Report to Shareholders
2019 Overview
2019 was the second highest revenue year in Hurco’s 51-
year history. Sales in North America set a new record.
Sales were lower in Europe and Asia. Our industry is
cyclical and we anticipated a slowdown after peaking
in 2018. Our experience has taught us how to manage
downturns and we see them as an opportunity to continue
to develop new machine tools and software so that we will
be prepared to take the company to the next level as our
industry recovers.
As we look to grow our business organically and through
acquisitions, we
continuously evaluate emerging
technologies (mechanical, control and software) and
acquisition opportunities that will allow us to fulfill
our mission of providing machines and software to our
customers that will enable them to grow their businesses.
The acquisition of ProCobots, a small,
innovative
collaborative robot integrator, in the fourth quarter,
and other automation solutions we are designing, builds
on that mission and provides new opportunities for
Hurco’s growth.
Our business in 2019 was and continues to be impacted by
the uncertainty surrounding global trade. While we were
not affected directly by tariffs, many of our customers
around the world were, which ultimately contributed to
the slowdown of our business. We are a global company and
our supply chain is global. In order for us to be competitive,
we need the ability to trade with companies all over the
world. We believe in free trade, but it must be fair.
Global free trade is important to our strategic plans.
We want to grow our business not only by developing
new products internally and acquiring new businesses,
but also through geographic expansion. We are a small
company located in Indianapolis, Indiana, the center of
the heartland, and yet we sell machines all over the world.
We compete with companies worldwide, some much larger
than us, and with our innovative, high quality machine
tools, we can and often do win the order.
Customers
We are committed to our customers’ success. While we
are proud to have our machine tools in the facilities of
well-known brands such as Harley-Davidson, Caterpillar,
Apple, etc., most of our customers are small businesses,
often family-owned businesses, who count on us to
deliver products equipped with technologies that are
easy to learn, easy to use, and help them increase their
manufacturing productivity. The ingenuity, resilience,
and industriousness of our customers inspires all of us
to work harder each day to help their businesses thrive.
The expansion of our product offering to include useful
automation is just another way we can help them be
even more successful in the ever-changing, competitive
landscape of high-mix manufacturing.
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. Our ability to provide customers with
reliable machine tools equipped with sophisticated control
technologies that make their businesses more profitable
is a key differentiator. The collaborative relationship we
have with our customers is a core competency that can’t
be understated. Hurco is a relatively small company
competing against much larger entities and these
collaborative customer relationships have been a critical
part of our sustained success in a highly cyclical industry.
Profitability
While top line revenue was the second highest in the
company’s history at approximately $263 million, the
slower cycle in Europe and Asia had a negative impact on
our bottom line with net income of $17 million, or $2.55
per diluted share, compared to $21 million, or $3.15 per
diluted share, last year. Operating profit decreased from
11% in 2018 to 8.6% this year.
Going Forward
We will continue to innovate products equipped with
meaningful technologies that help our customers increase
productivity and profitability.
With
labor shortages around the world, we know
practical automation for our customers is key to helping
them eliminate obstacles and increase productivity.
Not only will we showcase these products at the
International Manufacturing Technology Show that
is held every two years in the USA, we will roll
out new products and features for all machine tools in our
brand portfolio.
On behalf of everyone at Hurco, thank you to our existing
customers for their loyalty and support. Thank you to our
shareholders for believing in Hurco. I want to thank our
Board of Directors for their insight, guidance and support
in addition to our employees for their dedication to
our customers, commitment to continuous improvement,
and adaptability—all
for
required
sustained success.
characteristics
Michael Doar
Chairman and Chief Executive Officer
BR ANDS | PRODUCTS | TECHNOLOGIES
To Our Shareholders:
It has been ten years since I was given the opportunity to lead the operations and technical direction of Hurco. I have an inherent
sense of pride about our company – specifically, the nearly 800 employees we have around the world and the culture we have
developed. While I provide the vision for the development of our products and technology roadmap from which Hurco derives
its revenue, it’s the people that make the difference between a good company and a great company. And, that is what I genuinely
believe we have – and are continuing to build – in Hurco.
A Bold and Balanced Strategy
As I reflect on our achievements during a period of significant change over the last decade – achievements ranging from
geographic and product line expansion, re-inventing ourselves through cutting-edge technologies, implementing a tiered
branding strategy tightly coupled to our targeted acquisitions, year-over-year financial results and record revenue generation –
it is truly remarkable how much we have accomplished. Given the unpredictable and cyclical nature of our industry, we know the
importance of maintaining a strong balance sheet seeded with both organic investments to continuously advance our technology
offerings and inorganic investments to reinforce our growth strategy through strategic acquisitions.
Digital Revolution 2.0
As we embark on a new decade of change, the digital revolution has evolved to encompass all aspects of our lives and to change how we
interact with the world around us – through voice recognition, the Internet of Things (IoT), Industry 4.0, Artificial Intelligence (AI), Virtual
Reality (VR), and even Augmented Reality (AR). Each of these technologies (and many more) will be an influential part of manufacturing
processes of the future and, almost certainly, instrumental to machine tool capabilities. We embrace these changes and technologies and
intend to use them as tools to help our customers create and produce in a more meaningful, productive, and profitable manner.
Many of our employees have witnessed monumental changes over the years – not only with respect to the digital revolution but
also changes to who we have become, who we strive to be, and the multiple ways we can integrate emerging technologies into our
products. Whether they’ve been with our company for forty years or four months, our employees’ ability to embrace change in the
ever-evolving digital world and to harness capabilities to innovate for our customers continues to inspire me.
The powerful passion our employees possess for what they do and their dedication to our customers – along with our distributors and
partners who remain steadfast and true – serves as the catalyst for the sense of pride I have each day as the President and COO of Hurco.
Targeted Acquisitions
In 2013, we initiated investments in products, services, and technology by acquiring LCM Precision Technology, an Italian
company at the forefront of the design of advanced components for machine tools. These components now serve as the backbone
of many of our more advanced products – products where electro-mechanical boundaries have become indistinguishable. These
technologies provide unprecedented improvements in our machine tools’ accuracy and precision.
We then broadened our commitment to our customers in 2015, by acquiring the Takumi and Milltronics brands of CNC machines.
Through these acquisitions, we expanded our product portfolio with diverse controls and opened up new markets, all the while
maintaining the high level of service and innovation for which Hurco is known.
We continue to address ongoing customer demands seeking higher productivity in complex manufacturing environments. To that
end, this year, we acquired ProCobots, a company that specializes in automation for the high-mix manufacturing environment
with collaborative robotic machine-tending solutions.
Each acquisition has contributed to our strong underlying performance across our businesses and minimizes dependencies
associated with economic or political volatilities in a single geographic region. More importantly, they all reinforce our core value
of providing customers with advanced, easy-to-use technologies.
A New Decade of Opportunity
As we enter a new decade, we will continue the execution of our long-term strategic plan by yielding new products and adaptive
technologies. We will expand our brands geographically – namely, Milltronics into Europe and Takumi into the US – and we will
develop a worldwide distribution channel for our collaborative robotic machine-tending systems. Of course, we will also continue
to identify and acquire value-added companies that can bring high impact results to both grow our revenues and minimize the
impact of our industry’s cyclicality.
We will continue to invest in new products, technologies, and, most importantly, in people. We hire good people not when they are
needed, but when we find them. We pay good people not what we can, but what they deserve. We offer unprecedented healthcare
benefits not because we have to, but because we want to and because it is the right thing to do. We promote and provide opportunity
throughout our organization for all individuals—today’s engineer can become tomorrow’s President.
I was once asked, if I could change anything, what would it be. I responded that I wish I could have started at Hurco earlier in
my career. Now, let’s make up for lost time and continue our pursuit of making manufacturing an easier and more profitable
enterprise for our customers. Thank you to each and every one of you for your continued support of Hurco – and for allowing me
the privilege to continue to experience the genuine sense of pride I have in our business, in our people, and in what we do each day.
Gregory S. Volovic
President and Chief Operating Officer
Hurco – Mind Over Metal
Hurco CNC machines are powered by proprietary technology that increases
customer productivity and profitability. We provide customers with reliable
machine tools equipped with sophisticated technologies that simplify
complex processes. The integrated Hurco control is the most versatile in the
industry, supporting both industry standard programming and conversational
programming. The Hurco brand includes twelve product lines of advanced CNC
mills and lathes.
Machining Centers and Turning Centers
Milltronics
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. The Milltronics line is designed for excellent value with more
standard features for the price versus market leaders.
Machining Centers and Turning Centers
Takumi
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 and lathes. The
Takumi line is designed for high speed, high efficiency milling.
Machining and Turning Centers
LCM Precision Technology
LCM designs and manufactures advanced components
for machine tools, such as rotary tables, tilt tables, swivel
heads, and electrospindles.
Components and Accessories
ProCobots – CNC Automation Done Right
ProCobots provides automation solutions for high-mix/low-volume production.
Designed to be easy to use, safe, and flexible, ProCobots solutions are
standardized systems that can be integrated with any machine tool. Integrations
include robots, grippers, material handling, and Industry 4.0-capable software
and controls. ProCobots has two lines of flexible cell solutions and portable
systems in addition to a variety of automation peripherals.
Automation Systems
Annual Report 2019
HURCO COMPANIES, INC. LEADERSHIP
Board of Directors
Corporate Officers and Division Executives
Thomas Aaro
Marketing Consultant (2, 3)
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 and Chief Operating Officer
Cory Miller
General Manager, Hurco North America
Michael Doar
Chairman, Chief Executive Officer
Hurco Companies, Inc.
Cynthia Dubin
Member, UK Competition and Markets
Authority (CMA) (2)
Timothy Gardner
Managing Director, Akoya Capital (3)
Jay Longbottom
Operating Partner, BERKS Group (2)
Andrew Niner
President, Niner Wine Estates(1)
Richard Porter
Private Equity Manager (1, 2)
Janaki Sivanesan
Attorney, Sivanesan Law (2)
Gregory S. Volovic
President and Chief Operating Officer
Hurco Companies, Inc.
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)
Sanjib Chakraborty
General Manager,
Hurco India Private, Ltd. (India)
Phillippe Chevalier
General Manager, Hurco S.a.r.l. (France)
Wai Yip Lee
General Manager,
Hurco (S.E. Asia) Pte Ltd. (Singapore)
Brian Knopp
General Manager, ProCobots
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)
Scott Yao
General Manager, Ningbo Hurco
Trading Co., Ltd. (Shanghai, China)
Martin Lee, Luke Wang
Vice General Managers,
Hurco Manufacturing Limited (Taiwan)
and Ningbo Hurco Machine Tool Co., Ltd.
(Ningbo, China)
1 Nominating and Governance Committee
2 Audit Committee
3 Compensation Committee
4 Presiding Independent Director
CORPORATE INFORMATION
Annual Meeting
All shareholders are invited to attend
our annual meeting, which will be
held on Thursday, March 12, 2020, at
10:00 a.m. Eastern Daylight Time
at Hurco’s Corporate Offices, One
Technology Way, Indianapolis, IN.
Transfer Agent
Computershare Investor Services
150 Royall Street, Canton, MA 02021
Legal Counsel
Corporate Law: Faegre Baker Daniels LLP
Patent Law: Faegre Baker Daniels LLP
600 E. 96th Street, Suite 600,
Indianapolis, IN 46240
Independent Auditors
RSM US LLP
1 American Square, Suite 2800,
Indianapolis, IN 46282
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.
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
2019
2018
High
Low
High
Low
$44.99
$31.96
$50.33
$40.41
$44.05
$37.57
$49.29
$38.30
$40.65
$33.49
$50.50
$42.85
$35.02
$31.07
$45.95
$38.08
January 31
April 30
July 31
October 31
There were approximately 110 holders
of record of Hurco Common Stock as of
December 13, 2019.
Disclosure Concerning Forward-
Looking Statements
Certain statements made in this
annual report may constitute
“forward-looking statements”
within the meaning of federal
securities laws. The 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 are identified in Item 1A
of the annual report on form 10K.
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
2019
$ 263,377
22,540
$
17,495
$
$
2.55
$ 241,106
$ 207,229
$
—
$ 240,245
785
34.79
44.99
31.07
$
$
$
2018
$ 300,671
33,796
$
21,490
$
$
3.15
$ 305,845
$ 194,632
$
1,434
$ 222,853
800
40.74
50.50
38.08
$
$
$
350
300
250
200
150
100
50
0
$300.7
$243.7
$263.4
2018
2017
Sales and Service Fees
(Millions)
2019
250
200
150
100
50
0
$222.9
$240.2
$203.1
2018
2017
Shareholders’ Equity
(Millions)
2019
35
30
25
20
15
10
5
0
$33.8
$20.9
$22.5
2017
2018
2019
Operating Income
(Millions)
HURCO COMPANIES, INC. ELEVEN-YEAR
SELECTED FINANCIAL DATA
(In thousands except per share data and number of employees)
2019
For the Fiscal Year Ended
Sales and service fees
Cost of sales and service
Operating expenses (SG&A)
Operating income (loss)
Other income (expense)
Income before taxes
Income tax expense (benefit)
Net income (loss)
Average shares outstanding
Basic
Diluted/Primary
Earnings per share
Basic
Diluted/Primary
Capital expenditures
Depreciation and amortization
EBITDA
Gross profit margin %
Operating income as % of sales
Net return on sales
Return on average equity
Stock price range for the Fiscal Year
High
Low
Closing Stock Price as of October 31
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
Dividends paid per share
(1) Based on shares outstanding at fiscal year end — diluted.
(2) Excluding cash, short-term investments, and debt.
$263,377
186,169
54,668
22,540
784
23,324
5,829
$17,495
6,759
6,815
$2.57
$2.55
4,870
3,745
27,131
29.3%
8.6%
6.6%
7.6%
$44.99
$31.07
$34.79
2019
$207,229
4.79
$301,065
—
240,245
0.0%
$35.25
$0.696
785
$0.47
Annual Report 2019
2018
$300,671
208,865
58,010
33,796
(1,300)
32,496
11,006
$21,490
6,700
6,771
$3.19
$3.15
5,863
3,713
36,209
30.5%
11.2%
7.1%
10.1%
$50.50
$38.08
$40.74
2018
$194,632
3.24
$315,407
1,434
222,853
0.6%
$32.91
$0.490
800
$0.43
2017
$243,667
173,103
49,661
20,903
(187)
20,716
5,601
$15,115
6,615
6,680
$2.27
$2.25
4,445
3,616
24,332
29.0%
8.6%
6.2%
7.8%
$46.75
$24.80
$44.75
2017
$175,526
3.48
$277,808
1,507
203,085
0.7%
$30.40
$0.568
749
$0.39
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
$26.20
2016
$160,413
3.77
$251,949
1,476
185,475
0.8%
$27.92
$0.641
758
$0.35
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
$26.87
2015
$151,026
3.32
$248,577
1,583
174,568
0.9%
$26.44
$0.551
769
$0.31
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
$38.53
2014
$141,888
3.12
$239,176
3,272
164,645
1.9%
$25.18
$0.513
617
$0.26
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
$24.49
2013
$127,235
3.28
$212,804
3,665
151,491
2.4%
$23.32
$0.583
625
$0.10
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
$22.98
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
$26.12
2011
$104,154
2.82
$186,870
865
126,212
0.7%
$19.50
$0.455
520
$ —
Annual Report 2019
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
$18.40
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
$15.90
2009
$91,567
5.40
$141,994
—
120,376
0.0%
$18.72
$1.006
390
$ —
A History of Innovation
Hurco founded
by Edward
Humston and
Gerald Roch
1968
Hurco
becomes
publicly held
company
(Nasdaq:
HURC)
1971
Hurco invents
Conversational
Programming
Hurco Europe
established
1976
1979
BMC
machining
centers
introduced
1986
Hurco
Germany
established
1988
DXF Transfer
invented
MAX single-
screen control
introduced
1992
1996
1969
First product
introduced
(Autobend).
Hurco exhibits
first computer
controlled back
gauge.
1974
Hurco
demonstrates
first computer
numerically
controlled
(CNC) mill at
IMTS
1978
First CNC mill
Introduced
(KM1)
1984
UltiMax control
introduced
1987
UltiMax
2 control
introduced
1991
Hurco France
established
1995
IMS
Technologies
established to
oversee patent
licensing
1997
VMX
machining
centers
introduced
Hurco
Southeast Asia
established
Hurco
opens new
international
headquarters
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
UltiMax
4 control
introduced
WinMax
Desktop
software
released
1998
2000
TM turning
centers
introduced
2004
Hurco acquires
LCM
USA machine
assembly
operation
established
MAX5 control
introduced
Hurco acquires
Milltronics and
Takumi
HM horizontal
machining
centers
introduced
Record sales
Hurco acquires
ProCobots
2013
2015
2017
2019
1999
Hurco Italy
established
2003
VM machining
centers
introduced
2005
Record sales
2008
Hurco India
established
Hurco
Manufacturing
Ltd established
First Hurco
5-axis machine
introduced
TMX turning
centers
introduced
U-Series
5-Axis
machining
centers
expanded
DCX double
column
machining
centers
introduced
2014
HBMXi
boring mills
introduced
2016
Record sales
BXi machining
centers
introduced
2018
50th
Anniversary
Nasdaq Closing
Bell Ceremony
3D print head
introduced
Record sales
2012
Global
rebranding
initiative
launched
New “i” series
machine
design
introduced
HSi high speed
machining
centers
introduced
SRTi 5-axis
machines
introduced
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
year ended October 31, 2019 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
Trading Symbol(s)
Name of each exchange on which
Common Stock, no par value
HURC
Nasdaq Global Select Market
registered
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]
Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted 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 such files).
Yes [X] No [ ]
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, 2019 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
Trading Symbol(s)
Common Stock, no par value
HURC
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which
registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
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 (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted 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 such files).
Yes [X] No [ ]
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
[ ] 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 Act).
Yes [ ] No [X]
The aggregate market value of the registrant’s voting stock held by non-affiliates as of April 30, 2019 (the
last business day of our most recently completed second quarter) was $266,155,000.
The number of shares of the registrant’s common stock outstanding as of December 31, 2019 was
6,770,233.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its
2020 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 cyclical nature of the machine tool industry, changes in general economic and business
conditions that affect demand for our products, the risks of our international operations, changes in
manufacturing markets, innovations by competitors, the ability to protect our intellectual property,
governmental actions and initiatives including import and export restrictions and tariffs, breaches of our
network and system security measures, fluctuations in foreign currency exchange rates, increases in prices
of raw materials, quality and delivery performance by our vendors, our ability to effectively integrate
acquisitions, negative or unforeseen tax consequences, and the risks and other important factors under the
heading “Risk Factors” in Part I, Item 1A of this report. You should understand that it is not possible to
predict or identify all factors that could cause actual results to differ materially from forward-looking
statements. Consequently, you should not consider any list or discussion of such factors to be a complete
set of all potential risks or uncertainties. Readers of this report are cautioned not to place undue reliance
on these forward-looking statements. While we believe the assumptions on which the forward-looking
statements are based are reasonable, there can be no assurance that these forward-looking statements will
prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in
this report. We expressly disclaim any obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. You are advised, however, to consult
any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other
filings with the Securities and Exchange Commission (“SEC”).
PART I
Item 1.
BUSINESS
General
Hurco Companies, Inc. is an international, industrial technology company. We design, manufacture and
sell computerized (i.e., Computer Numeric Control (“CNC”)) machine tools, consisting primarily of
vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry
through a worldwide sales, service and distribution network. Although the majority of our computer control
systems and software products are proprietary, they predominantly use industry standard personal computer
components. Our computer control systems and software products are primarily sold as integral
components of our computerized machine tool products. We also provide machine tool components,
automation integration equipment and solutions for job shops, software options, control upgrades,
accessories and replacement parts for our products, as well as customer service and training and applications
support. As used in this report, the words “we”, “us”, “our”, “Hurco” and the “Company” refer to Hurco
Companies, Inc. and its consolidated subsidiaries.
Since our founding in 1968, we have been a leader in the introduction of interactive computer control
systems that automate manufacturing processes and improve productivity in the metal parts manufacturing
industry. We pioneered the application of microprocessor technology and conversational programming
software for use in machine tools. Our Hurco brand computer control systems can be operated by both
skilled and unskilled machine tool operators and, yet, are capable of instructing a machine to perform
3
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
[ ] 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 Act).
Yes [ ] No [X]
The aggregate market value of the registrant’s voting stock held by non-affiliates as of April 30, 2019 (the
last business day of our most recently completed second quarter) was $266,155,000.
The number of shares of the registrant’s common stock outstanding as of December 31, 2019 was
6,770,233.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its
2020 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 cyclical nature of the machine tool industry, changes in general economic and business
conditions that affect demand for our products, the risks of our international operations, changes in
manufacturing markets, innovations by competitors, the ability to protect our intellectual property,
governmental actions and initiatives including import and export restrictions and tariffs, breaches of our
network and system security measures, fluctuations in foreign currency exchange rates, increases in prices
of raw materials, quality and delivery performance by our vendors, our ability to effectively integrate
acquisitions, negative or unforeseen tax consequences, and the risks and other important factors under the
heading “Risk Factors” in Part I, Item 1A of this report. You should understand that it is not possible to
predict or identify all factors that could cause actual results to differ materially from forward-looking
statements. Consequently, you should not consider any list or discussion of such factors to be a complete
set of all potential risks or uncertainties. Readers of this report are cautioned not to place undue reliance
on these forward-looking statements. While we believe the assumptions on which the forward-looking
statements are based are reasonable, there can be no assurance that these forward-looking statements will
prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in
this report. We expressly disclaim any obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. You are advised, however, to consult
any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other
filings with the Securities and Exchange Commission (“SEC”).
PART I
Item 1.
BUSINESS
General
Hurco Companies, Inc. is an international, industrial technology company. We design, manufacture and
sell computerized (i.e., Computer Numeric Control (“CNC”)) machine tools, consisting primarily of
vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry
through a worldwide sales, service and distribution network. Although the majority of our computer control
systems and software products are proprietary, they predominantly use industry standard personal computer
components. Our computer control systems and software products are primarily sold as integral
components of our computerized machine tool products. We also provide machine tool components,
automation integration equipment and solutions for job shops, software options, control upgrades,
accessories and replacement parts for our products, as well as customer service and training and applications
support. As used in this report, the words “we”, “us”, “our”, “Hurco” and the “Company” refer to Hurco
Companies, Inc. and its consolidated subsidiaries.
