Hurco Companies, Inc. Annual Report 2017

FY2017 Annual Report · Hurco Companies, Inc.

Loading PDF…

2 0 1 7 A N N U A L R E P O R T

Gregory S. Volovic
President

Michael Doar
Chairman
and Chief Executive Officer

Sonja McClelland
Executive Vice President,
Secretary, Treasurer
and Chief Financial Officer

Report to Shareholders

Overview
2018 marks the 50th anniversary of Hurco’s 1968 founding.
As we move into our 50th year, I am happy to report that 2017
was a record-breaking year for Hurco, with sales of $243
million. Milestones are important in life and in business
because they trigger reflection. It is a time to consider how
we started, what we have learned and where we are headed.

Hurco has a rich foundation of innovation. We have led the
industry in technology advancements from day one. Our co-
founder, Gerald Roch, exhibited the first computer controlled
back gauge in 1969; demonstrated the first CNC mill at IMTS
in 1974; and invented conversational programming in 1976.
While the outside world may see us as just another machine
tool builder with CNC technology, we see ourselves as a
technology company focused on building machine tools that
maximize our customers’ productivity through innovation.

Our team of engineers continues to make technology
advancements in 2017. Highlights include the Virtual
Machine Manager, for which Hurco was granted a
patent; Industry 4.0 integration to promote automation
compatibility; and solid model importation with 3D DXF
Transfer that was showcased at EMO 2017.

The foundation of innovation Mr. Roch and the late Mr.
Humston created in 1968 when they started Hurco is
not forgotten. Continuous innovation of products and
technologies focused on increasing productivity for our
customers, which enables them to maximize profitability, is
simply, the Hurco way. It is who we are. Further, we have been
able to share the culture of customer-centric innovation
with manufacturing businesses around the world as all of
our brands; Takumi, Milltronics and Hurco, and all of our
geographic regions achieved higher orders and sales levels in
2017 than the prior year, which is a great way to kick off our
50th anniversary.

Customers
Our customers are the reason we exist and we are fortunate to
have collaborative relationships with them. They continually
work with us to improve existing features and spark ideas
for new ones. While our products are found in Fortune 500
companies, the majority of our customers are entrepreneurs
who risked the security of a steady paycheck to start their own
business. As such, the resiliency, ingenuity, and industriousness
of these small business owners is a source of inspiration to all
of us at Hurco. We believe part of our sustained success as a
relatively small company compared to our competitors is the
respect that our employees have for our customers. Their success
will ultimately determine our success.

Core Competencies
Our core competencies include software and product
innovation; efficient design and manufacture of machine
tools with a well-developed supply chain; targeted expansion
of products and markets; and strategic acquisitions, such
as LCM Technologies, Milltronics, and Takumi. Our ability
to provide customers with reliable machine tools equipped
with sophisticated control technologies that make their
businesses more profitable is a key differentiator. Customers
rely on our technology to simplify complex processes due to
the user-friendly attributes of our products. This is especially
advantageous in the growing multi-axis space, such as 5-axis
machining, an area in which we have led the industry through
our commitment to software innovation and the acquisition of

LCM Technologies. 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. The culture at Hurco of respecting the needs
of our customers and realizing the importance of service
after the sale is a core competency that separates Hurco from
competitors.

Profitability
Hurco recorded net income of $15.1 million or $2.25 per diluted
share, in 2017, compared to $13.2 million, or $1.99 per diluted
share, in 2016. As previously mentioned, sales were a record
$243.7 million, a 7% increase from 2016, and all three brands
and all regions around the world recorded higher order and
sales levels than last year.

Going Forward
All of us at Hurco are excited to share the 50th Anniversary
of Hurco with all of our stakeholders across the globe via
regional events and at the International Manufacturing
Technology Show in September. When I became the CEO
of Hurco in 2001, we had 14 models of CNC machines;
sales of $75 million with a net loss of $8 million; a debt to
capitalization of 24.1%; a book value per share of just over $6
per share; and a stock price of just over $2. Today, we have over
150 models with our three brands of CNC machines; record
sales of $243 million with net income of $15 million; a debt to
capitalization of 0.8%; a book value per share that is over $30
per share; and our stock price is over $40 per share in addition
to paying quarterly dividends to shareholders.

As we celebrate the first 50 years, we are mindful of our
responsibility to make sure we position Hurco to thrive during
the next 50 years. We will continue to focus on our core
competencies and embrace the pragmatic approach to growth
and expansion. With a strong balance sheet and free cash
flow, R&D resources, and an efficient supply chain, Hurco is
positioned to continue its leadership in meaningful technology
innovation that makes manufacturing more efficient and
customers more profitable.

We will continue to expand the product line of all three brands
in the Hurco Companies portfolio to meet customer needs
while diligently managing our operations to realize greater
efficiencies and maximize economies of scale.

On behalf of everyone at Hurco, thank you to our existing
customers for their loyalty and support through the years
and thank you to our new customers for choosing Hurco,
Milltronics, and Takumi. We appreciate your trust. Thank
you to our shareholders for believing in Hurco and for your
enthusiastic appreciation of the progress we have made. I want
to thank our Board of Directors for their insight, guidance and
support. Finally, thank you to our employees around the world
for your dedication to our customers, your commitment to
continuous improvement, and your ingenuity, all of which are
critical to our success.

Sincerely,

Michael Doar
Chairman and Chief Executive Officer

BR ANDS | PRODUCTS | TECHNOLOGIES

“ Hurco has been leading the industry in manufacturing technology and user-friendly design since the beginning in 1968. This
foundation of technology innovation and product design focused on the end-user, machinists, who depend on our products to
achieve peak efficiency, is a key component of our success in our very competitive industry. Our strong balance sheet affords us
the opportunity to continuously invest in R&D, expand our product offering, deliver innovative software solutions, and produce
high quality machine tools. We have over 150 products in our brand portfolio, which now includes Hurco, Milltronics, and Takumi
machine tools, and LCM Precision Technology, which manufactures premium components and accessories required for precision
machining. Takumi is our brand that is equipped with third-party controls, Milltronics is the general purpose brand focused on
value, and Hurco is the premium brand focused on sophisticated, state-of-the-art CNC technology including advanced 5-axis,
multi-axis, and specialty machining centers. As Hurco celebrates 50 years of innovation, we look forward to unveiling our newest
technologies and products, such as the 5-axis VC500i as well as a completely new line of turning centers, at the International
Manufacturing Technology Show in September. ”

Gregory S. Volovic
President

Machining Centers & Turning Centers

Hurco – Mind Over Metal
Hurco CNC machines are powered by proprietary technology that increases
customer productivity and profitability. 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.

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 control systems produced by
third parties, such as Fanuc®, Siemens®, Mitsubishi® or Heidenhain®. The
Takumi brand includes six product lines of CNC mills.

Machining Centers

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

Components & Accessories

Inventing technology for the metal
cutting industry that makes our

customers more productive and more
profitable—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

2017
$ 243,667
20,903
$
15,115
$
$
2.25
$ 260,609
$ 175,526
$
1,507
$ 203,085
749
44.750
46.75
24.80

$
$
$

2016
$ 227,289
19,616
$
13,292
$
$
1.99
$ 219,222
$ 160,413
$
1,476
$ 185,475
758
26.20
33.65
23.25

$
$
$

250

$219.4

200

$243.7

$227.3

200

$174.6

160

$203.1

$185.5

150

100

2015

2017
2016
Sales and Service Fees
(Millions)

120

2015

2016
Shareholders’ Equity
(Millions)

2017

$23.8

$19.6

$20.9

2015

2016
Operating Income
(Millions)

2017

Annual Report 2017

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

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

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

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

6,615
6,680

$2.27
$2.25

4,444
3,616
24,332
29.0%
8.6%
6.2%
7.8%

$46.75
$24.80

2017
$175,526
3.48
$281,645
1,507
203,085
0.7%
$30.40
$0.568
749

For the Fiscal Year Ended

HURCO COMPANIES, INC. ELEVEN-YEAR
SELECTED FINANCIAL DATA
(In thousands except per share data and number of employees)
2017
$243,667
173,103
49,661
20,903
(187)
20,716
5,601
$15,115

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.

Annual Report 2017

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

2012
$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

2011
$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

2010
$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

2009
$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

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

Hurco founded
by Edward
Humston and
Gerald Roch

Hurco
becomes
publicly held
company
(Nasdaq:
HURC)

Hurco invents
Conversational
Programming

Hurco Europe
established

BMC
machining
centers
introduced

Hurco
Germany
established

DXF Transfer
invented

MAX single-
screen control
introduced

1968

1971

1997

VMX
machining
centers
introduced

1969

First product
introduced
(Autobend).
Hurco exhibits
first computer
controlled back
gauge.

1996

1976

1986

1979

1988

1992

1978

1974

1995

1987

1984

1991

Hurco France
established

UltiMax control
introduced

UltiMax
2 control
introduced

First CNC mill
Introduced
(KM1)

Hurco
Southeast Asia
established

Hurco
opens new
international
headquarters

IMS
Technologies
established to
oversee patent
licensing

Hurco
demonstrates
first computer
numerically
controlled
(CNC) mill at
IMTS

19
68

UltiMax
3 control
introduced

WinMax

control

software

released

TMM turning

centers with

live tooling

introduced

SR 5-axis

machining

centers

introduced

Record sales

2006

TM and

TMX Series

expanded to

include heavy-

duty turning

and multi-axis

Hurco invents

UltiMotion®

Hurco China

established

2010

LCM

MAX5 control

HM horizontal

introduced

Hurco acquires

Milltronics and

machining

centers

introduced

Takumi

Record sales

Hurco acquires

USA machine

assembly

operation

established

2013

UltiMax

4 control

introduced

WinMax

Desktop

software

released

1998

2000

TM turning

centers

introduced

2004

1999

Hurco Italy

established

Hurco

Manufacturing

Ltd established

2015

2017

50th

Global

HBMXi

centers

initiative

launched

introduced

established

rebranding

First Hurco

Anniversary

boring mills

Hurco India

TMX turning

Record sales

New “i” series

VM machining

BXi machining

5-axis machine

2003

2008

2014

2012

2005

2018

2016

HSi high speed

3D print head

DCX double

SRTi 5-axis

machining

introduced

machines

expanded

U-Series

machine

centers

column

design

5-Axis

50 Years of Innovation
Hurco has been advancing the manufacturing industry for 50 years.
From the first computer controlled back gauge in 1969 to our patented
UltiMotion system, we are dedicated to technology innovation that makes
manufacturing more efficient and manufacturing companies more profitable.

Hurco founded

publicly held

by Edward

Humston and

Gerald Roch

Hurco

becomes

company

(Nasdaq:

HURC)

Hurco invents

Conversational

Hurco Europe

centers

Programming

established

introduced

BMC

machining

1968

1971

1976

DXF Transfer

screen control

Hurco

Germany

established

1988

invented

1992

MAX single-

introduced

1996

UltiMax
4 control
introduced

1998

1999

Hurco Italy
established

Hurco
Manufacturing
Ltd established

WinMax
control
software
released

TMM turning
centers with
live tooling
introduced

SR 5-axis
machining
centers
introduced

Record sales

TM and
TMX Series
expanded to
include heavy-
duty turning
and multi-axis

Hurco invents
UltiMotion®

Hurco China
established

WinMax
Desktop
software
released

TM turning
centers
introduced

Hurco acquires
LCM

USA machine
assembly
operation
established

MAX5 control
introduced

Hurco acquires
Milltronics and
Takumi

HM horizontal
machining
centers
introduced

Record sales

2004

2000

2013

2010

2006

2015

2017

Record sales

50th
Anniversary

Hurco India
established

2018

2005

2003

2008

2016

2014

2012

3D print head
introduced

HBMXi
boring mills
introduced

SRTi 5-axis
machines
introduced

TMX turning
centers
introduced

VM machining
centers
introduced

BXi machining
centers
introduced

Global
rebranding
initiative
launched

First Hurco
5-axis machine
introduced

U-Series
5-Axis
machining
centers
expanded

New “i” series
machine
design
introduced

HSi high speed
machining
centers
introduced

DCX double
column
machining
centers
introduced

20
18

1969

First product

introduced

(Autobend).

Hurco exhibits

first computer

controlled back

gauge.

1997

machining

centers

introduced

1979

1986

IMS

IMTS

VMX

(KM1)

Hurco

UltiMax

2 control

controlled

introduced

Introduced

established

numerically

(CNC) mill at

Technologies

first computer

Hurco France

demonstrates

First CNC mill

established to

UltiMax control

1995

1974

1978

1987

1984

1991

Southeast Asia

oversee patent

headquarters

international

opens new

established

introduced

3 control

licensing

UltiMax

Hurco

Annual Report 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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.

Timothy Gardner (3)
Managing Director, Akoya Capital

Jay Longbottom
CEO, Robert Family Holdings (2)

Andrew Niner
President, Niner Wine Estates(1)

Richard Porter
Private Equity Manager (1, 2)

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
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer

Michael Auer

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

Paolo Casazza
General Manager, Hurco S.r.l. (Italy)

Cory Miller
General Manager, Hurco North America

Louie Pavlakos
General Manager, Milltronics USA

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)

Sanjib Chakraborty
General Manager,
Hurco India Private, Ltd. (India)

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

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

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

Martin Lee, Luke Wang

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 15, 2018
at 10 a.m. Eastern Daylight Time
at Hurco’s Corporate Offices,
One Technology Way, Indianapolis, IN.
Transfer Agent
Computershare Investor Services
250 Royall St., Canton, MA 02021
Legal Counsel
Corporate Law: Faegre Baker Daniels LLP
Patent Law: Faegre Baker Daniels LLP
Independent Auditors
RSM US LLP
9225 Priority Way W Drive, Suite 300
Indianapolis, IN 46240
Investor Relations
Sonja K. McClelland, Executive 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

2017

2016

High

Low

High

Low

$34.55

$24.80

$28.47

$23.90

$32.25

$26.25

$33.40

$23.25

$35.83

$27.74

$33.65

$26.57

$46.75

$32.78

$30.42

$25.45

January 31

April 30

July 31

October 31

There were approximately 107 holders
of record of Hurco Common Stock as of
December 18, 2017.

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.

(Mark One)

year ended October 31, 2017 or

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

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)

35-1150732

(I.R.S. Employer Identification Number)

One Technology Way

Indianapolis, Indiana

(Address of principal executive offices)

46268

(Zip code)

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

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

Title of each class

Common Stock, No Par Value

Name of each exchange on which registered

Nasdaq Global Select Market

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

None

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.

[ ]

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, 2017 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)

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

One Technology Way
Indianapolis, Indiana
(Address of principal executive offices)

46268
(Zip code)

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

Title of each class
Common Stock, No Par Value

Name of each exchange on which registered

Nasdaq Global Select Market

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

None

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.

[ ]

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

[ ] Large accelerated filer
[X] Accelerated filer
[ ] Non-accelerated filer (Do not check if a smaller reporting company)
[ ] Smaller reporting company
[ ] Emerging growth company

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

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

Yes [ ] No [X]

The aggregate market value of the registrant’s voting stock held by non-affiliates as of April 28, 2017 (the
last business day of our most recently completed second quarter) was $192,102,000.

The number of shares of the registrant’s common stock outstanding as of December 18, 2017 was
6,641,197.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its
2018 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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-

accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of

“large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

[ ] Non-accelerated filer (Do not check if a smaller reporting company)

[ ] Large accelerated filer

[X] Accelerated filer

[ ] Smaller reporting company

[ ] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended

transition period for complying with any new or revised financial accounting standards provided pursuant

to Section 13(a) of the Exchange Act. [ ]

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

Exchange Act).

Yes [ ] No [X]

The aggregate market value of the registrant’s voting stock held by non-affiliates as of April 28, 2017 (the

last business day of our most recently completed second quarter) was $192,102,000.

The number of shares of the registrant’s common stock outstanding as of December 18, 2017 was

6,641,197.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its

2018 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
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.

technology and patented

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.

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.

Industry association data for the U.S. machine tool market is available and that market 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 behind real-time and, therefore, are
unreliable for forecasting purposes.

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

Hurco CNC Machine Tools

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):

tools are better able to:

Net Sales and Service Fees by Product Category

Computerized Machine

Tools*

Computer Control Systems

and Software †

Service Parts

Service Fees

Total

Year Ended October 31,

2017

2016

2015

$ 209,311

86%

$ 195,618

86%

$ 189,712

87%

2,324

24,255

7,777

10%

2,078

21,908

7,685

10%

3,085

19,375

7,211

$ 243,667

100%

$ 227,289

100%

$ 219,383

100%

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

of those acquisitions during the third quarter of fiscal 2015.

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

systems.

Product Portfolio by Brand

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.

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

• maximize the efficiency of their human resources;

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

_________________

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

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.

Industry association data for the U.S. machine tool market is available and that market 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 behind real-time and, therefore, are

unreliable for forecasting purposes.

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*
Computer Control Systems

and Software †
Service Parts
Service Fees
Total

2017

Year Ended October 31,
2016

2015

$ 209,311

86%

$ 195,618

86%

$ 189,712

87%

2,324
24,255
7,777
$ 243,667

1%
10%
3%
100%

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

1%
10%
3%
100%

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

1%
9%
3%
100%

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

of those acquisitions during the third quarter of fiscal 2015.

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

systems.

Product Portfolio by Brand

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.

Hurco CNC Machine Tools

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;

_________________

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

•

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:

HTM/HTL Product Line

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

TM/TMM Product Line

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.

Five-Axis 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.

The BX product line is for customers that require higher accuracy parts as they are built with an extremely

rigid double column design that offers superior vibration dampening and excellent thermal characteristics.

Three models are available, two with 40 inch X-travel (a three-axis version and a five-axis version) as well

BX Product Line

as a 53 inch X-travel model.

HM/HMX Product Line

The HM product line offers customers moderately priced horizontal machining centers designed for small

lot sizes. Two models are available, one with a rotary table and one with a plain table. They both have X-

travel of 67 inches. The HMX product line is beneficial to manufacturers entering production manufacturing

versus small batch manufacturing. The HMX machines have expanded tool capacity, 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.

HBMX Product Line

The HBMX product line is beneficial to manufacturers that build custom machinery and parts for a

multitude of industries, such as packaging, pharmaceutical, automotive, energy, and medical. Additionally,

boring mills are also used to repair and/or rebuild large components. The HBMX boring mill product line

consists of four models with X-axis travels of 55, 79, 94, and 120 inches.

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

models also have an additional spindle.

DCX 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

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.

HS Product Line

New Product Lines

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.

In fiscal 2017, we introduced the VC500, a moderately-priced cantilever five-axis machine that features a

generous 20-inch diameter table. Additionally, a new tool room lathe called the HTL8-60 was introduced

for tool room applications. This open bed lathe provides easy access to the workpiece. Hurco has designed

and offers a 3D print head technology that allows a Hurco CNC machine to be used for 3D printing, which

is advantageous for prototyping. In fiscal 2017, we launched the second generation of this technology

•

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:

The HTM/HTL product line includes a tool room mill and tool room lathe. These models are designed for

easy access to the table or chuck and are popular in tool room, prototype and maintenance applications.

There is a 30 inch X-travel mill and an 8-inch chuck lathe.

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

HTM/HTL Product Line

VM Product Line

of 18, 26, 40, and 50 inches.

VMX Product Line

Five-Axis 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.

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.

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

BX Product Line

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

HM/HMX Product Line

The HM product line offers customers moderately priced horizontal machining centers designed for small
lot sizes. Two models are available, one with a rotary table and one with a plain table. They both have X-
travel of 67 inches. The HMX product line is beneficial to manufacturers entering production manufacturing
versus small batch manufacturing. The HMX machines have expanded tool capacity, 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.

HBMX Product Line

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

TM/TMM Product Line

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.

HS Product Line

New Product Lines

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.

In fiscal 2017, we introduced the VC500, a moderately-priced cantilever five-axis machine that features a
generous 20-inch diameter table. Additionally, a new tool room lathe called the HTL8-60 was introduced
for tool room applications. This open bed lathe provides easy access to the workpiece. Hurco has designed
and offers a 3D print head technology that allows a Hurco CNC machine to be used for 3D printing, which
is advantageous for prototyping. In fiscal 2017, we launched the second generation of this technology

which better integrates the device into the WinMax® control software. It is used as an attachment to an
existing machine and requires no external power supply.

ML Product Line

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:

featured models and the 9000 Series control.

