Hurco Companies, Inc. Annual Report 2016

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FY2016 Annual Report · Hurco Companies, Inc.

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Innovative

Reliable

Adaptable

Experts in Manufacturing Technology.
Focused on Customer Success.

Hurco Companies, Inc.

Report to Shareholders

Overview
Last year was an extraordinary year for Hurco. We launched
two new brands of machine tools, Takumi and Milltronics,
while continuing to develop new Hurco products and
technologies that make our customers all over the world
more productive and more profi table. I am very fortunate to
lead a company where all of its employees are so dedicated
to our customers and shareholders. Our culture at Hurco
is and always has been to focus on our customers and to be
a reliable, innovative and adaptive company in this ever-
changing, fast-paced world. We take pride in our customers’
success and appreciate their contribution to our success,
which in turn increases shareholder value.

Hurco had a record year in 2016 with revenue exceeding
$227 million, a 4 percent increase from last year and $3
million bett er than the previous record set in 2008. When
adjusted for the negative impact of currency translation,
revenues for 2016 exceeded $234 million. We achieved
record revenues even though we did not achieve record
unit sales, a testament to our commitment to expand our
product off ering to penetrate new markets with competitive
and more complex technologies. We successfully expanded
our presence in Asia, which can be directly att ributed to
the acquisition of the Takumi brand. Even though we were
negatively impacted by foreign currency translation in
Europe, our market penetration in that region remains
strong. The International Manufacturing Technology Show
(IMTS) was a key highlight of 2016 as it was the fi rst time we
had the opportunity to showcase all three of our brands at
one venue. The excitement and customer activity that was
generated at the show provided for a strong fi nish to the year,
particularly for the Milltronics and Hurco brands, which
utilize our proprietary controls.

Continuous innovation is at the core of every strategic
decision we make here at Hurco. In 2014, we fi led a patent
surrounding additive manufacturing, also known as 3D
printing. We achieved a major milestone this year as we
sold the fi rst commercial units of the Hurco 3D Print Head
Adapter. The adapter allows a Hurco customer to utilize his
CNC machine as both a 3D printer and machining center,
which accelerates the prototyping process.

Customers
While our products are found in Fortune 500 companies like
Google, Apple, Caterpillar, and Boeing, the majority of our
customers are entrepreneurs who risked the security of a steady
paycheck to start their own business. They are industrious,
resilient, and pragmatic. Helping these entrepreneurs increase
productivity and profi tability by providing rigid and reliable
machine tools equipped with sophisticated control technology is
what drives innovation at Hurco.

Core Competencies
Our core competencies include soft ware and product
innovation, effi cient design and manufacture of machine tools
with a well-developed supply chain, and targeted expansion of
products and markets. Our ability to provide customers with
quality machine tools equipped with sophisticated control
technologies that make their businesses more profi table is

a key diff erentiator. Customers rely on our technology to
simplify complex processes due to the user-friendly att ributes
of our products. This is especially advantageous in the growing
multi-axis space, an area in which we have led the industry.
Ultimately, the collaborative relationships we have forged
with customers could also be counted as a core competency
of Hurco Companies, Inc., as our customers help us improve
existing products and provide key input for new products.

Proﬁ tability
We measure profi tability on several diff erent levels, such as
gross profi t, operating income and net income and that means
striking a balance in the present period with manufacturing
effi ciencies, research and development activities and sales
& marketing, but continuing to make investments in these
activities that may result in improved profi tability in the
future. In a year where it was so important to integrate our
recently acquired brands, Milltronics and Takumi, the company
was faced with challenging global market changes that
impacted our business in ways that could not be foreseen. Hurco
responded to these challenges and performed at a respectable
level that exceeded our expectations and achieved the balance
that will result in continuous improvement and profi tability in
the future. In 2016, our operating income was $19.6 million, or
9% of sales, and our net income was $13.3 million.

Going Forward
While change is constant in any industry, it is occurring at an
exponential pace in the machine tool industry as automation
becomes critically important to customers. Fortunately, Hurco
is positioned to lead the industry in meaningful technology
innovation due to our strong cash position, R&D resources,
and effi cient supply chain. Additionally, the relationships we
have with our customers is advantageous in our pursuit to
continuously improve usability, which has been a hallmark of
Hurco technology from the beginning.

We will continue to expand the product line of all three brands
in the Hurco Companies portfolio to meet customer needs
while diligently managing expenses as we realize greater
effi ciencies on the operational side of the business.

On behalf of everyone at Hurco, I would like to thank our
existing customers for their loyalty and support through
the years and thank our new customers for choosing Hurco,
Milltronics and/or Takumi as your CNC machine of choice.
We appreciate the trust you have bestowed upon us. Thank
you to our shareholders for believing in Hurco and for your
enthusiastic approach to the progress we have made. I want to
thank our Board of Directors for their insight, guidance and
support. I also want to thank our employees around the world
for their dedication to our customers and their commitment to
continuous improvement, which is critical to sustained growth.

Sincerely,

Michael Doar
Chairman and Chief Executive Oﬃ cer

Inventing technology for the metal
cutt ing industry that makes our

customers more productive and more
profi table—that’s mind over metal®.
That’s Hurco.

Financial Highlights

(Dollars in thousands except per share data and number of employees)

Sales and service fees
Operating income (loss)
Net income (loss)
Earnings (loss) per common share (diluted)
Order intake
Working capital
Total debt
Shareholders’ equity
Number of employees
Stock price

October 31
High
Low

2016

$ 227,289
19,616
$
13,292
$
$
1.99
$ 219,222
$ 160,413
$
1,476
$ 185,475
758
26.20
33.65
23.25

$
$
$

2015

$ 219,383
23,804
$
16,214
$
$
2.44
$ 223,186
$ 151,026
$
1,583
$ 174,568
769
26.87
39.95
24.93

$
$
$

250

200

150

100

$222.3

$219.4

$227.3

200

160

$164.6

$174.6

$185.5

120

$23.8

$22.0

$19.6

2014

2015

2016

Sales and Service Fees
(Millions)

2014

2015

2016

Shareholders’ Equity
(Millions)

2014

2015

2016

Operating Income
(Millions)

2012

2011

2010

2009

2008

2007

2006

HURCO COMPANIES, INC. ELEVEN-YEAR
SELECTED FINANCIAL DATA
(In thousands except per share data and number of employees)

Annual Report 2016

For the Fiscal Year Ended

Sales and service fees
Cost of sales and service
Operating expenses (SG&A)
Operating income (loss)
Other income (expense)
Income before taxes
Income tax expense (benefit)
Net income (loss)
Average shares outstanding
Basic
Diluted/Primary
Earnings per share
Basic
Diluted/Primary

Capital expenditures
Depreciation and amortization
EBITDA
Gross profit margin %
Operating income as % of sales
Net return on sales
Return on average equity
Stock price range
High
Low

At Fiscal Year End
Working capital
Current ratio
Total assets
Total debt
Shareholders' equity
Total debt to capitalization %
Shareholder's equity per share (1)
Net operating assets per $ revenue (2)
Number of employees

(1) Based on shares outstanding at fiscal year end - diluted.
(2) Excluding cash, short-term investments, and debt.

2016
$227,289
156,849
50,824
19,616
(731)
18,885
5,593
$13,292

6,569
6,642

$2.01
$1.99

4,177
3,868
22,823
31.0%
8.6%
5.8%
7.4%

$33.65
$23.25

2016
$160,413
3.77
$251,949
1,476
185,475
0.8%
$27.92
$0.641
758

2015
$219,383
150,292
45,287
23,804
(251)
23,553
7,339
$16,214

2014
$222,303
153,691
46,615
21,997
(636)
21,361
6,218
$15,143

6,543
6,602

$2.46
$2.44

4,533
3,222
26,973
31.5%
10.9%
7.4%
9.6%

$39.95
$24.93

2015
$151,026
3.32
$248,577
1,583
174,568
0.9%
$26.44
$0.551
769

6,497
6,538

$2.31
$2.30

2,635
3,309
24,934
30.9%
9.9%
6.8%
9.6%

$39.64
$23.63

2014
$141,888
3.12
$239,176
3,272
164,645
1.9%
$25.18
$0.513
617

2013
$192,804
137,748
41,413
13,643
(1,201)
12,442
4,252
$8,190

6,455
6,497

$1.26
$1.25

2,380
3,392
16,114
28.6%
7.1%
4.2%
5.5%

$31.61
$21.22

2013
$127,235
3.28
$212,804
3,665
151,491
2.4%
$23.32
$0.583
625

For the Fiscal Year Ended

2016

2015

2014

2013

2012

2011

2010

2009

$203,117
139,936
41,160
22,021
(157)
21,864
6,226
$15,638

6,445
6,470

$2.41
$2.40

3,732
4,126
26,158
31.1%
10.8%
7.7%
11.6%

$28.80
$19.15

2012
$122,828
3.49
$197,360
3,206
143,793
2.2%
$22.22
$0.548
560

$180,400
124,526
38,493
17,381
(1,762)
15,619
4,495
$11,124

6,441
6,472

$1.72
$1.71

2,842
4,300
20,062
31.0%
9.6%
6.2%
9.2%

$35.07
$17.45

2011
$104,154
2.82
$186,870
865
126,212
0.7%
$19.50
$0.455
520

$105,893
84,097
29,837
(8,041)
(818)
(8,859)
(3,115)
$(5,744)

6,441
6,441

$(0.89)
$(0.89)

1,848
3,804
(5,006)
20.6%
(7.6%)
(5.4%)
(5.0%)

$20.18
$13.83

2010
$91,501
3.17
$160,959
-
114,740
0.0%
$17.81
$0.628
440

$91,016
65,188
30,874
(5,046)
1,234
(3,812)
(1,491)
$(2,321)

6,429
6,429

$(0.36)
$(0.36)

3,699
3,295
(482)
28.4%
(5.5%)
(2.6%)
(1.9%)

$24.68
$8.30

2009
$91,567
5.40
$141,994
-
120,376
0.0%
$18.72
$1.006
390

Annual Report 2016

2008

$223,994
141,377
46,811
35,806
(1,640)
34,166
11,646
$22,520

6,415
6,444

$3.51
$3.49

5,514
3,023
37,252
36.9%
16.0%
10.1%
20.4%

$58.68
$16.92

2008
$94,739
2.85
$183,170
-
123,477
0.0%
$19.16
$0.404
430

2007

$188,047
116,965
40,124
30,958
1,807
32,765
11,876
$20,889

6,382
6,440

$3.27
$3.24

4,510
2,106
35,072
37.8%
16.5%
11.1%
24.2%

$60.44
$24.61

2007
$67,792
2.07
$164,666
-
97,603
0.0%
$15.16
$0.308
380

2006

$148,517
95,192
30,697
22,628
486
23,114
7,635
$15,479

6,317
6,397

$2.45
$2.42

3,301
1,504
24,877
35.9%
15.2%
10.4%
23.0%

$37.47
$17.74

2006
$53,774
2.21
$126,666
4,010
75,375
5.1%
$11.78
$0.334
320

HURCO COMPANIES BRAND PORTFOLIO

With the addition of the Milltronics and Takumi businesses, we now have three brands
of CNC machine tools in our product portfolio: Hurco is the premium brand focused
on sophisticated technology. Milltronics is the general purpose brand with a simplifi ed
control and straightforward feature sets. Takumi is the industry standard brand since the

Hurco – Mind Over Metal
Hurco CNC machines are powered by proprietary technology that increases customer productivity and profi tability.
The integrated Hurco control is the most versatile in the industry, supporting both Industry Standard programming and
Conversational programming. The Hurco brand includes twelve product lines of advanced CNC mills and lathes.

Machining Centers

Turning Centers

LCM Precision Technology
LCM Precision Technology
LCM Precision Technology
LCM designs and manufactures advanced components for machine tools, such as
rotary tables, tilt tables, swivel heads, and electrospindles.

CNC Rotary Tables

Swivel Heads and Electrospindles

CNC Tilt Tables

HURCO COMPANIES BRAND PORTFOLIO

line of vertical machining centers are equipped with industry standard controls instead
of the proprietary controls found on Hurco and Milltronics CNC machines. LCM is the
fourth brand in the Hurco Companies brand portfolio. LCM produces components and
accessories for CNC machine tools.

Milltronics – Let’s Invent
Milltronics CNC machines are equipped with an interactive computer control system that is compatible with
G-codes and M-codes generated from CAD/CAM software and conversational visual aid programming. The
Milltronics brand includes seven product lines of general purpose CNC mills and lathes.

Machining Centers

Turning Centers

Takumi – The Art of Productivity
Takumi CNC machines are equipped with Industry Standard control systems produced by third parties, such
as Fanuc®, Siemens®, Mitsubishi® or Heidenhain®. The Takumi brand includes six product lines of CNC mills.

Vertical, High Speed Bridge and Double Column Machining Centers

Annual Report 2016

HURCO COMPANIES, INC. LEADERSHIP
Board of Directors

Corporate Officers and Division Executives

Thomas Aaro
Managing Partner, BlueBlack, LLC (2)

Michael Doar
Chairman and Chief Executive Officer

Leanor Lin
Vice General Manager, Takumi (Taiwan)

Robert W. Cruickshank
Independent Business Consultant (1,3,4)

Gregory S. Volovic
President

Michael Doar
Chairman, Chief Executive Officer
Hurco Companies, Inc.

Jay Longbottom
CEO, Robert Family Holdings (2)

Andrew Niner
President, Niner Wine Estates(1)

Richard Porter
Private Equity Manager (1,3)

Janaki Sivanesan
Attorney, Sivanesan Law (2)

Ronald Strackbein
Private Investor (2, 3)

1 Nominating and Governance Committee
2 Audit Committee
3 Compensation Committee
4 Presiding Independent Director

Sonja K. McClelland
Vice President, Secretary,
Treasurer and Chief Financial Officer

John Donlon
Executive Vice President, International
Sales/Service

Michael Auer

General Manager,
Hurco GmbH (Germany),
Hurco Sp. z o.o. (Poland)

Kaushik Bhattacharjee
General Manager,
Hurco India Private, Ltd. (India)

Phillippe Chevalier
General Manager, Hurco S.a.r.l. (France)

Cory Miller
General Manager, Hurco North America

Louie Pavlakos
General Manager, Milltronics USA

Marco Rizzi
General Manager, Hurco S.r.l. (Italy)

Nicola La Vista

General Manager,
LCM Precision Technology S.r.l. (Italy)

David Waghorn

General Manager, Hurco Europe Limited
(United Kingdom), Hurco South Africa
(PTY) Ltd. (South Africa)

Scott Yao
General Manager, Ningbo Hurco
Trading Co., Ltd. (Shanghai, China

Martin Lee, Luke Wang

Wai Yip Lee
General Manager,
Hurco (S.E. Asia) Pte Ltd. (Singapore)

Vice General Managers, Hurco Manufacturing
Limited (Taiwan) and Ningbo Hurco
Machine Tool Co., Ltd. (Ningbo, China)

CORPORATE INFORMATION
Annual Meeting
All shareholders are invited to attend
our annual meeting, which will be held
on Thursday, March 9, 2017 at 10 a.m.
Eastern Standard Time at Hurco’s
Corporate Offices, One Technology Way,
Indianapolis, IN.
Transfer Agent
Computershare Trust Company, N.A.,
250 Royall St., Canton, MA 02021
Legal Counsel
Corporate Law: Faegre Baker Daniels LLP
Patent Law: Faegre Baker Daniels LLP
Independent Auditors
Ernst & Young LLP, Suite 2600
111 Monument Circle, P.O. Box 44972
Indianapolis, IN 46244
Investor Relations
Sonja K. McClelland, Vice President,
Secretary, Treasurer and Chief
Financial Officer, One Technology Way,
Indianapolis, IN 46268
Telephone (317) 293-5309.

Stock Market Information
Hurco Common Stock is traded on the
Nasdaq Global Select Market under
the ticker symbol HURC. Stock price
quotations are printed daily in major
newspapers.

The following table sets forth the
high and low sales prices of the shares
of Common Stock for the periods
indicated, as reported by the Nasdaq
Global Select Market.

Fiscal Quarter Ended

2016

2015

High

Low

High

Low

$28.47

$23.90

$39.95

$30.33

$33.40

$23.25

$38.37

$28.22

$33.65

$26.57

$35.77

$30.13

$30.42

$25.45

$31.80

$24.93

January 31

April 30

July 31

October 31

There were approximately 116 holders
of record of Hurco Common Stock as of
October 31, 2016.

Disclosure Concerning Forward-
Looking Statements
Certain statements made in this annual
report may constitute “forward-looking
statements” within the meaning of
the Private Securities Litigation
Reform Act of 1995. These forward-
looking statements involve known
and unknown risks, uncertainties and
other factors that may cause our actual
results, performance or achievements to
be materially different from any future
results, performance or achievements
expressed or implied by such forward-
looking statements. These factors
include the risks identified in Item 1A of
the annual report on form 10K.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal

year ended October 31, 2016 or

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

HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Indiana
(State or other jurisdiction of
incorporation or organization)
One Technology Way
Indianapolis, Indiana
(Address of principal executive offices)

35-1150732
(I.R.S. Employer Identification Number)

46268
(Zip code)

Registrant’s telephone number, including area code (317) 293-5309
None
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, No Par Value
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)

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

Yes [ ] No [X]

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

Yes [ ] No [X]

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, and (2) has been subject to
the filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] 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.

[X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]

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

Yes [ ] No [X]

(Do not check if a smaller reporting company)

The aggregate market value of the registrant’s voting stock held by non-affiliates as of April 29, 2016 (the
last business day of our most recently completed second quarter) was $212,837,000.

The number of shares of the registrant’s common stock outstanding as of December 12, 2016 was
6,573,103.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its
2017 Annual Meeting of Shareholders (Part III).

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 not
limited to, 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”).

Item 1.

BUSINESS

General

PART I

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,
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.

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 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 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.

Our executive offices and principal design and engineering operations are headquartered in Indianapolis,
Indiana, U.S. Sales, application engineering and service subsidiaries are located in China, France,
Germany, India, Italy, 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.

The Milltronics and Takumi product lines contribute to our efforts to expand our consolidated product
range, customer base and global platform, and we believe may accelerate emerging market penetration,
particularly in strategic markets such as China and South America.

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 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.

Industry

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

Although industry association data for the U.S. machine tool market is available, that market only
accounts for approximately 9% 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 compete

• 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

• Capacity Utilization of Manufacturing Companies – issued by the Federal Reserve Board

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.,
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 and, therefore, are unreliable for
forecasting purposes.
___________

*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.

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 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.

Products

Our core products consist of general purpose computerized machine tools for the metal cutting industry,

principally, vertical machining centers (mills) and turning centers (lathes). The majority of our machine

tools are equipped and integrated fully with 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.

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):

Net Sales and Service Fees by Product Category

Computerized Machine Tools* $195,618

86%

$189,712

87%

$193,937

87%

Year Ended October 31,

2016

2015

2014

2,078

21,908

7,685

10%

3,085

19,375

7,211

3,407

17,391

7,568

$227,289

100%

$219,383

100%

$222,303

100%

* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective dates

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

Computer Control Systems

and Software †

Service Parts

Service Fees

Total

of those acquisitions.

machine systems.

Product Portfolio by Brand

We have three brands of CNC machine tools in our product portfolio: Hurco is the premium brand

focused on sophisticated technology. Milltronics is the entry level brand with a simplified control and

straightforward feature sets. 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 facilities 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. In addition, through our wholly–owned subsidiary LCM Precision Technology

S.r.l. (“LCM”), we produce machine tool components and accessories. The main product categories of

each brand are outlined below.

The Hurco, Milltronics and Takumi product lines represent a comprehensive product portfolio with more

than 150 different models. The combined machine tool product lines also provide benefits related to the

development of product enhancements, technologies and models due to leverage of shared resources and

cross-utilization of proven engineering designs that allow us to achieve manufacturing cost reductions

from economies of scale and manufacturing efficiencies.

During the third quarter of fiscal 2015, we acquired the assets of the machine tool business of Milltronics

Manufacturing Company, Inc. and we are operating this U.S. business as a product line through our

wholly-owned subsidiary, Milltronics USA, Inc. (“Milltronics”). Milltronics manufactures and sells CNC

knee mills, tool room bed mills, vertical machining centers, combination lathes, slant-bed lathes,

horizontal machining centers, and bridge mills. During the third quarter of fiscal 2015, we also acquired

the assets of the machine tool business of Takumi Machinery Co., Ltd. (“Takumi”), a Taiwanese

company that designs and manufactures CNC vertical machining centers, double column machining

centers, high speed bridge machines and other machine tools, with sales primarily in Taiwan, China and

Europe. Takumi machines are equipped with industrial controls from Fanuc®, Siemens®, Mitsubishi® or

Heidenhain® which can be used in high-volume parts manufacturing. We are operating this Taiwanese

business as a product line through our wholly-owned subsidiary Hurco Manufacturing Limited (“HML”).

The Milltronics and Takumi product lines contribute to our efforts to expand our consolidated product

range, customer base and global platform, and we believe may accelerate emerging market penetration,

particularly in strategic markets such as China and South America.

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 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.

Industry

Machine tool products are considered capital goods, which makes them part of an industry that has

historically been highly cyclical.

Although industry association data for the U.S. machine tool market is available, that market only

accounts for approximately 9% 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 compete

• 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

• Capacity Utilization of Manufacturing Companies – issued by the Federal Reserve Board

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.,

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 and, therefore, are unreliable for

forecasting purposes.

___________

*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.

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

Products
Products

Our core products consist of general purpose computerized machine tools for the metal cutting industry,
Our core products consist of general purpose computerized machine tools for the metal cutting industry,
principally, vertical machining centers (mills) and turning centers (lathes). The majority of our machine
principally, vertical machining centers (mills) and turning centers (lathes). The majority of our machine
tools are equipped and integrated fully with our proprietary software and computer control systems, while
tools are equipped and integrated fully with our proprietary software and computer control systems, while
the remaining machine tools are equipped with industry standard controls. Additionally, we produce and
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
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
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
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.
retrofit units for installation on existing or new press brake machines.

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

Net Sales and Service Fees by Product Category
Net Sales and Service Fees by Product Category

2016
2016

Year Ended October 31,
Year Ended October 31,
2015
2015

2014
2014

Computerized Machine Tools* $195,618
Computerized Machine Tools* $195,618
Computer Control Systems
Computer Control Systems

86%
86%

$189,712
$189,712

87%
87%

$193,937
$193,937

87%
87%

and Software †
and Software †

Service Parts
Service Parts
Service Fees
Service Fees

Total
Total

2,078
2,078
21,908
21,908
7,685
7,685
$227,289
$227,289

1%
1%
10%
10%
3%
3%
100%
100%

3,085
3,085
19,375
19,375
7,211
7,211
$219,383
$219,383

1%
1%
9%
9%
3%
3%
100%
100%

3,407
3,407
17,391
17,391
7,568
7,568
$222,303
$222,303

2%
2%
8%
8%
3%
3%
100%
100%

* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective dates
* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective dates

of those acquisitions.
of those acquisitions.

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

machine systems.
machine systems.

Product Portfolio by Brand
Product Portfolio by Brand

We have three brands of CNC machine tools in our product portfolio: Hurco is the premium brand
We have three brands of CNC machine tools in our product portfolio: Hurco is the premium brand
focused on sophisticated technology. Milltronics is the entry level brand with a simplified control and
focused on sophisticated technology. Milltronics is the entry level brand with a simplified control and
straightforward feature sets. Takumi is an industry standard brand with machines that are equipped with
straightforward feature sets. 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.
industry standard controls instead of the proprietary controls found on Hurco and Milltronics machines.
Typically, manufacturing facilities that use industry standard controls focus on medium to high
Typically, manufacturing facilities 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
production, wherein they run large batches of a few types of parts instead of small batches of many
different types of parts. In addition, through our wholly–owned subsidiary LCM Precision Technology
different types of parts. In addition, through our wholly–owned subsidiary LCM Precision Technology
S.r.l. (“LCM”), we produce machine tool components and accessories. The main product categories of
S.r.l. (“LCM”), we produce machine tool components and accessories. The main product categories of
each brand are outlined below.
each brand are outlined below.

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

3
3

Hurco CNC Machine Tools

Five-Axis Product Line

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 or three-dimensional machining programs directly from
an engineering drawing or computer-aided design geometry file. 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,
and incorporates an upgradeable personal computer (PC) platform using a high 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
controlled machine tools are better able to:

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

•

Our Windows® based 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 and computer aided manufacturing programmers. With the ability to
transfer most computer aided design data directly into a Hurco program, programming time can be
significantly reduced.

Machine tool products today are being designed to meet the demand for machining complex parts with
greater part accuracies. Our proprietary controls with WinMax® software and high speed processors
efficiently handle the large amounts of data these complex part-making programs require, which 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.

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:

VM Product Line

The VM product line consists of moderately priced vertical machining centers for the entry-level market.
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 five models in four sizes with X-axis (horizontal)
travels of 18, 26, 40, and 50 inches.

VMX Product Line

The VMX product line consists of higher performing vertical machining centers aimed at manufacturers
that require greater part accuracy. It is our flagship series of machining centers. The VMX line consists of
12 models in eight sizes with X-axis travels of 24, 26, 30, 42, 50, 60, 64, and 84 inches.
___________
†Windows® is a registered trademark of Microsoft Corporation in the United States and other countries.

HS Product Line

HMX Product Line

HBMX Product Line

TM/TMM 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.

Due to the integral, motorized spindle with a base 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.

The HMX product line is beneficial to manufacturers entering production manufacturing versus small

batch manufacturing. The HMX machines have expanded tool capacity, a comprehensive chip

management 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.

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.

The TM/TMM 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 seven sizes, measured by chuck size: the TM6, TM8, TM10, TM12, TM18, TM18L, 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. We added motorized tooling on the lathe

turret to further enhance the capability of the TM turning centers and designated it as the TMM 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 TMM product line consists of three

models: TMM8, TMM10, and TMM12.

TMX Product Line

The TMX product line consists of high performance turning centers. There are six models in two sizes.

The TMXMY models are equipped with an additional axis and motorized live tooling while the

TMXMYS models also have an additional spindle.

DCX Product Line

The double column DCX series includes five models in three sizes. These 2-meter, 3-meter, and 4-meter

machining centers are designed to facilitate production of large parts and molds often required by the

aerospace, energy and custom machinery industries.

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 or three-dimensional machining programs directly from

an engineering drawing or computer-aided design geometry file. 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,

and incorporates an upgradeable personal computer (PC) platform using a high 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

controlled machine tools are better able to:

• maximize the efficiency of their human resources;

• make more advanced and complex parts from a wide range of materials using multiple processes;

incorporate fast moving changes in technology into their operations to keep their competitive

•

edge; and

Our Windows® based 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 and computer aided manufacturing programmers. With the ability to

transfer most computer aided design data directly into a Hurco program, programming time can be

significantly reduced.

Machine tool products today are being designed to meet the demand for machining complex parts with

greater part accuracies. Our proprietary controls with WinMax® software and high speed processors

efficiently handle the large amounts of data these complex part-making programs require, which 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.

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:

The VM product line consists of moderately priced vertical machining centers for the entry-level market.

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 five models in four sizes with X-axis (horizontal)

VM Product Line

travels of 18, 26, 40, and 50 inches.

VMX Product Line

The VMX product line consists of higher performing vertical machining centers aimed at manufacturers

that require greater part accuracy. It is our flagship series of machining centers. The VMX line consists of

12 models in eight sizes with X-axis travels of 24, 26, 30, 42, 50, 60, 64, and 84 inches.

___________

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

Hurco CNC Machine Tools

Five-Axis Product Line
Five-Axis Product Line

The five-axis product line is targeted at manufacturers seeking to produce multi-sided parts or true five-
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
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
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
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
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.
models with three different configurations: swivel head, trunnion table, and cantilever.

HS Product Line
HS Product Line

Due to the integral, motorized spindle with a base speed of 18,000 rpm, the HS product line is desirable
Due to the integral, motorized spindle with a base 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
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
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
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.
four models with X-axis travels of 24, 30, 42, and 60 inches.

integrate their business into the global supply chain of their customers by supporting small to

medium lot sizes for “just in time” initiatives.

HMX Product Line
HMX Product Line

The HMX product line is beneficial to manufacturers entering production manufacturing versus small
The HMX product line is beneficial to manufacturers entering production manufacturing versus small
batch manufacturing. The HMX machines have expanded tool capacity, a comprehensive chip
batch manufacturing. The HMX machines have expanded tool capacity, a comprehensive chip
management system, a built-in pallet changer, and a box-in-box design supported at both the top and
management 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
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.
three models in three sizes with X-axis travels of 24, 32, and 41 inches.

HBMX Product Line
HBMX Product Line

The HBMX product line is beneficial to manufacturers that build custom machinery and parts for a
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.
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
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.
mill product line consists of four models with X-axis travels of 55, 79, 94, and 120 inches.

TM/TMM Product Line
TM/TMM Product Line

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

TMX Product Line
TMX Product Line

The TMX product line consists of high performance turning centers. There are six models in two sizes.
The TMX product line consists of high performance turning centers. There are six models in two sizes.
The TMXMY models are equipped with an additional axis and motorized live tooling while the
The TMXMY models are equipped with an additional axis and motorized live tooling while the
TMXMYS models also have an additional spindle.
TMXMYS models also have an additional spindle.

DCX Product Line
DCX Product Line

The double column DCX series includes five models in three sizes. These 2-meter, 3-meter, and 4-meter
The double column DCX series includes five models in three sizes. These 2-meter, 3-meter, and 4-meter
machining centers are designed to facilitate production of large parts and molds often required by the
machining centers are designed to facilitate production of large parts and molds often required by the
aerospace, energy and custom machinery industries.
aerospace, energy and custom machinery industries.

5
5

New Product Lines

MM/MB/RH Product Line

We introduced the HTM30, an open-bed mill that is beneficial for tool room applications. The BX40 is a
bridge mill designed for heavy cuts with a high-speed 18K spindle utilizing the frame design of the bridge
mill with a trunnion table for 5-axis machining. The HM1700i and HM1700Ri are both horizontal mills
that are equipped with a spindle that is ideal for both high and low end torque operations; however, the
HM1700Ri has an embedded rotary torque table to facilitate increased production efficiencies.
Additionally, we introduced a 3D print head technology that allows a Hurco CNC machine to be used for
3D printing, which is advantageous for prototyping.

Milltronics CNC Machine Tools

Our Milltronics line of CNC machine tools is designed for excellent value with more standard features for
the price versus market leaders. We manufacture and sell these machine tools with fully integrated
interactive computer control systems that are also compatible with G & M Code programs (generated
from CAD/CAM software) and 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.

The Milltronics portfolio consists of the following product lines:

VM General Purpose (GP) Product Line

The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,
prototype, R & D and other general machining applications. These belt-driven models are 40-taper and
available in four different sizes – all with the Series 9000 control. Customers can choose models with X-
axis (horizontal) travels of 25, 30, 40 or 50 inches.

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 or 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.

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 50-taper models are either gear driven or
heavy-duty belt driven and include the Series 9000 control. Customers can choose from three different
models with X-axis travels of 43, 50 or 60 inches.

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 in three sizes with X-axis travels of
100, 150, and 200 inches. BR machines offer the Series 9000 control.

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.

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 three

models with chuck sizes of 6, 10, and 12 inches. These compact machines feature the Series 8200-B

SL Product Line

control.

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.

These flexible machines feature the Series 8200-B control.

Takumi CNC Machine Tools

Our Takumi machine tools feature 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 machining centers. With the addition of the

Takumi brand, we have expanded our customer base 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.

The Takumi portfolio consists of the following product lines:

The VT Series includes one high-speed drill and tap machine. Model VT500 features fast tool change

times and rapid spindle acceleration/deceleration. This three-axis machine is designed for high volume

production applications such as automotive parts or electronics components.

The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for

customers doing batch or production work. The VC machines are available in two sizes with X-axis

VT Series

VC Series

travels of 34 and 42 inches.

V Series

The V Series vertical machining centers are heavy 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.

New Product Lines

MM/MB/RH Product Line
MM/MB/RH Product Line

We introduced the HTM30, an open-bed mill that is beneficial for tool room applications. The BX40 is a

bridge mill designed for heavy cuts with a high-speed 18K spindle utilizing the frame design of the bridge

mill with a trunnion table for 5-axis machining. The HM1700i and HM1700Ri are both horizontal mills

that are equipped with a spindle that is ideal for both high and low end torque operations; however, the

HM1700Ri has an embedded rotary torque table to facilitate increased production efficiencies.

Additionally, we introduced a 3D print head technology that allows a Hurco CNC machine to be used for

3D printing, which is advantageous for prototyping.

Milltronics CNC Machine Tools

Our Milltronics line of CNC machine tools is designed for excellent value with more standard features for

the price versus market leaders. We manufacture and sell these machine tools with fully integrated

interactive computer control systems that are also compatible with G & M Code programs (generated

from CAD/CAM software) and 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.

The Milltronics portfolio consists of the following product lines:

VM General Purpose (GP) Product Line

The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,

prototype, R & D and other general machining applications. These belt-driven models are 40-taper and

available in four different sizes – all with the Series 9000 control. Customers can choose models with X-

axis (horizontal) travels of 25, 30, 40 or 50 inches.

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 or 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.

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 50-taper models are either gear driven or

heavy-duty belt driven and include the Series 9000 control. Customers can choose from three different

models with X-axis travels of 43, 50 or 60 inches.

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 in three sizes with X-axis travels of

100, 150, and 200 inches. BR machines offer the Series 9000 control.

Products with the MM/MB or RH designation are part of the tool room bed mill category, which are
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
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
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.
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.
These easy-to-use machines feature the Series 8200-B control.

SL Product Line
SL Product Line

The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops
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 three
and contract manufacturers seeking efficient processing of small to medium lot sizes. There are three
models with chuck sizes of 6, 10, and 12 inches. These compact machines feature the Series 8200-B
models with chuck sizes of 6, 10, and 12 inches. These compact machines feature the Series 8200-B
control.
control.

ML Product Line
ML Product Line

The ML product line consists of combination lathes that the customer can configure for either tool room
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
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.
of thru hole sizes and in the following six swing-over bed diameters: 17, 19, 23, 27, 36, and 39.7 inches.
These flexible machines feature the Series 8200-B control.
These flexible machines feature the Series 8200-B control.