Since our founding in 1968, we have been a leader in the introduction of interactive computer control
systems that automate manufacturing processes and improve productivity in the metal parts manufacturing
industry. We pioneered the application of microprocessor technology and conversational programming
software for use in machine tools. Our Hurco brand computer control systems can be operated by both
skilled and unskilled machine tool operators and, yet, are capable of instructing a machine to perform
3
3
complex tasks. The combination of microprocessor technology and patented interactive, conversational
programming software in our proprietary computer control systems enables operators on the production
floor to quickly and easily create a program for machining a particular part from a blueprint or computer
aided design file and immediately begin machining that part.
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, 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, regardless of brand, deliver high levels of machine performance (speed, accuracy
and surface finish quality) that increases productivity. We routinely expand our product offerings to meet
customer needs, which has led us to design and manufacture more complex machining centers with
advanced capabilities. We bring a disciplined approach to strategically enter new geographic markets, as
appropriate.
In the last six years, we have implemented a strategic plan to expand our market reach to more customers
with more products on a global basis. While the Hurco-branded computer control systems have been, and
continue to be, our premium flagship product line, we have added other products to our portfolio that
provide product diversity and market penetration opportunity, while minimizing the impact of geographic
cyclicality, with products priced from entry-level to high performance serving a variety of different
industries. We have not changed our overall strategy to design, manufacture and sell a comprehensive line
of computerized machine tools; rather, we have enhanced this strategy through growth both organically and
through acquisitions to ensure long-term stability and overall profitability.
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 13% of worldwide consumption. Reports available for the U.S. machine tool market
include:
• United States Machine Tool Consumption – generated by the Association for Manufacturing
Technology, this report includes metal cutting machines of all types and sizes, including segments
in which we do not 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; and
• 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
4
4
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. In addition, we own an automation integration
company that specializes in job shop automation.
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
$ 223,735
85%
$ 261,710
87%
$ 209,311
86%
Computer Control Systems
Year Ended October 31,
2019
2018
2017
2,818
27,854
8,970
1%
11%
3%
2,870
27,501
8,590
1%
9%
3%
2,324
24,255
7,777
1%
10%
3%
$ 263,377
100%
$ 300,671
100%
$ 243,667
100%
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine
and Software ††
Service Parts
Service Fees
Total
systems.
Product Portfolio by Brand
We have three brands of CNC machine tools in our product portfolio: Hurco is the technology innovation
brand for customers who want to increase productivity and profitability by selecting a brand with the latest
software and motion technology. Milltronics is the value-based brand for shops that want easy-to-use
machines at competitive prices. The Takumi brand is for customers that need very high speed, high
efficiency performance, such as that required in the production, die and mold, aerospace and medical
industries. Takumi machines are equipped with industry standard controls instead of the proprietary
controls found on Hurco and Milltronics machines. ProCobots, LLC (“ProCobots”) is our wholly-owned
subsidiary that provides automation solutions that can be integrated with any machine tool. In addition,
through our wholly-owned subsidiary LCM Precision Technology S.r.l. (“LCM”), we produce high-value
machine tool components and accessories. The main product categories of each brand are outlined below.
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.
5
complex tasks. The combination of microprocessor technology and patented interactive, conversational
programming software in our proprietary computer control systems enables operators on the production
floor to quickly and easily create a program for machining a particular part from a blueprint or computer
aided design file and immediately begin machining that part.
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.
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, 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, regardless of brand, deliver high levels of machine performance (speed, accuracy
and surface finish quality) that increases productivity. We routinely expand our product offerings to meet
customer needs, which has led us to design and manufacture more complex machining centers with
advanced capabilities. We bring a disciplined approach to strategically enter new geographic markets, as
appropriate.
In the last six years, we have implemented a strategic plan to expand our market reach to more customers
with more products on a global basis. While the Hurco-branded computer control systems have been, and
continue to be, our premium flagship product line, we have added other products to our portfolio that
provide product diversity and market penetration opportunity, while minimizing the impact of geographic
cyclicality, with products priced from entry-level to high performance serving a variety of different
industries. We have not changed our overall strategy to design, manufacture and sell a comprehensive line
of computerized machine tools; rather, we have enhanced this strategy through growth both organically and
through acquisitions to ensure long-term stability and overall profitability.
Industry
include:
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 13% of worldwide consumption. Reports available for the U.S. machine tool market
• 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; and
• 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
4
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. In addition, we own an automation integration
company that specializes in job shop automation.
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
2019
$ 223,735
85%
Year Ended October 31,
2018
$ 261,710
87%
2017
$ 209,311
86%
2,818
27,854
8,970
$ 263,377
1%
11%
3%
100%
2,870
27,501
8,590
$ 300,671
1%
9%
3%
100%
2,324
24,255
7,777
$ 243,667
1%
10%
3%
100%
†† 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 technology innovation
brand for customers who want to increase productivity and profitability by selecting a brand with the latest
software and motion technology. Milltronics is the value-based brand for shops that want easy-to-use
machines at competitive prices. The Takumi brand is for customers that need very high speed, high
efficiency performance, such as that required in the production, die and mold, aerospace and medical
industries. Takumi machines are equipped with industry standard controls instead of the proprietary
controls found on Hurco and Milltronics machines. ProCobots, LLC (“ProCobots”) is our wholly-owned
subsidiary that provides automation solutions that can be integrated with any machine tool. In addition,
through our wholly-owned subsidiary LCM Precision Technology S.r.l. (“LCM”), we produce high-value
machine tool components and accessories. The main product categories of each brand are outlined below.
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.
5
5
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 (“2D”) or three-dimensional (“3D”) machining programs
directly from an engineering drawing or computer-aided design geometry file such as solid model. An
operator with little or no machine tool programming experience can successfully create a program with
minimal training and begin machining the part in a short period of time. The control features an operator
console with active touch, and incorporates an upgradeable personal computer (PC) platform using a high-
speed processor with solid rendering graphical programming. In addition, WinMax® has a Windows®††
based operating system that enables users to improve shop floor flexibility and software productivity.
Companies using computer-controlled machine tools are better able to:
• maximize the efficiency of their human resources;
• make more advanced and complex parts from a wide range of materials using multiple processes;
incorporate fast moving changes in technology into their operations to keep their competitive edge;
•
and
integrate their business into the global supply chain of their customers by supporting small to
medium lot sizes for “just in time” initiatives.
•
Our Windows® based Hurco control facilitates our ability to meet these customer needs. The familiar
Windows® operating system coupled with our intuitive conversational style of program creation allows our
customers’ operators to create and edit part-making programs without incurring the incremental overhead
of specialized computer aided design 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. 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 (mill) or chuck (lathe) and are popular in tool room, prototype and maintenance
applications. There is a 30-inch X-travel mill and an 8-inch chuck lathe.
VM Product Line
The VM product line consists of moderately priced vertical machining centers for the entry-level market,
while still offering the advantage of our advanced control and motion systems. The design premise of the
machining center with a large work cube and a small footprint optimizes the use of available floor space.
The VM line consists of five models in four sizes with X-axis (horizontal) travels of 18, 26, 40, and 50
inches.
________________________________
††Windows® is a registered trademark of Microsoft Corporation in the United States and other countries.
6
6
VMX Product Line
The VMX product line is our flagship series of machining centers and consists of higher performing vertical
machining centers aimed at manufacturers that require faster speeds and greater part accuracy. The small
and medium size models are available with either belted or inline (direct) spindles and the larger models
are offered as either #40 or #50 taper. 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.
U Series Product Line
This product line features five-axis trunnion tables integrated onto familiar C-frame style machines, making
an easy entry into five-axis for first time users. U Series models are offered with 8, 10, 14 and 20-inch
diameter rotary tables with both standard and high-speed spindles.
SRT/SW Product Line
The SRT Series of five-axis machines utilizes a swivel head and a C-axis rotary table embedded into and
flush with the machine table, making them among the most flexible machines in the industry. The SW
model utilizes the swivel head and a traditional machine table that can be then fitted with an A-axis rotary
to machine long five-axis parts. These models are available in either 42 or 60-inch X-axis travels.
VC/VCX Product Line
The B-axis configuration of the VC/VCX Series provides greater undercut capability in both positive and
negative directions, allowing users to access more part surface area for machining. These cantilever models
are available in a 20-inch pallet moderately-priced model as well as a high speed, high performance model
with a torque motor-driven 23.6-inch diameter rotary table.
HS Product Line
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.
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.
Four models are available, two with 40-inch X-travels (a three-axis version and a five-axis version), as well
as 53-inch and 63-inch X-travel models.
HM Product Line
on competitive horizontal machines.
HBMX 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-
travels of 67 inches. These products are designed for high mix, low volume applications that benefit from
a horizontal spindle configuration but don’t require an expensive pallet switching system typically found
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
7
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 (“2D”) or three-dimensional (“3D”) machining programs
directly from an engineering drawing or computer-aided design geometry file such as solid model. An
operator with little or no machine tool programming experience can successfully create a program with
minimal training and begin machining the part in a short period of time. The control features an operator
console with active touch, 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:
•
•
and
• maximize the efficiency of their human resources;
• make more advanced and complex parts from a wide range of materials using multiple processes;
incorporate fast moving changes in technology into their operations to keep their competitive edge;
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 Hurco control facilitates our ability to meet these customer needs. The familiar
Windows® operating system coupled with our intuitive conversational style of program creation allows our
customers’ operators to create and edit part-making programs without incurring the incremental overhead
of specialized computer aided design 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. 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 (mill) or chuck (lathe) and are popular in tool room, prototype and maintenance
applications. There is a 30-inch X-travel mill and an 8-inch chuck lathe.
VM Product Line
The VM product line consists of moderately priced vertical machining centers for the entry-level market,
while still offering the advantage of our advanced control and motion systems. The design premise of the
machining center with a large work cube and a small footprint optimizes the use of available floor space.
The VM line consists of five models in four sizes with X-axis (horizontal) travels of 18, 26, 40, and 50
inches.
________________________________
††Windows® is a registered trademark of Microsoft Corporation in the United States and other countries.
6
VMX Product Line
The VMX product line is our flagship series of machining centers and consists of higher performing vertical
machining centers aimed at manufacturers that require faster speeds and greater part accuracy. The small
and medium size models are available with either belted or inline (direct) spindles and the larger models
are offered as either #40 or #50 taper. 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.
U Series Product Line
This product line features five-axis trunnion tables integrated onto familiar C-frame style machines, making
an easy entry into five-axis for first time users. U Series models are offered with 8, 10, 14 and 20-inch
diameter rotary tables with both standard and high-speed spindles.
SRT/SW Product Line
The SRT Series of five-axis machines utilizes a swivel head and a C-axis rotary table embedded into and
flush with the machine table, making them among the most flexible machines in the industry. The SW
model utilizes the swivel head and a traditional machine table that can be then fitted with an A-axis rotary
to machine long five-axis parts. These models are available in either 42 or 60-inch X-axis travels.
VC/VCX Product Line
The B-axis configuration of the VC/VCX Series provides greater undercut capability in both positive and
negative directions, allowing users to access more part surface area for machining. These cantilever models
are available in a 20-inch pallet moderately-priced model as well as a high speed, high performance model
with a torque motor-driven 23.6-inch diameter rotary table.
HS Product Line
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.
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.
Four models are available, two with 40-inch X-travels (a three-axis version and a five-axis version), as well
as 53-inch and 63-inch X-travel models.
HM 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-
travels of 67 inches. These products are designed for high mix, low volume applications that benefit from
a horizontal spindle configuration but don’t require an expensive pallet switching system typically found
on competitive horizontal machines.
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
7
7
TM model in seven sizes, measured by chuck size: the TM6i, TM8i, TM10i, TM12i, TM18i, TM18Li, and
TM18BBi. 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: TMM8i, TMM10i, and TMM12i.
TMX Product Line
The TMX product line consists of high-performance turning centers. There are six models in two sizes.
The TMX-MY models are equipped with an additional axis and motorized live tooling while the TMX-
MYS models also have an additional spindle. These products are designed for customers who want to
reduce part handling and complete complex components that require speed, accuracy and superior surface
finish in a single set-up.
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. They are the largest models offered by Hurco that
feature the powerful and flexible WinMax® control.
Product Development
Since Hurco is the technology innovation brand of our corporate portfolio, we have focused our attention
on product enhancements of existing models in an effort to align the Hurco brand with the newest
engineering innovations and components available to compete with other premium brands in the
marketplace. Examples of product enhancements completed in 2019 include the use of linear cross roller
guideways, faster and more powerful motors, higher spindle speeds, and design refinements, such as new
column designs and sheet metal enclosures to support our high standards for quality and reliability.
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 our CNC VK knee mills and the more
advanced Series 9000 DGI offered on all other models.
The Milltronics portfolio consists of the following product lines:
New Products
VK Series
The VK is Milltronics’ CNC knee mill designed for prototype, R&D, maintenance and other general-
purpose applications. It offers the easy table access of a conventional knee mill, with the power and
flexibility of the Milltronics 8200-B CNC control and motion system. Unlike most competitive models, it
is not a retrofit kit but rather designed from the ground up as a CNC.
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 on
these machines include general machining, job shops, prototype or maintenance and repair. Available with
quill-head or rigid-head designs, there are six models in four sizes with X-axis travels of 30, 40, 60 and 78
inches. These easy-to-use machines feature the Series 9000 DGI control.
8
8
VM General Purpose (GP) Product Line
The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,
prototype, research and development and other general machining applications. These belt-driven models
are 40-taper and available in four different sizes – all with the Series 9000 DGI control. Customers can
choose models with X-axis (horizontal) travels of 25, 30, 40 or 50 inches. There is also a model with
extended spindle nose-to-table dimensions for large fourth-axis rotary applications.
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 DGI 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 heavy-duty 50-taper models are designed
for applications that require more power and torque and feature the Series 9000 DGI control. Customers
can choose from three different models with X-axis travels of 50, 60 or 84 inches.
BR Product Line
The BR product line consists of high-speed bridge mills that are used in pattern shops and the aerospace
industry, in addition to job shops, due to the large table and travels that support a wide range of part sizes.
BR machines have inline spindles and are available as six models in three sizes with X-axis travels of 100,
150 and 200 inches. BR machines offer the Series 9000 DGI control.
The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops
and contract manufacturers seeking efficient processing of small to medium lot sizes. There are three
models with chuck sizes of 6, 8 and 10 inches. These compact machines feature the Series 9000 DGI
SL Product Line
control.
ML Product Line
The ML product line consists of combination lathes that the customer can configure for either tool room or
production applications with the option to add live tooling. There are 17 models available in a variety of
thru hole sizes and in the following six swing-over bed diameters: 17, 19, 23, 27, 36 and 39.7 inches. These
flexible machines feature the Series 9000 DGI control.
In fiscal 2019, Milltronics introduced the TRM 3016, a new value priced, enclosed tool room CNC. The
machine features unique “drop down” side access doors that allow the accommodation of longer parts. The
TRM is equipped with the Series 9000 DGI control. Also, in 2019, we introduced a new extra-large
Milltronics XP model called the VM8434XP. This machine has 84 inches of X-axis travel, with a heavy
duty #50-taper spindle, making it suitable for large, difficult to machine parts and materials.
Takumi CNC Machine Tools
The Takumi brand features machines designed for high speed, high efficiency milling. This includes key
market segments such as die and mold, aerospace, medical and energy or any customer that needs to
produce very high accuracy parts quickly. Takumi machines are available with a variety of industry
standard CNC controls, including Fanuc®*, Siemens®, Mitsubishi® or Heidenhain®. Models include three-
____________
*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.
9
TM model in seven sizes, measured by chuck size: the TM6i, TM8i, TM10i, TM12i, TM18i, TM18Li, and
TM18BBi. 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: TMM8i, TMM10i, and TMM12i.
TMX Product Line
The TMX product line consists of high-performance turning centers. There are six models in two sizes.
The TMX-MY models are equipped with an additional axis and motorized live tooling while the TMX-
MYS models also have an additional spindle. These products are designed for customers who want to
reduce part handling and complete complex components that require speed, accuracy and superior surface
finish in a single set-up.
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. They are the largest models offered by Hurco that
feature the powerful and flexible WinMax® control.
Product Development
Since Hurco is the technology innovation brand of our corporate portfolio, we have focused our attention
on product enhancements of existing models in an effort to align the Hurco brand with the newest
engineering innovations and components available to compete with other premium brands in the
marketplace. Examples of product enhancements completed in 2019 include the use of linear cross roller
guideways, faster and more powerful motors, higher spindle speeds, and design refinements, such as new
column designs and sheet metal enclosures to support our high standards for quality and reliability.
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 our CNC VK knee mills and the more
advanced Series 9000 DGI offered on all other models.
The Milltronics portfolio consists of the following product lines:
VK Series
The VK is Milltronics’ CNC knee mill designed for prototype, R&D, maintenance and other general-
purpose applications. It offers the easy table access of a conventional knee mill, with the power and
flexibility of the Milltronics 8200-B CNC control and motion system. Unlike most competitive models, it
is not a retrofit kit but rather designed from the ground up as a CNC.
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 on
these machines include general machining, job shops, prototype or maintenance and repair. Available with
quill-head or rigid-head designs, there are six models in four sizes with X-axis travels of 30, 40, 60 and 78
inches. These easy-to-use machines feature the Series 9000 DGI control.
8
VM General Purpose (GP) Product Line
The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,
prototype, research and development and other general machining applications. These belt-driven models
are 40-taper and available in four different sizes – all with the Series 9000 DGI control. Customers can
choose models with X-axis (horizontal) travels of 25, 30, 40 or 50 inches. There is also a model with
extended spindle nose-to-table dimensions for large fourth-axis rotary applications.
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 DGI 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 heavy-duty 50-taper models are designed
for applications that require more power and torque and feature the Series 9000 DGI control. Customers
can choose from three different models with X-axis travels of 50, 60 or 84 inches.
BR Product Line
The BR product line consists of high-speed bridge mills that are used in pattern shops and the aerospace
industry, in addition to job shops, due to the large table and travels that support a wide range of part sizes.
BR machines have inline spindles and are available as six models in three sizes with X-axis travels of 100,
150 and 200 inches. BR machines offer the Series 9000 DGI 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 three
models with chuck sizes of 6, 8 and 10 inches. These compact machines feature the Series 9000 DGI
control.
ML Product Line
The ML product line consists of combination lathes that the customer can configure for either tool room or
production applications with the option to add live tooling. There are 17 models available in a variety of
thru hole sizes and in the following six swing-over bed diameters: 17, 19, 23, 27, 36 and 39.7 inches. These
flexible machines feature the Series 9000 DGI control.
New Products
In fiscal 2019, Milltronics introduced the TRM 3016, a new value priced, enclosed tool room CNC. The
machine features unique “drop down” side access doors that allow the accommodation of longer parts. The
TRM is equipped with the Series 9000 DGI control. Also, in 2019, we introduced a new extra-large
Milltronics XP model called the VM8434XP. This machine has 84 inches of X-axis travel, with a heavy
duty #50-taper spindle, making it suitable for large, difficult to machine parts and materials.
Takumi CNC Machine Tools
The Takumi brand features machines designed for high speed, high efficiency milling. This includes key
market segments such as die and mold, aerospace, medical and energy or any customer that needs to
produce very high accuracy parts quickly. Takumi machines are available with a variety of industry
standard CNC controls, including Fanuc®*, Siemens®, Mitsubishi® or Heidenhain®. Models include three-
____________
*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.
9
9
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. Takumi machines are hand built and fitted to exacting standards to produce high
accuracies and surface finishes.
The Takumi portfolio consists of the following product lines:
suitable for large and heavy parts.
VC Series
The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for
customers doing a variety of different parts, including die and mold, medical, automotive and other work.
The VC machines are available in four sizes with X-axis travels of 34, 42 and 50 inches. An extended Y-
axis travel version of the 42-inch model is offered for mold shops making square mold bases.
Autobend®
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. These machines are targeted especially for die and mold
customers as well as aerospace companies.
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 six models, four of which
offer trunnion table sizes of 10, 16, 24 and 31.5 inches. One additional model, the UB, is equipped with a
B/C swivel head and an HSK100, 12,000 rpm built-in spindle. The UB’s double column design provides
a spacious X-axis travel of 126 inches. A new model called the UR1000 has a two-axis head and a 39-inch
rotary table integrated into a double column machine, designed for large and heavy five-axis parts such as
those found in die and mold, aerospace and energy applications.
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 die and mold. This model includes a 6,000 rpm
geared-head design with X-axis travels of 82 inches.
SL Lathes
SL slant-bed lathes are turning centers equipped with box ways and designed for heavy cutting to provide
superior part finishes. The SL Series includes three models: the SL200, SL250, and SL300.
10
10
New Products
In 2019, Takumi introduced a small, high-speed double column model called the H6 aimed at the electronics
and medical markets. Featuring a 30,000 rpm spindle, the machine is capable of producing very high
accuracy small components quickly and with exceptional surface finishes. Takumi also introduced the
UR1000, a large capacity five-axis machine with a two-axis head and integrated 39-inch rotary table,
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 other original equipment manufacturers (“OEM”).
Our Autobend® computer control systems are applied to metal bending press brake machines that form
parts from sheet metal and steel plate. They consist of a microprocessor-based computer control and back
gauge (an automated gauging system that determines where the bend will be made). We have manufactured
and sold the Autobend® product line since 1968. We currently market two models of our Autobend®
computer control systems for press brake machines, in combination with six different back gauges as retrofit
units for installation on existing or new press brake machines.
Software Products
In addition to our standard computer control features, we offer software option products for part
programming. These products are sold to users of our Hurco computerized machine tools equipped with
our dual touch-screen or single touch-screen consoles featuring WinMax® control software. Each
international division packages the options as appropriate for its market. The most common options include:
Advanced Verification Graphics, Swept Surface, DXF Transfer, 3D DXF and Solid Model Import,
UltiMonitor, UltiPocket with Helical Ramp Entry and Insert Pockets, Conversational Part and Tool
Probing, Tool and Material Library, NC/Conversational Merge, Job List, 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.
Solid Model Import with 3D DXF Technology allows the operator to import a solid model directly into the
control and provides integrated CAD/CAM and tool path simulation.