VM General Purpose (GP) Product Line

Takumi CNC Machine Tools

The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,
prototype, research and development and other general machining applications. These belt-driven models
are 40-taper 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 8200-B control.

MM/MB/RH Product Line

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

SL Product Line

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

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.

New Product Lines

In fiscal 2017, we introduced a new CNC knee mill called the VK4-II featuring the 8200-B control,

designed for entry level or tool room applications. The first model of the next generation of SL lathes was

also introduced, called the SL8-II. This new series will eventually replace the SL Series with more fully

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 and five-axis machining centers. The Takumi brand

allows us to expand 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 travels

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,

VT Series

VC Series

of 34 and 42 inches.

V Series

70, 78, 86, and 126 inches.

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.

____________

*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.

existing machine and requires no external power supply.

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:

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

prototype, research and development and other general machining applications. These belt-driven models

are 40-taper 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.

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 8200-B control.

BR Product Line

MM/MB/RH Product Line

Products with the MM/MB or RH designation are part of the tool room bed mill category, which are

machines that do not have an enclosure, also referred to as open bed machines. Typical applications include

general machining, job shops, prototype or maintenance and repair. Available with quill head or rigid head

designs, there are six models in four sizes with X-axis travels of 30, 40, 60 and 78 inches. These easy-to-

use machines feature the Series 8200-B control.

SL Product Line

The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops

and contract manufacturers seeking efficient processing of small to medium lot sizes. There are two models

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

which better integrates the device into the WinMax® control software. It is used as an attachment to an

ML Product Line

VM General Purpose (GP) Product Line

Takumi CNC Machine Tools

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.

New Product Lines

In fiscal 2017, we introduced a new CNC knee mill called the VK4-II featuring the 8200-B control,
designed for entry level or tool room applications. The first model of the next generation of SL lathes was
also introduced, called the SL8-II. This new series will eventually replace the SL Series with more fully
featured models and the 9000 Series control.

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 and five-axis machining centers. The Takumi brand
allows us to expand 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:

VT Series

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.

VC Series

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 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.

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.

____________
*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.

U Series

Designed with trunnion tables and swivel heads these five-axis simultaneous machining centers offer
versatility as well as save setup and process time. Most models are offered with double column structure
for superior stability and performance. The U-Series product line consists of five models, four of which
offer trunnion table sizes of 10, 16, 24 and 31.5 inches. One addition model, the UB, is equipped with B/C
swivel head and HSK100, 12K built-in spindle. The UB’s double column design provides spacious X-axis
travel of 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, Software and Accessories

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

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

operations, and scaling into existing G-Code programs.

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.

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.

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.

3D Print Head

Hurco has designed and offers a 3D print head technology that allows a Hurco CNC machine to be used for

3D printing, which is advantageous for prototyping. It is used as an attachment to an existing machine and

requires no external power supply.

LCM Machine Tool Components and Accessories

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

____________

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

Designed with trunnion tables and swivel heads these five-axis simultaneous machining centers offer

versatility as well as save setup and process time. Most models are offered with double column structure

for superior stability and performance. The U-Series product line consists of five models, four of which

offer trunnion table sizes of 10, 16, 24 and 31.5 inches. One addition model, the UB, is equipped with B/C

swivel head and HSK100, 12K built-in spindle. The UB’s double column design provides spacious X-axis

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, Software and Accessories

U Series

travel of 126 inches.

G Series

BC Series

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.

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.

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.

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

and/or to original equipment manufacturers.

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.

3D Print Head

Hurco has designed and offers a 3D print head technology that allows a Hurco CNC machine to be used for
3D printing, which is advantageous for prototyping. It is used as an attachment to an existing machine and
requires no external power supply.

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

LCM Machine Tool Components and Accessories

Based in Italy, LCM designs, manufactures and sells mechanical and electro-mechanical components and
____________
* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.

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

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 transmission.

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 (Hurco Manufacturing Limited (“HML”)) and
Waconia, Minnesota (Milltronics USA, Inc. (“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.

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 transmission.

CNC Rotary Tables

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).

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 (Hurco Manufacturing Limited (“HML”)) and

Waconia, Minnesota (Milltronics USA, Inc. (“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.

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.

Marketing and Distribution

We principally sell our products through more than 193 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 2017, approximately 71% 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

Item 1A.

RISK FACTORS

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

Research and Development

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

Fiscal Year
2017
2016
2015

Non-Capitalized
Research and
Development

$ 4,200
$ 4,900
$ 3,900

Capitalized
Software Development
$ 2,300
$ 2,200
$ 1,400

Employees

We had approximately 749 full-time employees at the end of fiscal 2017, 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 14
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

•

current and changing regulatory environments affecting the importation and exportation of

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.

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, which could re-occur in the future.

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 2017, approximately 71% 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:

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;

•

• negative or unforeseen consequences resulting from the introduction, termination, modification, or

renegotiation of international trade agreements or treaties;

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

Intellectual Property

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, which could re-occur in the future.

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 2017, approximately 71% 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:

trade barriers;
regional economic uncertainty;

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

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

• difficulty in obtaining distribution support;
• difficulty in staffing and managing widespread operations;
• differences in the availability and terms of financing;
• political instability and unrest;
• negative or unforeseen consequences resulting from the introduction, termination, modification, or

•
•

renegotiation of international trade agreements or treaties;
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

We consider the majority of our products to be proprietary. Various features of our Hurco and Milltronics

control systems and machine tools employ technologies covered by patents and trademarks that are material

to our business. We also own additional patents covering new technologies that we have acquired or

developed, and that we are planning to incorporate into our control systems or products in the future.

Research and Development

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

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

related to software development projects as follows (in thousands):

Fiscal Year

2017

2016

2015

Non-Capitalized

Research and

Development

$ 4,200

$ 4,900

$ 3,900

Capitalized

Software Development

$ 2,300

$ 2,200

$ 1,400

We had approximately 749 full-time employees at the end of fiscal 2017, 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 14

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.

of national security or other constraints put upon these ports, may also have an adverse impact on our results
of operations.

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 adversely affect our brand, our ability
to attract and retain employees, our international operations, our business and our operating results.
Although we have implemented policies and procedures designed to ensure compliance with these laws
and regulations, there can be no assurance that our employees, contractors, or agents in foreign countries
will not violate our policies.

We depend on limited sources for our products.

We depend on our wholly-owned subsidiaries, HML, Ningbo Hurco Manufacturing Limited, Milltronics,
and LCM, to produce our machine tools and electro-mechanical components and accessories in Taiwan,
China, the U.S. and Italy, respectively. We also depend on our 35% owned affiliate, HAL, and other key
third party suppliers to produce our computer control systems and key components, such as motors and
drives for our machine tools. An unplanned interruption in manufacturing 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 71% of our revenues in
fiscal 2017, 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. 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. 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 and to disclose and report whether or not such minerals originate from the Democratic

Republic of Congo or an adjoining country. The rule could affect sourcing at competitive prices and

availability in sufficient quantities of certain minerals used in the manufacture of components that are

incorporated into our products, including tin, tantalum, gold and tungsten. The number of suppliers that

provide conflict-free minerals may be limited. In addition, there may be material costs associated with

complying with the disclosure requirements, such as costs related to the due diligence process of

determining the source of certain minerals used in our products, as well as costs of possible changes to

products, processes, or sources of supply as a consequence of such verification activities. We may not be

able to sufficiently verify the origins of the relevant minerals used in components manufactured by third

parties through our due diligence procedures, which may harm our reputation. We may also encounter

challenges to satisfy those customers that require that all of the components of our products be certified as

conflict-free, which could place us at a competitive disadvantage if we are unable to do so.

Due to future changes in technology, changes in market demand, or changes in market expectations,

portions of our inventory may become obsolete or excessive.

The technology within our products evolves, and we periodically bring new versions of our machines to

market. The phasing out of an old product involves estimating the amount of inventory required to satisfy

the final demand for those machines and to satisfy future repair part needs. Based on changing customer

demand and expectations of delivery times for repair parts, we may find that we have either obsolete or

excess inventory on hand. Because of unforeseen future changes in technology, market demand or

competition, we might have to write off unusable inventory, which would adversely affect our results of

Acquisitions could disrupt our operations and harm our operating results.

We may seek opportunities to expand our product offerings or the markets we serve by acquiring other

companies, product lines, technologies and personnel. Acquisitions involve numerous risks, including the

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

• diversion of management’s attention from normal daily operations of the business;

• potential difficulties completing projects associated with in-process research and development;

operations.

following:

company;

of national security or other constraints put upon these ports, may also have an adverse impact on our results

of operations.

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 adversely affect our brand, our ability

to attract and retain employees, our international operations, our business and our operating results.

Although we have implemented policies and procedures designed to ensure compliance with these laws

and regulations, there can be no assurance that our employees, contractors, or agents in foreign countries

will not violate our policies.

We depend on limited sources for our products.

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

and LCM, to produce our machine tools and electro-mechanical components and accessories in Taiwan,

China, the U.S. and Italy, respectively. We also depend on our 35% owned affiliate, HAL, and other key

third party suppliers to produce our computer control systems and key components, such as motors and

drives for our machine tools. An unplanned interruption in manufacturing 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 71% of our revenues in

fiscal 2017, 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. 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. 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 and to disclose and report whether or not such minerals originate from the Democratic
Republic of Congo or an adjoining country. The rule could affect sourcing at competitive prices and
availability in sufficient quantities of certain minerals used in the manufacture of components that are
incorporated into our products, including tin, tantalum, gold and tungsten. The number of suppliers that
provide conflict-free minerals may be limited. In addition, there may be material costs associated with
complying with the disclosure requirements, such as costs related to the due diligence process of
determining the source of certain minerals used in our products, as well as costs of possible changes to
products, processes, or sources of supply as a consequence of such verification activities. We may not be
able to sufficiently verify the origins of the relevant minerals used in components manufactured by third
parties through our due diligence procedures, which may harm our reputation. We may also encounter
challenges to satisfy those customers that require that all of the components of our products be certified as
conflict-free, which could place us at a competitive disadvantage if we are unable to do so.

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

The technology within our products evolves, and we periodically bring new versions of our machines to
market. The phasing out of an old product involves estimating the amount of inventory required to satisfy
the final demand for those machines and to satisfy future repair part needs. Based on changing customer
demand and expectations of delivery times for repair parts, we may find that we have either obsolete or
excess inventory on hand. Because of unforeseen future changes in technology, market demand or
competition, we might have to write off unusable inventory, which would adversely affect our results of
operations.

Acquisitions could disrupt our operations and harm our operating results.

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

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

company;

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

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

competitors in such markets have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenues to offset increased expenses associated with acquisitions;
the potential loss of key employees of the acquired companies; and

•
•
•
• potential for recording goodwill and intangible assets that later can be subject to impairment.

Acquisitions may also cause us to:

•
•
•

•
•

issue common stock that would dilute our current shareholders’ percentage ownership;
assume liabilities of an acquired company;
record goodwill and non-amortizable intangible assets that will be subject to impairment testing on
a regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur large acquisition and integration costs, immediate write-offs, and restructuring and other
related expenses; and

• become subject to litigation.

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

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

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

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

We may experience negative or unforeseen tax consequences.

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

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political
conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change. Our
effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing
statutory taxes, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their

interpretation, including tax laws in the U.S. Similarly, changes in tax laws or regulations, including those

in the U.S., could negatively impact our effective tax rate and results of operations. A change in a statutory

tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant

jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit

recorded in our Consolidated Statements of Income for that period.

In December 2017, both houses of the U.S. Congress passed legislation that was approved and signed into

law. This legislation could have a material benefit or material adverse impact on our effective tax rate, tax

expense and cash flow. The Company is in the process of analyzing the potential aggregate impact the

enactment of this passed legislation will have on our financial condition, cash flows and results of

operations. Any benefits associated with lower U.S. corporate tax rates could be reduced or outweighed by

other tax changes adverse to our business or operations, such as new or additional taxes imposed on earnings

and/or reinvested earnings of our foreign subsidiaries. The aggregate impact of such legislation could have

a material adverse impact on our cash flows and results of operations.

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

Our future success depends in part upon our ability to protect our intellectual property. We rely principally

on nondisclosure agreements, other contractual arrangements, trade secret law, trademark registration and

patents to protect our intellectual property. However, these measures may be inadequate to protect our

intellectual property from infringement by others or prevent misappropriation of our proprietary rights. In

addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do U.S.

laws. Our inability to protect our proprietary information and enforce our intellectual property rights

through infringement proceedings could have a material adverse effect on our business, financial condition

and results of operations.

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 employees’, customers’ or vendors’ data, or to our critical information technology systems,

we may incur legal and financial exposure and liabilities.

As part of our business, we store our data and certain data about our employees, customers and vendors in

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

data regarding our employees, customers or vendors, the security breach could expose us to risks, including

loss of business, litigation and possible liability. Our security measures may be breached as a result of

third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or

otherwise. Additionally, 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 employee, customer or vendor data and

payment information; a loss of confidence by our customers; damage to our reputation; a disruption to our

business; litigation and legal liability; and a negative impact on our future sales. In addition, the cost and

operational consequences of implementing further data protection measures could be significant.

•

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

competitors in such markets have stronger market positions;

initial dependence on unfamiliar supply chains or relatively small supply partners;

insufficient revenues to offset increased expenses associated with acquisitions;

the potential loss of key employees of the acquired companies; and

• potential for recording goodwill and intangible assets that later can be subject to impairment.

Acquisitions may also cause us to:

issue common stock that would dilute our current shareholders’ percentage ownership;

assume liabilities of an acquired company;

record goodwill and non-amortizable intangible assets that will be subject to impairment testing on

a regular basis and potential periodic impairment charges;

incur amortization expenses related to certain intangible assets;

incur large acquisition and integration costs, immediate write-offs, and restructuring and other

related expenses; and

• become subject to litigation.

Mergers and acquisitions are inherently risky. No assurance can be given that our acquisitions will be

successful. Further, no assurance can be given that an acquisition will not adversely affect our business,

operating results, or financial condition. Failure to manage and successfully integrate an acquisition could

harm our business and operating results in a material way. Even when an acquired company has already

developed and marketed products, there can be no assurance that enhancements to those products will be

made in a timely manner or that pre-acquisition due diligence will identify all possible issues that might

arise with respect to such products.

Risks related to new product development also apply to acquisitions. For additional information, please see

the risk factor above entitled, “Due to future changes in technology, changes in market demand, or changes

in market expectations, portions of our inventory may become obsolete or excessive.”

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

We review our assets, including intangible assets such as goodwill, for indications of impairment annually

and when events or changes in circumstances indicate the carrying value may not be recoverable. We could

be required to record a significant charge to earnings in our financial statements for the period in which any

impairment of these assets is determined, which would adversely affect our results of operations for that

period.

We may experience negative or unforeseen tax consequences.

We may experience negative or unforeseen tax consequences, which could materially adversely affect our

results of operations. We review the probability of the realization of our net deferred tax assets each period

based on forecasts of taxable income in both the U.S. and foreign jurisdictions. This review uses historical

results, projected future operating results based upon approved business plans, eligible carryforward

periods, tax-planning opportunities and other relevant considerations. Adverse changes in the profitability

and financial outlook in the U.S. or foreign jurisdictions may require the creation of a valuation allowance

to reduce our net deferred tax assets. Such changes could result in material non-cash expenses in the period

in which the changes are made and could have a material adverse impact on our results of operations and

financial condition. We also earn a significant amount of our operating income from outside the U.S., and

any repatriation of funds representing earnings of foreign subsidiaries may significantly impact our

effective tax rates.

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political

conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change. Our

effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing

statutory taxes, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their

interpretation, including tax laws in the U.S. Similarly, changes in tax laws or regulations, including those
in the U.S., could negatively impact our effective tax rate and results of operations. A change in a statutory
tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant
jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit
recorded in our Consolidated Statements of Income for that period.

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

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

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

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 employees’, customers’ or vendors’ data, or to our critical information technology systems,
we may incur legal and financial exposure and liabilities.

As part of our business, we store our data and certain data about our employees, customers and vendors in
our information technology systems. If a third party gained unauthorized access to our data, including any
data regarding our employees, customers or vendors, the security breach could expose us to risks, including
loss of business, litigation and possible liability. Our security measures may be breached as a result of
third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or
otherwise. Additionally, 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 employee, customer or vendor data and
payment information; a loss of confidence by our customers; damage to our reputation; a disruption to our
business; litigation and legal liability; and a negative impact on our future sales. In addition, the cost and
operational consequences of implementing further data protection measures could be significant.

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, application engineering,
customer service, manufacturing and
assembly

Indianapolis, Indiana, U.S. (1)

165,000

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, Kunshan
and Beijing, China

Chennai, Delhi, Coimbatore, and

Pune India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.

455,200
97,700
32,300

31,000

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

13,300

12,800
2,900
3,700

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

by Unisys Corporation.

We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various
dates ranging from January 2018 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.

From time to time, we are involved in various claims and lawsuits arising in the normal course of

business. Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim

when the estimated outcome is a range of possible loss and no one amount within that range is more likely

than another. We maintain insurance policies for such matters, and we record insurance recoveries when

we determine such recovery to be probable. We do not expect any of these claims, individually or in the

aggregate, to have a material adverse effect on our consolidated financial position or results of

operations. We believe that the ultimate resolution of claims for any losses will not exceed our insurance

policy coverages.

None.

Item 4. MINE SAFETY DISCLOSURES

Executive Officers of the Registrant

Executive officers are appointed each year by the Board of Directors following the Annual Meeting of

Shareholders to serve during the ensuing year and until their respective successors are elected and qualified.

There are no family relationships between any of our executive officers or between any of them and any of

the members of the Board of Directors.

The following information sets forth as of October 31, 2017, 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

President

Chairman of the Board and Chief Executive Officer

Vice President, Secretary, Treasurer and Chief Financial Officer

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. Volovic was employed

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

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

Indianapolis, Indiana, U.S. (1)

165,000

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, Kunshan

and Beijing, China

Chennai, Delhi, Coimbatore, and

Pune India

Liegnitz, Poland

Grand Rapids, Michigan, U.S.

455,200

97,700

32,300

31,000

16,000

3,200

9,700

20,100

13,800

9,700

3,900

13,300

12,800

2,900

3,700

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

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

dates ranging from January 2018 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.

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

Item 4. MINE SAFETY DISCLOSURES

None.

Executive Officers of the Registrant

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

The following information sets forth as of October 31, 2017, 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

62
53
46

Chairman of the Board and Chief Executive Officer
President
Vice President, Secretary, Treasurer and Chief Financial Officer

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. Volovic was employed
by Unisys Corporation.

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

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.

Fiscal
Quarter Ended:

January 31 .......
April 30 ...........
July 31 ............
October 31 ......

2017

High
$34.55
$32.25
$35.83
$46.75

Low
$24.80
$26.25
$27.74
$32.78

Declared
Dividends

$.09
$.10
$.10
$.10

2016

High
$28.47
$33.40
$33.65
$30.42

Low
$23.90
$23.25
$26.57
$25.45

Declared
Dividends

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

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

Holders

There were 107 holders of record of our common stock as of December 18, 2017.

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 4 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 at 2017 Fiscal Year End” in our
2018 proxy statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.

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

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

Data:

Sales and service fees

Gross profit

Selling, general and

administrative expenses

Operating income (loss)

Other income (expense)

Net income (loss)

Earnings (loss) per common

share - diluted

Weighted average

common shares

outstanding-diluted

Dividends declared per

common share

Year Ended October 31,

2017

2016

2015

2014

2013

(In thousands, except per share amounts)

$243,667

70,564

$227,289

70,440

$219,383

69,091

$222,303

68,612

$192,804

55,056

49,661

20,903

(187)

15,115

50,824

19,616

(731)

13,292

45,287

23,804

(251)

16,214

46,615

21,997

(636)

15,143

41,413

13,643

(1,201)

8,190

$2.25

$1.99

$2.44

$2.30

$1.25

6,680

6,642

6,602

6,538

6,497

$0.39

$0.35

$0.31

$0.26

$0.10

Balance Sheet Data:

2017

2016

2015

2014

2013

As of October 31,

(Dollars in thousands)

Current assets

Current liabilities

Working capital

Current ratio

Total assets

Non-current liabilities

Total debt

Shareholders’ equity

$ 246,415

70,899

175,526

3.5

281,645

7,671

1,507

203,085

$ 218,381

57,968

160,413

3.8

251,949

8,506

1,476

185,475

$ 216,112

65,086

151,026

3.3

248,577

8,923

1,583

174,568

$ 208,691

66,803

141,888

3.1

239,176

7,728

3,272

164,645

$ 182,921

55,686

127,235

3.3

212,804

5,627

3,665

151,491

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

2017

Declared

2016

Declared

Quarter Ended:

High

Low

Dividends

High

Low

Dividends

January 31 .......