Takumi CNC Machine Tools
Takumi CNC Machine Tools

Our Takumi machine tools feature industry standard CNC controls, including Fanuc®, Siemens®,
Our Takumi machine tools feature industry standard CNC controls, including Fanuc®, Siemens®,
Mitsubishi® or Heidenhain®. Models include drill and tap machines; three-axis vertical machining centers
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
with linear guides; three-axis vertical machining centers with box ways; high-speed, double column
vertical machining centers; and heavy duty, double column machining centers. With the addition of the
vertical machining centers; and heavy duty, double column machining centers. With the addition of the
Takumi brand, we have expanded our customer base to include manufacturers who opt for industrial
Takumi brand, we have expanded our customer base to include manufacturers who opt for industrial
controls. Generally, manufacturers who use industrial controls have production-oriented operations where
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.
they run medium to large batches of just a few different types of parts.

The Takumi portfolio consists of the following product lines:
The Takumi portfolio consists of the following product lines:

VT Series
VT Series

The VT Series includes one high-speed drill and tap machine. Model VT500 features fast tool change
The VT Series includes one high-speed drill and tap machine. Model VT500 features fast tool change
times and rapid spindle acceleration/deceleration. This three-axis machine is designed for high volume
times and rapid spindle acceleration/deceleration. This three-axis machine is designed for high volume
production applications such as automotive parts or electronics components.
production applications such as automotive parts or electronics components.

VC Series
VC Series

The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for
The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for
customers doing batch or production work. The VC machines are available in two sizes with X-axis
customers doing batch or production work. The VC machines are available in two sizes with X-axis
travels of 34 and 42 inches.
travels of 34 and 42 inches.

V Series
V Series

The V Series vertical machining centers are heavy duty, box way machines built for tough applications
The V Series vertical machining centers are heavy 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
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,
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.
70, 78, 86, and 126 inches.

7
7

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 column design. These three-axis models feature
high-speed direct drive or built-in HSK spindles with up to 20,000 rpm, and offer a 24,000 rpm spindle
and 36,000 rpm spindle as options. The H Series product line consists of eight models in seven different
sizes with X-axis travels of 30, 35, 40, 53, 63, 86, and 126 inches.

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 column
design of the H Series, featuring high-speed direct drive or built-in HSK spindles with up to 20,000 rpm.
The G Series product line consists of two models with X-axis travels of 30 and 40 inches.

BC Series

The BC Series machine is a double column three-axis machining center designed for heavy cutting and
applications that require high power and torque, such as mold and die. This model includes a 6,000 rpm
geared-head design with X-axis travels of 82 inches.

Other Control Systems and Software

The following machine tool computer control systems and software products are sold directly to end-users
and/or to original equipment manufacturers.

Autobend®

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.

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, UltiMonitor, UltiPocket with
Helical Ramp Entry and Insert Pockets, Conversational Part and Tool Probing, Tool and Material Library,
NC/Conversational Merge, Job List, Stream Load, Linear Thermal Compensation, Thread Repair, and
Simultaneous Five-Axis Contouring.

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.

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

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

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 or text, access

diagnostic data, monitor the machine via webcam and communicate with the machine operator.

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.

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” approaches.

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.

NC/Conversational Merge lets the user incorporate conversational features, such as tool probing, pattern

operations, and scaling into existing G-Code programs.

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.

Stream Load allows 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.

Linear Thermal Compensation is a feature that allows the user to specify corrections to compensate for

the effects of thermal growth in high speed machining applications.

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.

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.

LCM Machine Tool Components and Accessories

Based in Italy, LCM designs, manufactures and sells mechanical and electro-mechanical components and

accessories for machine tools. LCM’s direct drive spindle, swivel head, and rotary torque table are used in

our SRT line of five-axis machining centers to achieve simultaneous five-axis machining.

CNC Rotary Tables

transmission.

LCM has five 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

H Series

G Series

BC Series

Autobend®

Designed to produce parts that require high precision and superior surface finishes, H Series machines

offer an extremely rigid and thermally stable double column design. These three-axis models feature

high-speed direct drive or built-in HSK spindles with up to 20,000 rpm, and offer a 24,000 rpm spindle

and 36,000 rpm spindle as options. The H Series product line consists of eight models in seven different

sizes with X-axis travels of 30, 35, 40, 53, 63, 86, and 126 inches.

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 column

design of the H Series, featuring high-speed direct drive or built-in HSK spindles with up to 20,000 rpm.

The G Series product line consists of two models with X-axis travels of 30 and 40 inches.

The BC Series machine is a double column three-axis machining center designed for heavy cutting and

applications that require high power and torque, such as mold and die. This model includes a 6,000 rpm

geared-head design with X-axis travels of 82 inches.

Other Control Systems and Software

The following machine tool computer control systems and software products are sold directly to end-users

and/or to original equipment manufacturers.

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.

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, UltiMonitor, UltiPocket with

Helical Ramp Entry and Insert Pockets, Conversational Part and Tool Probing, Tool and Material Library,

NC/Conversational Merge, Job List, Stream Load, Linear Thermal Compensation, Thread Repair, and

Simultaneous Five-Axis Contouring.

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

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

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.

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

material.

programming time.

____________

UltiMonitor is a web-based productivity, management and service tool that enables customers to monitor,
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
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 or text, access
internet. Customers can transfer part designs, receive event notifications via email or text, access
diagnostic data, monitor the machine via webcam and communicate with the machine operator.
diagnostic data, monitor the machine via webcam and communicate with the machine operator.

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

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

The Tool and Material Library option stores the tool and material information with the machine instead
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
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
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
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
saving time, the Tool and Material Library eliminates the need to enter information repeatedly, and can
prevent common tool crash conditions.
prevent common tool crash conditions.

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

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

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

Linear Thermal Compensation is a feature that allows the user to specify corrections to compensate for
Linear Thermal Compensation is a feature that allows the user to specify corrections to compensate for
the effects of thermal growth in high speed machining applications.
the effects of thermal growth in high speed machining applications.

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

Simultaneous Five-Axis Contouring software enables a five-axis machine to command motion
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
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
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
benefits of using shorter cutting tools. The sale of simultaneous five-axis contouring software is subject to
government export licensing requirements.
government export licensing requirements.

LCM Machine Tool Components and Accessories
LCM Machine Tool Components and Accessories

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

CNC Rotary Tables
CNC Rotary Tables

LCM has five lines of CNC rotary tables for both horizontal and vertical-horizontal positioning.
LCM has five 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,
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
LCM offers CNC rotary tables powered by either a torque motor or a high-precision mechanical
transmission.
transmission.

9
9

CNC Tilt Tables

LCM has seven 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).

Swivel Heads and Electro-spindles

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

Parts and Service

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 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. Our after-sales parts and service business strengthens our customer relationships and
provides continuous information concerning the evolving requirements of end-users.

Manufacturing

Our computerized metal cutting machine tools are manufactured and assembled to our specifications
primarily by our wholly-owned subsidiaries in Taiwan (HML) and Waconia, Minnesota (Milltronics).
HML and Milltronics conduct final assembly operations and are supported by a network of contract
suppliers of components and sub-assemblies that manufacture components for our products. Our facility
in Ningbo, China, 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 for the American market and manufactures certain electro-spindle
components for LCM.

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.

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.

Marketing and Distribution

We principally sell our products through more than 195 independent agents and distributors throughout
North and South America (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, 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.

LCM has seven 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

CNC Tilt Tables

motor).

Swivel Heads and Electro-spindles

LCM has two primary lines of swivel heads that enable the spindle axis to be tilted with continuous

motion and one line of electro-spindles (built-in motors for swivel heads). The two lines of swivel heads

are differentiated by the type of transmission (either mechanical transmission or torque motor).

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 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. Our after-sales parts and service business strengthens our customer relationships and

provides continuous information concerning the evolving requirements of end-users.

Parts and Service

Manufacturing

Our computerized metal cutting machine tools are manufactured and assembled to our specifications

primarily by our wholly-owned subsidiaries in Taiwan (HML) and Waconia, Minnesota (Milltronics).

HML and Milltronics conduct final assembly operations and are supported by a network of contract

suppliers of components and sub-assemblies that manufacture components for our products. Our facility

in Ningbo, China, 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 for the American market and manufactures certain electro-spindle

components for LCM.

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.

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.

Marketing and Distribution

We principally sell our products through more than 195 independent agents and distributors throughout

North and South America (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, 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.

Approximately 91% of the worldwide demand for computerized machine tools and computer control
systems is outside of the U.S. In fiscal 2016, approximately 69% of our revenues were derived from
customers outside of the U.S. 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.

We also sell our Autobend® computer control systems to original equipment manufacturers 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.

Demand

•
•

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 which 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.

•
•

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.

Competition

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, Haas Automation, Inc., Hardinge Inc., Doosan,
Okuma Machinery Works Ltd, Hyundai and Feeler.

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

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.

Intellectual Property

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 in the future.

Research and Development

In the fiscal years set forth below, we incurred both (i) non-capitalized research and development
expenditures for new products, significant product improvements and (ii) capitalized expenditures related
to software development projects as follows (in thousands):

Fiscal Year
2016
2015
2014

Non-Capitalized
Research and
Development

$ 4,900
$ 3,900
$ 3,400

Capitalized
Software Development
$ 2,200
$ 1,400
$ 1,000

Employees

We had approximately 758 full-time employees at the end of fiscal 2016, none of whom are covered by a
collective-bargaining agreement or represented by a union. We have experienced no employee-generated
work stoppages or disruptions, and we consider our employee relations to be satisfactory.

Geographic Areas

Financial information concerning the geographic areas in which we sell our products is set forth in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 15
of Notes to Consolidated Financial Statements. Some of the risks of doing business on a global basis are
described in Item 1A. Risk Factors below.

Backlog

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

Availability of Reports and Other Information

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

• 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;
• press releases on quarterly earnings, product announcements, legal developments and other

•

material news that we may post from time to time;
corporate 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

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

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.

Item 1A.

RISK FACTORS

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.

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.

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 adversely affect our results of

operations and financial condition.

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

During fiscal 2016, approximately 69% of our revenues were derived from sales to customers located

outside of the U.S. In addition, our main manufacturing facilities are located outside of the U.S. Our

international operations are subject to a number of risks, including:

current and changing regulatory environments affecting the importation and exportation of

trade barriers;

•

regional economic uncertainty;

• differing labor regulation;

• governmental expropriation;

• domestic and foreign customs and tariffs;

•

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;

•

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 disrupting the free movement of goods, services and people between

•

countries.

Quotas, tariffs, taxes or other trade barriers could require us 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. 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, Tacoma, Washington, Venlo, the 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.

Research and Development

In the fiscal years set forth below, we incurred both (i) non-capitalized research and development

expenditures for new products, significant product improvements and (ii) capitalized expenditures related

to software development projects as follows (in thousands):

Fiscal Year

2016

2015

2014

Non-Capitalized

Research and

Development

$ 4,900

$ 3,900

$ 3,400

Capitalized

Software Development

$ 2,200

$ 1,400

$ 1,000

We had approximately 758 full-time employees at the end of fiscal 2016, none of whom are covered by a

collective-bargaining agreement or represented by a union. We have experienced no employee-generated

work stoppages or disruptions, and we consider our employee relations to be satisfactory.

Financial information concerning the geographic areas in which we sell our products is set forth in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 15

of Notes to Consolidated Financial Statements. Some of the risks of doing business on a global basis are

described in Item 1A. Risk Factors below.

Employees

Geographic Areas

Backlog

For information on orders and backlog, see Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Availability of Reports and Other Information

Our website can be found at www.hurco.com. We use this website as a means of disclosing pertinent

information about the company, free of charge, including:

• 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;

• press releases on quarterly earnings, product announcements, legal developments and other

material news that we may post from time to time;

•

corporate 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

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

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.

Item 1A.
Item 1A.

RISK FACTORS
RISK FACTORS

In this section we describe what we believe to be the material risks related to our business. The risks and
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.
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
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
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
risks were to occur, our business, financial condition, results of operations, cash flows or prospects could
be materially adversely affected.
be materially adversely affected.

The cyclical nature of our business causes fluctuations in our operating results.
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
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,
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
which, in periods of reduced demand, have adversely affected our results of operations and financial
condition.
condition.

Uncertain global economic conditions, may adversely affect overall demand.
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
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
particularly sensitive to economic and market conditions in that region. Economic uncertainty and
business downturns in the U.S., European and Asian Pacific markets adversely affect our results of
business downturns in the U.S., European and Asian Pacific markets adversely affect our results of
operations and financial condition.
operations and financial condition.

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

During fiscal 2016, approximately 69% of our revenues were derived from sales to customers located
During fiscal 2016, approximately 69% of our revenues were derived from sales to customers located
outside of the U.S. In addition, our main manufacturing facilities are located outside of the U.S. Our
outside of the U.S. In addition, our main manufacturing facilities are located outside of the U.S. Our
international operations are subject to a number of risks, including:
international operations are subject to a number of risks, including:

trade barriers;
trade barriers;
regional economic uncertainty;
regional economic uncertainty;

•
•
•
•
• differing labor regulation;
• differing labor regulation;
• governmental expropriation;
• governmental expropriation;
• domestic and foreign customs and tariffs;
• domestic and foreign customs and tariffs;

current and changing regulatory environments affecting the importation and exportation of
current and changing regulatory environments affecting the importation and exportation of
products and raw materials;
products and raw materials;

•
•
• difficulty in obtaining distribution support;
• difficulty in obtaining distribution support;
• difficulty in staffing and managing widespread operations;
• difficulty in staffing and managing widespread operations;
• differences in the availability and terms of financing;
• differences in the availability and terms of financing;
• political instability and unrest;
• political instability and unrest;
•
•

changes in tax regulations and rates in foreign countries; and
changes in tax regulations and rates in foreign countries; and
changes in the European Union and Asia may adversely affect business activity and economic
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
conditions globally and could continue to contribute to instability in global financial and foreign
exchange markets, as well as disrupting the free movement of goods, services and people between
exchange markets, as well as disrupting the free movement of goods, services and people between
countries.
countries.

•
•

Quotas, tariffs, taxes or other trade barriers could require us to change manufacturing sources, reduce
Quotas, tariffs, taxes or other trade barriers could require us to change manufacturing sources, reduce
prices, increase spending on marketing or product development, withdraw from or not enter certain
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. Also, in some foreign jurisdictions, we may
markets or otherwise take actions that could be adverse to us. 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
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
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
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,
manufacturing facility in Taiwan from the Port of Taichung to four ports of destination: Los Angeles,
California, Tacoma, Washington, Venlo, the Netherlands, and Shanghai, China. Changes in customs
California, Tacoma, Washington, Venlo, the 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
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.
adverse impact on our results of operations.

13
13

Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S.
Foreign Corrupt Practices Act, the U.K. Bribery Act, and other 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, restrictions on our business conduct and on our ability to
offer our products in one or more countries, and could also materially 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.

We depend on limited sources for our products.

We depend on our wholly-owned subsidiaries, Hurco Manufacturing Limited, Ningbo Hurco
Manufacturing Limited, Milltronics USA, Inc., and LCM Precision Technology S.r.l., 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 would have a material adverse effect on our results of
operations and financial condition. Such an interruption could result from a change in the political
environment or a natural disaster, such as an earthquake, typhoon, or tsunami. Also, any interruption in
service by one of our key component suppliers, if prolonged, could have a material adverse effect on our
results of operations and financial condition.

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., which generated approximately 69% of our revenues
in fiscal 2016, 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 our foreign currency exposure with
the purchase of forward exchange contracts. These hedge contracts only mitigate the impact of changes in
foreign currency rates that occur during the term of the related contract period and carry risks of counter-
party failure. There can be no assurance that our hedges will have their intended effects.

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. 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. Although we
believe that we have the technological capabilities to remain competitive, developments by others may
render our products or technologies obsolete or noncompetitive.

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. While we believe our product lines compete effectively, our financial resources are

limited compared to those of most of our competitors, making it challenging to remain competitive.

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, 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.

In July 2015, we acquired a CNC machine tool business in Minnesota, U.S. (Milltronics) and a CNC

machine tool business in Taiwan (Takumi). 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:

• 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;

Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S.

Foreign Corrupt Practices Act, the U.K. Bribery Act, and other 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, restrictions on our business conduct and on our ability to

offer our products in one or more countries, and could also materially 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.

We depend on limited sources for our products.

We depend on our wholly-owned subsidiaries, Hurco Manufacturing Limited, Ningbo Hurco

Manufacturing Limited, Milltronics USA, Inc., and LCM Precision Technology S.r.l., 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 would have a material adverse effect on our results of

operations and financial condition. Such an interruption could result from a change in the political

environment or a natural disaster, such as an earthquake, typhoon, or tsunami. Also, any interruption in

service by one of our key component suppliers, if prolonged, could have a material adverse effect on our

results of operations and financial condition.

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., which generated approximately 69% of our revenues

in fiscal 2016, 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 our foreign currency exposure with

the purchase of forward exchange contracts. These hedge contracts only mitigate the impact of changes in

foreign currency rates that occur during the term of the related contract period and carry risks of counter-

party failure. There can be no assurance that our hedges will have their intended effects.

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. 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. Although we

believe that we have the technological capabilities to remain competitive, developments by others may

render our products or technologies obsolete or noncompetitive.

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
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
been supported by governmental or financial institution subsidies and, therefore, may have competitive
advantages over us. While we believe our product lines compete effectively, our financial resources are
advantages over us. While we believe our product lines compete effectively, our financial resources are
limited compared to those of most of our competitors, making it challenging to remain competitive.
limited compared to those of most of our competitors, making it challenging to remain competitive.

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

We manufacture products with a high iron and steel content. The availability and price for these and other
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,
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,
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
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
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.
compensate, our results of operations would be adversely affected.

Regulations related to “conflict minerals” may cause us to incur additional expenses and could limit
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 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
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
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
manufactured. The rule requires a disclosure report to be filed annually with the SEC, and requires
companies to perform due diligence, disclose and report whether or not such minerals originate from the
companies to perform due diligence, 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
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
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
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
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
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
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
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
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
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
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
products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable
to do so.
to do so.

Due to future changes in technology, changes in market demand, or changes in market expectations,
Due to future changes in technology, changes in market demand, or changes in market expectations,
portions of our inventory may become obsolete or excessive.
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
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
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
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
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
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
competition, we might have to write off unusable inventory, which would adversely affect our results of
operations.
operations.

Acquisitions could disrupt our operations and harm our operating results.
Acquisitions could disrupt our operations and harm our operating results.

In July 2015, we acquired a CNC machine tool business in Minnesota, U.S. (Milltronics) and a CNC
In July 2015, we acquired a CNC machine tool business in Minnesota, U.S. (Milltronics) and a CNC
machine tool business in Taiwan (Takumi). We may seek additional opportunities to expand our product
machine tool business in Taiwan (Takumi). We may seek additional opportunities to expand our product
offerings or the markets we serve by acquiring other companies, product lines, technologies and
offerings or the markets we serve by acquiring other companies, product lines, technologies and
personnel. Acquisitions involve numerous risks, including the following:
personnel. Acquisitions involve numerous risks, including the following:

• difficulties integrating the operations, technologies, products, and personnel of an acquired
• difficulties integrating the operations, technologies, products, and personnel of an acquired

company;
company;

• diversion of management’s attention from normal daily operations of the business;
• diversion of management’s attention from normal daily operations of the business;
• potential difficulties completing projects associated with in-process research and development;
• potential difficulties completing projects associated with in-process research and development;

15
15

• difficulties entering markets in which we have no or limited prior experience, especially when

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

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

•
•
•
• 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 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. 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. In addition,
there have been proposals to change U.S. tax laws that would significantly impact how U.S. multinational
corporations are taxed on domestic and foreign earnings. Although we cannot predict whether or in what
form this proposed legislation will pass, if enacted it could have a material benefit or adverse impact on
our tax expense and cash flow.

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.

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.

If our network and system security measures are breached and unauthorized access is obtained to our

data, to our 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 customers and vendors in our

information technology systems. If a third party gained unauthorized access to our data, including any

data regarding our 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, third parties may attempt to fraudulently induce employees or customers into

disclosing sensitive information such as user names, 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. 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, 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 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

measures could be significant.

• difficulties entering markets in which we have no or limited prior experience, especially when

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

•

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

• 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 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. 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. In addition,

there have been proposals to change U.S. tax laws that would significantly impact how U.S. multinational

corporations are taxed on domestic and foreign earnings. Although we cannot predict whether or in what

form this proposed legislation will pass, if enacted it could have a material benefit or adverse impact on

our tax expense and cash flow.

Our future success depends in part upon our ability to protect our intellectual property. We rely
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
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
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
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
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
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
intellectual property rights through infringement proceedings could have a material adverse effect on our
business, financial condition and results of operations.
business, financial condition and results of operations.

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

The unexpected loss of members of our senior management team or other key personnel could impair our
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
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
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
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.
and potentially lose opportunities in the transition of important job functions.

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

As part of our business, we store our data and certain data about our customers and vendors in our
As part of our business, we store our data and certain data about our customers and vendors in our
information technology systems. If a third party gained unauthorized access to our data, including any
information technology systems. If a third party gained unauthorized access to our data, including any
data regarding our customers or vendors, the security breach could expose us to risks, including loss of
data regarding our 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-
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
party action, including intentional misconduct by computer hackers, employee error, malfeasance or
otherwise. Additionally, third parties may attempt to fraudulently induce employees or customers into
otherwise. Additionally, third parties may attempt to fraudulently induce employees or customers into
disclosing sensitive information such as user names, passwords or other information to gain access to our
disclosing sensitive information such as user names, passwords or other information to gain access to our
customers' data or our data, including our intellectual property and other confidential business
customers' data or our data, including our intellectual property and other confidential business
information, or our information technology systems. Although we work closely with industry recognized
information, or our information technology systems. Although we work closely with industry recognized
manufacturers supporting the security measures we have employed in an effort to keep our technology
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
current with the ongoing threats, the techniques used to obtain unauthorized access, or to sabotage
systems, change frequently, and therefore we may be unable to anticipate these techniques or to
systems, change frequently, and therefore we may be unable to anticipate these techniques or to
implement adequate preventative measures. Any security breach could result in: the unauthorized
implement adequate preventative measures. Any security breach could result in: the unauthorized
publication of our confidential business or proprietary information; the unauthorized release of customer
publication of our confidential business or proprietary information; the unauthorized release of customer
or vendor data and payment information; a loss of confidence by our customers; damage to our
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
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
sales. In addition, the cost and operational consequences of implementing further data protection
measures could be significant.
measures could be significant.

17
17

Item 1B. UNRESOLVED STAFF COMMENTS

Item 3.

LEGAL PROCEEDINGS

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

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

Indianapolis, Indiana, U.S. (1)

165,000

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Manufacturing,
sales,
application engineering and customer
service

assembly,

Taichung, Taiwan
Waconia, Minnesota, U.S.
Castell’Alfero, Italy

Manufacturing

Ningbo, China

Sales, application engineering and
customer service

High Wycombe, England
Benoni, South Africa
Paris, France
Munich and Verl, Germany
Milan, Italy
Venlo, the Netherlands
Toh Guan, Singapore
Shanghai, Dongguan, Shenyang,
Kunshan and Beijing, China

Chennai, Delhi, Coimbatore, and

Pune India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.
Ball Ground, Georgia, U.S.

407,500
97,700
32,300

31,000

16,000
3,200
9,700
20,100
13,800
9,700
3,900

2,800

13,900
2,900
3,700
5,200

(1) Approximately 9,400 square feet is leased to third-parties under leases that will expire February 28, 2017,

Volovic was employed by Unisys Corporation.

April 30, 2017 and April 30, 2018.

We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various
dates ranging from January 2017 to March 2024. 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 any difficulty in replacing any of the present facilities if any of our leases were not renewed at
expiration.

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.

None.

Executive Officers of the Registrant

Executive officers are elected 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, 2016, the name of each executive officer and his or

her age, tenure as an officer, principal occupation and business experience:

Name

Age

Position(s) with the Company

Michael Doar

Gregory S. Volovic

Sonja K. McClelland

John P. Donlon

Chairman of the Board and Chief Executive Officer

President

Vice President, Secretary, Treasurer and Chief Financial Officer

Executive Vice President, International Sales/Service

Michael Doar was elected Chairman of the Board and Chief Executive Officer on November 14, 2001.

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 was elected as our President in

March 2013. Mr. Volovic previously held the position of Executive Vice President, Software and

Engineering until October 2009. Prior to joining us, Mr. Volovic held various positions with Thomson,

Inc. including Director of E-Business, Engineering, and Information Technology. Prior to that, Mr.

Sonja K. McClelland has been employed by us since September 1996 and was elected as Vice President,

Secretary, Treasurer and Chief Financial Officer in March 2014. Ms. McClelland served as Corporate

Accounting Manager from September 1996 to 1999, as Division Controller for Hurco USA from

September 1999 to November 2004, and as our Corporate Controller and Assistant Secretary from

November 2004 to March 2014. Prior to joining us, Ms. McClelland was employed for three years by an

international public accounting firm.

John P. Donlon has been employed by us since April 2010 as Executive Vice President, International

Sales/Service. Prior to joining us, Mr. Donlon served as the Vice President of Sales for Yaskawa

America Robotics since 2008. From 2004 to 2008, Mr. Donlon served as the Vice President of Sales and

Marketing for Ansaldo STS, a worldwide supplier of automation technologies to the rail industry. Earlier

in his career, Mr. Donlon held executive sales and management positions with other multi-national

companies including Honeywell and ABB, and he has significant international experience in the emerging

markets of China, Russia and Brazil.

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

Principal Uses

Locations

Square Footage

None.

Item 2.

PROPERTIES

Corporate headquarters, design and

engineering, product testing, sales and

marketing,

application

engineering,

customer service, manufacturing and

assembly

Manufacturing,

assembly,

sales,

application engineering and customer

service

Taichung, Taiwan

Waconia, Minnesota, U.S.

Castell’Alfero, Italy

Manufacturing

Ningbo, China

Sales, application engineering and

customer service

High Wycombe, England

Benoni, South Africa

Paris, France

Munich and Verl, Germany

Milan, Italy

Venlo, the Netherlands

Toh Guan, Singapore

Shanghai, Dongguan, Shenyang,

Kunshan and Beijing, China

Chennai, Delhi, Coimbatore, and

Pune India

Liegnitz, Poland

Grand Rapids, Michigan, U.S.

Ball Ground, Georgia, U.S.

407,500

97,700

32,300

31,000

16,000

3,200

9,700

20,100

13,800

9,700

3,900

2,800

13,900

2,900

3,700

5,200

(1) Approximately 9,400 square feet is leased to third-parties under leases that will expire February 28, 2017,

April 30, 2017 and April 30, 2018.

We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various

dates ranging from January 2017 to March 2024. 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 any difficulty in replacing any of the present facilities if any of our leases were not renewed at

expiration.

Item 1B. UNRESOLVED STAFF COMMENTS

Item 3.
Item 3.

LEGAL PROCEEDINGS
LEGAL PROCEEDINGS

Indianapolis, Indiana, U.S. (1)

165,000

Item 4.
Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We are involved in various claims and lawsuits arising in the normal course of business. Pursuant to
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
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
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
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
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
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.
ultimate resolution of claims for any losses will not exceed our insurance policy coverages.

None.
None.

Executive Officers of the Registrant
Executive Officers of the Registrant

Executive officers are elected each year by the Board of Directors following the Annual Meeting of
Executive officers are elected 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
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
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.
them and any of the members of the Board of Directors.

The following information sets forth as of October 31, 2016, the name of each executive officer and his or
The following information sets forth as of October 31, 2016, the name of each executive officer and his or
her age, tenure as an officer, principal occupation and business experience:
her age, tenure as an officer, principal occupation and business experience:

Name
Name

Age
Age

Position(s) with the Company
Position(s) with the Company

Michael Doar
Michael Doar
Gregory S. Volovic
Gregory S. Volovic
Sonja K. McClelland
Sonja K. McClelland
John P. Donlon
John P. Donlon

61
61
52
52
45
45
59
59

Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive Officer
President
President
Vice President, Secretary, Treasurer and Chief Financial Officer
Vice President, Secretary, Treasurer and Chief Financial Officer
Executive Vice President, International Sales/Service
Executive Vice President, International Sales/Service

Michael Doar was elected Chairman of the Board and Chief Executive Officer on November 14, 2001.
Michael Doar was elected Chairman of the Board and Chief Executive Officer on November 14, 2001.
Mr. Doar had held various management positions with Ingersoll Milling Machine Company from 1989
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.
until 2001. Mr. Doar has been a director of Hurco since 2000.

Gregory S. Volovic has been employed by us since March 2005 and was elected as our President in
Gregory S. Volovic has been employed by us since March 2005 and was elected as our President in
March 2013. Mr. Volovic previously held the position of Executive Vice President, Software and
March 2013. Mr. Volovic previously held the position of Executive Vice President, Software and
Engineering until October 2009. Prior to joining us, Mr. Volovic held various positions with Thomson,
Engineering until October 2009. Prior to joining us, Mr. Volovic held various positions with Thomson,
Inc. including Director of E-Business, Engineering, and Information Technology. Prior to that, Mr.
Inc. including Director of E-Business, Engineering, and Information Technology. Prior to that, Mr.
Volovic was employed by Unisys Corporation.
Volovic was employed by Unisys Corporation.

Sonja K. McClelland has been employed by us since September 1996 and was elected as Vice President,
Sonja K. McClelland has been employed by us since September 1996 and was elected as Vice President,
Secretary, Treasurer and Chief Financial Officer in March 2014. Ms. McClelland served as Corporate
Secretary, Treasurer and Chief Financial Officer in March 2014. Ms. McClelland served as Corporate
Accounting Manager from September 1996 to 1999, as Division Controller for Hurco USA from
Accounting Manager from September 1996 to 1999, as Division Controller for Hurco USA from
September 1999 to November 2004, and as our Corporate Controller and Assistant Secretary from
September 1999 to November 2004, and as our Corporate Controller and Assistant Secretary from
November 2004 to March 2014. Prior to joining us, Ms. McClelland was employed for three years by an
November 2004 to March 2014. Prior to joining us, Ms. McClelland was employed for three years by an
international public accounting firm.
international public accounting firm.

John P. Donlon has been employed by us since April 2010 as Executive Vice President, International
John P. Donlon has been employed by us since April 2010 as Executive Vice President, International
Sales/Service. Prior to joining us, Mr. Donlon served as the Vice President of Sales for Yaskawa
Sales/Service. Prior to joining us, Mr. Donlon served as the Vice President of Sales for Yaskawa
America Robotics since 2008. From 2004 to 2008, Mr. Donlon served as the Vice President of Sales and
America Robotics since 2008. From 2004 to 2008, Mr. Donlon served as the Vice President of Sales and
Marketing for Ansaldo STS, a worldwide supplier of automation technologies to the rail industry. Earlier
Marketing for Ansaldo STS, a worldwide supplier of automation technologies to the rail industry. Earlier
in his career, Mr. Donlon held executive sales and management positions with other multi-national
in his career, Mr. Donlon held executive sales and management positions with other multi-national
companies including Honeywell and ABB, and he has significant international experience in the emerging
companies including Honeywell and ABB, and he has significant international experience in the emerging
markets of China, Russia and Brazil.
markets of China, Russia and Brazil.

19
19

2016

Fiscal
Quarter Ended:

High
$28.47
$33.40
$33.65
$30.42

Low
$23.90
January 31 ..............................................
April 30 ..................................................
$23.25
July 31 ...................................................
$26.57
$25.45
October 31 .............................................

Declared
Dividends

$.08
$.09
$.09
$.09

2015

High
$39.95
$38.37
$35.77
$31.80

Low
$30.33
$28.22
$30.13
$24.93

Declared
Dividends

$.07
$.08
$.08
$.08

PART II

Item 6.

SELECTED FINANCIAL DATA

Item 5. MARKET 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.

The Selected Financial Data presented below has been derived from our consolidated financial statements

for the 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.

Statement

of Operations

(In thousands, except per share amounts)

2016

2015

2014

2013

2012

Year Ended October 31,

Data:

Selling, general and

Sales and service fees ................

$227,289

$219,383

$222,303

$192,804

$203,117

Gross profit ................................

70,440

69,091

68,612

55,056

63,181

administrative expenses ..........

Operating income (loss) ............

50,824

19,616

45,287

23,804

Other income (expense) .............

(731)

(251)

Net income (loss) .......................

13,292

16,214

46,615

21,997

(636)

15,143

41,413

13,643

(1,201)

8,190

41,160

22,021

(157)

15,638

share- diluted ...........................

$ 1.99

$ 2.44

$ 2.30

$ 1.25

$ 2.40

shares outstanding-diluted ......

6,642

6,602

6,538

6,497

6,470

Earnings (loss) per common

Weighted average common

Dividends declared per

common share……………

Balance Sheet Data:

2016

2015

2014

2013

2012

As of October 31,

(Dollars in thousands)

Current assets * ........................

Current liabilities .....................

Working capital * ....................

Current ratio * ..........................

Total assets * ............................

Non-current liabilities * ............

Total debt .................................

$218,381

57,968

160,413

3.8

251,949

8,506

1,476

$216,112

65,086

151,026

3.3

248,577

8,923

1,583

$208,691

$182,921

$172,200

66,803

141,888

3.1

7,728

3,272

55,686

127,235

3.3

5,627

3,665

49,372

122,828

3.5

4,194

3,206

239,176

212,804

197,360

Shareholders’ equity ................

185,475

174,568

164,645

151,491

143,793

_________________

* Certain prior year amounts have been changed to conform to current year’s presentation as a result of the adoption of

Accounting Standards Update (“ASU”) No. 2015-17.

On December 12, 2016, the closing price of our common stock on the Nasdaq Global Select Market was
$33.85.

Holders

There were 113 holders of record of our common stock as of December 12, 2016.

$ .35

$ .31

$ .26

$ .10

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.

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 5
of Notes to Consolidated Financial Statements.

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” 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.

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

PART II

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

2016

Declared

2015

Declared

Quarter Ended:

High

Low

Dividends

High

Low

Dividends

January 31 ..............................................

$28.47

$23.90

April 30 ..................................................

$33.40

$23.25

July 31 ...................................................

$33.65

$26.57

October 31 .............................................

$30.42

$25.45

$.08

$.09

$39.95

$30.33

$38.37

$35.77

$31.80

$28.22

$30.13

$24.93

$.07

$.08

On December 12, 2016, the closing price of our common stock on the Nasdaq Global Select Market was

$33.85.

