable

​

$

42,716

​

$

26,354

Accounts payable-related parties

​

​

6,165

​

​

1,289

Customer deposits

​

​

8,593

​

​

5,356

Derivative liabilities

​

​

467

​

​

872

Operating lease liabilities

​

​

4,221

​

​

4,132

Accrued payroll and employee benefits

​

 

10,389

  

​

6,931

Accrued income taxes

​

 

1,192

  

​

285

Accrued expenses

​

 

5,911

  

​

4,018

Accrued warranty expenses

​

 

1,516

  

​

1,200

Total current liabilities

​

 

81,170

  

​

50,437

Non–current liabilities:

​

 

​

  

​

​

Deferred income taxes

​

 

68

  

​

131

Accrued tax liability

​

​

1,749

​

​

1,918

Operating lease liabilities

​

​

6,794

​

​

7,989

Deferred credits and other

​

 

4,735

  

​

4,032

Total non–current liabilities

​

 

13,346

  

​

14,070

Shareholders’ equity:

​

 

​

  

​

​

Preferred stock: 0 par value per share, 1,000,000 shares authorized; 0 shares issued

​

 

0

  

​

0

Common stock: 0 par value, $.10 stated value per share, 12,500,000 shares authorized; 6,691,052 and 6,636,906 shares issued and 6,617,717 and 6,565,163 shares outstanding, as of October 31, 2021 and October 31, 2020, respectively

​

 

662

  

​

657

Additional paid-in capital

​

 

63,924

  

​

60,997

Retained earnings

​

 

175,574

  

​

172,484

Accumulated other comprehensive loss

​

 

(1,741)

  

​

(2,990)

Total shareholders’ equity

​

 

238,419

  

​

231,148

Total liabilities and shareholders’ equity

​

$

332,935

​

$

295,655

  As of October 31, 
  2017  2016 
  (In thousands, except share and per share data) 
ASSETS        
Current assets:        
Cash and cash equivalents $66,307  $41,217 
Accounts receivable, less allowance for doubtful accounts  of $639 in 2017 and $664 in 2016  50,094   48,631 
Inventories, net  119,948   117,025 
Derivative assets  596   1,725 
Prepaid assets  7,913   8,207 
Other  1,557   1,576 
Total current assets  246,415   218,381 
Property and equipment:        
Land  841   841 
Building  7,352   7,352 
Machinery and equipment  25,652   23,515 
Leasehold improvements  3,503   3,487 
   37,348   35,195 
Less accumulated depreciation and amortization  (25,167)  (22,898)
Total property and equipment, net  12,181   12,297 
Non-current assets:        
Software development costs, less accumulated amortization  6,226   4,926 
Goodwill  2,440   2,314 
Intangible assets, net  1,076   1,150 
Deferred income taxes  6,176   6,138 
Investments and other assets, net  7,131   6,743 
Total non-current assets  23,049   21,271 
Total assets $281,645  $251,949 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $45,127  $35,210 
Accounts payable-related parties  2,511   1,990 
Accrued expenses and other  18,240   17,231 
Accrued warranty expenses  1,772   1,523 
Derivative liabilities  1,732   538 
Short-term debt  1,507   1,476 
Total current liabilities  70,889   57,968 
Non-current liabilities:        
Deferred income taxes  3,821   4,294 
Accrued tax liability  133   963 
Deferred credits and other  3,717   3,249 
Total non-current liabilities  7,671   8,506 
         
Shareholders’ equity:        
Preferred stock: no par value per share, 1,000,000 shares authorized, no shares issued  —   — 
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized, 6,799,006 and 6,720,453 shares issued; and 6,641,197 and 6,573,103 shares outstanding, as of October 31, 2017 and October 31, 2016, respectively  664   657 
Additional paid-in capital  61,344   59,119 
Retained earnings  149,267   136,742 
Accumulated other comprehensive loss  (8,190)  (11,043)
Total shareholders’ equity  203,085   185,475 
Total liabilities and shareholders’ equity $281,645  $251,949 

The accompanying notes are an integral part of the consolidated financial statements.

​

​

41

60

​

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

    

2021

    

2020

    

2019

​

​

(In thousands)

Cash flows from operating activities:

​

​

​

​

​

  

​

​

​

Net income (loss)

​

$

6,764

​

$

(6,247)

​

$

17,495

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities, net of acquisitions:

​

 

​

​

​

​

​

​

​

Provision for doubtful accounts

​

 

244

​

​

510

​

​

(136)

Deferred income taxes

​

 

(112)

​

​

(547)

​

​

260

Equity in income of affiliates

​

 

(203)

​

​

(69)

​

​

(583)

Foreign currency (gain) loss

​

​

31

​

​

257

​

​

730

Unrealized (gain) loss on derivatives

​

 

(316)

​

​

622

​

​

(388)

Depreciation and amortization

​

 

4,193

​

​

4,547

​

​

3,745

Stock–based compensation

​

 

2,779

​

​

2,058

​

​

2,670

Goodwill impairment charge

​

​

—

​

​

4,903

​

​

—

Change in assets and liabilities, net of acquisitions:

​

 

​

​

​

​

​

​

​

(Increase) decrease in accounts receivable

​

 

(15,188)

​

​

15,909

​

​

11,239

(Increase) decrease in inventories

​

 

2,165

​

​

3,461

​

​

(10,499)

(Increase) decrease in prepaid expenses

​

 

437

​

​

(4,364)

​

​

(1,474)

Increase (decrease) in accounts payable

​

 

20,617

​

​

(2,367)

​

​

(23,281)

Increase (decrease) in customer deposits

​

 

3,111

​

​

(189)

​

​

(499)

Increase (decrease) in accrued expenses

​

 

2,142

​

​

(1,603)

​

​

114

Increase (decrease) in accrued payroll and employee benefits

​

​

3,458

​

​

(4,941)

​

​

(2,468)

Increase (decrease) in accrued income tax

​

​

900

​

​

(1,695)

​

​

(3,259)

Net change in derivative assets and liabilities

​

 

(135)

​

​

115

​

​

330

Other

​

 

1,288

​

​

572

​

​

(409)

Net cash provided by (used for) operating activities

​

 

32,175

​

​

10,932

​

​

(6,413)

​

​

 

​

​

​

​

​

​

​

Cash flows from investing activities:

​

 

​

​

​

​

​

​

​

Proceeds from sale of property and equipment

​

 

3

​

​

106

​

​

83

Purchase of property and equipment

​

 

(1,260)

​

​

(683)

​

​

(3,169)

Software development costs

​

 

(1,109)

​

​

(973)

​

​

(1,701)

Other investments

​

 

(979)

​

​

371

​

​

243

Acquisition of business

​

​

—

​

​

—

​

​

(4,353)

Net cash provided by (used for) investing activities

​

 

(3,345)

​

​

(1,179)

​

​

(8,897)

​

​

 

​

​

​

​

​

​

​

Cash flows from financing activities:

​

 

​

​

​

​

​

​

​

Proceeds from exercise of common stock options

​

​

350

​

​

67

​

​

—

Dividends paid

​

 

(3,674)

​

​

(3,420)

​

​

(3,203)

Taxes paid related to net settlement of restricted shares

​

 

(197)

​

​

(498)

​

​

(499)

Stock repurchases

​

​

—

​

​

(7,000)

​

​

—

Repayment of short-term debt

​

​

—

​

​

—

​

​

(1,450)

Net cash provided by (used for) financing activities

​

 

(3,521)

​

​

(10,851)

​

​

(5,152)

​

​

 

​

​

​

​

​

​

​

Effect of exchange rate changes on cash and cash equivalents

​

 

895

​

​

2,014

​

​

235

​

​

 

​

​

​

​

​

​

​

Net increase (decrease) in cash and cash equivalents

​

 

26,204

​

​

916

​

​

(20,227)

​

​

 

​

​

​

​

​

​

​

Cash and cash equivalents at beginning of period

​

 

57,859

​

​

56,943

​

​

77,170

​

​

 

​

​

​

​

​

​

​

Cash and cash equivalents at end of period

​

$

84,063

​

$

57,859

​

$

56,943

​

​

 

​

​

​

​

​

​

​

Supplemental disclosures:

​

 

​

​

​

​

​

​

​

Cash paid for:

​

 

​

​

​

​

​

​

​

Interest

​

$

—

​

$

—

​

$

11

Income taxes, net

​

$

1,572

​

$

487

​

$

11,025

  Year Ended October 31, 
  2017  2016  2015 
  (In thousands) 
Cash flows from operating activities:            
Net income $15,115  $13,292  $16,214 
Adjustments to reconcile net income to net cash provided by (used for) operating activities, net of acquisitions:            
Provision for doubtful accounts  (25)  (75)  (139)
Deferred income taxes  1,108   (225)  (1,013)
Equity in income of affiliates  (505)  (466)  (474)
Foreign currency (gain) loss  (851)  1,850   3,223 
Unrealized (gain) loss on derivatives  (411)  393   147 
Depreciation and amortization  3,616   3,868   3,222 
Stock-based compensation  1,698   1,607   1,193 
Taxes paid related to net settlement of restricted shares  295   146   239 
Change in assets and liabilities, net of acquisitions:            
(Increase) decrease in accounts receivable  563   (8,141)  3,666 
(Increase) decrease in inventories  1,638   (13,881)  2,852 
(Increase) decrease in prepaid expenses  80   809   383 
Increase (decrease) in accounts payable  8,529   (6,001)  (1,028)
Increase (decrease) in accrued expenses  627   (90)  (962)
Net change in derivative assets and liabilities  964   (245)  1,081 
Other  (2,069)  442   179 
Net cash provided by (used for) operating activities  30,372   (6,717)  28,783 
             
Cash flows from investing activities:            
Proceeds from sale of property and equipment  —   264   62 
Purchase of property and equipment  (2,181)  (1,972)  (3,127)
Software development costs  (2,264)  (2,205)  (1,406)
Other investments  417   —   308 
Acquisition of business, net of cash acquired  —   —   (17,650)
Net cash provided by (used for) investing activities  (4,028)  (3,913)  (21,813)
             
Cash flows from financing activities:            
Proceeds from exercise of common stock options  534   —   257 
Dividends paid  (2,590)  (2,310)  (2,034)
Tax benefit from exercise of stock options  —   —   119 
Taxes paid related to net settlement of restricted shares  (295)  (146)  (239)
Repayment on short-term debt  —   —   (1,605)
Net cash provided by (used for) financing activities  (2,351)  (2,456)  (3,502)
             
Effect of exchange rate changes on cash and cash equivalents            
   1,097   (934)  (2,077)
Net increase (decrease) in cash and cash equivalents  25,090   (14,020)  1,391 
             
Cash and cash equivalents at beginning of year  41,217   55,237   53,846 
             
Cash and cash equivalents at end of year  66,307   41,217   55,237 
             
Supplemental disclosures:            
Cash paid for:            
Interest $66  $56  $156 
Income taxes, net $4,867  $4,328  $9,890 

The accompanying notes are an integral part of the consolidated financial statements.

​

42

61

​

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'SHAREHOLDERS’ EQUITY

​

   Common           Accumulated    
  Stock  Common  Additional     Other    
(In thousands, except shares Shares  Stock  Paid-In  Retained  Comprehensive    
outstanding) Outstanding  Amount  Capital  Earnings  Loss  Total 
                   
Balances, October 31, 2014  6,508,880  $651  $55,974  $111,580  ($3,560) $164,645 
                         
Net income  —   —   —   16,214   —   16,214 
Other comprehensive income (loss)  —   —   —   —   (5,826)  (5,826)
Exercise of common stock options  15,300   1   256   —   —   257 
Stock-based compensation expense  27,538   3   1,190   —   —   1,193 
Tax benefit (expense) from stock option activities  —   —   119   —   —   119 
Dividends paid  —   —   —   (2,034)  —   (2,034)
                         
Balances, October 31, 2015  6,551,718  $655  $57,539  $125,760  ($9,386) $174,568 
                         
Net income  —   —   —   13,292   —   13,292 
Other comprehensive income (loss)  —   —   —   —   (1,657)  (1,657)
Exercise of common stock options  —   —   —   —   —   - 
Stock-based compensation expense  21,385   2   1,605   —   —   1,607 
Tax benefit (expense) from stock option activities  —   —   (25)  —   —   (25)
Dividends paid  —   —   —   (2,310)  —   (2,310)
                         
Balances, October 31, 2016  6,573,103  $657  $59,119  $136,742  ($11,043) $185,475 
                         
Net income  —   —   —   15,115   —   15,115 
Other comprehensive income (loss)  —   —   —   —   2,853   2,853 
Exercise of common stock options  29,164   3   531   —   —   534 
Stock-based compensation expense  38,930   4   1,694   —   —   1,698 
Dividends paid  —   —   —   (2,590)  —   (2,590)
                         
Balances, October 31, 2017  6,641,197  $664  $61,344  $149,267  ($8,190) $203,085 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Common

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

Stock

​

Common

​

Additional

​

​

​

​

Other

​

​

​

(In thousands,

​

Shares

​

Stock

​

Paid–In

​

Retained

​

Comprehensive

​

​

​

except shares outstanding)

    

Outstanding

    

Amount

    

Capital

    

Earnings

    

Loss

    

Total

Balances, October 31, 2018

​

6,723,160

​

$

672

​

$

64,185

​

$

167,859

​

$

(9,863)

​

$

222,853

​

​

​

​

​

  

​

​

​

​

​

  

​

 

​

​

​

  

Net income (loss)

​

—

​

​

—

​

​

—

​

​

17,495

​

 

—

​

​

17,495

Other comprehensive income (loss)

​

—

​

​

—

​

​

—

​

​

—

​

 

930

​

​

930

Stock–based compensation expense, net of taxes withheld for vested restricted shares

​

44,077

​

​

5

​

​

2,165

​

​

—

​

 

—

​

​

2,170

Dividends paid

​

—

​

​

—

​

​

—

​

​

(3,203)

​

 

—

​

​

(3,203)

Balances, October 31, 2019

​

6,767,237

​

$

677

​

$

66,350

​

$

182,151

​

$

(8,933)

​

$

240,245

​

​

​

​

​

  

​

​

​

​

​

  

​

 

​

​

​

  

Net income (loss)

​

—

​

​

—

​

​

—

​

​

(6,247)

​

 

—

​

​

(6,247)

Other comprehensive income (loss)

​

—

​

​

—

​

​

—

​

​

—

​

 

5,943

​

​

5,943

Stock–based compensation expense, net of taxes withheld for vested restricted shares

​

47,750

​

​

5

​

​

1,555

​

​

—

​

 

—

​

​

1,560

Exercise of common stock options

​

3,738

​

​

—

​

​

67

​

​

—

​

​

—

​

​

67

Stock repurchases

​

(253,562)

​

​

(25)

​

​

(6,975)

​

​

—

​

​

—

​

​

(7,000)

Dividends paid

​

—

​

​

—

​

​

—

​

​

(3,420)

​

 

—

​

​

(3,420)

Balances, October 31, 2020

​

6,565,163

​

$

657

​

$

60,997

​

$

172,484

​

$

(2,990)

​

$

231,148

​

​

​

​

​

  

​

​

​

​

​

  

​

 

​

​

​

  

Net income (loss)

​

—

​

​

—

​

​

—

​

​

6,764

​

 

—

​

​

6,764

Other comprehensive income (loss)

​

—

​

​

—

​

​

—

​

​

—

​

 

1,249

​

​

1,249

Stock-based compensation expense, net of taxes withheld for vested restricted shares

​

36,243

​

​

3

​

​

2,579

​

​

—

​

 

—

​

​

2,582

Exercise of common stock options

​

16,311

​

​

2

​

​

348

​

​

—

​

​

—

​

​

350

Dividends paid

​

—

​

​

—

​

​

—

​

​

(3,674)

​

 

—

​

​

(3,674)

Balances, October 31, 2021

​

6,617,717

​

$

662

​

$

63,924

​

$

175,574

​

$

(1,741)

​

$

238,419

​

The accompanying notes are an integral part of the consolidated financial statements.