$34.55

$24.80

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

$32.25

$26.25

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

$35.83

$27.74

October 31 ......

$46.75

$32.78

$.09

$.10

$28.47

$33.40

$33.65

$30.42

$23.90

$23.25

$26.57

$25.45

$.08

$.09

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

$42.15.

Holders

Dividend Policy

There were 107 holders of record of our common stock as of December 18, 2017.

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 4 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 at 2017 Fiscal Year End” in our

2018 proxy statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial

Owners and Management and Related Stockholder Matters.

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

Item 6.

SELECTED FINANCIAL DATA

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
Data:

Sales and service fees
Gross profit
Selling, general and
administrative expenses
Operating income (loss)
Other income (expense)
Net income (loss)
Earnings (loss) per common
share - diluted
Weighted average
common shares
outstanding-diluted
Dividends declared per
common share

Year Ended October 31,

2017

2016

2015

2014

2013

(In thousands, except per share amounts)

$243,667
70,564

$227,289
70,440

$219,383
69,091

$222,303
68,612

$192,804
55,056

49,661
20,903
(187)
15,115

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

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

46,615
21,997
(636)
15,143

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

$2.25

$1.99

$2.44

$2.30

$1.25

6,680

6,642

6,602

6,538

6,497

$0.39

$0.35

$0.31

$0.26

$0.10

Balance Sheet Data:

2017

2016

As of October 31,
2015
(Dollars in thousands)

2014

2013

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

$ 246,415
70,899
175,526
3.5
281,645
7,671
1,507
203,085

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

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

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

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

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

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.

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 2017, approximately 55% of our revenues were
attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced
VMX series machines. Additionally, approximately 14% of our revenues were attributable to customers in
the Asia Pacific region, where we sell more of our entry-level, lower-priced machines, but where we also
encounter greater price pressures.

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; and 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. The Hurco, Milltronics and Takumi product lines represent a comprehensive product
portfolio of more than 150 different models. In addition, through our wholly–owned subsidiary LCM
Precision Technology S.r.l. (“LCM”), we produce machine tool components and accessories.

We sell our products through more than 193 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, Hurco Manufacturing Ltd. (“HML”).
Machine castings and components to support HML’s production are manufactured at wholly-owned
subsidiary in Ningbo, China, Ningbo Machine Tool Co., Ltd. Components to support our SRT line of five-
axis machining centers, such as the direct drive spindle, swivel head and rotary table, are manufactured by
our wholly-owned subsidiary in Italy, LCM.

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

Our high levels of foreign manufacturing and sales also expose us to cash flow risks due to fluctuating

currency exchange rates. We seek to mitigate those risks through the use of various derivative instruments

– principally foreign currency forward exchange contracts.

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

2017

2016

2015

Increase/Decrease

’17 vs. ’16

’16 vs. ’15

Sales and service fees

Gross profit

Selling, general and administrative

expenses

Operating income (loss)

Net income (loss)

100%

29%

20%

100%

31%

22%

100%

31%

21%

11%

-2%

14%

12%

-18%

Fiscal 2017 Compared to Fiscal 2016

Sales and Service Fees. Sales and service fees for fiscal 2017 were $243.7 million, an increase of $16.4

million, or 7%, compared to fiscal 2016 and included a negative currency impact of $1.3 million, or 1%,

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 years ended

October 31, 2017 and 2016 (in thousands):

Americas

Europe

Asia Pacific

Total

Fiscal Year Ended October 31,

2017

$ 75,540

133,671

34,456

$ 243,667

31%

55%

14%

100%

2016

$ 74,386

124,070

28,833

$ 227,289

33%

54%

13%

100%

Increase/Decrease

Amount

$ 1,154

9,601

5,623

$ 16,378

20%

Sales in the Americas for fiscal 2017 increased by 2% compared to fiscal 2016 and reflected improved U.S.

market conditions and demand from customers for all product lines (Hurco, Takumi and Milltronics) and

in all regions of the country where our customers are located. European sales for fiscal 2017 increased by

8%, compared to fiscal 2016, and included a negative currency impact of 1%, when translating foreign sales

to U.S. dollars for financial reporting purposes. Excluding the negative impact of currency, the year-over-

year increase in European sales for fiscal 2017 was driven primarily by increased sales of Hurco machines

in the United Kingdom and Germany. Asian Pacific sales for fiscal 2017 increased by 20%, compared to

fiscal 2016, primarily due to increased sales of Hurco and Takumi machines in all Asian Pacific countries

where our customers are located, with China contributing the largest increase. Asian Pacific sales for fiscal

2017 included a favorable currency impact 1%, when translating foreign sales to U.S. dollars for financial

reporting purposes.

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

AND RESULTS OF OPERATIONS

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

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
2016

2017

2015

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

100%
29%

20%
9%
6%

100%
31%

22%
9%
6%

100%
31%

21%
11%
7%

Fiscal 2017 Compared to Fiscal 2016

Year-to-Year % Change

Increase/Decrease

’17 vs. ’16
7%
0%

’16 vs. ’15
4%
2%

-2%
7%
14%

12%
-18%
-18%

Sales and Service Fees. Sales and service fees for fiscal 2017 were $243.7 million, an increase of $16.4
million, or 7%, compared to fiscal 2016 and included a negative currency impact of $1.3 million, or 1%,
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 years ended
October 31, 2017 and 2016 (in thousands):

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 2017, approximately 55% of our revenues were

attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced

VMX series machines. Additionally, approximately 14% of our revenues were attributable to customers in

the Asia Pacific region, where we sell more of our entry-level, lower-priced machines, but where we also

encounter greater price pressures.

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; and 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. The Hurco, Milltronics and Takumi product lines represent a comprehensive product

portfolio of more than 150 different models. In addition, through our wholly–owned subsidiary LCM

Precision Technology S.r.l. (“LCM”), we produce machine tool components and accessories.

We sell our products through more than 193 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, Hurco Manufacturing Ltd. (“HML”).

Machine castings and components to support HML’s production are manufactured at wholly-owned

subsidiary in Ningbo, China, Ningbo Machine Tool Co., Ltd. Components to support our SRT line of five-

axis machining centers, such as the direct drive spindle, swivel head and rotary table, are manufactured by

our wholly-owned subsidiary in Italy, LCM.

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

prevailing currencies in the countries in which those customers are located (primarily the Euro, Pound

Sterling and Chinese Yuan). Our product costs are incurred and paid primarily in the New Taiwan Dollar

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

and consolidated financial statements as reported under U.S. Generally Accepted Accounting Principles.

For example, when the U.S. Dollar weakens in value relative to a foreign currency, sales made, and

expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements,

are higher than would be the case when the U.S. Dollar is stronger. In the comparison of our period-to-

Sales in the Americas for fiscal 2017 increased by 2% compared to fiscal 2016 and reflected improved U.S.
market conditions and demand from customers for all product lines (Hurco, Takumi and Milltronics) and
in all regions of the country where our customers are located. European sales for fiscal 2017 increased by
8%, compared to fiscal 2016, and included a negative currency impact of 1%, when translating foreign sales
to U.S. dollars for financial reporting purposes. Excluding the negative impact of currency, the year-over-
year increase in European sales for fiscal 2017 was driven primarily by increased sales of Hurco machines
in the United Kingdom and Germany. Asian Pacific sales for fiscal 2017 increased by 20%, compared to
fiscal 2016, primarily due to increased sales of Hurco and Takumi machines in all Asian Pacific countries
where our customers are located, with China contributing the largest increase. Asian Pacific sales for fiscal
2017 included a favorable currency impact 1%, when translating foreign sales to U.S. dollars for financial
reporting purposes.

Increase/Decrease
Amount
%
$ 1,154
9,601
5,623
$ 16,378

2%
8%
20%
7%

33%
54%
13%
100%

Fiscal Year Ended October 31,
2016
$ 74,386
124,070
28,833
$ 227,289

31%
55%
14%
100%

Americas
Europe
Asia Pacific
Total

$ 75,540
133,671
34,456
$ 243,667

2017

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, 2017 and 2016 (in thousands):

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

Fiscal Year Ended October 31,

2017
$ 209,311

86%

2016
$ 195,618

86%

Increase/ Decrease
%
Amount
7%

$ 13,693

2,324
24,255
7,777
$ 243,667

1%
10%
3%
100%

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

1%
10%
3%
100%

246
2,347
92
$ 16,378

12%
11%
1%
7%

† 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 computer control systems and software for fiscal 2017 increased
by 7% and 12%, respectively, compared to fiscal 2016, driven primarily by an increase in sales volume of
Hurco machines in Europe, particularly the United Kingdom and Germany. Sales of service parts and
service fees for fiscal 2017 increased by 11% and 1%, respectively, compared to fiscal 2016, due primarily
to an increase in aftermarket sales of Hurco components in Germany.

Orders and Backlog. Orders for fiscal 2017 were $260.6 million, an increase of $41.4 million, or 19%,
compared to fiscal 2016, and included a negative currency impact of $2.6 million, or 1%, when translating
foreign orders to U.S. dollars.

The following table sets forth new orders booked by geographic region for fiscal years ended 2017 and
2016 (dollars in thousands):

Americas
Europe
Asia Pacific
Total

Fiscal Year Ended October 31,

2017

$ 85,070
137,622
37,917
$ 260,609

33%
53%
14%
100%

2016
$ 70,944
121,519
26,759
$ 219,222

32%
56%
12%
100%

Increase/Decrease
Amount
%
$ 14,126
16,103
11,158
$ 41,387

20%
13%
42%
19%

Orders in the Americas for fiscal 2017 increased by 20% compared to fiscal 2016 and reflected improved
U.S. market conditions and demand from customers for all product lines (Hurco, Takumi and Milltronics)
and in all regions of the country where our customers are located. European orders for fiscal 2017 increased
by 13%, compared to fiscal 2016, driven primarily by increased demand for Hurco and Takumi vertical
milling machines in Germany, the United Kingdom, and Italy. European orders for fiscal 2017 included a
negative currency impact of 2%, when translating foreign orders to U.S. dollars. Asian Pacific orders for
fiscal 2017 increased by 42%, compared to fiscal 2016, driven primarily by increased demand for Hurco
and Takumi machines in all Asian Pacific countries where our customers are located, with China
contributing the largest increase. Asian Pacific orders for fiscal 2017 included a favorable currency impact
of 1%, when translating foreign orders to U.S. dollars.

Backlog at October 31, 2017 increased to $52.0 million compared to $32.3 million at October 31, 2016
primarily due to an increase in customer orders during fiscal 2017. We do not believe backlog is a useful
measure of past performance or indicative of future performance. Backlog orders as of October 31, 2017
are expected to be fulfilled in fiscal 2018.

Gross Profit. Gross profit for fiscal 2017 was $70.6 million, or 29% of sales, compared to $70.4 million,
or 31% of sales, for fiscal 2016. The decrease in gross profit as a percentage of sales for fiscal 2017

primarily reflected the negative impact of foreign currency translation, compared to fiscal 2016, and a sales

mix comprised of more entry-level machines, such as those under the Milltronics and Takumi brands, in

price competitive geographic regions, such as the Americas and Asia Pacific.

Operating Expenses. Selling, general and administrative expenses for fiscal 2017 were $49.7 million, or

20% of sales, compared to $50.8 million, or 22% of sales, in fiscal 2016, and included a favorable currency

impact of $0.2 million when translating foreign expenses to U.S. dollars for financial reporting purposes.

Operating Income. Operating income for fiscal 2017 was $20.9 million, or 9% of sales, compared to $19.6

million, or 9% of sales, in fiscal 2016. The year-over-year increase in operating income was primarily

attributable to a reduction in operating expenses associated with trade show expenses for the International

Manufacturing Technology Show (“IMTS”) held in September 2016.

Other Expense, Net. Other expense, net for fiscal 2017 decreased by $0.5 million from fiscal 2016 due

mainly to lower foreign currency losses experienced in 2017.

Provision for Income Taxes. Our effective tax rate for fiscal 2017 was 27% in comparison to 30% for fiscal

2016. The decrease in the effective tax rate year-over-year was primarily due to changes in the geographic

mix of income and loss among tax jurisdictions.

Net Income. Net income for fiscal 2017 was $15.1 million, or $2.25 per diluted share, an increase of $1.8

million, or 14%, from fiscal 2016 net income of $13.3 million, or $1.99 per diluted share.

Fiscal 2016 Compared to Fiscal 2015

Sales and Service Fees. Sales and service fees for fiscal 2016 were $227.3 million, an increase of $7.9

million, or 4%, compared to fiscal 2015 and included a negative currency impact of $6.4 million, or 3%,

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

Fiscal Year Ended 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 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 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

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, 2017 and 2016 (in thousands):

Fiscal Year Ended October 31,

2017

2016

Increase/ Decrease

Amount

$ 209,311

86%

$ 195,618

86%

$ 13,693

2,324

24,255

7,777

$ 243,667

10%

100%

2,078

21,908

7,685

$ 227,289

10%

100%

246

2,347

$ 16,378

12%

11%

Computerized Machine Tools

Computer Control Systems

and Software †

Service Parts

Service Fees

Total

machine systems.

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

Sales of computerized machine tools and computer control systems and software for fiscal 2017 increased

by 7% and 12%, respectively, compared to fiscal 2016, driven primarily by an increase in sales volume of

Hurco machines in Europe, particularly the United Kingdom and Germany. Sales of service parts and

service fees for fiscal 2017 increased by 11% and 1%, respectively, compared to fiscal 2016, due primarily

to an increase in aftermarket sales of Hurco components in Germany.

Orders and Backlog. Orders for fiscal 2017 were $260.6 million, an increase of $41.4 million, or 19%,

compared to fiscal 2016, and included a negative currency impact of $2.6 million, or 1%, when translating

foreign orders to U.S. dollars.

2016 (dollars in thousands):

The following table sets forth new orders booked by geographic region for fiscal years ended 2017 and

Americas

Europe

Asia Pacific

Total

Fiscal Year Ended October 31,

2017

$ 85,070

137,622

37,917

$ 260,609

33%

53%

14%

100%

2016

$ 70,944

121,519

26,759

$ 219,222

32%

56%

12%

100%

Increase/Decrease

Amount

$ 14,126

16,103

11,158

$ 41,387

20%

13%

42%

19%

Orders in the Americas for fiscal 2017 increased by 20% compared to fiscal 2016 and reflected improved

U.S. market conditions and demand from customers for all product lines (Hurco, Takumi and Milltronics)

and in all regions of the country where our customers are located. European orders for fiscal 2017 increased

by 13%, compared to fiscal 2016, driven primarily by increased demand for Hurco and Takumi vertical

milling machines in Germany, the United Kingdom, and Italy. European orders for fiscal 2017 included a

negative currency impact of 2%, when translating foreign orders to U.S. dollars. Asian Pacific orders for

fiscal 2017 increased by 42%, compared to fiscal 2016, driven primarily by increased demand for Hurco

and Takumi machines in all Asian Pacific countries where our customers are located, with China

contributing the largest increase. Asian Pacific orders for fiscal 2017 included a favorable currency impact

of 1%, when translating foreign orders to U.S. dollars.

Backlog at October 31, 2017 increased to $52.0 million compared to $32.3 million at October 31, 2016

primarily due to an increase in customer orders during fiscal 2017. We do not believe backlog is a useful

measure of past performance or indicative of future performance. Backlog orders as of October 31, 2017

are expected to be fulfilled in fiscal 2018.

Gross Profit. Gross profit for fiscal 2017 was $70.6 million, or 29% of sales, compared to $70.4 million,

or 31% of sales, for fiscal 2016. The decrease in gross profit as a percentage of sales for fiscal 2017

primarily reflected the negative impact of foreign currency translation, compared to fiscal 2016, and a sales
mix comprised of more entry-level machines, such as those under the Milltronics and Takumi brands, in
price competitive geographic regions, such as the Americas and Asia Pacific.

Operating Expenses. Selling, general and administrative expenses for fiscal 2017 were $49.7 million, or
20% of sales, compared to $50.8 million, or 22% of sales, in fiscal 2016, and included a favorable currency
impact of $0.2 million when translating foreign expenses to U.S. dollars for financial reporting purposes.

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

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

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

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

Fiscal 2016 Compared to Fiscal 2015

Sales and Service Fees. Sales and service fees for fiscal 2016 were $227.3 million, an increase of $7.9
million, or 4%, compared to fiscal 2015 and included a negative currency impact of $6.4 million, or 3%,
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):

Fiscal Year Ended October 31,
2016

2015

Americas
Europe
Asia Pacific

Total

$ 74,386
124,070

28,833
$ 227,289

33%
54%

13%
100%

$ 70,169
129,335

19,879
$219,383

32%
59%

9%
100%

Increase/Decrease
Amount %

$ 4,217
(5,265)

8,954
$ 7,906

6%
-4%

45%
4%

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

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

Fiscal Year Ended October 31,
2015
2016

$195,618

86%

$189,712

87%

Increase/
Decrease

Amount %
3%

$ 5,906

2,078

3,085

(1,007)

-33%

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

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 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 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.

The following table sets forth new orders booked by geographic region for fiscal years ended 2016 and
2015 (dollars in thousands):

Liquidity and Capital Resources

Americas
Europe
Asia Pacific
Total

Fiscal Year Ended October 31,

2016

$ 70,944
121,519
26,759
$ 219,222

32%
56%
12%
100%

2015

$ 72,021
126,511
24,654
$ 223,186

32%
57%
11%
100%

Increase/Decrease
Amount
%
$ (1,077)
(4,992)
2,105
$ (3,964)

-1%
-4%
9%
-2%

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

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-

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 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.

At October 31, 2017, we had cash and cash equivalents of $66.3 million compared to $41.2 million at

October 31, 2016. The increase in cash and cash equivalents was primarily a result of a reduction in

inventories and accounts receivable year-over-year when excluding the negative impact of foreign currency

of $7.0 million when translating foreign assets into U.S. dollars for financial reporting purposes.

Approximately 64% of our $66.3 million of cash and cash equivalents is held in the U.S. The balance is

attributable to our foreign operations and is held in the local currencies of our various foreign entities,

subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of

these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital (including cash and cash equivalents) was $175.5 million at October 31, 2017 compared

to $160.4 million at October 31, 2016. The increase in working capital was primarily due to the increase in

cash, inventories, and accounts receivable. Inventories were $119.9 million at October 31, 2017, compared

to $117.0 million at October 31, 2016. Inventory turns at October 31, 2017 were 1.5 compared to 1.4 turns

at October 31, 2016.

Capital expenditures were $4.4 million in fiscal 2017 compared to $4.2 million in fiscal 2016. Capital

expenditures for fiscal 2017 were primarily for software development costs, purchases of factory equipment

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):

Fiscal Year Ended October 31,

2016

2015

Amount %

$195,618

86%

$189,712

87%

$ 5,906

Increase/

Decrease

Computerized

Machine Tools*

and Software†

Service Parts

Service Fees

Total

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 dates

† 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 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.

Americas

Europe

Asia Pacific

Total

Fiscal Year Ended October 31,

2016

$ 70,944

121,519

26,759

$ 219,222

32%

56%

12%

100%

2015

$ 72,021

126,511

24,654

$ 223,186

32%

57%

11%

100%

Increase/Decrease

Amount

$ (1,077)

(4,992)

2,105

$ (3,964)

-1%

-4%

-2%

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-
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 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.

The following table sets forth new orders booked by geographic region for fiscal years ended 2016 and

2015 (dollars in thousands):

Liquidity and Capital Resources

At October 31, 2017, we had cash and cash equivalents of $66.3 million compared to $41.2 million at
October 31, 2016. The increase in cash and cash equivalents was primarily a result of a reduction in
inventories and accounts receivable year-over-year when excluding the negative impact of foreign currency
of $7.0 million when translating foreign assets into U.S. dollars for financial reporting purposes.
Approximately 64% of our $66.3 million of cash and cash equivalents is held in the U.S. The balance is
attributable to our foreign operations and is held in the local currencies of our various foreign entities,
subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of
these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital (including cash and cash equivalents) was $175.5 million at October 31, 2017 compared
to $160.4 million at October 31, 2016. The increase in working capital was primarily due to the increase in
cash, inventories, and accounts receivable. Inventories were $119.9 million at October 31, 2017, compared
to $117.0 million at October 31, 2016. Inventory turns at October 31, 2017 were 1.5 compared to 1.4 turns
at October 31, 2016.