Holders

Dividend Policy

There were 113 holders of record of our common stock as of December 12, 2016.

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.

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 5

of Notes to Consolidated Financial Statements.

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” 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.

Item 6.
Item 6.

SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA

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

Statement
Statement
Data:
Data:

of Operations
of Operations

Sales and service fees ................
Sales and service fees ................
Gross profit ................................
Gross profit ................................
Selling, general and
Selling, general and

administrative expenses ..........
administrative expenses ..........
Operating income (loss) ............
Operating income (loss) ............
Other income (expense) .............
Other income (expense) .............
Net income (loss) .......................
Net income (loss) .......................
Earnings (loss) per common
Earnings (loss) per common
share- diluted ...........................
share- diluted ...........................
Weighted average common
Weighted average common

2016
2016

Year Ended October 31,
Year Ended October 31,
2014
2014
(In thousands, except per share amounts)
(In thousands, except per share amounts)

2015
2015

2013
2013

2012
2012

$227,289
$227,289
70,440
70,440

$219,383
$219,383
69,091
69,091

$222,303
$222,303
68,612
68,612

$192,804
$192,804
55,056
55,056

$203,117
$203,117
63,181
63,181

50,824
50,824
19,616
19,616
(731)
(731)
13,292
13,292

45,287
45,287
23,804
23,804
(251)
(251)
16,214
16,214

46,615
46,615
21,997
21,997

(636)
(636)

15,143
15,143

41,413
41,413
13,643
13,643
(1,201)
(1,201)
8,190
8,190

41,160
41,160
22,021
22,021
(157)
(157)
15,638
15,638

$ 1.99
$ 1.99

$ 2.44
$ 2.44

$ 2.30
$ 2.30

$ 1.25
$ 1.25

$ 2.40
$ 2.40

shares outstanding-diluted ......
shares outstanding-diluted ......

6,642
6,642

6,602
6,602

6,538
6,538

6,497
6,497

6,470
6,470

Dividends declared per
Dividends declared per
common share……………
common share……………

$ .35
$ .35

$ .31
$ .31

$ .26
$ .26

$ .10
$ .10

--
--

Balance Sheet Data:
Balance Sheet Data:

2016
2016

2015
2015

As of October 31,
As of October 31,
2014
2014
(Dollars in thousands)
(Dollars in thousands)

2013
2013

2012
2012

Current assets * ........................
Current assets * ........................
Current liabilities .....................
Current liabilities .....................
Working capital * ....................
Working capital * ....................
Current ratio * ..........................
Current ratio * ..........................
Total assets * ............................
Total assets * ............................
Non-current liabilities * ............
Non-current liabilities * ............
Total debt .................................
Total debt .................................
Shareholders’ equity ................
Shareholders’ equity ................

$218,381
$218,381
57,968
57,968
160,413
160,413
3.8
3.8
251,949
251,949
8,506
8,506
1,476
1,476
185,475
185,475

$216,112
$216,112
65,086
65,086
151,026
151,026
3.3
3.3
248,577
248,577
8,923
8,923
1,583
1,583
174,568
174,568

$208,691
$208,691
66,803
66,803
141,888
141,888
3.1
3.1
239,176
239,176
7,728
7,728
3,272
3,272
164,645
164,645

$182,921
$182,921
55,686
55,686
127,235
127,235
3.3
3.3
212,804
212,804
5,627
5,627
3,665
3,665
151,491
151,491

$172,200
$172,200
49,372
49,372
122,828
122,828
3.5
3.5
197,360
197,360
4,194
4,194
3,206
3,206
143,793
143,793

_________________
_________________
* Certain prior year amounts have been changed to conform to current year’s presentation as a result of the adoption of
* Certain prior year amounts have been changed to conform to current year’s presentation as a result of the adoption of
Accounting Standards Update (“ASU”) No. 2015-17.
Accounting Standards Update (“ASU”) No. 2015-17.

21
21

Item 7. MANAGEMENT'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, software options, control upgrades, accessories and replacement parts for our
products, as well as customer service and training 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 2016, approximately 54% 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 11% of our revenues were attributable to
customers in Asia, where we sell more of our entry-level, lower-priced machines, but where we also
encounter greater price pressures.

During the third quarter of fiscal 2015, we acquired the assets of the machine tool business of Milltronics
Manufacturing Company, Inc. and we are operating this U.S. business as a product line through our
wholly-owned subsidiary, Milltronics USA, Inc. (“Milltronics”). Milltronics manufactures and sells CNC
knee mills, tool room bed mills, vertical machining centers, combination lathes, slant-bed lathes,
horizontal machining centers, and bed mills. During the third quarter of fiscal 2015, we also acquired the
assets of the machine tool business of Takumi Machinery Co., Ltd. (“Takumi”), a Taiwanese company
that designs and manufactures CNC vertical machining centers, double column machining centers, high
speed bridge machines and other machine tools, with sales primarily in Taiwan, China and Europe.
Takumi machines are equipped with industrial controls from Fanuc®, Siemens®, Mitsubishi® or
Heidenhain® which can be used in high-volume parts manufacturing. We are operating this Taiwanese
business as a product line through our wholly-owned subsidiary Hurco Manufacturing Limited (“HML”).
The Milltronics and Takumi product lines contribute to our efforts to expand our consolidated product
range, customer base and global platform, and we believe may accelerate emerging market penetration,
particularly in strategic markets such as China and South America. The Hurco, Milltronics and Takumi
product lines represent a comprehensive product portfolio with more than 150 different models. The
combined machine tool product lines also provide benefits related to the development of product
enhancements, technologies and models due to leverage of shared resources and cross-utilization of
proven engineering designs that allow us to achieve manufacturing cost reductions from economies of
scale and manufacturing efficiencies.

We sell our products through more than 195 independent agents and distributors throughout North and
South America (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, 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, HML. Machine castings and
components to support HML’s production are manufactured at our facility in Ningbo, China.
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 Precision
Technology S.r.l. (“LCM”).

Our sales to foreign customers are denominated, and payments by those customers are made, in the

prevailing currencies - primarily the Euro, Pound Sterling and Chinese Yuan - in the countries in which

those customers are located. Our product costs are incurred and paid primarily in the New Taiwan Dollar

and the Euro. Changes in currency exchange rates may have a material effect on our operating results and

consolidated balance sheets 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.

Our high levels of foreign manufacturing and sales also subject 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.

Results of Operations

The following table presents, for the fiscal years indicated, selected items from the Consolidated

Statements of Income 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

2016

2015

2014

Increase/Decrease

’16 vs. ’15

’15 vs. ’14

100%

31%

21%

11%

100%

31%

21%

10%

12%

-18%

-1%

-3%

Sales and service fees ............

Gross profit ...........................

100%

31%

Selling, general and

administrative expenses .....

Operating income (loss) ........

Net income (loss) ..................

22%

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%,

when translating foreign sales to U.S. dollars for financial reporting purposes.

Net Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region for the fiscal year ended

October 31, 2016 and 2015 (in thousands):

Americas

Europe

Asia Pacific

Total

$ 74,386

124,070

28,833

$ 227,289

October 31,

2016

2015

33%

54%

13%

$ 70,169

129,335

19,879

32%

59%

Increase/Decrease

Amount %

$ 4,217

(5,265)

8,954

-4%

45%

100%

$219,383

100%

$ 7,906

Sales in the Americas for fiscal 2016 increased by 6% compared to fiscal 2015, as a result of year-end

promotional activities following the International Manufacturing Technology Show (“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 end of fiscal 2015. Sales in the Americas for fiscal 2016 included $17.9 million of sales from the

Item 7. MANAGEMENT'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, software options, control upgrades, accessories and replacement parts for our

products, as well as customer service and training 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 2016, approximately 54% 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 11% of our revenues were attributable to

customers in Asia, where we sell more of our entry-level, lower-priced machines, but where we also

encounter greater price pressures.

During the third quarter of fiscal 2015, we acquired the assets of the machine tool business of Milltronics

Manufacturing Company, Inc. and we are operating this U.S. business as a product line through our

wholly-owned subsidiary, Milltronics USA, Inc. (“Milltronics”). Milltronics manufactures and sells CNC

knee mills, tool room bed mills, vertical machining centers, combination lathes, slant-bed lathes,

horizontal machining centers, and bed mills. During the third quarter of fiscal 2015, we also acquired the

assets of the machine tool business of Takumi Machinery Co., Ltd. (“Takumi”), a Taiwanese company

that designs and manufactures CNC vertical machining centers, double column machining centers, high

speed bridge machines and other machine tools, with sales primarily in Taiwan, China and Europe.

Takumi machines are equipped with industrial controls from Fanuc®, Siemens®, Mitsubishi® or

Heidenhain® which can be used in high-volume parts manufacturing. We are operating this Taiwanese

business as a product line through our wholly-owned subsidiary Hurco Manufacturing Limited (“HML”).

The Milltronics and Takumi product lines contribute to our efforts to expand our consolidated product

range, customer base and global platform, and we believe may accelerate emerging market penetration,

particularly in strategic markets such as China and South America. The Hurco, Milltronics and Takumi

product lines represent a comprehensive product portfolio with more than 150 different models. The

combined machine tool product lines also provide benefits related to the development of product

enhancements, technologies and models due to leverage of shared resources and cross-utilization of

proven engineering designs that allow us to achieve manufacturing cost reductions from economies of

scale and manufacturing efficiencies.

We sell our products through more than 195 independent agents and distributors throughout North and

South America (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, 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, HML. Machine castings and

components to support HML’s production are manufactured at our facility in Ningbo, China.

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 Precision

Technology S.r.l. (“LCM”).

Our sales to foreign customers are denominated, and payments by those customers are made, in the
Our sales to foreign customers are denominated, and payments by those customers are made, in the
prevailing currencies - primarily the Euro, Pound Sterling and Chinese Yuan - in the countries in which
prevailing currencies - primarily the Euro, Pound Sterling and Chinese Yuan - in the countries in which
those customers are located. Our product costs are incurred and paid primarily in the New Taiwan Dollar
those customers are located. Our product costs are incurred and paid primarily in the New Taiwan Dollar
and the Euro. Changes in currency exchange rates may have a material effect on our operating results and
and the Euro. Changes in currency exchange rates may have a material effect on our operating results and
consolidated balance sheets as reported under U.S. Generally Accepted Accounting Principles. For
consolidated balance sheets 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
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
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
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.
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.
Dollars at exchange rates prevailing during the period covered by those financial statements.

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

Results of Operations
Results of Operations

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

Percentage of Revenues
Percentage of Revenues
2015
2015

2016
2016

2014
2014

Sales and service fees ............
Sales and service fees ............
Gross profit ...........................
Gross profit ...........................
Selling, general and
Selling, general and
administrative expenses .....
administrative expenses .....
Operating income (loss) ........
Operating income (loss) ........
Net income (loss) ..................
Net income (loss) ..................

100%
100%
31%
31%

22%
22%
9%
9%
6%
6%

Fiscal 2016 Compared to Fiscal 2015
Fiscal 2016 Compared to Fiscal 2015

100%
100%
31%
31%

21%
21%
11%
11%
7%
7%

100%
100%
31%
31%

21%
21%
10%
10%
7%
7%

Year-to-Year % Change
Year-to-Year % Change

Increase/Decrease
Increase/Decrease

’16 vs. ’15
’16 vs. ’15
4%
4%
2%
2%

’15 vs. ’14
’15 vs. ’14
-1%
-1%
1%
1%

12%
12%
-18%
-18%
-18%
-18%

-3%
-3%
8%
8%
7%
7%

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

Net Sales and Service Fees by Geographic Region
Net Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region for the fiscal year ended
The following table sets forth net sales and service fees by geographic region for the fiscal year ended
October 31, 2016 and 2015 (in thousands):
October 31, 2016 and 2015 (in thousands):

October 31,
October 31,

2016
2016

2015
2015

Americas
Americas
Europe
Europe
Asia Pacific
Asia Pacific

Total
Total

$ 74,386
$ 74,386
124,070
124,070

28,833
28,833
$ 227,289
$ 227,289

33%
33%
54%
54%

13%
13%
100%
100%

$ 70,169
$ 70,169
129,335
129,335

19,879
19,879
$219,383
$219,383

32%
32%
59%
59%

9%
9%
100%
100%

Increase/Decrease
Increase/Decrease
Amount %
Amount %
$ 4,217
$ 4,217
(5,265)
(5,265)

6%
6%
-4%
-4%

8,954
8,954
$ 7,906
$ 7,906

45%
45%
4%
4%

Sales in the Americas for fiscal 2016 increased by 6% compared to fiscal 2015, as a result of year-end
Sales in the Americas for fiscal 2016 increased by 6% compared to fiscal 2015, as a result of year-end
promotional activities following the International Manufacturing Technology Show (“IMTS”) in
promotional activities following the International Manufacturing Technology Show (“IMTS”) in
September 2016, as well as the impact of twelve months of Milltronics sales in fiscal 2016 compared to
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
only three months of sales activity from the acquisition of the Milltronics product line in July 2015 until
the end of fiscal 2015. Sales in the Americas for fiscal 2016 included $17.9 million of sales from the
the end of fiscal 2015. Sales in the Americas for fiscal 2016 included $17.9 million of sales from the

23
23

Milltronics product line, compared to $6.7 million in fiscal 2015. European sales for fiscal 2016
decreased by 4% compared to fiscal 2015 and included a negative currency impact of 5% when
translating foreign sales to U.S. dollars for financial reporting purposes. The slight year-over-year growth
in European sales for fiscal 2016, excluding the effect of the negative currency impact, was driven by
increased shipments of higher-performance machines in Germany, France and Italy. Asian Pacific sales
for fiscal 2016 increased by 45% compared to fiscal 2015 and included a negative currency impact of 3%
when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year
increase in Asian Pacific sales for fiscal 2016 was primarily attributable to twelve 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.

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, 2016 and 2015 (in thousands):

October 31,

2016

2015

Increase/ Decrease
Amount %

Computerized
Machine Tools*
Computer Control Systems
and Software†
Service Parts
Service Fees
Total

$195,618

86%

$189,712

87%

$ 5,906

2,078

3,085

(1,007)

-33%

21,908
7,685
$227,289

10%
3%
100%

19,375
7,211
$219,383

9%
3%
100%

2,533
474
$ 7,906

13%
7%
4%

* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective

period income adjustment recorded in fiscal 2015.

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 during fiscal 2016 by 3% and 13%,
respectively, compared to fiscal 2015 primarily due to 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 International Manufacturing Technology Show (“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.

Orders and Backlog. Orders for fiscal 2016 were $219.2 million, a decrease of $4.0 million, or 2%,
compared to fiscal 2015 and included a negative currency impact of $6.5 million, or 3%, when translating
foreign orders to U.S. dollars for financial reporting purposes. Orders in the Americas for fiscal 2016
were $70.9 million, a decrease of $1.1 million, or 1%, compared to fiscal 2015, reflecting an overall
softer market and 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. Orders in the
Americas for fiscal 2016 included $15.7 million of orders from the Milltronics product line, compared to
$10.1 million in fiscal 2015, of which approximately $3.9 million of orders were existing backlog orders
acquired with the Milltronics product line in July 2015. European orders for fiscal 2016 were $121.5
million, a decrease of $5.0 million, or 4%, 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 2015 and

included a negative currency impact of $1.1 million, or 5%, when translating foreign orders to U.S.

dollars for financial reporting purposes. The year-over-year increase in Asian Pacific orders were due

primarily to increased customer demand for the Takumi product line in China. Asian Pacific orders for

fiscal 2016 included $12.7 million of orders 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.

Backlog was $32.3 million at October 31, 2016 compared to $41.2 million at October 31, 2015. 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 2016 was $70.4 million, or 31% of sales, which was consistent with

gross profit for fiscal 2015 of $69.1 million, or 31% of sales.

Operating Expenses. Selling, general and administrative expenses for fiscal 2016 were $50.8 million, or

22% of sales, compared to $45.3 million, or 21% of sales, for fiscal 2015. The year-over-year increase in

operating expenses for fiscal 2016 was primarily due to increased trade show expenses, increased

employee support costs for global sales operations, and incremental annualized operating expenses

associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.

Operating Income. Operating income for fiscal 2016 was $19.6 million, or 9% of sales, compared to

$23.8 million, or 11% of sales, in fiscal 2015. The year-over-year reduction in operating income was

primarily attributable to increased operating expenses associated with increased trade show expenses,

increased employee support costs for global sales operations, and incremental operating expenses

associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.

Other Expense, Net. Other expense, net for fiscal 2016 increased by $0.5 million from fiscal 2015 due

mainly to higher foreign currency losses experienced in 2016 and the elimination of a one-time out-of-

Provision for Income Taxes. Our effective tax rate for fiscal 2016 was 30% in comparison to 31% for

fiscal 2015. The decrease in the effective income tax rate for fiscal 2016 was due primarily to changes in

the geographic mix of income or loss among tax jurisdictions.

Net Income. Net income for fiscal 2016 was $13.3 million, or $1.99 per diluted share, a decrease of $2.9

million, or 18%, from fiscal 2015 net income of $16.2 million, or $2.44 per diluted share.

Fiscal 2015 Compared to Fiscal 2014

Sales and Service Fees. Sales and service fees for fiscal 2015 were $219.4 million, a decrease of $2.9

million, or 1%, compared to fiscal 2014 and included a negative currency impact of $21.2 million, or

10%, compared to fiscal 2014. Sales for fiscal 2015 included $10.0 million of sales activities from the

acquisitions of the Takumi and Milltronics product lines in July 2015 until the end of fiscal 2015.

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, 2015 and 2014 (in thousands):

October 31,

2015

2014

Americas

Europe

Asia Pacific

Total

$ 70,169

129,335

19,879

$219,383

32%

59%

100%

$ 62,142

138,201

21,960

$222,303

28%

62%

10%

100%

$ (2,920)

Increase/Decrease

Amount %

$ 8,027

(8,866)

(2,081)

13%

-6%

-9%

-1%

Milltronics product line, compared to $6.7 million in fiscal 2015. European sales for fiscal 2016

decreased by 4% compared to fiscal 2015 and included a negative currency impact of 5% when

translating foreign sales to U.S. dollars for financial reporting purposes. The slight year-over-year growth

in European sales for fiscal 2016, excluding the effect of the negative currency impact, was driven by

increased shipments of higher-performance machines in Germany, France and Italy. Asian Pacific sales

for fiscal 2016 increased by 45% compared to fiscal 2015 and included a negative currency impact of 3%

when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year

increase in Asian Pacific sales for fiscal 2016 was primarily attributable to twelve 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.

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, 2016 and 2015 (in thousands):

October 31,

2016

2015

Increase/ Decrease

Amount %

$195,618

86%

$189,712

87%

$ 5,906

Computerized

Machine Tools*

and Software†

Service Parts

Service Fees

Total

dates of those acquisitions.

machine systems.

Computer Control Systems

2,078

3,085

(1,007)

-33%

21,908

7,685

$227,289

10%

19,375

7,211

100%

$219,383

100%

2,533

474

$ 7,906

13%

* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective

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

Sales of computerized machine tools and service parts increased during fiscal 2016 by 3% and 13%,

respectively, compared to fiscal 2015 primarily due to 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 International Manufacturing Technology Show (“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.

Orders and Backlog. Orders for fiscal 2016 were $219.2 million, a decrease of $4.0 million, or 2%,

compared to fiscal 2015 and included a negative currency impact of $6.5 million, or 3%, when translating

foreign orders to U.S. dollars for financial reporting purposes. Orders in the Americas for fiscal 2016

were $70.9 million, a decrease of $1.1 million, or 1%, compared to fiscal 2015, reflecting an overall

softer market and 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. Orders in the

Americas for fiscal 2016 included $15.7 million of orders from the Milltronics product line, compared to

$10.1 million in fiscal 2015, of which approximately $3.9 million of orders were existing backlog orders

acquired with the Milltronics product line in July 2015. European orders for fiscal 2016 were $121.5

million, a decrease of $5.0 million, or 4%, 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 2015 and

included a negative currency impact of $1.1 million, or 5%, when translating foreign orders to U.S.
included a negative currency impact of $1.1 million, or 5%, when translating foreign orders to U.S.
dollars for financial reporting purposes. The year-over-year increase in Asian Pacific orders were due
dollars for financial reporting purposes. The year-over-year increase in Asian Pacific orders were due
primarily to increased customer demand for the Takumi product line in China. Asian Pacific orders for
primarily to increased customer demand for the Takumi product line in China. Asian Pacific orders for
fiscal 2016 included $12.7 million of orders from the Takumi product line, compared to $10.6 million in
fiscal 2016 included $12.7 million of orders 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
fiscal 2015, of which approximately $8.6 million of orders were existing backlog orders acquired with the
Takumi product line in July 2015.
Takumi product line in July 2015.

Backlog was $32.3 million at October 31, 2016 compared to $41.2 million at October 31, 2015. We do
Backlog was $32.3 million at October 31, 2016 compared to $41.2 million at October 31, 2015. We do
not believe backlog is a useful measure of past performance or indicative of future performance. Backlog
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.
orders as of October 31, 2016 are expected to be fulfilled in fiscal 2017.

Gross Profit. Gross profit for fiscal 2016 was $70.4 million, or 31% of sales, which was consistent with
Gross Profit. Gross profit for fiscal 2016 was $70.4 million, or 31% of sales, which was consistent with
gross profit for fiscal 2015 of $69.1 million, or 31% of sales.
gross profit for fiscal 2015 of $69.1 million, or 31% of sales.

Operating Expenses. Selling, general and administrative expenses for fiscal 2016 were $50.8 million, or
Operating Expenses. Selling, general and administrative expenses for fiscal 2016 were $50.8 million, or
22% of sales, compared to $45.3 million, or 21% of sales, for fiscal 2015. The year-over-year increase in
22% of sales, compared to $45.3 million, or 21% of sales, for fiscal 2015. The year-over-year increase in
operating expenses for fiscal 2016 was primarily due to increased trade show expenses, increased
operating expenses for fiscal 2016 was primarily due to increased trade show expenses, increased
employee support costs for global sales operations, and incremental annualized operating expenses
employee support costs for global sales operations, and incremental annualized operating expenses
associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.
associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.

Operating Income. Operating income for fiscal 2016 was $19.6 million, or 9% of sales, compared to
Operating Income. Operating income for fiscal 2016 was $19.6 million, or 9% of sales, compared to
$23.8 million, or 11% of sales, in fiscal 2015. The year-over-year reduction in operating income was
$23.8 million, or 11% of sales, in fiscal 2015. The year-over-year reduction in operating income was
primarily attributable to increased operating expenses associated with increased trade show expenses,
primarily attributable to increased operating expenses associated with increased trade show expenses,
increased employee support costs for global sales operations, and incremental operating expenses
increased employee support costs for global sales operations, and incremental operating expenses
associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.
associated with the acquisitions of the Milltronics and Takumi product lines since July 2015.

Other Expense, Net. Other expense, net for fiscal 2016 increased by $0.5 million from fiscal 2015 due
Other Expense, Net. Other expense, net for fiscal 2016 increased by $0.5 million from fiscal 2015 due
mainly to higher foreign currency losses experienced in 2016 and the elimination of a one-time out-of-
mainly to higher foreign currency losses experienced in 2016 and the elimination of a one-time out-of-
period income adjustment recorded in fiscal 2015.
period income adjustment recorded in fiscal 2015.

Provision for Income Taxes. Our effective tax rate for fiscal 2016 was 30% in comparison to 31% for
Provision for Income Taxes. Our effective tax rate for fiscal 2016 was 30% in comparison to 31% for
fiscal 2015. The decrease in the effective income tax rate for fiscal 2016 was due primarily to changes in
fiscal 2015. The decrease in the effective income tax rate for fiscal 2016 was due primarily to changes in
the geographic mix of income or loss among tax jurisdictions.
the geographic mix of income or loss among tax jurisdictions.

Net Income. Net income for fiscal 2016 was $13.3 million, or $1.99 per diluted share, a decrease of $2.9
Net Income. Net income for fiscal 2016 was $13.3 million, or $1.99 per diluted share, a decrease of $2.9
million, or 18%, from fiscal 2015 net income of $16.2 million, or $2.44 per diluted share.
million, or 18%, from fiscal 2015 net income of $16.2 million, or $2.44 per diluted share.

Fiscal 2015 Compared to Fiscal 2014
Fiscal 2015 Compared to Fiscal 2014

Sales and Service Fees. Sales and service fees for fiscal 2015 were $219.4 million, a decrease of $2.9
Sales and Service Fees. Sales and service fees for fiscal 2015 were $219.4 million, a decrease of $2.9
million, or 1%, compared to fiscal 2014 and included a negative currency impact of $21.2 million, or
million, or 1%, compared to fiscal 2014 and included a negative currency impact of $21.2 million, or
10%, compared to fiscal 2014. Sales for fiscal 2015 included $10.0 million of sales activities from the
10%, compared to fiscal 2014. Sales for fiscal 2015 included $10.0 million of sales activities from the
acquisitions of the Takumi and Milltronics product lines in July 2015 until the end of fiscal 2015.
acquisitions of the Takumi and Milltronics product lines in July 2015 until the end of fiscal 2015.

Net Sales and Service Fees by Geographic Region
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
The following table sets forth net sales and service fees by geographic region for the fiscal years ended
October 31, 2015 and 2014 (in thousands):
October 31, 2015 and 2014 (in thousands):

October 31,
October 31,

2015
2015

2014
2014

Americas
Americas
Europe
Europe
Asia Pacific
Asia Pacific
Total
Total

$ 70,169
$ 70,169
129,335
129,335
19,879
19,879
$219,383
$219,383

32%
32%
59%
59%
9%
9%
100%
100%

$ 62,142
$ 62,142
138,201
138,201
21,960
21,960
$222,303
$222,303

Increase/Decrease
Increase/Decrease
Amount %
Amount %
$ 8,027
$ 8,027
(8,866)
(8,866)
(2,081)
(2,081)
$ (2,920)
$ (2,920)

13%
13%
-6%
-6%
-9%
-9%
-1%
-1%

28%
28%
62%
62%
10%
10%
100%
100%

25
25

Sales in the Americas increased during fiscal 2015 by 13% compared to fiscal 2014 primarily due to three
months of sales activity from the acquisition of the Milltronics product line in July 2015 until the end of
fiscal 2015. Sales for the Milltronics product line in the Americas for fiscal 2015 were $6.7 million.
European sales for fiscal 2015 decreased by 6% compared to fiscal 2014 and included a negative currency
impact of 14%. Excluding the negative currency impact, the year-over-year growth in European sales
was driven by increased shipments of higher-performance machines in Germany, France and Italy. Asian
Pacific sales for fiscal 2015 decreased by 9% compared to fiscal 2014, primarily due to softer markets in
China and India and the negative impact of currency. Asian Pacific sales for fiscal 2015 included $3.3
million of sales activity from the acquisition of the Takumi product line in July 2015 until the end of
fiscal 2015.

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, 2015 and 2014 (in thousands):

Computerized
Machine Tools*
Computer Control
Systems and Software†
Service Parts
Service Fees
Total

October 31,

2015

2014

$189,712

87%

$193,937

87%

Increase/Decrease
Amount %
-2%
$(4,225)

3,085

3,407

(322)

-9%

19,375
7,211
$219,383

9%
3%
100%

17,391
7,568
$222,303

8%
3%
100%

1,984
(357)
$(2,920)

11%
-5%
-1%

* 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 decreased during fiscal 2015 by 2% compared to fiscal 2014 and
included a negative currency impact of 9% when translating foreign sales to U.S. dollars for financial
reporting purposes. Excluding the negative currency impact, the year-over-year increase in computerized
machine tools was due to increased shipments of higher-performance machines in Germany and France,
as well as the impact of three months of sales activity from the acquisitions of the Milltronics and Takumi
product lines in July 2015 until the end of fiscal 2015. Sales of computer control systems and software
decreased by 9% during fiscal 2015 compared to fiscal 2014 due primarily to decreased shipments of
Autobend® press brake machines and optional software products in the Americas. Sales of service parts
increased by 11% during fiscal 2015 compared to fiscal 2014 due mainly to three months of sales activity
from the acquisitions of the Milltronics and Takumi product lines in July 2015 until the end of fiscal
2015. Service fees revenue for fiscal 2015 decreased by 5% compared to fiscal 2014 primarily due to the
negative impact of currency when translating foreign sales to U.S. dollars for financial reporting
purposes.

Orders and Backlog. Orders for fiscal 2015 were $223.2 million, a decrease of $9.3 million, or 4%,
compared to fiscal 2014 and included a negative currency impact of $21.2 million, or 9%, when
translating foreign orders into U.S. dollars for financial reporting purposes. Orders in the Americas for
fiscal 2015 were $72.0 million, an increase of $8.6 million, or 14%, compared to fiscal 2014. Orders in
the Americas for fiscal 2015 included $10.1 million of orders related to the Milltronics product line.
Excluding the orders related to the Milltronics product line, orders for the Americas decreased during
fiscal 2015 compared to fiscal 2014 since promotional activities related to the International
Manufacturing Technology Show held in September 2014 led to an increase in orders in fiscal 2014.
European orders for fiscal 2015 were $126.5 million, a decrease of $22.0 million, or 15%, compared to
fiscal 2014 and included a negative currency impact of $20.4 million, or 14%. Excluding the negative
impact of currency, the slight year-over-year reduction in European orders was primarily driven by

foreign currency weakness in the United Kingdom and fluctuating customer demand for electro-

mechanical components and accessories manufactured by LCM. Asian Pacific orders for fiscal 2015

were $24.7 million, an increase of $4.1 million, or 20%, compared to fiscal 2014. Asian Pacific orders

for fiscal 2015 included $10.6 million of orders related to the Takumi product line. Excluding the orders

related to the Takumi product line, Asian Pacific orders for fiscal 2015 decreased primarily due to softer

market conditions in China and India.

Backlog was $41.2 million at October 31, 2015 (which included $10.6 million of backlog for Milltronics

and Takumi products) compared to $39.8 million at October 31, 2014. We do not believe backlog is a

useful measure of past performance or indicative of future performance.

Gross Profit. Gross profit for fiscal 2015 was $69.1 million, or 31% of sales, compared to $68.6 million,

or 31% of sales, for fiscal 2014. The year-over-year improvement in gross profit was primarily

attributable to increased sales of higher-performance machines across all regions, net of the pricing

pressure and the negative impact of currency.

Operating Expenses. Selling, general and administrative expenses for fiscal 2015 were $45.3 million, or

21% of sales, compared to $46.6 million, or 21% of sales, for fiscal 2014. Fiscal year 2015 expenses

included approximately $2.4 million related to Milltronics and Takumi, of which $0.7 million represented

one-time acquisition costs. Selling, general and administrative expenses for fiscal 2015 included a

positive impact of approximately $3.2 million, or 1% of sales, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

Operating Income. Operating income for fiscal 2015 was $23.8 million, or 11% of sales, compared to

$22.0 million, or 10% of sales, in fiscal 2014. The year-over-year improvement in operating income was

primarily attributable to increased sales of higher-performance machines across all regions.

Other Expense, Net. Other expense, net for fiscal 2015 decreased by $0.4 million from fiscal 2014 as a

result of a one-time out-of-period income adjustment recorded in fiscal 2015.

Provision for Income Taxes. Our effective tax rate for fiscal 2015 was 31% in comparison to 29% for

fiscal 2014. The increase in the effective income tax rate in fiscal 2015 was due primarily to changes in

the geographic mix of income or loss among tax jurisdictions.

Net Income. Net income for fiscal 2015 was $16.2 million, or $2.44 per diluted share, an increase of $1.1

million, or 7%, from fiscal 2014 net income of $15.1 million, or $2.30 per diluted share.

Liquidity and Capital Resources

At October 31, 2016, we had cash and cash equivalents of $41.2 million compared to $55.2 million at

October 31, 2015. Approximately 54% of our $41.2 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 $160.4 million at October 31, 2016 compared

to $151.0 million at October 31, 2015. The increase in working capital was primarily due to increased

inventories, which were $117.0 million at October 31, 2016, compared to $106.3 million at October 31,

2015. The increase in inventories was primarily due to a reduction in orders during fiscal 2016, as well as

incremental computerized machine tools for the Milltronics and Takumi product lines, which contributed

to our efforts in expanding our consolidated product range to meet customers’ needs. Inventory turns at

October 31, 2016 were 1.4 compared to 1.6 turns at October 31, 2015.

Capital expenditures were $4.2 million in fiscal 2016 compared to $4.5 million in fiscal 2015. Capital

expenditures for fiscal 2016 were primarily for software development costs, purchases of factory

Sales in the Americas increased during fiscal 2015 by 13% compared to fiscal 2014 primarily due to three

months of sales activity from the acquisition of the Milltronics product line in July 2015 until the end of

fiscal 2015. Sales for the Milltronics product line in the Americas for fiscal 2015 were $6.7 million.

European sales for fiscal 2015 decreased by 6% compared to fiscal 2014 and included a negative currency

impact of 14%. Excluding the negative currency impact, the year-over-year growth in European sales

was driven by increased shipments of higher-performance machines in Germany, France and Italy. Asian

Pacific sales for fiscal 2015 decreased by 9% compared to fiscal 2014, primarily due to softer markets in

China and India and the negative impact of currency. Asian Pacific sales for fiscal 2015 included $3.3

million of sales activity from the acquisition of the Takumi product line in July 2015 until the end of

fiscal 2015.

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, 2015 and 2014 (in thousands):

Computerized

Machine Tools*

Computer Control

Systems and Software†

Service Parts

Service Fees

Total

dates of those acquisitions.

machine systems.

October 31,

2015

2014

Increase/Decrease

Amount %

$189,712

87%

$193,937

87%

$(4,225)

3,085

19,375

7,211

$219,383

3,407

17,391

7,568

(322)

1,984

(357)

100%

$222,303

100%

$(2,920)

-2%

-9%

11%

-5%

-1%

* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective

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

Sales of computerized machine tools decreased during fiscal 2015 by 2% compared to fiscal 2014 and

included a negative currency impact of 9% when translating foreign sales to U.S. dollars for financial

reporting purposes. Excluding the negative currency impact, the year-over-year increase in computerized

machine tools was due to increased shipments of higher-performance machines in Germany and France,

as well as the impact of three months of sales activity from the acquisitions of the Milltronics and Takumi

product lines in July 2015 until the end of fiscal 2015. Sales of computer control systems and software

decreased by 9% during fiscal 2015 compared to fiscal 2014 due primarily to decreased shipments of

Autobend® press brake machines and optional software products in the Americas. Sales of service parts

increased by 11% during fiscal 2015 compared to fiscal 2014 due mainly to three months of sales activity

from the acquisitions of the Milltronics and Takumi product lines in July 2015 until the end of fiscal

2015. Service fees revenue for fiscal 2015 decreased by 5% compared to fiscal 2014 primarily due to the

negative impact of currency when translating foreign sales to U.S. dollars for financial reporting

purposes.