​

43

​

62

​

​

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an Indiana corporation) and its wholly-owned subsidiaries.wholly–owned subsidiaries (“we”, “us”, “our”, “Hurco” or the “Company”). We have a 35% ownership interest in a Taiwan affiliate that is accounted for using the equity method. Our investment in that affiliate was approximately $3.6$4.8 million and $3.6$4.4 million as of October 31, 20172021 and 2016,2020, respectively. That investment is included in Investments and other assets, net on the accompanying Consolidated Balance Sheets. IntercompanyInter-company accounts and transactions have been eliminated.

Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. This reclassification has no impact on previously reported net income or shareholders’ equity.

Statements of Cash Flows. We consider all highly liquid investments with a stated maturity at the date of purchase of three months or less to be cash equivalents. Cash flows from hedges are classified consistent with the items being hedged.

Translation of Foreign Currencies. All balance sheet accounts of non-U.S.non–U.S. subsidiaries are translated at the exchange rate as of the end of the year and translation adjustments of foreign currency balance sheets are recorded as a component of Accumulated other comprehensive loss in shareholders'shareholders’ equity. Income and expenses are translated at the average exchange rates during the year. Cumulative foreign currency translation adjustments, net of gains related to our net investment hedges, as of October 31, 20172021, were a net loss of $7.4$1.7 million, net of tax, and are included in Accumulated other comprehensive loss. Foreign currency transaction gains and losses are recorded as income or expense as incurred and are recorded in Other expense, net.

Hedging.We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk.

We operate on a global basis and are exposed to the risk that our financial condition, results of operations, and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, and the gross profit and net earnings of certain of our foreign subsidiaries, we enter into derivative financial instruments in the form of foreign exchange forward contracts with a major financial institution. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Pounds Sterling, Indian Rupee, South African Rand, Singapore Dollars, Chinese Yuan, Polish Zloty, and New Taiwan Dollars.

63

​

​

We account for derivative instruments as either assets or liabilities and carry them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Accumulated other comprehensive loss in shareholders’ equity and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.

​

For derivative instruments that are not designated as accounting hedges under the Derivatives and Hedging Topic of the Financial Accounting Standards Board (FASB guidance)(the “FASB”), changes in fair value are recognized in earnings in the period of change. We do not hold or issue derivative financial instruments for speculative trading purposes. We only enter into derivatives with one counterparty, which is among one of the largest U.S. banks (ranked by assets), in order to minimize credit risk and, to date, that counterparty has not failed to meet its financial obligations under such contracts.

44

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Derivatives Designated as Hedging Instruments

We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-companyinter–company sales and purchases denominated in foreign currencies (the Pound Sterling, Euro, and New Taiwan Dollar). The purpose of these instruments is to mitigate the risk that the U.S. Dollar net cash inflows and outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected by changes in exchange rates. These forward contracts have been designated as cash flow hedge instruments, and are recorded in the Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities. The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts are deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S. Dollar value of the inter-companyinter–company sale or purchase being hedged. The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is reported in Other (income) expense, net immediately. We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default.

We had forward contracts outstanding as of October 31, 2017,2021, in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from November 20172021 through October 2018.2022. The contract amount at forward rates in U.S. Dollars at October 31, 20172021 for Euros and Pounds Sterling was $31.6$17.2 million and $8.5 million, respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $31.2$26.2 million at October 31, 2017.2021. At October 31, 2017,2021, we had approximately $790,000$478,000 of loss,losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $636,000$106,000 represented unrealized loss,gains, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The majority of these deferred lossesgains will be recorded as an adjustment to Cost of sales and service in periods through October 2018,2022, in which the corresponding inventory that is the subject of the related hedge contract is sold, as described above.

64

​

​

We are exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2016.2020. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under the FASB guidance related to the accounting for derivativesderivative instruments and hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying hedged net assets. This forward contract matured in November 20172021, and we entered into a new forward contract for the same notional amount that is set to mature in November 2018.2022. As of October 31, 2017,2021, we had a realized gain of $809,000$813,000 and an unrealized lossgain of $140,000,$98,000, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

Derivatives Not Designated as Hedging Instruments

We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on inter-company receivables and payables denominated in foreign currencies. These derivative instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are reported currently as Other expense, net in the Consolidated Statements of IncomeOperations consistent with the transaction gain or loss on the related inter-company receivables, payables and payablesloans denominated in foreign currencies.

45

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

We had forward contracts outstanding as of October 31, 2017,2021, in Euros, Pounds Sterling, South African Rand and New Taiwan Dollars with set maturity dates ranging from November 20172021 through October 2018.July 2022. The contract amounts at forward rates in U.S. Dollars at October 31, 20172021 for Euros and Pounds Sterling and South African Rand totaled $28.1$14.6 million. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $32.6$23.5 million at October 31, 2017.2021.

Fair Value of Derivative Instruments

We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Consolidated Balance Sheets. As of October 31, 20172021 and October 31, 2016,2020, all derivative instruments were recorded at fair value on the balance sheets as follows (in thousands):

​

 2017 2016
 Balance Sheet Fair Balance Sheet Fair 

​

​

​

​

​

​

​

​

​

​

​

​

​

2021

​

2020

​

​

Balance Sheet

​

Fair

​

Balance Sheet

​

Fair

Derivatives Location Value  Location Value 

    

Location

    

Value

    

Location

    

Value

     
Designated as Hedging Instruments:        

​

  

​

​

  

​

  

​

​

  

Foreign exchange forward contracts Derivative assets $305  Derivative assets $1,721 

​

Derivative assets

​

$

646

​

Derivative assets

​

$

495

Foreign exchange forward contracts Derivative liabilities $1,508  Derivative liabilities $173 

​

Derivative liabilities

​

$

403

​

Derivative liabilities

​

$

279

        

​

​

  

​

 

​

​

​

​

 

​

Not Designated as Hedging Instruments:        

​

  

​

 

​

​

​

​

​

​

Foreign exchange forward contracts Derivative assets $291  Derivative assets $4 

​

Derivative assets

​

$

259

​

Derivative assets

​

$

473

Foreign exchange forward contracts Derivative liabilities $224  Derivative liabilities $365 

​

Derivative liabilities

​

$

64

​

Derivative liabilities

​

$

593

​

65

​

​

Effect of Derivative Instruments on the Consolidated Balance Sheets, Statements of Changes in Shareholders’ Equity, and Statements of IncomeOperations

Derivative instruments had the following effects on our Consolidated Balance Sheets, Statements of Changes in Shareholders’ Equity, and Statements of Income,Operations, net of tax, during the fiscal years ended October 31, 20172021, 2020, and 20162019 (in thousands):

​

  Amount of Gain (Loss)  Location of Gain (Loss) Amount of Gain (Loss) 
  Recognized in  Reclassified from Reclassified from 
  Other Comprehensive  Other Comprehensive Other Comprehensive 
Derivatives Income (Loss)  Income (Loss) Income (Loss) 
  2017  2016    2017  2016 
Designated as Hedging Instruments:              
(Effective Portion)                  
                   
Foreign exchange forward contracts                  
– Intercompany sales/purchases $(709) $1,431  Cost of sales and service $1,354  $1,647 
                   
Foreign exchange forward contract                  
– Net Investment $(96) $28           

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Location of

​

​

​

​

​

​

​

​

​

​

​

Amount of Gain (Loss)

​

Gain (Loss)

​

Amount of Gain (Loss)

​

​

Recognized in

​

Reclassified

​

Reclassified from

​

​

Other Comprehensive

​

From Other

​

Other Comprehensive

​

​

Income (Loss)

​

Comprehensive

​

Income (Loss)

Derivatives

    

2021

    

2020

    

2019

    

Income (Loss)

    

2021

    

2020

    

2019

Designated as Hedging Instruments:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(Effective Portion)

 

​

  

​

​

​

​

​

  

​

  

​

​

  

 

​

​

  

​

  

Foreign exchange forward contracts
– Intercompany sales/purchases

​

​

(477)

​

​

395

​

​

615

​

Cost of sales and service

​

​

679

​

​

421

​

​

235

Foreign exchange forward contract
– Net investment

​

​

43

​

​

(64)

​

​

128

​

  

​

 

  

  

 

  

  

 

  

​

We recognized a gain of $18,000 during the fiscal year ended October 31, 2017 and a gain of $18,000 during the fiscal year ended October 31, 2016did not recognize any gains or losses as a result of contracts closed early that werehedges deemed ineffective for financial reportingduring fiscal years ended October 31, 2021, 2020, and did not qualify as cash flow hedges.2019

46

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

We recognized the following gains and losses in our Consolidated Statements of IncomeOperations during the fiscal years ended October 31, 20172021, 2020, and 20162019 on derivative instruments not designated as hedging instruments (in thousands):

​

 Location of Gain (Loss) Amount of Gain (Loss) 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Amount of Gain (Loss)

​

​

Location of Gain (Loss)

​

Recognized in Operations

Derivatives Recognized in Operations Recognized in Operations 

    

Recognized in Operations

    

2021

    

2020

    

2019

   2017  2016 
Not Designated as Hedging Instruments:        

 

  

 

​

  

 

​

​

 

​

  

Foreign exchange forward contracts Other expense, net $(1,001) $536 

 

Other expense, net

​

$

(313)

 

$

(171)

​

$

514

​

66

​

​

The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for the fiscal years ended October 31, 20172021 and 20162020 (in thousands):

​

 Foreign Cash    
 Currency Flow    
 Translation  Hedges  Total 
Balance, October 31, 2015 $(10,884) $1,498  $(9,386)

​

​

​

​

​

​

​

​

​

​

​

​

Foreign

​

Cash

​

​

​

​

​

Currency

​

Flow

​

​

​

​

    

Translation

    

Hedges

    

Total

Balance, October 31, 2019

​

$

(10,042)

  

$

1,109

​

$

(8,933)

Other comprehensive income (loss) before reclassifications  (1,441)  1,431   (10)

​

 

5,969

​

 

395

​

 

6,364

Reclassifications  —   (1,647)  (1,647)

​

 

—

​

 

(421)

​

 

(421)

Balance, October 31, 2016 $(12,325) $1,282  $(11,043)

Balance, October 31, 2020

​

$

(4,073)

  

$

1,083

​

$

(2,990)

Other comprehensive income (loss) before reclassifications  4,916   (709)  4,207 

​

 

2,405

​

 

(477)

​

 

1,928

Reclassifications  —   (1,354)  (1,354)

​

 

—

​

 

(679)

​

 

(679)

Balance, October 31, 2017 $(7,409) $(781) $(8,190)

Balance, October 31, 2021

​

$

(1,668)

  

$

(73)

​

$

(1,741)

​

Inventories. Inventories are stated at the lower of cost or market,net realizable value, with cost determined using the first-in, first-outfirst–in, first–out method. Provisions are made to reduce excess or obsolete inventories to their estimated realizable value.

Property and Equipment. Property and equipment are carried at cost. Depreciation and amortization of assets are provided primarily under the straight-linestraight–line method over the shorter of the estimated useful lives or the lease terms as follows:

​

​

​

​

​

Number of Years

Land

Indefinite

Building

40

Machines

7 – 10

Shop and office equipment

3 – 7

Building & leasehold improvements

3 – 40

​

Total depreciation and amortization expense recognized for property and equipment for the fiscal years ended October 31, 2017, 2016 and 2015 was $2.5 million $2.5for fiscal 2021, $2.7 million for fiscal 2020, and $2.2$2.6 million respectively.for fiscal 2019.

Revenue Recognition.We design, manufacture, and sell computerized machine tools.  Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.  We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training, and applications support.

67

​

​

We recognize revenues from the sale of machine tools, components and accessories and services, and reflect the consideration to which we expect to be entitled.  We record revenues based on a five-step model in accordance with FASB guidance codified in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”).  In accordance with ASC 606, we have defined contracts as agreements with our customers and distributors in the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories. For each contract, we identify our performance obligations, which is delivering goods or services, determine the transaction price, allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled.  A good or service is transferred when the customer obtains control of that good or service. Our computerized machine tools are general purpose computer-controlled machine tools that are typically used in stand–alone operations. Prior to shipment, we test each machine to ensure the machine’s compliance with standard operating specifications. We deem that the customer obtains control upon delivery of the product and that obtaining control is not contingent upon contractual customer acceptance. Therefore, we recognize revenue from sales of our machine tool systems upon delivery of the product to the customer or distributor, which is normally at the time of shipment, because persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and collectability is reasonably assured. Our computerized machine tools are general purpose computer controlled machine tools that are typically used in stand-alone operations. Transfer of ownership and risk of loss are not contingent upon contractual customer acceptance. Prior to shipment, we test each machine to ensure the machine’s compliance with standard operating specifications.shipment.

47

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Depending upon geographic location, after shipment, a machine may be installed at the customer’s facilitiesfacility by a distributor, independent contractor, or by one of our service technicians. In most instances where a machine is sold through a distributor, we have no installation involvement. If sales are direct or through sales agents, we will typically complete the machine installation, which consists of the reassembly of certain parts that were removed for shipping and the re-testing of the machine to ensure that it is performing within the standard specifications. We consider the machine installation process for our three-axis machines to be inconsequential and perfunctory.immaterial within the context of the contract. For our five-axis machines that we install, we estimate the fair value of the installation performance obligation and recognize that installation revenue on a prorata basis over the period of the installation process.

From time to time, and depending upon geographic location, we may provide training or freight services. We consider these services to be immaterial within the context of the contract, as the value of these services typically does not rise to a material level as a component of the total contract value. Service fees from maintenance contracts are deferred and recognized in earnings on a pro rataprorata basis over the term of the contract and are generally sold on a stand-alone basis. Customer discounts and estimated product returns are considered variable consideration and are recorded as a reduction of revenue in the same period that the related sales are recorded.  We have reviewed the overall sales transactions for variable consideration and have determined that these amounts are not significant.

Sales related to software upgrades are recognized when shipped in conformity with U.S. Generally Accepted Accounting Principles as promulgated by FASB guidance related to software revenue recognition that requires at the time of shipment, persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and collectability is reasonably assured. The software does not require production, modification or customization.