Capital expenditures were $4.4 million in fiscal 2017 compared to $4.2 million in fiscal 2016. Capital
expenditures for fiscal 2017 were primarily for software development costs, purchases of factory equipment

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

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.

On December 6, 2016, we entered into a fourth amendment to our U.S. credit agreement to, among other
things, 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. The U.S. credit agreement, as amended, provides for
the issuance of up to $5.0 million in letters of credit. We also amended the U.S. credit agreement to increase
the minimum working capital and minimum tangible net worth requirements from $90.0 million to $105.0
million and $120.0 million to $125.0 million, respectively.

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 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 the United Kingdom and a €1.5 million revolving credit
facility in Germany. On February 16, 2017, we amended our credit facility in China to decrease the credit
facility from 40.0 million Chinese Yuan to 20.0 million Chinese Yuan (approximately $3.0 million) and
renewed the facility with an expiration date of February 15, 2018. We had $1.5 million of borrowings
under our China credit facility as of each of October 31, 2017 and 2016. We had no other debt or borrowings
under any of our other credit facilities at either of those dates. At October 31, 2017, we were in compliance
with the covenants contained in all of our credit facilities and had $19.6 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, 2017 (in thousands):

We expect capital spending in fiscal 2018 to be approximately $8.7 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, 2017, we had 27 outstanding third party payment guarantees totaling approximately $1.0

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 requires

us to make judgments and estimates that affect the amounts reported in the consolidated financial statements

and accompanying notes. Those judgments and estimates have a significant effect on the financial

statements because they result primarily from the need to make estimates about the effects of matters that

are inherently uncertain. Actual results could differ from those estimates. Our accounting policies,

including those described below, are frequently evaluated as our judgment and estimates are based upon

historical experience and on various other assumptions that are 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 or distributor, which is normally at the time of shipment, because persuasive

evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and

collectability is reasonably assured. Our computerized machine tools are general purpose computer

controlled machine tools that are typically used in stand-alone operations. Transfer of ownership and risk

of loss are not contingent upon contractual customer acceptance. Prior to shipment, we test each machine

to ensure the machine’s compliance with standard operating specifications.

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 related to software revenue

recognition that requires that at the time of shipment, persuasive evidence of an arrangement exists, delivery

has occurred, the selling price is fixed and determinable and collectability is reasonably assured. The

software 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

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

Short-term debt ..............
Operating leases .............
Other… ..........................
Total ...............................

Total
$ 1,507
7,968
3,851
$ 13,326

Payments Due by Period
1-3
Years
$ --
2,979
133
$ 3,112

More than
5 Years
$ --
463
3,718
$ 4,181

Less than
1 Year
$ 1,507
3,316
--
$ 4,823

3-5
Years
$ --
1,210
--
$ 1,210

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

these expenditures with cash flows from operations.

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.

On December 6, 2016, we entered into a fourth amendment to our U.S. credit agreement to, among other

things, 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. The U.S. credit agreement, as amended, provides for

the issuance of up to $5.0 million in letters of credit. We also amended the U.S. credit agreement to increase

the minimum working capital and minimum tangible net worth requirements from $90.0 million to $105.0

million and $120.0 million to $125.0 million, respectively.

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 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 the United Kingdom and a €1.5 million revolving credit

facility in Germany. On February 16, 2017, we amended our credit facility in China to decrease the credit

facility from 40.0 million Chinese Yuan to 20.0 million Chinese Yuan (approximately $3.0 million) and

renewed the facility with an expiration date of February 15, 2018. We had $1.5 million of borrowings

under our China credit facility as of each of October 31, 2017 and 2016. We had no other debt or borrowings

under any of our other credit facilities at either of those dates. At October 31, 2017, we were in compliance

with the covenants contained in all of our credit facilities and had $19.6 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, 2017 (in thousands):

Total

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

$ 1,507

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

7,968

Other… ..........................

3,851

Payments Due by Period

Less than

1 Year

$ 1,507

3,316

1-3

Years

$ --

2,979

133

3-5

Years

$ --

1,210

More than

5 Years

$ --

463

3,718

$ 4,181

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

$ 13,326

$ 4,823

$ 3,112

$ 1,210

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

We expect capital spending in fiscal 2018 to be approximately $8.7 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, 2017, we had 27 outstanding third party payment guarantees totaling approximately $1.0
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 requires
us to make judgments and estimates that affect the amounts reported in the consolidated financial statements
and accompanying notes. Those judgments and estimates have a significant effect on the financial
statements because they result primarily from the need to make estimates about the effects of matters that
are inherently uncertain. Actual results could differ from those estimates. Our accounting policies,
including those described below, are frequently evaluated as our judgment and estimates are based upon
historical experience and on various other assumptions that are 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 or distributor, which is normally at the time of shipment, because persuasive
evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and
collectability is reasonably assured. Our computerized machine tools are general purpose computer
controlled machine tools that are typically used in stand-alone operations. Transfer of ownership and risk
of loss are not contingent upon contractual customer acceptance. Prior to shipment, we test each machine
to ensure the machine’s compliance with standard operating specifications.

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 related to software revenue
recognition that requires that at the time of shipment, persuasive evidence of an arrangement exists, delivery
has occurred, the selling price is fixed and determinable and collectability is reasonably assured. The
software 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
31

Stock Compensation – We account for share-based compensation according to FASB guidance relating to

share-based payments, which requires the measurement and recognition of compensation expense for all

share-based awards made to employees and directors based on estimated fair values on the grant date. This

guidance requires that we estimate the fair value of share-based awards on the date of grant and recognize

as expense the value of the portion of the award that is ultimately expected to vest over the requisite service

period. In the fourth quarter of fiscal 2017, we elected to early adopt Accounting Standards Update

(“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718), which simplifies several areas

of accounting for share-based compensation arrangements, including income tax consequences,

classification of awards as either equity or liabilities, and classification on the statement of cash flows. The

impact of this adoption is further described in Note 15 of Notes to Consolidated Financial Statements.

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, 2017 were
approximately $92.9 million. In the event these earnings are later distributed to the U.S., such distributions
would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

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

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 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. In the fourth quarter of fiscal 2017, we elected to early adopt Accounting Standards Update
(“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718), which simplifies several areas
of accounting for share-based compensation arrangements, including income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. The
impact of this adoption is further described in Note 15 of Notes to Consolidated Financial Statements.

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, 2017 were

approximately $92.9 million. In the event these earnings are later distributed to the U.S., such distributions

would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in

forward-looking statements is based on currently effective tax laws. Significant changes in those laws

could materially affect these estimates.

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 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.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign interest
rates. At October 31, 2017, 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 2017, we derived approximately 69% of our revenues from customers located outside of the
Americas. All of our computerized machine tools and computer control systems, as well as certain
proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-
invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies.

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

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, 2017, which are
designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and
hedging activities, were as follows:

Notional Weighted
Amount
in Foreign
Currency

Avg.
Forward
Rate

Contract Amount at
Forward Rates in U.S. Dollars
October 31,
2017

Contract
Date

Maturity Dates

26,850,000

1.1435

30,704,120

31,567,343 Nov 2017 - Oct 2018

6,400,000

1.2973

8,302,715

8,539,006 Nov 2017 - Oct 2018

follows:

Forward

Contracts

Sale Contracts:

Forward
Contracts
Sale Contracts:

Euro

Sterling

Purchase Contracts:

New Taiwan Dollar

931,000,000

29.99*

31,041,613

31,154,872 Nov 2017 - Oct 2018

*New Taiwan Dollars per U.S. Dollar

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2017, 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:

Notional Weighted

Contract Amount at

Avg.

Forward Rates in U.S. Dollars

Forward

Contract

October 31,

Amount

in Foreign

Currency

Rate

Date

2017

Maturity Dates

Forward

Contracts

Sale Contracts:

Euro

21,771,037

1.1837

25,770,030

25,607,633 Nov 2017 - Oct 2018

Pound Sterling

1,280,915

1.3274

1,700,276

1,703,319 Nov 2017 - Dec 2017

South African Rand

11,804,200

0.0699

824,777

814,338 Nov 2017 - Apr 2018

New Taiwan Dollar

978,926,016

29.93*

32,706,852

32,605,176 Nov 2017 - Mar 2018

Purchase Contracts:

* New Taiwan Dollars per U.S. Dollar

We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign

countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million

in November 2016. 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, net of tax, in Accumulated other

comprehensive loss in the same manner as the underlying hedged net assets. This forward contract matured

in November 2017 and we entered into a new forward contract for the same notional amount that is set to

mature in November 2018. As of October 31, 2017, we had $809,000 of realized gains and $140,000 of

realized losses, net of tax, recorded as cumulative translation adjustments in Accumulated other

comprehensive loss, related to these forward contracts.

Forward contracts designated as net investment hedges under this guidance as of October 31, 2017 were as

Notional

Amount

in Foreign

Currency

Weighted

Avg.

Forward

Rate

Contract Amount at

Forward Rates in U.S. Dollars

October 31,

Contract

Date

2017

Maturity Date

Euro

3,000,000

1.0935

3,280,500

3,497,342

Nov 2017

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, 2017, 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, 2017, 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 2017, we derived approximately 69% of our revenues from customers located outside of the

Americas. All of our computerized machine tools and computer control systems, as well as certain

proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-

invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies.

Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned

subsidiaries in Taiwan, the U.S., Italy and China or an affiliated contract manufacturer in Taiwan. Our

purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers

include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of

currency fluctuations on product costs. The predominant portion of the exchange rate risk associated with

our product purchases relates to the New Taiwan Dollar and the Euro.

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, 2017, which are

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

hedging activities, were as follows:

Notional Weighted

Contract Amount at

Amount

Avg.

Forward Rates in U.S. Dollars

in Foreign

Forward

Contract

October 31,

Currency

Rate

Date

2017

Maturity Dates

26,850,000

1.1435

30,704,120

31,567,343 Nov 2017 - Oct 2018

6,400,000

1.2973

8,302,715

8,539,006 Nov 2017 - Oct 2018

Forward

Contracts

Sale Contracts:

Euro

Sterling

Purchase Contracts:

*New Taiwan Dollars per U.S. Dollar

New Taiwan Dollar

931,000,000

29.99*

31,041,613

31,154,872 Nov 2017 - Oct 2018

Forward
Contracts
Sale Contracts:
Euro
Pound Sterling
South African Rand

Purchase Contracts:
New Taiwan Dollar

Notional Weighted
Amount
in Foreign
Currency

Avg.
Forward
Rate

Contract Amount at
Forward Rates in U.S. Dollars
October 31,
2017

Contract
Date

Maturity Dates

21,771,037
1,280,915
11,804,200

1.1837
1.3274
0.0699

25,770,030
1,700,276
824,777

25,607,633 Nov 2017 - Oct 2018
1,703,319 Nov 2017 - Dec 2017
814,338 Nov 2017 - Apr 2018

978,926,016

29.93*

32,706,852

32,605,176 Nov 2017 - Mar 2018

* New Taiwan Dollars per U.S. Dollar

We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign
countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million
in November 2016. 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, net of tax, in Accumulated other
comprehensive loss in the same manner as the underlying hedged net assets. This forward contract matured
in November 2017 and we entered into a new forward contract for the same notional amount that is set to
mature in November 2018. As of October 31, 2017, we had $809,000 of realized gains and $140,000 of
realized losses, net of tax, recorded as cumulative translation adjustments in Accumulated other
comprehensive loss, related to these forward contracts.

Forward contracts designated as net investment hedges under this guidance as of October 31, 2017 were as
follows:

Notional
Amount
in Foreign
Currency

Weighted
Avg.
Forward
Rate

Contract Amount at
Forward Rates in U.S. Dollars
October 31,
2017

Contract
Date

Maturity Date

Forward
Contracts

Sale Contracts:

Euro

3,000,000

1.0935

3,280,500

3,497,342

Nov 2017

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

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

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

Our independent registered accounting firm, RSM US LLP (“RSM”), which also audited our consolidated
financial statements, audited the effectiveness of our internal control over financial reporting as of October
31, 2017. RSM has issued their attestation report, which is included in Part II, Item 8 of this Annual Report
on Form 10-K.

/s/ Michael Doar
Michael Doar,
Chairman and Chief Executive Officer

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

Indianapolis, Indiana
January 5, 2018

Report of Independent Registered Public Accounting Firm

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

We have audited the accompanying consolidated balance sheet of Hurco Companies, Inc. and subsidiaries

as of October 31, 2017, and the related consolidated statements of income, comprehensive income, changes

in shareholders' equity, and cash flows for the year then ended. Our audit also included the financial

statement schedule listed in Item 15(a). These financial statements and financial statement schedule are the

responsibility of the Company's management. Our responsibility is to express an opinion on these financial

statements and schedule based on our audits.

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

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

assurance about whether 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 consolidated financial statements referred to above present fairly, in all material respects,

the financial position of Hurco Companies, Inc. and subsidiaries as of October 31, 2017, and the results of

their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted

accounting principles. Also, in our opinion, the related financial statement schedule, when considered in

relation to the basic consolidated financial statements taken as a whole, presents fairly in all material

respects the information set forth therein.

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

(United States), Hurco Companies, Inc.’s and subsidiaries’ internal control over financial reporting as of

October 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated

January 5, 2018 expressed an unqualified opinion on the effectiveness of Hurco Companies, Inc. and

subsidiaries’ internal control over financial reporting.

/s/ RSM US LLP

Indianapolis, Indiana

January 5, 2018

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, 2017, based on criteria established in Internal

Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission (2013 framework) (COSO). Management is responsible for the Company’s financial

statements, for maintaining effective internal control over financial reporting, and for its assessment of the

effectiveness of internal control over financial reporting.

Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent

or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree of

compliance with the policies or procedures may deteriorate.

In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2017,

was effective based on the criteria specified above.

Our independent registered accounting firm, RSM US LLP (“RSM”), which also audited our consolidated

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

31, 2017. RSM has issued their attestation report, which is included in Part II, Item 8 of this Annual Report

Chairman and Chief Executive Officer

on Form 10-K.

/s/ Michael Doar

Michael Doar,

/s/ Sonja K. McClelland

Sonja K. McClelland

Indianapolis, Indiana

January 5, 2018

Executive Vice President, Secretary, Treasurer and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheet of Hurco Companies, Inc. and subsidiaries
as of October 31, 2017, and the related consolidated statements of income, comprehensive income, changes
in shareholders' equity, and cash flows for the year then ended. Our audit also included the financial
statement schedule listed in Item 15(a). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether 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 consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Hurco Companies, Inc. and subsidiaries as of October 31, 2017, and the results of
their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

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

/s/ RSM US LLP

Indianapolis, Indiana
January 5, 2018

Report of Independent Registered Public Accounting Firm

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

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

We have audited the accompanying consolidated balance sheet of Hurco Companies, Inc. as of October 31,
2016 and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity and cash flows for each of the two years in the period ended October 31, 2016. Our audits also
included the financial statement schedule listed at Item 15(a) for each of the two years in the period ended
October 31, 2016. These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Hurco Companies, Inc. at October 31, 2016 and the consolidated results
of its operations and its cash flows for each of the two 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 for each of the two years in the period ended October 31, 2016, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ Ernst & Young LLP

Indianapolis, Indiana
January 6, 2017, except for Note 15, as to which the date is January 5, 2018

We have audited Hurco Companies, Inc. and subsidiaries’ internal control over financial reporting as of

October 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission in 2013. Hurco Companies, Inc. and

subsidiaries’ 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 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, and testing and evaluating the design and operating

effectiveness of internal control based on the assessed risk. Our audit also included 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 (a) pertain to the maintenance of records

that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the

company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation

of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the company are being made only in accordance with authorizations of management and

directors of the company; and (c) 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. and subsidiaries maintained, in all material respects, effective

internal control over financial reporting as of October 31, 2017, based on criteria established in Internal

Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission in 2013.

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

(United States), the consolidated financial statements of Hurco Companies, Inc. and subsidiaries as of and

for the year ended October 31, 2017, and our report dated January 5, 2018 expressed an unqualified opinion.

/s/ RSM US LLP

Indianapolis, Indiana

January 5, 2018

Report of Independent Registered Public Accounting Firm

To the Shareholders and

Board of Directors

of Hurco Companies, Inc.

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

We have audited the accompanying consolidated balance sheet of Hurco Companies, Inc. as of October 31,

2016 and the related consolidated statements of income, comprehensive income, changes in shareholders’

equity and cash flows for each of the two years in the period ended October 31, 2016. Our audits also

included the financial statement schedule listed at Item 15(a) for each of the two years in the period ended

October 31, 2016. These financial statements and schedule are the responsibility of the Company’s

management. Our responsibility is to express an opinion on these financial statements and schedule based

on our audits.

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

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

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

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

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

as well as evaluating the overall financial statement presentation. We believe that our audits provide a

reasonable basis for our opinion.

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

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

of its operations and its cash flows for each of the two 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 for each of the two years in the period ended October 31, 2016, when considered in

relation to the basic financial statements taken as a whole, presents fairly in all material respects the

information set forth therein.

/s/ Ernst & Young LLP

Indianapolis, Indiana

January 6, 2017, except for Note 15, as to which the date is January 5, 2018

We have audited Hurco Companies, Inc. and subsidiaries’ internal control over financial reporting as of
October 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013. Hurco Companies, Inc. and
subsidiaries’ 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 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, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included 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 (a) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (c) 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. and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of October 31, 2017, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of Hurco Companies, Inc. and subsidiaries as of and
for the year ended October 31, 2017, and our report dated January 5, 2018 expressed an unqualified opinion.

/s/ RSM US LLP

Indianapolis, Indiana
January 5, 2018

HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

HURCO COMPANIES, INC.