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.
3D DXF and Solid Model Import automatically uses geometry from a 3D CAD model to easily create
conversational programs for 2D and 3D parts or even 3+2 and 5-sided parts.
Designed to take advantage of the Internet of Things (“IoT”), UltiMonitor is a web-based productivity,
management and service tool that enables customers to monitor, inspect and receive notifications about
their Hurco machines from any location where they can access the internet. Customers can transfer part
____________
* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.
11
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. Takumi machines are hand built and fitted to exacting standards to produce high
accuracies and surface finishes.
The Takumi portfolio consists of the following product lines:
New Products
In 2019, Takumi introduced a small, high-speed double column model called the H6 aimed at the electronics
and medical markets. Featuring a 30,000 rpm spindle, the machine is capable of producing very high
accuracy small components quickly and with exceptional surface finishes. Takumi also introduced the
UR1000, a large capacity five-axis machine with a two-axis head and integrated 39-inch rotary table,
suitable for large and heavy parts.
The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for
customers doing a variety of different parts, including die and mold, medical, automotive and other work.
The VC machines are available in four sizes with X-axis travels of 34, 42 and 50 inches. An extended Y-
axis travel version of the 42-inch model is offered for mold shops making square mold bases.
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,
VC Series
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. These machines are targeted especially for die and mold
customers as well as aerospace companies.
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 six models, four of which
offer trunnion table sizes of 10, 16, 24 and 31.5 inches. One additional model, the UB, is equipped with a
B/C swivel head and an HSK100, 12,000 rpm built-in spindle. The UB’s double column design provides
a spacious X-axis travel of 126 inches. A new model called the UR1000 has a two-axis head and a 39-inch
rotary table integrated into a double column machine, designed for large and heavy five-axis parts such as
those found in die and mold, aerospace and energy applications.
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.
G Series
BC Series
SL Lathes
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 other original equipment manufacturers (“OEM”).
Autobend®
Our Autobend® computer control systems are applied to metal bending press brake machines that form
parts from sheet metal and steel plate. They consist of a microprocessor-based computer control and back
gauge (an automated gauging system that determines where the bend will be made). We have manufactured
and sold the Autobend® product line since 1968. We currently market two models of our Autobend®
computer control systems for press brake machines, in combination with six different back gauges as retrofit
units for installation on existing or new press brake machines.
Software Products
In addition to our standard computer control features, we offer software option products for part
programming. These products are sold to users of our Hurco computerized machine tools equipped with
our dual touch-screen or single touch-screen consoles featuring WinMax® control software. Each
international division packages the options as appropriate for its market. The most common options include:
Advanced Verification Graphics, Swept Surface, DXF Transfer, 3D DXF and Solid Model Import,
UltiMonitor, UltiPocket with Helical Ramp Entry and Insert Pockets, Conversational Part and Tool
Probing, Tool and Material Library, NC/Conversational Merge, Job List, 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.
Solid Model Import with 3D DXF Technology allows the operator to import a solid model directly into the
control and provides integrated CAD/CAM and tool path simulation.
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.
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 die and mold. This model includes a 6,000 rpm
3D DXF and Solid Model Import automatically uses geometry from a 3D CAD model to easily create
conversational programs for 2D and 3D parts or even 3+2 and 5-sided parts.
geared-head design with X-axis travels of 82 inches.
SL slant-bed lathes are turning centers equipped with box ways and designed for heavy cutting to provide
superior part finishes. The SL Series includes three models: the SL200, SL250, and SL300.
Designed to take advantage of the Internet of Things (“IoT”), UltiMonitor is a web-based productivity,
management and service tool that enables customers to monitor, inspect and receive notifications about
their Hurco machines from any location where they can access the internet. Customers can transfer part
____________
* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.
10
11
11
designs, receive event notifications via email or text, access diagnostic data, monitor the machine via
webcam and communicate with the machine operator.
UltiPocket with Helical Ramp Entry and Insert Pockets automatically calculates the tool path around
islands, eliminating the arduous task of plotting these shapes. Islands can also be rotated, scaled and
repeated.
Conversational Part and Tool Probing options permit the computerized dimensional measurement of
machined parts and the associated cutting tools. This “on-machine” technique improves the throughput of
the measurement process when compared to traditional “off-machine” approaches.
The Tool and Material Library option stores the tool and material information with the machine instead of
storing it with each individual part program. The user enters the tool data and geometry one time and
chooses the particular tool from the list when it is needed. Additionally, the library reads the part program
and automatically locates the tool or displays an alert if the tool does not exist. In addition to saving time,
the Tool and Material Library eliminates the need to enter information repeatedly and can prevent common
tool crash conditions.
NC/Conversational Merge lets the user incorporate conversational features, such as tool probing, pattern
operations, and scaling into existing G-Code programs.
CNC Tilt Tables
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.
Parts and Service
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.
ProCobots CNC Automation
Located in the greater Pittsburgh, Pennsylvania area, ProCobots provides automation solutions that can be
integrated with any machine tool. ProCobots integrations include robots, grippers, material handling and
Industry 4.0-capable software and controls. Designed to be easy to use, safe and flexible, ProCobots
solutions are standardized systems aimed at high-mix, low volume customers. Products include portable
models such as ER5 and Profeeder Light, as well as flexible cell solutions, including the Profeeder and
Profeeder Q.
Non-Hurco Branded Products & Technologies
While our three brands of CNC machine tools are responsible for the vast majority of our revenue, we have
added other products to the lineup that have contributed to our top and bottom line growth and will provide
product diversity, market penetration opportunity, while minimizing the impact of geographic cyclicality,
12
12
with products priced from entry-level to high performance serving a variety of different industries. We
believe these non-Hurco branded products help us partially offset the cyclical nature of the machine tool
market by diversifying our product offering. These non-Hurco branded products are comprised primarily
of other general-purpose vertical machining centers and lathes, laser cutting machines, waterjet cutting
machines, CNC grinders, compact horizontal machining centers, metal cutting saws and CNC swiss lathes.
LCM Machine Tool Components and Accessories
Based in Italy, LCM designs, manufactures and sells mechanical and electro-mechanical components and
accessories for machine tools for a wide variety of machine tool OEMs. 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.
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 generally have the primary
responsibility for machine installation and warranty service and support for product sales. Our service
organization also sells software options, computer control upgrades, accessories and replacement parts for
our products. We believe 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 (Ningbo Hurco Machine Tool
Co. Ltd (“NHML”)), focuses on the machining of castings to support HML’s production in Taiwan. The
LCM line of electro-mechanical components and accessories for machine tools is designed and
manufactured in Italy. Our facility in Indianapolis, Indiana, also conducts final assembly operations for
certain Hurco VMX machines 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
13
designs, receive event notifications via email or text, access diagnostic data, monitor the machine via
webcam and communicate with the machine operator.
UltiPocket with Helical Ramp Entry and Insert Pockets automatically calculates the tool path around
islands, eliminating the arduous task of plotting these shapes. Islands can also be rotated, scaled and
repeated.
Conversational Part and Tool Probing options permit the computerized dimensional measurement of
machined parts and the associated cutting tools. This “on-machine” technique improves the throughput of
the measurement process when compared to traditional “off-machine” approaches.
The Tool and Material Library option stores the tool and material information with the machine instead of
storing it with each individual part program. The user enters the tool data and geometry one time and
chooses the particular tool from the list when it is needed. Additionally, the library reads the part program
and automatically locates the tool or displays an alert if the tool does not exist. In addition to saving time,
the Tool and Material Library eliminates the need to enter information repeatedly and can prevent common
tool crash conditions.
NC/Conversational Merge lets the user incorporate conversational features, such as tool probing, pattern
operations, and scaling into existing G-Code programs.
Job List provides an intuitive way to group files together and run them sequentially without operator
intervention, which promotes automation, lights-out machining, program stitching, file bundling, and
adaptive processes.
Stream Load allows the user to run very large NC files without the need to upload the entire file into the
control’s memory to avoid exceeding memory limits.
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.
ProCobots CNC Automation
Located in the greater Pittsburgh, Pennsylvania area, ProCobots provides automation solutions that can be
integrated with any machine tool. ProCobots integrations include robots, grippers, material handling and
Industry 4.0-capable software and controls. Designed to be easy to use, safe and flexible, ProCobots
solutions are standardized systems aimed at high-mix, low volume customers. Products include portable
models such as ER5 and Profeeder Light, as well as flexible cell solutions, including the Profeeder and
Profeeder Q.
Non-Hurco Branded Products & Technologies
While our three brands of CNC machine tools are responsible for the vast majority of our revenue, we have
added other products to the lineup that have contributed to our top and bottom line growth and will provide
product diversity, market penetration opportunity, while minimizing the impact of geographic cyclicality,
12
with products priced from entry-level to high performance serving a variety of different industries. We
believe these non-Hurco branded products help us partially offset the cyclical nature of the machine tool
market by diversifying our product offering. These non-Hurco branded products are comprised primarily
of other general-purpose vertical machining centers and lathes, laser cutting machines, waterjet cutting
machines, CNC grinders, compact horizontal machining centers, metal cutting saws and CNC swiss lathes.
LCM Machine Tool Components and Accessories
Based in Italy, LCM designs, manufactures and sells mechanical and electro-mechanical components and
accessories for machine tools for a wide variety of machine tool OEMs. 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).
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.
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 generally have the primary
responsibility for machine installation and warranty service and support for product sales. Our service
organization also sells software options, computer control upgrades, accessories and replacement parts for
our products. We believe 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 (Ningbo Hurco Machine Tool
Co. Ltd (“NHML”)), focuses on the machining of castings to support HML’s production in Taiwan. The
LCM line of electro-mechanical components and accessories for machine tools is designed and
manufactured in Italy. Our facility in Indianapolis, Indiana, also conducts final assembly operations for
certain Hurco VMX machines 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
13
13
our proprietary parts, performs final assembly and conducts test operations.
We work closely with our subsidiaries, key component suppliers and HAL to ensure that their production
capacity will be sufficient to meet the projected demand for our machine tool products. Many of the key
components used in our machines can be sourced from multiple suppliers. However, any prolonged
interruption of operations or significant reduction in the capacity or performance capability at any of our
manufacturing facilities, or at any of our key component suppliers, could have a material adverse effect on
our operations.
Marketing and Distribution
We principally sell our products through more than 190 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,
Taiwan, the United Kingdom and certain parts of the United States, which are among the world's principal
machine tool consuming markets.
Approximately 87% of the worldwide demand for computerized machine tools and computer control
systems is outside of the U.S. In fiscal 2019, approximately 64% of our revenues were derived from
customers outside of the U.S., which include customers located in Canada, Mexico and Central and South
America. 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 OEMs 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 that 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., Doosan, Okuma Machinery
Works Ltd, Hyundai and Feeler.
Through our subsidiary LCM, we compete with manufacturers of machine tool components and accessories
such as IBAG, Kessler, Peron Speed, GSA Technology Co., LTD and Duplomatic Automation.
We strive to compete by developing patentable software and other proprietary features that offer enhanced
productivity, technological capabilities and ease of use. We offer our products in a range of prices and
capabilities to target a broad potential market. We also believe that our competitiveness is aided by our
reputation for reliability and quality, our strong international sales and distribution organization, and our
extensive customer service organization.
Intellectual Property
We consider the majority of our products to be proprietary. Various features of our Hurco and Milltronics
control systems and machine tools employ technologies covered by patents and trademarks that are material
to our business. We also own additional patents covering new technologies that we have acquired or
developed, and that we are planning to incorporate into our control systems or products in the future.
Employees
Backlog
We had approximately 785 full-time employees at the end of fiscal 2019, none of whom are covered by a
collective-bargaining agreement. We have experienced no employee-generated work stoppages or
disruptions, and we consider our employee relations to be satisfactory.
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, 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.
14
14
15
our proprietary parts, performs final assembly and conducts test operations.
We work closely with our subsidiaries, key component suppliers and HAL to ensure that their production
capacity will be sufficient to meet the projected demand for our machine tool products. Many of the key
components used in our machines can be sourced from multiple suppliers. However, any prolonged
interruption of operations or significant reduction in the capacity or performance capability at any of our
manufacturing facilities, or at any of our key component suppliers, could have a material adverse effect on
our operations.
Marketing and Distribution
We principally sell our products through more than 190 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,
Taiwan, the United Kingdom and certain parts of the United States, which are among the world's principal
machine tool consuming markets.
Approximately 87% of the worldwide demand for computerized machine tools and computer control
systems is outside of the U.S. In fiscal 2019, approximately 64% of our revenues were derived from
customers outside of the U.S., which include customers located in Canada, Mexico and Central and South
America. 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 OEMs 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.
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 that will require replacement with more advanced
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
Demand
•
•
•
•
technology;
incentives.
Competition
We compete with many other machine tool producers in the United States and foreign countries. Most of
14
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., Doosan, Okuma Machinery
Works Ltd, Hyundai and Feeler.
Through our subsidiary LCM, we compete with manufacturers of machine tool components and accessories
such as IBAG, Kessler, Peron Speed, GSA Technology Co., LTD and Duplomatic Automation.
We strive to compete by developing patentable software and other proprietary features that offer enhanced
productivity, technological capabilities and ease of use. We offer our products in a range of prices and
capabilities to target a broad potential market. We also believe that our competitiveness is aided by our
reputation for reliability and quality, our strong international sales and distribution organization, and our
extensive customer service organization.
Intellectual Property
We consider the majority of our products to be proprietary. Various features of our Hurco and Milltronics
control systems and machine tools employ technologies covered by patents and trademarks that are material
to our business. We also own additional patents covering new technologies that we have acquired or
developed, and that we are planning to incorporate into our control systems or products in the future.
Employees
We had approximately 785 full-time employees at the end of fiscal 2019, none of whom are covered by a
collective-bargaining agreement. We have experienced no employee-generated work stoppages or
disruptions, and we consider our employee relations to be satisfactory.
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, 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.
15
15
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 2019, approximately 64% of our revenues were derived from sales to customers located
outside of the U.S., which include customers located in Canada, Mexico and Central and South America.
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 or the imposition of countervailing
measures or anti-dumping duties or similar tariffs;
foreign exchange controls that make it difficult to repatriate earnings and cash;
changes in tax regulations and rates in foreign countries; and
changes in the European Union and Asia may adversely affect business activity and economic
conditions globally and could continue to contribute to instability in global financial and foreign
exchange markets, as well as disrupt the free movement of goods, services and people between
countries.
•
•
•
Quotas, tariffs, taxes or other trade barriers could require us to attempt to change manufacturing sources,
reduce prices, increase spending on marketing or product development, withdraw from or not enter certain
markets or otherwise take actions that could be adverse to us and/or that we might not be able to accomplish
in a timely manner or at all. Also, in some foreign jurisdictions, we may be subject to laws limiting the
right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated
16
16
companies unless specified conditions are met. These factors may adversely affect our future operating
results. The vast majority of our products are shipped from our manufacturing facility in Taiwan from the
Port of Taichung to four ports of destination: Los Angeles, California; Tacoma, Washington; Venlo, the
Netherlands; and Shanghai, China. Changes in customs requirements, as a result of national security or
other constraints put upon these ports, may also have an adverse impact on our results of operations.
Additionally, we must comply with complex foreign and U.S. laws and regulations in a multitude of
jurisdictions, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, other foreign laws
prohibiting corrupt payments to governmental officials, and anti-competition regulations. Violations of
these laws and regulations could result in fines and penalties, criminal sanctions, tariffs or duties,
restrictions on our business conduct and on our ability to offer our products in one or more countries, and
could also materially adversely affect our brand, our ability to attract and retain employees, our international
operations, our business and our operating results. Although we have implemented policies and procedures
designed to ensure compliance with these laws and regulations, there can be no assurance that our
employees, contractors, or agents will not violate our policies.
Disruptions in our manufacturing operations or the supply of materials and components could adversely
affect our business, results of operations and financial condition. We depend on our wholly-owned
subsidiaries, HML, NHML, Milltronics, and LCM, to produce our machine tools and electro-mechanical
components and accessories in Taiwan, China, the U.S. and Italy, respectively. We also depend on our
35% owned affiliate, HAL, and other key third-party suppliers to produce our computer control systems
and key components, such as motors and drives for our machine tools. An unplanned interruption in
manufacturing or supply, or significant increase in price from third party suppliers, would have a material
adverse effect on our business, results of operations and financial condition. Such an interruption or increase
in price could result from various factors, including a change in the political environment, such as trade
wars or tariffs, a natural disaster, such as an earthquake, typhoon, or tsunami, or vulnerabilities in our
technology or cyber-attacks against our information systems, such as ransomware attacks. Also, any
interruption in service by one of our key component suppliers, if prolonged, could have a material adverse
effect on our business, results of operations and financial condition.
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 Americas, which generated approximately 63% of our
revenues in fiscal 2019, are invoiced and received in several foreign currencies, primarily the Euro, Pound
Sterling and Chinese Yuan. Therefore, our results of operations and financial condition are affected by
fluctuations in exchange rates between these currencies and the U.S. Dollar, both for purposes of actual
conversion and for financial reporting purposes. In addition, we are exposed to exchange risk associated
with our purchases of materials and components for our Taiwan manufacturing operations, which are
primarily made in the New Taiwan Dollar and the Euro. We hedge a portion of our foreign currency
exposure with the purchase of forward exchange contracts. These hedge contracts only mitigate the impact
of changes in foreign currency exchange rates that occur during the term of the related contract period and
carry risks of counterparty 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, and we
may not be able to accomplish those actions on a timely basis or at all. If the technologies or standards
used in our products become obsolete or fail to gain widespread commercial acceptance, our business would
17
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 2019, approximately 64% of our revenues were derived from sales to customers located
outside of the U.S., which include customers located in Canada, Mexico and Central and South America.
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;
•
current and changing regulatory environments affecting the importation and exportation of
• negative or unforeseen consequences resulting from the introduction, termination, modification, or
renegotiation of international trade agreements or treaties or the imposition of countervailing
measures or anti-dumping duties or similar tariffs;
foreign exchange controls that make it difficult to repatriate earnings and cash;
changes in tax regulations and rates in foreign countries; and
changes in the European Union and Asia may adversely affect business activity and economic
conditions globally and could continue to contribute to instability in global financial and foreign
exchange markets, as well as disrupt the free movement of goods, services and people between
countries.
Quotas, tariffs, taxes or other trade barriers could require us to attempt to change manufacturing sources,
reduce prices, increase spending on marketing or product development, withdraw from or not enter certain
markets or otherwise take actions that could be adverse to us and/or that we might not be able to accomplish
in a timely manner or at all. Also, in some foreign jurisdictions, we may be subject to laws limiting the
right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated
16
companies unless specified conditions are met. These factors may adversely affect our future operating
results. The vast majority of our products are shipped from our manufacturing facility in Taiwan from the
Port of Taichung to four ports of destination: Los Angeles, California; Tacoma, Washington; Venlo, the
Netherlands; and Shanghai, China. Changes in customs requirements, as a result of national security or
other constraints put upon these ports, may also have an adverse impact on our results of operations.
Additionally, we must comply with complex foreign and U.S. laws and regulations in a multitude of
jurisdictions, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, other foreign laws
prohibiting corrupt payments to governmental officials, and anti-competition regulations. Violations of
these laws and regulations could result in fines and penalties, criminal sanctions, tariffs or duties,
restrictions on our business conduct and on our ability to offer our products in one or more countries, and
could also materially adversely affect our brand, our ability to attract and retain employees, our international
operations, our business and our operating results. Although we have implemented policies and procedures
designed to ensure compliance with these laws and regulations, there can be no assurance that our
employees, contractors, or agents will not violate our policies.
Disruptions in our manufacturing operations or the supply of materials and components could adversely
affect our business, results of operations and financial condition. We depend on our wholly-owned
subsidiaries, HML, NHML, Milltronics, and LCM, to produce our machine tools and electro-mechanical
components and accessories in Taiwan, China, the U.S. and Italy, respectively. We also depend on our
35% owned affiliate, HAL, and other key third-party suppliers to produce our computer control systems
and key components, such as motors and drives for our machine tools. An unplanned interruption in
manufacturing or supply, or significant increase in price from third party suppliers, would have a material
adverse effect on our business, results of operations and financial condition. Such an interruption or increase
in price could result from various factors, including a change in the political environment, such as trade
wars or tariffs, a natural disaster, such as an earthquake, typhoon, or tsunami, or vulnerabilities in our
technology or cyber-attacks against our information systems, such as ransomware attacks. Also, any
interruption in service by one of our key component suppliers, if prolonged, could have a material adverse
effect on our business, results of operations and financial condition.
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 Americas, which generated approximately 63% of our
revenues in fiscal 2019, are invoiced and received in several foreign currencies, primarily the Euro, Pound
Sterling and Chinese Yuan. Therefore, our results of operations and financial condition are affected by
fluctuations in exchange rates between these currencies and the U.S. Dollar, both for purposes of actual
conversion and for financial reporting purposes. In addition, we are exposed to exchange risk associated
with our purchases of materials and components for our Taiwan manufacturing operations, which are
primarily made in the New Taiwan Dollar and the Euro. We hedge a portion of our foreign currency
exposure with the purchase of forward exchange contracts. These hedge contracts only mitigate the impact
of changes in foreign currency exchange rates that occur during the term of the related contract period and
carry risks of counterparty 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, and we
may not be able to accomplish those actions on a timely basis or at all. If the technologies or standards
used in our products become obsolete or fail to gain widespread commercial acceptance, our business would
17
17
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 and have substantially greater financial resources and some of which
have been supported by governmental or financial institution subsidies and, therefore, may have
competitive advantages over us. Our financial resources are limited compared to those of most of our
competitors, making it challenging to remain competitive.
Fluctuations in the price of raw materials, especially steel and iron, could adversely affect our sales,
costs and profitability.
We manufacture products with a high iron and steel content. The availability and price for these and other
raw materials are subject to volatility due to worldwide supply and demand forces, speculative actions,
inventory levels, exchange rates, production costs, anticipated or perceived shortages and tariffs or other
trade restrictions. In some cases, those cost increases can be passed on to customers in the form of price
increases; in other cases, they cannot. If the prices of raw materials increase and we are not able to charge
our customers higher prices to compensate, our results of operations would be adversely affected.
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.