Allowance for Doubtful Accounts. The allowance for doubtful accounts is based on our best estimate of probable credit issues and historical experience. We perform credit evaluations of the financial condition of our customers. No collateral is required for sales made on open account terms. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion across many geographic areas. We consider trade accounts receivable to be past due when payment is not made by the due date as specified on the customer invoice, and we charge off uncollectible balances when all reasonable collection efforts have been exhausted.

68

​

​

Product Warranty. Expected future product warranty claims are recorded to expense when the product is sold. Product warranty estimates are established using historical information about the nature, frequency, and average cost of warranty claims. Warranty claims are influenced by factors such as new product introductions, technological developments, the competitive environment, and the costs of component parts. Actual payments for warranty claims could differ from the amounts estimated, requiring adjustments to the liabilities in future periods. See Note 1112 of these Notes to Consolidated Financial Statements for further discussion of warranties.

Research and Development Costs. The costs associated with research and development programs for new products and significant product improvements, other than software development costs, which are eligible for capitalization per FASB guidance, are expensed as incurred and are included in Selling, general, and administrative expenses. Research and development expenses totaled $4.2$3.2 million, $4.9$3.5 million, and $3.9$4.4 million, in fiscal 2017, 2016,2021, 2020, and 2015,2019, respectively.

Software Development Costs.We sell software products that are essential to our machine tools. Costs incurred to develop computer software products and significant enhancements to software features of existing products to be sold or otherwise marketed are capitalized, after technological feasibility is established. Software development costs are amortized on a straight-linestraight–line basis over the estimated product life of the related software, which ranges from three to five years. We capitalized costs of $2.3 million in fiscal 2017, $2.2 million in fiscal 2016, and $1.4 million in fiscal 2015 related to software development projects.projects of $1.1 million in fiscal 2021, $1.0 million in fiscal 2020, and $1.8 million in fiscal 2019.  Amortization expense for software development costs was $1.0$1.4 million, $1.2$1.5 million, and $1.0 million, for the fiscal years ended October 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. Accumulated amortization at October 31, 20172021 and 20162020 was $17.4$22.0 million and $16.5$21.0 million, respectively.

48

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Estimated amortization expense for the remaining unamortized software development costs for the fiscal years ending October 31, is as follows (in thousands):

​

Fiscal Year Amortization Expense 
2018  1,425 
2019  1,250 
2020  1,200 
2021  1,075 
2022  975 

​

​

​

​

Fiscal Year

    

Amortization Expense

2022

 

$

1,575

2023

 

​

1,856

2024

 

​

1,685

2025

 

​

1,089

2026 and thereafter

 

​

1,348

​

Goodwill and Intangible Assets.Goodwill and other separately recognized intangible assets with indefinite livesindefinite-lived intangibles arising from a business combination are not subjectamortized and charged to amortization. At least once annually or when indicators of impairment exist, we perform an impairment test for goodwill. We use a qualitative approach to testexpense over time. Instead, goodwill and indefinite-lived assetsintangibles must be reviewed for impairment annually. Periodically, or when indicators of impairment exist, we also utilize a two-stepped approach to measuring goodwill impairment. The first stepannually as of the test determineslast day of our third fiscal quarter, or more frequently, if therecircumstances arise indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is potentialrecognized for that excess, but only to the extent of the goodwill impairment. In this step we compareamount allocated to that reporting unit.

​

We had goodwill for our single reporting unit, arising from the acquisitions of ProCobots, LLC (“ProCobots”) ($2.5 million) in 2019, LCM Precision Technology S.r.l. (“LCM”) ($2.2 million) in 2013, and our wholly-owned distributor located in Michigan ($0.2 million) in 2008.  The adverse change in the business climate resulting from the COVID-19 pandemic and the net loss for fiscal 2020 caused the fair value of the reporting unit to its carrying amount (which includes goodwill). The fairfall below our book value of the reporting unit is determined by using an estimateequity as of future cash flows utilizingOctober 31, 2020, resulting in a risk-adjusted discount rate to calculate the net present valuefull impairment loss of future cash flows (income approach), and by using a market approach based upon an analysis$4.9 million.  As such, we have 0 goodwill as of valuation metrics of comparable peer companies. IfOctober 31, 2021.

​

69

​

​

For indefinite-lived intangible assets, if the carrying amount exceeds the fair value, we perform the second step of the test, which measures the amount of impairment loss to be recorded, if any. In the second step, we compare the carrying amount of the goodwill to the implied fair value of the goodwill based on the net fair value of the recognized and unrecognized assets and liabilities of the reporting unit. If the implied fair value is less than the carrying value, an impairment loss is recordedrecognized in an amount equal to the extent that the fair value of the goodwill is less than its carrying value. For other separately recognized intangible assets with indefinite lives, we use a qualitative approach to test such assets for impairment if certain conditions are met.excess. Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are also subject to review for impairment, if indicators of impairment are identified.

For fiscal 2017, we utilized both There were no impairments recognized with respect to the quantitative and qualitative approaches to test for goodwill impairment and a qualitative approach to testcarrying value of intangible assets for potential impairment. For fiscal 2016, we utilized the qualitative approach to test both goodwill and intangible assets for potential impairment. For each of fiscal 2017 and 2016, we concluded that goodwill and other intangible assets were not impaired.years ended October 31, 2021, 2020, or 2019.

As of October 31, 2017,2021, the balances of intangible assets, other than goodwill, were as follows (in thousands):

​

 Weighted
Average
Amortization
Period		 Gross
Intangible
Assets		  Accumulated
Amortization		  Net
Intangible
Assets		 
         

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Weighted

​

​

​

​

​

​

​

​

​

​

​

Average

​

Gross

​

​

​

​

​

​

​

​

Amortization

​

Intangible

​

Accumulated

​

Net Intangible

​

    

Period

    

Assets

    

Amortization

    

Assets

Tradenames and trademarks 13 years $245  $(81) $164 

 

indefinite

​

$

177

  

$

—

​

$

177

Tradenames and trademarks indefinite  60   -   60 

 

14

years

​

 

763

​

 

(234)

​

 

529

Customer relationships 15 years  257   (132)  125 

 

15

years

​

 

373

​

 

(223)

​

 

150

Technology 13 years  713   (239)  474 

 

13

years

​

 

708

​

 

(454)

​

 

254

Noncompete

​

5

years

​

​

580

​

​

(261)

​

​

319

Patents 6 years  2,973   (2,765)  208 

 

6

years

​

 

2,972

​

 

(2,860)

​

 

112

Other 8 years  378   (333)  45 

 

8

years

​

 

397

​

 

(373)

​

 

24

Total   $4,626  $(3,550) $1,076 

 

​

  

​

$

5,970

  

$

(4,405)

​

$

1,565

49

​

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

As of October 31, 2016,2020, the balances of intangible assets, other than goodwill, were as follows (in thousands):

​

 Weighted
Average
Amortization
Period		 Gross
Intangible
Assets		  Accumulated
Amortization		  Net Intangible
Assets		 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Weighted

​

​

​

​

​

​

​

​

​

​

​

Average

​

Gross

​

​

​

​

​

​

​

​

Amortization

​

Intangible

​

Accumulated

​

Net Intangible

​

    

Period

    

Assets

    

Amortization

    

Assets

Tradenames and trademarks 13 years $231  $(59) $172 

 

indefinite

​

$

177

  

$

—

​

$

177

Tradenames and trademarks indefinite  60   —   60 

 

14

years

​

 

765

​

 

(181)

​

 

584

Customer relationships 15 years  254   (114)  140 

 

15

years

​

 

374

​

 

(199)

​

 

175

Technology 13 years  672   (172)  500 

 

13

years

​

 

713

​

 

(402)

​

 

311

Noncompete

​

5

years

​

​

580

​

​

(145)

​

​

435

Patents 6 years  2,972   (2,741)  231 

 

6

years

​

 

2,972

​

 

(2,837)

​

 

135

Other 8 years  373   (326)  47 

 

8

years

​

 

397

​

 

(368)

​

 

29

Total   $4,562  $(3,412) $1,150 

 

​

  

​

$

5,978

  

$

(4,132)

​

$

1,846

​

Intangible asset amortization expense was $136,000, $137,000,$273,000, $358,000, and $207,000$117,000 for fiscal 2017, 20162021, 2020, and 2015,2019, respectively. Annual intangible asset amortization expense for the next five years is estimated to be $120,000$278,000 per year for  fiscal years 20182022 through 2022.2023, $242,000 for fiscal year 2024, $148,000 for fiscal year 2025 and 114,000 for fiscal year 2026.

70

​

​

Impairment of Long-LivedLong–Lived Assets. Annually, or when there are indicators of impairment, we evaluate the carrying value of long-livedlong–lived assets to be held and used, including property and equipment, software development costs, and intangible assets, including goodwill, when events or circumstances warrant such a review. The carrying value of a long-lived asset (or group of assets) to be held and used is considered impaired when the anticipated separately identifiable undiscounted cash flows from such an asset (or group of assets) are less than the carrying value of the asset (or group of assets).  We determined that we have a single asset group due to the interdependent nature of our operations.  We estimated the cash flows during the remaining useful life of the primary asset, and our undiscounted cash flow was in accordance with FASB guidance related to accountingexcess of the book value of our single asset group, and therefore, there was no impairment indications for our long-lived assets for the period ended October 31, 2021.  Thus, there was no impairment or disposalrecognized with respect to the carrying values of long-lived assets.assets for the years ended October 31, 2021, 2020, or 2019.

Earnings Per Share.Basic earnings per share is calculated by dividing net income (loss) by the weighted-averageweighted–average number of common shares actually outstanding during the period. Diluted earnings per share assumes the issuance of additional shares of common stock upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method discussed in FASB guidance on “Earnings Per Share.”

The following table presents a reconciliation of our basic and diluted earnings per share computation:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Fiscal Year Ended October 31, 

​

​

2021

​

2020

​

2019

(in thousands, except per share amounts)

    

Basic

    

Diluted

    

Basic

    

Diluted

    

Basic

    

Diluted

Net income (loss)

​

$

6,764

​

$

6,764

​

$

(6,247)

​

$

(6,247)

​

$

17,495

​

$

17,495

Undistributed earnings (loss) allocated to participating shares

​

 

(76)

​

 

(76)

​

 

66

​

 

66

​

 

(147)

​

 

(147)

Net income (loss) applicable to common shareholders

​

$

6,688

​

$

6,688

​

$

(6,181)

​

$

(6,181)

​

$

17,348

​

$

17,348

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Weighted average shares outstanding

​

 

6,595

​

 

6,595

​

 

6,670

​

 

6,670

​

 

6,759

​

 

6,759

Stock options and contingently issuable securities

​

 

—

​

 

13

​

 

—

​

​

—

​

 

—

​

 

56

​

​

 

6,595

​

 

6,608

​

 

6,670

​

 

6,670

​

 

6,759

​

 

6,815

Income (loss) per share

​

$

1.01

​

$

1.01

​

$

(0.93)

​

$

(0.93)

​

$

2.57

​

$

2.55

​

  Fiscal Year Ended October 31, 
  2017  2016  2015 
(in thousands, except per share amounts) Basic  Diluted  Basic  Diluted  Basic  Diluted 
Net income $15,115  $15,115  $13,292  $13,292  $16,214  $16,214 
Undistributed earnings allocated to participating shares  (100)  (100)  (76)  (76)  (93)  (93)
Net income applicable to common shareholders $15,015  $15,015  $13,216  $13,216  $16,121  $16,121 
Weighted average shares outstanding  6,615   6,615   6,569   6,569   6,543   6,543 
Stock options and contingently issuable securities  -   65   -   73   -   59 
   6,615   6,680   6,569   6,642   6,543   6,602 
Income per share $2.27  $2.25  $2.01  $1.99  $2.46  $2.44 

50

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Income Taxes.Taxes –We account for income taxes and the related accounts under the asset and liability method. Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction in effect for the year in which the temporary differences are expected to be recovered or settled. These deferred tax assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements. Our judgment regarding the realization of deferred tax assets may change due to future profitability and market conditions, changes in U.S. or foreign tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income in the period when such determinations are made.

71

​

​

The determination of our provision for income taxes requires judgment, the use of estimates, and the interpretation and application of complex federal, state and foreign tax laws. Our provision for income taxes reflects a combination of income earned and taxed at the federal and state level in the U.S., as well as in various foreign jurisdictions. We have not provided for any U.S. income taxes on the undistributed earnings of our foreign subsidiaries based upon our determination that such earnings will be indefinitely reinvested abroad.  Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2017 were approximately $92.9 million. In the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in forward-lookingforward–looking statements is based on currently effective tax laws. Significant changes in those laws could materially affect these estimates.

We operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex. The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications. We recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions, and the resolution of such audits may span multiple years. Tax law is complex and often subject to varied interpretations.  Accordingly, the ultimate outcome with respect to taxes we may owe may differ from the amounts recognized.

Stock Compensation.We account for share-basedshare–based compensation according to FASB guidance relating to share-basedshare–based payments, which requires the measurement and recognition of compensation expense for all share-basedshare–based awards made to employees and directors based on estimated fair values on the grant date. This guidance requires that we estimate the fair value of share-basedshare–based awards on the date of grant and recognize as expense the value of the portion of the award that is ultimately expected to vest over the requisite service period.

Estimates.The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires us to make estimates and assumptions that affect the reported amounts presented and disclosed in our consolidated financial statements. Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long-livedlong–lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, stock compensation, income taxes and deferred tax valuation allowances, and contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

2.BUSINESS OPERATIONS

​

2.BUSINESS OPERATIONS

Nature of Business. We design, manufacture, and sell computerized CNC machine tools, computer control systems and software products, machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training, and trainingapplications support, to companies in the metal cutting industry through a worldwide sales, service, and distribution network. The machine tool industry is highly cyclical and changes in demand can occur abruptly in the geographic markets we serve. As a result of this cyclicality, we have experienced significant fluctuations in our sales, which, in periods of reduced demand, have adversely affected our results of operations and financial condition.

51

72

​

​

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The end market for our products consists primarily of precision tool, die and mold manufacturers, independent job shops, and specialized short-runshort–run production applications within large manufacturing operations. Industries served include: aerospace, defense, medical equipment, energy, automotive/transportation, electronics, and computer industries. Our products are sold principally through more than 193180 independent agents and distributors throughout the Americas, Europe and Asia. We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and certain areas of the United States.

We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in many different countries. During fiscal 2020, our operating results were adversely affected by the international business disruption due to the outbreak of COVID-19 and the economic slowdown in Europe, uncertainty surrounding the U.K. Brexit activities, and political friction in the U.S. Many of our customers deferred or eliminated investments in capital equipment last year, which we attributed largely to the uncertainty these events created.  During fiscal 2021, our sales increased year-over-year in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions. Because of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing the financial statements as of October 31, 2021, with the understanding that these estimates could change in the near term. We will continue to evaluate and disclose any uncertainty associated with key assumptions underlying fair value estimates, trends, and uncertainties that have had, or are reasonably expected to have, a material effect on our consolidated financial position, results of operations, changes in shareholders' equity, and cash flows for and at the end of each interim period.