Orders and Backlog. Orders for fiscal 2015 were $223.2 million, a decrease of $9.3 million, or 4%,

compared to fiscal 2014 and included a negative currency impact of $21.2 million, or 9%, when

translating foreign orders into U.S. dollars for financial reporting purposes. Orders in the Americas for

fiscal 2015 were $72.0 million, an increase of $8.6 million, or 14%, compared to fiscal 2014. Orders in

the Americas for fiscal 2015 included $10.1 million of orders related to the Milltronics product line.

Excluding the orders related to the Milltronics product line, orders for the Americas decreased during

fiscal 2015 compared to fiscal 2014 since promotional activities related to the International

Manufacturing Technology Show held in September 2014 led to an increase in orders in fiscal 2014.

European orders for fiscal 2015 were $126.5 million, a decrease of $22.0 million, or 15%, compared to

fiscal 2014 and included a negative currency impact of $20.4 million, or 14%. Excluding the negative

impact of currency, the slight year-over-year reduction in European orders was primarily driven by

foreign currency weakness in the United Kingdom and fluctuating customer demand for electro-
foreign currency weakness in the United Kingdom and fluctuating customer demand for electro-
mechanical components and accessories manufactured by LCM. Asian Pacific orders for fiscal 2015
mechanical components and accessories manufactured by LCM. Asian Pacific orders for fiscal 2015
were $24.7 million, an increase of $4.1 million, or 20%, compared to fiscal 2014. Asian Pacific orders
were $24.7 million, an increase of $4.1 million, or 20%, compared to fiscal 2014. Asian Pacific orders
for fiscal 2015 included $10.6 million of orders related to the Takumi product line. Excluding the orders
for fiscal 2015 included $10.6 million of orders related to the Takumi product line. Excluding the orders
related to the Takumi product line, Asian Pacific orders for fiscal 2015 decreased primarily due to softer
related to the Takumi product line, Asian Pacific orders for fiscal 2015 decreased primarily due to softer
market conditions in China and India.
market conditions in China and India.

Backlog was $41.2 million at October 31, 2015 (which included $10.6 million of backlog for Milltronics
Backlog was $41.2 million at October 31, 2015 (which included $10.6 million of backlog for Milltronics
and Takumi products) compared to $39.8 million at October 31, 2014. We do not believe backlog is a
and Takumi products) compared to $39.8 million at October 31, 2014. We do not believe backlog is a
useful measure of past performance or indicative of future performance.
useful measure of past performance or indicative of future performance.

Gross Profit. Gross profit for fiscal 2015 was $69.1 million, or 31% of sales, compared to $68.6 million,
Gross Profit. Gross profit for fiscal 2015 was $69.1 million, or 31% of sales, compared to $68.6 million,
or 31% of sales, for fiscal 2014. The year-over-year improvement in gross profit was primarily
or 31% of sales, for fiscal 2014. The year-over-year improvement in gross profit was primarily
attributable to increased sales of higher-performance machines across all regions, net of the pricing
attributable to increased sales of higher-performance machines across all regions, net of the pricing
pressure and the negative impact of currency.
pressure and the negative impact of currency.

Operating Expenses. Selling, general and administrative expenses for fiscal 2015 were $45.3 million, or
Operating Expenses. Selling, general and administrative expenses for fiscal 2015 were $45.3 million, or
21% of sales, compared to $46.6 million, or 21% of sales, for fiscal 2014. Fiscal year 2015 expenses
21% of sales, compared to $46.6 million, or 21% of sales, for fiscal 2014. Fiscal year 2015 expenses
included approximately $2.4 million related to Milltronics and Takumi, of which $0.7 million represented
included approximately $2.4 million related to Milltronics and Takumi, of which $0.7 million represented
one-time acquisition costs. Selling, general and administrative expenses for fiscal 2015 included a
one-time acquisition costs. Selling, general and administrative expenses for fiscal 2015 included a
positive impact of approximately $3.2 million, or 1% of sales, when translating foreign expenses to U.S.
positive impact of approximately $3.2 million, or 1% of sales, when translating foreign expenses to U.S.
dollars for financial reporting purposes.
dollars for financial reporting purposes.

Operating Income. Operating income for fiscal 2015 was $23.8 million, or 11% of sales, compared to
Operating Income. Operating income for fiscal 2015 was $23.8 million, or 11% of sales, compared to
$22.0 million, or 10% of sales, in fiscal 2014. The year-over-year improvement in operating income was
$22.0 million, or 10% of sales, in fiscal 2014. The year-over-year improvement in operating income was
primarily attributable to increased sales of higher-performance machines across all regions.
primarily attributable to increased sales of higher-performance machines across all regions.

Other Expense, Net. Other expense, net for fiscal 2015 decreased by $0.4 million from fiscal 2014 as a
Other Expense, Net. Other expense, net for fiscal 2015 decreased by $0.4 million from fiscal 2014 as a
result of a one-time out-of-period income adjustment recorded in fiscal 2015.
result of a one-time out-of-period income adjustment recorded in fiscal 2015.

Provision for Income Taxes. Our effective tax rate for fiscal 2015 was 31% in comparison to 29% for
Provision for Income Taxes. Our effective tax rate for fiscal 2015 was 31% in comparison to 29% for
fiscal 2014. The increase in the effective income tax rate in fiscal 2015 was due primarily to changes in
fiscal 2014. The increase in the effective income tax rate in fiscal 2015 was due primarily to changes in
the geographic mix of income or loss among tax jurisdictions.
the geographic mix of income or loss among tax jurisdictions.

Net Income. Net income for fiscal 2015 was $16.2 million, or $2.44 per diluted share, an increase of $1.1
Net Income. Net income for fiscal 2015 was $16.2 million, or $2.44 per diluted share, an increase of $1.1
million, or 7%, from fiscal 2014 net income of $15.1 million, or $2.30 per diluted share.
million, or 7%, from fiscal 2014 net income of $15.1 million, or $2.30 per diluted share.

Liquidity and Capital Resources
Liquidity and Capital Resources

At October 31, 2016, we had cash and cash equivalents of $41.2 million compared to $55.2 million at
At October 31, 2016, we had cash and cash equivalents of $41.2 million compared to $55.2 million at
October 31, 2015. Approximately 54% of our $41.2 million of cash and cash equivalents is held in the
October 31, 2015. Approximately 54% of our $41.2 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
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
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.
reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital (including cash and cash equivalents) was $160.4 million at October 31, 2016 compared
Working capital (including cash and cash equivalents) was $160.4 million at October 31, 2016 compared
to $151.0 million at October 31, 2015. The increase in working capital was primarily due to increased
to $151.0 million at October 31, 2015. The increase in working capital was primarily due to increased
inventories, which were $117.0 million at October 31, 2016, compared to $106.3 million at October 31,
inventories, which were $117.0 million at October 31, 2016, compared to $106.3 million at October 31,
2015. The increase in inventories was primarily due to a reduction in orders during fiscal 2016, as well as
2015. The increase in inventories was primarily due to a reduction in orders during fiscal 2016, as well as
incremental computerized machine tools for the Milltronics and Takumi product lines, which contributed
incremental computerized machine tools for the Milltronics and Takumi product lines, which contributed
to our efforts in expanding our consolidated product range to meet customers’ needs. Inventory turns at
to our efforts in expanding our consolidated product range to meet customers’ needs. Inventory turns at
October 31, 2016 were 1.4 compared to 1.6 turns at October 31, 2015.
October 31, 2016 were 1.4 compared to 1.6 turns at October 31, 2015.

Capital expenditures were $4.2 million in fiscal 2016 compared to $4.5 million in fiscal 2015. Capital
Capital expenditures were $4.2 million in fiscal 2016 compared to $4.5 million in fiscal 2015. Capital
expenditures for fiscal 2016 were primarily for software development costs, purchases of factory
expenditures for fiscal 2016 were primarily for software development costs, purchases of factory

27
27

equipment for production facilities, and purchases of general software and equipment for selling facilities.
We funded these expenditures with cash flows from operations.

On December 6, 2016, we amended our U.S. credit agreement, among other things, to increase the
unsecured revolving credit facility from $12.5 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, and to extend the
scheduled maturity date to December 31, 2018. 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.

Borrowings under the 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 paid for the unutilized portion of the U.S. credit
agreement is 0.05% per annum.

The U.S. credit agreement contains customary financial covenants, 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 million), (2) requiring 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 to pay cash dividends in an amount not to exceed
$5.0 million per calendar year, so long as we are not in default before and after giving effect to such
dividends.

We have a £1.0 million revolving credit facility in England and a €1.5 million revolving credit facility in
Germany. We also have a 40.0 million Chinese Yuan (approximately $5.9 million) credit facility in China
that was renewed on February 17, 2016 with an expiration date of February 16, 2017.

At October 31, 2016, we had $1.5 million of borrowings under our China credit facility. We had no other
debt or borrowings under any of our other credit facilities. At October 31, 2016, we were in compliance
with the covenants contained in all of our credit facilities and had $19.8 million of available borrowing
capacity under those facilities.

We believe our cash position and borrowing capacity under our credit facilities provides adequate
liquidity to fund our operations over the next twelve months, pay quarterly cash dividends and execute
our strategic plan for product innovation and targeted penetration of developing markets.

We continue to receive and review information concerning businesses and assets, including intellectual
property assets, available for potential acquisition.

Contractual Obligations and Commitments

The following is a table of contractual obligations and commitments as of October 31, 2016 (in
thousands):

Total
$ 1,476
Short-term debt .............................
Operating leases ............................
6,347
Other… ......................................... 4,212
$ 12,035
Total ..............................................

Payments Due by Period

Less than
1 Year
$ 1,476
2,930
--
$ 4,406

1-3
Years
$ --
2,485
963
$ 3,448

3-5
Years
$ --
589
--
$ 589

More than
5 Years
$ --
343
3,249
$ 3,592

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 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 2017 to be approximately $5.9 million, which includes investments

for capitalized 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.

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, 2016, we had 26 outstanding third party payment guarantees totaling

approximately $1.2 million. The terms of these guarantees are consistent with the underlying customer

financing terms. Upon shipment of a machine, the customer has 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.

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 require 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 believed to be reasonable

under the circumstances.

Revenue Recognition - We recognize revenue from sales of our machine tool systems upon delivery of the

product to the customer, 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.

Depending upon geographic location, after shipment, a machine may be installed at the customer’s

facilities 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 to

be inconsequential and perfunctory.

equipment for production facilities, and purchases of general software and equipment for selling facilities.

We funded these expenditures with cash flows from operations.

On December 6, 2016, we amended our U.S. credit agreement, among other things, to increase the

unsecured revolving credit facility from $12.5 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, and to extend the

scheduled maturity date to December 31, 2018. 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.

Borrowings under the 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 paid for the unutilized portion of the U.S. credit

agreement is 0.05% per annum.

The U.S. credit agreement contains customary financial covenants, 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 million), (2) requiring 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 to pay cash dividends in an amount not to exceed

$5.0 million per calendar year, so long as we are not in default before and after giving effect to such

dividends.

We have a £1.0 million revolving credit facility in England and a €1.5 million revolving credit facility in

Germany. We also have a 40.0 million Chinese Yuan (approximately $5.9 million) credit facility in China

that was renewed on February 17, 2016 with an expiration date of February 16, 2017.

At October 31, 2016, we had $1.5 million of borrowings under our China credit facility. We had no other

debt or borrowings under any of our other credit facilities. At October 31, 2016, we were in compliance

with the covenants contained in all of our credit facilities and had $19.8 million of available borrowing

capacity under those facilities.

We believe our cash position and borrowing capacity under our credit facilities provides adequate

liquidity to fund our operations over the next twelve months, pay quarterly cash dividends and execute

our strategic plan for product innovation and targeted penetration of developing markets.

We continue to receive and review information concerning businesses and assets, including intellectual

property assets, available for potential acquisition.

Contractual Obligations and Commitments

The following is a table of contractual obligations and commitments as of October 31, 2016 (in

thousands):

Total

Short-term debt .............................

$ 1,476

Operating leases ............................

6,347

Other… ......................................... 4,212

Total ..............................................

$ 12,035

Payments Due by Period

Less than

1 Year

$ 1,476

2,930

1-3

Years

3-5

Years

$ --

2,485

963

589

More than

5 Years

$ --

343

3,249

$ 4,406

$ 3,448

$ 589

$ 3,592

In addition to the contractual obligations and commitments disclosed above, we also have a variety of
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
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,
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
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
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 million,
agreements or arrangements. Unrecognized tax benefits in the amount of approximately $1.1 million,
excluding any interest and penalties, have been excluded from the table above because we are unable to
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.
determine a reasonably reliable estimate of the timing of future payment.

We expect capital spending in fiscal 2017 to be approximately $5.9 million, which includes investments
We expect capital spending in fiscal 2017 to be approximately $5.9 million, which includes investments
for capitalized software and capital equipment for all of our production and selling facilities. We expect
for capitalized 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.
to fund these commitments with cash on hand and cash generated from operations.

Off Balance Sheet Arrangements
Off Balance Sheet Arrangements

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale
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
of machines to customers that use financing. We follow Financial Accounting Standards Board
(“FASB”) guidance for accounting for guarantees (codified in Accounting Standards Codification
(“FASB”) guidance for accounting for guarantees (codified in Accounting Standards Codification
(“ASC”) 460). As of October 31, 2016, we had 26 outstanding third party payment guarantees totaling
(“ASC”) 460). As of October 31, 2016, we had 26 outstanding third party payment guarantees totaling
approximately $1.2 million. The terms of these guarantees are consistent with the underlying customer
approximately $1.2 million. The terms of these guarantees are consistent with the underlying customer
financing terms. Upon shipment of a machine, the customer has the risk of ownership. The customer does
financing terms. Upon shipment of a machine, the customer has 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
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
the machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair
value, which amounts are insignificant.
value, which amounts are insignificant.

Critical Accounting Policies and Estimates
Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations is based upon our
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
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
Accounting Principles. The preparation of financial statements in conformity with those accounting
principles require us to make judgments and estimates that affect the amounts reported in the consolidated
principles require 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
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
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
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
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 believed to be reasonable
based upon historical experience and on various other assumptions that are believed to be reasonable
under the circumstances.
under the circumstances.

Revenue Recognition - We recognize revenue from sales of our machine tool systems upon delivery of the
Revenue Recognition - We recognize revenue from sales of our machine tool systems upon delivery of the
product to the customer, which is normally at the time of shipment, because persuasive evidence of an
product to the customer, 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
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
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
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
contingent upon contractual customer acceptance. Prior to shipment, we test each machine to ensure the
machine’s compliance with standard operating specifications.
machine’s compliance with standard operating specifications.

Depending upon geographic location, after shipment, a machine may be installed at the customer’s
Depending upon geographic location, after shipment, a machine may be installed at the customer’s
facilities by a distributor, independent contractor or by one of our service technicians. In most instances
facilities 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
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
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
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 to
that it is performing within the standard specifications. We consider the machine installation process to
be inconsequential and perfunctory.
be inconsequential and perfunctory.

29
29

affecting demand. We periodically review the carrying values of these assets and make judgments as to

ultimate realization considering the above-mentioned risk factors.

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.

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.

Service fees from maintenance contracts are deferred and recognized in earnings on a pro rata basis over
the term of the contract. Sales related to software products are recognized when shipped in conformity
with U.S. Generally Accepted Accounting Principles as promulgated by FASB 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.

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 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. 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 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, 2016 were
approximately $79.7 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.

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.

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
affecting demand. We periodically review the carrying values of these assets and make judgments as to
ultimate realization considering the above-mentioned risk factors.
ultimate realization considering the above-mentioned risk factors.

Derivative Financial Instruments – Critical aspects of our accounting policy for derivative financial
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
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
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
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
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
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
earnings. We routinely monitor significant estimates, assumptions, and judgments associated with
derivative instruments, and compliance with formal documentation requirements.
derivative instruments, and compliance with formal documentation requirements.

Stock Compensation – We account for share-based compensation according to FASB guidance relating to
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 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.
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
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
recognize as expense the value of the portion of the award that is ultimately expected to vest over the
requisite service period.
requisite service period.

Service fees from maintenance contracts are deferred and recognized in earnings on a pro rata basis over

the term of the contract. Sales related to software products are recognized when shipped in conformity

with U.S. Generally Accepted Accounting Principles as promulgated by FASB 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.

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 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. 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 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, 2016 were

approximately $79.7 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.

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.

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

31
31

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which were

entered into to protect against the effects of foreign currency fluctuations on receivables and payables and

are not designated as hedges under this guidance denominated in foreign currencies, were as follows:

Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign
interest rates. At October 31, 2016, we had $1.5 million of borrowings under our China credit facility.
We had no other debt or borrowings under any of our other credit facilities.

Foreign Currency Exchange Risk

In fiscal 2016, we derived approximately 69% of our revenues from customers located outside of the U.S.
All of our computerized machine tools and computer control systems assembled in Taiwan, 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, 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.

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 receivables
and payables denominated in foreign currencies. We do not speculate in the financial markets and,
therefore, do not enter into these contracts for trading purposes.

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which are
designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and
hedging activities, were as follows:

Notional
Amount
in Foreign
Currency

Weighted
Avg.
Forward
Rate

Contract Amount at Forward
Rates in U.S. Dollars

Contract
Date

October 31,
2016

Maturity Dates

25,000,000

1.1202

$28,004,935 $27,600,641 Nov 2016-Oct 2017

4,925,000

1.3934

$ 6,862,675 $ 6,050,529 Nov 2016-Oct 2017

Forward
Contracts
Sale Contracts:

Euro

Sterling

Purchase Contracts:

New Taiwan Dollar

685,000,000

32.07*

$21,361,677 $21,753,310 Nov 2016-Oct 2017

*NT Dollars per U.S. Dollar

Notional

Amount

in Foreign

Currency

Weighted

Contract Amount at

Avg.

Forward Rates in U.S. Dollars

Forward

Contract

October 31,

Rate

Date

2016

Maturity Dates

Forward

Contracts

Sale Contracts:

Euro

Purchase Contracts:

* NT Dollars per U.S. Dollar

33,047,215

1.0998

$ 36,346,017

$ 36,469,657 Nov 2016-Apr 2017

Pound Sterling

1,634,180

1.2162

$ 1,987,522

$ 2,003,054 Nov 2016-Dec 2016

South African Rand

14,831,600

0.0698

$ 1,034,522

$ 1,062,494 Apr 2017

New Taiwan Dollar

838,537,514

31.32*

$ 26,769,329

$ 26,593,682 Nov 2016–Feb 2017

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 2015. 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 derivatives 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 in Accumulated Other

Comprehensive Loss, net of tax, in the same manner as the underlying hedged net assets. This forward

contract matured in November 2016 and we entered into a new forward contract for the same notional

amount that is set to mature in November 2017. As of October 31, 2016, we had a realized gain of

$803,000 and an unrealized loss of $39,000, net of tax, recorded as cumulative translation adjustments in

Accumulated other comprehensive loss, related to these forward contracts.

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which are

designated as net investment hedges under this guidance were as follows:

Notional

Amount

in Foreign

Currency

Weighted

Avg.

Forward

Rate

Contract Amount at

Forward Rates in U.S. Dollars

October 31,

Contract

Date

2016

Maturity Date

Forward

Contracts

Sale Contracts:

Euro

3,000,000

1.0775

$ 3,232,500

$ 3,292,170

Nov 2016

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which were
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which were
entered into to protect against the effects of foreign currency fluctuations on receivables and payables and
entered into to protect against the effects of foreign currency fluctuations on receivables and payables and
are not designated as hedges under this guidance denominated in foreign currencies, were as follows:
are not designated as hedges under this guidance denominated in foreign currencies, were as follows:

Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign

interest rates. At October 31, 2016, we had $1.5 million of borrowings under our China credit facility.

We had no other debt or borrowings under any of our other credit facilities.

Foreign Currency Exchange Risk

In fiscal 2016, we derived approximately 69% of our revenues from customers located outside of the U.S.

All of our computerized machine tools and computer control systems assembled in Taiwan, 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, 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.

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 receivables

and payables denominated in foreign currencies. We do not speculate in the financial markets and,

therefore, do not enter into these contracts for trading purposes.

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which are

designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and

hedging activities, were as follows:

Notional

Amount

in Foreign

Currency

Weighted

Avg.

Forward

Rate

Contract Amount at Forward

Rates in U.S. Dollars

Contract

October 31,

Date

2016

Maturity Dates

25,000,000

1.1202

$28,004,935 $27,600,641 Nov 2016-Oct 2017

4,925,000

1.3934

$ 6,862,675 $ 6,050,529 Nov 2016-Oct 2017

New Taiwan Dollar

685,000,000

32.07*

$21,361,677 $21,753,310 Nov 2016-Oct 2017

Forward

Contracts

Sale Contracts:

Euro

Sterling

Purchase Contracts:

*NT Dollars per U.S. Dollar

Forward
Forward
Contracts
Contracts

Sale Contracts:
Sale Contracts:
Euro
Euro

Notional
Notional
Amount
Amount
in Foreign
in Foreign
Currency
Currency

Weighted
Weighted
Avg.
Avg.
Forward
Forward
Rate
Rate

Contract Amount at
Contract Amount at
Forward Rates in U.S. Dollars
Forward Rates in U.S. Dollars

Contract
Contract
Date
Date

October 31,
October 31,
2016
2016

Maturity Dates
Maturity Dates

33,047,215
33,047,215

1.0998
1.0998

$ 36,346,017
$ 36,346,017

$ 36,469,657 Nov 2016-Apr 2017
$ 36,469,657 Nov 2016-Apr 2017

Pound Sterling
Pound Sterling

1,634,180
1,634,180

1.2162
1.2162

$ 1,987,522
$ 1,987,522

$ 2,003,054 Nov 2016-Dec 2016
$ 2,003,054 Nov 2016-Dec 2016

South African Rand
South African Rand

14,831,600
14,831,600

0.0698
0.0698

$ 1,034,522
$ 1,034,522

$ 1,062,494 Apr 2017
$ 1,062,494 Apr 2017

Purchase Contracts:
Purchase Contracts:

New Taiwan Dollar
New Taiwan Dollar

838,537,514
838,537,514

31.32*
31.32*

$ 26,769,329
$ 26,769,329

$ 26,593,682 Nov 2016–Feb 2017
$ 26,593,682 Nov 2016–Feb 2017

* NT Dollars per U.S. Dollar
* NT Dollars per U.S. Dollar

We are exposed to foreign currency exchange risk related to our investment in net assets in foreign
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
countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million
in November 2015. We designated this forward contract as a hedge of our net investment in Euro
in November 2015. 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
denominated assets. We selected the forward method under the FASB guidance related to the accounting
for derivatives instruments and hedging activities. The forward method requires all changes in the fair
for derivatives 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 in Accumulated Other
value of the contract to be reported as a cumulative translation adjustment in Accumulated Other
Comprehensive Loss, net of tax, in the same manner as the underlying hedged net assets. This forward
Comprehensive Loss, net of tax, in the same manner as the underlying hedged net assets. This forward
contract matured in November 2016 and we entered into a new forward contract for the same notional
contract matured in November 2016 and we entered into a new forward contract for the same notional
amount that is set to mature in November 2017. As of October 31, 2016, we had a realized gain of
amount that is set to mature in November 2017. As of October 31, 2016, we had a realized gain of
$803,000 and an unrealized loss of $39,000, net of tax, recorded as cumulative translation adjustments in
$803,000 and an unrealized loss of $39,000, net of tax, recorded as cumulative translation adjustments in
Accumulated other comprehensive loss, related to these forward contracts.
Accumulated other comprehensive loss, related to these forward contracts.

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which are
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2016, which are
designated as net investment hedges under this guidance were as follows:
designated as net investment hedges under this guidance were as follows:

Notional
Notional
Amount
Amount
in Foreign
in Foreign
Currency
Currency

Weighted
Weighted
Avg.
Avg.
Forward
Forward
Rate
Rate

Contract Amount at
Contract Amount at
Forward Rates in U.S. Dollars
Forward Rates in U.S. Dollars
October 31,
October 31,
2016
2016

Contract
Contract
Date
Date

Maturity Date
Maturity Date

Forward
Forward
Contracts
Contracts

Sale Contracts:
Sale Contracts:

Euro
Euro

3,000,000
3,000,000

1.0775
1.0775

$ 3,232,500
$ 3,232,500

$ 3,292,170
$ 3,292,170

Nov 2016
Nov 2016

33
33

Management’s Annual Report on Internal Control over Financial Reporting

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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, 2016, 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 these 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, 2016,
was effective based on the criteria specified above.

Our independent registered accounting firm, Ernst & Young LLP, who also audited our consolidated
financial statements, audited the effectiveness of our internal control over financial reporting as of
October 31, 2016. Ernst & Young 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,
Chairman of the Board and Chief Executive Officer

/s/ Sonja K. McClelland
Sonja K. McClelland
Vice President, Secretary, Treasurer and Chief Financial Officer

Indianapolis, Indiana
January 6, 2017

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 sheets of Hurco Companies, Inc. as of

October 31, 2016 and 2015 and the related consolidated statements of income, comprehensive income,

changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31,

2016. Our audits also included the financial statement schedule listed at Item 15(a). These financial

statements and schedule are the responsibility of the Company’s management. Our responsibility is to

express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation. We believe that our

audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the

consolidated financial position of Hurco Companies, Inc. at October 31, 2016 and 2015 and the

consolidated results of its operations and its cash flows for each of the three years in the period ended

October 31, 2016 in conformity with U.S. generally accepted accounting principles. Also, in our opinion,

the related financial statement schedule, when considered in relation to the basic financial statements

taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight

Board (United States), Hurco Companies, Inc.’s internal control over financial reporting as of October 31,

2016, based on criteria established in Internal Control – Integrated Framework issued by the Commission

of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated

January 6, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Indianapolis, Indiana

January 6, 2017

Management’s Annual Report on Internal Control over Financial Reporting

Item 8.
Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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, 2016, 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 these 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, 2016,

was effective based on the criteria specified above.

Our independent registered accounting firm, Ernst & Young LLP, who also audited our consolidated

financial statements, audited the effectiveness of our internal control over financial reporting as of

October 31, 2016. Ernst & Young has issued their attestation report, which is included in Part II, Item 8

of this Annual Report on Form 10-K.

Chairman of the Board and Chief Executive Officer

Vice President, Secretary, Treasurer and Chief Financial Officer

/s/ Michael Doar

Michael Doar,

/s/ Sonja K. McClelland

Sonja K. McClelland

Indianapolis, Indiana

January 6, 2017

Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm

To the Shareholders and
To the Shareholders and
Board of Directors
Board of Directors
of Hurco Companies, Inc.
of Hurco Companies, Inc.

We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc. as of
We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc. as of
October 31, 2016 and 2015 and the related consolidated statements of income, comprehensive income,
October 31, 2016 and 2015 and the related consolidated statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31,
changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31,
2016. Our audits also included the financial statement schedule listed at Item 15(a). These financial
2016. Our audits also included the financial statement schedule listed at Item 15(a). These financial
statements and schedule are the responsibility of the Company’s management. Our responsibility is to
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.
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
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
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
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.
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
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
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Hurco Companies, Inc. at October 31, 2016 and 2015 and the
consolidated financial position of Hurco Companies, Inc. at October 31, 2016 and 2015 and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
consolidated results of its operations and its cash flows for each of the three years in the period ended
October 31, 2016 in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
October 31, 2016 in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic financial statements
the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Hurco Companies, Inc.’s internal control over financial reporting as of October 31,
Board (United States), Hurco Companies, Inc.’s internal control over financial reporting as of October 31,
2016, based on criteria established in Internal Control – Integrated Framework issued by the Commission
2016, based on criteria established in Internal Control – Integrated Framework issued by the Commission
of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
January 6, 2017 expressed an unqualified opinion thereon.
January 6, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
/s/ Ernst & Young LLP

Indianapolis, Indiana
Indianapolis, Indiana
January 6, 2017
January 6, 2017

35
35

Report of Independent Registered Public Accounting Firm

To the Shareholders and
Board of Directors
of Hurco Companies, Inc.

We have audited Hurco Companies, Inc.’s internal control over financial reporting as of October 31,
2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Hurco
Companies, Inc.’s management is responsible 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’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over financial reporting based on
our audit.

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 effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

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 (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; (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 (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.

In our opinion, Hurco Companies, Inc. maintained, in all material respects, effective internal control over
financial reporting as of October 31, 2016, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Hurco Companies, Inc. as of October 31, 2016
and 2015 and the related consolidated statements of income, comprehensive income, changes in
shareholders’ equity and cash flows for each of the three years in the period ended October 31, 2016 of
Hurco Companies, Inc. and our report dated January 6, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Indianapolis, Indiana
January 6, 2017

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended October 31,

2016

2015

2014

(In thousands, except per share amounts)

Sales and service fees .................................................................

$ 227,289

$219,383

$222,303

Cost of sales and service .............................................................

156,849

150,292

153,691

Gross profit ............................................................................

70,440

69,091

68,612

Selling, general and administrative expenses ..............................

50,824

45,287

46,615

Operating income ...................................................................

19,616

23,804

21,997

Interest expense ...........................................................................

198

264

Interest income ............................................................................

Investment income ......................................................................

149

Income from equity investments .................................................

466

474

444

Other expense, net .......................................................................

1,314

681

936

Income before income taxes ........................................................

18,885

23,553

21,361

Provision for income taxes ..........................................................

5,593

7,339

6,218

Net income ...............................................................................

$ 13,292

$ 16,214

$ 15,143

Income per common share – basic ..............................................

$ 2.01

$ 2.46

$ 2.31

Weighted average common shares outstanding – basic...............

6,569

6,543

6,497

Income per common share – diluted ...........................................

$ 1.99

$ 2.44

$ 2.30

Weighted average common shares outstanding – diluted ............

6,642

6,602

6,538

Dividends paid per share .............................................................

$ .35

$ .31

$ .26

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

2016
2016

2014
2014

Year Ended October 31,
Year Ended October 31,
2015
2015
(In thousands, except per share amounts)
(In thousands, except per share amounts)

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF INCOME

Report of Independent Registered Public Accounting Firm

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

We have audited Hurco Companies, Inc.’s internal control over financial reporting as of October 31,

2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of

Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Hurco

Companies, Inc.’s management is responsible 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’s Annual Report on Internal Control over Financial Reporting. Our

responsibility is to express an opinion on the company’s internal control over financial reporting based on

our audit.

opinion.

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 effective internal control over financial reporting was maintained in all material

respects. Our audit included obtaining an understanding of internal control over financial reporting,

assessing the risk that a material weakness exists, testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk, and performing such other procedures as we

considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our

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 (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; (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 (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.

In our opinion, Hurco Companies, Inc. maintained, in all material respects, effective internal control over

financial reporting as of October 31, 2016, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight

Board (United States), the consolidated balance sheets of Hurco Companies, Inc. as of October 31, 2016

and 2015 and the related consolidated statements of income, comprehensive income, changes in

shareholders’ equity and cash flows for each of the three years in the period ended October 31, 2016 of

Hurco Companies, Inc. and our report dated January 6, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Indianapolis, Indiana

January 6, 2017

Sales and service fees .................................................................
Sales and service fees .................................................................

$ 227,289
$ 227,289

$219,383
$219,383

$222,303
$222,303

Cost of sales and service .............................................................
Cost of sales and service .............................................................

156,849
156,849

150,292
150,292

153,691
153,691

Gross profit ............................................................................
Gross profit ............................................................................

70,440
70,440

69,091
69,091

68,612
68,612

Selling, general and administrative expenses ..............................
Selling, general and administrative expenses ..............................

50,824
50,824

45,287
45,287

46,615
46,615

Operating income ...................................................................
Operating income ...................................................................

19,616
19,616

23,804
23,804

21,997
21,997

Interest expense ...........................................................................
Interest expense ...........................................................................

72
72

198
198

264
264

Interest income ............................................................................
Interest income ............................................................................

40
40

76
76

78
78

Investment income ......................................................................
Investment income ......................................................................

149
149

78
78

42
42

Income from equity investments .................................................
Income from equity investments .................................................

466
466

474
474

444
444

Other expense, net .......................................................................
Other expense, net .......................................................................

1,314
1,314

681
681

936
936

Income before income taxes ........................................................
Income before income taxes ........................................................

18,885
18,885

23,553
23,553

21,361
21,361

Provision for income taxes ..........................................................
Provision for income taxes ..........................................................

5,593
5,593

7,339
7,339

6,218
6,218

Net income ...............................................................................
Net income ...............................................................................

$ 13,292
$ 13,292

$ 16,214
$ 16,214

$ 15,143
$ 15,143

Income per common share – basic ..............................................
Income per common share – basic ..............................................

$ 2.01
$ 2.01

$ 2.46
$ 2.46

$ 2.31
$ 2.31

Weighted average common shares outstanding – basic...............
Weighted average common shares outstanding – basic...............

6,569
6,569

6,543
6,543

6,497
6,497

Income per common share – diluted ...........................................
Income per common share – diluted ...........................................

$ 1.99
$ 1.99

$ 2.44
$ 2.44

$ 2.30
$ 2.30

Weighted average common shares outstanding – diluted ............
Weighted average common shares outstanding – diluted ............

6,642
6,642

6,602
6,602

6,538
6,538

Dividends paid per share .............................................................
Dividends paid per share .............................................................

$ .35
$ .35

$ .31
$ .31

$ .26
$ .26

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

37
37

HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

HURCO COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

Year Ended October 31,
2015

2014

2016

(In thousands)

Cash and cash equivalents ...................................................................

$ 41,217

$ 55,237

As of October 31,

2016

2015

(In thousands, except share and per share data)

Net Income ..................................................................................

$ 13,292

$ 16,214

$ 15,143

Other comprehensive income (loss):

Translation gain (loss) of foreign currency financial statements .

(1,441)

(6,333)

(3,535)

(Gain) / loss on derivative instruments reclassified into
operations, net of tax of $(906), $(431), and $621, respectively .