Securities laws and/or SEC rules require a disclosure report to be filed annually with the SEC and require
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. Such laws or rules 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.
18
18
•
•
•
•
•
•
•
•
•
Acquisitions could disrupt our operations and harm our operating results.
We may seek additional opportunities to expand our product offerings or the markets we serve by acquiring
other companies, product lines, technologies and personnel. Acquisitions involve numerous risks, including
the following:
• difficulties integrating the operations, technologies, products, and personnel of an acquired
company or being subjected to liability for the target’s pre-acquisition activities or operations as a
successor in interest;
• diversion of management’s attention from normal daily operations of the business;
• potential difficulties completing projects associated with in-process research and development;
• difficulties entering markets in which we have no or limited prior experience, especially when
competitors in such markets have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenues to offset increased expenses associated with acquisitions;
the potential loss of key employees of the acquired companies; and
the potential for recording goodwill and intangible assets that later can be subject to impairment.
Acquisitions may also cause us to:
issue common stock that would dilute our current shareholders’ percentage ownership;
assume or otherwise be subject to liabilities of an acquired company;
record goodwill and non-amortizable intangible assets that will be subject to impairment testing on
a regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur large acquisition and integration costs, immediate write-offs, and restructuring and other
related expenses; and
• become subject to litigation.
Mergers and acquisitions are inherently risky. No assurance can be given that our acquisitions will be
successful. Further, no assurance can be given that an acquisition will not adversely affect our business,
operating results, or financial condition. Failure to manage and successfully integrate an acquisition could
harm our business and operating results in a material way. Even when an acquired company has already
developed and marketed products, there can be no assurance that enhancements to those products will be
made in a timely manner or that pre-acquisition due diligence will identify all possible issues that might
arise with respect to such products or the acquired business.
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 our profitability
19
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 and have substantially greater financial resources and some of which
have been supported by governmental or financial institution subsidies and, therefore, may have
competitive advantages over us. Our financial resources are limited compared to those of most of our
competitors, making it challenging to remain competitive.
Fluctuations in the price of raw materials, especially steel and iron, could adversely affect our sales,
costs and profitability.
We manufacture products with a high iron and steel content. The availability and price for these and other
raw materials are subject to volatility due to worldwide supply and demand forces, speculative actions,
inventory levels, exchange rates, production costs, anticipated or perceived shortages and tariffs or other
trade restrictions. In some cases, those cost increases can be passed on to customers in the form of price
increases; in other cases, they cannot. If the prices of raw materials increase and we are not able to charge
our customers higher prices to compensate, our results of operations would be adversely affected.
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.
Securities laws and/or SEC rules require a disclosure report to be filed annually with the SEC and require
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. Such laws or rules 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 additional opportunities to expand our product offerings or the markets we serve by acquiring
other companies, product lines, technologies and personnel. Acquisitions involve numerous risks, including
the following:
• difficulties integrating the operations, technologies, products, and personnel of an acquired
company or being subjected to liability for the target’s pre-acquisition activities or operations as a
successor in interest;
• diversion of management’s attention from normal daily operations of the business;
• potential difficulties completing projects associated with in-process research and development;
• difficulties entering markets in which we have no or limited prior experience, especially when
competitors in such markets have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenues to offset increased expenses associated with acquisitions;
the potential loss of key employees of the acquired companies; and
the potential for recording goodwill and intangible assets that later can be subject to impairment.
•
•
•
•
Acquisitions may also cause us to:
•
•
•
•
•
issue common stock that would dilute our current shareholders’ percentage ownership;
assume or otherwise be subject to liabilities of an acquired company;
record goodwill and non-amortizable intangible assets that will be subject to impairment testing on
a regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur large acquisition and integration costs, immediate write-offs, and restructuring and other
related expenses; and
• become subject to litigation.
Mergers and acquisitions are inherently risky. No assurance can be given that our acquisitions will be
successful. Further, no assurance can be given that an acquisition will not adversely affect our business,
operating results, or financial condition. Failure to manage and successfully integrate an acquisition could
harm our business and operating results in a material way. Even when an acquired company has already
developed and marketed products, there can be no assurance that enhancements to those products will be
made in a timely manner or that pre-acquisition due diligence will identify all possible issues that might
arise with respect to such products or the acquired business.
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 our profitability
18
19
19
and financial outlook in the U.S. or foreign jurisdictions may require the creation of a valuation allowance
to reduce our net deferred tax assets. Such changes could result in material non-cash expenses in the period
in which the changes are made and could have a material adverse impact on our results of operations and
financial condition. We also earn a significant amount of our operating income from outside the U.S., and
any repatriation of funds representing earnings of foreign subsidiaries may significantly impact our
effective tax rates.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political
conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change. Our
effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or
their interpretation, including tax laws in the U.S. Similarly, changes in tax laws or regulations, including
those in the U.S., could negatively impact our effective tax rate and results of operations. A change in a
statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant
jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit
recorded in our Consolidated Statements of Income for that period.
In December 2017, the U.S. passed the Tax Cuts and Jobs Act. The Company has evaluated and recorded
the aggregate impact of this passed legislation on our financial condition, cash flows and results of
operations. Any benefits associated with lower U.S. corporate tax rates could be reduced or outweighed by
other tax changes adverse to our business or operations, such as new or additional taxes imposed on earnings
and/or reinvested earnings of our foreign subsidiaries. The aggregate impact of such legislation, including
adverse future regulatory guidance, could have a material adverse impact on our cash flows and results of
operations.
Other changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates
or an adverse change in the treatment of an item of income or expense, could result in a material increase
in our tax expense. For example, changes in the tax laws of foreign jurisdictions could arise as a result of
the “base erosion and profit shifting” project undertaken by the Organisation for Economic Co-operation
and Development (“OECD”). The OECD, which represents a coalition of member countries, has
recommended changes to numerous long-standing tax principles. These changes, as adopted by countries,
could increase tax uncertainty and may adversely affect our provision for income taxes.
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.
We are also subject to claims that we may be infringing certain patent or other intellectual property rights
of third parties. While it is not possible to predict the outcome of patent and other intellectual property
litigation, such litigation could result in our payment of significant monetary damages and/or royalty
payments, negatively impact our ability to sell current or future products, reduce the market value of our
products and services, lower our profits, and could otherwise have an adverse effect on our business,
financial condition and results of operations.
20
20
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.
Failure to comply with data privacy and security laws and regulations could adversely affect our
operating results and business.
A number of U.S. states have enacted data privacy and security laws and regulations that govern the
collection, use, disclosure, transfer, storage, disposal, and protection of sensitive personal information, such
as social security numbers, financial information and other personal information. For example, several U.S.
territories and all 50 states now have data breach laws that require timely notification to individual victims,
and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive
personal data. Other state laws include the California Consumer Privacy Act (“CCPA”), which was signed
into law on June 28, 2018 and largely took effect on January 1, 2020. The CCPA, among other things,
contains new disclosure obligations for businesses that collect personal information about California
residents and affords those individuals new rights relating to their personal information that may affect our
ability to use personal information or share it with our business partners. Regulations from the California
Attorney General have not been finalized, and it is expected that additional amendments to the CCPA will
be introduced in 2020. Meanwhile, over fifteen other states have considered privacy laws like the CCPA,
We will continue to monitor and assess the impact of these state laws, which may impose substantial
penalties for violations, impose significant costs for investigations and compliance, allow private class-
action litigation and carry significant potential liability for our business.
Outside of the U.S., data protection laws, including the EU General Data Protection Regulation (the
“GDPR”), also apply to some of our operations. Legal requirements in these countries relating to the
collection, storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among
other things, data protection requirements that include strict obligations and restrictions on the ability to
collect, analyze and transfer EU personal data, a requirement for prompt notice of data breaches to data
subjects and supervisory authorities in certain circumstances, and possible substantial fines for any
violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of
total company revenue). Other governmental authorities around the world are considering similar types of
legislative and regulatory proposals concerning data protection.
The interpretation and enforcement of the laws and regulations described above are uncertain and subject
to change, and may require substantial costs to monitor and implement compliance with any additional
requirements. Failure to comply with U.S. and international data protection laws and regulations could
result in government enforcement actions (which could include substantial civil and/or criminal penalties),
private litigation and/or adverse publicity and could negatively affect our operating results and business.
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. Third parties may attempt to fraudulently induce employees or customers into disclosing
sensitive information such as usernames, passwords or other information to gain access to our customers'
data or our data, including our intellectual property and other confidential business information, or our
21
and financial outlook in the U.S. or foreign jurisdictions may require the creation of a valuation allowance
to reduce our net deferred tax assets. Such changes could result in material non-cash expenses in the period
in which the changes are made and could have a material adverse impact on our results of operations and
financial condition. We also earn a significant amount of our operating income from outside the U.S., and
any repatriation of funds representing earnings of foreign subsidiaries may significantly impact our
effective tax rates.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political
conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change. Our
effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or
their interpretation, including tax laws in the U.S. Similarly, changes in tax laws or regulations, including
those in the U.S., could negatively impact our effective tax rate and results of operations. A change in a
statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant
jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit
recorded in our Consolidated Statements of Income for that period.
In December 2017, the U.S. passed the Tax Cuts and Jobs Act. The Company has evaluated and recorded
the aggregate impact of this passed legislation on our financial condition, cash flows and results of
operations. Any benefits associated with lower U.S. corporate tax rates could be reduced or outweighed by
other tax changes adverse to our business or operations, such as new or additional taxes imposed on earnings
and/or reinvested earnings of our foreign subsidiaries. The aggregate impact of such legislation, including
adverse future regulatory guidance, could have a material adverse impact on our cash flows and results of
operations.
Other changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates
or an adverse change in the treatment of an item of income or expense, could result in a material increase
in our tax expense. For example, changes in the tax laws of foreign jurisdictions could arise as a result of
the “base erosion and profit shifting” project undertaken by the Organisation for Economic Co-operation
and Development (“OECD”). The OECD, which represents a coalition of member countries, has
recommended changes to numerous long-standing tax principles. These changes, as adopted by countries,
could increase tax uncertainty and may adversely affect our provision for income taxes.
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.
We are also subject to claims that we may be infringing certain patent or other intellectual property rights
of third parties. While it is not possible to predict the outcome of patent and other intellectual property
litigation, such litigation could result in our payment of significant monetary damages and/or royalty
payments, negatively impact our ability to sell current or future products, reduce the market value of our
products and services, lower our profits, and could otherwise have an adverse effect on our business,
financial condition and results of operations.
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.
Failure to comply with data privacy and security laws and regulations could adversely affect our
operating results and business.
A number of U.S. states have enacted data privacy and security laws and regulations that govern the
collection, use, disclosure, transfer, storage, disposal, and protection of sensitive personal information, such
as social security numbers, financial information and other personal information. For example, several U.S.
territories and all 50 states now have data breach laws that require timely notification to individual victims,
and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive
personal data. Other state laws include the California Consumer Privacy Act (“CCPA”), which was signed
into law on June 28, 2018 and largely took effect on January 1, 2020. The CCPA, among other things,
contains new disclosure obligations for businesses that collect personal information about California
residents and affords those individuals new rights relating to their personal information that may affect our
ability to use personal information or share it with our business partners. Regulations from the California
Attorney General have not been finalized, and it is expected that additional amendments to the CCPA will
be introduced in 2020. Meanwhile, over fifteen other states have considered privacy laws like the CCPA,
We will continue to monitor and assess the impact of these state laws, which may impose substantial
penalties for violations, impose significant costs for investigations and compliance, allow private class-
action litigation and carry significant potential liability for our business.
Outside of the U.S., data protection laws, including the EU General Data Protection Regulation (the
“GDPR”), also apply to some of our operations. Legal requirements in these countries relating to the
collection, storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among
other things, data protection requirements that include strict obligations and restrictions on the ability to
collect, analyze and transfer EU personal data, a requirement for prompt notice of data breaches to data
subjects and supervisory authorities in certain circumstances, and possible substantial fines for any
violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of
total company revenue). Other governmental authorities around the world are considering similar types of
legislative and regulatory proposals concerning data protection.
The interpretation and enforcement of the laws and regulations described above are uncertain and subject
to change, and may require substantial costs to monitor and implement compliance with any additional
requirements. Failure to comply with U.S. and international data protection laws and regulations could
result in government enforcement actions (which could include substantial civil and/or criminal penalties),
private litigation and/or adverse publicity and could negatively affect our operating results and business.
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. Third parties may attempt to fraudulently induce employees or customers into disclosing
sensitive information such as usernames, passwords or other information to gain access to our customers'
data or our data, including our intellectual property and other confidential business information, or our
20
21
21
information technology systems. In addition, given their size and complexity, our information systems
could be vulnerable to service interruptions or to security breaches from inadvertent or intentional actions
by our employees, third-party vendors and/or business partners, or from cyber-attacks by malicious third
parties attempting to gain unauthorized access to our products, systems or confidential information.
Like other public, multi-national corporations, we have and/or will continue to be subject to, instances of
phishing attacks on our email systems, other cyber-attacks, including state-sponsored cyber-attacks,
industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and
other malware, wire fraud or other cyber incidents.
Although we work closely with industry recognized manufacturers supporting the security measures we
have employed in an effort to keep our technology current with the ongoing threats, the techniques used to
obtain unauthorized access, or to sabotage systems, are becoming more sophisticated, frequent and
adaptive, and therefore we may be unable to anticipate these techniques or to implement adequate
preventative measures. Any security breach could result in: the unauthorized publication of our confidential
business or proprietary information; the unauthorized release of employee, customer or vendor data and
payment information; a loss of confidence by our customers; damage to our reputation; a disruption to our
business; litigation and legal liability; and a negative impact on our future sales. In addition, the cost and
operational consequences of implementing further data protection or data restoration measures could be
significant.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
The following table sets forth the principal use, location, and size of each of our facilities:
Principal Uses
Locations
Square Footage
Indianapolis, Indiana, U.S.
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, customer
service, and warehousing
High Wycombe, England
Benoni, South Africa*
Paris, France
Munich and Verl, Germany
Milan, Italy
Venlo, the Netherlands
Toh Guan, Singapore
Shanghai, Dongguan, Kunshan, China
Chennai, Delhi, and Pune India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.
Los Angeles, California, U.S.
Pittsburg, Pennsylvania, U.S.
452,100
59,500
32,300
31,000
26,300
3,500
12,800
22,400
12,900
9,700
3,900
12,200
10,200
1,000
3,700
11,400
13,000
We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various
dates ranging from January 2020 to December 2029. We believe that all of our facilities are well maintained
and are adequate for our needs now and in the foreseeable future. We do not believe that we would
experience significant difficulty in replacing any of the present facilities if any of our leases were not
renewed at expiration.
* The lease for our South Africa facility will expire in January 2020.
22
22
23
information technology systems. In addition, given their size and complexity, our information systems
could be vulnerable to service interruptions or to security breaches from inadvertent or intentional actions
by our employees, third-party vendors and/or business partners, or from cyber-attacks by malicious third
parties attempting to gain unauthorized access to our products, systems or confidential information.
Like other public, multi-national corporations, we have and/or will continue to be subject to, instances of
phishing attacks on our email systems, other cyber-attacks, including state-sponsored cyber-attacks,
industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and
other malware, wire fraud or other cyber incidents.
Although we work closely with industry recognized manufacturers supporting the security measures we
have employed in an effort to keep our technology current with the ongoing threats, the techniques used to
obtain unauthorized access, or to sabotage systems, are becoming more sophisticated, frequent and
adaptive, and therefore we may be unable to anticipate these techniques or to implement adequate
preventative measures. Any security breach could result in: the unauthorized publication of our confidential
business or proprietary information; the unauthorized release of employee, customer or vendor data and
payment information; a loss of confidence by our customers; damage to our reputation; a disruption to our
business; litigation and legal liability; and a negative impact on our future sales. In addition, the cost and
operational consequences of implementing further data protection or data restoration measures could be
significant.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
The following table sets forth the principal use, location, and size of each of our facilities:
Principal Uses
Locations
Square Footage
Corporate headquarters, design and
engineering, product testing, sales and
marketing, application engineering,
customer service, manufacturing and
assembly
Indianapolis, Indiana, U.S.
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, customer
service, and warehousing
High Wycombe, England
Benoni, South Africa*
Paris, France
Munich and Verl, Germany
Milan, Italy
Venlo, the Netherlands
Toh Guan, Singapore
Shanghai, Dongguan, Kunshan, China
Chennai, Delhi, and Pune India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.
Los Angeles, California, U.S.
Pittsburg, Pennsylvania, U.S.
452,100
59,500
32,300
31,000
26,300
3,500
12,800
22,400
12,900
9,700
3,900
12,200
10,200
1,000
3,700
11,400
13,000
We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various
dates ranging from January 2020 to December 2029. We believe that all of our facilities are well maintained
and are adequate for our needs now and in the foreseeable future. We do not believe that we would
experience significant difficulty in replacing any of the present facilities if any of our leases were not
renewed at expiration.
* The lease for our South Africa facility will expire in January 2020.
22
23
23
Item 3.
LEGAL PROCEEDINGS
PART II
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.
Information about our Executive Officers
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, 2019, 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
64
55
48
Chairman of the Board and Chief Executive Officer
Director, President and Chief Operating Officer
Executive 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. He was elected as our President in March
2013 and elected and appointed as a director and our Chief Operating Officer, respectively, in March 2019.
Mr. Volovic held various positions within our company most recently Executive Vice President, Software
and Engineering before becoming President in 2013. 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 Vice President,
Secretary, Treasurer and Chief Financial Officer in March 2014 and then Executive Vice President in March
2017. Ms. McClelland served as our 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 by an international public accounting firm.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Holders
Dividend Policy
Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”.
There were 110 holders of record of our common stock as of December 13, 2019.
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
from time to time.
Our payment of dividends is limited by our U.S. credit agreement, as further described in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 5 of
Notes to Consolidated Financial Statements.
Other Information
During the period covered by this report, we did not sell any equity securities that were not registered under
the Securities Act of 1933, as amended.
The disclosure under the caption “Equity Compensation Plan Information at 2019 Fiscal Year End” in our
2020 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.
24
24
25
Item 3.
LEGAL PROCEEDINGS
PART II
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
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”.
Holders
Item 4. MINE SAFETY DISCLOSURES
There were 110 holders of record of our common stock as of December 13, 2019.
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
from time to time.
Our payment of dividends is limited by our U.S. credit agreement, as further described in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 5 of
Notes to Consolidated Financial Statements.
Other Information
During the period covered by this report, we did not sell any equity securities that were not registered under
the Securities Act of 1933, as amended.
The disclosure under the caption “Equity Compensation Plan Information at 2019 Fiscal Year End” in our
2020 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.
policy coverages.
None.
Information about our Executive Officers
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, 2019, 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
64
55
48
Chairman of the Board and Chief Executive Officer
Director, President and Chief Operating Officer
Executive 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. He was elected as our President in March
2013 and elected and appointed as a director and our Chief Operating Officer, respectively, in March 2019.
Mr. Volovic held various positions within our company most recently Executive Vice President, Software
and Engineering before becoming President in 2013. 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 Vice President,
Secretary, Treasurer and Chief Financial Officer in March 2014 and then Executive Vice President in March
2017. Ms. McClelland served as our 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 by an international public accounting firm.
24
25
25
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
Other income (expense)
Net income
Earnings per common
share - diluted
Weighted average
common shares
outstanding-diluted
Dividends declared per
common share
Year Ended October 31,
2019
2018
2017
2016
2015
(In thousands, except per share amounts)
$263,377
77,208
$300,671
91,806
$243,667
70,564
$227,289
70,440
$219,383
69,091
support.
54,668
22,540
784
17,495
58,010
33,796
(1,300)
21,490
49,661
20,903
(187)
15,115
50,824
19,616
(731)
13,292
45,287
23,804
(251)
16,214
$2.55
$3.15
$2.25
$1.99
$2.44
6,815
$0.47
6,771
$0.43
6,680
6,642
6,602
$0.39
$0.35
$0.31
Balance Sheet Data:
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Non-current liabilities
Total debt
Shareholders’ equity
2019
2018
As of October 31,
2017
(Dollars in thousands)
2016
2015
$261,861
54,632
207,229
4.8
301,065
6,188
--
240,245
$281,435
86,803
194,632
3.2
315,407
5,751
1,434
222,853
$246,415
70,889
175,526
3.5
$218,381
57,968
160,413
3.8
$216,112
65,086
151,026
3.3
277,808
3,834
1,507
203,085
251,949
8,506
1,476
185,475
248,577
8,923
1,583
174,568
26
26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
Hurco Companies, Inc. is an international, industrial technology company operating in a single segment.
We design, manufacture and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical
machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a
worldwide sales, service and distribution network. Although the majority of our computer control systems
and software products are proprietary, they predominantly use industry standard personal computer
components. Our computer control systems and software products are primarily sold as integral
components of our computerized machine tool products. We also provide machine tool components,
automation integration equipment and solutions for job shops, software options, control upgrades,
accessories and replacement parts for our products, as well as customer service and training and applications
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 2019, approximately 51% 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 12% of our revenues were attributable to customers in
the Asia Pacific region, where we encounter greater price pressures.
We have three brands of CNC machine tools in our product portfolio: Hurco is the technology innovation
brand for customers who want to increase productivity and profitability by selecting a brand with the latest
software and motion technology. Milltronics is the value-based brand for shops that want easy-to-use
machines at competitive prices. The Takumi brand is for customers that need very high speed, high
efficiency performance, such as that required in the production, die/mold, aerospace and medical industries.
Takumi machines are equipped with industry standard controls instead of the proprietary controls found on
Hurco and Milltronics machines. ProCobots is our wholly-owned subsidiary that provides automation
solutions that can be integrated with any machine tool. In addition, through our wholly-owned subsidiary
LCM, we produce high value machine tool components and accessories.
We principally sell our products through more than 190 independent agents and distributors throughout 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, Taiwan, the United Kingdom and
certain parts of the United States, which are among the world's principal machine tool consuming markets.
The vast majority of our machine tools are manufactured to our specifications primarily by our wholly-
owned subsidiary in Taiwan, HML. Machine castings to support HML’s production are manufactured at
our wholly-owned subsidiary in Ningbo, China, NHML. Components to support our SRT line of five-axis
machining centers, such as the direct drive spindle, swivel head and rotary table, are manufactured by our
wholly-owned subsidiary in Italy, LCM.