​

Credit Risk. We sell products to customers located throughout the world. We perform ongoing credit evaluations of customers and generally do not require collateral. Allowances are maintained for potential credit losses. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across many geographic areas. Although a significant amount of trade receivables are with distributors primarily located in the United States, no single distributor or region represents a significant concentration of credit risk.

Manufacturing Risk. At present, our wholly-ownedwholly–owned subsidiaries, Hurco Manufacturing Limited (“HML”), Ningbo Hurco Manufacturing LimitedMachine Tool Co., Ltd. (“NHML”), and Milltronics USA, Inc. (“Milltronics”) produce the vast majority of our machine tools for all three brands, Hurco, Milltronics, and Takumi. In addition, we manufacture electro-mechanicalelectro–mechanical components and accessories for machine tools through our wholly-ownedwholly–owned subsidiary, LCM Precision Technology S.r.l. (“LCM”).LCM. HML, NHML, Milltronics, and LCM manufacture their products in Taiwan, China, the U.S., and Italy, respectively. Any interruption in manufacturing at any of these locations would have an adverse effect on our financial operating results. Interruption in manufacturing at one of these locations could result from a change in the political environment or a natural disaster, such as trade wars or tariffs, or an earthquake, typhoon, or tsunami. Any interruption with one of our other third-party key suppliers may also have an adverse effect on our operating results and our financial condition.

​

3.INVENTORIES

73

​

​

3.INVENTORIES

Inventories as of October 31, 20172021 and 20162020 are summarized below (in thousands):

​

​

​

​

​

​

​

​

    

​

​

​

​

​

​

2021

​

​

2020

Purchased parts and sub–assemblies

​

$

37,527

  

$

30,390

Work–in–process

​

 

17,559

​

 

12,635

Finished goods

​

 

93,130

​

 

106,839

​

​

$

148,216

  

$

149,864

​

  2017  2016 
Purchased parts and sub-assemblies $33,045  $25,661 
Work-in-process  20,008   17,724 
Finished goods  66,895   73,640 
  $119,948  $117,025 

Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia was $12.1$11.8 million and $11.6$17.2 million as of October 31, 20172021 and 2016,2020, respectively.

​

4.CREDIT AGREEMENTS AND BORROWINGS

4.ACQUISITION OF BUSINESS

On August 5, 2019, we (through a newly-formed subsidiary, ProCobots) acquired substantially all of the assets of a U.S.-based automation integration company for approximately $4.4 million.  This acquired business provides automation solutions that can be integrated with any machine tool.  

​

The acquisition was accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the total purchase price was allocated to tangible assets and liabilities based on their fair value and the intangibles and goodwill were allocated on a provisional basis at the date of acquisition.  These allocations reflected various provisional estimates that were available at the time and were subject to change during the purchase price allocation period as valuations were finalized.  All valuations are now final.

The following table summarizes the allocation of  the opening balance sheet of ProCobots as of August 5, 2019 (in thousands):  

​

​

​

​

​

​

​

​

​

​

​

    

​

Initial Allocation

​

​

Adjustments

​

​

Final Allocation

Current assets

    

$

349

​

$

—

​

$

349

Property plant and equipment

​

 

452

​

 

—

​

 

452

Intangibles

​

 

148

​

 

972

​

 

1,120

Goodwill

​

 

3,500

​

 

(972)

​

 

2,528

Total assets

​

 

4,449

​

 

—

​

 

4,449

​

​

​

​

​

​

​

​

​

​

Current liabilities

​

 

96

​

 

—

​

 

96

Total liabilities

​

 

96

​

 

—

​

 

96

​

​

​

​

​

​

​

​

​

​

Total purchase price and cash expended

​

$

4,353

​

$

—

​

$

4,353

​

74

​

​

Intangible assets of $1.1 million were recorded as a result of the purchase.  The fair value of the intangible assets was based upon a discounted cash flow method that involves inputs that are not observable in the market (Level 3).  Intangible assets are amortized primarily using a straight-line methodology.  The intangible assets consisted of the following (in thousands):

​

​

​

​

​

​

​

    

​

​

​

Remaining Economic Useful Life

Trademark/name

​

$

520

​

15

Noncompete

​

 

580

​

5

Other

​

 

20

​

1

​

​

 

1,120

​

​

​

The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as goodwill in the amount of $2.5 million. Goodwill recognized in the acquisition relates primarily to expanding our current product offering.  The amount recorded as goodwill will be fully deductible for tax purposes.

​

As of October 31, 2020, we recognized an impairment loss for the full $2.5 million of goodwill relating to ProCobots.  See Note 1 of these Notes to Consolidated Financial Statements for further information.

The results of operations of ProCobots have been included in the consolidated financial statements from the date of acquisition.

​

5.     CREDIT AGREEMENTS AND BORROWINGS

​

On December 7, 2012,31, 2018, we and our subsidiary Hurco B.V. entered into ana credit agreement with Bank of America, N.A., as the lender, which was subsequently amended on May 9, 2014, June 5, 2014,each of March 13, 2020, December 5, 201423, 2020 and December 6, 201617, 2021 (as amended, the “U.S. credit agreement”“2018 Credit Agreement”) with a financial institution that provided us with. The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility.facility in a maximum aggregate amount of $40.0 million. The U.S.2018 Credit Agreement provides that the maximum amount of outstanding letters of credit agreementat any one time may not exceed $10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V. at any one time may not exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million. Under the 2018 Credit Agreement, we and Hurco B.V. are borrowers, and certain of our other subsidiaries are guarantors. The scheduled maturity date of the 2018 Credit Agreement is December 31, 2023.

​

Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month SOFR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an annual rate of 1.00%.

​

The 2018 Credit Agreement contains customary financialaffirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $5.0$10.0 million),; (2) restricting us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018

75

​

​

Credit Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $10.0 million; (3) requiring that we maintain a minimum working capital of $125.0 million; and (3)(4) requiring that we maintain a minimum tangible net worth. The U.S. credit agreement permits us to pay certain cash dividends, so long as we are not in defaultworth of $176.5 million.  We may use the proceeds from advances under the U.S. credit agreement before2018 Credit Agreement for general corporate purposes.

​

In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and after giving effect to such dividends.

52

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Borrowings under our U.S. credit agreement bear interest either at a LIBOR-based rate or a floating rate, in each case with an interest rate floor of 0.00%. The floating rate equals the greatest of (a) a one month LIBOR-based rate plus 1.00% per annum, (b) the federal funds effective rate plus 0.50% per annum, (c) the prevailing prime rate and (d) 0.00%. The rate we must pay for that portion of the U.S. credit agreement which is not utilized is 0.05% per annum.

On December 6, 2016, we entered into a fourth amendment to our U.S. credit agreement to, among other things, increase the unsecuredChina, NHML, closed on uncommitted revolving credit facility from $12.5facilities with maximum aggregate amounts of 150 million to $15.0 million, to increase the cash dividend allowance from $4.0 million per calendar year to $5.0 million per calendar year,New Taiwan Dollars and to extend the scheduled maturity date to December 31, 2018. The U.S. credit agreement, as amended, provides for the issuance of up to $5.0 million in letters of credit. We also amended the U.S. credit agreement to increase the minimum working capital and minimum tangible net worth requirements from $90.0 million to $105.0 million and $120.0 million to $125.0 million, respectively.

On February 16, 2017, we amended our credit facility in China to decrease the credit facility from 40.032.5 million Chinese Yuan, to 20.0 million Chinese Yuan (approximately $3.0 million)respectively.  As uncommitted facilities, both the Taiwan and renewed the facility with an expiration date of February 15, 2018. We had $1.5 million of borrowings under our China credit facility at eachfacilities are subject to review and termination by the respective underlying lending institution from time to time.

​

As a result, as of October 31, 2017 and October 31, 2016, which bears interest at variable rates2021, our existing credit facilities consisted of 4.4% and 4.6% annually, respectively. We also have a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million revolving credit facility in Germany. We hadGermany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.

​

As of October 31, 2021, there were no other debt or borrowings under any of our other credit facilities at eitherand there was $52.2 million of those dates.available borrowing capacity thereunder.

​

6.FINANCIAL INSTRUMENTS

All of our credit facilities are unsecured. At October 31, 2017, we had unutilized credit facilities of $19.6 million.

5.FINANCIAL INSTRUMENTS

Estimated Fair Value of Financial Instruments

FASB fair value guidance establishes a three-tierthree–tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of these instruments, and such instruments meet the Level 1 criteria of the three-tierthree–tier fair value hierarchy discussed above. The carrying amount of short-termshort–term debt approximates fair value due to the variable rate of the interest and the short term nature of the instrument.

In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of October 31, 20172021 and 20162020 (in thousands):

​

 Assets  Liabilities 
 October 31, October 31, October 31, October 31, 
 2017  2016  2017  2016 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Assets

​

Liabilities

​

​

October 31, 

​

October 31, 

​

October 31, 

​

October 31, 

​

    

2021

    

2020

    

2021

    

2020

Level 1                

 

​

  

  

​

​

 

​

  

​

​

​

Deferred compensation $1,638  $1,363  $—  $— 

​

$

2,481

  

$

1,868

 

$

0

​

$

0

​

​

​

​

​

​

​

​

​

​

​

​

​

Level 2                

​

 

  

​

 

  

 

 

  

 

 

  

Derivatives $596  $1,725  $1,732  $538 

​

$

905

  

$

968

 

$

467

​

$

872

​

53

76

​

​

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Recurring Fair Value Measurements

Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan. We estimate the fair value of these investments on a recurring basis using market prices which are readily available.

Included as Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on foreign currency forward exchange contracts entered into with a third party. We estimate the fair value of these derivatives on a recurring basis using foreign currency exchange rates obtained from active markets. Derivative instruments are reported in the accompanying consolidated financial statements at fair value. We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes to Consolidated Financial Statements in which the U.S. Dollar equivalent notional amount of these contracts was $134.3$94.6 million and $125.6$70.8 million at October 31, 20172021 and 2016,2020, respectively.

The fair value of the foreign currency forward exchange contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparty to the forward exchange contract is a substantial and creditworthy financial institution. We do not consider either the risk of counterparty non-performancenon–performance or the economic consequences of counterparty non-performancenon–performance as material risks.

​

6.INCOME TAXES

7.INCOME TAXES

We utilize the asset and liability method of accounting for income taxes. Under this method, the provision (benefit) for income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes during the year. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, included tax provisions that we applied relating to refundable payroll tax credits, the deferral of employer’s social security payments, and modifications to net operating loss carryback provisions. After we filed the net operating loss carryback claims during the fourth quarter of fiscal 2021, we included the $5.4 million of tax refunds in current assets. On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”), which includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021, was signed into law and provided further COVID-19 economic relief with an expansion of the employee retention credit. As a result, we recorded operating income of $2.9 million related to the employee retention credit during fiscal 2021.

​

In the fiscal years set forth below, the  provision (benefit) for income taxes consisted of the following (in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

    

2021

    

2020

    

2019

Current:

 

​

  

  

​

​

 

​

  

U.S. taxes

​

$

1,763

  

$

(4,932)

  

$

1,854

Foreign taxes

​

 

1,706

​

 

923

​

 

3,715

​

​

 

3,469

​

 

(4,009)

​

 

5,569

Deferred:

​

 

​

​

 

​

​

 

​

U.S. taxes

​

 

66

​

 

(256)

​

 

(31)

Foreign taxes

​

 

(178)

​

 

(291)

​

 

291

​

​

 

(112)

​

 

(547)

​

 

260

​

​

$

3,357

  

$

(4,556)

  

$

5,829

​

77

​

  Year Ended October 31, 
  2017  2016  2015 
Current:            
U.S. taxes $308  $1,362  $4,600 
Foreign taxes  4,185   4,456   3,752 
   4,493   5,818   8,352 
Deferred:            
U.S. taxes  1,236   (176)  (896)
Foreign taxes  (128)  (49)  (117)
   1,108   (225)  (1,013)
  $5,601  $5,593  $7,339 

​

The components of income (loss) before taxes are (in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

    

2021

    

2020

    

2019

Income (loss) before income taxes:

 

​

  

  

​

  

  

​

  

Domestic

​

$

4,340

 

$

(11,681)

 

$

9,793

Foreign

​

 

5,781

  

 

878

  

 

13,531

​

​

$

10,121

 

$

(10,803)

 

$

23,324

​

A comparison of income tax expense at the U.S. statutory rate to the Company’sour effective tax rate is as follows (dollars in thousands):follows:

​

  Year Ended October 31, 
  2017  2016  2015 
Income before income taxes:            
Domestic $5,477  $2,703  $10,806 
Foreign  15,239   16,182   12,747 
Earnings (Loss) before taxes on income $20,716  $18,885  $23,553 
Tax rates:            
U.S. statutory rate  34%  34%  35%
Effect of tax rate of international jurisdictions different than U.S. statutory rates  (5%)  (7%)  (5%)
Valuation allowance.  1%  3%  1%
State taxes  0%  0%  1%
Tax Credits  (3%)  (2%)  (1%)
Effect of Tax Rate Changes  0%  4%  0%
Other  0%  (2%)  0%
Effective tax rate  27%  30%  31%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

 

​

    

2021

    

​

2020

    

2019

  

​

​

 

​

​

​

 

​

​

 

  

  

U.S. statutory rate

​

 

21

%  

​

 

21

%  

 

21

%

Effect of tax rate of international jurisdictions different than U.S. statutory rates

​

 

4

%  

​

 

(2)

%  

 

3

%

Valuation allowance

​

 

0

%  

​

 

0

%  

 

1

%

State taxes

​

 

1

%  

​

 

2

%  

 

1

%

Tax credits

​

 

0

%  

​

 

1

%  

 

(2)

%

Transition tax

​

 

0

%  

​

 

0

%  

 

(1)

%

US tax on distributed and undistributed earnings

​

​

0

%  

​

​

0

%  

​

3

%  

US benefit of foreign intangible income

​

​

(1)

%  

​

​

0

%  

​

(3)

%  

Impact of CARES act

​

​

5

%  

​

​

22

%  

​

0

%  

Other

​

 

3

%  

1

 

(2)

%  

 

2

%

Effective tax rate

​

 

33

%  

​

 

42

%  

 

25

%

54

1 Primarily due to discrete items for unearned stock awards

HURCO COMPANIES, INC.​

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

We haveThe Tax Reform Act enacted on December 22, 2017, made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S federal income tax. As of October 31, 2021, the undistributed earnings of our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations. Accordingly, we did not madeaccrue for any provision for U.S. incomewithholding taxes on the undistributed earnings of our wholly-owned foreign subsidiaries, based upon our determination that such earnings will be indefinitely reinvested.  Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2017 were approximately $92.9 million. Inconsistent with the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.position adopted on January 1, 2018.

​

Deferred income taxes are determined based on the difference between the amounts used for financial reporting purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements.

​

As of October 31, 2017,2021, we had deferred tax assets established for accumulated net operating loss carryforwards of $1.7 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for research and development tax credits of $0.5$0.8 million. We have established a valuation allowance against some of these carryforwards due to the uncertainty of their full realization. As of October 31, 20172021, and 2016,2020, the balance of this valuation allowance was $2.3$1.9 million and $2.1$2.2 million, respectively.