(1,647)

(784)

1,129

Gain / (loss) on derivative instruments, net of tax of $787, $712,
and $458, respectively .................................................................

1,431

1,291

830

Total other comprehensive income (loss)

(1,657)

(5,826)

(1,576)

Comprehensive income ...........................................................

$ 11,635

$ 10,388

$ 13,567

ASSETS

Current assets:

Accounts receivable, less allowance for doubtful accounts

of $664 in 2016 and $739 in 2015 ................................................

Inventories, net ....................................................................................

Derivative assets ..................................................................................

Prepaid assets ......................................................................................

Other ....................................................................................................

Total current assets ........................................................................

Property and equipment:

Land ....................................................................................................

Building ..............................................................................................

Machinery and equipment ..................................................................

Leasehold improvements ....................................................................

Less accumulated depreciation and amortization ...............................

Total property and equipment, net

Non-current assets:

Software development costs, less accumulated amortization .............

Goodwill ..............................................................................................

Intangible assets, net............................................................................

Deferred income taxes .........................................................................

Investments and other assets, net .........................................................

Total non-current assets

Total assets

Current liabilities:

Accounts payable ................................................................................

Accounts payable-related parties ........................................................

Accrued expenses and other ...............................................................

Accrued warranty expenses ................................................................

Derivative liabilities ...........................................................................

Short-term debt ...................................................................................

Total current liabilities ..................................................................

Non-current liabilities:

Deferred income taxes .........................................................................

Accrued tax liability ............................................................................

Deferred credits and other ...................................................................

Total non-current liabilities ...........................................................

Shareholders’ equity:

Preferred stock: no par value per share, 1,000,000 shares

Common stock: no par value, $.10 stated value per share, 12,500,000

shares authorized, 6,720,453 and 6,650,517 shares issued; and

6,573,103 and 6,551,718 shares outstanding, as of October 31,

2016 and October 31, 2015, respectively ......................................

Additional paid-in capital ...................................................................

Retained earnings ................................................................................

Accumulated other comprehensive loss ..............................................

Total shareholders’ equity .............................................................

Total liabilities and shareholders’ equity

48,631

117,025

1,725

8,207

1,576

218,381

841

7,352

23,515

3,487

35,195

(22,898)

12,297

4,926

2,314

1,150

6,138

6,743

21,271

$ 251,949

$ 35,210

1,990

17,231

1,523

538

1,476

57,968

4,294

963

3,249

8,506

41,766

106,308

1,228

9,769

1,804

216,112

841

7,314

24,026

3,323

35,504

(22,362)

13,142

3,905

2,319

1,289

4,721

7,089

19,323

$ 248,577

$ 41,678

1,780

16,788

2,186

1,071

1,583

65,086

3,998

953

3,972

8,923

657

59,119

136,742

(11,043)

185,475

$ 251,949

655

57,539

125,760

(9,386)

174,568

$ 248,577

authorized, no shares issued ..........................................................

LIABILITIES AND SHAREHOLDERS’ EQUITY

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS

Year Ended October 31,

2016

2015

(In thousands)

2014

Net Income ..................................................................................

$ 13,292

$ 16,214

$ 15,143

Other comprehensive income (loss):

Translation gain (loss) of foreign currency financial statements .

(1,441)

(6,333)

(3,535)

(Gain) / loss on derivative instruments reclassified into

operations, net of tax of $(906), $(431), and $621, respectively .

(1,647)

(784)

1,129

Gain / (loss) on derivative instruments, net of tax of $787, $712,

and $458, respectively .................................................................

1,431

1,291

830

Total other comprehensive income (loss)

(1,657)

(5,826)

(1,576)

Comprehensive income ...........................................................

$ 11,635

$ 10,388

$ 13,567

ASSETS
ASSETS

Current assets:
Current assets:
Cash and cash equivalents ...................................................................
Cash and cash equivalents ...................................................................
Accounts receivable, less allowance for doubtful accounts
Accounts receivable, less allowance for doubtful accounts

of $664 in 2016 and $739 in 2015 ................................................
of $664 in 2016 and $739 in 2015 ................................................
Inventories, net ....................................................................................
Inventories, net ....................................................................................
Derivative assets ..................................................................................
Derivative assets ..................................................................................
Prepaid assets ......................................................................................
Prepaid assets ......................................................................................
Other ....................................................................................................
Other ....................................................................................................
Total current assets ........................................................................
Total current assets ........................................................................

Property and equipment:
Property and equipment:
Land ....................................................................................................
Land ....................................................................................................
Building ..............................................................................................
Building ..............................................................................................
Machinery and equipment ..................................................................
Machinery and equipment ..................................................................
Leasehold improvements ....................................................................
Leasehold improvements ....................................................................

Less accumulated depreciation and amortization ...............................
Less accumulated depreciation and amortization ...............................
Total property and equipment, net
Total property and equipment, net
Non-current assets:
Non-current assets:
Software development costs, less accumulated amortization .............
Software development costs, less accumulated amortization .............
Goodwill ..............................................................................................
Goodwill ..............................................................................................
Intangible assets, net............................................................................
Intangible assets, net............................................................................
Deferred income taxes .........................................................................
Deferred income taxes .........................................................................
Investments and other assets, net .........................................................
Investments and other assets, net .........................................................
Total non-current assets
Total non-current assets
Total assets
Total assets

As of October 31,
As of October 31,

2016
2016

2015
2015

(In thousands, except share and per share data)
(In thousands, except share and per share data)
$ 55,237
$ 55,237

$ 41,217
$ 41,217

48,631
48,631
117,025
117,025
1,725
1,725
8,207
8,207
1,576
1,576
218,381
218,381

841
841
7,352
7,352
23,515
23,515
3,487
3,487
35,195
35,195
(22,898)
(22,898)
12,297
12,297

4,926
4,926
2,314
2,314
1,150
1,150
6,138
6,138
6,743
6,743
21,271
21,271
$ 251,949
$ 251,949

$ 35,210
$ 35,210

1,990
1,990

17,231
17,231
1,523
1,523
538
538
1,476
1,476
57,968
57,968

4,294
4,294
963
963
3,249
3,249
8,506
8,506

41,766
41,766
106,308
106,308
1,228
1,228
9,769
9,769
1,804
1,804
216,112
216,112

841
841
7,314
7,314
24,026
24,026
3,323
3,323
35,504
35,504
(22,362)
(22,362)
13,142
13,142

3,905
3,905
2,319
2,319
1,289
1,289
4,721
4,721
7,089
7,089
19,323
19,323
$ 248,577
$ 248,577

$ 41,678
$ 41,678
1,780
1,780
16,788
16,788
2,186
2,186
1,071
1,071
1,583
1,583
65,086
65,086

3,998
3,998
953
953
3,972
3,972
8,923
8,923

--
--

657
657
59,119
59,119
136,742
136,742
(11,043)
(11,043)
185,475
185,475
$ 251,949
$ 251,949

655
655
57,539
57,539
125,760
125,760
(9,386)
(9,386)
174,568
174,568
$ 248,577
$ 248,577

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Current liabilities:
Accounts payable ................................................................................
Accounts payable ................................................................................
Accounts payable-related parties ........................................................
Accounts payable-related parties ........................................................
Accrued expenses and other ...............................................................
Accrued expenses and other ...............................................................
Accrued warranty expenses ................................................................
Accrued warranty expenses ................................................................
Derivative liabilities ...........................................................................
Derivative liabilities ...........................................................................
Short-term debt ...................................................................................
Short-term debt ...................................................................................
Total current liabilities ..................................................................
Total current liabilities ..................................................................

Non-current liabilities:
Non-current liabilities:
Deferred income taxes .........................................................................
Deferred income taxes .........................................................................
Accrued tax liability ............................................................................
Accrued tax liability ............................................................................
Deferred credits and other ...................................................................
Deferred credits and other ...................................................................
Total non-current liabilities ...........................................................
Total non-current liabilities ...........................................................

Shareholders’ equity:
Shareholders’ equity:
Preferred stock: no par value per share, 1,000,000 shares
Preferred stock: no par value per share, 1,000,000 shares

authorized, no shares issued ..........................................................
authorized, no shares issued ..........................................................
Common stock: no par value, $.10 stated value per share, 12,500,000
Common stock: no par value, $.10 stated value per share, 12,500,000
shares authorized, 6,720,453 and 6,650,517 shares issued; and
shares authorized, 6,720,453 and 6,650,517 shares issued; and
6,573,103 and 6,551,718 shares outstanding, as of October 31,
6,573,103 and 6,551,718 shares outstanding, as of October 31,
2016 and October 31, 2015, respectively ......................................
2016 and October 31, 2015, respectively ......................................
Additional paid-in capital ...................................................................
Additional paid-in capital ...................................................................
Retained earnings ................................................................................
Retained earnings ................................................................................
Accumulated other comprehensive loss ..............................................
Accumulated other comprehensive loss ..............................................
Total shareholders’ equity .............................................................
Total shareholders’ equity .............................................................

Total liabilities and shareholders’ equity
Total liabilities and shareholders’ equity

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

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

39
39

HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

HURCO COMPANIES, INC.

Cash flows from operating activities:
Net income ...............................................................................
Adjustments to reconcile net income to net cash

provided by (used for) operating activities, net of acquisitions:
Provision for doubtful accounts ..........................................
Deferred income taxes ........................................................
Equity in income of affiliates .............................................
Foreign currency (gain) loss ...............................................
Unrealized (gain) loss on derivatives .................................
Depreciation and amortization ...........................................
Stock-based compensation .................................................

Change in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable .....................
(Increase) decrease in inventories ...................................
(Increase) decrease in prepaid expenses .........................
Increase (decrease) in accounts payable .........................
Increase (decrease) in accrued expenses .........................
Net change in derivative assets and liabilities .................
Other ...............................................................................
Net cash provided by (used for) operating activities

Cash flows from investing activities:
Proceeds from sale of property and equipment ........................
Purchase of property and equipment ........................................
Software development costs .....................................................
Other investments .....................................................................
Acquisition of business, net of cash acquired ...........................
Net cash provided by (used for) investing activities ......

Cash flows from financing activities:
Proceeds from exercise of common stock options ..................
Dividends paid .........................................................................
Tax benefit from exercise of stock options .............................
Repayment on short-term debt ................................................
Net cash provided by (used for) financing activities ......

2016

Year Ended October 31,
2015
(In thousands)

2014

$ 13,292

$ 16,214

$ 15,143

(75)
(225)
(466)

(139)
(1,013)
(474)

338
(874)
(444)

1,850

3,223

2,260

393
3,868
1,607

(8,141)
(13,881)
809
(6,001)
(90)
(245)
442
(6,863)

264
(1,972)
(2,205)
--
--
(3,913)

147
3,222
1,193

3,666
2,852
383
(1,028)
(962)
1,081
179
28,544

62
(3,127)
(1,406)
308
(17,650)
(21,813)

208
3,309
921

(11,653)
(4,971)
(4,646)
8,642
5,257
2,842
3
16,335

125
(1,680)
(955)
(76)
--
(2,586)

--
(2,310)
--
--
(2,310)

257
(2,034)
119
(1,605)

(3,263)

359
(1,693)
--
(379)
(1,713)

Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents ....

(934)
(14,020)

(2,077)
1,391

(994)
11,042

Cash and cash equivalents at beginning of year .....................

55,237

53,846

42,804

Cash and cash equivalents at end of year ................................

$ 41,217

$ 55,237

$ 53,846

Supplemental disclosures: .......................................................

Cash paid for:

Interest ................................................................................
Income taxes, net ................................................................

$ 56
$ 4,328

$ 156
$ 9,890

$ 167
$ 5,782

(In thousands, except shares

outstanding)

Common

Stock

Outstanding

Common

Stock

Amount

Additional

Paid-In

Capital

Retained

Earnings

Accumulated

Other

Comprehensive

Loss

Total

Balances, October 31, 2013

6,465,054

$ 647

54,698

$ 98,130

$ (1,984)

$ 151,491

Net income ..................................................................

15,143

Other comprehensive income (loss) .............................

(1,576)

Exercise of common stock options………..

20,306

357

359

Stock-based compensation expense .....................................................................

23,520

919

921

Dividends paid .....................................................................................................

(1,693)

Balances, October 31, 2014

6,508,880

$ 651

55,974

$ 111,580

$ (3,560)

$ 164,645

Net income ..................................................................

16,214

Other comprehensive income (loss) .............................

(5,826)

Exercise of common stock options ..............................

15,300

257

Stock-based compensation expense .....................................................................

27,538

1,193

Tax benefit (expense) from stock option

activities

Dividends paid…………………………….

119

(2,034)

Balances, October 31, 2015

6,551,718

$ 655

57,539

$ 125,760

$ (9,386)

$ 174,568

Net income ..................................................................

13,292

Other comprehensive income (loss) .............................

(1,657)

Stock-based compensation expense .....................................................................

21,385

1,607

Tax benefit (expense) from stock option

activities

(25)

Dividends paid .....................................................................................................

(2,310)

Balances, October 31, 2016

6,573,103

$ 657

59,119

$ 136,742

$ (11,043)

$ 185,475

256

1,190

119

1,605

(25)

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

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.

Cash flows from operating activities:

Net income ...............................................................................

$ 13,292

$ 16,214

$ 15,143

Year Ended October 31,

2016

2015

(In thousands)

2014

Foreign currency (gain) loss ...............................................

1,850

3,223

2,260

(In thousands, except shares
(In thousands, except shares
outstanding)
outstanding)

Common
Common
Stock
Stock
Shares
Shares
Outstanding
Outstanding

Common
Common
Stock
Stock
Amount
Amount

Additional
Additional
Paid-In
Paid-In
Capital
Capital

Retained
Retained
Earnings
Earnings

Accumulated
Accumulated
Other
Other
Comprehensive
Comprehensive
Loss
Loss

Total
Total

Balances, October 31, 2013
Balances, October 31, 2013

6,465,054
6,465,054

$ 647
$ 647

$
$

54,698
54,698

$ 98,130
$ 98,130

$ (1,984)
$ (1,984)

$ 151,491
$ 151,491

Net income ..................................................................
Net income ..................................................................

Other comprehensive income (loss) .............................
Other comprehensive income (loss) .............................

--
--

15,143
15,143

--
--

15,143
15,143

--
--

(1,576)
(1,576)

Exercise of common stock options………..
Exercise of common stock options………..

20,306
20,306

2
2

357
357

--
--

359
359

Stock-based compensation expense .....................................................................
Stock-based compensation expense .....................................................................

23,520
23,520

2
2

919
919

--
--

921
921

Dividends paid .....................................................................................................
Dividends paid .....................................................................................................

--
--

(1,693)
(1,693)

--
--

(1,693)
(1,693)

Balances, October 31, 2014
Balances, October 31, 2014

6,508,880
6,508,880

$ 651
$ 651

$
$

55,974
55,974

$ 111,580
$ 111,580

$ (3,560)
$ (3,560)

$ 164,645
$ 164,645

Net income ..................................................................
Net income ..................................................................

Other comprehensive income (loss) .............................
Other comprehensive income (loss) .............................

--
--

Exercise of common stock options ..............................
Exercise of common stock options ..............................

15,300
15,300

1
1

27,538
27,538

3
3

Tax benefit (expense) from stock option
Tax benefit (expense) from stock option
activities
activities

Dividends paid…………………………….
Dividends paid…………………………….

--
--

256
256

1,190
1,190

119
119

--
--

16,214
16,214

--
--

16,214
16,214

--
--

(5,826)
(5,826)

--
--

257
257

--
--

1,193
1,193

--
--

119
119

(2,034)
(2,034)

--
--

(2,034)
(2,034)

Balances, October 31, 2015
Balances, October 31, 2015

6,551,718
6,551,718

$ 655
$ 655

$
$

57,539
57,539

$ 125,760
$ 125,760

$ (9,386)
$ (9,386)

$ 174,568
$ 174,568

Net income ..................................................................
Net income ..................................................................

Other comprehensive income (loss) .............................
Other comprehensive income (loss) .............................

--
--

21,385
21,385

2
2

Tax benefit (expense) from stock option
Tax benefit (expense) from stock option
activities
activities

--
--

1,605
1,605

(25)
(25)

13,292
13,292

--
--

13,292
13,292

--
--

(1,657)
(1,657)

--
--

1,607
1,607

--
--

(25)
(25)

Adjustments to reconcile net income to net cash

provided by (used for) operating activities, net of acquisitions:

Provision for doubtful accounts ..........................................

Deferred income taxes ........................................................

Equity in income of affiliates .............................................

Unrealized (gain) loss on derivatives .................................

Depreciation and amortization ...........................................

Stock-based compensation .................................................

Change in assets and liabilities, net of acquisitions:

(Increase) decrease in accounts receivable .....................

(Increase) decrease in inventories ...................................

(Increase) decrease in prepaid expenses .........................

Increase (decrease) in accounts payable .........................

Increase (decrease) in accrued expenses .........................

Net change in derivative assets and liabilities .................

Other ...............................................................................

Net cash provided by (used for) operating activities

Cash flows from investing activities:

Proceeds from sale of property and equipment ........................

Purchase of property and equipment ........................................

Software development costs .....................................................

Other investments .....................................................................

Acquisition of business, net of cash acquired ...........................

(139)

(1,013)

(474)

147

3,222

1,193

3,666

2,852

383

(1,028)

(962)

1,081

179

28,544

(3,127)

(1,406)

308

(17,650)

(21,813)

338

(874)

(444)

208

3,309

921

(11,653)

(4,971)

(4,646)

8,642

5,257

2,842

16,335

125

(1,680)

(955)

(76)

(2,586)

(75)

(225)

(466)

393

3,868

1,607

(8,141)

(13,881)

809

(6,001)

(90)

(245)

442

(6,863)

264

(1,972)

(2,205)

Net cash provided by (used for) investing activities ......

(3,913)

Cash flows from financing activities:

Proceeds from exercise of common stock options ..................

Dividends paid .........................................................................

Tax benefit from exercise of stock options .............................

Repayment on short-term debt ................................................

(2,310)

257

(2,034)

119

(1,605)

359

(1,693)

(379)

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents ....

(934)

(14,020)

(2,077)

1,391

(994)

11,042

Cash and cash equivalents at beginning of year .....................

55,237

53,846

42,804

Cash and cash equivalents at end of year ................................

$ 41,217

$ 55,237

$ 53,846

Supplemental disclosures: .......................................................

Cash paid for:

Interest ................................................................................

$ 56

$ 156

$ 167

Income taxes, net ................................................................

$ 4,328

$ 9,890

$ 5,782

Net cash provided by (used for) financing activities ......

(2,310)

(3,263)

(1,713)

Balances, October 31, 2016
Balances, October 31, 2016

6,573,103
6,573,103

$ 657
$ 657

$
$

59,119
59,119

$ 136,742
$ 136,742

$ (11,043)
$ (11,043)

$ 185,475
$ 185,475

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

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

41
41

--
--

(2,310)
(2,310)

--
--

(2,310)
(2,310)

--
--

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Derivatives Designated as Hedging Instruments

Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an
Indiana corporation) and its wholly-owned subsidiaries. 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 million
and $3.0 million as of October 31, 2016 and 2015, respectively. That investment is included in Investments and
other assets, net on the accompanying Consolidated Balance Sheets. Intercompany accounts and transactions
have been eliminated.

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. 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' 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, 2016 were a net loss of $12.3
million 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.

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), 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.

We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-

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-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, 2016, in Euros, Pounds Sterling and New Taiwan

Dollars with set maturity dates ranging from November 2016 through October 2017. The contract amount at

forward rates in U.S. Dollars at October 31, 2016 for Euros and Pounds Sterling was $27.6 million and $6.1

million, respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $21.8

million at October 31, 2016. At October 31, 2016, we had approximately $1.3 million of gains, net of tax,

related to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $1.0 million

represented unrealized gains, net of tax, related to cash flow hedge instruments that remain subject to currency

fluctuation risk. The majority of these deferred gains will be recorded as an adjustment to Cost of sales and

service in periods through October 2017, in which the corresponding inventory that is the subject of the related

hedge contract is sold, as described above.

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

2015. 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 derivatives 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 in Accumulated other comprehensive loss, net of tax, in the same manner as

the underlying hedged net assets. This forward contract matured in November 2016 and we entered into a new

forward contract for the same notional amount that is set to mature in November 2017. As of October 31, 2016,

we had a realized gain of $803,000 and an unrealized loss of $39,000, 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 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 Income consistent with the transaction gain

or loss on the related receivables and payables denominated in foreign currencies.

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Derivatives Designated as Hedging Instruments
Derivatives Designated as Hedging Instruments

Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an

Indiana corporation) and its wholly-owned subsidiaries. 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 million

and $3.0 million as of October 31, 2016 and 2015, respectively. That investment is included in Investments and

other assets, net on the accompanying Consolidated Balance Sheets. Intercompany accounts and transactions

have been eliminated.

the items being hedged.

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

Translation of Foreign Currencies. All balance sheet accounts of 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' 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, 2016 were a net loss of $12.3

million 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.

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), 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.

We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-
We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-
company sales and purchases denominated in foreign currencies (the Pound Sterling, Euro and New Taiwan
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
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
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
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
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
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
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,
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
thereby providing an offsetting economic impact against the corresponding change in the U.S. Dollar value of
the inter-company sale or purchase being hedged. The ineffective portion of gains and losses resulting from the
the inter-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
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
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
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.
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, 2016, in Euros, Pounds Sterling and New Taiwan
We had forward contracts outstanding as of October 31, 2016, in Euros, Pounds Sterling and New Taiwan
Dollars with set maturity dates ranging from November 2016 through October 2017. The contract amount at
Dollars with set maturity dates ranging from November 2016 through October 2017. The contract amount at
forward rates in U.S. Dollars at October 31, 2016 for Euros and Pounds Sterling was $27.6 million and $6.1
forward rates in U.S. Dollars at October 31, 2016 for Euros and Pounds Sterling was $27.6 million and $6.1
million, respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $21.8
million, respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $21.8
million at October 31, 2016. At October 31, 2016, we had approximately $1.3 million of gains, net of tax,
million at October 31, 2016. At October 31, 2016, we had approximately $1.3 million of gains, net of tax,
related to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $1.0 million
related to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $1.0 million
represented unrealized gains, net of tax, related to cash flow hedge instruments that remain subject to currency
represented unrealized gains, net of tax, related to cash flow hedge instruments that remain subject to currency
fluctuation risk. The majority of these deferred gains will be recorded as an adjustment to Cost of sales and
fluctuation risk. The majority of these deferred gains will be recorded as an adjustment to Cost of sales and
service in periods through October 2017, in which the corresponding inventory that is the subject of the related
service in periods through October 2017, in which the corresponding inventory that is the subject of the related
hedge contract is sold, as described above.
hedge contract is sold, as described above.

We are exposed to foreign currency exchange risk related to our investment in net assets in foreign countries.
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
To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November
2015. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We
2015. 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 derivatives instruments and
selected the forward method under the FASB guidance related to the accounting for derivatives instruments and
hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a
hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a
cumulative translation adjustment in Accumulated other comprehensive loss, net of tax, in the same manner as
cumulative translation adjustment in Accumulated other comprehensive loss, net of tax, in the same manner as
the underlying hedged net assets. This forward contract matured in November 2016 and we entered into a new
the underlying hedged net assets. This forward contract matured in November 2016 and we entered into a new
forward contract for the same notional amount that is set to mature in November 2017. As of October 31, 2016,
forward contract for the same notional amount that is set to mature in November 2017. As of October 31, 2016,
we had a realized gain of $803,000 and an unrealized loss of $39,000, net of tax, recorded as cumulative
we had a realized gain of $803,000 and an unrealized loss of $39,000, net of tax, recorded as cumulative
translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.
translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

Derivatives Not Designated as Hedging Instruments
Derivatives Not Designated as Hedging Instruments

We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency
We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency
fluctuations on receivables and payables denominated in foreign currencies. These derivative instruments are
fluctuations on 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
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 Income consistent with the transaction gain
currently as Other expense, net in the Consolidated Statements of Income consistent with the transaction gain
or loss on the related receivables and payables denominated in foreign currencies.
or loss on the related receivables and payables denominated in foreign currencies.

43
43

We recognized a gain of $18,000 during the fiscal year ended October 31, 2016 and a gain of $14,000 during the

fiscal year ended October 31, 2015 as a result of contracts closed early that were deemed ineffective for

financial reporting and did not qualify as cash flow hedges.

Derivatives

Location of Gain (Loss)

Recognized in Operations

Amount of Gain (Loss)

Recognized in Operations

2016

2015

(in thousands)

Not Designated as Hedging Instruments:

Foreign exchange forward contracts

Other expense, net

$ 536

$ 2,571

The following table presents the changes in the components of Accumulated other comprehensive loss, net of

tax, for the fiscal years ended October 31, 2016 and 2015 (in thousands):

Foreign

Currency

Translation

Cash Flow

Hedges

Total

Balance, October 31, 2014…………………………….......

$ (4,551)

$ 991

$ (3,560)

Other comprehensive income (loss) before reclassifications

(6,333)

1,291

(5,042)

Reclassifications ……………………………………………

(784)

Balance, October 31, 2015 …………………………………

$ (10,884)

$ 1,498

$ (9,386)

Other comprehensive income (loss) before reclassifications

(1,441)

1,431

(10)

Reclassifications ……………………………………………

(1,647)

Balance, October 31, 2016 …………………………………

$ (12,325)

$ 1,282

$ (11,043)

Inventories. Inventories are stated at the lower of cost or market, with cost determined using the first-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-line method over the shorter of the estimated useful lives or the lease

terms as follows:

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

We had forward contracts outstanding as of October 31, 2016, in Euros, Pounds Sterling, South African Rand
and New Taiwan Dollars with set maturity dates ranging from November 2016 through April 2017. The
contract amounts at forward rates in U.S. Dollars at October 31, 2016 for Euros, Pounds Sterling and South
African Rand totaled $39.5 million. The contract amount at forward rates in U.S. Dollars for New Taiwan
Dollars was $26.6 million at October 31, 2016.

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, 2016 and October 31, 2015, all derivative instruments were
recorded at fair value on the balance sheets as follows (in thousands):

Derivatives

Designated as Hedging Instruments:
Foreign exchange forward contracts

Foreign exchange forward contracts

Not Designated as Hedging
Instruments:
Foreign exchange forward contracts

Foreign exchange forward contracts

2016

2015

Balance Sheet

Location

Fair

Value

Balance Sheet

Location

Fair

Value

Derivative assets
Derivative liabilities

$ 1,721

Derivative assets

$ 1,079

$ 173

Derivative liabilities

$ 1,027

Derivative assets
Derivative liabilities

$ 4

Derivative assets

$ 149

$ 365

Derivative liabilities

$ 44

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

Derivative instruments had the following effects on our Consolidated Balance Sheets, Statements of Changes in
Shareholders’ Equity and Statements of Income, net of tax, during the fiscal years ended October 31, 2016 and
2015 (in thousands):

Amount of Gain (Loss)
Recognized in Other
Comprehensive Income
(Loss)

2016

2015

Location of Gain
(Loss) Reclassified
from Other
Comprehensive
Income (Loss)

Amount of Gain (Loss)
Reclassified from Other
Comprehensive Income
(Loss)

2016

2015

Land

Building

Machines

Shop and office equipment

Leasehold improvements

Number of Years

Indefinite

7 – 10

3 – 7

3 – 40

Derivatives

Designated as Hedging Instruments:
(Effective Portion)

Foreign exchange forward contracts
– Intercompany sales/purchases

$ 1,431

$ 1,291

Cost of sales
and service

$ 1,647

$ 784

Foreign exchange forward contract
– Net Investment

$ 28

$ 304

Total depreciation and amortization expense recognized for property and equipment for the fiscal years ended

October 31, 2016, 2015 and 2014 was $2.5 million, $2.2 million, and $2.2 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

We had forward contracts outstanding as of October 31, 2016, in Euros, Pounds Sterling, South African Rand

and New Taiwan Dollars with set maturity dates ranging from November 2016 through April 2017. The

contract amounts at forward rates in U.S. Dollars at October 31, 2016 for Euros, Pounds Sterling and South

African Rand totaled $39.5 million. The contract amount at forward rates in U.S. Dollars for New Taiwan

Dollars was $26.6 million at October 31, 2016.

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, 2016 and October 31, 2015, all derivative instruments were

recorded at fair value on the balance sheets as follows (in thousands):

Derivatives

2016

2015

Balance Sheet

Location

Fair

Value

Balance Sheet

Location

Fair

Value

Designated as Hedging Instruments:

Foreign exchange forward contracts

Derivative liabilities

$ 173

Derivative liabilities

$ 1,027

Derivative assets

$ 1,721

Derivative assets

$ 1,079

Not Designated as Hedging

Instruments:

Foreign exchange forward contracts

Derivative assets

$ 4

Derivative assets

$ 149

Foreign exchange forward contracts

Derivative liabilities

$ 365

Derivative liabilities

$ 44

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

Equity and Statements of Income

Derivative instruments had the following effects on our Consolidated Balance Sheets, Statements of Changes in

Shareholders’ Equity and Statements of Income, net of tax, during the fiscal years ended October 31, 2016 and

2015 (in thousands):

Derivatives

Designated as Hedging Instruments:

(Effective Portion)

Foreign exchange forward contracts

– Intercompany sales/purchases

Amount of Gain (Loss)

Recognized in Other

Comprehensive Income

(Loss)

2016

2015

Location of Gain

(Loss) Reclassified

from Other

Comprehensive

Income (Loss)

Amount of Gain (Loss)

Reclassified from Other

Comprehensive Income

(Loss)

2016

2015

$ 1,431

$ 1,291

$ 1,647

$ 784

Cost of sales

and service

Foreign exchange forward contract

– Net Investment

$ 28

$ 304

We recognized a gain of $18,000 during the fiscal year ended October 31, 2016 and a gain of $14,000 during the
We recognized a gain of $18,000 during the fiscal year ended October 31, 2016 and a gain of $14,000 during the
fiscal year ended October 31, 2015 as a result of contracts closed early that were deemed ineffective for
fiscal year ended October 31, 2015 as a result of contracts closed early that were deemed ineffective for
financial reporting and did not qualify as cash flow hedges.
financial reporting and did not qualify as cash flow hedges.

Derivatives
Derivatives

Location of Gain (Loss)
Location of Gain (Loss)
Recognized in Operations
Recognized in Operations

Amount of Gain (Loss)
Amount of Gain (Loss)
Recognized in Operations
Recognized in Operations

2016
2016

2015
2015

(in thousands)
(in thousands)

Not Designated as Hedging Instruments:
Not Designated as Hedging Instruments:

Foreign exchange forward contracts
Foreign exchange forward contracts

Other expense, net
Other expense, net

$ 536
$ 536

$ 2,571
$ 2,571

The following table presents the changes in the components of Accumulated other comprehensive loss, net of
The following table presents the changes in the components of Accumulated other comprehensive loss, net of
tax, for the fiscal years ended October 31, 2016 and 2015 (in thousands):
tax, for the fiscal years ended October 31, 2016 and 2015 (in thousands):

Balance, October 31, 2014…………………………….......
Balance, October 31, 2014…………………………….......
Other comprehensive income (loss) before reclassifications
Other comprehensive income (loss) before reclassifications
Reclassifications ……………………………………………
Reclassifications ……………………………………………
Balance, October 31, 2015 …………………………………
Balance, October 31, 2015 …………………………………

Other comprehensive income (loss) before reclassifications
Other comprehensive income (loss) before reclassifications
Reclassifications ……………………………………………
Reclassifications ……………………………………………
Balance, October 31, 2016 …………………………………
Balance, October 31, 2016 …………………………………

Foreign
Foreign
Currency
Currency
Translation
Translation

$ (4,551)
$ (4,551)
(6,333)
(6,333)
--
--
$ (10,884)
$ (10,884)

(1,441)
(1,441)
--
--
$ (12,325)
$ (12,325)

Cash Flow
Cash Flow
Hedges
Hedges

Total
Total

$ 991
$ 991
1,291
1,291
(784)
(784)
$ 1,498
$ 1,498

1,431
1,431
(1,647)
(1,647)
$ 1,282
$ 1,282

$ (3,560)
$ (3,560)
(5,042)
(5,042)
(784)
(784)
$ (9,386)
$ (9,386)

(10)
(10)
(1,647)
(1,647)
$ (11,043)
$ (11,043)

Inventories. Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-
Inventories. Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-
out method. Provisions are made to reduce excess or obsolete inventories to their estimated realizable value.
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
Property and Equipment. Property and equipment are carried at cost. Depreciation and amortization of assets
are provided primarily under the straight-line method over the shorter of the estimated useful lives or the lease
are provided primarily under the straight-line method over the shorter of the estimated useful lives or the lease
terms as follows:
terms as follows:

Land
Land
Building
Building
Machines
Machines
Shop and office equipment
Shop and office equipment
Leasehold improvements
Leasehold improvements

Number of Years
Number of Years
Indefinite
Indefinite
40
40
7 – 10
7 – 10
3 – 7
3 – 7
3 – 40
3 – 40

Total depreciation and amortization expense recognized for property and equipment for the fiscal years ended
Total depreciation and amortization expense recognized for property and equipment for the fiscal years ended
October 31, 2016, 2015 and 2014 was $2.5 million, $2.2 million, and $2.2 million, respectively.
October 31, 2016, 2015 and 2014 was $2.5 million, $2.2 million, and $2.2 million, respectively.

45
45

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

Revenue Recognition. We recognize revenue from sales of our machine tool systems upon delivery of the
product to the customer, 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.

Depending upon geographic location, after shipment, a machine may be installed at the customer’s facilities 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 to be inconsequential and perfunctory.

Service fees from maintenance contracts are deferred and recognized in earnings on a pro rata basis over the
term of the contract.

Sales related to software products 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 charge off uncollectible balances
when all reasonable collection efforts have been exhausted.

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 12 of 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 $4.9 million, $3.9 million, and $3.4
million, in fiscal 2016, 2015, and 2014, respectively.