Our sales to foreign customers are denominated, and payments by those customers are made, in the
prevailing currencies in the countries in which those customers are located (primarily the Euro, Pound
Sterling and Chinese Yuan). Our product costs are incurred and paid primarily in the New Taiwan Dollar
and the U.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
27
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
Other income (expense)
Net income
Earnings per common
share - diluted
Weighted average
common shares
outstanding-diluted
Dividends declared per
common share
Year Ended October 31,
2019
2018
2017
2016
2015
(In thousands, except per share amounts)
$263,377
77,208
$300,671
91,806
$243,667
70,564
$227,289
$219,383
70,440
69,091
54,668
22,540
784
17,495
58,010
33,796
(1,300)
21,490
49,661
20,903
(187)
15,115
50,824
19,616
(731)
13,292
45,287
23,804
(251)
16,214
$2.55
$3.15
$2.25
$1.99
$2.44
6,815
$0.47
6,771
$0.43
6,680
6,642
6,602
$0.39
$0.35
$0.31
Balance Sheet Data:
(Dollars in thousands)
2019
2018
2017
2016
2015
As of October 31,
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Non-current liabilities
Total debt
Shareholders’ equity
$261,861
54,632
207,229
4.8
301,065
6,188
--
240,245
$281,435
86,803
194,632
$246,415
70,889
175,526
$218,381
57,968
160,413
3.2
3.5
3.8
$216,112
65,086
151,026
3.3
315,407
5,751
1,434
222,853
277,808
3,834
1,507
203,085
251,949
8,506
1,476
185,475
248,577
8,923
1,583
174,568
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
Hurco Companies, Inc. is an international, industrial technology company operating in a single segment.
We design, manufacture and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical
machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a
worldwide sales, service and distribution network. Although the majority of our computer control systems
and software products are proprietary, they predominantly use industry standard personal computer
components. Our computer control systems and software products are primarily sold as integral
components of our computerized machine tool products. We also provide machine tool components,
automation integration equipment and solutions for job shops, software options, control upgrades,
accessories and replacement parts for our products, as well as customer service and training and applications
support.
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 2019, approximately 51% 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 12% of our revenues were attributable to customers in
the Asia Pacific region, where we encounter greater price pressures.
We have three brands of CNC machine tools in our product portfolio: Hurco is the technology innovation
brand for customers who want to increase productivity and profitability by selecting a brand with the latest
software and motion technology. Milltronics is the value-based brand for shops that want easy-to-use
machines at competitive prices. The Takumi brand is for customers that need very high speed, high
efficiency performance, such as that required in the production, die/mold, aerospace and medical industries.
Takumi machines are equipped with industry standard controls instead of the proprietary controls found on
Hurco and Milltronics machines. ProCobots is our wholly-owned subsidiary that provides automation
solutions that can be integrated with any machine tool. In addition, through our wholly-owned subsidiary
LCM, we produce high value machine tool components and accessories.
We principally sell our products through more than 190 independent agents and distributors throughout 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, Taiwan, the United Kingdom and
certain parts of the United States, which are among the world's principal machine tool consuming markets.
The vast majority of our machine tools are manufactured to our specifications primarily by our wholly-
owned subsidiary in Taiwan, HML. Machine castings to support HML’s production are manufactured at
our wholly-owned subsidiary in Ningbo, China, NHML. Components to support our SRT line of five-axis
machining centers, such as the direct drive spindle, swivel head and rotary table, are manufactured by our
wholly-owned subsidiary in Italy, LCM.
Our sales to foreign customers are denominated, and payments by those customers are made, in the
prevailing currencies in the countries in which those customers are located (primarily the Euro, Pound
Sterling and Chinese Yuan). Our product costs are incurred and paid primarily in the New Taiwan Dollar
and the U.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
26
27
27
expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements,
are higher than would be the case when the U.S. Dollar is stronger. In the comparison of our period-to-
period results, we discuss the effect of currency translation on those results, which reflect translation to
U.S. Dollars at exchange rates prevailing during the period covered by those financial statements.
Our high levels of foreign manufacturing and sales also expose us to cash flow risks due to fluctuating
currency exchange rates. We seek to mitigate those risks through the use of 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
2018
2019
2017
100%
31%
100%
29%
Year-to-Year % Change
Increase/Decrease
’19 vs. ’18
-12%
-16%
’18 vs. ’17
23%
30%
19%
11%
7%
20%
9%
6%
-6%
-33%
-19%
17%
62%
42%
Sales and service fees
Gross profit
Selling, general and administrative
expenses
Operating income
Net income
100%
29%
21%
9%
7%
Fiscal 2019 Compared to Fiscal 2018
Sales and Service Fees. Sales and service fees for fiscal 2019 were $263.4 million, a decrease of $37.3
million, or 12%, compared to fiscal 2018, and included an unfavorable currency impact of $8.5 million, or
3%, when translating foreign sales to U.S. Dollars for financial reporting purposes.
America.
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, 2019 and 2018 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
2019
Fiscal Year Ended October 31,
2018
$ 90,902
166,202
43,567
$ 300,671
37%
51%
12%
100%
$ 99,064
133,675
30,638
$ 263,377
Increase/Decrease
Amount %
$ 8,162
(32,527)
(12,929)
$ (37,294)
9%
-20%
-30%
-12%
30%
55%
15%
100%
Sales in the Americas for fiscal 2019 increased by 9%, compared to fiscal 2018, primarily attributable to
sales of vertical milling machines from a U.S. machine tool distributor in California acquired by Hurco in
the fourth quarter of fiscal 2018. European sales for fiscal 2019 decreased by 20%, compared to fiscal
2018, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S. Dollars
for financial reporting purposes. The decrease in European sales for fiscal 2019 was primarily attributable
to a reduced volume of shipments of Hurco machines in Germany and the United Kingdom, as well as a
decrease in sales of electro-mechanical components and accessories manufactured by our wholly-owned
subsidiary in Italy, LCM. Asian Pacific sales for fiscal 2019 decreased by 30%, compared to fiscal 2018,
and included an unfavorable currency impact of 2%, when translating foreign sales to U.S. Dollars for
financial reporting purposes. The decrease in Asian Pacific sales for fiscal 2019 was primarily attributable
28
28
to decreased shipments of Hurco vertical milling machines and Takumi bridge mill machines in China,
partially offset by increased shipments of Hurco vertical milling machines in India.
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, 2019 and 2018 (dollars in thousands):
Computerized Machine Tools $223,735
85%
$261,710
Computer Control Systems
Fiscal Year Ended October 31,
Increase/ Decrease
2019
2018
Amount %
87%
$(37,975)
-15%
2,818
27,854
8,970
1%
11%
3%
2,870
27,501
8,590
1%
9%
3%
(52)
353
380
$263,377
100%
$300,671
100%
$(37,294)
-2%
1%
4%
-12%
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
and Software ††
Service Parts
Service Fees
Total
machine systems.
Sales of computerized machine tools and computer control systems and software for fiscal 2019 decreased
by 15% and 2%, respectively, and each included an unfavorable currency impact of 3%, compared to fiscal
2018. The year-over-year decrease in sales of computerized machine tools and computer control systems
and software were mainly due to decreased sales of Hurco and Takumi machines in Germany, the United
Kingdom and China, as well as a decrease in sales of electro-mechanical components and accessories
manufactured by LCM, partially offset by an increase in sales of vertical milling machines from the U.S.
machine tool distributor in California acquired by Hurco in the fourth quarter of fiscal 2018. Sales of
service parts and service fees for fiscal 2019 increased by 1% and 4%, respectively, compared to fiscal
2018, due primarily to an increase in aftermarket sales and aftermarket service of Hurco products in North
Orders and Backlog. Orders for fiscal 2019 were $241.1 million, a decrease of $64.7 million, or 21%,
compared to fiscal 2018, and included an unfavorable currency impact of $8.5 million, or 3%, when
translating foreign orders to U.S. Dollars.
The following table sets forth new orders booked by geographic region for the fiscal years ended October
31, 2019 and 2018 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2019
$ 89,136
120,191
31,779
37%
50%
13%
$ 241,106
100%
2018
$ 94,160
170,366
41,319
$ 305,845
31%
56%
13%
100%
Increase/Decrease
Amount %
$ (5,024)
(50,175)
(9,540)
$ (64,739)
-5%
-29%
-23%
-21%
Orders in the Americas for fiscal 2019 decreased by 5%, compared to fiscal 2018, primarily due to the fact
that fiscal 2018 reflected orders resulting from year-end promotional activities following the September
2018 International Manufacturing Technology Show (“IMTS”), which is held every two years. The
decrease in orders for fiscal 2019, compared to fiscal 2018, was partially offset by increased customer
demand for vertical milling machines from the distributor in California acquired in the fourth quarter of
fiscal 2018 and increased customer demand for automation and integration systems from ProCobots, a U.S.-
based automation integration company acquired by Hurco in the fourth quarter of fiscal 2019. European
orders for fiscal 2019 decreased by 29%, compared to fiscal 2018, and included an unfavorable currency
29
expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements,
are higher than would be the case when the U.S. Dollar is stronger. In the comparison of our period-to-
period results, we discuss the effect of currency translation on those results, which reflect translation to
U.S. Dollars at exchange rates prevailing during the period covered by those financial statements.
to decreased shipments of Hurco vertical milling machines and Takumi bridge mill machines in China,
partially offset by increased shipments of Hurco vertical milling machines in India.
Net Sales and Service Fees by Product Category
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 derivative instruments –
The following table sets forth net sales and service fees by product group and services for the fiscal years
ended October 31, 2019 and 2018 (dollars in thousands):
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
2019
2018
2017
Increase/Decrease
’19 vs. ’18
’18 vs. ’17
Sales and service fees
Gross profit
Selling, general and administrative
expenses
Operating income
Net income
100%
29%
21%
9%
7%
100%
31%
100%
29%
19%
11%
7%
20%
9%
6%
-12%
-16%
-6%
-33%
-19%
23%
30%
17%
62%
42%
Fiscal 2019 Compared to Fiscal 2018
Sales and Service Fees. Sales and service fees for fiscal 2019 were $263.4 million, a decrease of $37.3
million, or 12%, compared to fiscal 2018, and included an unfavorable currency impact of $8.5 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 years ended
October 31, 2019 and 2018 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2019
$ 99,064
133,675
30,638
$ 263,377
37%
51%
12%
100%
2018
$ 90,902
166,202
43,567
$ 300,671
30%
55%
15%
100%
Increase/Decrease
Amount %
$ 8,162
(32,527)
(12,929)
$ (37,294)
9%
-20%
-30%
-12%
Sales in the Americas for fiscal 2019 increased by 9%, compared to fiscal 2018, primarily attributable to
sales of vertical milling machines from a U.S. machine tool distributor in California acquired by Hurco in
the fourth quarter of fiscal 2018. European sales for fiscal 2019 decreased by 20%, compared to fiscal
2018, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S. Dollars
for financial reporting purposes. The decrease in European sales for fiscal 2019 was primarily attributable
to a reduced volume of shipments of Hurco machines in Germany and the United Kingdom, as well as a
decrease in sales of electro-mechanical components and accessories manufactured by our wholly-owned
subsidiary in Italy, LCM. Asian Pacific sales for fiscal 2019 decreased by 30%, compared to fiscal 2018,
and included an unfavorable currency impact of 2%, when translating foreign sales to U.S. Dollars for
financial reporting purposes. The decrease in Asian Pacific sales for fiscal 2019 was primarily attributable
28
2019
Computerized Machine Tools $223,735
Computer Control Systems
and Software ††
Service Parts
Service Fees
Total
2,818
27,854
8,970
$263,377
85%
1%
11%
3%
100%
Fiscal Year Ended October 31,
2018
$261,710
87%
Increase/ Decrease
Amount %
$(37,975)
-15%
2,870
27,501
8,590
$300,671
1%
9%
3%
100%
(52)
353
380
$(37,294)
-2%
1%
4%
-12%
†† 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 2019 decreased
by 15% and 2%, respectively, and each included an unfavorable currency impact of 3%, compared to fiscal
2018. The year-over-year decrease in sales of computerized machine tools and computer control systems
and software were mainly due to decreased sales of Hurco and Takumi machines in Germany, the United
Kingdom and China, as well as a decrease in sales of electro-mechanical components and accessories
manufactured by LCM, partially offset by an increase in sales of vertical milling machines from the U.S.
machine tool distributor in California acquired by Hurco in the fourth quarter of fiscal 2018. Sales of
service parts and service fees for fiscal 2019 increased by 1% and 4%, respectively, compared to fiscal
2018, due primarily to an increase in aftermarket sales and aftermarket service of Hurco products in North
America.
Orders and Backlog. Orders for fiscal 2019 were $241.1 million, a decrease of $64.7 million, or 21%,
compared to fiscal 2018, and included an unfavorable currency impact of $8.5 million, or 3%, when
translating foreign orders to U.S. Dollars.
The following table sets forth new orders booked by geographic region for the fiscal years ended October
31, 2019 and 2018 (dollars in thousands):
Fiscal Year Ended October 31,
2018
2019
Americas
Europe
Asia Pacific
Total
$ 89,136
120,191
31,779
$ 241,106
37%
50%
13%
100%
$ 94,160
170,366
41,319
$ 305,845
31%
56%
13%
100%
Increase/Decrease
Amount %
$ (5,024)
(50,175)
(9,540)
$ (64,739)
-5%
-29%
-23%
-21%
Orders in the Americas for fiscal 2019 decreased by 5%, compared to fiscal 2018, primarily due to the fact
that fiscal 2018 reflected orders resulting from year-end promotional activities following the September
2018 International Manufacturing Technology Show (“IMTS”), which is held every two years. The
decrease in orders for fiscal 2019, compared to fiscal 2018, was partially offset by increased customer
demand for vertical milling machines from the distributor in California acquired in the fourth quarter of
fiscal 2018 and increased customer demand for automation and integration systems from ProCobots, a U.S.-
based automation integration company acquired by Hurco in the fourth quarter of fiscal 2019. European
orders for fiscal 2019 decreased by 29%, compared to fiscal 2018, and included an unfavorable currency
29
29
impact of 4%, when translating foreign orders to U.S. Dollars. The year-over-year decrease in orders was
driven primarily by decreased customer demand for Hurco and Takumi machines in Germany and Italy, as
well as a decrease in customer demand for electro-mechanical components and accessories manufactured
by LCM. Asian Pacific orders for fiscal 2019 decreased by 23%, compared to fiscal 2018, and included an
unfavorable currency impact of 3%, when translating foreign orders to U.S. Dollars, due mainly to
decreased customer demand for Hurco and Takumi machines in China and India.
Backlog at October 31, 2019 decreased to $32.7 million from $55.0 million at October 31, 2018, primarily
due to a reduction in customer demand during fiscal 2019. We do not believe backlog is a useful measure
of past performance or indicative of future performance. Backlog orders as of October 31, 2019 are expected
to be fulfilled in fiscal 2020.
Gross Profit. Gross profit for fiscal 2019 was $77.2 million, or 29% of sales, compared to $91.8 million,
or 31% of sales, for fiscal 2018. The year-over-year decrease in gross profit as a percentage of sales was
primarily due to lower sales of more complex, higher-performance machines in the European sales region,
the impact of fixed costs on lower sales and production volume, and competitive pricing pressures on a
global basis.
Operating Expenses. Selling, general and administrative expenses for fiscal 2019 were $54.7 million, or
21% of sales, compared to $58.0 million, or 19% of sales, in fiscal 2018, and included a favorable currency
impact of $1.5 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes.
The year-over-year reduction in selling, general and administrative expenses were primarily due to a
decrease in tradeshow expenses associated with the September 2018 IMTS, decreased variable employee
compensation and other operating expense reductions implemented during fiscal 2019, partially offset by
increased operating expenses associated with the U.S. companies we acquired in the fourth quarter of fiscal
2018 and the fourth quarter of fiscal 2019.
Operating Income. Operating income for fiscal 2019 was $22.5 million, or 9% of sales, compared to $33.8
million, or 11% of sales, in fiscal 2018. The year-over-year decrease in operating income was due to an
overall reduction in sales volume year-over-year, particularly in Europe where our more complex, higher
performance machines are primarily sold, as well as increased operating expenses associated with the U.S.
companies we acquired in the fourth quarter of fiscal 2018 and the fourth quarter of fiscal 2019, partially
offset by a reduction in other selling, general and administrative expenses .
Other Expense, Net. Other expense, net for fiscal 2019 decreased by $1.8 million from fiscal 2018, due
mainly to a reduction in foreign currency exchange losses in fiscal 2019, compared to fiscal 2018.
Provision for Income Taxes. Our effective tax rate for fiscal 2019 was 25%, compared to 34% in fiscal
2018. The year-over-year decrease in the effective tax rate for fiscal 2019 principally resulted from the
favorable impact of certain U.S. tax reform provisions available in the current fiscal year, including the full
year impact of a lower U.S. corporate tax rate from 35% to 21%, a new deduction attributable to Foreign-
Derived Intangible Income (“FDII”) and the benefit of foreign tax credits included in these tax reform
provisions. In addition, the year-over year changes in the effective tax rates included a shift in geographic
mix of income and loss among tax jurisdictions. The effective tax rate for fiscal 2018 included one-time
charges of $2.9 million related to the U.S. Tax Cuts and Jobs Act that was enacted in December 2017.
Net Income. Net income for fiscal 2019 was $17.5 million, or $2.55 per diluted share, a decrease of $4.0
million, or 19%, from fiscal 2018 net income of $21.5 million, or $3.15 per diluted share.
Fiscal 2018 Compared to Fiscal 2017
Sales and Service Fees. Sales and service fees for fiscal 2018 were $300.7 million, an increase of $57.0
million, or 23%, compared to fiscal 2017, and included a favorable currency impact of $10.5 million, or
4%, when translating foreign sales to U.S. Dollars for financial reporting purposes.
30
30
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, 2018 and 2017 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2018
$ 90,902
166,202
43,567
$ 300,671
30%
55%
15%
100%
2017
$ 75,540
133,671
34,456
$ 243,667
31%
55%
14%
100%
Increase/Decrease
Amount
%
$ 15,362
32,531
9,111
$ 57,004
20%
24%
26%
23%
Sales in the Americas for fiscal 2018 increased by 20%, compared to fiscal 2017, due primarily to improved
U.S. market conditions and increased demand from U.S. customers for the Hurco and Milltronics product
lines. The increase in sales year-over-year was attributable to an increased sales volume of vertical milling
and lathe machines from all product lines (Hurco, Milltronics and Takumi). European sales for fiscal 2018
increased by 24%, compared to fiscal 2017, and included a favorable currency impact of 7%, when
translating foreign sales to U.S. Dollars for financial reporting purposes. The increase in European sales
for fiscal 2018 resulted mainly from increased customer demand for Hurco and Takumi machines in
Germany, France and the United Kingdom, as well as increased customer demand for electro-mechanical
components and accessories manufactured by our wholly-owned subsidiary, LCM. Asian Pacific sales for
fiscal 2018 increased by 26%, compared to fiscal 2017, and included a favorable currency impact of 3%,
when translating foreign sales to U.S. Dollars for financial reporting purposes. The increase in Asian
Pacific sales for fiscal 2018 was primarily attributable to increased customer demand for Hurco and Takumi
machines in all Asian Pacific countries where our customers are located, particularly in China, the largest
market for consumption of machines tools in the world.
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, 2018 and 2017 (dollars in thousands):
Computerized Machine Tools
$ 261,710
87%
$ 209,311
Computer Control Systems
Fiscal Year Ended October 31,
2018
2017
2,870
27,501
8,590
1%
9%
3%
2,324
24,255
7,777
and Software ††
Service Parts
Service Fees
Total
machine systems.
Increase/Decrease
Amount %
$52,399
25%
546
3,246
813
23%
13%
10%
23%
86%
1%
10%
3%
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
$ 300,671
100%
$ 243,667
100%
$57,004
Sales of computerized machine tools and computer control systems and software for fiscal 2018 increased
by 25% and 23%, respectively, and each included a favorable currency impact of 4%, compared to fiscal
2017. The year-over-year increase in sales of computerized machine tools and computer control systems
and software reflected increased machine sales across all three regions and product lines. Sales of service
parts and service fees for fiscal 2018 increased by 13% and 10%, respectively, compared to fiscal 2017,
due primarily to an increase in aftermarket sales and aftermarket service of Hurco products in North
America, France and the United Kingdom.
31
impact of 4%, when translating foreign orders to U.S. Dollars. The year-over-year decrease in orders was
driven primarily by decreased customer demand for Hurco and Takumi machines in Germany and Italy, as
well as a decrease in customer demand for electro-mechanical components and accessories manufactured
by LCM. Asian Pacific orders for fiscal 2019 decreased by 23%, compared to fiscal 2018, and included an
unfavorable currency impact of 3%, when translating foreign orders to U.S. Dollars, due mainly to
decreased customer demand for Hurco and Takumi machines in China and India.
Backlog at October 31, 2019 decreased to $32.7 million from $55.0 million at October 31, 2018, primarily
due to a reduction in customer demand during fiscal 2019. We do not believe backlog is a useful measure
of past performance or indicative of future performance. Backlog orders as of October 31, 2019 are expected
to be fulfilled in fiscal 2020.
Gross Profit. Gross profit for fiscal 2019 was $77.2 million, or 29% of sales, compared to $91.8 million,
or 31% of sales, for fiscal 2018. The year-over-year decrease in gross profit as a percentage of sales was
primarily due to lower sales of more complex, higher-performance machines in the European sales region,
the impact of fixed costs on lower sales and production volume, and competitive pricing pressures on a
global basis.
Operating Expenses. Selling, general and administrative expenses for fiscal 2019 were $54.7 million, or
21% of sales, compared to $58.0 million, or 19% of sales, in fiscal 2018, and included a favorable currency
impact of $1.5 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes.
The year-over-year reduction in selling, general and administrative expenses were primarily due to a
decrease in tradeshow expenses associated with the September 2018 IMTS, decreased variable employee
compensation and other operating expense reductions implemented during fiscal 2019, partially offset by
increased operating expenses associated with the U.S. companies we acquired in the fourth quarter of fiscal
2018 and the fourth quarter of fiscal 2019.