​

78

​

​

Significant components of our deferred tax assets and liabilities at October 31, 20172021 and 2016 were2020 are as follows (in thousands):

​

​

​

​

​

​

​

​

​

​

October 31, 

​

    

2021

    

2020

Deferred Tax Assets:

 

​

  

 

​

  

Accrued inventory reserves

​

$

973

  

$

1,241

Accrued warranty expenses

​

 

308

​

 

248

Compensation related expenses

​

 

2,444

​

 

1,849

Net derivative gain

​

​

49

​

​

0

Unrealized exchange gain

​

 

0

​

 

14

Other accrued expenses

​

 

282

​

 

226

Net operating loss carryforwards

​

 

1,705

​

 

1,957

Other credit carryforwards

​

 

839

​

 

887

Operating lease liabilities

​

​

2,570

​

​

2,736

Goodwill and intangibles

​

​

967

​

​

1,019

Other

​

 

215

​

 

183

​

​

 

10,352

​

 

10,360

Less: Valuation allowance – net operating loss and other credit carryforwards

​

 

(1,871)

​

 

(2,164)

Deferred tax assets

​

 

8,481

​

 

8,196

​

​

 

​

​

 

​

Deferred Tax Liabilities:

​

 

​

​

 

​

Net derivative loss

​

 

0

​

 

(305)

Unrealized exchange loss

​

 

(15)

​

 

0

Property and equipment and capitalized software development costs

​

 

(2,533)

​

 

(2,563)

Operating lease - right of use assets

​

​

(2,495)

​

​

(2,666)

Other

​

 

(352)

​

 

(314)

Net deferred tax assets

​

$

3,086

  

$

2,348

  October 31, 
  2017  2016 
Deferred Tax Assets:        
Accrued inventory reserves $1,965  $1,824 
Accrued warranty expenses  438   312 
Compensation related expenses  2,952   2,664 
Net derivative instruments  417   — 
Unrealized exchange gain/loss  —   370 
Other accrued expenses  187   194 
Net operating loss carryforwards  1,722   1,616 
Other credit carryforwards  517   474 
Other  404   331 
   8,602   7,785 
Less: Valuation allowance - net operating loss and other credit carryforwards  (2,282)  (2,067)
Deferred tax assets  6,320   5,718 
         
Deferred Tax Liabilities:        
Net derivative instruments  —   (701)
Property and equipment and capitalized software development costs  (3,241)  (2,717)
Unrealized exchange gain/loss  (116)  — 
Other  (624)  (456)
         
Net deferred tax assets $2,339  $1,844 

​

As of October 31, 2017,2021, we had net operating lossesloss carryforwards for international and U.S. income tax purposes of $8.1$6.3 million, of which $6.7$3.9 million will expire within 5 years beginning in 2018fiscal 2022 and $1.4$0.4 million are state net operating losses which will expire between 5 and 20 years. The remaining $2.0 million in net operating losses will be carried forward indefinitely based on current international tax laws. We also had tax credits of $784,000$0.8 million which will expire between years 2022 and 2027.2031. 

55

​

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding the related accrual for interest or penalties, is as follows (in thousands):

​

 2017  2016  2015 

​

​

​

​

​

​

​

​

​

​

​

    

2021

    

2020

    

2019

Balance, beginning of year $1,102  $1,034  $1,196 

​

$

168

  

$

193

  

$

180

Additions based on tax positions related to the current year  37   52   17 

​

 

74

​

 

9

​

 

36

Additions (reductions) related to prior year tax positions  (20)  19   (51)

​

 

0

​

 

(2)

​

 

0

Reductions due to statute expiration  (74)  —   — 

​

 

(75)

​

 

(32)

​

 

(23)

Other  56   (3)  (128)

​

 

0

​

 

0

​

 

0

            
Balance, end of year $1,101  $1,102  $1,034 

​

$

167

  

$

168

  

$

193

​

79

​

​

The entire balance of the unrecognized tax benefits and related interest aton October 31, 2017,2021, if recognized, wouldcould affect the effective tax rate in future periods. This balance will be reduced by $1.0 million during the next fiscal year due to statute of limitations expiration.

​

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. As of October 31, 2017,2021, the amount of interest accrued, reported in other liabilities, was approximately $65,000,$31,000 which did not include the federal tax benefit of interest deductions. The statute of limitations with respect to unrecognized tax benefits will expire between July 2018August 2022 and July 2020.August 2025.

​

We file U.S. federal and state income tax returns, as well as tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S.applicable foreign jurisdictions. Currently, our subsidiary in Taiwan is under tax audit for fiscal year 2018.

​

A summary of open tax years by major jurisdiction is presented below:

​

​

​

​

United States federal

​

Fiscal 2014 through the current period

Germany¹

​

Fiscal 20132017 through the current period

Taiwan

​

Fiscal 20142016 through the current period

United Kingdom

​

Fiscal 2015 through the current period

¹

Includes federal as well as state, provincial or similar local jurisdictions, as applicable.

​

¹Includes federal as well as state, provincial or similar local jurisdictions, as applicable.

7.8.     EMPLOYEE BENEFITS

We have defined contribution plans that include a majority of our U.S. employees, under which our matching contributions are primarily discretionary. The purpose of these plans is generally to provide additional financial security during retirement by providing employees with an incentive to save throughout their employment. Our contributions and related expense totaled $1.1$1.2 million, $1.1$1.3 million, and $933,000,$1.4 million, for the fiscal years ended October 31, 2017, 20162021, 2020, and 2015,2019, respectively.

​

8.       STOCK-BASED9.STOCK–BASED COMPENSATION

In March 2016, we adopted the Hurco Companies, Inc. 2016 Equity Incentive Plan (the “2016 Equity Plan”), which allows us to grant awards of stock options, stock appreciation rights, restricted stock, stock units and other stock-basedstock–based awards. The 2016 Equity Plan replaced the Hurco Companies, Inc. 2008 Equity Incentive Plan (the “2008 Equity Plan”) and is the only active plan under which equity awards may be made by us to our employees and non-employeenon–employee directors. No further awards will be made under our 2008 Equity Plan. The total number of shares of our common stock that may be issued pursuant to awards under the 2016 Equity Plan is 856,048, which includes 386,048 shares remaining available for future grants under the 2008 Equity Plan as of March 10, 2016, the date our shareholders approved the 2016 Equity Plan.

56

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The Compensation Committee of our Board of Directors has the authority to determine the officers, directors and key employees who will be granted awards under the 2016 Equity Plan; designate the number of shares subject to each award; determine the terms and conditions upon which awards will be granted; and prescribe the form and terms of award agreements. We have granted restricted shares and performance units under the 2016 Equity Plan that are currently outstanding, and we have granted stock options restricted shares and performance shares under the 2008 Equity Plan that are currently outstanding. No stock option may be exercised more than ten years after the date of grant or such shorter period as the Compensation Committee may determine at the date of grant. The market value of a share of our common stock, for purposes of the 2016 Equity Plan, is the closing sale price as reported by the Nasdaq Global Select Market on the date in question or, if not a trading day, on the last preceding trading date.

80

​

​

A summary of the status of the options as of October 31, 2017, 20162021, 2020 and 20152019 and the related activity for the year is as follows:

​

 Shares Under Weighted Average Grant 
 Option  Date Fair Value 
Balance October 31, 2014  128,189  $20.45 

​

​

​

​

​

​

​

​

Shares Under

​

Weighted Average Grant

​

    

Option

    

Date Fair Value

Balance October 31, 2018

 

37,045

​

$

21.69

Granted  —   — 

 

0

​

 

0

Cancelled  (5,000) $35.83 

 

0

​

 

0

Expired  —   — 

 

0

​

 

0

Exercised  (15,300) $16.81 

 

—

​

$

—

Balance October 31, 2015  107,889  $20.25 

Balance October 31, 2019

 

37,045

​

$

21.69

Granted  —   — 

 

0

​

 

0

Cancelled  —   — 

 

0

​

 

0

Expired  —   — 

 

0

​

 

0

Exercised  —   — 

 

(3,738)

​

​

18.13

Balance October 31, 2016  107,889  $20.25 

Balance October 31, 2020

 

33,307

​

$

22.09

Granted  —   — 

 

0

​

 

0

Cancelled  —   — 

 

0

​

 

0

Expired  —   — 

 

0

​

 

0

Exercised  (29,164) $18.31 

 

(16,311)

​

​

21.45

Balance October 31, 2017  78,725  $20.97 

Balance October 31, 2021

 

16,996

​

$

22.71

​

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2017, 20162021, 2020 and 20152019 was approximately $771,000,$179,000, $44,000, and $0, and $154,000, respectively.

57

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

As of October 31, 2017,2021, the total intrinsic value of outstanding stock options already vested and the intrinsic value of options that arewere outstanding and exercisable was $1.8 million.$166,000. Stock options outstanding and exercisable on October 31, 2017,2021, were as follows:

​

Range of Exercise
Prices Per Share		  Shares Under
Option		  Weighted Average
Exercise Price Per
Share		  Weighted Average
Remaining Contractual
Life in Years		 
Outstanding             

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Weighted Average

​

Weighted Average

Range of Exercise

Range of Exercise

​

Shares Under

​

Exercise Price Per

​

Remaining Contractual

Prices Per Share

Prices Per Share

    

Option

    

Share

    

Life in Years

​

Outstanding and Exercisable

 

  

 

​

  

 

  

$14.82   11,000  $14.82   2.1 

21.45

 

5,437

 

$

21.45

 

0.04

14.88   4,200   14.88   1.5 
18.13   12,000   18.13   2.5 
21.45   30,012   21.45   4.1 
23.30   16,513   23.30   5.1 
35.83   5,000   35.83   0.6 

​

23.30

 

11,559

 

​

23.30

 

0.76

$14.82 – 35.83   78,725  $20.25   3.4 

21.45 - 23.30

  

16,996

  

$

22.71

 

0.80

Exercisable             
$14.82   11,000  $14.82   2.1 
14.88   4,200   14.88   1.5 
18.13   12,000   18.13   2.5 
21.45   30,012   21.45   4.1 
23.30   16,513   23.30   5.1 
35.83   5,000   35.83   0.6 
$14.82 – 35.83   78,725  $20.25   3.4 

​

On March 9, 2017,11, 2021, the Compensation Committee granted a total of 14,9209,708 shares of time-based restricted stock to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the recipient remains on the board of directors through that date. The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $26.80$37.06 per share.

​

On January 5, 2017,2021, the Compensation Committee determined the degreethat no performance stock units (“PSUs”) were earned pursuant to which the long-term incentive compensation arrangement approved for the fiscal 2014-20162018-2020 performance period was attained, andbased on the resulting payout level relative toresults of the target amount for each of theperformance metrics that were established by the Compensation Committee in 2014. As a result, the Compensation Committee determined that a total of 30,683 performance shares were earned by our executive officers, which performance shares vested on January 5, 2017. The vesting date fair value of the performance shares was based on the closing sales price of our common stock on the vesting date, which was $33.90 per share. All related stock-based compensation cost for these vested performance shares was expensed accordingly during the three year performance period ending October 31, 2016.2018.

​

81

​

​

On January 5, 2017,2021, the Compensation Committee also approved a long-term incentive compensation arrangement for our executive officers in the form of time-based restricted shares and performance stock units (“PSUs”)PSUs under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested. The awards were approximately 25% time-based vesting and approximately 75% performance-based vesting. The three-year performance period for the PSUs is fiscal 20172021 through fiscal 2019.2023.

​

On that date, the Compensation Committee granted a total of 14,74723,164 shares of time-based restricted stock to our executive officers.  The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date.  The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $33.90$28.60 per share.

58

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

​

On January 5, 2017,2021, the Compensation Committee also granted a total target number of 18,49639,199 PSUs to our executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall 20172021 executive long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over the three-year period of fiscal 2017-2019,2021-2023, relative to the total shareholder return of the companies in a specified peer group over that period. Participants will have the ability to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200% of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the PSUs – TSR was $43.25$27.04 per PSU and was calculated using the Monte Carlo approach.

​

On January 5, 2017,2021, the Compensation Committee also granted a total target number of 20,64732,430 PSUs to our executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall 20172021 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the three-year period of fiscal 2017-2019.2021-2023. Participants will have the ability to earn between 50% of the target number of the PSUs – ROIC for achieving threshold performance and 200% of the target number of the PSUs – ROIC for achieving maximum performance. The grant date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which was $28.60 per share.

​

On November 12, 2020, the Compensation Committee granted a total of 11,531 shares of time-based restricted stock to our non-executive employees. The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date. The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $29.30 per share.

​

On March 12, 2020, the Compensation Committee granted a total of 17,780 shares of time-based restricted stock to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the recipient remains on the board of directors through that date. The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $23.62 per share.

​

On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive compensation arrangement approved for the fiscal 2017-2019 performance period was attained, and the resulting payout level relative to the target amount for each of the metrics that were established by the Compensation Committee in 2017.  As a result, the Compensation Committee determined that a total of 28,979 PSUs were earned by our executive officers, which PSUs vested on January 2, 2020.  The vesting date fair value of the PSUs was based on the closing sales price of our common stock on the vesting date, which was $37.79 per share.

​

82

​

​

On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested. The awards were approximately 25% time-based vesting and approximately 75% performance-based vesting. The three-year performance period for the PSUs is fiscal 2020 through fiscal 2022.

​

On that date, the Compensation Committee granted a total of 20,837 shares of time-based restricted stock to our executive officers.  The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date.  The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $37.79 per share.

​

On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our executive officers designated as “PSU – TSR”.   These PSUs were weighted as approximately 40% of the overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over the three-year period of fiscal 2020-2022, relative to the total shareholder return of the companies in a specified peer group over that period.  Participants will have the ability to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200% of the target number of the PSUs – TSR for achieving maximum performance.  The grant date fair value of the PSUs – TSR was $46.81 per PSU and was calculated using the Monte Carlo approach.

​

On January 2, 2020, the Compensation Committee also granted a total target number of 29,174 PSUs to our executive officers designated as “PSU – ROIC”.  These PSUs were weighted as approximately 35% of the overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the three-year period of fiscal 2020-2022.  Participants will have the ability to earn between 50% of the target number of the PSUs - ROIC for achieving threshold performance and 200% of the target number of the PSUs - ROIC for achieving maximum performance.  The grant date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which was $33.90$37.79 per share.

​

On March 10, 2016,November 13, 2019, the Compensation Committee granted a total of 9,1708,052 shares of time-based restricted stock to our non-employee directors undernon-executive employees. The restricted shares vest in thirds over three years from the 2016 Equity Plan.date of grant provided the recipient remains employed through that date. The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $35.75 per share.

​

On March 14, 2019, the Compensation Committee granted a total of 11,824 shares of time–based restricted stock to our non–employee directors. The restricted shares vest in full one year from the date of grant provided the recipient remainsremained on the board of directors through that date. The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $30.52$40.58 per share.