Year Ended October 31,
2017
2015
2016
(In thousands, except per share amounts)

Year Ended October 31,

2017

2016

2015

(In thousands)

Sales and service fees

Cost of sales and service

Gross profit

$243,667

$227,289

$219,383

Net Income

$15,115

$13,292

$16,214

173,103

156,849

150,292

Other comprehensive income (loss):

70,564

70,440

69,091

Translation gain (loss) of foreign currency financial statements

4,916

(1,441)

(6,333)

Selling, general and administrative expenses

49,661

50,824

45,287

(Gain) / loss on derivative instruments reclassified into operations,

Operating income

Interest expense

Interest income

Investment income

20,903

19,616

23,804

198

net of tax of $(745), $(906), and $(431), respectively

(1,354)

(1,647)

(784)

Gain / (loss) on derivative instruments, net of tax of

$(390), $787, and $712, respectively

(709)

1,431

1,291

Total other comprehensive income (loss)

2,853

(1,657)

(5,826)

138

149

Comprehensive income

$17,968

$11,635

$10,388

Income from equity investments

505

466

474

Other expense, net

780

1,314

681

Income before income taxes

20,716

18,885

23,553

Provision for income taxes

5,601

5,593

7,339

Net income

$15,115

$13,292

$16,214

Income per common share – basic

$2.27

$2.01

$2.46

Weighted average common shares outstanding – basic

6,615

6,569

6,543

Income per common share – diluted

$2.25

$1.99

$2.44

Weighted average common shares outstanding – diluted

6,680

6,642

6,602

Dividends paid per share

$0.39

$0.35

$0.31

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

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Sales and service fees

Cost of sales and service

Gross profit

Operating income

Interest expense

Interest income

Investment income

Year Ended October 31,

2017

2016

2015

(In thousands, except per share amounts)

2017

Year Ended October 31,
2016
(In thousands)

2015

$243,667

$227,289

$219,383

Net Income

$15,115

$13,292

$16,214

173,103

156,849

150,292

Other comprehensive income (loss):

70,564

70,440

69,091

Translation gain (loss) of foreign currency financial statements

4,916

(1,441)

(6,333)

20,903

19,616

23,804

198

(Gain) / loss on derivative instruments reclassified into operations,
net of tax of $(745), $(906), and $(431), respectively

(1,354)

(1,647)

(784)

Gain / (loss) on derivative instruments, net of tax of
$(390), $787, and $712, respectively

(709)

1,431

1,291

Total other comprehensive income (loss)

2,853

(1,657)

(5,826)

138

149

Comprehensive income

$17,968

$11,635

$10,388

Selling, general and administrative expenses

49,661

50,824

45,287

Income from equity investments

505

466

474

Other expense, net

780

1,314

681

Income before income taxes

20,716

18,885

23,553

Provision for income taxes

5,601

5,593

7,339

Net income

$15,115

$13,292

$16,214

Income per common share – basic

$2.27

$2.01

$2.46

Weighted average common shares outstanding – basic

6,615

6,569

6,543

Income per common share – diluted

$2.25

$1.99

$2.44

Weighted average common shares outstanding – diluted

6,680

6,642

6,602

Dividends paid per share

$0.39

$0.35

$0.31

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

HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS

HURCO COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

ASSETS

Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
of $639 in 2017 and $664 in 2016
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

LIABILITIES AND SHAREHOLDERS’ EQUITY

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
authorized, no shares issued
Common stock: no par value, $.10 stated value per share, 12,500,000
shares authorized, 6,799,006 and 6,720,453 shares issued; and
6,641,197 and 6,573,103 shares outstanding, as of October 31,
2017 and October 31, 2016, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity

As of October 31,

2017

2016

(In thousands, except share and per share data)

$66,307

$41,217

50,094
119,948
596
7,913
1,557
246,415

48,631
117,025
1,725
8,207
1,576
218,381

841
7,352
25,652
3,503
37,348
(25,167)
12,181

6,226
2,440
1,076
6,176
7,131
23,049
$281,645

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

$45,127
2,511
18,240
1,772
1,732
1,507
70,889

$35,210
1,990
17,231
1,523
538
1,476
57,968

3,821
133
3,717
7,671

4,294
963
3,249
8,506

Year Ended October 31,

2017

$15,115

2016

(In thousands)

$13,292

2015

$16,214

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

Taxes paid related to net settlement of restricted shares

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

(25)

1,108

(505)

(851)

(411)

3,616

1,698

295

563

1,638

8,529

627

964

(2,069)

30,372

(75)

(225)

(466)

1,850

393

3,868

1,607

146

(8,141)

(13,881)

809

(6,001)

(90)

(245)

442

(6,717)

(2,181)

(2,264)

264

(1,972)

(2,205)

417

Net cash provided by (used for) investing activities

(4,028)

(3,913)

Cash flows from financing activities:

Proceeds from exercise of common stock options

Dividends paid

Tax benefit from exercise of stock options

Taxes paid related to net settlement of restricted shares

Repayment on short-term debt

534

(2,590)

(2,310)

(295)

(146)

Net cash provided by (used for) financing activities

(2,351)

(2,456)

(139)

(1,013)

(474)

3,223

147

3,222

1,193

239

3,666

2,852

383

(1,028)

(962)

1,081

179

28,783

(3,127)

(1,406)

308

(17,650)

(21,813)

257

(2,034)

119

(239)

(1,605)

(3,502)

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

1,097

25,090

(934)

(14,020)

(2,077)

1,391

Cash and cash equivalents at beginning of year

41,217

55,237

53,846

Cash and cash equivalents at end of year

66,307

41,217

55,237

664
61,344
149,267
(8,190)
203,085
$281,645

657
59,119
136,742
(11,043)
185,475
$251,949

Supplemental disclosures:

Cash paid for:

Interest

Income taxes, net

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

$66

$4,867

$56

$4,328

$156

$9,890

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

HURCO COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Current assets:

Cash and cash equivalents

ASSETS

Accounts receivable, less allowance for doubtful accounts

of $639 in 2017 and $664 in 2016

Less accumulated depreciation and amortization

Total property and equipment, net

Software development costs, less accumulated amortization

LIABILITIES AND SHAREHOLDERS’ EQUITY

Inventories, net

Derivative assets

Prepaid assets

Other

Total current assets

Property and equipment:

Land

Building

Machinery and equipment

Leasehold improvements

Non-current assets:

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

authorized, no shares issued

Common stock: no par value, $.10 stated value per share, 12,500,000

shares authorized, 6,799,006 and 6,720,453 shares issued; and

6,641,197 and 6,573,103 shares outstanding, as of October 31,

2017 and October 31, 2016, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

As of October 31,

2017

2016

(In thousands, except share and per share data)

$66,307

$41,217

50,094

119,948

596

7,913

1,557

48,631

117,025

1,725

8,207

1,576

246,415

218,381

841

7,352

25,652

3,503

37,348

(25,167)

841

7,352

23,515

3,487

35,195

(22,898)

12,181

12,297

6,226

2,440

1,076

6,176

7,131

4,926

2,314

1,150

6,138

6,743

23,049

21,271

$281,645

$251,949

$45,127

2,511

18,240

1,772

1,732

1,507

$35,210

1,990

17,231

1,523

538

1,476

70,889

57,968

3,821

133

3,717

4,294

963

3,249

7,671

8,506

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
Taxes paid related to net settlement of restricted shares
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
Taxes paid related to net settlement of restricted shares
Repayment on short-term debt
Net cash provided by (used for) financing activities

2017

Year Ended October 31,
2016
(In thousands)

2015

$15,115

$13,292

$16,214

(25)
1,108
(505)
(851)
(411)
3,616
1,698
295

563
1,638
80
8,529
627
964
(2,069)
30,372

(75)
(225)
(466)
1,850
393
3,868
1,607
146

(8,141)
(13,881)
809
(6,001)
(90)
(245)
442
(6,717)

(139)
(1,013)
(474)
3,223
147
3,222
1,193
239

3,666
2,852
383
(1,028)
(962)
1,081
179
28,783

--
(2,181)
(2,264)
417
--
(4,028)

264
(1,972)
(2,205)
--
--
(3,913)

62
(3,127)
(1,406)
308
(17,650)
(21,813)

534
(2,590)
--
(295)
--
(2,351)

--
(2,310)
--
(146)
--
(2,456)

257
(2,034)
119
(239)
(1,605)
(3,502)

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

1,097
25,090

(934)
(14,020)

(2,077)
1,391

Cash and cash equivalents at beginning of year

41,217

55,237

53,846

Cash and cash equivalents at end of year

66,307

41,217

55,237

664

61,344

149,267

(8,190)

657

59,119

136,742

(11,043)

203,085

185,475

$281,645

$251,949

Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net

$66
$4,867

$56
$4,328

$156
$9,890

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

HURCO COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HURCO COMPANIES, INC.

(In thousands, except shares
outstanding)

Common
Stock
Shares
Outstanding

Common

Stock
Amount

Additional

Paid-In
Capital

Accumulated
Other

Retained
Earnings

Comprehensive

Loss

Total

Balances, October 31, 2014

6,508,880

$651

$55,974

$111,580

($3,560)

$164,645

Net income
Other comprehensive income
(loss)
Exercise of common stock options
Stock-based compensation
expense
Tax benefit (expense) from stock
option activities
Dividends paid

16,214

eliminated.

--
15,300

27,538

--
1

--
256

--
--

(5,826)
--

(5,826)
257

1,190

1,193

being hedged.

--
--

119
--

--
(2,034)

--
--

119
(2,034)

Balances, October 31, 2015

6,551,718

$655

$57,539

$125,760

($9,386)

$174,568

Net income
Other comprehensive income
(loss)
Exercise of common stock options
Stock-based compensation
expense
Tax benefit (expense) from stock
option activities
Dividends paid

--
--

13,292

--
--

(1,657)
--

(1,657)
-

21,385

1,605

1,607

--
--

(25)
--

--
(2,310)

--
--

(25)
(2,310)

Balances, October 31, 2016

6,573,103

$657

$59,119

$136,742

($11,043)

$185,475

Net income
Other comprehensive income
(loss)
Exercise of common stock options
Stock-based compensation
expense
Dividends paid

15,115

--
29,164

38,930
--

--
3

4
--

--
531

--
--

2,853
--

2,853
534

1,694
--

--
(2,590)

--
--

1,698
(2,590)

Taiwan Dollars.

Balances, October 31, 2017

6,641,197

$664

$61,344

$149,267

($8,190)

$203,085

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an Indiana

corporation) and its wholly-owned subsidiaries. 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 $3.6

million as of October 31, 2017 and 2016, respectively. That investment is included in Investments and other assets,

net on the accompanying Consolidated Balance Sheets. Intercompany accounts and transactions have been

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

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, 2017 were a net loss of $7.4 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

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.

Common

Stock

Outstanding

Common

Additional

Stock

Amount

Paid-In

Capital

Accumulated

Other

Retained

Earnings

Comprehensive

Loss

Total

Balances, October 31, 2014

6,508,880

$651

$55,974

$111,580

($3,560)

$164,645

(In thousands, except shares

outstanding)

Other comprehensive income

Net income

(loss)

Exercise of common stock options

Stock-based compensation

expense

Tax benefit (expense) from stock

option activities

Dividends paid

Net income

(loss)

Other comprehensive income

Exercise of common stock options

Stock-based compensation

expense

Tax benefit (expense) from stock

option activities

Dividends paid

Net income

(loss)

Other comprehensive income

Stock-based compensation

expense

Dividends paid

Balances, October 31, 2015

6,551,718

$655

$57,539

$125,760

($9,386)

$174,568

16,214

256

(5,826)

257

(2,034)

1,193

119

(2,034)

13,292

(1,657)

15,300

27,538

1,190

119

Balances, October 31, 2016

6,573,103

$657

$59,119

$136,742

($11,043)

$185,475

Exercise of common stock options

29,164

531

Balances, October 31, 2017

6,641,197

$664

$61,344

$149,267

($8,190)

$203,085

38,930

1,694

(2,590)

1,698

(2,590)

15,115

2,853

534

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an Indiana
corporation) and its wholly-owned subsidiaries. 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 $3.6
million as of October 31, 2017 and 2016, 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, 2017 were a net loss of $7.4 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.

21,385

1,605

1,607

(25)

(2,310)

(25)

(2,310)

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.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

Derivatives Designated as Hedging Instruments

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, 2017, in Euros, Pounds Sterling and New Taiwan Dollars
with set maturity dates ranging from November 2017 through October 2018. The contract amount at forward
rates in U.S. Dollars at October 31, 2017 for Euros and Pounds Sterling was $31.6 million and $8.5 million,
respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $31.2 million at
October 31, 2017. At October 31, 2017, we had approximately $790,000 of loss, net of tax, related to cash flow
hedges deferred in Accumulated other comprehensive loss. Of this amount, $636,000 represented unrealized loss,
net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The majority
of these deferred losses will be recorded as an adjustment to Cost of sales and service in periods through October
2018, 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 2016.
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, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying
hedged net assets. This forward contract matured in November 2017 and we entered into a new forward contract
for the same notional amount that is set to mature in November 2018. As of October 31, 2017, we had a realized
gain of $809,000 and an unrealized loss of $140,000, 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.

We had forward contracts outstanding as of October 31, 2017, in Euros, Pounds Sterling, South African Rand and

New Taiwan Dollars with set maturity dates ranging from November 2017 through October 2018. The contract

amounts at forward rates in U.S. Dollars at October 31, 2017 for Euros, Pounds Sterling and South African Rand

totaled $28.1 million. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $32.6

million at October 31, 2017.

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, 2017 and October 31, 2016, 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

2017

Balance Sheet

Location

Fair

Value

2016

Balance Sheet

Location

Fair

Value

Derivative assets

Derivative liabilities

$ 305

$1,508

Derivative assets

Derivative liabilities

$1,721

$ 173

Not Designated as Hedging Instruments:

Foreign exchange forward contracts

Derivative assets

Derivative liabilities

$ 291

$ 224

Derivative assets

Derivative liabilities

$ 4

$ 365

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, 2017 and

2016 (in thousands):

Amount of Gain (Loss)

Location of Gain (Loss)

Amount of Gain (Loss)

Recognized in

Other Comprehensive

Reclassified from

Other Comprehensive

Reclassified from

Other Comprehensive

Income (Loss)

2017

2016

Income (Loss)

2017

2016

Derivatives

Designated as Hedging Instruments:

(Effective Portion)

Foreign exchange forward contracts

– Intercompany sales/purchases

$ (709)

$1,431

Cost of sales

and service

$1,354

$1,647

Foreign exchange forward contract

– Net Investment

$ (96)

$ 28

We recognized a gain of $18,000 during the fiscal year ended October 31, 2017 and a gain of $18,000 during the

fiscal year ended October 31, 2016 as a result of contracts closed early that were deemed ineffective for financial

reporting and did not qualify as cash flow hedges.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Derivatives Designated as Hedging Instruments

We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-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, 2017, in Euros, Pounds Sterling and New Taiwan Dollars

with set maturity dates ranging from November 2017 through October 2018. The contract amount at forward

rates in U.S. Dollars at October 31, 2017 for Euros and Pounds Sterling was $31.6 million and $8.5 million,

respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $31.2 million at

October 31, 2017. At October 31, 2017, we had approximately $790,000 of loss, net of tax, related to cash flow

hedges deferred in Accumulated other comprehensive loss. Of this amount, $636,000 represented unrealized loss,

net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The majority

of these deferred losses will be recorded as an adjustment to Cost of sales and service in periods through October

2018, 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 2016.

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, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying

hedged net assets. This forward contract matured in November 2017 and we entered into a new forward contract

for the same notional amount that is set to mature in November 2018. As of October 31, 2017, we had a realized

gain of $809,000 and an unrealized loss of $140,000, 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.

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

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, 2017 and October 31, 2016, 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

2017
Balance Sheet
Location

Fair
Value

2016
Balance Sheet
Location

Fair
Value

Derivative assets
Derivative liabilities

$ 305
$1,508

Derivative assets
Derivative liabilities

$1,721
$ 173

Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts

Derivative assets
Derivative liabilities

$ 291
$ 224

Derivative assets
Derivative liabilities

$ 4
$ 365

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, 2017 and
2016 (in thousands):

Amount of Gain (Loss)
Recognized in

Other Comprehensive

Location of Gain (Loss)
Reclassified from

Other Comprehensive

Amount of Gain (Loss)
Reclassified from

Other Comprehensive

Income (Loss)

2017

2016

Income (Loss)

2017

2016

Derivatives

Designated as Hedging Instruments:
(Effective Portion)

Foreign exchange forward contracts
– Intercompany sales/purchases

$ (709)

$1,431

Cost of sales
and service

$1,354

$1,647

Foreign exchange forward contract
– Net Investment

$ (96)

$ 28

We recognized a gain of $18,000 during the fiscal year ended October 31, 2017 and a gain of $18,000 during the
fiscal year ended October 31, 2016 as a result of contracts closed early that were deemed ineffective for financial
reporting and did not qualify as cash flow hedges.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

We recognized the following gains and losses in our Consolidated Statements of Income during the fiscal years
ended October 31, 2017 and 2016 on derivative instruments not designated as hedging instruments (in thousands):

Derivatives

Location of Gain (Loss)
Recognized in Operations

Amount of Gain (Loss)
Recognized in Operations
2016
2017

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.

Not Designated as Hedging Instruments:
Foreign exchange forward contracts

Other expense, net

$(1,001)

$536

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

of the contract, and are generally sold on a stand-alone basis.

The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax,
for the fiscal years ended October 31, 2017 and 2016 (in thousands):

Balance, October 31, 2015…………………………….......
Other comprehensive income (loss) before reclassifications
Reclassifications ……………………………………………
Balance, October 31, 2016 …………………………………

Other comprehensive income (loss) before reclassifications
Reclassifications ……………………………………………
Balance, October 31, 2017 …………………………………

Foreign
Currency
Translation

Cash
Flow
Hedges

$ (10,884)
(1,441)
--
$ (12,325)

4,916
--
$ (7,409)

$ 1,498
1,431
(1,647)
$ 1,282

(709)
(1,354)
$ (781)

Total
$ (9,386)
(10)
(1,647)
$ (11,043)

4,207
(1,354)
$ (8,190)

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:

Land
Building
Machines
Shop and office equipment
Building & leasehold improvements

Number of Years
Indefinite
40
7 – 10
3 – 7
3 – 40

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

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

Sales related to software upgrades are recognized when shipped in conformity with U.S. Generally Accepted

Accounting Principles as promulgated by FASB guidance related to software revenue recognition that requires at

the time of shipment, persuasive evidence of an arrangement exists, delivery has occurred, the selling price is

fixed and determinable and collectability is reasonably assured. The software does not require production,

modification or customization.

Allowance for Doubtful Accounts. The allowance for doubtful accounts is based on our best estimate of probable

credit issues and historical experience. We perform credit evaluations of the financial condition of our customers.

No collateral is required for sales made on open account terms. Concentrations of credit risk with respect to

accounts receivable are limited due to the large number of customers comprising our customer base and their

dispersion across many geographic areas. We consider trade accounts receivable to be past due when payment

is not made by the due date as specified on the customer invoice, and we charge off uncollectible balances when

all reasonable collection efforts have been exhausted.

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 11 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 $4.2 million, $4.9 million, and $3.9 million, in fiscal 2017,

2016, and 2015, respectively.

Software Development Costs. We sell software products that are essential to our machine tools. Costs incurred

to develop computer software products and significant enhancements to software features of existing products to

be sold or otherwise marketed are capitalized, after technological feasibility is established. Software development

costs are amortized on a straight-line basis over the estimated product life of the related software, which ranges

from three to five years. We capitalized costs of $2.3 million in fiscal 2017, $2.2 million in fiscal 2016, and $1.4

million in fiscal 2015 related to software development projects. Amortization expense for software development

costs was $1.0 million, $1.2 million, and $1.0 million, for the fiscal years ended October 31, 2017, 2016, and

2015, respectively. Accumulated amortization at October 31, 2017 and 2016 was $17.4 million and $16.5 million,

respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

We recognized the following gains and losses in our Consolidated Statements of Income during the fiscal years

ended October 31, 2017 and 2016 on derivative instruments not designated as hedging instruments (in thousands):

Derivatives

Location of Gain (Loss)

Recognized in Operations

Not Designated as Hedging Instruments:

Foreign exchange forward contracts

Other expense, net

Amount of Gain (Loss)

Recognized in Operations

2017

2016

$(1,001)

$536

The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax,

for the fiscal years ended October 31, 2017 and 2016 (in thousands):

Balance, October 31, 2015…………………………….......

Other comprehensive income (loss) before reclassifications

Reclassifications ……………………………………………

(1,647)

Balance, October 31, 2016 …………………………………

$ (12,325)

$ 1,282

$ (11,043)

Other comprehensive income (loss) before reclassifications

Reclassifications ……………………………………………

4,916

(709)

(1,354)

4,207

(1,354)

Balance, October 31, 2017 …………………………………

$ (7,409)

$ (781)

$ (8,190)

Foreign

Currency

Translation

Cash

Flow

Hedges

$ (10,884)

(1,441)

$ 1,498

1,431

Total

$ (9,386)

(10)

(1,647)

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:

Land

Building

Machines

Shop and office equipment

Building & leasehold improvements

Number of Years

Indefinite

7 – 10

3 – 7

3 – 40

Total depreciation and amortization expense recognized for property and equipment for the fiscal years ended

October 31, 2017, 2016 and 2015 was $2.5 million, $2.5 million, and $2.2 million, respectively.

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

to the customer or distributor, which is normally at the time of shipment, because persuasive evidence of an

arrangement exists, delivery has occurred, the selling price is fixed and determinable and collectability is

reasonably assured. Our computerized machine tools are general purpose computer controlled machine tools that

are typically used in stand-alone operations. Transfer of ownership and risk of loss are not contingent upon

contractual customer acceptance. Prior to shipment, we test each machine to ensure the machine’s compliance

with standard operating specifications.

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, and are generally sold on a stand-alone basis.

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

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

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 11 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 $4.2 million, $4.9 million, and $3.9 million, in fiscal 2017,
2016, and 2015, respectively.

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

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

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

Fiscal Year
2018
2019
2020
2021
2022

Amortization Expense
1,425
1,250
1,200
1,075
975

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. We use a qualitative approach to test goodwill and indefinite-lived assets for
impairment annually. Periodically, or when indicators of impairment exist, we also utilize a two-stepped approach
to measuring goodwill impairment. The first step of the test determines if there is potential goodwill impairment.
In this step we compare the fair value of the reporting unit to its carrying amount (which includes goodwill). The
fair value of the reporting unit is determined by using an estimate of future cash flows utilizing a risk-adjusted
discount rate to calculate the net present value of future cash flows (income approach), and by using a market
approach based upon an analysis of valuation metrics of comparable peer companies. If the carrying amount
exceeds the fair value, we perform the second step of the test, which measures the amount of impairment loss to
be recorded, if any. In the second step, we compare the carrying amount of the goodwill to the implied fair value
of the goodwill based on the net fair value of the recognized and unrecognized assets and liabilities of the reporting
unit. If the implied fair value is less than the carrying value, an impairment loss is recorded to the extent that the
fair value of the goodwill is less than its carrying value. For other separately recognized intangible assets with
indefinite lives, we use a qualitative approach to test such assets for impairment if certain conditions are met.
Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are
also subject to review for impairment, if indicators of impairment are identified.