Operating Income. Operating income for fiscal 2019 was $22.5 million, or 9% of sales, compared to $33.8
million, or 11% of sales, in fiscal 2018. The year-over-year decrease in operating income was due to an
overall reduction in sales volume year-over-year, particularly in Europe where our more complex, higher
performance machines are primarily sold, as well as increased operating expenses associated with the U.S.
companies we acquired in the fourth quarter of fiscal 2018 and the fourth quarter of fiscal 2019, partially
offset by a reduction in other selling, general and administrative expenses .
Other Expense, Net. Other expense, net for fiscal 2019 decreased by $1.8 million from fiscal 2018, due
mainly to a reduction in foreign currency exchange losses in fiscal 2019, compared to fiscal 2018.
Provision for Income Taxes. Our effective tax rate for fiscal 2019 was 25%, compared to 34% in fiscal
2018. The year-over-year decrease in the effective tax rate for fiscal 2019 principally resulted from the
favorable impact of certain U.S. tax reform provisions available in the current fiscal year, including the full
year impact of a lower U.S. corporate tax rate from 35% to 21%, a new deduction attributable to Foreign-
Derived Intangible Income (“FDII”) and the benefit of foreign tax credits included in these tax reform
provisions. In addition, the year-over year changes in the effective tax rates included a shift in geographic
mix of income and loss among tax jurisdictions. The effective tax rate for fiscal 2018 included one-time
charges of $2.9 million related to the U.S. Tax Cuts and Jobs Act that was enacted in December 2017.
Net Income. Net income for fiscal 2019 was $17.5 million, or $2.55 per diluted share, a decrease of $4.0
million, or 19%, from fiscal 2018 net income of $21.5 million, or $3.15 per diluted share.
Fiscal 2018 Compared to Fiscal 2017
Sales and Service Fees. Sales and service fees for fiscal 2018 were $300.7 million, an increase of $57.0
million, or 23%, compared to fiscal 2017, and included a favorable currency impact of $10.5 million, or
4%, when translating foreign sales to U.S. Dollars for financial reporting purposes.
30
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, 2018 and 2017 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2018
$ 90,902
166,202
43,567
$ 300,671
30%
55%
15%
100%
2017
$ 75,540
133,671
34,456
$ 243,667
31%
55%
14%
100%
Increase/Decrease
Amount
%
$ 15,362
32,531
9,111
$ 57,004
20%
24%
26%
23%
Sales in the Americas for fiscal 2018 increased by 20%, compared to fiscal 2017, due primarily to improved
U.S. market conditions and increased demand from U.S. customers for the Hurco and Milltronics product
lines. The increase in sales year-over-year was attributable to an increased sales volume of vertical milling
and lathe machines from all product lines (Hurco, Milltronics and Takumi). European sales for fiscal 2018
increased by 24%, compared to fiscal 2017, and included a favorable currency impact of 7%, when
translating foreign sales to U.S. Dollars for financial reporting purposes. The increase in European sales
for fiscal 2018 resulted mainly from increased customer demand for Hurco and Takumi machines in
Germany, France and the United Kingdom, as well as increased customer demand for electro-mechanical
components and accessories manufactured by our wholly-owned subsidiary, LCM. Asian Pacific sales for
fiscal 2018 increased by 26%, compared to fiscal 2017, and included a favorable currency impact of 3%,
when translating foreign sales to U.S. Dollars for financial reporting purposes. The increase in Asian
Pacific sales for fiscal 2018 was primarily attributable to increased customer demand for Hurco and Takumi
machines in all Asian Pacific countries where our customers are located, particularly in China, the largest
market for consumption of machines tools in the world.
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, 2018 and 2017 (dollars in thousands):
Fiscal Year Ended October 31,
2018
$ 261,710
2017
$ 209,311
Increase/Decrease
Amount %
25%
87%
Computerized Machine Tools
Computer Control Systems
1%
and Software ††
Service Parts
9%
Service Fees
3%
100%
Total
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
2,324
24,255
7,777
$ 243,667
2,870
27,501
8,590
$ 300,671
546
3,246
813
$57,004
1%
10%
3%
100%
$52,399
23%
13%
10%
23%
86%
machine systems.
Sales of computerized machine tools and computer control systems and software for fiscal 2018 increased
by 25% and 23%, respectively, and each included a favorable currency impact of 4%, compared to fiscal
2017. The year-over-year increase in sales of computerized machine tools and computer control systems
and software reflected increased machine sales across all three regions and product lines. Sales of service
parts and service fees for fiscal 2018 increased by 13% and 10%, respectively, compared to fiscal 2017,
due primarily to an increase in aftermarket sales and aftermarket service of Hurco products in North
America, France and the United Kingdom.
31
31
Orders and Backlog. Orders for fiscal 2018 were a record $305.8 million, an increase of $45.2 million, or
17%, compared to fiscal 2017, and included a favorable currency impact of $13.8 million, or 5%, when
translating foreign orders to U.S. Dollars.
The following table sets forth new orders booked by geographic region for the fiscal years ended October
31, 2018 and 2017 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2018
$ 94,160
170,366
41,319
$ 305,845
31%
56%
13%
100%
2017
$ 85,070
137,622
37,917
$ 260,609
33%
53%
14%
100%
Increase/Decrease
Amount %
$ 9,090
32,744
3,402
$ 45,236
11%
24%
9%
17%
Orders in the Americas for fiscal 2018 increased by 11%, compared to fiscal 2017. The increase was largely
attributable to improved customer demand for Hurco and Takumi vertical milling and lathe machines.
European orders for fiscal 2018 increased by 24%, compared to fiscal 2017, and included a favorable
currency impact of 9%, when translating foreign orders to U.S. Dollars. The year-over-year increase in
European orders was largely driven by increased customer demand for Hurco and Takumi vertical milling
and lathe machines in Germany and France, as well as increased demand for electro-mechanical
components and accessories manufactured by LCM. Asian Pacific orders for fiscal 2018 increased by 9%,
compared to fiscal 2017, and included a favorable currency impact of 3%, when translating foreign orders
to U.S. Dollars. The year-over-year increase in Asian Pacific orders was largely due to increased customer
demand for Hurco vertical milling machines in India, China and Southeast Asia.
Backlog at October 31, 2018 increased to $55.0 million, compared to $52.0 million at October 31, 2017,
primarily due to an increase in customer orders during fiscal 2018. We do not believe backlog is a useful
measure of past performance or indicative of future performance.
Gross Profit. Gross profit for fiscal 2018 was $91.8 million, or 31% of sales, compared to $70.6 million,
or 29% of sales, for fiscal 2017. The year-over-year increase in gross profit as a percentage of sales reflected
increased machine sales across all three regions and product lines and the favorable impact of foreign
currency translation compared to fiscal 2017.
Operating Expenses. Selling, general and administrative expenses for fiscal 2018 were $58.0 million, or
19% of sales, compared to $49.7 million, or 20% of sales, in fiscal 2017, and included an unfavorable
currency impact of $1.3 million, when translating foreign expenses to U.S. Dollars for financial reporting
purposes. The year-over-year increase in selling, general and administrative expenses was driven by
increased expenses for tradeshows, global sales and marketing, employee incentive compensation and the
unfavorable impact of foreign currency translation compared to fiscal 2017.
Operating Income. Operating income for fiscal 2018 was $33.8 million, or 11% of sales, compared to $20.9
million, or 9% of sales, in fiscal 2017. The year-over-year increase in operating income was primarily
attributable to increased machine sales across all three regions and product lines and the favorable impact
of foreign currency translation compared to fiscal 2017.
Other Income (Expense). Other income (expense) for fiscal 2018 increased by $1.1 million from fiscal
2017, due mainly to increased foreign currency losses experienced in 2018.
Provision for Income Taxes. Our effective tax rate for fiscal 2018 was 34%, compared to 27% for fiscal
2017. The year-over-year increase in the effective tax rate for fiscal 2018 was primarily attributable to one-
time charges of $2.8 million related to the U.S. Tax Cuts and Jobs Act that was enacted in December 2017.
The impact of these one-time charges increased the effective tax rate by approximately 39% for the first
quarter of fiscal 2018. Excluding the impact of these charges, earnings per diluted share would have been
$0.41 higher than the earnings per diluted share we reported for fiscal 2018.
Net Income. Net income for fiscal 2018 was $21.5 million, or $3.15 per diluted share, an increase of $6.4
million, or 42%, from fiscal 2017 net income of $15.1 million, or $2.25 per diluted share.
Liquidity and Capital Resources
At October 31, 2019, we had cash and cash equivalents of $56.9 million, compared to $77.2 million at
October 31, 2018. The decrease in cash and cash equivalents was primarily a result of a decrease in accounts
receivable, partially offset by an increase in inventories year-over-year. Approximately 44% of our $56.9
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 $207.2 million at October 31, 2019, compared
to $194.6 million at October 31, 2018. The increase in working capital was mostly driven by an increase in
inventories and a reduction in accounts payable. Inventories were $148.9 million at October 31, 2019,
compared to $137.6 million at October 31, 2018. Inventory turns at October 31, 2019 were 1.3, compared
to 1.6 turns at October 31, 2018.
Capital expenditures were $4.9 million in fiscal 2019, compared to $5.9 million in fiscal 2018. Capital
expenditures for fiscal 2019 were primarily for software development costs, purchases of factory equipment
for production facilities, and purchases of general software and equipment for sales and service divisions.
We funded these expenditures with cash flows from operations.
The purchase price for the ProCobots acquisition has been preliminarily allocated to the assets acquired and
the liabilities assumed based on their fair values, which approximated $4.4 million.
On December 7, 2012, we entered into a credit agreement, which was subsequently amended on May 9,
2014, June 5, 2014, December 5, 2014 and December 6, 2016 (as amended, the “2012 Credit Agreement”)
with JP Morgan Chase Bank, N.A that provided us with an unsecured revolving credit and letter of credit
facility. The 2012 Credit Agreement terminated on its scheduled maturity date of December 31, 2018.
On December 31, 2018, we and our subsidiary, Hurco B.V., entered into a new credit agreement (the “2018
Credit Agreement”) with Bank of America, N.A., as the lender. The 2018 Credit Agreement replaced the
2012 Credit Agreement. The 2018 Credit Agreement provides for an unsecured revolving credit and letter
of credit facility in a maximum aggregate amount of $40.0 million. The 2018 Credit Agreement provides
that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million,
the maximum amount of outstanding loans made to our subsidiary Hurco B.V. at any one time may not
exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative
currencies at any one time may not exceed $20.0 million. Under the 2018 Credit Agreement, we and Hurco
B.V. are borrowers, and certain of our other subsidiaries are guarantors. The scheduled maturity date of the
2018 Credit Agreement is December 31, 2020.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either
(i) a LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per
annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate
or (c) the one month LIBOR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit
will carry an annual rate of 0.75%.
32
32
33
Orders and Backlog. Orders for fiscal 2018 were a record $305.8 million, an increase of $45.2 million, or
17%, compared to fiscal 2017, and included a favorable currency impact of $13.8 million, or 5%, when
quarter of fiscal 2018. Excluding the impact of these charges, earnings per diluted share would have been
$0.41 higher than the earnings per diluted share we reported for fiscal 2018.
translating foreign orders to U.S. Dollars.
The following table sets forth new orders booked by geographic region for the fiscal years ended October
31, 2018 and 2017 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2018
$ 94,160
170,366
41,319
$ 305,845
31%
56%
13%
100%
2017
$ 85,070
137,622
37,917
$ 260,609
33%
53%
14%
100%
Increase/Decrease
Amount %
$ 9,090
32,744
3,402
$ 45,236
11%
24%
9%
17%
Orders in the Americas for fiscal 2018 increased by 11%, compared to fiscal 2017. The increase was largely
attributable to improved customer demand for Hurco and Takumi vertical milling and lathe machines.
European orders for fiscal 2018 increased by 24%, compared to fiscal 2017, and included a favorable
currency impact of 9%, when translating foreign orders to U.S. Dollars. The year-over-year increase in
European orders was largely driven by increased customer demand for Hurco and Takumi vertical milling
and lathe machines in Germany and France, as well as increased demand for electro-mechanical
components and accessories manufactured by LCM. Asian Pacific orders for fiscal 2018 increased by 9%,
compared to fiscal 2017, and included a favorable currency impact of 3%, when translating foreign orders
to U.S. Dollars. The year-over-year increase in Asian Pacific orders was largely due to increased customer
demand for Hurco vertical milling machines in India, China and Southeast Asia.
Backlog at October 31, 2018 increased to $55.0 million, compared to $52.0 million at October 31, 2017,
primarily due to an increase in customer orders during fiscal 2018. We do not believe backlog is a useful
measure of past performance or indicative of future performance.
Gross Profit. Gross profit for fiscal 2018 was $91.8 million, or 31% of sales, compared to $70.6 million,
or 29% of sales, for fiscal 2017. The year-over-year increase in gross profit as a percentage of sales reflected
increased machine sales across all three regions and product lines and the favorable impact of foreign
currency translation compared to fiscal 2017.
Operating Expenses. Selling, general and administrative expenses for fiscal 2018 were $58.0 million, or
19% of sales, compared to $49.7 million, or 20% of sales, in fiscal 2017, and included an unfavorable
currency impact of $1.3 million, when translating foreign expenses to U.S. Dollars for financial reporting
purposes. The year-over-year increase in selling, general and administrative expenses was driven by
increased expenses for tradeshows, global sales and marketing, employee incentive compensation and the
unfavorable impact of foreign currency translation compared to fiscal 2017.
Operating Income. Operating income for fiscal 2018 was $33.8 million, or 11% of sales, compared to $20.9
million, or 9% of sales, in fiscal 2017. The year-over-year increase in operating income was primarily
attributable to increased machine sales across all three regions and product lines and the favorable impact
of foreign currency translation compared to fiscal 2017.
Other Income (Expense). Other income (expense) for fiscal 2018 increased by $1.1 million from fiscal
2017, due mainly to increased foreign currency losses experienced in 2018.
Provision for Income Taxes. Our effective tax rate for fiscal 2018 was 34%, compared to 27% for fiscal
2017. The year-over-year increase in the effective tax rate for fiscal 2018 was primarily attributable to one-
time charges of $2.8 million related to the U.S. Tax Cuts and Jobs Act that was enacted in December 2017.
The impact of these one-time charges increased the effective tax rate by approximately 39% for the first
32
Net Income. Net income for fiscal 2018 was $21.5 million, or $3.15 per diluted share, an increase of $6.4
million, or 42%, from fiscal 2017 net income of $15.1 million, or $2.25 per diluted share.
Liquidity and Capital Resources
At October 31, 2019, we had cash and cash equivalents of $56.9 million, compared to $77.2 million at
October 31, 2018. The decrease in cash and cash equivalents was primarily a result of a decrease in accounts
receivable, partially offset by an increase in inventories year-over-year. Approximately 44% of our $56.9
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 $207.2 million at October 31, 2019, compared
to $194.6 million at October 31, 2018. The increase in working capital was mostly driven by an increase in
inventories and a reduction in accounts payable. Inventories were $148.9 million at October 31, 2019,
compared to $137.6 million at October 31, 2018. Inventory turns at October 31, 2019 were 1.3, compared
to 1.6 turns at October 31, 2018.
Capital expenditures were $4.9 million in fiscal 2019, compared to $5.9 million in fiscal 2018. Capital
expenditures for fiscal 2019 were primarily for software development costs, purchases of factory equipment
for production facilities, and purchases of general software and equipment for sales and service divisions.
We funded these expenditures with cash flows from operations.
The purchase price for the ProCobots acquisition has been preliminarily allocated to the assets acquired and
the liabilities assumed based on their fair values, which approximated $4.4 million.
On December 7, 2012, we entered into a credit agreement, which was subsequently amended on May 9,
2014, June 5, 2014, December 5, 2014 and December 6, 2016 (as amended, the “2012 Credit Agreement”)
with JP Morgan Chase Bank, N.A that provided us with an unsecured revolving credit and letter of credit
facility. The 2012 Credit Agreement terminated on its scheduled maturity date of December 31, 2018.
On December 31, 2018, we and our subsidiary, Hurco B.V., entered into a new credit agreement (the “2018
Credit Agreement”) with Bank of America, N.A., as the lender. The 2018 Credit Agreement replaced the
2012 Credit Agreement. The 2018 Credit Agreement provides for an unsecured revolving credit and letter
of credit facility in a maximum aggregate amount of $40.0 million. The 2018 Credit Agreement provides
that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million,
the maximum amount of outstanding loans made to our subsidiary Hurco B.V. at any one time may not
exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative
currencies at any one time may not exceed $20.0 million. Under the 2018 Credit Agreement, we and Hurco
B.V. are borrowers, and certain of our other subsidiaries are guarantors. The scheduled maturity date of the
2018 Credit Agreement is December 31, 2020.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either
(i) a LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per
annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate
or (c) the one month LIBOR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit
will carry an annual rate of 0.75%.
33
33
The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default,
including covenants (1) restricting us from making certain investments, loans, advances and acquisitions
(but permitting us to make investments in subsidiaries of up to $10.0 million); (2) restricting us from making
certain payments, including cash dividends, except that we may pay cash dividends as long as immediately
before and after giving effect to such payment, the sum of the unused amount of the commitments under
the 2018 Credit Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not
in default before and after giving effect to such dividend payments; (3) requiring that we maintain a
minimum working capital of $125.0 million; and (4) requiring that we maintain a minimum tangible net
worth of $170.0 million.
We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes.
and credits… ......................
6,188
133
639
506
4,911
In December 2018, in connection with our entry into the 2018 Credit Agreement, (1) using cash on hand,
we repaid in full the $1.4 million outstanding under, and terminated, our credit facility in China and (2) we
terminated our United Kingdom credit facility. In March 2019, our wholly-owned subsidiaries in Taiwan,
HML, and China, NHML, closed on uncommitted revolving credit facilities with maximum aggregate
amounts of 150 million New Taiwan Dollars (the “Taiwan credit facility”) and 32.5 million Chinese Yuan
(the “China credit facility”), respectively. Both the Taiwan and China credit facilities have a final maturity
date of March 5, 2020.
As a result, as of October 31, 2019, our existing credit facilities consist of our €1.5 million revolving credit
facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese
Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.
There were no borrowings under any of our credit facilities as of October 31, 2019, and we had $1.4 million
of borrowings as of October 31, 2018. As of October 31, 2019, we were in compliance with the covenants
contained in all of our credit facilities, and there was $51.2 million of available borrowing capacity
thereunder.
We believe our cash position and borrowing capacity under our credit facilities provide adequate liquidity
to fund our operations over the next twelve months and allow us to remain committed to our strategic plan
of product innovation and targeted penetration of developing markets.
In the last six years, we have implemented a strategic plan to expand our market reach to more customers
with more products on a global basis. While the Hurco-branded computer control systems have been and
continue to be our premium flagship product line, we have added other products to our portfolio that provide
product diversity and market penetration opportunity, while minimizing the impact of geographic
cyclicality, with products priced from entry-level to high performance serving a variety of different
industries. We have not changed our overall strategy to design, manufacture and sell a comprehensive line
of computerized machine tools; rather, we have enhanced this strategy through growth both organically and
through acquisitions to ensure long-term stability and overall profitability.
We continue to receive and review information on businesses and assets for potential acquisition, including
intellectual property assets that are available for purchase.
34
34
Contractual Obligations and Commitments
The following is a table of contractual obligations and commitments as of October 31, 2019 (in thousands):
Payments Due by Period
Total
Less than
1 Year
1-3
Years
3-5
Years
More
than
5 Years
$ 1,800
Operating leases ....................
$ 13,401
$ 4,015
$ 5,373
$ 2,213
Accrued and deferred taxes
Total ......................................
$ 19,589
$ 4,148
$ 6,012
$ 2,719
$ 6,711
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 $0.2 million, excluding any
interest and penalties, have been excluded from the table above because we are unable to determine a
reasonably reliable estimate of the timing of future payment.
We expect capital spending in fiscal 2020 to be approximately $12.4 million, which includes investments
for real estate development, software development, factory equipment and production facilities, as well as
general software and equipment for 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, 2019, we had 21 outstanding third party payment guarantees totaling approximately $0.5
million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon
shipment of a machine, the customer assumes the risk of ownership. The customer does not obtain title,
however, until the customer has paid for the machine. A retention of title clause allows us to recover the
machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value,
which amounts are insignificant.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting
Principles. The preparation of financial statements in conformity with those accounting principles requires
us to make judgments and estimates that affect the amounts reported in the consolidated financial statements
and accompanying notes. Those judgments and estimates have a significant effect on the financial
statements because they result primarily from the need to make estimates about the effects of matters that
are inherently uncertain. Actual results could differ from those estimates. Our accounting policies, including
those described below, are frequently evaluated as our judgment and estimates are based upon historical
experience and on various other assumptions that we believe to be reasonable under the circumstances.
Revenue Recognition – We recognize revenues from the sale of machine tools, components and accessories
and services and reflect the consideration to which we expect to be entitled. We record revenues based on
35
The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default,
including covenants (1) restricting us from making certain investments, loans, advances and acquisitions
(but permitting us to make investments in subsidiaries of up to $10.0 million); (2) restricting us from making
certain payments, including cash dividends, except that we may pay cash dividends as long as immediately
before and after giving effect to such payment, the sum of the unused amount of the commitments under
the 2018 Credit Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not
in default before and after giving effect to such dividend payments; (3) requiring that we maintain a
minimum working capital of $125.0 million; and (4) requiring that we maintain a minimum tangible net
worth of $170.0 million.
We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes.
In December 2018, in connection with our entry into the 2018 Credit Agreement, (1) using cash on hand,
we repaid in full the $1.4 million outstanding under, and terminated, our credit facility in China and (2) we
terminated our United Kingdom credit facility. In March 2019, our wholly-owned subsidiaries in Taiwan,
HML, and China, NHML, closed on uncommitted revolving credit facilities with maximum aggregate
amounts of 150 million New Taiwan Dollars (the “Taiwan credit facility”) and 32.5 million Chinese Yuan
(the “China credit facility”), respectively. Both the Taiwan and China credit facilities have a final maturity
date of March 5, 2020.
As a result, as of October 31, 2019, our existing credit facilities consist of our €1.5 million revolving credit
facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese
Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.