On January 4, 2016,2, 2019, the Compensation Committee determined the degree to which the long–term incentive compensation arrangement approved for the fiscal 2016–2018 performance period was attained, and the resulting payout level relative to the target amount for each of the metrics that were established by the Compensation Committee in 2016. As a result, the Compensation Committee determined that a total of 32,559 performance shares were earned by our executive officers, which performance shares vested on January 2, 2019. The vesting date fair value of the performance shares was based on the closing sales price of our common stock on the vesting date, which was $36.08 per share.

83

​

​

On January 2, 2019, the Compensation Committee also approved a long-termlong–term incentive compensation arrangement for our executive officers in the form of restricted shares and performance shares awardedPSUs under the 2008 Plan.2016 Equity Plan, which will be payable in shares of our common stock if earned and vested. The awards were approximately 25% time-basedtime–based vesting and approximately 75% performance-basedperformance–based vesting. The three-year performance period for the PSUs is fiscal 20162019 through fiscal 2018.

2021.

On that date, the Compensation Committee granted a total of 17,68421,825 shares of time-basedtime–based restricted stock to our executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date. The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $26.04$36.08 per share.

On January 4, 2016,2, 2019, the Compensation Committee also granted a total target number of 24,023 performance shares30,943 PSUs to our executive officers designated as “Performance Shares“PSU – TSR”. The sharesThese PSUs were weighted as approximately 40% of the overall long-term2019 executive long–term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over athe three-year period of fiscal 2019–2021, relative to the total shareholder return of the companies in a specified peer group over that period. Participants will have the ability to earn between 50% of the target number of sharesthe PSUs – TSR for achieving threshold performance and 200% of the target number of sharesthe PSUs – TSR for achieving maximum performance. The grant date fair value of the Performance Shares -PSUs – TSR was $30.67$40.72 per sharePSU and was calculated using the Monte Carlo approach.

On January 4, 2016,2, 2019, the Compensation Committee also granted a total target number of 24,759 performance shares30,557 PSUs to our executive officers designated as “Performance Shares“PSU – ROIC”. These sharesPSUs were weighted as approximately 35% of the overall long-term2019 executive long–term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-establishedpre–established goals related to our average return on invested capital over the three-year period.period of fiscal 2019–2021. Participants will have the ability to earn between 50% of the target number of sharesthe PSUs – ROIC for achieving threshold performance and 200% of the target number of sharesthe PSUs – ROIC for achieving maximum performance. The grant date fair value of the Performance Shares -PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which was $26.04$36.08 per share.

59

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

On March 12, 2015,November 14, 2018, the Compensation Committee granted a total of 9,0867,200 shares of time–based restricted stock to our non-employee directors. The restricted stock vests in full one year from the date of grant provided the recipient remains on the board of directors through that date. The grant date fair value of restricted stock was based on the closing sales price of our common stock on the grant date which was $30.80 per share.

On January 6, 2015, the Compensation Committee approved a long-term incentive compensation arrangement for our non–executive officers in the form of restricted shares and performance shares awarded under the 2008 Plan. The awards were 25% time-based vesting and 75% performance-based vesting. The three-year performance period is fiscal 2015 through fiscal 2017.

On that date, the Compensation Committee granted a total of 11,174 shares of time-based restricted shares to our executive officers.employees. The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date. The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $32.22$40.01 per share.

On January 6, 2015, the Compensation Committee also granted a total target number of 16,740 performance shares to our executive officers designated as “Performance Shares – TSR”. The shares were weighted as 40% of the overall long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over a three-year period, relative to the total shareholder return of the companies in a specified peer group over that period. Participants will have the ability to earn between 50% of the target number of shares for achieving threshold performance and 200% of the target number of shares for achieving maximum performance. The grant date fair value of the Performance Shares - TSR was $34.41 per share and was calculated using the Monte Carlo approach.

On January 6, 2015, the Compensation Committee also granted a total target number of 15,643 performance shares to our executive officers designated as “Performance Shares – ROIC”. These shares were weighted as 35% of the overall long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the three-year period. Participants will have the ability to earn between 50% of the target number of shares for achieving threshold performance and 200% of the target number of shares for achieving maximum performance. The grant date fair value of the Performance Shares - ROIC was based on the closing sales price of our common stock on the grant date which was $32.22 per share.

A reconciliation of the Company’sour restricted stock, performance share and PSU activity and related information is as follows:

​

 Number Weighted Average Grant 
 of Shares  Date Fair Value 
Unvested at October 31, 2016  147,350  $28.79 

​

​

​

​

​

​

​

​

​

​

Weighted Average Grant

​

    

Number of Shares

    

Date Fair Value

Unvested at October 31, 2020

 

231,960

​

$

39.03

Shares or units granted  71,011   34.61 

 

116,032

​

 

28.85

Shares or units vested  (38,930)  26.98 

 

(36,243)

​

 

31.12

Shares or units cancelled  (7,678)  29.98 

 

(42,625)

​

 

43.99

Shares withheld  (13,944)  25.89 

 

(6,568)

​

 

38.20

Unvested at October 31, 2017  157,809  $32.05 

Unvested at October 31, 2021

 

262,556

​

$

34.84

​

84

​

​

During fiscal 20172021, 2020, and 2016,2019, we recorded approximately $1.7$2.8 million, $2.1 million, and $1.6$2.7 million, respectively, of stock-basedstock–based compensation expense related to grants under the 2008 Plan and the 2016 Equity Plan. We recorded approximately $1.2 million of stock-based compensation expense related to grants under the 2008 Plan for fiscal 2015. As of October 31, 2017,2021, there was an estimated $2.1$3.1 million of total unrecognized stock-basedstock–based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2020.2024.

​

60

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

9.       10.RELATED PARTY TRANSACTIONS

As of October 31, 2017,2021, we owned approximately 35% of the outstanding shares of a Taiwanese-basedTaiwanese–based contract manufacturer, Hurco Automation, Ltd. (“HAL”). HAL’s scope of activities includes the design, manufacture, sales, and distribution of industrial automation products, software systems, and related components, including control systems and components produced under contract for sale exclusively to us. We are accounting for this investment using the equity method. The investment of $3.6$4.8 million and $3.6$4.4 million at October 31, 20172021 and 2016,2020, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases of controls from HAL amounted to $10.0$4.8 million, $9.9$6.2 million, and $8.9$8.5 million in fiscal 2017, 20162021, 2020 and 2015,2019, respectively. Sales of control component parts to HAL were $139,000, $623,000$262,000, $265,000 and $723,000$198,000 for the fiscal years ended October 31, 2017, 20162021, 2020, and 2015,2019, respectively. Trade payables to HAL were $2.5$6.2 million and $2.0$1.3 million at October 31, 20172021 and 2016,2020, respectively. Trade receivables from HAL were $30,000$74,000 and $94,000$25,000 at October 31, 20172021 and 2016,2020, respectively.

Summary unaudited financial information for HAL’s operations and financial condition is as follows (in thousands):

​

 2017  2016  2015 
       

​

​

​

​

​

​

​

​

​

​

​

    

2021

    

2020

    

2019

Net Sales $15,800  $13,948  $12,852 

​

$

12,361

  

$

10,096

  

$

15,957

Gross Profit  2,457   2,240   2,041 

​

 

2,011

​

 

1,418

​

 

2,322

Operating Income  1,037   952   665 

​

 

216

​

 

160

​

 

992

Net Income  1,320   1,323   1,546 

​

 

802

​

 

265

​

 

1,490

            

​

​

 

  

​

 

  

​

 

  

Current Assets $11,310  $10,238  $10,262 

​

$

14,695

  

$

12,436

  

$

12,019

Non-current Assets  4,440   3,733   3,087 

Non–current Assets

​

 

6,850

​

 

6,152

​

 

5,560

Current Liabilities  3,916   2,572   3,472 

​

 

5,339

​

 

3,708

​

 

3,674

​

​

​

​

​

​

​

​

​

​

​

10.       11.CONTINGENCIES AND LITIGATION

WeFrom time to time, we are involved in various claims and lawsuits arising in the normal course of business. Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim when the estimated outcome is a range of possible loss and no one amount within that range is more likely than another. We maintain insurance policies for such matters, and we record insurance recoveries when we determine such recovery to be probable. We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations. We believe that the ultimate resolution of claims for any losses will not exceed our insurance policy coverages.

​

85

11.       ​

​

12.GUARANTEES AND PRODUCT WARRANTIES

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in ASC 460). As of October 31, 2017,2021, we had 278 outstanding third party payment guarantees totaling approximately $1.0$0.9 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer hasassumes the risk of ownership. The customer does not obtain title, however, until it has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value, which amounts are insignificant.

61

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

We provide warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year for machines and shorter periods for service parts. We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve. The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience. A reconciliation of the changes in our warranty reserve for each of the last three fiscal years is as follows (in thousands):

​

 2017  2016  2015 

​

​

​

​

​

​

​

​

​

​

​

​

2021

​

2020

​

2019

Balance, beginning of year $1,523  $2,186  $2,048 

​

$

1,200

  

$

1,760

​

$

2,497

Provision for warranties during the year  3,379   2,715   3,736 

​

 

2,948

​

 

2,075

​

 

2,246

Charges to the accrual  (3,203)  (3,349)  (3,495)

​

​

(2,643)

​

 

(2,669)

​

 

(2,991)

Impact of foreign currency translation  73   (29)  (103)

​

 

11

​

 

34

​

 

8

Balance, end of year $1,772  $1,523  $2,186 

​

$

1,516

  

$

1,200

​

$

1,760

​

The increase in our warranty reserve from fiscal 20162020 to fiscal 20172021 was primarily due to an increase in unit sales volume, as well as an increase in average warranty cost per machine as our product mixthe number of machines under warranty shifted to more complex, higher-performance machines.from increased sales volume in fiscal 2021.  The decrease in our warranty reserve infrom fiscal 2016 compared2019 to fiscal 20152020 was primarily due to a decrease in unit sales volume, as well as a reduction in average warranty cost per machine as our product mixthe number of machines under warranty shiftedfrom decreased sales volume.

​

13.LEASES

We adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on November 1, 2019, the start of our 2020 fiscal year, and utilized the transition method allowed.  Accordingly, comparative period financial information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required to less complex machines. The fiscal 2016 reductionthe opening balance of retained earnings on the adoption date.

​

Upon adoption of ASC 842, we utilized the following elections and practical expedients:

●We elected to combine non-lease components with lease components.
●If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a purchase option that is reasonably certain to be exercised, we have elected not to apply ASC 842 recognition requirements. Nonetheless, we intend to include leases of less than 12 months within the updated footnote disclosures, if material.
●We elected not to use the portfolio method if we enter into a large number of leases in the same month with the same terms and conditions.
●As we have applied the new transition method allowed per ASU 2018-11, we have elected not to reassess arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease, the lease classification applied or to separate initial direct costs.

86

​

​

●We elected not to use hindsight in determining the lease term for lease contracts that have historically been renewed or amended.

​

Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office space, vehicles, material handling equipment utilized in warranty reserve was also attributable to reductions in warranty obligations assumedour production and assembly facilities, laptops and other information technology equipment, as partwell as other miscellaneous leased equipment. Most of the acquisitionleased production and assembly facilities have lease terms ranging from two to five years, although the terms and conditions of Milltronicsour leases can vary significantly from lease to lease. We have assessed the specific terms and Takumi,conditions of each lease to determine the amount of the lease payments and the length of the lease term, which includes the minimum period over which lease payments are required plus any renewal options that are both within our control to exercise and reasonably certain of being exercised upon lease commencement. In determining whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant factors to determine if sufficient incentives exist as actual claims were less than anticipated, resultingof lease commencement to conclude renewal is reasonably certain. There are no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases to which we are a party. In determining the lease liability, we utilize our incremental borrowing rate to discount the future lease payments over the lease term to present value.

​

We record a right-of-use asset and lease liability on our Consolidated Balance Sheets for all leases for which we are a lessee, in adjustments to the provisionaccordance with ASC 842.  All our leases for warranties during the year.

12.       OPERATING LEASES

We lease facilities, certain equipment and vehicles underwhich we are a lessee are classified as operating leases that expire at various dates through 2024. Future payments required under the guidance in Topic 840.

​

We recorded total operating leases as of October 31, 2017, are summarized as follows (in thousands):

2018 $3,316 
2019  2,077 
2020  902 
2021  706 
2022 and thereafter  967 
Total $7,968 

Leaselease expense for the fiscal years ended October 31, 2017, 2016,2021, 2020, and 2015 was $4.42019 of $5.2 million, $4.5$5.0 million, and $3.8$5.1 million, respectively.respectively, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Consolidated Statements of Operations.  Operating lease expense includes short-term leases and variable lease payments which are immaterial.  There has been no cost to obtain leases capitalized on the Consolidated Balance Sheets as of October 31, 2021.

​

62

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for fiscal 2021 (in thousands):

​

​

​

​

​

Operating cash flow information:

​

​

​

Cash paid for amounts included in the measurement of lease liabilities

​

$

5,025

Noncash information:

​

​

​

Right-of-use assets obtained in exchange for new operating lease liabilities

​

$

3,698

​

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of October 31, 2021 (in thousands):

​

​

​

​

​

Remainder of 2022

    

$

4,375

2023

 

 

3,026

2024

 

 

1,398

2025

 

 

829

2026

​

​

615

2027 and thereafter

 

 

1,108

Total

 

 

11,351

Less: Imputed interest

​

​

(336)

Present value of operating lease liabilities

​

$

11,015

​

87

​

​

As of October 31, 2021, the weighted-average remaining term of our lease portfolio was approximately 3.9 years and the weighted-average discount rate was approximately 1.6%.