Software Development Costs. 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-line basis over

the estimated product life of the related software, which ranges from three to five years. We capitalized costs

of $2.2 million in fiscal 2016, $1.4 million in fiscal 2015, and $1.0 million in fiscal 2014 related to software

development projects. Amortization expense for software development costs was $1.2 million, $1.0 million,

and $1.2 million, for the fiscal years ended October 31, 2016, 2015, and 2014, respectively. Accumulated

amortization at October 31, 2016 and 2015 was $16.5 million and $15.3 million, respectively. Estimated

amortization expense for the remaining unamortized software development costs for the fiscal years ending

October 31, is as follows (in thousands):

Fiscal Year

2017

2018

2019

2020

2021

Amortization

Expense

$ 1,200

1,275

750

700

625

Goodwill and Intangible Assets. Goodwill and other separately recognized intangible assets with indefinite lives

are not subject to amortization. At least once annually or when indicators of impairment exist, we perform an

impairment test for goodwill. Goodwill is allocated to various reporting units. We use a qualitative approach to

test goodwill and indefinite-lived assets for impairment. 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 years 2016 and 2015, using the qualitative approach to test for impairment,

we concluded that goodwill and other intangible assets were not impaired.

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

Weighted

Average

Amortization

Period

13 years

indefinite

15 years

13 years

6 years

8 years

Gross

Intangible

Assets

Accumulated

Amortization

Net

Intangible

Assets

$ 231

$ (59)

$ 172

254

672

2,972

373

(114)

(172)

(2,741)

140

500

231

(326)

$ 4,562

$ (3,412)

$ 1,150

Tradenames and trademarks

Customer relationships

Technology

Patents

Other

Total

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Revenue Recognition. We recognize revenue from sales of our machine tool systems upon delivery of the

product to the customer, 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.

Depending upon geographic location, after shipment, a machine may be installed at the customer’s facilities 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 to be inconsequential and perfunctory.

Service fees from maintenance contracts are deferred and recognized in earnings on a pro rata basis over the

term of the contract.

Sales related to software products 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 charge off uncollectible balances

when all reasonable collection efforts have been exhausted.

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 12 of 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 $4.9 million, $3.9 million, and $3.4

million, in fiscal 2016, 2015, and 2014, respectively.

Software Development Costs. Costs incurred to develop computer software products and significant
Software Development Costs. 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
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-line basis over
technological feasibility is established. Software development costs are amortized on a straight-line basis over
the estimated product life of the related software, which ranges from three to five years. We capitalized costs
the estimated product life of the related software, which ranges from three to five years. We capitalized costs
of $2.2 million in fiscal 2016, $1.4 million in fiscal 2015, and $1.0 million in fiscal 2014 related to software
of $2.2 million in fiscal 2016, $1.4 million in fiscal 2015, and $1.0 million in fiscal 2014 related to software
development projects. Amortization expense for software development costs was $1.2 million, $1.0 million,
development projects. Amortization expense for software development costs was $1.2 million, $1.0 million,
and $1.2 million, for the fiscal years ended October 31, 2016, 2015, and 2014, respectively. Accumulated
and $1.2 million, for the fiscal years ended October 31, 2016, 2015, and 2014, respectively. Accumulated
amortization at October 31, 2016 and 2015 was $16.5 million and $15.3 million, respectively. Estimated
amortization at October 31, 2016 and 2015 was $16.5 million and $15.3 million, respectively. Estimated
amortization expense for the remaining unamortized software development costs for the fiscal years ending
amortization expense for the remaining unamortized software development costs for the fiscal years ending
October 31, is as follows (in thousands):
October 31, is as follows (in thousands):

Fiscal Year
Fiscal Year
2017
2017
2018
2018
2019
2019
2020
2020
2021
2021

Amortization
Amortization
Expense
Expense
$ 1,200
$ 1,200
1,275
1,275
750
750
700
700
625
625

Goodwill and Intangible Assets. Goodwill and other separately recognized intangible assets with indefinite lives
Goodwill and Intangible Assets. Goodwill and other separately recognized intangible assets with indefinite lives
are not subject to amortization. At least once annually or when indicators of impairment exist, we perform an
are not subject to amortization. At least once annually or when indicators of impairment exist, we perform an
impairment test for goodwill. Goodwill is allocated to various reporting units. We use a qualitative approach to
impairment test for goodwill. Goodwill is allocated to various reporting units. We use a qualitative approach to
test goodwill and indefinite-lived assets for impairment. Intangible assets that are determined to have a finite life
test goodwill and indefinite-lived assets for impairment. 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
are amortized over their estimated useful lives and are also subject to review for impairment, if indicators of
impairment are identified. For fiscal years 2016 and 2015, using the qualitative approach to test for impairment,
impairment are identified. For fiscal years 2016 and 2015, using the qualitative approach to test for impairment,
we concluded that goodwill and other intangible assets were not impaired.
we concluded that goodwill and other intangible assets were not impaired.

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

Weighted
Weighted
Average
Average
Amortization
Amortization
Period
Period

Tradenames and trademarks
Tradenames and trademarks
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Customer relationships
Technology
Technology
Patents
Patents
Other
Other
Total
Total

13 years
13 years
indefinite
indefinite
15 years
15 years
13 years
13 years
6 years
6 years
8 years
8 years

Gross
Gross
Intangible
Intangible
Assets
Assets

$ 231
$ 231
60
60
254
254
672
672
2,972
2,972
373
373
$ 4,562
$ 4,562

Accumulated
Accumulated
Amortization
Amortization

$ (59)
$ (59)
--
--
(114)
(114)
(172)
(172)
(2,741)
(2,741)
(326)
(326)
$ (3,412)
$ (3,412)

Net
Net
Intangible
Intangible
Assets
Assets

$ 172
$ 172
60
60
140
140
500
500
231
231
47
47
$ 1,150
$ 1,150

47
47

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

As of October 31, 2015, the balances of intangible assets, other than goodwill, were as follows (in thousands):

Weighted
Average
Amortization
Period

13 years
indefinite
15 years
13 years
6 years
8 years

Gross
Intangible
Assets

$ 231
60
254
674
2,972
373
$ 4,564

Accumulated
Amortization

Net Intangible
Assets

$ (41)
--
(97)
(121)
(2,717)
(299)
$ (3,275)

$ 190
60
157
553
255
74
$ 1,289

Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total

Intangible asset amortization expense was $137,000, $207,000, and $412,000 for fiscal 2016, 2015 and 2014,
respectively. Annual intangible asset amortization expense is estimated to be $115,000 per year for fiscal years
2017 through 2021.

Impairment of Long-Lived Assets. We periodically evaluate the carrying value of long-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) in accordance with FASB guidance related to accounting for the impairment or disposal of
long-lived assets.

Earnings Per Share. Basic earnings per share is calculated by dividing net income by the weighted-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:

2016

Fiscal Year Ended October 31,
2015

2014

(in thousands, except per share amounts)

Basic

Diluted

Basic

Diluted

Basic

Diluted

Net income
Undistributed earnings allocated to
participating shares
Net income applicable to common
shareholders
Weighted average shares outstanding
Stock options and contingently issuable
securities

Income per share

$ 13,292

$ 16,214 $ 16,214

$ 15,143

(76)

(93)

(121)

$ 13,216
6,569

$ 16,121 $ 16,121
6,543

6,543

$ 15,022
6,497

--
6,569
$ 2.01

73
6,642
$ 1.99

59
--
6,602
6,543
$ 2.46 $ 2.44

--
6,497
$ 2.31

41
6,538
$ 2.30

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. 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 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, 2016 were approximately $79.7 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.

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.

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.

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-

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

Nature of Business. We design, manufacture and sell computerized CNC machine tools, computer control

systems and software products, machine tool components, software options, control upgrades, accessories and

replacement parts for our products, as well as customer service and training 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.

The end market for our products consists primarily of precision tool, die and mold manufacturers, independent

job shops, and specialized short-run production applications within large manufacturing operations. Industries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

As of October 31, 2015, 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

Tradenames and trademarks

Customer relationships

Technology

Patents

Other

Total

13 years

indefinite

15 years

13 years

6 years

8 years

$ 231

$ (41)

$ 190

254

674

2,972

(97)

(121)

(2,717)

157

553

255

373

(299)

$ 4,564

$ (3,275)

$ 1,289

Intangible asset amortization expense was $137,000, $207,000, and $412,000 for fiscal 2016, 2015 and 2014,

respectively. Annual intangible asset amortization expense is estimated to be $115,000 per year for fiscal years

2017 through 2021.

Impairment of Long-Lived Assets. We periodically evaluate the carrying value of long-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) in accordance with FASB guidance related to accounting for the impairment or disposal of

long-lived assets.

Earnings Per Share. Basic earnings per share is calculated by dividing net income by the weighted-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,

2016

2015

2014

(in thousands, except per share amounts)

Basic

Diluted

Basic

Diluted

Basic

Diluted

Net income

Undistributed earnings allocated to

participating shares

Net income applicable to common

shareholders

Weighted average shares outstanding

Stock options and contingently issuable

securities

Income per share

$ 13,292

$ 16,214 $ 16,214

$ 15,143

(76)

(93)

(121)

$ 13,216

$ 16,121 $ 16,121

6,569

6,543

$ 15,022

6,497

$ 15,022

6,497

6,569

6,642

6,543

6,602

6,497

6,538

$ 2.01

$ 1.99

$ 2.46 $ 2.44

$ 2.31

$ 2.30

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
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. Our judgment regarding the realization of deferred tax assets
all of the deferred tax assets will not be realized. 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
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
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.
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
The determination of our provision for income taxes requires judgment, the use of estimates and the
interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of
interpretation and application of complex 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
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
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
upon our determination that such earnings will be indefinitely reinvested abroad. Undistributed earnings of our
wholly-owned foreign subsidiaries at October 31, 2016 were approximately $79.7 million. In the event these
wholly-owned foreign subsidiaries at October 31, 2016 were approximately $79.7 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
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.
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-
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
looking statements is based on currently effective tax laws. Significant changes in those laws could materially
affect these estimates.
affect these estimates.

We recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon
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
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
is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
settlement.
settlement.

Stock Compensation. We account for share-based compensation according to FASB guidance relating to share-
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
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
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
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.
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
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
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
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
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-
accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long-
lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, stock
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
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
uncertainty involved in making estimates, actual results reported in future periods may be different from these
estimates.
estimates.

2. BUSINESS OPERATIONS
2. BUSINESS OPERATIONS

Nature of Business. We design, manufacture and sell computerized CNC machine tools, computer control
Nature of Business. We design, manufacture and sell computerized CNC machine tools, computer control
systems and software products, machine tool components, software options, control upgrades, accessories and
systems and software products, machine tool components, software options, control upgrades, accessories and
replacement parts for our products, as well as customer service and training support, to companies in the metal
replacement parts for our products, as well as customer service and training support, to companies in the metal
cutting industry through a worldwide sales, service and distribution network. The machine tool industry is
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
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,
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.
have adversely affected our results of operations and financial condition.

The end market for our products consists primarily of precision tool, die and mold manufacturers, independent
The end market for our products consists primarily of precision tool, die and mold manufacturers, independent
job shops, and specialized short-run production applications within large manufacturing operations. Industries
job shops, and specialized short-run production applications within large manufacturing operations. Industries

49
49

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

served include: aerospace, defense, medical equipment, energy, automotive/transportation, electronics and
computer industries. Our products are sold through more than 195 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, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and
certain areas of the United States.

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-owned subsidiaries, Hurco Manufacturing Limited (“HML”),
Ningbo Hurco Manufacturing Limited (“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-mechanical components and accessories for machine tools through our wholly-owned subsidiary, LCM
Precision Technology S.r.l. (“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 an earthquake,
typhoon, or tsunami. Any interruption with one of our key suppliers may also have an adverse effect on our
operating results and our financial condition.

3. INVENTORIES

Inventories as of October 31, 2016 and 2015 are summarized below (in thousands):

Purchased parts and sub-assemblies ...................................................
Work-in-process .................................................................................
Finished goods ....................................................................................

2016
$ 25,661
17,724
73,640
$ 117,025

2015
$ 25,914
20,575
59,819
$ 106,308

Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe and Asia
was $11.6 million and $6.9 million as of October 31, 2016 and 2015, respectively.

ACQUISITIONS OF BUSINESSES

On July 14, 2015, we acquired the assets of the machine tool business of Milltronics Manufacturing Company,
Inc., a U.S.-based manufacturer of CNC mills, lathes, and vertical and horizontal machining centers. We are
operating this U.S. business as a product line through our wholly-owned subsidiary, Milltronics. Also, on July
28, 2015, we acquired the assets of the machine tool business of Takumi Machinery Co., Ltd. (“Takumi”), a
Taiwan-based designer and manufacturer of CNC vertical machining centers, double column machining centers,
high speed bridge machines and other machine tools equipped with industrial controls. We are operating this
Taiwan business as a product line through our wholly-owned subsidiary, HML. These product lines contribute
to our efforts to expand our consolidated product range, customer base and global platform, and accelerate
emerging market penetration, particularly in strategic markets such as China and South America. The Hurco,
Milltronics and Takumi product lines represent a comprehensive product portfolio with more than 150 different
models. The combined machine tool product lines also provide benefits from the development of product
enhancements, technologies and models due to leverage of shared resources and cross-utilization of proven

engineering designs, allowing us to achieve manufacturing cost reductions from economies of scale and

manufacturing efficiencies.

The acquisitions were accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805,

Business Combinations. Accordingly, the total purchase price was initially allocated on a provisional basis to

assets acquired and net liabilities assumed in connection with the acquisitions based on their estimated fair

values as of the completion of the acquisitions. 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 total fair value of the net assets acquired was approximately

$17.6 million, composed of $12.5 million for Milltronics and $5.1 million for Takumi. The results of operations

of Milltronics and Takumi have been included in our consolidated financial statements from the respective dates

of acquisition.

CREDIT AGREEMENTS AND BORROWINGS

On December 7, 2012, we entered into an agreement (the “U.S. credit agreement”) with a financial institution

that provided us with a $12.5 million unsecured revolving credit and letter of credit facility. The U.S. credit

agreement permitted the issuance of up to $3.0 million in letters of credit. On May 9, 2014, the maximum

amount for outstanding letters of credit under our U.S. credit agreement was increased from $3.0 million to $5.0

million in order to guarantee a new revolving credit facility in Taiwan.

On June 5, 2014, we amended our U.S. credit agreement to increase the cash dividend allowance from $1.0

million per calendar year to $3.0 million per calendar year. On December 5, 2014, we amended our U.S. credit

agreement to increase the cash dividend allowance from $3.0 million per calendar year to $4.0 million per

calendar year and to extend the scheduled maturity date to December 7, 2016.

On December 6, 2016, we amended our U.S. credit agreement, among other things, to increase the unsecured

revolving credit facility from $12.5 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, and to extend the scheduled maturity date to

December 31, 2018. 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.

Borrowings under the 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.

The U.S. credit agreement contains customary financial covenants, 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 million), (2) requiring 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 to pay cash dividends in an amount not to exceed $5.0 million per calendar year, so long as we are

not in default before and after giving effect to such dividends.

We have a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million revolving credit

facility in Germany. On May 12, 2014, we established a Taiwan credit facility in the amount of 100.0 million

New Taiwan Dollars with an expiration date of May 12, 2015. We did not renew this Taiwan credit facility. We

also have a 40.0 million Chinese Yuan (approximately $5.9 million) credit facility in China that was renewed on

February 17, 2016 with an expiration date of February 16, 2017.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

served include: aerospace, defense, medical equipment, energy, automotive/transportation, electronics and

computer industries. Our products are sold through more than 195 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, Poland, Singapore, South Africa, Taiwan, the United Kingdom, and

certain areas of the United States.

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-owned subsidiaries, Hurco Manufacturing Limited (“HML”),

Ningbo Hurco Manufacturing Limited (“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-mechanical components and accessories for machine tools through our wholly-owned subsidiary, LCM

Precision Technology S.r.l. (“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 an earthquake,

typhoon, or tsunami. Any interruption with one of our key suppliers may also have an adverse effect on our

operating results and our financial condition.

3. INVENTORIES

Inventories as of October 31, 2016 and 2015 are summarized below (in thousands):

Purchased parts and sub-assemblies ...................................................

$ 25,661

Work-in-process .................................................................................

17,724

Finished goods ....................................................................................

73,640

2016

$ 117,025

2015

$ 25,914

20,575

59,819

$ 106,308

Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe and Asia

was $11.6 million and $6.9 million as of October 31, 2016 and 2015, respectively.

ACQUISITIONS OF BUSINESSES

On July 14, 2015, we acquired the assets of the machine tool business of Milltronics Manufacturing Company,

Inc., a U.S.-based manufacturer of CNC mills, lathes, and vertical and horizontal machining centers. We are

operating this U.S. business as a product line through our wholly-owned subsidiary, Milltronics. Also, on July

28, 2015, we acquired the assets of the machine tool business of Takumi Machinery Co., Ltd. (“Takumi”), a

Taiwan-based designer and manufacturer of CNC vertical machining centers, double column machining centers,

high speed bridge machines and other machine tools equipped with industrial controls. We are operating this

Taiwan business as a product line through our wholly-owned subsidiary, HML. These product lines contribute

to our efforts to expand our consolidated product range, customer base and global platform, and accelerate

emerging market penetration, particularly in strategic markets such as China and South America. The Hurco,

Milltronics and Takumi product lines represent a comprehensive product portfolio with more than 150 different

models. The combined machine tool product lines also provide benefits from the development of product

enhancements, technologies and models due to leverage of shared resources and cross-utilization of proven

engineering designs, allowing us to achieve manufacturing cost reductions from economies of scale and
engineering designs, allowing us to achieve manufacturing cost reductions from economies of scale and
manufacturing efficiencies.
manufacturing efficiencies.

The acquisitions were accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805,
The acquisitions were accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805,
Business Combinations. Accordingly, the total purchase price was initially allocated on a provisional basis to
Business Combinations. Accordingly, the total purchase price was initially allocated on a provisional basis to
assets acquired and net liabilities assumed in connection with the acquisitions based on their estimated fair
assets acquired and net liabilities assumed in connection with the acquisitions based on their estimated fair
values as of the completion of the acquisitions. These allocations reflected various provisional estimates that
values as of the completion of the acquisitions. 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 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 total fair value of the net assets acquired was approximately
were finalized. All valuations are now final. The total fair value of the net assets acquired was approximately
$17.6 million, composed of $12.5 million for Milltronics and $5.1 million for Takumi. The results of operations
$17.6 million, composed of $12.5 million for Milltronics and $5.1 million for Takumi. The results of operations
of Milltronics and Takumi have been included in our consolidated financial statements from the respective dates
of Milltronics and Takumi have been included in our consolidated financial statements from the respective dates
of acquisition.
of acquisition.

5.
5.

CREDIT AGREEMENTS AND BORROWINGS
CREDIT AGREEMENTS AND BORROWINGS

On December 7, 2012, we entered into an agreement (the “U.S. credit agreement”) with a financial institution
On December 7, 2012, we entered into an agreement (the “U.S. credit agreement”) with a financial institution
that provided us with a $12.5 million unsecured revolving credit and letter of credit facility. The U.S. credit
that provided us with a $12.5 million unsecured revolving credit and letter of credit facility. The U.S. credit
agreement permitted the issuance of up to $3.0 million in letters of credit. On May 9, 2014, the maximum
agreement permitted the issuance of up to $3.0 million in letters of credit. On May 9, 2014, the maximum
amount for outstanding letters of credit under our U.S. credit agreement was increased from $3.0 million to $5.0
amount for outstanding letters of credit under our U.S. credit agreement was increased from $3.0 million to $5.0
million in order to guarantee a new revolving credit facility in Taiwan.
million in order to guarantee a new revolving credit facility in Taiwan.

On June 5, 2014, we amended our U.S. credit agreement to increase the cash dividend allowance from $1.0
On June 5, 2014, we amended our U.S. credit agreement to increase the cash dividend allowance from $1.0
million per calendar year to $3.0 million per calendar year. On December 5, 2014, we amended our U.S. credit
million per calendar year to $3.0 million per calendar year. On December 5, 2014, we amended our U.S. credit
agreement to increase the cash dividend allowance from $3.0 million per calendar year to $4.0 million per
agreement to increase the cash dividend allowance from $3.0 million per calendar year to $4.0 million per
calendar year and to extend the scheduled maturity date to December 7, 2016.
calendar year and to extend the scheduled maturity date to December 7, 2016.

On December 6, 2016, we amended our U.S. credit agreement, among other things, to increase the unsecured
On December 6, 2016, we amended our U.S. credit agreement, among other things, to increase the unsecured
revolving credit facility from $12.5 million to $15.0 million, to increase the cash dividend allowance from $4.0
revolving credit facility from $12.5 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, and to extend the scheduled maturity date to
million per calendar year to $5.0 million per calendar year, and to extend the scheduled maturity date to
December 31, 2018. We also amended the U.S. credit agreement to increase the minimum working capital and
December 31, 2018. 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
minimum tangible net worth requirements from $90.0 million to $105.0 million and $120.0 million to $125.0
million, respectively.
million, respectively.

Borrowings under the U.S. credit agreement bear interest either at a LIBOR-based rate or a floating rate, in each
Borrowings under the 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
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 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
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.
0.05% per annum.

The U.S. credit agreement contains customary financial covenants, including covenants (1) restricting us from
The U.S. credit agreement contains customary financial covenants, including covenants (1) restricting us from
making certain investments, loans, advances and acquisitions (but permitting us to make investments in
making certain investments, loans, advances and acquisitions (but permitting us to make investments in
subsidiaries of up to $5.0 million), (2) requiring that we maintain a minimum working capital of $105.0 million,
subsidiaries of up to $5.0 million), (2) requiring 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
and (3) requiring that we maintain a minimum tangible net worth of $125.0 million. The U.S. credit agreement
permits us to pay cash dividends in an amount not to exceed $5.0 million per calendar year, so long as we are
permits us to pay cash dividends in an amount not to exceed $5.0 million per calendar year, so long as we are
not in default before and after giving effect to such dividends.
not in default before and after giving effect to such dividends.

We have a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million revolving credit
We have a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million revolving credit
facility in Germany. On May 12, 2014, we established a Taiwan credit facility in the amount of 100.0 million
facility in Germany. On May 12, 2014, we established a Taiwan credit facility in the amount of 100.0 million
New Taiwan Dollars with an expiration date of May 12, 2015. We did not renew this Taiwan credit facility. We
New Taiwan Dollars with an expiration date of May 12, 2015. We did not renew this Taiwan credit facility. We
also have a 40.0 million Chinese Yuan (approximately $5.9 million) credit facility in China that was renewed on
also have a 40.0 million Chinese Yuan (approximately $5.9 million) credit facility in China that was renewed on
February 17, 2016 with an expiration date of February 16, 2017.
February 17, 2016 with an expiration date of February 16, 2017.

51
51

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

All of our credit facilities are unsecured.

Sheets at October 31, 2016 and 2015 was $0.5 million and $1.1 million, respectively.

At October 31, 2016, we had $1.5 million of borrowings under our China credit facility which bears interest at
4.6% annually (variable rate). We had no other debt or borrowings under any of our other credit facilities.

At October 31, 2015, we had $1.6 million of borrowings outstanding under our credit facility in China. At
October 31, 2016, we were in compliance with all covenants contained in the related credit agreements and, as
of that date, we had unutilized credit facilities of $19.8 million.

FINANCIAL INSTRUMENTS

Estimated Fair Value of Financial Instruments

FASB fair value guidance establishes a three-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 in which little or no market data exist,
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-tier fair value hierarchy discussed
below. The carrying amount of short-term debt approximates fair value due to the variable rate of the interest
and the short term nature of the instrument. The fair value of Level 2 is based on an internally developed model
using current interest rate data for similar issues as there is no active market for this type of 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, 2016 and 2015 (in thousands):

A comparison of income tax expense at the U.S. statutory rate to the Company’s effective tax rate is as

follows (dollars in thousands):

Assets

Liabilities

October 31,
2016

October 31,
2015

October 31,
2016

October 31,
2015

Level 1
Deferred compensation
Level 2
Derivatives

$ 1,363

$ 1,310

$ --

$ 1,725

$ 1,228

$ 538

$ 1,071

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 $125.6 million and $109.6 million at October 31, 2016 and 2015, respectively. The fair value of
Derivative assets recorded on our Consolidated Balance Sheets at October 31, 2016 and 2015 was $1.7 million
and $1.2 million, respectively. The fair value of Derivative liabilities recorded on our Consolidated Balance

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-performance or the economic consequences of counterparty non-performance as

material risks.

INCOME TAXES

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

Year Ended October 31,

2016

2015

2014

Current:

Deferred:

U.S. taxes ..................................................................

$ 1,362

$ 4,600

$ 3,498

Foreign taxes .............................................................

4,456

5,818

3,752

8,352

3,594

7,092

U.S. taxes ..................................................................

Foreign taxes .............................................................

(176)

(49)

(225)

$ 5,593

(896)

(117)

(709)

(165)

(1,013) (874)

$ 7,339

$ 6,218

Year Ended October 31,

2016

2015

2014

Income before income taxes:

Domestic ...................................................................

$ 2,703

$ 10,806

$ 9,190

Foreign .......................................................................

16,182

12,747

Earnings (Loss) before taxes on income

$ 18,885

$ 23,553

12,171

$ 21,361

Tax rates:

U.S. statutory rate ..............................................................

34%

35%

Effect of tax rate of international jurisdictions

different than U.S. statutory rates ...................................

Valuation allowance...................................................

State taxes .........................................................................

Tax Credits ........................................................................

(7%)

(2%)

Effect of Tax Rate Changes ..............................................

Other .................................................................................

(2%)

Effective tax rate ...............................................................

30%

(5%)

(1%)

31%

(4%)

(1%)

29%

We have not made any provision for U.S. income 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, 2016 were

approximately $79.7 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

All of our credit facilities are unsecured.

Sheets at October 31, 2016 and 2015 was $0.5 million and $1.1 million, respectively.
Sheets at October 31, 2016 and 2015 was $0.5 million and $1.1 million, respectively.

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

7.
7.

INCOME TAXES
INCOME TAXES

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

Year Ended October 31,
Year Ended October 31,
2015
2015

2016
2016

2014
2014

Current:
Current:
U.S. taxes ..................................................................
U.S. taxes ..................................................................
Foreign taxes .............................................................
Foreign taxes .............................................................

Deferred:
Deferred:
U.S. taxes ..................................................................
U.S. taxes ..................................................................
Foreign taxes .............................................................
Foreign taxes .............................................................

$ 1,362
$ 1,362
4,456
4,456
5,818
5,818

(176)
(176)
(49)
(49)
(225)
(225)
$ 5,593
$ 5,593

$ 4,600
$ 4,600
3,752
3,752
8,352
8,352

$ 3,498
$ 3,498
3,594
3,594
7,092
7,092

(896)
(896)
(117)
(117)

(709)
(709)
(165)
(165)
(1,013) (874)
(1,013) (874)
$ 6,218
$ 6,218

$ 7,339
$ 7,339

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, 2016 and 2015 (in thousands):

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

Income before income taxes:
Income before income taxes:
Domestic ...................................................................
Domestic ...................................................................
Foreign .......................................................................
Foreign .......................................................................
Earnings (Loss) before taxes on income
Earnings (Loss) before taxes on income
Tax rates:
Tax rates:
U.S. statutory rate ..............................................................
U.S. statutory rate ..............................................................
Effect of tax rate of international jurisdictions
Effect of tax rate of international jurisdictions
different than U.S. statutory rates ...................................
different than U.S. statutory rates ...................................
Valuation allowance...................................................
Valuation allowance...................................................
State taxes .........................................................................
State taxes .........................................................................
Tax Credits ........................................................................
Tax Credits ........................................................................
Effect of Tax Rate Changes ..............................................
Effect of Tax Rate Changes ..............................................
Other .................................................................................
Other .................................................................................
Effective tax rate ...............................................................
Effective tax rate ...............................................................

Year Ended October 31,
Year Ended October 31,
2015
2015

2016
2016

2014
2014

$ 2,703
$ 2,703
16,182
16,182
$ 18,885
$ 18,885

$ 10,806
$ 10,806

12,747
12,747
$ 23,553
$ 23,553

$ 9,190
$ 9,190
12,171
12,171
$ 21,361
$ 21,361

34%
34%

35%
35%

(7%)
(7%)
3%
3%
0%
0%
(2%)
(2%)
4%
4%
(2%)
(2%)
30%
30%

(5%)
(5%)
1%
1%
1%
1%
(1%)
(1%)
0%
0%
0%
0%
31%
31%

(4%)
(4%)
0%
0%
0%
0%
(1%)
(1%)
0%
0%
(1%)
(1%)
29%
29%

At October 31, 2016, we had $1.5 million of borrowings under our China credit facility which bears interest at

4.6% annually (variable rate). We had no other debt or borrowings under any of our other credit facilities.

At October 31, 2015, we had $1.6 million of borrowings outstanding under our credit facility in China. At

October 31, 2016, we were in compliance with all covenants contained in the related credit agreements and, as

of that date, we had unutilized credit facilities of $19.8 million.

FINANCIAL INSTRUMENTS

Estimated Fair Value of Financial Instruments

FASB fair value guidance establishes a three-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 in which little or no market data exist,

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-tier fair value hierarchy discussed

below. The carrying amount of short-term debt approximates fair value due to the variable rate of the interest

and the short term nature of the instrument. The fair value of Level 2 is based on an internally developed model

using current interest rate data for similar issues as there is no active market for this type of instrument.

Assets

Liabilities

October 31,

2016

2015

2016

2015

Deferred compensation

$ 1,363

$ 1,310

$ --

$ 1,725

$ 1,228

$ 538

$ 1,071

Level 1

Level 2

Derivatives

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 $125.6 million and $109.6 million at October 31, 2016 and 2015, respectively. The fair value of

Derivative assets recorded on our Consolidated Balance Sheets at October 31, 2016 and 2015 was $1.7 million

and $1.2 million, respectively. The fair value of Derivative liabilities recorded on our Consolidated Balance

subsidiaries based upon our determination
subsidiaries based upon our determination

We have not made any provision for U.S. income taxes on the undistributed earnings of our wholly-owned
We have not made any provision for U.S. income taxes on the undistributed earnings of our wholly-owned
foreign
indefinitely
indefinitely
foreign
reinvested. Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2016 were
reinvested. Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2016 were
approximately $79.7 million. In the event these earnings are later distributed to the U.S., such distributions
approximately $79.7 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.
would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

such earnings will be
such earnings will be

that
that

53
53

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax basis 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.

As of October 31, 2016, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.6 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for research
and development tax credits of $0.5 million. We have established a valuation allowance against some of these
carryforwards due to the uncertainty of their full realization. As of October 31, 2016 and 2015, the balance of
this valuation allowance was $2.1 million and $1.5 million, respectively.

Significant components of our deferred tax assets and liabilities at October 31, 2016 and 2015 were as follows
(in thousands):

Deferred Tax Assets:
Accrued inventory reserves ......................................................................
Accrued warranty expenses .....................................................................
Compensation related expenses ...............................................................
Unrealized exchange gain/loss .................................................................
Other accrued expenses ............................................................................
Net operating loss carryforwards .............................................................
Other credit carryforwards…………………………………………...
Other ........................................................................................................

Less: Valuation allowance on net operating loss carryforwards…….....
Valuation allowance on other credit carryforwards……….......…

Deferred tax assets ...................................................................................

Deferred Tax Liabilities:
Net derivative instruments .......................................................................
Property and equipment and capitalized software development costs .....
Other ........................................................................................................

Net deferred tax assets

October 31,

2016

2015

$ 1,824
312
2,664
370
194
1,616
474
331
7,785
(1,593)
(474)
(2,067)
5,718

$ 1,304
441
1,891
186
237
1,275
287
170
5,791
(1,300)
(185)
(1,485)
4,306

(701)
(2,717)
(456)

(811)
(2,369)
(403)

$ 1,844

$ 723

As of October 31, 2016, we had net operating losses carryforwards for international and U.S. income tax
purposes of $7.9 million, of which $6.5 million will expire within 5 years and $1.4 million will expire between 5
and 20 years. We also had tax credits of $719,000 which will expire between 10 and 20 years.

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):

Balance, beginning of year
Additions based on tax positions related to the current year
Additions (reductions) related to prior year tax positions
Reductions due to statute expiration
Other

Balance, end of year

2016
$ 1,034
52
19
--
(3)

2015
$ 1,196
17
(51)
--
(128)

2014
$ 1,284
5
(4)
--
(89)

$ 1,102

$ 1,034

$ 1,196

The entire balance of the unrecognized tax benefits and related interest at October 31, 2016, if recognized,

would favorably affect the effective tax rate in future periods.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income

tax provision. As of October 31, 2016, the gross amount of interest accrued, reported in other liabilities, was

approximately $53,000, 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 2017 and July 2019.

Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of

future audits may result in liabilities that could be different from this estimate. In such case, we would record

additional tax expense or tax benefit in the tax provision (benefit) or reclassify amounts on the consolidated

balance sheets in the period in which the matter is effectively settled with the taxing authority.

We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions.

There are currently no open audits in any jurisdictions.

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

United States federal

Fiscal 2013 through the current period

Germany¹

Taiwan

Fiscal 2013 through the current period

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

EMPLOYEE BENEFITS

We have defined contribution plans that include a majority of our 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 million, $933,000, and $884,000, for the fiscal years ended

October 31, 2016, 2015 and 2014, respectively.

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 (“SARs”), restricted stock, stock

units and other stock-based awards. The 2016 Equity Plan replaced the 2008 Equity Incentive Plan (the “2008

Plan”) and is the only active plan under which equity awards may be made to our employees and non-employee

directors. No further awards will be made under our 2008 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 included 386,048

shares remaining available for future grants under the 2008 Plan as of March 10, 2016, the date of shareholder

approval of the 2016 Equity Plan.

The Compensation Committee of the Board of Directors has the authority to determine the officers, directors

and key employees who will be granted awards; 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 under the 2016 Equity Plan which are currently

outstanding, and we have granted stock options, restricted shares and performance shares under the 2008 Plan

which 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Deferred income taxes are determined based on the difference between the amounts used for financial reporting

purposes and tax basis 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.

As of October 31, 2016, we had deferred tax assets established for accumulated net operating loss carryforwards

of $1.6 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for research

and development tax credits of $0.5 million. We have established a valuation allowance against some of these

carryforwards due to the uncertainty of their full realization. As of October 31, 2016 and 2015, the balance of

this valuation allowance was $2.1 million and $1.5 million, respectively.

Significant components of our deferred tax assets and liabilities at October 31, 2016 and 2015 were as follows

(in thousands):

Deferred Tax Assets:

Accrued inventory reserves ......................................................................

Accrued warranty expenses .....................................................................