There were no borrowings under any of our credit facilities as of October 31, 2019, and we had $1.4 million
of borrowings as of October 31, 2018. As of October 31, 2019, we were in compliance with the covenants
contained in all of our credit facilities, and there was $51.2 million of available borrowing capacity
thereunder.
We believe our cash position and borrowing capacity under our credit facilities provide adequate liquidity
to fund our operations over the next twelve months and allow us to remain committed to our strategic plan
of product innovation and targeted penetration of developing markets.
In the last six years, we have implemented a strategic plan to expand our market reach to more customers
with more products on a global basis. While the Hurco-branded computer control systems have been and
continue to be our premium flagship product line, we have added other products to our portfolio that provide
product diversity and market penetration opportunity, while minimizing the impact of geographic
cyclicality, with products priced from entry-level to high performance serving a variety of different
industries. We have not changed our overall strategy to design, manufacture and sell a comprehensive line
of computerized machine tools; rather, we have enhanced this strategy through growth both organically and
through acquisitions to ensure long-term stability and overall profitability.
We continue to receive and review information on businesses and assets for potential acquisition, including
intellectual property assets that are available for purchase.
Contractual Obligations and Commitments
The following is a table of contractual obligations and commitments as of October 31, 2019 (in thousands):
Payments Due by Period
Total
Less than
1 Year
1-3
Years
3-5
Years
$ 13,401
$ 4,015
$ 5,373
$ 2,213
More
than
5 Years
$ 1,800
6,188
133
639
506
4,911
Operating leases ....................
Accrued and deferred taxes
and credits… ......................
Total ......................................
$ 19,589
$ 4,148
$ 6,012
$ 2,719
$ 6,711
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 $0.2 million, excluding any
interest and penalties, have been excluded from the table above because we are unable to determine a
reasonably reliable estimate of the timing of future payment.
We expect capital spending in fiscal 2020 to be approximately $12.4 million, which includes investments
for real estate development, software development, factory equipment and production facilities, as well as
general software and equipment for 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, 2019, we had 21 outstanding third party payment guarantees totaling approximately $0.5
million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon
shipment of a machine, the customer assumes the risk of ownership. The customer does not obtain title,
however, until the customer has paid for the machine. A retention of title clause allows us to recover the
machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value,
which amounts are insignificant.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting
Principles. The preparation of financial statements in conformity with those accounting principles requires
us to make judgments and estimates that affect the amounts reported in the consolidated financial statements
and accompanying notes. Those judgments and estimates have a significant effect on the financial
statements because they result primarily from the need to make estimates about the effects of matters that
are inherently uncertain. Actual results could differ from those estimates. Our accounting policies, including
those described below, are frequently evaluated as our judgment and estimates are based upon historical
experience and on various other assumptions that we believe to be reasonable under the circumstances.
Revenue Recognition – We recognize revenues from the sale of machine tools, components and accessories
and services and reflect the consideration to which we expect to be entitled. We record revenues based on
34
35
35
a five-step model in accordance with FASB guidance codified in ASC 606. In accordance with ASC 606,
we have defined contracts as agreements with our customers and distributors in the form of purchase orders,
packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories.
For each contract, we identify our performance obligations, which is delivering goods or services, determine
the transaction price, allocate the contract transaction price to each of the performance obligations (when
applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled.
A good or service is transferred when the customer obtains control of that good or service. Our
computerized machine tools are general purpose computer-controlled machine tools that are typically used
in stand-alone operations. Prior to shipment, we test each machine to ensure the machine’s compliance with
standard operating specifications. We deem that the customer obtains control upon delivery of the product
and that obtaining control is not contingent upon contractual customer acceptance. Therefore, we recognize
revenue from sales of our machine tool systems upon delivery of the product to the customer or distributor,
which is normally at the time of shipment.
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 for our three-axis machines to be
inconsequential and perfunctory. For our five-axis machines that we install, we estimate the fair value of
the installation performance obligation and recognize that installation revenue on a prorata basis over the
period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services.
We consider these services to be perfunctory within the context of the contract, as the value of these services
typically does not rise to a material level as a component of the total contract value. Service fees from
maintenance contracts are deferred and recognized in earnings on a prorata basis over the term of the
contract and are generally sold on a stand-alone basis. Customer discounts and estimated product returns
are considered variable consideration and are recorded as a reduction of revenue in the same period that the
related sales are recorded. We have reviewed the overall sales transactions for variable consideration and
have determined that these amounts are not significant.
Inventories – We determine at each balance sheet date how much, if any, of our inventory may ultimately
prove to be either unsalable or unsalable at its carrying cost. Reserves are established to effectively adjust
the carrying value of such inventory to lower of cost (first-in, first-out method) or net realizable value. To
determine the appropriate level of valuation reserves, we evaluate current stock levels in relation to
historical and expected patterns of demand for all of our products. We evaluate the need for changes to
valuation reserves based on market conditions, competitive offerings and other factors on a regular basis.
Income Taxes – We account for income taxes and the related accounts under the asset and liability
method. Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction
in effect for the year in which the temporary differences are expected to be recovered or settled. These
deferred tax assets are reduced by a valuation allowance, which is established when it is more likely than
not that some portion or all of the deferred tax assets will not be realized. Net deferred tax assets and
liabilities are classified as non-current in the consolidated financial statements. Our judgment regarding
the realization of deferred tax assets may change due to future profitability and market conditions, changes
in U.S. or foreign tax laws and other factors. These changes, if any, may require material adjustments to
these deferred tax assets and an accompanying reduction or increase in net income in the period when such
determinations are made.
The determination of our provision for income taxes requires judgment, the use of estimates and the
interpretation and application of complex federal, state and foreign tax laws. Our provision for income
taxes reflects a combination of income earned and taxed at the federal and state level in the U.S., as well as
in various foreign jurisdictions.
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 operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is
complex. The estimates of our uncertain tax positions involve judgments and assessment of the potential
tax implications. We recognize uncertain tax positions when it is more likely than not that the tax position
will be sustained upon examination by relevant taxing authorities, based on the technical merits of the
position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement. Our tax positions are subject to audit by taxing authorities
across multiple global jurisdictions and the resolution of such audits may span multiple years. Tax law is
complex and often subject to varied interpretations, accordingly, the ultimate outcome with respect to taxes
we may owe may differ from the amounts recognized.
Impairment of 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.
36
36
37
a five-step model in accordance with FASB guidance codified in ASC 606. In accordance with ASC 606,
we have defined contracts as agreements with our customers and distributors in the form of purchase orders,
packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories.
For each contract, we identify our performance obligations, which is delivering goods or services, determine
the transaction price, allocate the contract transaction price to each of the performance obligations (when
applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled.
A good or service is transferred when the customer obtains control of that good or service. Our
computerized machine tools are general purpose computer-controlled machine tools that are typically used
in stand-alone operations. Prior to shipment, we test each machine to ensure the machine’s compliance with
standard operating specifications. We deem that the customer obtains control upon delivery of the product
and that obtaining control is not contingent upon contractual customer acceptance. Therefore, we recognize
revenue from sales of our machine tool systems upon delivery of the product to the customer or distributor,
which is normally at the time of shipment.
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 for our three-axis machines to be
inconsequential and perfunctory. For our five-axis machines that we install, we estimate the fair value of
the installation performance obligation and recognize that installation revenue on a prorata basis over the
period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services.
We consider these services to be perfunctory within the context of the contract, as the value of these services
typically does not rise to a material level as a component of the total contract value. Service fees from
maintenance contracts are deferred and recognized in earnings on a prorata basis over the term of the
contract and are generally sold on a stand-alone basis. Customer discounts and estimated product returns
are considered variable consideration and are recorded as a reduction of revenue in the same period that the
related sales are recorded. We have reviewed the overall sales transactions for variable consideration and
have determined that these amounts are not significant.
Inventories – We determine at each balance sheet date how much, if any, of our inventory may ultimately
prove to be either unsalable or unsalable at its carrying cost. Reserves are established to effectively adjust
the carrying value of such inventory to lower of cost (first-in, first-out method) or net realizable value. To
determine the appropriate level of valuation reserves, we evaluate current stock levels in relation to
historical and expected patterns of demand for all of our products. We evaluate the need for changes to
valuation reserves based on market conditions, competitive offerings and other factors on a regular basis.
Income Taxes – We account for income taxes and the related accounts under the asset and liability
method. Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction
in effect for the year in which the temporary differences are expected to be recovered or settled. These
deferred tax assets are reduced by a valuation allowance, which is established when it is more likely than
not that some portion or all of the deferred tax assets will not be realized. Net deferred tax assets and
liabilities are classified as non-current in the consolidated financial statements. Our judgment regarding
the realization of deferred tax assets may change due to future profitability and market conditions, changes
in U.S. or foreign tax laws and other factors. These changes, if any, may require material adjustments to
these deferred tax assets and an accompanying reduction or increase in net income in the period when such
determinations are made.
The determination of our provision for income taxes requires judgment, the use of estimates and the
interpretation and application of complex federal, state and foreign tax laws. Our provision for income
36
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.
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 operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is
complex. The estimates of our uncertain tax positions involve judgments and assessment of the potential
tax implications. We recognize uncertain tax positions when it is more likely than not that the tax position
will be sustained upon examination by relevant taxing authorities, based on the technical merits of the
position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement. Our tax positions are subject to audit by taxing authorities
across multiple global jurisdictions and the resolution of such audits may span multiple years. Tax law is
complex and often subject to varied interpretations, accordingly, the ultimate outcome with respect to taxes
we may owe may differ from the amounts recognized.
Impairment of 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.
37
37
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, 2019, we had no borrowings outstanding under any of our credit facilities.
Foreign Currency Exchange Risk
In fiscal 2019, we derived approximately 63% of our revenues from customers located outside of the
Americas, where we invoiced and received payments in several foreign currencies. All of our computerized
machine tools and computer control systems, as well as certain proprietary service parts, are sourced by our
U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service
subsidiaries, primarily in their functional currencies.
Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned
subsidiaries in Taiwan, the U.S., Italy and China or an affiliated contract manufacturer in Taiwan. Our
purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers
include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of
currency fluctuations on product costs. The predominant portion of the exchange rate risk associated with
our product purchases relates to the New Taiwan Dollar and the Euro.
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, 2019, which are
designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and
hedging activities, were as follows (in thousands, except weighted average forward rates):
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in U.S.
Dollars
Contract
Date
October 31,
2019
Maturity Dates
14,675
1.1464
16,823
16,513 Nov 2019 - Oct 2020
4,150
1.3072
5,425
5,394 Nov 2019 - Oct 2020
Forward
Contracts
Sale Contracts:
Euro
Sterling
Purchase Contracts:
New Taiwan Dollar
560,000 30.1610*
18,567
18,711 Nov 2019 - Oct 2020
*New Taiwan Dollars per U.S. Dollar
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2019, 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 (in thousands,
except weighted average forward rates):
Contract Amount at
Notional
Amount
Weighted
Forward Rates in U.S.
Avg.
Dollars
in Foreign
Forward Contract October 31,
Currency
Rate
Date
2019
Maturity Dates
28,829
2,309
12,222
1.1308
1.2479
0.0675
32,599
2,882
825
32,457 Nov 2019 – Oct 2020
2,994 Nov 2019 – Jan 2020
804
Jan 2020
Forward
Contracts
Sale Contracts:
Euro
Sterling
South African Rand
Purchase Contracts:
New Taiwan Dollar
856,033
30.6473*
27,932
28,247 Nov 2019 – Feb 2020
* 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 2018. 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 derivative 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 2019 and we entered into a new forward contract for the same notional amount that is set to
mature in November 2020. As of October 31, 2019, we had $804,000 of realized gains and $129,000 of
unrealized gains, 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, 2019 were as
follows (in thousands, except weighted average forward rates):
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in U.S. Dollars
October 31,
Contract
Date
2019
Maturity Date
Forward
Contracts
Sale Contracts:
Euro
3,000
1.1713
3,514
3,347
Nov 2019
38
38
39
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign interest
rates. At October 31, 2019, we had no borrowings outstanding under any of our credit facilities.
Interest Rate Risk
Foreign Currency Exchange Risk
In fiscal 2019, we derived approximately 63% of our revenues from customers located outside of the
Americas, where we invoiced and received payments in several foreign currencies. All of our computerized
machine tools and computer control systems, as well as certain proprietary service parts, are sourced by our
U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service
subsidiaries, primarily in their functional currencies.
Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned
subsidiaries in Taiwan, the U.S., Italy and China or an affiliated contract manufacturer in Taiwan. Our
purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers
include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of
currency fluctuations on product costs. The predominant portion of the exchange rate risk associated with
our product purchases relates to the New Taiwan Dollar and the Euro.
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, 2019, which are
designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and
hedging activities, were as follows (in thousands, except weighted average forward rates):
Contract Amount at
Notional
Amount
Weighted
Forward Rates in U.S.
Avg.
Dollars
in Foreign
Forward
Contract
October 31,
Currency
Rate
Date
2019
Maturity Dates
14,675
1.1464
16,823
16,513 Nov 2019 - Oct 2020
4,150
1.3072
5,425
5,394 Nov 2019 - Oct 2020
Forward
Contracts
Sale Contracts:
Euro
Sterling
Purchase Contracts:
New Taiwan Dollar
560,000 30.1610*
18,567
18,711 Nov 2019 - Oct 2020
*New Taiwan Dollars per U.S. Dollar
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2019, 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 (in thousands,
except weighted average forward rates):
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Contract Amount at
Forward Rates in U.S.
Dollars
Forward Contract October 31,
Rate
Date
2019
Maturity Dates
28,829
2,309
12,222
1.1308
1.2479
0.0675
32,599
2,882
825
32,457 Nov 2019 – Oct 2020
2,994 Nov 2019 – Jan 2020
804
Jan 2020
856,033
30.6473*
27,932
28,247 Nov 2019 – Feb 2020
Forward
Contracts
Sale Contracts:
Euro
Sterling
South African Rand
Purchase Contracts:
New Taiwan Dollar
* 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 2018. 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 derivative 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 2019 and we entered into a new forward contract for the same notional amount that is set to
mature in November 2020. As of October 31, 2019, we had $804,000 of realized gains and $129,000 of
unrealized gains, 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, 2019 were as
follows (in thousands, except weighted average forward rates):
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in U.S. Dollars
October 31,
2019
Contract
Date
Maturity Date
Forward
Contracts
Sale Contracts:
Euro
3,000
1.1713
3,514
3,347
Nov 2019
38
39
39
Management’s Annual Report on Internal Control over Financial Reporting
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
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, 2019, 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, 2019,
was effective based on the criteria specified above.
Our independent registered public accounting firm, RSM US LLP (“RSM”), which also audited our
consolidated financial statements, audited the effectiveness of our internal control over financial reporting
as of October 31, 2019. 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 3, 2020
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc. and its
subsidiaries (the Company) as of October 31, 2019 and 2018, the related consolidated statements of income,
comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the
period ended October 31, 2019, and the related notes and schedule listed in Item 15(a) (collectively, the
financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of October 31, 2019 and 2018, and the results of its operations and its
cash flows for each of the three years in the period ended October 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31,
2019, 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 3, 2020
expressed an unqualified opinion on the effectiveness of the Company's internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ RSM US LLP
Indianapolis, Indiana
January 3, 2020
We have served as the Company's auditor since 2017.
40
40
41
Management’s Annual Report on Internal Control over Financial Reporting
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
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, 2019, 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, 2019,
was effective based on the criteria specified above.
Our independent registered public accounting firm, RSM US LLP (“RSM”), which also audited our
consolidated financial statements, audited the effectiveness of our internal control over financial reporting
as of October 31, 2019. 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
Indianapolis, Indiana
January 3, 2020
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc. and its
subsidiaries (the Company) as of October 31, 2019 and 2018, the related consolidated statements of income,
comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the
period ended October 31, 2019, and the related notes and schedule listed in Item 15(a) (collectively, the
financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of October 31, 2019 and 2018, and the results of its operations and its
cash flows for each of the three years in the period ended October 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31,
2019, 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 3, 2020
expressed an unqualified opinion on the effectiveness of the Company's internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2017.
Indianapolis, Indiana
January 3, 2020
40
41
41
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.
/s/ RSM US LLP
Indianapolis, Indiana
January 3, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Hurco Companies, Inc.'s (the Company) internal control over financial reporting as of
October 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
October 31, 2019, 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) (PCAOB), the consolidated balance sheets of the Company as of October 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, changes in shareholders’
equity and cash flows, for the three years then ended, and the related notes and schedule listed in Item 15(a)
of the Company, and our report dated January 3, 2020 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the
financial statements.
42
42
43
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.
/s/ RSM US LLP
Indianapolis, Indiana
January 3, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Hurco Companies, Inc.'s (the Company) internal control over financial reporting as of
October 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
October 31, 2019, 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) (PCAOB), the consolidated balance sheets of the Company as of October 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, changes in shareholders’
equity and cash flows, for the three years then ended, and the related notes and schedule listed in Item 15(a)
of the Company, and our report dated January 3, 2020 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the
financial statements.
42
43
43
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
HURCO COMPANIES, INC.
Year Ended October 31,
2019
(In thousands, except per share amounts)
2018
2017
Year Ended October 31,
2019
2018
2017
(In thousands)
Sales and service fees
Cost of sales and service
Gross profit
$263,377
$300,671
$243,667
Net Income
$17,495
$21,490
$15,115
186,169
208,865
173,103
Other comprehensive income (loss):
77,208
91,806
70,564
Translation gain (loss) of foreign currency financial statements
550
(3,183)
4,916
Selling, general and administrative expenses
54,668
58,010
49,661
(Gain) / loss on derivative instruments reclassified into operations,
net of tax of $(70), $453, and $(745), respectively
(235)
1,355
(1,354)
Operating income
Interest expense
Interest income
Investment income
Income from equity investments
Other expense, net
Income before income taxes
Provision for income taxes
22,540
33,796
20,903
62
100
91
Gain / (loss) on derivative instruments, net of tax of
$183, $52, and $(390), respectively
462
189
41
Total other comprehensive income (loss)
(1,673)
2,853
356
339
138
Comprehensive income
$18,425
$19,817
$17,968
155
(709)
615
930
583
555
639
505
2,367
780
23,324
32,496
20,716
5,829
11,006
5,601
Net income
$17,495
$21,490
$15,115
Income per common share – basic
Weighted average common shares outstanding – basic
Income per common share – diluted
Weighted average common shares outstanding – diluted
Dividends paid per share
$2.57
6,759
$2.55
6,815
$0.47
$3.19
6,700
$3.15
6,771
$0.43
$2.27
6,615
$2.25
6,680
$0.39
The accompanying notes are an integral part of the consolidated financial statements.
44
44
The accompanying notes are an integral part of the consolidated financial statements.
45
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended October 31,
2019
2018
2017
(In thousands, except per share amounts)
2019
Year Ended October 31,
2018
(In thousands)
2017
$263,377
$300,671
$243,667
Net Income
$17,495
$21,490
$15,115
186,169
208,865
173,103
Other comprehensive income (loss):
77,208
91,806
70,564
Translation gain (loss) of foreign currency financial statements
550
(3,183)
4,916
Selling, general and administrative expenses
54,668
58,010
49,661
(Gain) / loss on derivative instruments reclassified into operations,
net of tax of $(70), $453, and $(745), respectively
(235)
1,355
(1,354)
22,540
33,796
20,903
62
100
91
Gain / (loss) on derivative instruments, net of tax of
$183, $52, and $(390), respectively
462
189
41
Total other comprehensive income (loss)
615
930
155
(709)
(1,673)
2,853
356
339
138
Comprehensive income
$18,425
$19,817
$17,968
Sales and service fees
Cost of sales and service
Gross profit
Operating income
Interest expense
Interest income
Investment income
Income from equity investments
Other expense, net
Income before income taxes
Provision for income taxes
Income per common share – basic
Weighted average common shares outstanding – basic
Income per common share – diluted
Weighted average common shares outstanding – diluted
Dividends paid per share
Net income
$17,495
$21,490
$15,115
583
555
639
505
2,367
780
23,324
32,496
20,716
5,829
11,006
5,601
$2.57
6,759
$2.55
6,815
$0.47
$3.19
6,700
$3.15
6,771
$0.43
$2.27
6,615
$2.25
6,680
$0.39
The accompanying notes are an integral part of the consolidated financial statements.
44
The accompanying notes are an integral part of the consolidated financial statements.