HURCO COMPANIES, INC.​

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

13.       14.QUARTERLY FINANCIAL INFORMATION (Unaudited)

​

  First  Second  Third  Fourth 
2017 (In thousands, except per share data) Quarter  Quarter  Quarter  Quarter 
Sales and service fees $48,744  $58,222  $60,770  $75,931 
Gross profit  12,586   17,068   17,540   23,370 
Gross profit margin  26%  29%  29%  31%
Selling, general and administrative expenses  11,167   11,714   12,395   14,385 
Operating income  1,419   5,354   5,145   8,985 
Provision for income taxes  543   1,467   1,353   2,238 
Net income  879   3,646   3,888   6,702 
Income per common share – basic $0.13  $0.55  $0.58  $1.01 
Income per common share – diluted $0.13  $0.54  $0.58  $1.00 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

First

​

Second

​

Third

​

Fourth

 

​

    

Quarter

    

Quarter

    

Quarter

    

Quarter

  

2021 (In thousands, except per share data)

​

​

​

​

​

​

​

​

​

​

​

​

​

Sales and service fees

​

$

54,115

 

$

57,920

  

$

54,178

 

$

68,982

  

Gross profit

​

 

11,547

  

 

14,794

  

 

12,974

  

 

16,934

  

Gross profit margin

​

 

21

%  

 

26

%  

 

24

%  

 

25

%

Selling, general and administrative expenses

​

 

10,568

  

 

11,273

  

 

10,331

  

 

13,829

  

Operating income (loss)

​

 

979

  

 

3,521

  

 

2,643

  

 

3,105

  

Provision (benefit) for income taxes

​

 

546

  

 

947

  

 

1,109

  

 

755

  

Net income (loss)

​

 

663

  

 

2,437

  

 

1,568

  

 

2,096

  

Income (loss) per common share – basic

​

$

0.10

 

$

0.37

  

$

0.23

 

$

0.31

  

Income (loss) per common share – diluted

​

$

0.10

 

$

0.37

  

$

0.23

 

$

0.31

  

​

  First  Second  Third  Fourth 
2016 (In thousands, except per share data) Quarter  Quarter  Quarter  Quarter 
Sales and service fees $56,503  $52,029  $52,403  $66,354 
Gross profit  17,698   16,610   16,135   19,997 
Gross profit margin  31%  32%  31%  30%
Selling, general and administrative expenses  11,961   11,943   12,042   14,878 
Operating income  5,737   4,667   4,093   5,119 
Provision for income taxes  1,709   1,225   1,120   1,539 
Net income  3,895   3,674   2,720   3,003 
Income per common share – basic $0.59  $0.56  $0.41  $0.45 
Income per common share – diluted $0.58  $0.56  $0.40  $0.45 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

First

​

Second

​

Third

​

Fourth

 

​

    

Quarter

    

Quarter

    

Quarter

    

Quarter

  

2020 (In thousands, except per share data)

​

​

​

​

​

​

​

​

​

​

​

​

​

Sales and service fees

​

$

43,660

 

$

37,126

  

$

45,382

 

$

44,459

  

Gross profit

​

 

9,159

  

 

6,709

  

 

11,069

  

 

9,520

  

Gross profit margin

​

 

21

%  

 

18

%  

 

24

%  

 

21

%

Selling, general and administrative expenses

​

 

10,846

  

 

10,599

  

 

9,627

  

 

10,344

  

Goodwill impairment

​

​

—

​

​

—

​

​

—

​

​

4,903

​

Operating income (loss)

​

 

(1,687)

  

 

(3,890)

  

 

1,442

  

 

(5,727)

  

Provision (benefit) for income taxes

​

 

(597)

  

 

(765)

  

 

(937)

  

 

(2,257)

  

Net income (loss)

​

 

(893)

  

 

(3,927)

  

 

2,162

  

 

(3,589)

  

Income (loss) per common share – basic

​

$

(0.13)

 

$

(0.58)

  

$

0.32

 

$

(0.54)

  

Income (loss) per common share – diluted

​

$

(0.13)

 

$

(0.58)

  

$

0.32

 

$

(0.54)

  

​

14.       ​

15.SEGMENT INFORMATION

We operate in a single segment: industrial automation equipment. We design, manufacture, and sell computerized (i.e., Computer Numeric Control) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network. Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components. Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products. We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training, and trainingapplications support.

88

​

​

We principally sell our products through more than 193180 independent agents and distributors throughout the Americas, Europe and Asia. Our line is the primary line for the majority of our distributors globally even though some may carry competitive products. We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and certain areas of the United States, which are among the world's principal machine tool consuming countries. During fiscal 2017,2021, no distributor accounted for more than 5% of our sales and service fees. In fiscal 2017,2021, approximately 71%63% of our revenues were from customers located outside of the U.S.Americas, and no single end-user of our products accounted for more than 5% of our total sales and service fees.

63

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The following table sets forth the contribution of each of our product groups and services to our total sales and service fees during each of the past three fiscal years (in thousands):

Net Sales and Service Fees by Product Category

​

 Year ended October 31, 
 2017  2016  2015 
       
Computerized Machine Tools * $209,311  $195,618  $189,712 

​

​

​

​

​

​

​

​

​

​

​

​

Year ended October 31, 

​

    

2021

    

2020

    

2019

Computerized Machine Tools

​

$

198,602

  

$

139,577

​

$

223,735

Computer Control Systems and Software†  2,324   2,078   3,085 

​

 

2,528

​

 

1,699

​

 

2,818

Service Parts  24,255   21,908   19,375 

​

 

26,425

​

 

22,484

​

 

27,854

Service Fees  7,777   7,685   7,211 

​

 

7,640

​

 

6,867

​

 

8,970

Total $243,667  $227,289  $219,383 

​

$

235,195

  

$

170,627

​

$

263,377

*Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective dates of acquisitions.
††Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.

The following table sets forth revenues by geographic area, based on customer location, for each of the past three fiscal years (in thousands):

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended October 31, 

​

    

2021

    

2020

    

2019

United States of America

​

$

83,218

  

$

64,500

  

$

95,196

Canada

​

 

2,636

​

 

1,621

​

 

2,580

Central & South Americas

​

 

989

​

 

1,543

​

 

1,409

Total Americas

​

 

86,843

​

 

67,664

​

 

99,185

​

​

 

​

​

 

​

​

 

​

Germany

​

 

37,584

​

 

24,993

​

 

52,002

United Kingdom

​

 

30,314

​

 

19,679

​

 

29,349

Italy

​

 

12,718

​

 

8,599

​

 

14,772

France

​

 

14,252

​

 

10,797

​

 

14,346

Other Europe

​

 

21,467

​

 

14,034

​

 

20,028

Total Europe

​

 

116,335

​

 

78,102

​

 

130,497

​

​

 

​

​

 

​

​

 

​

China

​

 

14,284

​

 

14,225

​

 

15,706

Other Asia Pacific

​

 

16,047

​

 

10,048

​

 

16,858

Total Asia Pacific

​

 

30,331

​

 

24,273

​

 

32,564

​

​

 

​

​

 

​

​

 

​

Other Foreign

​

 

1,686

​

 

588

​

 

1,131

Grand Total

​

$

235,195

  

$

170,627

  

$

263,377

​

89

​

Revenues by Geographic Area​

  Year Ended October 31, 
  2017  2016  2015 
United States of America $70,912  $70,630  $66,781 
Canada  3,801   3,881   3,114 
Central & South Americas  1,844   1,950   1,930 
Total Americas  76,557   76,461   71,825 
             
Germany  48,786   44,411   43,727 
United Kingdom  28,019   25,313   30,235 
Italy  13,416   12,947   11,768 
France  13,917   13,787   13,162 
Other Europe  27,583   27,150   26,598 
Total Europe  131,721   123,608   125,490 
             
Asia Pacific  32,694   25,633   20,265 
Other Foreign  2,695   1,587   1,803 
Total Europe, Asia Pacific and Other Foreign  167,110   150,828   147,558 
  $243,667  $227,289  $219,383 

Long-livedLong–lived tangible assets, net by geographic area, were (in thousands):

​

 As of October 31, 
 2017  2016  2015 

​

​

​

​

​

​

​

​

​

​

​

​

As of October 31, 

​

    

2021

    

2020

    

2019

United States of America $7,599  $7,846  $8,658 

​

$

6,104

  

$

6,826

  

$

7,967

Foreign countries  6,185   5,911   5,893 

​

 

6,640

​

 

7,059

​

 

8,006

 $13,784  $13,757  $14,551 

​

​

$

12,744

  

$

13,885

  

$

15,973

64

​

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Net assets by geographic area were (in thousands):

​

 As of October 31, 
 2017  2016  2015 

​

​

​

​

​

​

​

​

​

​

​

​

As of October 31, 

​

    

2021

    

2020

    

2019

Americas $86,432  $84,040  $83,236 

​

$

84,385

  

$

83,214

  

$

103,863

Europe  70,536   60,861   59,468 

​

 

80,769

​

 

77,840

​

 

71,411

Asia Pacific  46,117   40,574   31,864 

​

 

73,265

​

 

70,094

​

 

64,971

 $203,085  $185,475  $174,568 

​

​

$

238,419

  

$

231,148

  

$

240,245

​

15.​

16.     NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncement:Pronouncements:

In MarchJune 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments.  This standard modifies the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses.  This standard is effective for our fiscal 2021 and we adopted this standard on November 1, 2020.  This standard did not have a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.

New Accounting Standards Update (“ASU”)Pronouncements:

In December 2019, FASB issued ASU No. 2016-09, Compensation – Stock Compensation2019-12, Income Taxes (Topic 718)740): Simplifying the Accounting for Income Taxes, which simplifies several areas of accountingallows for share-based compensation arrangements, including incomecompanies to remove certain exceptions and clarifies certain requirements regarding franchise taxes, goodwill, consolidated tax consequences, classification of awards as either equity or liabilities,expenses, and classification on the statement of cash flows. ASU 2016-09annual effective tax rate calculations.  This standard is effective for our fiscal year 2018, including interim periods within the fiscal year. Early2022, with early adoption is permitted. We elected to early adopt the new guidance in the fourth quarter of fiscal 2017 which required us to reflect any adjustments as of November 1, 2016, the beginning of the annual period that includes the interim period of adoption. Upon adoption, excess tax benefits or deficiencies from share-based award activity are reflected in the consolidated statements of income as a component of the provision for income taxes, whereas they previously were recognized in equity. We also elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The adoption of ASU 2016-09 resulted in a net cumulative-effect adjustment of a $0.2 million increase to retained earnings as of November 1, 2017, mostly related to the recognition of the previously unrecognized excess tax benefits using the modified retrospective method. The previously unrecognized excess tax effects were recorded as a reduction to tax liability or an increase to deferred tax asset.

We adopted the aspects of the standard affecting the cash flow presentation retrospectively, and accordingly, to conform to the current year presentation, we reclassified $146,000 and $239,000 of employee taxes paid for withheld shares under operating activities to financing activities for the years ended October 31, 2016 and 2015, respectively, on our consolidated statements of cash flows.

New Accounting Pronouncements:

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606), establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This standard provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. We have the option of applying this new standard retrospectively to each prior period presented (“full retrospective approach”) or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption (“modified retrospective approach”). Between August 2015 and December 2016, the FASB issued five additional updates to Topic 606: 1) ASU No. 2015-14,Deferral of the Effective Date, 2) ASU No. 2016-08,Principal versus Agent Considerations (Reporting Revenue Gross versus Net),3) ASU No. 2016-10,Identifying Performance Obligations and Licensing,4) ASU No. 2016-12,Narrow-Scope Improvements and Practical Expedients and 5) ASU No. 2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers to provide further guidance and clarification in accounting for revenue arising from contracts with customers. All these updates will be effective for our fiscal year 2019, including interim periods within the fiscal year. We have not yet determined the impact this new accounting standard may have on our consolidated financial statements. During the second and third quarters of fiscal 2017, we developed a project plan and timeline to complete an assessment of the potential impact that this accounting standard will have on our consolidated financial statements. During the third and fourth quarters of fiscal 2017, this assessment included training of our key personnel, sampling of our customer contracts and revenue stream evaluation. At this time, we expect to use the modified retrospective approach upon adoption. In fiscal 2018, we expect to implement and test any changes in policy, processes, systems and internal controls and to compute required transition adjustments and disclosures related to our implementation of this new accounting standard.

65

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), which establishes a comprehensive new lease accounting model. ASU 2016-02 clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. ASU 2016-02 is effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified retrospective application. Early adoption is permitted. We are assessing the impact this new accounting guidancestandard will have on our consolidated financial statements.statements and related disclosures.  

​

In January 2017, theMarch 2020, FASB issued ASU No. 2017-01,2020-04, Business CombinationsReference Rate Reform (Topic 805): Clarifying848) - Facilitation of the DefinitionEffects of a BusinessReference Rate Reform on Financial Reporting., which  This standard provides temporary optional expedients and exceptions to the U.S. Generally Accepted Accounting Principles guidance on contract modifications and hedge accounting to assist companies in evaluating whether transactions should be accounted forease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as acquisitions (or disposals) of assets or businesses. The amendment provides a more robust framework to use in determining when a set of transferred assets and activities is a business. ASU 2017-01SOFR.  This standard is effective for our fiscal year 2019, including interim periods withinall entities as of March 12, 2020 through December 31, 2022.  We are assessing the fiscal year. We do not expect that the adoption ofimpact this new accounting standard update will have a material effect on our consolidated financial statements.statements and related disclosures.  

​

In January 2017, the FASB issued ASU No. 2017-04,Intangibles–Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test, (i.e., the requirement for an entity to calculate the implied fair value of goodwill in measuring a goodwill impairment loss). ASU 2017-04 provides that a company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and should recognize an impairment charge if the carrying value exceeds the fair value of the reporting unit, but only to the extent of the goodwill amount allocated to that reporting unit. Companies will still have the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for our fiscal year 2021, including interim periods within the fiscal year. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. We do not expect that the adoption of this accounting standard update will have a material effect on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09,Compensation—Stock Compensation (Topic 718):Scope of Modification Accounting, to provide clarity and to reduce diversity in practice and cost and complexity when applying the guidance in Topic 718 to the modification of the terms and conditions of a share-based payment award. ASU 2017-09 includes guidance on determining which changes to the terms and conditions of share-based payment awards require a company to apply modification accounting under Topic 718. This update requires the entity to account for the effects of a modification unless specific conditions are met. ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award and is effective for our fiscal year 2019. Early adoption is permitted, including adoption in any interim period. We do not expect that the adoption of this accounting standard update will have a material effect on our consolidated financial statements.

There have been no other significant changes in the Company’s critical accounting policies and estimates during the fiscal year ended October 31, 2017.2021.

​

66

90

​

​

Item 9.

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.CONTROLS AND PROCEDURES

None.

​

Item 9A.CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2017,2021, pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the evaluation date.

There have been no changes in our internal control over financial reporting that occurred during the fourth quarter of the fiscal year ended October 31, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The attestation report of our independent registered public accounting firm on our internal control over financial reporting is included in this report under Item 8. Financial Statements and Supplementary Data. Our management’s annual report on internal control over financial reporting is included in this report immediately preceding Item 8.

67

Item 9B.OTHER INFORMATION

​

​

Item 9B.OTHER INFORMATION

During the fourth quarter of fiscal 2017,2021, the Audit Committee of the Board of Directors did not engage our independent registered public accounting firm to perform any new non-audit services. This disclosure is made pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as amended, as added by Section 202 of the Sarbanes-Oxley Act of 2002.

​

The following graph below matchescompares the cumulative 5-Year total return of holdersto shareholders of Hurco Companies, Inc.'s common stock withrelative to the cumulative total returns of the Russell 2000 index, the NASDAQNasdaq Global Select index and atwo customized peer groups of sixteen companies and eighteen companies for the 2020 peer group and the 2021 peer group, respectively, whose individual companies are listed below. An investment of nineteen companies that includes: Ampco-Pittsburgh Corporation, DMC Global Inc. (formerly Dynamic Materials Corporation), Douglas Dynamics Inc., The Eastern Company, Electro Scientific Industries Inc., FARO Technologies Inc., Graham Corporation, Hardinge Inc., Kadant Inc., Key Technology Inc., Key Tronic Corporation, The L.S. Starrett Company, Nanometrics Incorporated, Novanta Inc., PDF Solutions Inc., Proto Labs Inc., QAD Inc., Sun Hydraulics Corporation and Transcat Inc. The graph assumes that the value$100 (with reinvestment of the investmentall dividends) is assumed to have been made in our common stock, in each index and in each of the peer group (including reinvestment of dividends) was $100groups on 10/31/2012October 31, 2016 and tracks cumulative total shareholder returnits relative performance is tracked through 10/31/2017.October 31, 2021.