For fiscal 2017, we utilized both the quantitative and qualitative approaches to test for goodwill impairment and
a qualitative approach to test intangible assets for potential impairment. For fiscal 2016, we utilized the qualitative
approach to test both goodwill and intangible assets for potential impairment. For each of fiscal 2017 and 2016,
we concluded that goodwill and other intangible assets were not impaired.

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

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

Weighted
Average
Amortization
Period

13 years
indefinite
15 years
13 years
6 years
8 years

Gross
Intangible
Assets

$ 245

60
257
713
2,973
378
$ 4,626

Accumulated
Amortization

$ (81)

(132)
(239)
(2,765)
(333)
$ (3,550)

Net
Intangible
Assets

$ 164

60
125
474
208
45
$ 1,076

Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total

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

$ 231

$ (59)

$ 172

Gross

Intangible

Assets

254

672

2,972

373

Accumulated

Amortization

Net

Intangible

Assets

(114)

(172)

(2,741)

140

500

231

(326)

$ 4,562

$ (3,412)

$ 1,150

Tradenames and trademarks

Customer relationships

Technology

Patents

Other

Total

Intangible asset amortization expense was $136,000, $137,000, and $207,000 for fiscal 2017, 2016 and 2015,

respectively. Annual intangible asset amortization expense is estimated to be $120,000 per year for fiscal years

2018 through 2022.

Impairment of Long-Lived Assets. Annually, or when there are indicators of impairment, we 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.”

(in thousands, except per share amounts)

2017

2016

2015

Net income

$15,115 $15,115

$13,292 $13,292

$16,214 $16,214

Basic

Diluted

Basic

Diluted

Basic

Diluted

Fiscal Year Ended October 31,

participating shares

(100)

(76)

(93)

Undistributed earnings allocated to

Net income applicable to common

shareholders

$15,015 $15,015

$13,216 $13,216

$16,121 $16,121

Weighted average shares outstanding

6,615

6,569

6,543

Stock options and contingently issuable securities

Income per share

$2.27

$2.25

$2.01

$1.99

$2.46

$2.44

6,615

6,680

6,569

6,642

6,543

6,602

Fiscal Year

Amortization Expense

2018

2019

2020

2021

2022

1,425

1,250

1,200

1,075

975

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. We use a qualitative approach to test goodwill and indefinite-lived assets for

impairment annually. Periodically, or when indicators of impairment exist, we also utilize a two-stepped approach

to measuring goodwill impairment. The first step of the test determines if there is potential goodwill impairment.

In this step we compare the fair value of the reporting unit to its carrying amount (which includes goodwill). The

fair value of the reporting unit is determined by using an estimate of future cash flows utilizing a risk-adjusted

discount rate to calculate the net present value of future cash flows (income approach), and by using a market

approach based upon an analysis of valuation metrics of comparable peer companies. If the carrying amount

exceeds the fair value, we perform the second step of the test, which measures the amount of impairment loss to

be recorded, if any. In the second step, we compare the carrying amount of the goodwill to the implied fair value

of the goodwill based on the net fair value of the recognized and unrecognized assets and liabilities of the reporting

unit. If the implied fair value is less than the carrying value, an impairment loss is recorded to the extent that the

fair value of the goodwill is less than its carrying value. For other separately recognized intangible assets with

indefinite lives, we use a qualitative approach to test such assets for impairment if certain conditions are met.

Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are

also subject to review for impairment, if indicators of impairment are identified.

For fiscal 2017, we utilized both the quantitative and qualitative approaches to test for goodwill impairment and

a qualitative approach to test intangible assets for potential impairment. For fiscal 2016, we utilized the qualitative

approach to test both goodwill and intangible assets for potential impairment. For each of fiscal 2017 and 2016,

we concluded that goodwill and other intangible assets were not impaired.

Weighted

Average

Period

13 years

indefinite

15 years

13 years

6 years

8 years

Gross

Assets

$ 245

257

713

2,973

378

$ 4,626

Accumulated

Amortization

$ (81)

(132)

(239)

(2,765)

(333)

$ (3,550)

Net

Intangible

Assets

$ 164

125

474

208

$ 1,076

Tradenames and trademarks

Customer relationships

Technology

Patents

Other

Total

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Estimated amortization expense for the remaining unamortized software development costs for the fiscal years

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

ending October 31, is 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
672
2,972
373
$ 4,562

Accumulated
Amortization
$ (59)
--
(114)
(172)
(2,741)
(326)
$ (3,412)

Net
Intangible
Assets
$ 172
60
140
500
231
47
$ 1,150

Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total

Intangible asset amortization expense was $136,000, $137,000, and $207,000 for fiscal 2017, 2016 and 2015,
respectively. Annual intangible asset amortization expense is estimated to be $120,000 per year for fiscal years
2018 through 2022.

Impairment of Long-Lived Assets. Annually, or when there are indicators of impairment, we 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.”

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

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

Amortization

Intangible

(in thousands, except per share amounts)

2017

2016

2015

Fiscal Year Ended October 31,

Net income

$15,115 $15,115

$13,292 $13,292

$16,214 $16,214

Basic

Diluted

Basic

Diluted

Basic

Diluted

Undistributed earnings allocated to

participating shares

(100)

(76)

(93)

Net income applicable to common

shareholders

$15,015 $15,015

$13,216 $13,216

$16,121 $16,121

Weighted average shares outstanding

6,615

6,569

6,543

Stock options and contingently issuable securities

Income per share

$2.27

$2.25

$2.01

$1.99

$2.46

$2.44

6,615

6,680

6,569

6,642

6,543

6,602

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

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, 2017 were approximately $92.9 million. In the event these earnings are later distributed
to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part, by
associated foreign tax credits.

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

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

served include: aerospace, defense, medical equipment, energy, automotive/transportation, electronics and

computer industries. Our products are sold through more than 193 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, 2017 and 2016 are summarized below (in thousands):

Purchased parts and sub-assemblies

Work-in-process

Finished goods

2017

$ 33,045

20,008

66,895

$ 119,948

2016

$ 25,661

17,724

73,640

$ 117,025

Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe and Asia was

$12.1 million and $11.6 million as of October 31, 2017 and 2016, respectively.

CREDIT AGREEMENTS AND BORROWINGS

On December 7, 2012, we entered into an agreement, which was subsequently amended on May 9, 2014, June 5,

2014, December 5, 2014 and December 6, 2016 (as amended, the “U.S. credit agreement”) with a financial

institution that provided us with an unsecured revolving credit and letter of credit facility. 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, and (3) requiring that we maintain a

minimum tangible net worth. The U.S. credit agreement permits us to pay certain cash dividends, so long as we

are not in default under the U.S. credit agreement before and after giving effect to such dividends.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

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, 2017 were approximately $92.9 million. In the event these earnings are later distributed

to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part, by

associated foreign tax credits.

In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in forward-

looking statements is based on currently effective tax laws. Significant changes in those laws could materially

affect these estimates.

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
served include: aerospace, defense, medical equipment, energy, automotive/transportation, electronics and
computer industries. Our products are sold through more than 193 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, 2017 and 2016 are summarized below (in thousands):

Purchased parts and sub-assemblies
Work-in-process
Finished goods

2017
$ 33,045
20,008
66,895
$ 119,948

2016
$ 25,661
17,724
73,640
$ 117,025

Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe and Asia was
$12.1 million and $11.6 million as of October 31, 2017 and 2016, respectively.

CREDIT AGREEMENTS AND BORROWINGS

On December 7, 2012, we entered into an agreement, which was subsequently amended on May 9, 2014, June 5,
2014, December 5, 2014 and December 6, 2016 (as amended, the “U.S. credit agreement”) with a financial
institution that provided us with an unsecured revolving credit and letter of credit facility. 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, and (3) requiring that we maintain a
minimum tangible net worth. The U.S. credit agreement permits us to pay certain cash dividends, so long as we
are not in default under the U.S. credit agreement before and after giving effect to such dividends.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

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

On December 6, 2016, we entered into a fourth amendment to our U.S. credit agreement to, among other things,
increase the 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. The U.S. credit agreement, as amended, provides for the issuance of up to
$5.0 million in letters of credit. We also amended the U.S. credit agreement to increase the minimum working
capital and minimum tangible net worth requirements from $90.0 million to $105.0 million and $120.0 million to
$125.0 million, respectively.

On February 16, 2017, we amended our credit facility in China to decrease the credit facility from 40.0 million
Chinese Yuan to 20.0 million Chinese Yuan (approximately $3.0 million) and renewed the facility with an
expiration date of February 15, 2018. We had $1.5 million of borrowings under our China credit facility at each
of October 31, 2017 and October 31, 2016, which bears interest at variable rates of 4.4% and 4.6% annually,
respectively. We also have a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million
revolving credit facility in Germany. We had no other debt or borrowings under any of our other credit facilities
at either of those dates.

All of our credit facilities are unsecured. At October 31, 2017, we had unutilized credit facilities of $19.6 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 for which little or no market data exists, therefore
requiring an entity to develop its own assumptions.

The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of
these instruments, and such instruments meet the Level 1 criteria of the three-tier fair value hierarchy discussed
above. 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.

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, 2017 and 2016 (in thousands):

Level 1
Deferred compensation
Level 2
Derivatives

Assets

Liabilities

October 31,
2017

October 31,
2016

October 31,

2017

2016

$ 1,638

$ 1,363

$ --

$ 596

$ 1,725

$ 1,732

$ 538

Recurring Fair Value Measurements

Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan. We

estimate the fair value of these investments on a recurring basis using market prices which are readily available.

Included as Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on

foreign currency forward exchange contracts entered into with a third party. We estimate the fair value of these

derivatives on a recurring basis using foreign currency exchange rates obtained from active markets. Derivative

instruments are reported in the accompanying consolidated financial statements at fair value. We have derivative

financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes

to Consolidated Financial Statements in which the U.S. Dollar equivalent notional amount of these contracts was

$134.3 million and $125.6 million at October 31, 2017 and 2016, respectively.

The fair value of the foreign currency forward exchange contracts and the related currency positions are subject

to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparty to the forward

exchange contract is a substantial and creditworthy financial institution. We do not consider either the risk of

counterparty non-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,

2017

2016

2015

Current:

Deferred:

U.S. taxes .................................................................

$ 308

$ 1,362

$ 4,600

Foreign taxes ...........................................................

4,185

4,493

4,456

5,818

3,752

8,352

U.S. taxes .................................................................

Foreign taxes ...........................................................

1,236

(128)

1,108

$ 5,601

(176)

(49)

(896)

(117)

(225)

(1,013)

$ 5,593

$ 7,339

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):

Income before income taxes:

Year Ended October 31,

2017

2016

2015

Domestic ..................................................................

Foreign ....................................................................

Earnings (Loss) before taxes on income

$ 5,477

15,239

$ 20,716

$ 2,703

$ 10,806

16,182

$ 18,885

12,747

$ 23,553

Tax rates:

U.S. statutory rate ...........................................................

34%

Effect of tax rate of international jurisdictions

different than U.S. statutory rates ................................

Valuation allowance...................................................

State taxes.......................................................................

Tax Credits .....................................................................

Effect of Tax Rate Changes ...........................................

Other

Effective tax rate ............................................................

(5%)

(3%)

27%

34%

(7%)

(2%)

30%

35%

(5%)

(1%)

31%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Recurring Fair Value Measurements

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

Included as Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on
foreign currency forward exchange contracts entered into with a third party. We estimate the fair value of these
derivatives on a recurring basis using foreign currency exchange rates obtained from active markets. Derivative
instruments are reported in the accompanying consolidated financial statements at fair value. We have derivative
financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes
to Consolidated Financial Statements in which the U.S. Dollar equivalent notional amount of these contracts was
$134.3 million and $125.6 million at October 31, 2017 and 2016, respectively.

The fair value of the foreign currency forward exchange contracts and the related currency positions are subject
to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparty to the forward
exchange contract is a substantial and creditworthy financial institution. We do not consider either the risk of
counterparty non-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):

Current:

U.S. taxes .................................................................
Foreign taxes ...........................................................

Deferred:

U.S. taxes .................................................................
Foreign taxes ...........................................................

Year Ended October 31,
2016

2017

2015

$ 308
4,185
4,493

1,236
(128)
1,108
$ 5,601

$ 1,362
4,456
5,818

$ 4,600
3,752
8,352

(176)
(49)
(225)

$ 5,593

(896)
(117)
(1,013)
$ 7,339

Borrowings under our U.S. credit agreement bear interest either at a LIBOR-based rate or a floating rate, in each

case with an interest rate floor of 0.00%. The floating rate equals the greatest of (a) a one month LIBOR-based

rate plus 1.00% per annum, (b) the federal funds effective rate plus 0.50% per annum, (c) the prevailing prime

rate and (d) 0.00%. The rate we must pay for that portion of the U.S. credit agreement which is not utilized is

0.05% per annum.

On December 6, 2016, we entered into a fourth amendment to our U.S. credit agreement to, among other things,

increase the 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. The U.S. credit agreement, as amended, provides for the issuance of up to

$5.0 million in letters of credit. We also amended the U.S. credit agreement to increase the minimum working

capital and minimum tangible net worth requirements from $90.0 million to $105.0 million and $120.0 million to

$125.0 million, respectively.

On February 16, 2017, we amended our credit facility in China to decrease the credit facility from 40.0 million

Chinese Yuan to 20.0 million Chinese Yuan (approximately $3.0 million) and renewed the facility with an

expiration date of February 15, 2018. We had $1.5 million of borrowings under our China credit facility at each

of October 31, 2017 and October 31, 2016, which bears interest at variable rates of 4.4% and 4.6% annually,

respectively. We also have a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million

revolving credit facility in Germany. We had no other debt or borrowings under any of our other credit facilities

at either of those dates.

All of our credit facilities are unsecured. At October 31, 2017, we had unutilized credit facilities of $19.6 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 for which little or no market data exists, therefore

requiring an entity to develop its own assumptions.

The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of

these instruments, and such instruments meet the Level 1 criteria of the three-tier fair value hierarchy discussed

above. 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.

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, 2017 and 2016 (in thousands):

Assets

Liabilities

October 31,

2017

2016

October 31,

2017

2016

Level 1

Level 2

Derivatives

Deferred compensation

$ 1,638

$ 1,363

$ --

$ 596

$ 1,725

$ 1,732

$ 538

Income before income taxes:

Domestic ..................................................................
Foreign ....................................................................
Earnings (Loss) before taxes on income
Tax rates:
U.S. statutory rate ...........................................................
Effect of tax rate of international jurisdictions
different than U.S. statutory rates ................................
Valuation allowance...................................................
State taxes.......................................................................
Tax Credits .....................................................................
Effect of Tax Rate Changes ...........................................
Other
Effective tax rate ............................................................

$ 5,477
15,239
$ 20,716

$ 2,703
16,182
$ 18,885

$ 10,806
12,747
$ 23,553

34%

35%

(5%)
1%
0%
(3%)
0%
0%
27%

(7%)
3%
0%
(2%)
4%
(2%)
30%

(5%)
1%
1%
(1%)
0%
0%
31%

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):

Year Ended October 31,
2016

2017

2015

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

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, 2017 were approximately $92.9 million. In the
event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax
that may be offset, at least in part, by associated foreign tax credits.

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

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

Significant components of our deferred tax assets and liabilities at October 31, 2017 and 2016 were as follows (in
thousands):

Deferred Tax Assets:
Accrued inventory reserves ......................................................................
Accrued warranty expenses .....................................................................
Compensation related expenses ...............................................................
Net derivative instruments……………………………………………..
Unrealized exchange gain/loss .................................................................
Other accrued expenses ............................................................................
Net operating loss carryforwards .............................................................
Other credit carryforwards………………………………………….....
Other ........................................................................................................

October 31,

2017

2016

$ 1,965
438
2,952
417
--
187
1,722
517
404
8,602

$ 1,824
312
2,664
--
370
194
1,616
474
331
7,785

Less: Valuation allowance - net operating loss and other credit

carryforwards…….....

Deferred tax assets ...................................................................................

(2,282)
6,320

(2,067)
5,718

Deferred Tax Liabilities:
Net derivative instruments .......................................................................
Property and equipment and capitalized software development costs .....
Unrealized exchange gain/loss………………………………………....
Other ........................................................................................................

Net deferred tax assets

--
(3,241)
(116)
(624)

(701)
(2,717)
--
(456)

$ 2,339

$ 1,844

As of October 31, 2017, we had net operating losses carryforwards for international and U.S. income tax purposes
of $8.1 million, of which $6.7 million will expire within 5 years beginning in 2018 and $1.4 million will expire
between 5 and 20 years. We also had tax credits of $784,000 which will expire between years 2022 and 2027.

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

2017

2016

2015

$ 1,102

$ 1,034

$ 1,196

(20)

(74)

(3)

(51)

(128)

$ 1,101

$ 1,102

$ 1,034

The entire balance of the unrecognized tax benefits and related interest at October 31, 2017, if recognized, would

affect the effective tax rate in future periods. This balance will be reduced by $1.0 million during the next fiscal

year due to statute of limitations expiration.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax

provision. As of October 31, 2017, the amount of interest accrued, reported in other liabilities, was approximately

$65,000, 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 2018 and July 2020.

We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions.

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

United States federal

Fiscal 2014 through the current period

Germany¹

Taiwan

Fiscal 2013 through the current period

Fiscal 2014 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, $1.1 million, and $933,000, for the fiscal years ended

October 31, 2017, 2016 and 2015, 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, restricted stock, stock units and other

stock-based awards. The 2016 Equity Plan replaced the Hurco Companies, Inc. 2008 Equity Incentive Plan (the

“2008 Plan”) and is the only active plan under which equity awards may be made by us 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 includes

386,048 shares remaining available for future grants under the 2008 Plan as of March 10, 2016, the date our

shareholders approved the 2016 Equity Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

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, 2017 were approximately $92.9 million. In the

event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax

that may be offset, at least in part, by associated foreign tax credits.

Deferred income taxes are determined based on the difference between the amounts used for financial reporting

purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences

are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are

enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax

benefit will not be realized.

As of October 31, 2017, we had deferred tax assets established for accumulated net operating loss carryforwards

of $1.7 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for research

and development tax credits of $0.5 million. We have established a valuation allowance against some of these

carryforwards due to the uncertainty of their full realization. As of October 31, 2017 and 2016, the balance of this

valuation allowance was $2.3 million and $2.1 million, respectively.

Significant components of our deferred tax assets and liabilities at October 31, 2017 and 2016 were as follows (in

thousands):

Deferred Tax Assets:

Accrued inventory reserves ......................................................................

Accrued warranty expenses .....................................................................

Compensation related expenses ...............................................................

Net derivative instruments……………………………………………..

Unrealized exchange gain/loss .................................................................

Other accrued expenses ............................................................................

Net operating loss carryforwards .............................................................

Other credit carryforwards………………………………………….....

Other ........................................................................................................

October 31,

2017

2016

$ 1,965

$ 1,824

438

2,952

417

187

1,722

517

404

8,602

312

2,664

370

194

1,616

474

331

7,785

Less: Valuation allowance - net operating loss and other credit

carryforwards…….....

Deferred tax assets ...................................................................................

(2,282)

6,320

(2,067)

5,718

Deferred Tax Liabilities:

Net derivative instruments .......................................................................

Property and equipment and capitalized software development costs .....

Unrealized exchange gain/loss………………………………………....

Other ........................................................................................................

(3,241)

(116)

(624)

(701)

(2,717)

(456)

Net deferred tax assets

$ 2,339

$ 1,844

As of October 31, 2017, we had net operating losses carryforwards for international and U.S. income tax purposes

of $8.1 million, of which $6.7 million will expire within 5 years beginning in 2018 and $1.4 million will expire

between 5 and 20 years. We also had tax credits of $784,000 which will expire between years 2022 and 2027.