Compensation related expenses ...............................................................

Unrealized exchange gain/loss .................................................................

Other accrued expenses ............................................................................

Net operating loss carryforwards .............................................................

Other credit carryforwards…………………………………………...

Other ........................................................................................................

Less: Valuation allowance on net operating loss carryforwards…….....

Valuation allowance on other credit carryforwards……….......…

Deferred tax assets ...................................................................................

Deferred Tax Liabilities:

Net derivative instruments .......................................................................

Property and equipment and capitalized software development costs .....

Other ........................................................................................................

Net deferred tax assets

October 31,

2016

2015

$ 1,824

$ 1,304

312

2,664

370

194

1,616

474

331

7,785

(1,593)

(474)

(2,067)

5,718

441

1,891

186

237

1,275

287

170

5,791

(1,300)

(185)

(1,485)

4,306

(701)

(2,717)

(456)

(2,369)

(811)

(403)

$ 1,844

$ 723

As of October 31, 2016, we had net operating losses carryforwards for international and U.S. income tax

purposes of $7.9 million, of which $6.5 million will expire within 5 years and $1.4 million will expire between 5

and 20 years. We also had tax credits of $719,000 which will expire between 10 and 20 years.

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):

Balance, beginning of year

Additions based on tax positions related to the current year

Additions (reductions) related to prior year tax positions

Reductions due to statute expiration

Other

Balance, end of year

2016

2015

2014

$ 1,034

$ 1,196

$ 1,284

(3)

(51)

(128)

(4)

(89)

$ 1,102

$ 1,034

$ 1,196

The entire balance of the unrecognized tax benefits and related interest at October 31, 2016, if recognized,
The entire balance of the unrecognized tax benefits and related interest at October 31, 2016, if recognized,
would favorably affect the effective tax rate in future periods.
would favorably affect the effective tax rate in future periods.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income
We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income
tax provision. As of October 31, 2016, the gross amount of interest accrued, reported in other liabilities, was
tax provision. As of October 31, 2016, the gross amount of interest accrued, reported in other liabilities, was
approximately $53,000, which did not include the federal tax benefit of interest deductions. The statute of
approximately $53,000, 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 2017 and July 2019.
limitations with respect to unrecognized tax benefits will expire between July 2017 and July 2019.

Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of
Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of
future audits may result in liabilities that could be different from this estimate. In such case, we would record
future audits may result in liabilities that could be different from this estimate. In such case, we would record
additional tax expense or tax benefit in the tax provision (benefit) or reclassify amounts on the consolidated
additional tax expense or tax benefit in the tax provision (benefit) or reclassify amounts on the consolidated
balance sheets in the period in which the matter is effectively settled with the taxing authority.
balance sheets in the period in which the matter is effectively settled with the taxing authority.

We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions.
We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions.
There are currently no open audits in any jurisdictions.
There are currently no open audits in any jurisdictions.

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

United States federal
United States federal
Germany¹
Germany¹
Taiwan
Taiwan

Fiscal 2013 through the current period
Fiscal 2013 through the current period
Fiscal 2013 through the current period
Fiscal 2013 through the current period
Fiscal 2013 through the current period
Fiscal 2013 through the current period

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

8.
8.

EMPLOYEE BENEFITS
EMPLOYEE BENEFITS

We have defined contribution plans that include a majority of our employees, under which our matching
We have defined contribution plans that include a majority of our employees, under which our matching
contributions are primarily discretionary. The purpose of these plans is generally to provide additional financial
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
security during retirement by providing employees with an incentive to save throughout their employment. Our
contributions and related expense totaled $1.1 million, $933,000, and $884,000, for the fiscal years ended
contributions and related expense totaled $1.1 million, $933,000, and $884,000, for the fiscal years ended
October 31, 2016, 2015 and 2014, respectively.
October 31, 2016, 2015 and 2014, respectively.

9.
9.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

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

The Compensation Committee of the Board of Directors has the authority to determine the officers, directors
The Compensation Committee of the Board of Directors has the authority to determine the officers, directors
and key employees who will be granted awards; designate the number of shares subject to each award;
and key employees who will be granted awards; 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
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 under the 2016 Equity Plan which are currently
award agreements. We have granted restricted shares under the 2016 Equity Plan which are currently
outstanding, and we have granted stock options, restricted shares and performance shares under the 2008 Plan
outstanding, and we have granted stock options, restricted shares and performance shares under the 2008 Plan
which are currently outstanding. No stock option may be exercised more than ten years after the date of grant or
which 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
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
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.
Nasdaq Global Select Market on the date in question or, if not a trading day, on the last preceding trading date.

55
55

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

During fiscal 2016, we recorded approximately $1.6 million of stock-based compensation expense related to
grants under the 2008 Plan and the 2016 Equity Plan. We recorded approximately $1.2 million and $921,000 of
stock-based compensation expense related to grants under the 2008 Plan for fiscal 2015 and 2014, respectively.
As of October 31, 2016, there was an estimated $2.0 million of total unrecognized stock-based compensation
cost that we expect to recognize by the end of the first quarter of fiscal 2019.

On March 10, 2016, the Compensation Committee granted a total of 9,170 shares of time-based restricted stock
to our non-employee directors under the 2016 Equity Plan. 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 $30.52 per share.

On January 4, 2016, the Compensation Committee approved a long-term incentive compensation arrangement
for our 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 2016 through fiscal 2018.

On that date, the Compensation Committee granted a total of 17,684 shares of time-based restricted shares 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 per share.

On January 4, 2016, the Compensation Committee also granted a total target number of 24,023 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 our 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 fair value of the market-based performance shares was $30.67 per share
and was calculated using the Monte Carlo approach.

On January 4, 2016, the Compensation Committee also granted a total target number of 24,759 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 ROIC performance shares was based on the closing sales price of our common stock on the grant
date which was $26.04 per share.

On March 12, 2015, the Compensation Committee granted a total of 9,086 shares of 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 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. 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.

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 our 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 fair value of the market-based performance shares 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 ROIC performance shares was based on the closing sales price of our common stock on the grant

date which was $32.22 per share.

On March 13, 2014, the Compensation Committee granted a total of 11,235 shares of 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 the restricted stock was based

on the closing sales price of our common stock on the grant date which was $24.92 per share.

On January 10, 2014, the Compensation Committee approved a long-term incentive compensation arrangement

for our 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 2014 through fiscal 2016.

On that date, the Compensation Committee granted a total 12,182 shares of time-based restricted shares 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 $24.01 per share.

On January 10, 2014, the Compensation Committee also granted a total target number of 16,948 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 fair value of the market-based performance shares was $26.43 per share

and was calculated using the Monte Carlo approach.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

During fiscal 2016, we recorded approximately $1.6 million of stock-based compensation expense related to

grants under the 2008 Plan and the 2016 Equity Plan. We recorded approximately $1.2 million and $921,000 of

stock-based compensation expense related to grants under the 2008 Plan for fiscal 2015 and 2014, respectively.

As of October 31, 2016, there was an estimated $2.0 million of total unrecognized stock-based compensation

cost that we expect to recognize by the end of the first quarter of fiscal 2019.

On March 10, 2016, the Compensation Committee granted a total of 9,170 shares of time-based restricted stock

to our non-employee directors under the 2016 Equity Plan. 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 $30.52 per share.

On January 4, 2016, the Compensation Committee approved a long-term incentive compensation arrangement

for our 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 2016 through fiscal 2018.

On that date, the Compensation Committee granted a total of 17,684 shares of time-based restricted shares 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 per share.

On January 4, 2016, the Compensation Committee also granted a total target number of 24,023 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 our 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 fair value of the market-based performance shares was $30.67 per share

and was calculated using the Monte Carlo approach.

On January 4, 2016, the Compensation Committee also granted a total target number of 24,759 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 ROIC performance shares was based on the closing sales price of our common stock on the grant

date which was $26.04 per share.

On March 12, 2015, the Compensation Committee granted a total of 9,086 shares of 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 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
On that date, the Compensation Committee granted a total of 11,174 shares of time-based restricted shares to
our executive officers. The restricted shares vest in thirds over three years from the date of grant provided the
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
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.
the closing sales price of our common stock on the date of grant which was $32.22.

On January 6, 2015, the Compensation Committee also granted a total target number of 16,740 performance
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%
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 our total
of the overall long-term incentive compensation arrangement and will vest and be paid based upon our total
shareholder return of our common stock over a three-year period, relative to the total shareholder return of the
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
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
the target number of shares for achieving threshold performance and 200% of the target number of shares for
achieving maximum performance. The fair value of the market-based performance shares was $34.41 per share
achieving maximum performance. The fair value of the market-based performance shares was $34.41 per share
and was calculated using the Monte Carlo approach.
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
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
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
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.
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
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
performance and 200% of the target number of shares for achieving maximum performance. The grant date fair
value of the ROIC performance shares was based on the closing sales price of our common stock on the grant
value of the ROIC performance shares was based on the closing sales price of our common stock on the grant
date which was $32.22 per share.
date which was $32.22 per share.

On March 13, 2014, the Compensation Committee granted a total of 11,235 shares of restricted stock to our
On March 13, 2014, the Compensation Committee granted a total of 11,235 shares of restricted stock to our
non-employee directors. The restricted stock vests in full one year from the date of grant provided the recipient
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 the restricted stock was based
remains on the board of directors through that date. The grant date fair value of the restricted stock was based
on the closing sales price of our common stock on the grant date which was $24.92 per share.
on the closing sales price of our common stock on the grant date which was $24.92 per share.

On January 10, 2014, the Compensation Committee approved a long-term incentive compensation arrangement
On January 10, 2014, the Compensation Committee approved a long-term incentive compensation arrangement
for our executive officers in the form of restricted shares and performance shares awarded under the 2008 Plan.
for our 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
The awards were 25% time-based vesting and 75% performance-based vesting. The three-year performance
period is fiscal 2014 through fiscal 2016.
period is fiscal 2014 through fiscal 2016.

On that date, the Compensation Committee granted a total 12,182 shares of time-based restricted shares to our
On that date, the Compensation Committee granted a total 12,182 shares of time-based restricted shares to our
executive officers. The restricted shares vest in thirds over three years from the date of grant provided the
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
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 $24.01 per share.
the closing sales price of our common stock on the date of grant which was $24.01 per share.

On January 10, 2014, the Compensation Committee also granted a total target number of 16,948 performance
On January 10, 2014, the Compensation Committee also granted a total target number of 16,948 performance
shares to our executive officers designated as “Performance Shares –TSR”. The shares were weighted as 40%
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
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
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
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
the target number of shares for achieving threshold performance and 200% of the target number of shares for
achieving maximum performance. The fair value of the market-based performance shares was $26.43 per share
achieving maximum performance. The fair value of the market-based performance shares was $26.43 per share
and was calculated using the Monte Carlo approach.
and was calculated using the Monte Carlo approach.

57
57

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

On January 10, 2014, the Compensation Committee also granted a total target number of 17,056 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 ROIC performance shares was based on the closing sales price of our common stock on the grant
date which was $24.01 per share.

A reconciliation of the Company’s restricted stock activity and related information is as follows:

Unvested at October 31, 2015
Shares granted
Shares vested
Shares withheld
Unvested at October 31, 2016

Number of
Shares

98,799
75,636
(21,385)
(5,700)
147,350

Weighted Average
Grant Date
Fair Value

$ 28.89
28.05
27.63
25.29
$ 28.79

A summary of the status of the options as of October 31, 2016, 2015 and 2014 and the related activity for the
year is as follows:

Balance October 31, 2013

Granted .......................................................
Cancelled ....................................................
Expired .......................................................
Exercised ....................................................
Balance October 31, 2014

Shares Under
Option
168,712

--
(20,217)
--
(20,306)
128,189
--
(5,000)
--
(15,300)
107,889
--
--
--
--
107,889

Weighted
Average
Exercise Price
Per Share

$ 20.73

--
25.59
--
17.67
$ 20.45

--
35.83
--
16.81
$ 20.25

--
--
--
--
$ 20.25

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2016, 2015 and
2014 was approximately $0, $154,000 and $424,000, respectively.

As of October 31, 2016, the total intrinsic value of outstanding stock options already vested and expected to vest

and the intrinsic value of options that are outstanding and exercisable was $690,000. Stock options outstanding

and exercisable on October 31, 2016, are as follows:

Weighted

Weighted Average

Shares Under

Average Exercise

Remaining Contractual

Option

Price Per Share

Life in Years

Range of Exercise

Prices Per Share

Outstanding

$ 14.82

14.88

18.13

21.45

23.30

35.83

$ 14.82

14.88

18.13

21.45

23.30

35.83

$ 14.82 – 35.83

Exercisable

$ 14.82 – 35.83

24,000

4,200

16,000

37,841

20,848

5,000

107,889

24,000

4,200

16,000

37,841

20,848

5,000

107,889

$ 14.82

14.88

18.13

21.45

23.30

35.83

$ 20.25

$ 14.82

14.88

18.13

21.45

23.30

35.83

$ 20.25

3.1

2.5

3.5

5.1

6.1

1.6

4.4

3.1

2.5

3.5

5.1

6.1

1.6

4.4

10.

RELATED PARTY TRANSACTIONS

As of October 31, 2016, we owned approximately 35% of the outstanding shares of a Taiwanese-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 million and $3.0 million at October 31, 2016 and

2015, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.

Purchases of controls from HAL amounted to $9.9 million, $8.9 million and $9.3 million in fiscal 2016, 2015

and 2014, respectively. Sales of control component parts to HAL were $623,000, $723,000 and $1.4 million for

the fiscal years ended October 31, 2016, 2015 and 2014, respectively. Trade payables to HAL were $2.0 million

and $1.8 million at October 31, 2016 and 2015, respectively. Trade receivables from HAL were $94,000 and

$55,000 at October 31, 2016 and 2015, respectively.

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

thousands):

2016

2015

2014

Net Sales ......................................................

Gross Profit ..................................................

Operating Income ........................................

Net Income...................................................

$ 13,948

2,240

952

1,323

$ 12,852

$ 12,063

2,041

665

1,546

1,759

468

1,264

Current Assets ..............................................

Non-current Assets ......................................

Current Liabilities ........................................

$ 10,238

3,733

2,572

$ 10,262

$ 10,469

3,087

3,472

3,065

3,637

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

On January 10, 2014, the Compensation Committee also granted a total target number of 17,056 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 ROIC performance shares was based on the closing sales price of our common stock on the grant

date which was $24.01 per share.

A reconciliation of the Company’s restricted stock activity and related information is as follows:

Unvested at October 31, 2015

Shares granted

Shares vested

Shares withheld

Unvested at October 31, 2016

A summary of the status of the options as of October 31, 2016, 2015 and 2014 and the related activity for the

year is as follows:

Number of

98,799

75,636

(21,385)

(5,700)

147,350

Weighted Average

Grant Date

Fair Value

$ 28.89

28.05

27.63

25.29

$ 28.79

Shares Under

Option

168,712

Weighted

Average

Exercise Price

Per Share

$ 20.73

Balance October 31, 2013

Granted .......................................................

Cancelled ....................................................

(20,217)

Expired .......................................................

Exercised ....................................................

Balance October 31, 2014

(20,306)

128,189

Granted .......................................................

Cancelled ....................................................

(5,000)

Expired .......................................................

Exercised ....................................................

(15,300)

Balance October 31, 2015

107,889

Granted .......................................................

Cancelled ....................................................

Expired .......................................................

Exercised ....................................................

Balance October 31, 2016

107,889

25.59

17.67

$ 20.45

35.83

16.81

$ 20.25

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2016, 2015 and

2014 was approximately $0, $154,000 and $424,000, respectively.

As of October 31, 2016, the total intrinsic value of outstanding stock options already vested and expected to vest
As of October 31, 2016, the total intrinsic value of outstanding stock options already vested and expected to vest
and the intrinsic value of options that are outstanding and exercisable was $690,000. Stock options outstanding
and the intrinsic value of options that are outstanding and exercisable was $690,000. Stock options outstanding
and exercisable on October 31, 2016, are as follows:
and exercisable on October 31, 2016, are as follows:

Range of Exercise
Range of Exercise
Prices Per Share
Prices Per Share

Shares Under
Shares Under
Option
Option

Weighted
Weighted
Average Exercise
Average Exercise
Price Per Share
Price Per Share

Weighted Average
Weighted Average
Remaining Contractual
Remaining Contractual
Life in Years
Life in Years

Outstanding
Outstanding
$ 14.82
$ 14.82
14.88
14.88
18.13
18.13
21.45
21.45
23.30
23.30
35.83
35.83
$ 14.82 – 35.83
$ 14.82 – 35.83
Exercisable
Exercisable
$ 14.82
$ 14.82
14.88
14.88
18.13
18.13
21.45
21.45
23.30
23.30
35.83
35.83
$ 14.82 – 35.83
$ 14.82 – 35.83

24,000
24,000
4,200
4,200
16,000
16,000
37,841
37,841
20,848
20,848
5,000
5,000
107,889
107,889

$ 14.82
$ 14.82
14.88
14.88
18.13
18.13
21.45
21.45
23.30
23.30
35.83
35.83
$ 20.25
$ 20.25

3.1
3.1
2.5
2.5
3.5
3.5
5.1
5.1
6.1
6.1
1.6
1.6
4.4
4.4

10.
10.

RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

As of October 31, 2016, we owned approximately 35% of the outstanding shares of a Taiwanese-based contract
As of October 31, 2016, we owned approximately 35% of the outstanding shares of a Taiwanese-based contract
manufacturer, Hurco Automation, Ltd. (“HAL”). HAL’s scope of activities includes the design, manufacture,
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
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
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 million and $3.0 million at October 31, 2016 and
investment using the equity method. The investment of $3.6 million and $3.0 million at October 31, 2016 and
2015, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.
2015, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.
Purchases of controls from HAL amounted to $9.9 million, $8.9 million and $9.3 million in fiscal 2016, 2015
Purchases of controls from HAL amounted to $9.9 million, $8.9 million and $9.3 million in fiscal 2016, 2015
and 2014, respectively. Sales of control component parts to HAL were $623,000, $723,000 and $1.4 million for
and 2014, respectively. Sales of control component parts to HAL were $623,000, $723,000 and $1.4 million for
the fiscal years ended October 31, 2016, 2015 and 2014, respectively. Trade payables to HAL were $2.0 million
the fiscal years ended October 31, 2016, 2015 and 2014, respectively. Trade payables to HAL were $2.0 million
and $1.8 million at October 31, 2016 and 2015, respectively. Trade receivables from HAL were $94,000 and
and $1.8 million at October 31, 2016 and 2015, respectively. Trade receivables from HAL were $94,000 and
$55,000 at October 31, 2016 and 2015, respectively.
$55,000 at October 31, 2016 and 2015, respectively.

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

2016
2016

2015
2015

2014
2014

Net Sales ......................................................
Net Sales ......................................................
Gross Profit ..................................................
Gross Profit ..................................................
Operating Income ........................................
Operating Income ........................................
Net Income...................................................
Net Income...................................................

$ 13,948
$ 13,948
2,240
2,240
952
952
1,323
1,323

$ 12,852
$ 12,852
2,041
2,041
665
665
1,546
1,546

$ 12,063
$ 12,063
1,759
1,759
468
468
1,264
1,264

Current Assets ..............................................
Current Assets ..............................................
Non-current Assets ......................................
Non-current Assets ......................................
Current Liabilities ........................................
Current Liabilities ........................................

$ 10,238
$ 10,238
3,733
3,733
2,572
2,572

$ 10,262
$ 10,262
3,087
3,087
3,472
3,472

$ 10,469
$ 10,469
3,065
3,065
3,637
3,637

59
59

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

11.

CONTINGENCIES AND LITIGATION

13.

OPERATING LEASES

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.

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, 2016, we had 26 outstanding third party payment guarantees totaling
approximately $1.2 million. The terms of these guarantees are consistent with the underlying customer
financing terms. Upon shipment of a machine, the customer has 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.

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 is as follows (in thousands):

Balance, beginning of year
Provision for warranties during the year
Charges to the accrual
Impact of foreign currency translation
Balance, end of year

2016
$ 2,186
2,715
(3,349)
(29)
$ 1,523

2015
$ 2,048
3,736
(3,495)
(103)
$ 2,186

2014
$ 1,778
3,846
(3,529)
(47)
$ 2,048

The decrease in our warranty reserve in fiscal 2016 compared to 2015 was primarily due to a reduction in unit
sales volume, as well as a reduction in average warranty cost per machine as our product mix of machines under
warranty shifted from more complex, higher-performance machines. The fiscal 2016 reduction in warranty
reserve was also attributable to reductions in warranty obligations assumed as part of the acquisition of
Milltronics and Takumi, as actual claims were less than anticipated, resulting in adjustments to the provision for
warranties during the year. The increase in warranty reserve from fiscal 2014 to 2015 included $241,000 of
warranty obligations assumed as part of the acquisitions of Milltronics and Takumi.

We lease facilities, certain equipment and vehicles under operating leases that expire at various dates through

2024. Future payments required under operating leases as of October 31, 2016, are summarized as follows (in

thousands):

2017 ...................................................................................................

$ 2,929

2018 ...................................................................................................

2019 ...................................................................................................

2020 ...................................................................................................

2021 and thereafter............................................................................

1,573

911

377

556

Total ..................................................................................................

$ 6,346

Lease expense for the fiscal years ended October 31, 2016, 2015, and 2014 was $4.5 million, $3.8 million, and

$4.0 million, respectively.

14.

QUARTERLY FINANCIAL INFORMATION (Unaudited)

2016 (In thousands, except per share data)

Sales and service fees

Gross profit

Gross profit margin

Selling, general and administrative expenses

Operating income

Provision for income taxes

Net income

Income per common share – basic

Income per common share – diluted

2015 (In thousands, except per share data)

Sales and service fees

Gross profit

Gross profit margin

Selling, general and administrative expenses

Operating income

Provision for income taxes

Net income

Income per common share – basic

Income per common share – diluted

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

$56,503

$52,029

$52,403

$66,354

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

$50,972

$50,183

$52,535

$65,693

16,610

32%

11,943

4,667

1,225

3,674

$0.56

16,559

33%

10,850

5,709

1,878

3,961

$0.60

16,135

31%

12,042

4,093

1,120

2,720

$0.41

$0.40

16,630

32%

11,351

5,279

1,573

3,683

$0.56

$0.55

19,997

30%

14,878

5,119

1,539

3,003

$0.45

19,355

29%

12,632

6,723

1,851

4,804

$0.73

$0.72

17,698

31%

11,961

5,737

1,709

3,895

$0.59

$0.58

16,547

32%

10,454

6,093

2,037

3,766

$0.57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

11.

CONTINGENCIES AND LITIGATION

13.
13.

OPERATING LEASES
OPERATING LEASES

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.

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, 2016, we had 26 outstanding third party payment guarantees totaling

approximately $1.2 million. The terms of these guarantees are consistent with the underlying customer

financing terms. Upon shipment of a machine, the customer has 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.

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 is as follows (in thousands):

Balance, beginning of year

Provision for warranties during the year

Charges to the accrual

2016

2015

$ 2,186

$ 2,048

2,715

(3,349)

3,736

(3,495)

2014

$ 1,778

3,846

(3,529)

Impact of foreign currency translation

(29)

(103)

(47)

Balance, end of year

$ 1,523

$ 2,186

$ 2,048

The decrease in our warranty reserve in fiscal 2016 compared to 2015 was primarily due to a reduction in unit

sales volume, as well as a reduction in average warranty cost per machine as our product mix of machines under

warranty shifted from more complex, higher-performance machines. The fiscal 2016 reduction in warranty

reserve was also attributable to reductions in warranty obligations assumed as part of the acquisition of

Milltronics and Takumi, as actual claims were less than anticipated, resulting in adjustments to the provision for

warranties during the year. The increase in warranty reserve from fiscal 2014 to 2015 included $241,000 of

warranty obligations assumed as part of the acquisitions of Milltronics and Takumi.

We lease facilities, certain equipment and vehicles under operating leases that expire at various dates through
We lease facilities, certain equipment and vehicles under operating leases that expire at various dates through
2024. Future payments required under operating leases as of October 31, 2016, are summarized as follows (in
2024. Future payments required under operating leases as of October 31, 2016, are summarized as follows (in
thousands):
thousands):

2017 ...................................................................................................
2017 ...................................................................................................
2018 ...................................................................................................
2018 ...................................................................................................
2019 ...................................................................................................
2019 ...................................................................................................
2020 ...................................................................................................
2020 ...................................................................................................
2021 and thereafter............................................................................
2021 and thereafter............................................................................
Total ..................................................................................................
Total ..................................................................................................

$ 2,929
$ 2,929
1,573
1,573
911
911
377
377
556
556
$ 6,346
$ 6,346

Lease expense for the fiscal years ended October 31, 2016, 2015, and 2014 was $4.5 million, $3.8 million, and
Lease expense for the fiscal years ended October 31, 2016, 2015, and 2014 was $4.5 million, $3.8 million, and
$4.0 million, respectively.
$4.0 million, respectively.

14.
14.

QUARTERLY FINANCIAL INFORMATION (Unaudited)
QUARTERLY FINANCIAL INFORMATION (Unaudited)

2016 (In thousands, except per share data)
2016 (In thousands, except per share data)
Sales and service fees
Sales and service fees
Gross profit
Gross profit

Gross profit margin
Gross profit margin

Selling, general and administrative expenses
Selling, general and administrative expenses

Operating income
Operating income

Provision for income taxes
Provision for income taxes

Net income
Net income

Income per common share – basic
Income per common share – basic

Income per common share – diluted
Income per common share – diluted

2015 (In thousands, except per share data)
2015 (In thousands, except per share data)

Sales and service fees
Sales and service fees
Gross profit
Gross profit

Gross profit margin
Gross profit margin

Selling, general and administrative expenses
Selling, general and administrative expenses
Operating income
Operating income
Provision for income taxes
Provision for income taxes

Net income
Net income
Income per common share – basic
Income per common share – basic
Income per common share – diluted
Income per common share – diluted

First
First
Quarter
Quarter

Second
Second
Quarter
Quarter

Third
Third
Quarter
Quarter

Fourth
Fourth
Quarter
Quarter

$56,503
$56,503

$52,029
$52,029

$52,403
$52,403

$66,354
$66,354

17,698
17,698

31%
31%

11,961
11,961

5,737
5,737

1,709
1,709

3,895
3,895

$0.59
$0.59

$0.58
$0.58

16,610
16,610

32%
32%

11,943
11,943

4,667
4,667

1,225
1,225

3,674
3,674

$0.56
$0.56

16,135
16,135

31%
31%

12,042
12,042

4,093
4,093

1,120
1,120

2,720
2,720

$0.41
$0.41

$0.40
$0.40

19,997
19,997

30%
30%

14,878
14,878

5,119
5,119

1,539
1,539

3,003
3,003

$0.45
$0.45

First
First
Quarter
Quarter

Second
Second
Quarter
Quarter

Third
Third
Quarter
Quarter

Fourth
Fourth
Quarter
Quarter

$50,972
$50,972
16,547
16,547

$50,183
$50,183
16,559
16,559

$52,535
$52,535
16,630
16,630

$65,693
$65,693
19,355
19,355

33%
33%

10,850
10,850
5,709
5,709
1,878
1,878

3,961
3,961
$0.60
$0.60
$0.60
$0.60

32%
32%

11,351
11,351
5,279
5,279
1,573
1,573

3,683
3,683
$0.56
$0.56
$0.55
$0.55

29%
29%

12,632
12,632
6,723
6,723
1,851
1,851

4,804
4,804
$0.73
$0.73
$0.72
$0.72

32%
32%

10,454
10,454
6,093
6,093
2,037
2,037

3,766
3,766
$0.57
$0.57
$0.57
$0.57

61
61

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

15.

SEGMENT INFORMATION

The following table sets forth revenues by geographic area, based on customer location, for each of the past

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, software options, control upgrades,
accessories and replacement parts for our products, as well as customer service and training support.

We sell our products through more than 195 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, 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 2016, no
distributor accounted for more than 5% of our sales and service fees. In fiscal 2016, approximately 69% of our
revenues were from customers located outside of the U.S. and no single end-user of our products accounted for
more than 5% of our total sales and service fees.

The following table sets forth the contribution of each of our product groups 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,
2015

2016

2014

Computerized Machine Tools * ................................
Computer Control Systems and Software † ..............
Service Parts .............................................................
Service Fees ..............................................................
Total ....................................................................

$ 195,618
2,078
21,908
7,685
$ 227,289

$ 189,712
3,085
19,375
7,211
$ 219,383

$ 193,937
3,407
17,391
7,568
$ 222,303

* 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.

three fiscal years (in thousands):

Revenues by Geographic Area

United States of America .....................................................

Canada ..................................................................................

South America ......................................................................

Total Americas ..................................................................

Germany ...............................................................................

United Kingdom ...................................................................

Italy ......................................................................................

France ...................................................................................

Other Europe ........................................................................

Total Europe .....................................................................

Asia Pacific ..........................................................................

Other Foreign .......................................................................

Total Europe, Asia Pacific and Other Foreign .....................

Year Ended October 31,

2016

2015

2014

$ 70,630

3,881

1,950

76,461

44,411

25,313

12,947

13,787

27,150

123,608

25,633

1,587

150,828

$ 227,289

$ 66,781

3,114

1,930

71,825

43,727

30,235

11,768

13,162

26,598

125,490

20,265

1,803

147,558

$ 219,383

$ 59,414

2,434

450

62,298

51,581

34,288

13,456

9,972

24,728

134,025

23,766

2,214

160,005

$ 222,303

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

United States of America….…………………………...…..

Foreign countries…………………………………...............

Net assets by geographic area were (in thousands):

As of October 31,

2016

$ 7,846

5,911

$ 13,757

2015

$ 8,658

5,893

$ 14,551

As of October 31,

2016

2015

$ 83,236

59,468

31,864

$ 174,568

$ 185,475

Americas ............................................................................................. $ 84,040

Europe .................................................................................................

60,861

Asia Pacific .........................................................................................

40,574

16. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncement:

In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet

Classification of Deferred Taxes, which requires companies to present deferred income tax assets and deferred

income tax liabilities as noncurrent in a classified balance sheet instead of the current requirement to separate

deferred income tax liabilities and assets into current and noncurrent amounts. ASU 2015-17 is effective for

fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early

application is permitted either prospectively or retrospectively. We adopted this accounting update in the first

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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, software options, control upgrades,

accessories and replacement parts for our products, as well as customer service and training support.

We sell our products through more than 195 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, 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 2016, no

distributor accounted for more than 5% of our sales and service fees. In fiscal 2016, approximately 69% of our

revenues were from customers located outside of the U.S. and no single end-user of our products accounted for

more than 5% of our total sales and service fees.

The following table sets forth the contribution of each of our product groups 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,

2016

2015

2014

Computerized Machine Tools * ................................

$ 195,618

$ 189,712

$ 193,937

Computer Control Systems and Software † ..............

Service Parts .............................................................

Service Fees ..............................................................

Total ....................................................................

2,078

21,908

7,685

$ 227,289

3,085

19,375

7,211

3,407

17,391

7,568

$ 219,383

$ 222,303

* Amounts shown include sales of Milltronics and Takumi computerized machine tools to third parties since the respective

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

dates of acquisitions.

machine systems.

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

Revenues by Geographic Area
Revenues by Geographic Area

United States of America .....................................................
United States of America .....................................................
Canada ..................................................................................
Canada ..................................................................................
South America ......................................................................
South America ......................................................................
Total Americas ..................................................................
Total Americas ..................................................................

Germany ...............................................................................
Germany ...............................................................................
United Kingdom ...................................................................
United Kingdom ...................................................................
Italy ......................................................................................
Italy ......................................................................................
France ...................................................................................
France ...................................................................................
Other Europe ........................................................................
Other Europe ........................................................................

Total Europe .....................................................................
Total Europe .....................................................................

Asia Pacific ..........................................................................
Asia Pacific ..........................................................................
Other Foreign .......................................................................
Other Foreign .......................................................................
Total Europe, Asia Pacific and Other Foreign .....................
Total Europe, Asia Pacific and Other Foreign .....................

2016
2016

Year Ended October 31,
Year Ended October 31,
2015
2015

2014
2014

$ 70,630
$ 70,630
3,881
3,881
1,950
1,950
76,461
76,461

44,411
44,411
25,313
25,313
12,947
12,947
13,787
13,787
27,150
27,150

123,608
123,608

25,633
25,633
1,587
1,587
150,828
150,828
$ 227,289
$ 227,289

$ 66,781
$ 66,781
3,114
3,114
1,930
1,930
71,825
71,825

43,727
43,727
30,235
30,235
11,768
11,768
13,162
13,162
26,598
26,598

125,490
125,490

20,265
20,265
1,803
1,803
147,558
147,558
$ 219,383
$ 219,383

$ 59,414
$ 59,414
2,434
2,434
450
450
62,298
62,298

51,581
51,581
34,288
34,288
13,456
13,456
9,972
9,972
24,728
24,728

134,025
134,025

23,766
23,766
2,214
2,214
160,005
160,005
$ 222,303
$ 222,303

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

United States of America….…………………………...…..
United States of America….…………………………...…..
Foreign countries…………………………………...............
Foreign countries…………………………………...............

Net assets by geographic area were (in thousands):
Net assets by geographic area were (in thousands):

As of October 31,
As of October 31,

2016
2016
$ 7,846
$ 7,846
5,911
5,911
$ 13,757
$ 13,757

2015
2015
$ 8,658
$ 8,658
5,893
5,893
$ 14,551
$ 14,551

Americas ............................................................................................. $ 84,040
Americas ............................................................................................. $ 84,040
60,861
Europe .................................................................................................
60,861
Europe .................................................................................................
40,574
Asia Pacific .........................................................................................
40,574
Asia Pacific .........................................................................................
$ 185,475
$ 185,475

2016
2016

2015
2015
$ 83,236
$ 83,236
59,468
59,468
31,864
31,864
$ 174,568
$ 174,568

As of October 31,
As of October 31,

16. NEW ACCOUNTING PRONOUNCEMENTS
16. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncement:
Recently Adopted Accounting Pronouncement:
In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet
In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet
Classification of Deferred Taxes, which requires companies to present deferred income tax assets and deferred
Classification of Deferred Taxes, which requires companies to present deferred income tax assets and deferred
income tax liabilities as noncurrent in a classified balance sheet instead of the current requirement to separate
income tax liabilities as noncurrent in a classified balance sheet instead of the current requirement to separate
deferred income tax liabilities and assets into current and noncurrent amounts. ASU 2015-17 is effective for
deferred income tax liabilities and assets into current and noncurrent amounts. ASU 2015-17 is effective for
fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early
fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early
application is permitted either prospectively or retrospectively. We adopted this accounting update in the first
application is permitted either prospectively or retrospectively. We adopted this accounting update in the first

63
63

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

year 2018, including interim periods within the fiscal year. Early adoption is permitted. We are assessing the

impact this new accounting guidance will have on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - a Consensus of the

FASB’s Emerging Issues Task Force, which provides guidance intended to reduce diversity in practice in how

certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for our fiscal year

2018. We do not expect that the adoption of this accounting standard update will have a material effect on our

consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset

Transfers of Assets Other than Inventory, which removes the prohibition in ASC 740 (Income Taxes) against the

immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than

inventory. ASU 2016-16 is effective for our fiscal year 2019, including interim periods within those fiscal years.