​

●The sixteen companies included in the Company's first customized peer group are: Ampco-Pittsburgh Corp, DMC Global Inc., Douglas Dynamics Inc., Eastern Co, Faro Technologies Inc., Graham Corp, Helios Technologies Inc., Kadant Inc., Key Tronic Corp, L S Starrett Co, Novanta Inc., Onto Innovation Inc., Proto Labs Inc., Transcat Inc., Twin Disc Inc. and Vishay Precision Group Inc.
●The eighteen companies included in the Company's second customized peer group are: Ampco-Pittsburgh Corp, Broadwind Inc., DMC Global Inc., Douglas Dynamics Inc., Eastern Co, Energy Recovery Inc., Faro Technologies Inc., Graham Corp, Helios Technologies Inc., Key Tronic Corp, L S Starrett Co, Omega Flex Inc., Onto Innovation Inc., Proto Labs Inc., Transcat Inc., Twin Disc Inc., UFP Technologies Inc. and Vishay Precision Group Inc.

91

 ​

  10/12  10/13  10/14  10/15  10/16  10/17 
                   
Hurco Companies, Inc.  100.00   106.77   169.51   119.36   117.81   203.58 
Russell 2000  100.00   136.28   147.27   147.77   153.84   196.69 
NASDAQ Global Select  100.00   134.54   160.58   178.17   184.57   241.25 
Peer Group  100.00   155.37   145.59   124.59   133.69   232.81 

​

Graphic

 

 

10/31/16

10/31/17

10/31/18

10/31/19

10/31/20

10/31/21

Hurco Companies, Inc.

100.00

172.80

158.84

137.43

120.02

132.76

Russell 2000

100.00

127.85

130.22

136.60

136.42

205.72

NASDAQ Global Select

100.00

129.42

142.78

162.48

209.73

293.16

2020 Peer Group

100.00

181.00

200.35

205.09

221.96

328.58

2021 Peer Group

100.00

152.45

167.33

163.99

175.64

238.70

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

68

92

​

​

PART III

Item 10.Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEDIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the definitive proxy statement for our 20182022 annual meeting of shareholders except that the information required by Item 10 regarding our executive officers is included herein under a separatethe caption “Information about our Executive Officers” at the end of Part I.

​

Item 11.

Item 11.EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the definitive proxy statement for our 20182022 annual meeting of shareholders.

​

Item 12.

Item 12.​ ​SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the definitive proxy statement for our 20182022 annual meeting of shareholders.

​

Item 13.

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the definitive proxy statement for our 20182022 annual meeting of shareholders.

​

Item 14.

Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

PRINCIPal ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the definitive proxy statement for our 20182022 annual meeting of shareholders.

​

93

​

​

PART IV

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)    1.    Financial Statements. The following consolidated financial statements of the Company are included herein under Item 8 of Part II:

​

​

69

​

PART IV

Item 15.Exhibits AND Financial Statement Schedules

(a)1.Financial Statements. The following consolidated financial statements of the Company are included herein under Item 8 of Part II:

Page

Page

Reports of Independent Registered Public Accounting FirmsFirm

36

54

Consolidated Statements of IncomeOperations – years ended October 31, 2017, 20162021, 2020 and 20152019

39

58

Consolidated Statements of Comprehensive Income (Loss) – years ended October 31, 2017, 20162021, 2020 and 20152019

40

59

Consolidated Balance Sheets – as of October 31, 20172021 and 20162020

41

60

Consolidated Statements of Cash Flows – years ended October 31, 2017, 20162021, 2020 and 20152019

42

61

Consolidated Statements of Changes in Shareholders’ Equity – years ended October 31, 2017, 20162021, 2020 and 20152019

43

62

Notes to Consolidated Financial Statements

44

63

​

2.     Financial Statement Schedule. The following financial statement schedule is included in this Item.

​

Schedule II – Valuation and Qualifying Accounts and Reserves

for the Years Ended October 31, 2021, 2020 and 2019

(Dollars in thousands)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Charged to/

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(Recovered

​

​

​

​

​

​

​

​

​

​

​

Balance at

​

from)

​

Charged

​

​

​

​

Balance

​

​

Beginning

​

Costs and

​

to Other

​

​

​

​

at End

Description

    

of Period

    

Expenses

    

Accounts

    

Deductions

    

of Period

Allowance for doubtful accounts for the year ended:

 

​

  

 

​

  

 

​

  

 

​

  

  

​

  

October 31, 2021

​

$

1,401

  

$

268

​

$

—

  

$

24

(1)  

$

1,645

October 31, 2020

​

$

891

  

$

575

​

$

—

  

$

65

(1)  

$

1,401

October 31, 2019

​

$

1,027

  

$

(136)

​

$

—

  

$

—

(1)  

$

891

​

​

 

  

​

 

  

​

 

  

​

 

  

  

 

  

Income tax valuation allowance for the year ended:

​

 

  

​

 

  

​

 

  

​

 

  

  

 

  

October 31, 2021

​

$

2,164

  

$

49

​

$

—

  

$

342

  

$

1,871

October 31, 2020

​

$

2,227

  

$

50

​

$

—

  

$

113

  

$

2,164

October 31, 2019

​

$

2,106

  

$

458

​

$

—

  

$

337

  

$

2,227

(1)2.Financial Statement Schedule. The following financial statement schedule is included in this Item.Receivable write–offs.

Page
Schedule II - Valuation and Qualifying Accounts and Reserves71

All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

​

(b)Exhibits

Exhibits being filed with this Form 10-K or incorporated herein by reference are listed on page 72.

Item 16.FORM 10-K SUMMARY

None

70

94

​

​

(b)Exhibits

Schedule II - Valuation and Qualifying Accounts and Reserves

for the Years Ended October 31, 2017, 2016, and 2015

(Dollars in thousands)

Description Balance at
Beginning
of Period		  Charged to/
(Recovered
from)
Costs and
Expenses		  Charged
to Other
Accounts		  Deductions  Balance
at End
of Period		 
Allowance for doubtful accounts for the year ended:                    
                     
October 31, 2017 $664  $(123) $—  $98(1) $639 
                     
October 31, 2016 $739  $(15) $—  $60(1) $664 
                     
October 31, 2015 $878  $(13) $—  $126(1) $739 
                     
Income tax valuation allowance for the year ended:                    
                     
October 31, 2017 $2,067  $515  $—  $300  $2,282 
                     
October 31, 2016 $1,485  $587  $—  $5  $2,067 
                     
October 31, 2015 $1,225  $402  $—  $142  $1,485 

(1)Receivable write-offs.

71

EXHIBITS INDEX

Exhibits Filed. The following exhibits are filed with this report:

​

21

​

​

​

​

​

21.1

Subsidiaries of the Registrant.

23.1

Consent of Independent Registered Public Accounting Firm, RSM US LLPLLP.

23.2

31.1

Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP

31.1Certification by the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.

31.2

Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.

32.1

Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

101

XBRL Instance Document*

The following financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Changes in Shareholders’ Equity; and (vi) Notes to Consolidated Financial Statements

101.SCH

104

Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Schema Document*and contained in Exhibit 101)

101.CAL

​

XBRL Taxonomy Extension Calculation Linkbase*

​

101.LAB

​

XBRL Taxonomy Taxonomy Extension Label Linkbase Document*

​

101.PRE

​

XBRL Taxonomy Extension Presentation Linkbase Document*

​

101.DEF

​

XBRL Taxonomy Extension Definition Linkbase Document*

​

​

​

​

​

​

​

95

​

​

Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:

​

2.1

​

Asset Purchase Agreement, dated as of July 14, 2015, by and among Milltronics Manufacturing Company, Inc. d/b/a Milltronics CNC Machines, Liberty Diversified International, Inc. and Hurco USA, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015.+

​

2.2

3.1

Asset Purchase Agreement, dated as of July 14, 2015, by and among Takumi Machinery Co., Ltd., Liberty Diversified International, Inc. and Hurco Manufacturing Limited, incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on July 15, 2015.+

2.3Amendment No. 1 to Asset Purchase Agreement, dated as of July 27, 2015, by and among Takumi Machinery Co., Ltd., Liberty Diversified International, Inc. and Hurco Manufacturing Limited, incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed on July 28, 2015.
3.1Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant'sRegistrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.

3.2

​

Amended and Restated By-Laws of the Registrant as amended through November 16, 2017,March 12, 2021, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 17, 2017.March 12, 2021.

10.1

4.1

Fourth Amendment to Credit Agreement, dated asDescription of December 6, 2016, between Hurco Companies, Inc. and JPMorgan Chase Bank, N.A.,the Company’s Common Stock, incorporated by reference to Exhibit 10.14.1 to the Registrant’s Current Report on Form 8-K10-K filed on DecemberJanuary 8, 2016.2021.

10.2

10.1*

Replacement Revolving Note, dated as of December 6, 2016, by Hurco Companies, Inc. for the benefit of JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 8, 2016.

10.3*Hurco Companies, Inc. 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 10, 2016.

10.4*

10.2*

Form of Restricted Stock Agreement (Director) under the 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 10, 2016.

10.5*

10.3*

Hurco Companies, Inc. Cash Incentive Plan, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 10, 2016.

10.6Takumi Sale Agreement, dated as of July 14, 2015, by and between Hurco Companies, Inc., Hurco Manufacturing Limited and Liberty Diversified International, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015.

72

10.7Credit Agreement dated as of December 7, 2012 among Hurco Companies, Inc., the lenders party thereto and JP Morgan Chase Bank, N.A., incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 10, 2012.
10.8First Amendment to Credit Agreement dated as of May 9, 2014 between Hurco Companies, Inc., JPMorgan Chase Bank, N.A. and the lenders signatory thereto, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.9Second Amendment to Credit Agreement dated as of June 5, 2014 between Hurco Companies, Inc., JPMorgan Chase Bank, N.A. and the lenders signatory thereto, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
10.10Third Amendment to Credit Agreement and Amendment to Subsidiary Guaranty dated as of December 5, 2014, between Hurco Companies, Inc. and JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 8, 2014.
10.11*Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Michael Doar, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 16, 2012.
10.12*Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and John P. Donlon, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed March 16, 2012.
10.13*Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Gregory S. Volovic, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed March 16, 2012.
10.14*Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Sonja K. McClelland, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed March 16, 2012.
10.15*Hurco Companies, Inc. 2008 Equity Incentive Plan, incorporated by reference to Appendix A of the Registrant’s definitive Proxy Statement on Schedule 14A filed January 28, 2008.
10.16*Form of restated split-dollar insurance agreement, incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2008.
10.17*Form of Restricted Stock Award Agreement – Employee, incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2011.
10.18*Form of Restricted Stock Award Agreement – Director, incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2011.
10.19*Form of Restricted Share Award Agreement (Employee), incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 14, 2014.
10.20*Form of Restricted Stock Award Agreement (Employee) under the 2016 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q for the quarter ended January 31, 2017.

10.21*

10.4*

Form of Performance Share Award Agreement (Employee), incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 14, 2014.

10.22*Form of Performance Stock Unit Award Agreement (Employee) under the 2016 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 10-Q for the quarter ended January 31, 2017.

10.23*

10.5*

Fiscal 2015 Short-TermHurco Companies, Inc. Cash Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 10, 2016.

10.6*

​

Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Michael Doar, incorporated by reference to Exhibit 10.1 to the Registrant’s QuarterlyCurrent Report on Form 10-Q for the quarter ended January 31, 2015.8-K filed March 16, 2012.

10.24*

10.7*

Fiscal 2016 Short-Term Incentive Compensation Plan,First Amendment to Employment Agreement, dated as of November 11, 2021, by and between Hurco Companies, Inc. and Michael Doar, incorporated by reference to Exhibit 10.1 to the Registrant’s QuarterlyCurrent Report on Form 10-Q8-K filed on November 17, 2021.

10.8*

​

Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Gregory S. Volovic, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed March 16, 2012.

10.9*

First Amendment to Employment Agreement, dated as of November 11, 2021, by and between Hurco Companies, Inc. and Gregory S. Volovic, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 17, 2021.

10.10*

Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Sonja K. McClelland, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed March 16, 2012.

10.11*

Hurco Companies, Inc. 2008 Equity Incentive Plan, incorporated by reference to Appendix A of the Registrant’s definitive Proxy Statement on Schedule 14A filed January 28, 2008.

10.12*

Form of restated split-dollar insurance agreement, incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the quarteryear ended JanuaryOctober 31, 2016.2008.

10.13

Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2018.

96

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10.14

First Amendment to Credit Agreement, dated as of March 13, 2020, to the Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 13, 2020.

10.15

​

Second Amendment to Credit Agreement, dated as of December 23, 2020, to the Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 29, 2020.

10.16

​

Third Amendment to Credit Agreement, dated as of December 17, 2021, to the Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 23, 2021.

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+

*

Schedules to the indicated exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.
*

The indicated exhibit is a management contract, compensatory plan, or arrangement required to be listed by Item 601 of Regulation S-K.

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Item 16.FORM 10-K SUMMARY

None.

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SIGNATURES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, this 5th7th day of January, 2018.2022.

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​

HURCO COMPANIES, INC.

​

By:

/s/ Sonja K. McClelland

Sonja K. McClelland

Executive Vice President, Secretary, Treasurer and

Chief Financial Officer

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98

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

​

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​

​

​

Signature and Title(s)

Date

​

​

​

/s/ Michael DoarGregory S. Volovic

​

January 5, 20187, 2022

Michael Doar, Chairman,

Gregory S. Volovic

​

Chief Executive Officer

and President

of Hurco Companies, Inc.

​

(Principal Executive Officer)

​

​

/s/ Sonja K. McClelland

​

January 5, 20187, 2022

Sonja K. McClelland

​

Executive Vice President, Treasurer and

​

Secretary, Treasurer and

Chief Financial Officer

of Hurco Companies, Inc.

​

(Principal Financial Officer
and Officer)

​

​

/s/ HaiQuynh Jamison

​

January 7, 2022

HaiQuynh Jamison

Corporate Controller of Hurco Companies, Inc.

(Principal Accounting Officer)

​

​

​

​

/s/ Michael Doar

​

 January 7, 2022

Michael Doar, Executive Chairman of the Board

​

​

/s/ Thomas A. Aaro

​

January 5, 20187, 2022

Thomas A. Aaro, Director

​

​

/s/ Robert W. CruickshankCynthia Dubin

​

January 5, 20187, 2022

Robert W. Cruickshank,

Cynthia Dubin, Director

​

​

/s/ Timothy J. Gardner

​

January 5, 20187, 2022

Timothy J. Gardner, Director

​

​

​

/s/ Jay C. Longbottom

​

January 5, 20187, 2022

Jay C. Longbottom, Director

​

​

​

​

/s/ Andrew NinerJanuary 5, 2018
Andrew Niner, Director

/s/ Richard Porter

​

January 5, 20187, 2022

Richard Porter, Director

​

​

/s/ Janaki Sivanesan

​

January 5, 20187, 2022

Janaki Sivanesan, Director

​

/s/ Ronald StrackbeinJanuary 5, 2018
Ronald Strackbein, Director

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99

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