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

2017
$ 1,102
37
(20)
(74)
56

2016
$ 1,034
52
19
--
(3)

2015
$ 1,196
17
(51)
--
(128)

$ 1,101

$ 1,102

$ 1,034

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

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax
provision. As of October 31, 2017, the amount of interest accrued, reported in other liabilities, was approximately
$65,000, 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 2018 and July 2020.

We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions.

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

United States federal
Germany¹
Taiwan

Fiscal 2014 through the current period
Fiscal 2013 through the current period
Fiscal 2014 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, $1.1 million, and $933,000, for the fiscal years ended
October 31, 2017, 2016 and 2015, 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, restricted stock, stock units and other
stock-based awards. The 2016 Equity Plan replaced the Hurco Companies, Inc. 2008 Equity Incentive Plan (the
“2008 Plan”) and is the only active plan under which equity awards may be made by us 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 includes
386,048 shares remaining available for future grants under the 2008 Plan as of March 10, 2016, the date our
shareholders approved the 2016 Equity Plan.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

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

A summary of the status of the options as of October 31, 2017, 2016 and 2015 and the related activity for the year
is as follows:

Weighted Average Grant
Date Fair Value

Balance October 31, 2014
Granted
Cancelled
Expired
Exercised
Balance October 31, 2015
Granted
Cancelled
Expired
Exercised
Balance October 31, 2016
Granted
Cancelled
Expired
Exercised
Balance October 31, 2017

Shares Under
Option

128,189
--
(5,000)
--
(15,300)
107,889
--
--
--
--
107,889
--
--
--
(29,164)
78,725

$20.45
--
$35.83
--
$16.81
$20.25
--
--
--
--
$20.25
--
--
--
$18.31
$20.97

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2017, 2016 and
2015 was approximately $771,000, $0 and $154,000, respectively.

As of October 31, 2017, the total intrinsic value of outstanding stock options already vested and the intrinsic

value of options that are outstanding and exercisable was $1.8 million. Stock options outstanding and exercisable

on October 31, 2017, were as follows:

Range of Exercise

Prices Per Share

Shares Under

Option

Weighted Average

Exercise Price Per

Weighted Average

Remaining Contractual

Life in Years

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

11,000

4,200

12,000

30,012

16,513

5,000

78,725

11,000

4,200

12,000

30,012

16,513

5,000

78,725

$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

2.1

1.5

2.5

4.1

5.1

0.6

3.4

2.1

1.5

2.5

4.1

5.1

0.6

3.4

On March 9, 2017, the Compensation Committee granted a total of 14,920 shares of time-based restricted stock

to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the

recipient remains on the board of directors through that date. The grant date fair value of the restricted shares was

based on the closing sales price of our common stock on the grant date, which was $26.80 per share.

On January 5, 2017, the Compensation Committee determined the degree to which the long-term incentive

compensation arrangement approved for the fiscal 2014-2016 performance period was attained, and the resulting

payout level relative to the target amount for each of the metrics that were established by the Compensation

Committee in 2014. As a result, the Compensation Committee determined that a total of 30,683 performance

shares were earned by our executive officers, which performance shares vested on January 5, 2017. The vesting

date fair value of the performance shares was based on the closing sales price of our common stock on the vesting

date, which was $33.90 per share. All related stock-based compensation cost for these vested performance shares

was expensed accordingly during the three year performance period ending October 31, 2016.

On January 5, 2017, the Compensation Committee also approved a long-term incentive compensation arrangement

for our executive officers in the form of restricted shares and performance stock units (“PSUs”) under the 2016

Equity Plan, which will be payable in shares of our common stock if earned and vested. The awards were 25%

time-based vesting and 75% performance-based vesting. The three-year performance period for the PSUs is fiscal

2017 through fiscal 2019.

On that date, the Compensation Committee granted a total of 14,747 shares of time-based restricted stock to our

executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient

remains employed through that date. The grant date fair value of the restricted shares was based upon the closing

sales price of our common stock on the date of grant, which was $33.90 per share.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The Compensation Committee of our Board of Directors has the authority to determine the officers, directors and

key employees who will be granted awards under the 2016 Equity Plan; designate the number of shares subject to

each award; determine the terms and conditions upon which awards will be granted; and prescribe the form and

terms of award agreements. We have granted restricted shares and performance units under the 2016 Equity Plan

that are currently outstanding, and we have granted stock options, restricted shares and performance shares under

the 2008 Plan that are currently outstanding. No stock option may be exercised more than ten years after the date

of grant or such shorter period as the Compensation Committee may determine at the date of grant. The market

value of a share of our common stock, for purposes of the 2016 Equity Plan, is the closing sale price as reported

by the Nasdaq Global Select Market on the date in question or, if not a trading day, on the last preceding trading

A summary of the status of the options as of October 31, 2017, 2016 and 2015 and the related activity for the year

date.

is as follows:

Weighted Average Grant

Date Fair Value

Balance October 31, 2014

Balance October 31, 2015

Granted

Cancelled

Expired

Exercised

Granted

Cancelled

Expired

Exercised

Granted

Cancelled

Expired

Exercised

Shares Under

Option

128,189

(5,000)

(15,300)

107,889

Balance October 31, 2016

107,889

$20.25

Balance October 31, 2017

(29,164)

78,725

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2017, 2016 and

2015 was approximately $771,000, $0 and $154,000, respectively.

$20.45

$35.83

$16.81

$20.25

$18.31

$20.97

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

Range of Exercise
Prices Per Share

Outstanding

$14.82
14.88
18.13
21.45
23.30
35.83
$ 14.82 – 35.83

Exercisable

$14.82
14.88
18.13
21.45
23.30
35.83
$ 14.82 – 35.83

Shares Under
Option

Weighted Average
Exercise Price Per
Share

Weighted Average
Remaining Contractual
Life in Years

11,000
4,200
12,000
30,012
16,513
5,000
78,725

$14.82
14.88
18.13
21.45
23.30
35.83
$20.25

2.1
1.5
2.5
4.1
5.1
0.6
3.4

On March 9, 2017, the Compensation Committee granted a total of 14,920 shares of time-based restricted stock
to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the
recipient remains on the board of directors through that date. The grant date fair value of the restricted shares was
based on the closing sales price of our common stock on the grant date, which was $26.80 per share.

On January 5, 2017, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2014-2016 performance period was attained, and the resulting
payout level relative to the target amount for each of the metrics that were established by the Compensation
Committee in 2014. As a result, the Compensation Committee determined that a total of 30,683 performance
shares were earned by our executive officers, which performance shares vested on January 5, 2017. The vesting
date fair value of the performance shares was based on the closing sales price of our common stock on the vesting
date, which was $33.90 per share. All related stock-based compensation cost for these vested performance shares
was expensed accordingly during the three year performance period ending October 31, 2016.

On January 5, 2017, the Compensation Committee also approved a long-term incentive compensation arrangement
for our executive officers in the form of restricted shares and performance stock units (“PSUs”) under the 2016
Equity Plan, which will be payable in shares of our common stock if earned and vested. The awards were 25%
time-based vesting and 75% performance-based vesting. The three-year performance period for the PSUs is fiscal
2017 through fiscal 2019.

On that date, the Compensation Committee granted a total of 14,747 shares of time-based restricted stock to our
executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient
remains employed through that date. The grant date fair value of the restricted shares was based upon the closing
sales price of our common stock on the date of grant, which was $33.90 per share.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

On January 5, 2017, the Compensation Committee also granted a total target number of 18,496 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2017 executive long-term incentive compensation arrangement and will vest and be paid based upon the total
shareholder return of our common stock over the three-year period of fiscal 2017-2019, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200% of
the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the PSUs
– TSR was $43.25 per PSU and was calculated using the Monte Carlo approach.

On January 5, 2017, the Compensation Committee also granted a total target number of 20,647 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall
2017 executive long-term incentive compensation arrangement and will vest and be paid based upon the
achievement of pre-established goals related to our average return on invested capital over the three-year period
of fiscal 2017-2019. Participants will have the ability to earn between 50% of the target number of the PSUs -
ROIC for achieving threshold performance and 200% of the target number of the PSUs - ROIC for achieving
maximum performance. The grant date fair value of the PSUs – ROIC was based on the closing sales price of our
common stock on the grant date, which was $33.90 per share.

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 stock to our
executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient
remains employed through that date. The grant date fair value of the restricted shares was based upon the closing
sales price of our common stock on the date of grant which was $26.04 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 the total shareholder
return of our common stock over a three-year period, relative to the total shareholder return of the companies in a
specified peer group over that period. Participants will have the ability to earn between 50% of the target number
of shares for achieving threshold performance and 200% of the target number of shares for achieving maximum
performance. The grant date fair value of the Performance Shares - TSR was $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
Performance Shares - ROIC 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 per share.

On January 6, 2015, the Compensation Committee also granted a total target number of 16,740 performance shares

to our executive officers designated as “Performance Shares – TSR”. The shares were weighted as 40% of the

overall long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder

return of our common stock over a three-year period, relative to the total shareholder return of the companies in a

specified peer group over that period. Participants will have the ability to earn between 50% of the target number

of shares for achieving threshold performance and 200% of the target number of shares for achieving maximum

performance. The grant date fair value of the Performance Shares - TSR was $34.41 per share and was calculated

using the Monte Carlo approach.

On January 6, 2015, the Compensation Committee also granted a total target number of 15,643 performance shares

to our executive officers designated as “Performance Shares – ROIC”. These shares were weighted as 35% of the

overall long-term incentive compensation arrangement and will vest and be paid based upon the achievement of

pre-established goals related to our average return on invested capital over the three-year period. Participants will

have the ability to earn between 50% of the target number of shares for achieving threshold performance and

200% of the target number of shares for achieving maximum performance. The grant date fair value of the

Performance Shares - ROIC was based on the closing sales price of our common stock on the grant date which

was $32.22 per share.

A reconciliation of the Company’s restricted stock activity and related information is as follows:

Unvested at October 31, 2016

Shares or units granted

Shares or units vested

Shares or units cancelled

Shares withheld

Unvested at October 31, 2017

Number

of Shares

147,350

71,011

(38,930)

(7,678)

(13,944)

157,809

Weighted Average Grant

Date Fair Value

$28.79

34.61

26.98

29.98

25.89

$32.05

During fiscal 2017 and 2016, we recorded approximately $1.7 million and $1.6 million, respectively, of stock-

based compensation expense related to grants under the 2008 Plan and the 2016 Equity Plan. We recorded

approximately $1.2 million of stock-based compensation expense related to grants under the 2008 Plan for fiscal

2015. As of October 31, 2017, there was an estimated $2.1 million of total unrecognized stock-based

compensation cost that we expect to recognize by the end of the first quarter of fiscal 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

On January 5, 2017, the Compensation Committee also granted a total target number of 18,496 PSUs to our

executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall

2017 executive long-term incentive compensation arrangement and will vest and be paid based upon the total

shareholder return of our common stock over the three-year period of fiscal 2017-2019, relative to the total

shareholder return of the companies in a specified peer group over that period. Participants will have the ability

to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200% of

the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the PSUs

– TSR was $43.25 per PSU and was calculated using the Monte Carlo approach.

On January 5, 2017, the Compensation Committee also granted a total target number of 20,647 PSUs to our

executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall

2017 executive long-term incentive compensation arrangement and will vest and be paid based upon the

achievement of pre-established goals related to our average return on invested capital over the three-year period

of fiscal 2017-2019. Participants will have the ability to earn between 50% of the target number of the PSUs -

ROIC for achieving threshold performance and 200% of the target number of the PSUs - ROIC for achieving

maximum performance. The grant date fair value of the PSUs – ROIC was based on the closing sales price of our

common stock on the grant date, which was $33.90 per share.

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 stock to our

executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient

remains employed through that date. The grant date fair value of the restricted shares was based upon the closing

sales price of our common stock on the date of grant which was $26.04 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 the total shareholder

return of our common stock over a three-year period, relative to the total shareholder return of the companies in a

specified peer group over that period. Participants will have the ability to earn between 50% of the target number

of shares for achieving threshold performance and 200% of the target number of shares for achieving maximum

performance. The grant date fair value of the Performance Shares - TSR was $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

Performance Shares - ROIC 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 per share.

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

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

A reconciliation of the Company’s restricted stock activity and related information is as follows:

Unvested at October 31, 2016
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2017

Number
of Shares

147,350
71,011
(38,930)
(7,678)
(13,944)
157,809

Weighted Average Grant

Date Fair Value

$28.79
34.61
26.98
29.98
25.89
$32.05

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

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

RELATED PARTY TRANSACTIONS

As of October 31, 2017, 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 $3.6 million at October 31, 2017 and
2016, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases
of controls from HAL amounted to $10.0 million, $9.9 million and $8.9 million in fiscal 2017, 2016 and 2015,
respectively. Sales of control component parts to HAL were $139,000, $623,000 and $723,000 for the fiscal years
ended October 31, 2017, 2016 and 2015, respectively. Trade payables to HAL were $2.5 million and $2.0 million
at October 31, 2017 and 2016, respectively. Trade receivables from HAL were $30,000 and $94,000 at October
31, 2017 and 2016, respectively.

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

Net Sales
Gross Profit
Operating Income
Net Income

Current Assets
Non-current Assets
Current Liabilities

2017

2016

2015

$15,800
2,457
1,037
1,320

$11,310
4,440
3,916

$13,948
2,240
952
1,323

$10,238
3,733
2,572

$12,852
2,041
665
1,546

$10,262
3,087
3,472

10.

CONTINGENCIES AND LITIGATION

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.

11.

GUARANTEES AND PRODUCT WARRANTIES

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of
machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in
ASC 460). As of October 31, 2017, we had 27 outstanding third party payment guarantees totaling approximately
$1.0 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

2017

$ 1,523

3,379

(3,203)

$ 1,772

2016

$ 2,186

2,715

(3,349)

(29)

$ 1,523

2015

$ 2,048

3,736

(3,495)

(103)

$ 2,186

The increase in our warranty reserve from fiscal 2016 to fiscal 2017 was primarily due to an increase in unit sales

volume, as well as an increase in average warranty cost per machine as our product mix of machines under

warranty shifted to more complex, higher-performance machines. The decrease in our warranty reserve in fiscal

2016 compared to fiscal 2015 was primarily due to a decrease in unit sales volume, as well as a reduction in

average warranty cost per machine as our product mix of machines under warranty shifted to less complex

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.

12.

OPERATING LEASES

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, 2017, are summarized as follows (in

thousands):

2018 ...................................................................................................

$ 3,316

2019 ...................................................................................................

2020 ...................................................................................................

2021 ...................................................................................................

2022 and thereafter ............................................................................

2,077

902

706

967

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

$ 7,968

Lease expense for the fiscal years ended October 31, 2017, 2016, and 2015 was $4.4 million, $4.5 million, and

$3.8 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

RELATED PARTY TRANSACTIONS

As of October 31, 2017, 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 $3.6 million at October 31, 2017 and

2016, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases

of controls from HAL amounted to $10.0 million, $9.9 million and $8.9 million in fiscal 2017, 2016 and 2015,

respectively. Sales of control component parts to HAL were $139,000, $623,000 and $723,000 for the fiscal years

ended October 31, 2017, 2016 and 2015, respectively. Trade payables to HAL were $2.5 million and $2.0 million

at October 31, 2017 and 2016, respectively. Trade receivables from HAL were $30,000 and $94,000 at October

31, 2017 and 2016, respectively.

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

thousands):

Net Sales

Gross Profit

Operating Income

Net Income

Current Assets

Non-current Assets

Current Liabilities

2017

2016

2015

$15,800

2,457

1,037

1,320

$11,310

4,440

3,916

$13,948

2,240

952

1,323

$10,238

3,733

2,572

$12,852

2,041

665

1,546

$10,262

3,087

3,472

10.

CONTINGENCIES AND LITIGATION

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.

11.

GUARANTEES AND PRODUCT WARRANTIES

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of

machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in

ASC 460). As of October 31, 2017, we had 27 outstanding third party payment guarantees totaling approximately

$1.0 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

2017
$ 1,523
3,379
(3,203)
73
$ 1,772

2016
$ 2,186
2,715
(3,349)
(29)
$ 1,523

2015
$ 2,048
3,736
(3,495)
(103)
$ 2,186

The increase in our warranty reserve from fiscal 2016 to fiscal 2017 was primarily due to an increase in unit sales
volume, as well as an increase in average warranty cost per machine as our product mix of machines under
warranty shifted to more complex, higher-performance machines. The decrease in our warranty reserve in fiscal
2016 compared to fiscal 2015 was primarily due to a decrease in unit sales volume, as well as a reduction in
average warranty cost per machine as our product mix of machines under warranty shifted to less complex
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.

12.

OPERATING LEASES

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, 2017, are summarized as follows (in
thousands):

2018 ...................................................................................................
2019 ...................................................................................................
2020 ...................................................................................................
2021 ...................................................................................................
2022 and thereafter ............................................................................
Total ..................................................................................................

$ 3,316
2,077
902
706
967
$ 7,968

Lease expense for the fiscal years ended October 31, 2017, 2016, and 2015 was $4.4 million, $4.5 million, and
$3.8 million, respectively.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

13.

QUARTERLY FINANCIAL INFORMATION (Unaudited)

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):

2017 (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

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

14.

SEGMENT INFORMATION

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$48,744
12,586
26%

$58,222
17,068
29%

$60,770
17,540
29%

$75,931
23,370
31%

11,167
1,419
543
879
$0.13
$0.13

11,714
5,354
1,467
3,646
$0.55
$0.54

12,395
5,145
1,353
3,888
$0.58
$0.58

14,385
8,985
2,238
6,702
$1.01
$1.00

First

Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$56,503
17,698
31%

$52,029
16,610
32%

$52,403
16,135
31%

$66,354
19,997
30%

11,961
5,737
1,709
3,895
$0.59
$0.58

11,943
4,667
1,225
3,674
$0.56
$0.56

12,042
4,093
1,120
2,720
$0.41
$0.40

14,878
5,119
1,539
3,003
$0.45
$0.45

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 193 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 2017, no distributor
accounted for more than 5% of our sales and service fees. In fiscal 2017, approximately 71% 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.

Service Parts

Service Fees

Total

dates of acquisitions.

machine systems.

fiscal years (in thousands):

Revenues by Geographic Area

United States of America

Canada

Central & South Americas

Total Americas

Germany

United Kingdom

Italy

France

Other Europe

Total Europe

Asia Pacific

Other Foreign

Net Sales and Service Fees by Product Category

Computerized Machine Tools *

Computer Control Systems and Software †

Year ended October 31,

2017

2016

2015

$209,311

2,324

24,255

7,777

$243,667

$195,618

2,078

21,908

7,685

$227,289

$189,712

3,085

19,375

7,211

$219,383

* 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

The following table sets forth revenues by geographic area, based on customer location, for each of the past three

Year Ended October 31,

2017

$ 70,912

3,801

1,844

76,557

48,786

28,019

13,416

13,917

27,583

131,721

32,694

2,695

167,110

2016

$ 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

2015

$ 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

Total Europe, Asia Pacific and Other Foreign

$ 243,667

$ 227,289

$ 219,383

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

United States of America

Foreign countries

As of October 31,

2016

$ 7,846

5,911

$ 13,757

2015

$ 8,658

5,893

$ 14,551

2017

$ 7,599

6,185

$ 13,784

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

13.

QUARTERLY FINANCIAL INFORMATION (Unaudited)

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):

2017 (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

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

14.

SEGMENT INFORMATION

First

Second

Third

Fourth

Quarter

$48,744

12,586

26%

$58,222

17,068

29%

$60,770

17,540

29%

$75,931

23,370

31%

11,167

1,419

543

879

$0.13

11,714

5,354

1,467

3,646

$0.55

$0.54

12,395

5,145

1,353

3,888

$0.58

14,385

8,985

2,238

6,702

$1.01

$1.00

First

Quarter

Second

Quarter

Third

Quarter

Fourth

Quarter

$56,503

17,698

31%

$52,029

16,610

32%

$52,403

16,135

31%

$66,354

19,997

30%

11,961

5,737

1,709

3,895

$0.59

$0.58

11,943

4,667

1,225

3,674

$0.56

12,042

4,093

1,120

2,720

$0.41

$0.40

14,878

5,119

1,539

3,003

$0.45

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 193 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 2017, no distributor

accounted for more than 5% of our sales and service fees. In fiscal 2017, approximately 71% 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.

Net Sales and Service Fees by Product Category

Year ended October 31,
2016

2017

2015

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

$209,311
2,324
24,255
7,777
$243,667

$195,618
2,078
21,908
7,685
$227,289

$189,712
3,085
19,375
7,211
$219,383

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

dates of acquisitions.