Early adoption is permitted however the guidance can only be adopted in the first interim period of a fiscal year.

We are assessing the impact this new accounting guidance will have 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, 2016.

quarter of fiscal 2016 and applied it retrospectively to prior periods. The impact on our October 31, 2015
Consolidated Balance Sheet was a reduction in Total current assets of $2.0 million, an increase in Total non-
current assets of $4.7 million, and an increase in Total non-current liabilities of $2.7 million.

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 update 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 using either a full retrospective or modified approach to adopt this guidance.
Between August 2015 and May 2016, the FASB issued four 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, and 4)
ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients 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 are assessing the method of
adoption and the impact this new accounting guidance will have on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern, which requires management to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and provide related footnote disclosures. ASU 2014-15 is
effective for our fiscal year 2018, including interim periods within the fiscal year. Early adoption is permitted
for financial statements that have not been previously issued. We do not expect that the adoption of this
accounting standard update will have a material effect on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance on the
classification and measurement of financial instruments under the fair value option, as well as the presentation
and disclosure requirements for financial instruments. Among other things, ASU 2016-01 requires equity
investments (except those accounted for under the equity method of accounting, or those that result in
consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
In addition, ASU 2016-01 requires public companies to use the exit price notion when measuring the fair value
of financial instruments for disclosure purposes, to separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset, and to eliminate the requirement to disclose the
method(s) and significant assumptions used to estimate the fair value of financial instruments measured at
amortized cost. ASU 2016-01 is effective for our fiscal year 2019, including interim periods within the fiscal
year. We are assessing the impact this new accounting guidance will have on our consolidated financial
statements.

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 guidance will have on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting, 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. ASU 2016-09 is effective for our fiscal

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

year 2018, including interim periods within the fiscal year. Early adoption is permitted. We are assessing the
year 2018, including interim periods within the fiscal year. Early adoption is permitted. We are assessing the
impact this new accounting guidance will have on our consolidated financial statements.
impact this new accounting guidance will have on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - a Consensus of the
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - a Consensus of the
FASB’s Emerging Issues Task Force, which provides guidance intended to reduce diversity in practice in how
FASB’s Emerging Issues Task Force, which provides guidance intended to reduce diversity in practice in how
certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for our fiscal year
certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for our fiscal year
2018. We do not expect that the adoption of this accounting standard update will have a material effect on our
2018. We do not expect that the adoption of this accounting standard update will have a material effect on our
consolidated financial statements.
consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset
In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset
Transfers of Assets Other than Inventory, which removes the prohibition in ASC 740 (Income Taxes) against the
Transfers of Assets Other than Inventory, which removes the prohibition in ASC 740 (Income Taxes) against the
immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than
immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than
inventory. ASU 2016-16 is effective for our fiscal year 2019, including interim periods within those fiscal years.
inventory. ASU 2016-16 is effective for our fiscal year 2019, including interim periods within those fiscal years.
Early adoption is permitted however the guidance can only be adopted in the first interim period of a fiscal year.
Early adoption is permitted however the guidance can only be adopted in the first interim period of a fiscal year.
We are assessing the impact this new accounting guidance will have on our consolidated financial statements.
We are assessing the impact this new accounting guidance will have on our consolidated financial statements.

There have been no other significant changes in the Company’s critical accounting policies and estimates during
There have been no other significant changes in the Company’s critical accounting policies and estimates during
the fiscal year ended October 31, 2016.
the fiscal year ended October 31, 2016.

quarter of fiscal 2016 and applied it retrospectively to prior periods. The impact on our October 31, 2015

Consolidated Balance Sheet was a reduction in Total current assets of $2.0 million, an increase in Total non-

current assets of $4.7 million, and an increase in Total non-current liabilities of $2.7 million.

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 update 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 using either a full retrospective or modified approach to adopt this guidance.

Between August 2015 and May 2016, the FASB issued four 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, and 4)

ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients 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 are assessing the method of

adoption and the impact this new accounting guidance will have on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to

Continue as a Going Concern, which requires management to evaluate whether there is substantial doubt about

an entity’s ability to continue as a going concern and provide related footnote disclosures. ASU 2014-15 is

effective for our fiscal year 2018, including interim periods within the fiscal year. Early adoption is permitted

for financial statements that have not been previously issued. We do not expect that the adoption of this

accounting standard update will have a material effect on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance on the

classification and measurement of financial instruments under the fair value option, as well as the presentation

and disclosure requirements for financial instruments. Among other things, ASU 2016-01 requires equity

investments (except those accounted for under the equity method of accounting, or those that result in

consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

In addition, ASU 2016-01 requires public companies to use the exit price notion when measuring the fair value

of financial instruments for disclosure purposes, to separate presentation of financial assets and financial

liabilities by measurement category and form of financial asset, and to eliminate the requirement to disclose the

method(s) and significant assumptions used to estimate the fair value of financial instruments measured at

amortized cost. ASU 2016-01 is effective for our fiscal year 2019, including interim periods within the fiscal

year. We are assessing the impact this new accounting guidance will have on our consolidated financial

statements.

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 guidance will have on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting, 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. ASU 2016-09 is effective for our fiscal

65
65

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

Item 9B. OTHER INFORMATION

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, 2016, 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, 2016 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.

During the fourth quarter of fiscal 2016, 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 added by Section 202 of the Sarbanes-

Oxley Act of 2002.

The graph below compares the 5-Year cumulative total return on our common stock relative to that of the

Russell 2000 Index and two customized peer groups of twenty companies and nineteen companies respectively,

whose individual companies are listed below. An investment of $100 (with reinvestment of all dividends) is

assumed to have been made in our common stock, in each Index and in each of the peer groups on 10/31/2011

and its relative performance is tracked through 10/31/2016.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Hurco Companies, Inc., the Russell 2000 Index,

2015 Peer Group and 2016 Peer Group

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

10/11

10/12

10/13

10/14

10/15

10/16

Hurco Companies, Inc.

2015 Peer Group

Russell 2000

2016 Peer Group

*$100 invested on 10/31/11 in stock or index, including reinvestment of dividends.

Fiscal year ending October 31.

Hurco Companies, Inc.

Russell 2000

2015 Peer Group

2016 Peer Group

10/11

100.00

10/12

87.98

112.08

96.96

97.07

10/13

94.11

152.75

151.68

150.82

10/14

149.40

165.07

145.28

141.32

10/15

105.20

165.62

121.96

120.93

10/16

103.84

172.43

132.35

129.77

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

2015 Peer Group: The twenty companies included in the company's 2015 peer group are: Ampco-Pittsburgh

Corporation, Douglas Dynamics, Inc., Dynamic Materials Corporation, 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, NN Inc.,

Novanta Inc. (f/k/a GSI Group, Inc.), PDF Solutions, Inc., Proto Labs, Inc., QAD Inc., Sun Hydraulics Corp.

and Transcat Inc.

2016 Peer Group: The nineteen companies included in the company's 2016 peer group are: Ampco-Pittsburgh

Corporation, Douglas Dynamics, Inc., Dynamic Materials Corporation, 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 Corp. and Transcat Inc.

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

Item 9B. OTHER INFORMATION
Item 9B. OTHER INFORMATION

FINANCIAL DISCLOSURE

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, 2016, 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, 2016 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.

During the fourth quarter of fiscal 2016, the Audit Committee of the Board of Directors did not engage our
During the fourth quarter of fiscal 2016, 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
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 added by Section 202 of the Sarbanes-
pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-
Oxley Act of 2002.
Oxley Act of 2002.

The graph below compares the 5-Year cumulative total return on our common stock relative to that of the
The graph below compares the 5-Year cumulative total return on our common stock relative to that of the
Russell 2000 Index and two customized peer groups of twenty companies and nineteen companies respectively,
Russell 2000 Index and two customized peer groups of twenty companies and nineteen companies respectively,
whose individual companies are listed below. An investment of $100 (with reinvestment of all dividends) is
whose individual companies are listed below. An investment of $100 (with reinvestment of all dividends) is
assumed to have been made in our common stock, in each Index and in each of the peer groups on 10/31/2011
assumed to have been made in our common stock, in each Index and in each of the peer groups on 10/31/2011
and its relative performance is tracked through 10/31/2016.
and its relative performance is tracked through 10/31/2016.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index,
Among Hurco Companies, Inc., the Russell 2000 Index,
2015 Peer Group and 2016 Peer Group
2015 Peer Group and 2016 Peer Group

$200
$200

$180
$180

$160
$160

$140
$140

$120
$120

$100
$100

$80
$80

$60
$60

$40
$40

$20
$20

$0
$0

10/11
10/11

10/12
10/12

10/13
10/13

10/14
10/14

10/15
10/15

10/16
10/16

Hurco Companies, Inc.
Hurco Companies, Inc.

2015 Peer Group
2015 Peer Group

Russell 2000
Russell 2000

2016 Peer Group
2016 Peer Group

*$100 invested on 10/31/11 in stock or index, including reinvestment of dividends.
*$100 invested on 10/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Fiscal year ending October 31.

Hurco Companies, Inc.
Hurco Companies, Inc.

Russell 2000
Russell 2000

2015 Peer Group
2015 Peer Group

2016 Peer Group
2016 Peer Group

10/11
10/11

100.00
100.00

10/12
10/12

87.98
87.98

112.08
112.08

96.96
96.96

97.07
97.07

10/13
10/13

94.11
94.11

152.75
152.75

151.68
151.68

150.82
150.82

10/14
10/14

149.40
149.40

165.07
165.07

145.28
145.28

141.32
141.32

10/15
10/15

105.20
105.20

165.62
165.62

121.96
121.96

120.93
120.93

10/16
10/16

103.84
103.84

172.43
172.43

132.35
132.35

129.77
129.77

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

2015 Peer Group: The twenty companies included in the company's 2015 peer group are: Ampco-Pittsburgh
2015 Peer Group: The twenty companies included in the company's 2015 peer group are: Ampco-Pittsburgh
Corporation, Douglas Dynamics, Inc., Dynamic Materials Corporation, The Eastern Company, Electro
Corporation, Douglas Dynamics, Inc., Dynamic Materials Corporation, The Eastern Company, Electro
Scientific Industries, Inc., FARO Technologies Inc., Graham Corporation, Hardinge Inc., Kadant Inc., Key
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, NN Inc.,
Technology, Inc., Key Tronic Corporation, The L.S. Starrett Company, Nanometrics Incorporated, NN Inc.,
Novanta Inc. (f/k/a GSI Group, Inc.), PDF Solutions, Inc., Proto Labs, Inc., QAD Inc., Sun Hydraulics Corp.
Novanta Inc. (f/k/a GSI Group, Inc.), PDF Solutions, Inc., Proto Labs, Inc., QAD Inc., Sun Hydraulics Corp.
and Transcat Inc.
and Transcat Inc.

2016 Peer Group: The nineteen companies included in the company's 2016 peer group are: Ampco-Pittsburgh
2016 Peer Group: The nineteen companies included in the company's 2016 peer group are: Ampco-Pittsburgh
Corporation, Douglas Dynamics, Inc., Dynamic Materials Corporation, The Eastern Company, Electro
Corporation, Douglas Dynamics, Inc., Dynamic Materials Corporation, The Eastern Company, Electro
Scientific Industries, Inc., FARO Technologies Inc., Graham Corporation, Hardinge Inc., Kadant Inc., Key
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.,
Technology, Inc., Key Tronic Corporation, The L.S. Starrett Company, Nanometrics Incorporated, Novanta Inc.,
PDF Solutions, Inc., Proto Labs, Inc., QAD Inc., Sun Hydraulics Corp. and Transcat Inc.
PDF Solutions, Inc., Proto Labs, Inc., QAD Inc., Sun Hydraulics Corp. and Transcat Inc.

67
67

PART III

PART IV

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2017 annual meeting of shareholders except that the information required by Item 10 regarding our
executive officers is included herein under a separate caption at the end of Part I.

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2017 annual meeting of shareholders.

Item 12.

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 2017 annual meeting of shareholders.

(a) 1. Financial Statements. The following consolidated financial statements of the Company are

included herein under Item 8 of Part II:

Reports of Independent Registered Public Accounting Firm ........................

Consolidated Statements of Income – years ended

October 31, 2016, 2015 and 2014 ...............................................................

Consolidated Statements of Comprehensive Income – years ended

October 31, 2016, 2015 and 2014 ...............................................................

Consolidated Balance Sheets – as of October 31, 2016 and 2015 .................

Consolidated Statements of Cash Flows – years

ended October 31, 2016, 2015 and 2014 ....................................................

Consolidated Statements of Changes in Shareholders’ Equity –

years ended October 31, 2016, 2015 and 2014 ...........................................

Notes to Consolidated Financial Statements..................................................

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

2. Financial Statement Schedule. The following financial statement schedule

INDEPENDENCE

is included in this Item.

The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2017 annual meeting of shareholders.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Schedule II - Valuation and Qualifying Accounts and Reserves .............................

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.

The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2017 annual meeting of shareholders.

(b) Exhibits

Exhibits being filed with this Form 10-K or incorporated herein by reference are listed on page 71.

Page

The information required by this item is incorporated herein by reference to the definitive proxy statement for

our 2017 annual meeting of shareholders except that the information required by Item 10 regarding our

executive officers is included herein under a separate caption at the end of Part I.

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the definitive proxy statement for

our 2017 annual meeting of shareholders.

Item 12.

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 2017 annual meeting of shareholders.

PART III

PART IV
PART IV

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements. The following consolidated financial statements of the Company are
(a) 1. Financial Statements. The following consolidated financial statements of the Company are

included herein under Item 8 of Part II:
included herein under Item 8 of Part II:

Reports of Independent Registered Public Accounting Firm ........................
Reports of Independent Registered Public Accounting Firm ........................
Consolidated Statements of Income – years ended
Consolidated Statements of Income – years ended
October 31, 2016, 2015 and 2014 ...............................................................
October 31, 2016, 2015 and 2014 ...............................................................
Consolidated Statements of Comprehensive Income – years ended
Consolidated Statements of Comprehensive Income – years ended
October 31, 2016, 2015 and 2014 ...............................................................
October 31, 2016, 2015 and 2014 ...............................................................
Consolidated Balance Sheets – as of October 31, 2016 and 2015 .................
Consolidated Balance Sheets – as of October 31, 2016 and 2015 .................
Consolidated Statements of Cash Flows – years
Consolidated Statements of Cash Flows – years
ended October 31, 2016, 2015 and 2014 ....................................................
ended October 31, 2016, 2015 and 2014 ....................................................
Consolidated Statements of Changes in Shareholders’ Equity –
Consolidated Statements of Changes in Shareholders’ Equity –
years ended October 31, 2016, 2015 and 2014 ...........................................
years ended October 31, 2016, 2015 and 2014 ...........................................
Notes to Consolidated Financial Statements..................................................
Notes to Consolidated Financial Statements..................................................

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

2. Financial Statement Schedule. The following financial statement schedule
2. Financial Statement Schedule. The following financial statement schedule

INDEPENDENCE

is included in this Item.
is included in this Item.

The information required by this item is incorporated herein by reference to the definitive proxy statement for

Schedule II - Valuation and Qualifying Accounts and Reserves .............................
Schedule II - Valuation and Qualifying Accounts and Reserves .............................

Page
Page
35
35

37
37

38
38
39
39

40
40

41
41
42
42

Page
Page
70
70

our 2017 annual meeting of shareholders.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

our 2017 annual meeting of shareholders.

The information required by this item is incorporated herein by reference to the definitive proxy statement for

(b) Exhibits
(b) Exhibits

Exhibits being filed with this Form 10-K or incorporated herein by reference are listed on page 71.
Exhibits being filed with this Form 10-K or incorporated herein by reference are listed on page 71.

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

69
69

Schedule II - Valuation and Qualifying Accounts and Reserves
for the Years Ended October 31, 2016, 2015, and 2014
(Dollars in thousands)

Balance at
Beginning
of Period

Charged to/
(Recovered
from)
Costs and
Expenses

Charged
to Other
Accounts

Deductions

Balance
at End
of Period

Description

Allowance for doubtful
accounts for the year ended:

October 31, 2016 ..................

$ 739

$ (15)

$ --

$ 60

October 31, 2015 ..................

$ 878

$ (13)

$ --

$ 126

October 31, 2014 ..................

$ 540

$ 446

$ --

$ 108

(1)

$ 664

$ 739

$ 878

Income tax valuation
allowance for the year
ended:

October 31, 2016 ..................

$ 1,485

$ 587

$ --

$ 5

$ 2,067

October 31, 2015 ..................

$ 1,225

$ 402

$ --

$ 142

$ 1,485

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

October 31, 2014 ..................

$ 1,199

$ 81

$ --

$ 55

$ 1,225

(1) Receivable write-offs.

EXHIBITS INDEX

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

31.1

31.2

32.1

32.2

101.INS

101.SCH

101.CAL

101.LAB

101.PRE

101.DEF

Subsidiaries of the Registrant.

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

Certification by the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and

Exchange Act of 1934, as amended.

Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and

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

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

2002.

XBRL Instance Document*

XBRL Taxonomy Extension Schema Document*

XBRL Taxonomy Extension Calculation Linkbase*

XBRL Taxonomy Taxonomy Extension Label Linkbase Document*

XBRL Taxonomy Extension Presentation Linkbase Document*

XBRL Taxonomy Extension Definition Linkbase Document*

Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration

statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed

not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not

subject to liability under these sections.

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

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.+

2.3

Amendment 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.

July 31, 2009.

3.1

3.2

Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to

Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.

Amended and Restated By-Laws of the Registrant as amended through July 8, 2009, incorporated

by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended

10.1

Fourth Amendment to Credit Agreement, dated as of December 6, 2016, 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 on December 8, 2016.

10.2

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*

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*

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.

Schedule II - Valuation and Qualifying Accounts and Reserves

for the Years Ended October 31, 2016, 2015, and 2014

(Dollars in thousands)

Balance at

Beginning

of Period

Charged to/

(Recovered

from)

Costs and

Expenses

Charged

to Other

Accounts

Deductions

Balance

at End

of Period

Description

Allowance for doubtful

accounts for the year ended:

Income tax valuation

allowance for the year

ended:

(1) Receivable write-offs.

October 31, 2016 ..................

$ 739

$ (15)

$ --

$ 60

$ 664

October 31, 2015 ..................

$ 878

$ (13)

$ --

$ 126

$ 739

October 31, 2014 ..................

$ 540

$ 446

$ --

$ 108

$ 878

(1)

October 31, 2016 ..................

$ 1,485

$ 587

$ --

$ 5

$ 2,067

October 31, 2014 ..................

$ 1,199

$ 81

$ --

$ 55

$ 1,225

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

21
21
23
23
31.1
31.1

31.2
31.2

32.1
32.1

32.2
32.2

101.INS
101.INS
101.SCH
101.SCH
101.CAL
101.CAL
101.LAB
101.LAB
101.PRE
101.PRE
101.DEF
101.DEF

*
*

Subsidiaries of the Registrant.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP
Certification by the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and
Certification by the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and
Exchange Act of 1934, as amended.
Exchange Act of 1934, as amended.
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and
Exchange Act of 1934, as amended.
Exchange Act of 1934, as amended.
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
2002.
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
2002.
XBRL Instance Document*
XBRL Instance Document*
XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Extension Calculation Linkbase*
XBRL Taxonomy Extension Calculation Linkbase*
XBRL Taxonomy Taxonomy Extension Label Linkbase Document*
XBRL Taxonomy Taxonomy Extension Label Linkbase Document*
XBRL Taxonomy Extension Presentation Linkbase Document*
XBRL Taxonomy Extension Presentation Linkbase Document*
XBRL Taxonomy Extension Definition Linkbase Document*
XBRL Taxonomy Extension Definition Linkbase Document*

Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration
Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not
not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not
subject to liability under these sections.
subject to liability under these sections.

October 31, 2015 ..................

$ 1,225

$ 402

$ --

$ 142

$ 1,485

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

2.1
2.1

2.2
2.2

2.3
2.3

3.1
3.1

3.2
3.2

10.1
10.1

10.2
10.2

10.3*
10.3*

10.4*
10.4*

10.5*
10.5*

Asset Purchase Agreement, dated as of July 14, 2015, by and among Milltronics Manufacturing
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
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
USA, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
filed on July 15, 2015.+
filed on July 15, 2015.+
Asset Purchase Agreement, dated as of July 14, 2015, by and among Takumi Machinery Co., Ltd.,
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
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.+
to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on July 15, 2015.+
Amendment No. 1 to Asset Purchase Agreement, dated as of July 27, 2015, by and among Takumi
Amendment 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,
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
incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed on
July 28, 2015.
July 28, 2015.
Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to
Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.
Amended and Restated By-Laws of the Registrant as amended through July 8, 2009, incorporated
Amended and Restated By-Laws of the Registrant as amended through July 8, 2009, incorporated
by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
July 31, 2009.
July 31, 2009.
Fourth Amendment to Credit Agreement, dated as of December 6, 2016, between Hurco
Fourth Amendment to Credit Agreement, dated as of December 6, 2016, between Hurco
Companies, Inc. and JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.1 to the
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 on December 8, 2016.
Registrant’s Current Report on Form 8-K filed on December 8, 2016.
Replacement Revolving Note, dated as of December 6, 2016, by Hurco Companies, Inc. for the
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
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.
Registrant’s Current Report on Form 8-K filed on December 8, 2016.
Hurco Companies, Inc. 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1
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.
to the Company’s Current Report on Form 8-K filed on March 10, 2016.
Form of Restricted Stock Agreement (Director) under the 2016 Equity Incentive Plan, incorporated
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
herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March
10, 2016.
10, 2016.
Hurco Companies, Inc. Cash Incentive Plan, incorporated herein by reference to Exhibit 10.3 to the
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.
Company’s Current Report on Form 8-K filed on March 10, 2016.

71
71

SIGNATURES

January, 2017.

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 6th day of

HURCO COMPANIES, INC.

By: /s/ Sonja K. McClelland

Sonja K. McClelland

Vice President, Secretary, Treasurer and

Chief Financial Officer

10.6

10.7

10.8

10.9

10.10

10.11*

10.12*

10.13*

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

10.22*

Takumi 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.
Credit 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.
First 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.
Second 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
10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.
Third 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Fiscal 2015 Short-Term Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2015.
Fiscal 2016 Short-Term Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2016.

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.

SIGNATURES
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
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 6th day of
duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, this 6th day of
January, 2017.
January, 2017.

HURCO COMPANIES, INC.
HURCO COMPANIES, INC.

By: /s/ Sonja K. McClelland
By: /s/ Sonja K. McClelland
Sonja K. McClelland
Sonja K. McClelland
Vice President, Secretary, Treasurer and
Vice President, Secretary, Treasurer and
Chief Financial Officer
Chief Financial Officer

10.6

Takumi 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.

10.7

Credit 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.

10.8

First 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.

10.9

Second 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

10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2014.

10.10

Third 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,

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

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

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

2014.

March 16, 2012.

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 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.

10.21*

Fiscal 2015 Short-Term Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to

the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2015.

10.22*

Fiscal 2016 Short-Term Incentive Compensation Plan, incorporated by reference to Exhibit 10.1 to

the Registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2016.

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.

73
73

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:

Signature and Title(s)

Date

/s/ Michael Doar
Michael Doar, Chairman of the Board,
Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)

/s/ Sonja K. McClelland
Sonja K. McClelland
Vice President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer
and Principal Accounting Officer)

/s/ Thomas A. Aaro
Thomas A. Aaro, Director

/s/ Robert W. Cruickshank
Robert W. Cruickshank, Director

/s/ Jay C. Longbottom
Jay C. Longbottom, Director

/s/ Andrew Niner
Andrew Niner, Director

/s/ Richard Porter
Richard Porter, Director

/s/ Janaki Sivanesan
Janaki Sivanesan, Director

/s/ Ronald Strackbein
Ronald Strackbein, Director

January 6, 2017

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

SUBSIDIARIES OF HURCO COMPANIES, INC.

Name

Hurco B.V

Hurco Europe Limited

Hurco GmbH

Hurco India Private, Ltd.

Hurco Manufacturing Limited

Hurco S.a.r.l.

Hurco S.r.l.

Hurco (S.E. Asia) Pte Ltd.

LCM Precision Technology S.r.l.

Milltronics USA, Inc.

Jurisdiction of Incorporation

The Netherlands

United Kingdom

Federal Republic of Germany

India

Taiwan R.O.C.

France

Italy

Singapore

Italy

United States

Ningbo Hurco Machine Tool Company Limited

China

Hurco Companies, Inc. is the Company’s headquarters in Indianapolis, Indiana, U.S.A. The foregoing list does

not include other subsidiaries which, individually or in the aggregate, did not constitute a significant subsidiary

as of October 31, 2016.

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:

Signature and Title(s)

Date

/s/ Michael Doar

Michael Doar, Chairman of the Board,

Chief Executive Officer

of Hurco Companies, Inc.

(Principal Executive Officer)

/s/ Sonja K. McClelland

Sonja K. McClelland

Vice President,

Secretary, Treasurer and

Chief Financial Officer

of Hurco Companies, Inc.

(Principal Financial Officer

and Principal Accounting Officer)

/s/ Thomas A. Aaro

Thomas A. Aaro, Director

/s/ Robert W. Cruickshank

Robert W. Cruickshank, Director

/s/ Jay C. Longbottom

Jay C. Longbottom, Director

/s/ Andrew Niner

Andrew Niner, Director

/s/ Richard Porter

Richard Porter, Director

/s/ Janaki Sivanesan

Janaki Sivanesan, Director

/s/ Ronald Strackbein

Ronald Strackbein, Director

January 6, 2017

Exhibit 21
Exhibit 21

SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF THE REGISTRANT

SUBSIDIARIES OF HURCO COMPANIES, INC.
SUBSIDIARIES OF HURCO COMPANIES, INC.

Name
Name
Hurco B.V
Hurco B.V
Hurco Europe Limited
Hurco Europe Limited
Hurco GmbH
Hurco GmbH
Hurco India Private, Ltd.
Hurco India Private, Ltd.
Hurco Manufacturing Limited
Hurco Manufacturing Limited
Hurco S.a.r.l.
Hurco S.a.r.l.
Hurco S.r.l.
Hurco S.r.l.
Hurco (S.E. Asia) Pte Ltd.
Hurco (S.E. Asia) Pte Ltd.
LCM Precision Technology S.r.l.
LCM Precision Technology S.r.l.
Milltronics USA, Inc.
Milltronics USA, Inc.
Ningbo Hurco Machine Tool Company Limited
Ningbo Hurco Machine Tool Company Limited

Jurisdiction of Incorporation
Jurisdiction of Incorporation
The Netherlands
The Netherlands
United Kingdom
United Kingdom
Federal Republic of Germany
Federal Republic of Germany
India
India
Taiwan R.O.C.
Taiwan R.O.C.
France
France
Italy
Italy
Singapore
Singapore
Italy
Italy
United States
United States
China
China

Hurco Companies, Inc. is the Company’s headquarters in Indianapolis, Indiana, U.S.A. The foregoing list does
Hurco Companies, Inc. is the Company’s headquarters in Indianapolis, Indiana, U.S.A. The foregoing list does
not include other subsidiaries which, individually or in the aggregate, did not constitute a significant subsidiary
not include other subsidiaries which, individually or in the aggregate, did not constitute a significant subsidiary
as of October 31, 2016.
as of October 31, 2016.

75
75

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE

Exhibit 23

Exhibit 31.1

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-48204, 333-
126036, 333-149809 and 333-210072), pertaining to the Hurco Companies, Inc. 1997 Stock Option and
Incentive Plan, the Hurco Companies, Inc. 2008 Equity Incentive Plan, and the Hurco Companies, Inc. 2016
Equity Incentive Plan, of our reports dated January 6, 2017, with respect to the consolidated financial statements
and schedule of Hurco Companies, Inc. and the effectiveness of internal control over financial reporting of
Hurco Companies, Inc. included in this Annual Report (Form 10-K) for the year ended October 31, 2016.

/s/ Ernst & Young LLP

Indianapolis, Indiana
January 6, 2017

I, Michael Doar, certify that:

ACT OF 1934, AS AMENDED

1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit

to state a material fact necessary to make the statements made, in light of the circumstances under

which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this

report, fairly present in all material respects the financial condition, results of operations and cash

flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining

disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and

internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)]

for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to

the registrant, including its consolidated subsidiaries, is made known to us by others within

those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over

financial reporting to be designed under our supervision, to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with U.S. Generally Accepted Accounting Principles; and

in this report our conclusions about the effectiveness of the disclosure controls and procedures,

as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting

that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal

quarter in the case of an annual report) that has materially affected, or is reasonably likely to

materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of

internal control over financial reporting, to the registrant's auditors and the audit committee of the

registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal

control over financial reporting which are reasonably likely to adversely affect the registrant's

ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.

/s/ Michael Doar

Michael Doar,

January 6, 2017

Chairman of the Board and Chief Executive Officer

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-48204, 333-

126036, 333-149809 and 333-210072), pertaining to the Hurco Companies, Inc. 1997 Stock Option and

Incentive Plan, the Hurco Companies, Inc. 2008 Equity Incentive Plan, and the Hurco Companies, Inc. 2016

Equity Incentive Plan, of our reports dated January 6, 2017, with respect to the consolidated financial statements

and schedule of Hurco Companies, Inc. and the effectiveness of internal control over financial reporting of

Hurco Companies, Inc. included in this Annual Report (Form 10-K) for the year ended October 31, 2016.

/s/ Ernst & Young LLP

Indianapolis, Indiana

January 6, 2017

Exhibit 23

Exhibit 31.1
Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
ACT OF 1934, AS AMENDED

I, Michael Doar, certify that:
I, Michael Doar, certify that:

1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and
internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)]
internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)]
for the registrant and have:
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a
(b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.
significant role in the registrant's internal control over financial reporting.

/s/ Michael Doar
/s/ Michael Doar
Michael Doar,
Michael Doar,
Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive Officer
January 6, 2017
January 6, 2017

77
77

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED

I, Sonja K McClelland, certify that:

1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)]
and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)] for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have

a significant role in the registrant's internal control over financial reporting.

/s/ Sonja K McClelland
Sonja K McClelland
Vice President, Secretary, Treasurer and Chief Financial Officer
January 6, 2017

Exhibit 32.1

Exhibit 32.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the
period ending October 31, 2016, as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities

Exchange Act of 1934; and

In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the

period ending October 31, 2016, as filed with the Securities and Exchange Commission on the date hereof

(the “Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002,

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities

that:

(1)

Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial

(2)

The information contained in the Report fairly presents, in all material respects, the financial

condition and results of operations of the Company.

/s/ Michael Doar
Michael Doar
Chairman of the Board and Chief Executive Officer
January 6, 2017

/s/ Sonja K McClelland

Sonja K McClelland

January 6, 2017

Vice President, Secretary, Treasurer and Chief Financial Officer

Exhibit 32.1

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the

period ending October 31, 2016, as filed with the Securities and Exchange Commission on the date hereof

(the “Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002,

that:

Exchange Act of 1934; and

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities

(2) The information contained in the Report fairly presents, in all material respects, the financial

condition and results of operations of the Company.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities

The information contained in the Report fairly presents, in all material respects, the financial

/s/ Michael Doar

Michael Doar

January 6, 2017

Chairman of the Board and Chief Executive Officer

/s/ Sonja K McClelland
Sonja K McClelland
Vice President, Secretary, Treasurer and Chief Financial Officer
January 6, 2017

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GLOBAL LOCATIONS

Hurco Europe Ltd. (United Kingdom)

Serving the United Kingdom, Ireland,
Africa, the Middle East, and Scandinavia

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Milltronics USA (Waconia, Minnesota, USA)

Hurco B.V.
(The Netherlands)

Hurco Sp. z o.o.
(Poland)

Hurco GmbH (Germany)

Serving Germany, Austria, Belarus,
Bosnia-Herzegovina, Bulgaria, Croatia, the Czech
Republic, Hungary, Latvia, Lithuania, Mazedonia,
Montenegro, the Netherlands, Portugal, Romania, Russia,
Serbia, Slovakia, Slovenia, Switzerland, Turkey, and Ukraine

Ningbo Hurco Trading Co.,
Ltd. (Beijing, China)

Ningbo Hurco Trading Co.,
Ltd. (Shanghai, China)

Ningbo Hurco Machine
Tool Co., Ltd.
(Ningbo, China)

Takumi (Taiwan)

Hurco Companies, Inc.
Hurco North America (Indianapolis, Indiana, USA)
Serving the USA, Canada, Mexico, and South America

Hurco India Private Ltd.

Serving India,
Pakistan,
Bangladesh, and

Sri Lanka

Hurco S.a.r.l. (France)

Serving France and
Belgium (Wallonia)

Hurco (S.E. Asia) Pte. Ltd. (Singapore)

Serving Singapore, Malaysia,
Thailand, Australia, New Zealand,
Philippines, Indonesia, and Myanmar

Hurco S.r.l. (Italy)

LCM Precision Technology S.r.l. (Italy)

Hurco Manufacturing Ltd. (Taiwan)
Hurco Automation Ltd. (Taiwan)

Hurco Manufacturing Limited is responsible
for the manufacturing and assembly of Hurco
machine tools.

Hurco Automation Limited is responsible
for the manufacturing and assembly of Hurco
controls.

Hurco South Africa (PTY) Ltd.
(South Africa)

One Technology Way | PO Box 68180 | Indianapolis, IN 46268
800.634.2416 | HURCO.com