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

machine systems.

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

Revenues by Geographic Area

United States of America
Canada
Central & South Americas
Total Americas

Germany
United Kingdom
Italy
France
Other Europe
Total Europe

Asia Pacific
Other Foreign
Total Europe, Asia Pacific and Other Foreign

2017
$ 70,912
3,801
1,844
76,557

Year Ended October 31,
2016
$ 70,630
3,881
1,950
76,461

48,786
28,019
13,416
13,917
27,583
131,721

32,694
2,695
167,110
$ 243,667

44,411
25,313
12,947
13,787
27,150
123,608

25,633
1,587
150,828
$ 227,289

2015
$ 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

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

United States of America
Foreign countries

As of October 31,
2016
$ 7,846
5,911
$ 13,757

2015
$ 8,658
5,893
$ 14,551

2017
$ 7,599
6,185
$ 13,784

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

Net assets by geographic area were (in thousands):

Americas
Europe
Asia Pacific

2017
$ 86,432
70,536
46,117
$ 203,085

As of October 31,
2016
$ 84,040
60,861
40,574
$ 185,475

2015
$ 83,236
59,468
31,864
$ 174,568

15. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncement:
In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock
Compensation (Topic 718), which simplifies several areas of accounting for share-based compensation
arrangements, including income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. ASU 2016-09 is effective for our fiscal year 2018, including interim
periods within the fiscal year. Early adoption is permitted. We elected to early adopt the new guidance in the
fourth quarter of fiscal 2017 which required us to reflect any adjustments as of November 1, 2016, the beginning
of the annual period that includes the interim period of adoption. Upon adoption, excess tax benefits or deficiencies
from share-based award activity are reflected in the consolidated statements of income as a component of the
provision for income taxes, whereas they previously were recognized in equity. We also elected to account for
forfeitures as they occur, rather than estimate expected forfeitures. The adoption of ASU 2016-09 resulted in a net
cumulative-effect adjustment of a $0.2 million increase to retained earnings as of November 1, 2017, mostly
related to the recognition of the previously unrecognized excess tax benefits using the modified retrospective
method. The previously unrecognized excess tax effects were recorded as a reduction to tax liability or an increase
to deferred tax asset.

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

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

key personnel, sampling of our customer contracts and revenue stream evaluation. At this time, we expect to use

the modified retrospective approach upon adoption. In fiscal 2018, we expect to implement and test any changes

in policy, processes, systems and internal controls and to compute required transition adjustments and disclosures

related to our implementation of this new accounting standard.

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 January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the

Definition of a Business, which provides guidance to assist companies in evaluating whether transactions should

be accounted for as acquisitions (or disposals) of assets or businesses. The amendment provides a more robust

framework to use in determining when a set of transferred assets and activities is a business. ASU 2017-01 is

effective for our fiscal year 2019, including interim periods within the fiscal year. We do not expect that the

adoption of this accounting standard update will have a material effect on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying

the Test of Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test, (i.e., the requirement

for an entity to calculate the implied fair value of goodwill in measuring a goodwill impairment loss). ASU 2017-

04 provides that a company should perform its goodwill impairment test by comparing the fair value of a reporting

unit with its carrying value and should recognize an impairment charge if the carrying value exceeds the fair value

of the reporting unit, but only to the extent of the goodwill amount allocated to that reporting unit. Companies

will still have the option to perform a qualitative assessment to determine if the quantitative impairment test is

necessary. ASU 2017-04 is effective for our fiscal year 2021, including interim periods within the fiscal year.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after

January 1, 2017. We do not expect that the adoption of this accounting standard update will have a material effect

on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of

Modification Accounting, to provide clarity and to reduce diversity in practice and cost and complexity when

applying the guidance in Topic 718 to the modification of the terms and conditions of a share-based payment

award. ASU 2017-09 includes guidance on determining which changes to the terms and conditions of share-based

payment awards require a company to apply modification accounting under Topic 718. This update requires the

entity to account for the effects of a modification unless specific conditions are met. ASU 2017-09 applies to

entities that change the terms or conditions of a share-based payment award and is effective for our fiscal year

2019. Early adoption is permitted, including adoption in any interim period. We do not expect that the adoption

of this accounting standard update will have a material effect on our consolidated financial statements.

There have been no other significant changes in the Company’s critical accounting policies and estimates during

the fiscal year ended October 31, 2017.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

HURCO COMPANIES, INC.

HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Net assets by geographic area were (in thousands):

Americas

Europe

Asia Pacific

2017

$ 86,432

70,536

46,117

$ 203,085

As of October 31,

2016

$ 84,040

60,861

40,574

$ 185,475

2015

$ 83,236

59,468

31,864

$ 174,568

15. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncement:

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock

Compensation (Topic 718), which simplifies several areas of accounting for share-based compensation

arrangements, including income tax consequences, classification of awards as either equity or liabilities, and

classification on the statement of cash flows. ASU 2016-09 is effective for our fiscal year 2018, including interim

periods within the fiscal year. Early adoption is permitted. We elected to early adopt the new guidance in the

fourth quarter of fiscal 2017 which required us to reflect any adjustments as of November 1, 2016, the beginning

of the annual period that includes the interim period of adoption. Upon adoption, excess tax benefits or deficiencies

from share-based award activity are reflected in the consolidated statements of income as a component of the

provision for income taxes, whereas they previously were recognized in equity. We also elected to account for

forfeitures as they occur, rather than estimate expected forfeitures. The adoption of ASU 2016-09 resulted in a net

cumulative-effect adjustment of a $0.2 million increase to retained earnings as of November 1, 2017, mostly

related to the recognition of the previously unrecognized excess tax benefits using the modified retrospective

method. The previously unrecognized excess tax effects were recorded as a reduction to tax liability or an increase

to deferred tax asset.

We adopted the aspects of the standard affecting the cash flow presentation retrospectively, and accordingly, to

conform to the current year presentation, we reclassified $146,000 and $239,000 of employee taxes paid for

withheld shares under operating activities to financing activities for the years ended October 31, 2016 and 2015,

respectively, on our consolidated statements of cash flows.

New Accounting Pronouncements:

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606),

establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts

with customers. This standard provides a five-step analysis in determining when and how revenue is recognized.

The new model will require revenue recognition to depict the transfer of promised goods or services to customers

in an amount that reflects the consideration a company expects to receive in exchange for those goods or services

and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. We

have the option of applying this new standard retrospectively to each prior period presented (“full retrospective

approach”) or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption

(“modified retrospective approach”). Between August 2015 and December 2016, the FASB issued five additional

updates to Topic 606: 1) ASU No. 2015-14, Deferral of the Effective Date, 2) ASU No. 2016-08, Principal versus

Agent Considerations (Reporting Revenue Gross versus Net), 3) ASU No. 2016-10, Identifying Performance

Obligations and Licensing, 4) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients and 5)

ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with

Customers to provide further guidance and clarification in accounting for revenue arising from contracts with

customers. All these updates will be effective for our fiscal year 2019, including interim periods within the fiscal

year. We have not yet determined the impact this new accounting standard may have on our consolidated financial

statements. During the second and third quarters of fiscal 2017, we developed a project plan and timeline to

complete an assessment of the potential impact that this accounting standard will have on our consolidated

financial statements. During the third and fourth quarters of fiscal 2017, this assessment included training of our

key personnel, sampling of our customer contracts and revenue stream evaluation. At this time, we expect to use
the modified retrospective approach upon adoption. In fiscal 2018, we expect to implement and test any changes
in policy, processes, systems and internal controls and to compute required transition adjustments and disclosures
related to our implementation of this new accounting standard.

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 January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business, which provides guidance to assist companies in evaluating whether transactions should
be accounted for as acquisitions (or disposals) of assets or businesses. The amendment provides a more robust
framework to use in determining when a set of transferred assets and activities is a business. ASU 2017-01 is
effective for our fiscal year 2019, including interim periods within the fiscal year. We do not expect that the
adoption of this accounting standard update will have a material effect on our consolidated financial statements.

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

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

There have been no other significant changes in the Company’s critical accounting policies and estimates during
the fiscal year ended October 31, 2017.

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, 2017, 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, 2017 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 2017, the Audit Committee of the Board of Directors did not engage our

independent registered public accounting firm to perform any new non-audit services. This disclosure is made

pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as amended, as added by Section 202 of

the Sarbanes-Oxley Act of 2002.

The graph below matches the cumulative 5-Year total return of holders of Hurco Companies, Inc.'s common stock

with the cumulative total returns of the Russell 2000 index, the NASDAQ Global Select index and a customized

peer group of nineteen companies that includes: Ampco-Pittsburgh Corporation, DMC Global Inc. (formerly

Dynamic Materials Corporation), Douglas Dynamics Inc., The Eastern Company, Electro Scientific Industries

Inc., FARO Technologies Inc., Graham Corporation, Hardinge Inc., Kadant Inc., Key Technology Inc., Key

Tronic Corporation, The L.S. Starrett Company, Nanometrics Incorporated, Novanta Inc., PDF Solutions Inc.,

Proto Labs Inc., QAD Inc., Sun Hydraulics Corporation and Transcat Inc. The graph assumes that the value of the

investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was

$100 on 10/31/2012 and tracks cumulative total shareholder return through 10/31/2017.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Hurco Companies, Inc., the Russell 2000 Index,

the NASDAQ Global Select Index and the Peer Group

$300

$250

$200

$150

$100

$50

10/12

10/13

10/14

10/15

10/16

10/17

Hurco Companies, Inc.

Russell 2000

NASDAQ Global Select

Peer Group

*$100 invested on 10/31/12 in stock or index, including reinvestment of dividends.

Fiscal year ending October 31.

Hurco Companies, Inc.

Russell 2000

NASDAQ Global Select

Peer Group

10/12

10/13

10/14

10/15

10/16

10/17

100.00

106.77

136.28

134.54

155.37

169.51

147.27

160.58

145.59

119.36

147.77

178.17

124.59

117.81

153.84

184.57

133.69

203.58

196.69

241.25

232.81

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

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

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

The graph below matches the cumulative 5-Year total return of holders of Hurco Companies, Inc.'s common stock
with the cumulative total returns of the Russell 2000 index, the NASDAQ Global Select index and a customized
peer group of nineteen companies that includes: Ampco-Pittsburgh Corporation, DMC Global Inc. (formerly
Dynamic Materials Corporation), Douglas Dynamics Inc., The Eastern Company, Electro Scientific Industries
Inc., FARO Technologies Inc., Graham Corporation, Hardinge Inc., Kadant Inc., Key Technology Inc., Key
Tronic Corporation, The L.S. Starrett Company, Nanometrics Incorporated, Novanta Inc., PDF Solutions Inc.,
Proto Labs Inc., QAD Inc., Sun Hydraulics Corporation and Transcat Inc. The graph assumes that the value of the
investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was
$100 on 10/31/2012 and tracks cumulative total shareholder return through 10/31/2017.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index,
the NASDAQ Global Select Index and the Peer Group

$300

$250

$200

$150

$100

$50

10/12

10/13

10/14

10/15

10/16

10/17

Hurco Companies, Inc.

Russell 2000

NASDAQ Global Select

Peer Group

*$100 invested on 10/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.

Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
Peer Group

10/12

10/13

10/14

10/15

10/16

10/17

100.00
100.00
100.00
100.00

106.77
136.28
134.54
155.37

169.51
147.27
160.58
145.59

119.36
147.77
178.17
124.59

117.81
153.84
184.57
133.69

203.58
196.69
241.25
232.81

The stock price performance included in this graph is not necessarily indicative of future stock price performance.
69

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
2018 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
2018 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
2018 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 Firms .......................

Consolidated Statements of Income – years ended

October 31, 2017, 2016 and 2015 ...............................................................

Consolidated Statements of Comprehensive Income – years ended

October 31, 2017, 2016 and 2015 ...............................................................

Consolidated Balance Sheets – as of October 31, 2017 and 2016 .................

Consolidated Statements of Cash Flows – years

ended October 31, 2017, 2016 and 2015 ....................................................

Consolidated Statements of Changes in Shareholders’ Equity –

years ended October 31, 2017, 2016 and 2015 ...........................................

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
2018 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
2018 annual meeting of shareholders.

(b) Exhibits

Exhibits being filed with this Form 10-K or incorporated herein by reference are listed on page 73.

Page

Item 16. FORM 10-K SUMMARY

None

The information required by this item is incorporated herein by reference to the definitive proxy statement for our

2018 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

2018 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

2018 annual meeting of shareholders.

INDEPENDENCE

2018 annual meeting of shareholders.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART III

PART IV

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements. The following consolidated financial statements of the Company are

included herein under Item 8 of Part II:

Reports of Independent Registered Public Accounting Firms .......................
Consolidated Statements of Income – years ended
October 31, 2017, 2016 and 2015 ...............................................................
Consolidated Statements of Comprehensive Income – years ended
October 31, 2017, 2016 and 2015 ...............................................................
Consolidated Balance Sheets – as of October 31, 2017 and 2016 .................
Consolidated Statements of Cash Flows – years
ended October 31, 2017, 2016 and 2015 ....................................................
Consolidated Statements of Changes in Shareholders’ Equity –
years ended October 31, 2017, 2016 and 2015 ...........................................
Notes to Consolidated Financial Statements ..................................................

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

2. Financial Statement Schedule. The following financial statement schedule

is included in this Item.

The information required by this item is incorporated herein by reference to the definitive proxy statement for our

Schedule II - Valuation and Qualifying Accounts and Reserves ....................

Page
37

41
42

44
45

Page
72

The information required by this item is incorporated herein by reference to the definitive proxy statement for our

(b) Exhibits

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.

Exhibits being filed with this Form 10-K or incorporated herein by reference are listed on page 73.

Item 16. FORM 10-K SUMMARY

None

Schedule II - Valuation and Qualifying Accounts and Reserves
for the Years Ended October 31, 2017, 2016, and 2015
(Dollars in thousands)

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

EXHIBITS INDEX

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, 2017 ..................

$ 664

$ (123)

$ --

$ 98

October 31, 2016 ..................

$ 739

$ (15)

$ --

$ 60

October 31, 2015 ..................

$ 878

$ (13)

$ --

$ 126

(1)

$ 639

$ 664

$ 739

Income tax valuation
allowance for the year
ended:

23.1

23.2

31.1

31.2

32.1

32.2

Subsidiaries of the Registrant.

Consent of Independent Registered Public Accounting Firm, RSM US 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

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.

101.INS

101.SCH

101.CAL

101.LAB

101.PRE

101.DEF

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*

October 31, 2017 ..................

$ 2,067

$ 515

$ --

$ 300

$ 2,282

October 31, 2016 ..................

$ 1,485

$ 587

$ --

$ 5

$ 2,067

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

October 31, 2015 ..................

$ 1,225

$ 402

$ --

$ 142

$ 1,485

(1) Receivable write-offs.

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.

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 November 16, 2017,

incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on

November 17, 2017.

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.

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.

Balance at

Beginning

of Period

Charged to/

(Recovered

from)

Costs and

Expenses

Charged

to Other

Accounts

Deductions

Balance

at End

of Period

October 31, 2017 ..................

$ 664

$ (123)

$ --

$ 98

$ 639

October 31, 2016 ..................

$ 739

$ (15)

$ --

$ 60

$ 664

October 31, 2015 ..................

$ 878

$ (13)

$ --

$ 126

$ 739

(1)

Description

Allowance for doubtful

accounts for the year ended:

Income tax valuation

allowance for the year

ended:

(1) Receivable write-offs.

October 31, 2015 ..................

$ 1,225

$ 402

$ --

$ 142

$ 1,485

Schedule II - Valuation and Qualifying Accounts and Reserves

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

(Dollars in thousands)

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

EXHIBITS INDEX

21
23.1

23.2
31.1

31.2

32.1

32.2

Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, RSM US 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
Exchange Act of 1934, as amended.
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and
Exchange Act of 1934, as amended.
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF

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*

October 31, 2017 ..................

$ 2,067

$ 515

$ --

$ 300

$ 2,282

October 31, 2016 ..................

$ 1,485

$ 587

$ --

$ 5

$ 2,067

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

2.1

2.2

2.3

3.1

3.2

10.1

10.2

10.3*

10.4*

10.5*

10.6

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.+
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.+
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.
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 November 16, 2017,
incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on
November 17, 2017.
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.
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.
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.
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.
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.
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.

SIGNATURES

January, 2018.

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 5th day of

HURCO COMPANIES, INC.

By: /s/ Sonja K. McClelland

Sonja K. McClelland

Executive Vice President, Secretary, Treasurer and

Chief Financial Officer

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*

10.23*

10.24*

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 Restricted Stock Award Agreement (Employee) under the 2016 Equity Incentive Plan,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q for the
quarter ended January 31, 2017.
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.
Form of Performance Stock Unit Award Agreement (Employee) under the 2016 Equity Incentive
Plan, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 10-Q for
the quarter ended January 31, 2017.
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

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 5th day of
January, 2018.

HURCO COMPANIES, INC.

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

March 16, 2012.

filed March 16, 2012.

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, 2014.

10.11*

Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Michael Doar,

incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed

10.12*

Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and John P. Donlon,

incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed

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

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

10.15*

Hurco Companies, Inc. 2008 Equity Incentive Plan, incorporated by reference to Appendix A of the

Registrant’s definitive Proxy Statement on Schedule 14A filed January 28, 2008.

10.16*

Form of restated split-dollar insurance agreement, incorporated by reference to Exhibit 10.2 to the

Registrant’s Annual Report on Form 10-K for the year ended October 31, 2008.

10.17*

Form of Restricted Stock Award Agreement – Employee, incorporated by reference to Exhibit 10.1

to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2011.

10.18*

Form of Restricted Stock Award Agreement – Director, incorporated by reference to Exhibit 10.2 to

the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2011.

10.19*

Form of Restricted Share Award Agreement (Employee), incorporated by reference to Exhibit 10.2

to the Registrant’s Current Report on Form 8-K filed on January 14, 2014.

10.20*

Form of Restricted Stock Award Agreement (Employee) under the 2016 Equity Incentive Plan,

incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q for the

quarter ended January 31, 2017.

10.21*

Form of Performance Share Award Agreement (Employee), incorporated by reference to Exhibit 10.3

to the Registrant’s Current Report on Form 8-K filed on January 14, 2014.

10.22*

Form of Performance Stock Unit Award Agreement (Employee) under the 2016 Equity Incentive

Plan, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 10-Q for

the quarter ended January 31, 2017.

10.23*

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.

10.24*

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.

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, 2017.

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,
Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)

/s/ Sonja K. McClelland
Sonja K. McClelland
Executive 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/ Timothy J. Gardner
Timothy J. Gardner, 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 5, 2018

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.
Ningbo Hurco Machine Tool Company Limited

Jurisdiction of Incorporation
The Netherlands
United Kingdom
Federal Republic of Germany
India
Taiwan R.O.C.
France
Italy
Singapore
Italy
United States
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, 2017.

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,

Chief Executive Officer

of Hurco Companies, Inc.

(Principal Executive Officer)

/s/ Sonja K. McClelland

Sonja K. McClelland

Executive 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/ Timothy J. Gardner

Timothy J. Gardner, 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 5, 2018

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23.1

Exhibit 23.2

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 5, 2018, 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, 2017.

/s/ RSM US LLP

Indianapolis, Indiana
January 5, 2018

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 report dated January 6, 2017 (except Note 15, as to which the date is January 5, 2018), with

respect to the consolidated financial statements and schedule of Hurco Companies, Inc. included in this Annual

Report (Form 10-K) for the year ended October 31, 2017.

/s/ Ernst & Young LLP

Indianapolis, Indiana

January 5, 2018

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Exhibit 23.1

Exhibit 23.2

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 5, 2018, 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, 2017.

/s/ RSM US LLP

Indianapolis, Indiana

January 5, 2018

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 report dated January 6, 2017 (except Note 15, as to which the date is January 5, 2018), with
respect to the consolidated financial statements and schedule of Hurco Companies, Inc. included in this Annual
Report (Form 10-K) for the year ended October 31, 2017.

/s/ Ernst & Young LLP

Indianapolis, Indiana

January 5, 2018

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED

CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

Exhibit 31.1

Exhibit 31.2

I, Michael Doar, 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/ Michael Doar
Michael Doar,
Chairman and Chief Executive Officer
January 5, 2018

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

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