45
45
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
ASSETS
ASSETS
Current assets:
Current assets:
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $891 in 2019 and $1,027 in 2018
Cash and cash equivalents
of $891 in 2019 and $1,027 in 2018
Inventories, net
Accounts receivable, less allowance for doubtful accounts
Inventories, net
Derivative assets
of $891 in 2019 and $1,027 in 2018
Derivative assets
Prepaid assets
Inventories, net
Prepaid assets
Other
Derivative assets
Other
Total current assets
Prepaid assets
Total current assets
Property and equipment:
Other
Property and equipment:
Land
Total current assets
Land
Building
Property and equipment:
Building
Machinery and equipment
Land
Machinery and equipment
Leasehold improvements
Building
Leasehold improvements
Machinery and equipment
Less accumulated depreciation and amortization
Leasehold improvements
Less accumulated depreciation and amortization
Total property and equipment, net
Total property and equipment, net
Less accumulated depreciation and amortization
Non-current assets:
Non-current assets:
Total property and equipment, net
Software development costs, less accumulated amortization
Software development costs, less accumulated amortization
Non-current assets:
Goodwill
Goodwill
Software development costs, less accumulated amortization
Intangible assets, net
Intangible assets, net
Goodwill
Deferred income taxes
Deferred income taxes
Intangible assets, net
Investments and other assets, net
Investments and other assets, net
Deferred income taxes
Total non-current assets
Total non-current assets
Investments and other assets, net
Total assets
Total assets
Total non-current assets
Total assets
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Current liabilities:
Accounts payable-related parties
Accounts payable-related parties
Accounts payable
Accrued payroll and employee benefits
Accrued payroll and employee benefits
Accounts payable-related parties
Accrued income taxes
Accrued income taxes
Accrued payroll and employee benefits
Accrued expenses and other
Accrued expenses and other
Accrued income taxes
Accrued warranty expenses
Accrued warranty expenses
Accrued expenses and other
Derivative liabilities
Derivative liabilities
Accrued warranty expenses
Short-term debt
Short-term debt
Derivative liabilities
Total current liabilities
Total current liabilities
Short-term debt
Non-current liabilities:
Non-current liabilities:
Total current liabilities
Accrued tax liability
Accrued tax liability
Non-current liabilities:
Deferred income taxes
Accrued tax liability
Deferred income taxes
Deferred credits and other
Deferred income taxes
Deferred credits and other
Total non-current liabilities
Deferred credits and other
Total non-current liabilities
Shareholders’ equity:
Total non-current liabilities
Preferred stock: no par value per share, 1,000,000 shares authorized, no shares issued
Shareholders’ equity:
Shareholders’ equity:
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized,
Preferred stock: no par value per share, 1,000,000 shares authorized, no shares issued
Preferred stock: no par value per share, 1,000,000 shares authorized, no shares issued
6,967,719 and 6,891,508 shares issued; and 6,767,237 and 6,723,160 shares
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized,
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized,
outstanding, as of October 31, 2019 and October 31, 2018, respectively
6,967,719 and 6,891,508 shares issued; and 6,767,237 and 6,723,160 shares
6,967,719 and 6,891,508 shares issued; and 6,767,237 and 6,723,160 shares
Additional paid-in capital
outstanding, as of October 31, 2019 and October 31, 2018, respectively
outstanding, as of October 31, 2019 and October 31, 2018, respectively
Retained earnings
Additional paid-in capital
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Retained earnings
Total shareholders’ equity
Accumulated other comprehensive loss
Accumulated other comprehensive loss
Total liabilities and shareholders’ equity
Total shareholders’ equity
Total shareholders’ equity
Total liabilities and shareholders’ equity
Total liabilities and shareholders’ equity
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
--
677
66,350
677
677
182,151
66,350
66,350
(8,933)
182,151
182,151
240,245
(8,933)
(8,933)
$ 301,065
240,245
240,245
$ 301,065
$ 301,065
The accompanying notes are an integral part of the consolidated financial statements.
46
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
46
46
46
As of October 31,
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2018
$ 77,170
As of October 31,
2019
(In thousands, except share
2018
2019
As of October 31,
(In thousands, except share
and per share data)
2018
2019
and per share data)
$ 56,943
(In thousands, except share
$ 56,943
$ 77,170
and per share data)
43,279
$ 56,943
43,279
148,851
148,851
1,391
43,279
1,391
9,414
148,851
9,414
1,983
1,391
1,983
261,861
9,414
261,861
1,983
868
261,861
868
7,352
7,352
28,846
868
28,846
4,902
7,352
4,902
41,968
28,846
41,968
(28,055)
4,902
(28,055)
13,913
41,968
13,913
(28,055)
13,913
8,318
8,318
5,847
5,847
8,318
1,096
1,096
5,847
1,846
1,846
1,096
8,184
8,184
1,846
25,291
25,291
8,184
$ 301,065
$ 301,065
25,291
$ 301,065
54,414
$ 77,170
54,414
137,609
137,609
3,085
54,414
3,085
7,332
137,609
7,332
1,825
3,085
1,825
281,435
7,332
281,435
1,825
868
281,435
868
7,352
7,352
26,840
868
26,840
3,801
7,352
3,801
38,861
26,840
38,861
(25,902)
3,801
(25,902)
12,959
38,861
12,959
(25,902)
12,959
7,452
7,452
2,377
2,377
7,452
938
938
2,377
2,234
2,234
938
8,012
8,012
2,234
21,013
21,013
8,012
$ 315,407
$ 315,407
21,013
$ 315,407
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used for) operating activities, net of
acquisitions:
Provision for doubtful accounts
Deferred income taxes
Equity in income of affiliates
Foreign currency (gain) loss
Unrealized (gain) loss on derivatives
Depreciation and amortization
Stock-based compensation
Change in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses
Increase (decrease) in accounts payable
Increase (decrease) in accrued expenses
Increase (decrease) in accrued income tax
Increase (decrease) in accrued tax liability
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
Cash flows from financing activities:
Proceeds from exercise of common stock options
Dividends paid
Taxes paid related to net settlement of restricted shares
Repayment of short-term debt
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Year Ended October 31,
2019
$ 17,495
2018
(In thousands)
$ 21,490
2017
$ 15,115
(136)
260
(583)
730
(388)
3,745
2,670
11,239
(10,499)
(1,474)
(23,780)
(2,354)
(3,259)
(157)
330
(252)
(6,413)
83
(3,169)
(1,701)
243
(4,353)
(8,897)
--
(3,203)
(499)
(1,450)
(5,152)
388
(530)
(639)
755
456
3,713
2,504
(5,148)
(20,386)
710
10,788
3,090
2,934
2,061
(1,178)
4
21,012
180
(3,537)
(2,326)
233
(1,156)
(25)
1,108
(505)
(851)
(411)
3,616
1,698
1,331
563
1,638
80
8,529
(704)
(844)
964
(930)
30,372
--
(2,181)
(2,264)
417
--
847
(2,898)
534
(2,590)
(502)
--
(295)
--
(2,553)
(2,351)
235
(990)
1,097
Net cash provided by (used for) investing activities
(6,606)
(4,028)
Net increase (decrease) in cash and cash equivalents
(20,227)
10,863
25,090
Cash and cash equivalents at beginning of year
77,170
66,307
41,217
Cash and cash equivalents at end of year
$ 56,943
$ 77,170
$ 66,307
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
$ 11
$ 11,025
$ 64
$ 6,172
$ 66
$ 4,867
The accompanying notes are an integral part of the consolidated financial statements.
47
$ 54,131
$ 54,131
3,387
3,387
$ 54,131
14,032
14,032
3,387
5,180
5,180
14,032
4,122
4,122
5,180
2,497
2,497
4,122
2,020
2,020
2,497
1,434
1,434
2,020
86,803
86,803
1,434
86,803
2,194
2,194
--
2,194
--
3,557
--
3,557
5,751
3,557
5,751
5,751
--
--
--
672
64,185
672
672
167,859
64,185
64,185
(9,863)
167,859
167,859
222,853
(9,863)
(9,863)
$ 315,407
222,853
222,853
$ 315,407
$ 315,407
$ 33,031
$ 33,031
938
938
$ 33,031
11,564
11,564
938
1,936
1,936
11,564
5,015
5,015
1,936
1,760
1,760
5,015
388
388
1,760
--
--
388
54,632
54,632
--
54,632
2,036
2,036
160
2,036
160
3,992
160
3,992
6,188
3,992
6,188
6,188
--
--
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
As of October 31,
2019
2018
(In thousands, except share
and per share data)
$ 56,943
$ 77,170
Accounts receivable, less allowance for doubtful accounts
of $891 in 2019 and $1,027 in 2018
Current assets:
Cash and cash equivalents
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
Software development costs, less accumulated amortization
Non-current assets:
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 payroll and employee benefits
Accrued income taxes
Accrued expenses and other
Accrued warranty expenses
Derivative liabilities
Short-term debt
Total current liabilities
Non-current liabilities:
Accrued tax liability
Deferred income taxes
Deferred credits and other
Total non-current liabilities
Shareholders’ equity:
43,279
148,851
1,391
9,414
1,983
261,861
868
7,352
28,846
4,902
41,968
(28,055)
13,913
8,318
5,847
1,096
1,846
8,184
25,291
$ 301,065
$ 33,031
938
11,564
1,936
5,015
1,760
388
--
54,632
2,036
160
3,992
6,188
677
66,350
182,151
(8,933)
240,245
54,414
137,609
3,085
7,332
1,825
281,435
868
7,352
26,840
3,801
38,861
(25,902)
12,959
7,452
2,377
938
2,234
8,012
21,013
$ 315,407
$ 54,131
3,387
14,032
5,180
4,122
2,497
2,020
1,434
86,803
2,194
--
3,557
5,751
672
64,185
167,859
(9,863)
222,853
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used for) operating activities, net of
acquisitions:
Provision for doubtful accounts
Deferred income taxes
Equity in income of affiliates
Foreign currency (gain) loss
Unrealized (gain) loss on derivatives
Depreciation and amortization
Stock-based compensation
Change in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses
Increase (decrease) in accounts payable
Increase (decrease) in accrued expenses
Increase (decrease) in accrued income tax
Increase (decrease) in accrued tax liability
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 cash provided by (used for) investing activities
Cash flows from financing activities:
Proceeds from exercise of common stock options
Dividends paid
Taxes paid related to net settlement of restricted shares
Repayment of short-term debt
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Year Ended October 31,
2019
$ 17,495
2018
(In thousands)
$ 21,490
2017
$ 15,115
(136)
260
(583)
730
(388)
3,745
2,670
11,239
(10,499)
(1,474)
(23,780)
(2,354)
(3,259)
(157)
330
(252)
(6,413)
83
(3,169)
(1,701)
243
(4,353)
(8,897)
--
(3,203)
(499)
(1,450)
(5,152)
388
(530)
(639)
755
456
3,713
2,504
(5,148)
(20,386)
710
10,788
3,090
2,934
2,061
(1,178)
4
21,012
180
(3,537)
(2,326)
233
(1,156)
(6,606)
847
(2,898)
(502)
--
(2,553)
(25)
1,108
(505)
(851)
(411)
3,616
1,698
563
1,638
80
8,529
1,331
(704)
(844)
964
(930)
30,372
--
(2,181)
(2,264)
417
--
(4,028)
534
(2,590)
(295)
--
(2,351)
235
(990)
1,097
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,
6,967,719 and 6,891,508 shares issued; and 6,767,237 and 6,723,160 shares
outstanding, as of October 31, 2019 and October 31, 2018, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of the consolidated financial statements.
$ 301,065
$ 315,407
46
Net increase (decrease) in cash and cash equivalents
(20,227)
10,863
25,090
--
--
Cash and cash equivalents at beginning of year
77,170
66,307
41,217
Cash and cash equivalents at end of year
$ 56,943
$ 77,170
$ 66,307
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
$ 11
$ 11,025
$ 64
$ 6,172
$ 66
$ 4,867
The accompanying notes are an integral part of the consolidated financial statements.
47
47
Balances, October 31, 2016
Balances, October 31, 2016
Balances, October 31, 2016
Net income
Other comprehensive income
Net income
Net income
(loss)
Other comprehensive income
Other comprehensive income
Exercise of common stock options
(loss)
(loss)
Stock-based compensation
Exercise of common stock options
Exercise of common stock options
expense
Stock-based compensation
Stock-based compensation
Dividends paid
expense
expense
Dividends paid
Dividends paid
Balances, October 31, 2017
Net income
Balances, October 31, 2017
Balances, October 31, 2017
Other comprehensive income
(loss)
Net income
Net income
Exercise of common stock options
Other comprehensive income
Other comprehensive income
Stock-based compensation
(loss)
(loss)
expense, net of taxes withheld
Exercise of common stock options
Exercise of common stock options
for vested restricted shares
Dividends paid
Stock-based compensation
Stock-based compensation
expense, net of taxes withheld
expense, net of taxes withheld
Balances, October 31, 2018
for vested restricted shares
for vested restricted shares
Dividends paid
Dividends paid
Balances, October 31, 2018
Balances, October 31, 2018
Net income
Other comprehensive income
(loss)
Stock-based compensation
Net income
Net income
expense, net of taxes withheld
for vested restricted shares
Other comprehensive income
Other comprehensive income
Dividends paid
(loss)
(loss)
Stock-based compensation
Stock-based compensation
Balances, October 31, 2019
expense, net of taxes withheld
expense, net of taxes withheld
for vested restricted shares
for vested restricted shares
Dividends paid
Dividends paid
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HURCO COMPANIES, INC.
(In thousands, except shares
(In thousands, except shares
(In thousands, except shares
outstanding)
outstanding)
outstanding)
Common
Common
Common
Stock
Stock
Stock
Shares
Outstanding
Shares
Shares
Outstanding
Outstanding
Common
Common
Common
Stock
Stock
Stock
Amount
Amount
Amount
Accumulated
Accumulated
Accumulated
Other
Other
Other
Comprehensive
Comprehensive
Comprehensive
Loss
Loss
Loss
($11,043)
Retained
Earnings
Retained
Retained
Earnings
Earnings
$136,742
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Total
Total
Total
$185,475
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 $4.2 million and $4.0
million as of October 31, 2019 and 2018, respectively. That investment is included in Investments and other assets,
net on the accompanying Consolidated Balance Sheets. Intercompany accounts and transactions have been
$136,742
$136,742
15,115
($11,043)
($11,043)
--
$185,475
$185,475
15,115
eliminated.
15,115
15,115
--
--
--
--
--
--
--
(2,590)
--
--
15,115
15,115
2,853
--
2,853
2,853
--
--
--
--
2,853
534
1,698
(2,590)
2,853
2,853
534
534
--
--
(2,590)
(2,590)
$149,267
--
--
--
--
($8,190)
1,698
1,698
(2,590)
(2,590)
$203,085
being hedged.
Additional
Additional
Additional
Paid-In
Paid-In
Paid-In
Capital
Capital
Capital
$59,119
$59,119
$59,119
--
--
--
--
531
--
--
531
531
1,694
--
1,694
1,694
--
--
$61,344
6,573,103
6,573,103
6,573,103
--
--
--
--
29,164
--
--
29,164
29,164
38,930
--
38,930
38,930
--
--
6,641,197
$657
$657
$657
--
--
--
--
3
--
--
3
3
4
--
4
4
--
--
$664
6,641,197
6,641,197
--
--
$664
$664
$61,344
$61,344
--
21,490
$149,267
$149,267
--
($8,190)
($8,190)
21,490
$203,085
$203,085
--
--
--
41,680
--
--
41,680
41,680
40,283
--
6,723,160
40,283
40,283
--
--
6,723,160
6,723,160
--
--
--
--
44,077
--
--
--
6,767,237
44,077
44,077
--
--
--
--
--
4
--
--
4
4
4
--
$672
4
4
--
--
--
$672
$672
--
--
--
5
--
--
--
$677
5
5
--
--
--
843
--
--
--
--
843
843
1,998
--
$64,185
1,998
1,998
--
--
--
$64,185
$64,185
--
--
21,490
21,490
--
--
--
--
--
--
(2,898)
$167,859
--
--
(2,898)
(2,898)
17,495
(1,673)
--
--
--
(1,673)
847
21,490
21,490
(1,673)
(1,673)
--
--
--
--
(1,673)
(1,673)
847
847
2,002
(2,898)
($9,863)
--
--
--
--
$222,853
2,002
2,002
(2,898)
(2,898)
--
17,495
$167,859
$167,859
--
($9,863)
($9,863)
930
$222,853
$222,853
930
--
--
2,165
--
--
--
17,495
17,495
--
(3,203)
--
--
$66,350
2,165
2,165
--
--
$182,151
--
--
(3,203)
(3,203)
--
--
17,495
17,495
instruments is foreign currency risk.
--
--
930
930
2,170
(3,203)
930
930
($8,933)
$240,245
--
--
--
--
2,170
2,170
(3,203)
(3,203)
Balances, October 31, 2019
Balances, October 31, 2019
6,767,237
6,767,237
$677
$677
$66,350
$66,350
$182,151
$182,151
($8,933)
($8,933)
$240,245
$240,245
The accompanying notes are an integral part of the consolidated financial statements.
gain or loss is reported in earnings immediately.
48
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
48
48
48
Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation.
This reclassification has no impact on previously reported net income or shareholders’ equity.
Statements of Cash Flows. We consider all highly liquid investments with a stated maturity at the date of purchase
of three months or less to be cash equivalents. Cash flows from hedges are classified consistent with the items
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, 2019, were a net loss of $10.0 million, net of tax,
and are included in Accumulated other comprehensive loss. Foreign currency transaction gains and losses are
recorded as income or expense as incurred and are recorded in Other expense, net.
Hedging. We are exposed to certain market risks relating to our ongoing business operations, including foreign
currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through
regular operating and financing activities. Currently, the only risk that we manage through the use of derivative
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
For derivative instruments that are not designated as accounting hedges under the Derivatives and Hedging Topic
of the Financial Accounting Standards Board (the “FASB”), changes in fair value are recognized in earnings in
the period of change. We do not hold or issue derivative financial instruments for speculative trading purposes.
We only enter into derivatives with one counterparty, which is among one of the largest U.S. banks
49
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except shares
(In thousands, except shares
outstanding)
outstanding)
Net income
Net income
(loss)
(loss)
Other comprehensive income
Other comprehensive income
Stock-based compensation
Stock-based compensation
expense
expense
Dividends paid
Dividends paid
Other comprehensive income
Other comprehensive income
Net income
Net income
(loss)
(loss)
Exercise of common stock options
Exercise of common stock options
Stock-based compensation
Stock-based compensation
expense, net of taxes withheld
expense, net of taxes withheld
for vested restricted shares
for vested restricted shares
Dividends paid
Dividends paid
Net income
Net income
(loss)
(loss)
Other comprehensive income
Other comprehensive income
Stock-based compensation
Stock-based compensation
expense, net of taxes withheld
expense, net of taxes withheld
for vested restricted shares
for vested restricted shares
Dividends paid
Dividends paid
--
--
--
--
38,930
38,930
--
--
--
--
--
--
41,680
41,680
40,283
40,283
--
--
--
--
--
--
--
--
Common
Common
Stock
Stock
Shares
Shares
Outstanding
Outstanding
Common
Common
Additional
Additional
Stock
Stock
Amount
Amount
Paid-In
Paid-In
Capital
Capital
Accumulated
Accumulated
Other
Other
Retained
Retained
Earnings
Earnings
Comprehensive
Comprehensive
Loss
Loss
Total
Total
Balances, October 31, 2016
Balances, October 31, 2016
6,573,103
6,573,103
$657
$657
$59,119
$59,119
$136,742
$136,742
($11,043)
($11,043)
$185,475
$185,475
Exercise of common stock options
Exercise of common stock options
29,164
29,164
531
531
--
--
--
--
3
3
4
4
--
--
--
--
--
--
15,115
15,115
--
--
15,115
15,115
--
--
--
--
2,853
2,853
--
--
2,853
2,853
534
534
1,694
1,694
--
--
--
--
(2,590)
(2,590)
--
--
--
--
1,698
1,698
(2,590)
(2,590)
Balances, October 31, 2017
Balances, October 31, 2017
6,641,197
6,641,197
$664
$664
$61,344
$61,344
$149,267
$149,267
($8,190)
($8,190)
$203,085
$203,085
Balances, October 31, 2018
Balances, October 31, 2018
6,723,160
6,723,160
$672
$672
$64,185
$64,185
$167,859
$167,859
($9,863)
($9,863)
$222,853
$222,853
--
--
--
--
4
4
4
4
--
--
--
--
--
--
5
5
--
--
--
--
--
--
843
843
1,998
1,998
--
--
--
--
--
--
21,490
21,490
(2,898)
(2,898)
17,495
17,495
--
--
--
--
--
--
--
--
--
--
21,490
21,490
(1,673)
(1,673)
847
847
2,002
2,002
(2,898)
(2,898)
17,495
17,495
(1,673)
(1,673)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
930
930
930
930
44,077
44,077
2,165
2,165
--
--
(3,203)
(3,203)
2,170
2,170
(3,203)
(3,203)
Balances, October 31, 2019
Balances, October 31, 2019
6,767,237
6,767,237
$677
$677
$66,350
$66,350
$182,151
$182,151
($8,933)
($8,933)
$240,245
$240,245
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
48
48
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 $4.2 million and $4.0
million as of October 31, 2019 and 2018, respectively. That investment is included in Investments and other assets,
net on the accompanying Consolidated Balance Sheets. Intercompany accounts and transactions have been
eliminated.
Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation.
This reclassification has no impact on previously reported net income or shareholders’ equity.
Statements of Cash Flows. We consider all highly liquid investments with a stated maturity at the date of purchase
of three months or less to be cash equivalents. Cash flows from hedges are classified consistent with the items
being hedged.
Translation of Foreign Currencies. All balance sheet accounts of non-U.S. 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, 2019, were a net loss of $10.0 million, net of tax,
and are included in Accumulated other comprehensive loss. Foreign currency transaction gains and losses are
recorded as income or expense as incurred and are recorded in Other expense, net.
Hedging. We are exposed to certain market risks relating to our ongoing business operations, including foreign
currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through
regular operating and financing activities. Currently, the only risk that we manage through the use of derivative
instruments is foreign currency risk.
We operate on a global basis and are exposed to the risk that our financial condition, results of operations and
cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential
effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, and
the gross profit and net earnings of certain of our foreign subsidiaries, we enter into derivative financial
instruments in the form of foreign exchange forward contracts with a major financial institution. We are primarily
exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros,
Pounds Sterling, Indian Rupee, South African Rand, Singapore Dollars, Chinese Yuan, Polish Zloty, and New
Taiwan Dollars.
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 (the “FASB”), changes in fair value are recognized in earnings in
the period of change. We do not hold or issue derivative financial instruments for speculative trading purposes.
We only enter into derivatives with one counterparty, which is among one of the largest U.S. banks
49
49
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
HURCO COMPANIES, INC.
(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.
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 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, 2019, in Euros, Pounds Sterling and New Taiwan Dollars
with set maturity dates ranging from November 2019 through October 2020. The contract amount at forward
rates in U.S. Dollars at October 31, 2019 for Euros and Pounds Sterling was $16.5 million and $5.4 million,
respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $18.7 million at
October 31, 2019. At October 31, 2019, we had approximately $612,000 of gains, net of tax, related to cash flow
hedges deferred in Accumulated other comprehensive loss. Of this amount, $373,000 represented unrealized
gains, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The
majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through
October 2020, 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 2018.
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 derivative 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 2019, and we entered into a new forward contract
for the same notional amount that is set to mature in November 2020. As of October 31, 2019, we had a realized
gain of $804,000 and an unrealized gain of $129,000, 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, 2019, in Euros, Pound Sterling, South African Rand and
New Taiwan Dollars with set maturity dates ranging from November 2019 through October 2020. The contract
amounts at forward rates in U.S. Dollars at October 31, 2019 for Euros, Pounds Sterling and South African Rand
totaled $36.3 million. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $28.2
million at October 31, 2019.
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, 2019 and October 31, 2018, 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
2019
Balance Sheet
Location
Fair
Value
2018
Balance Sheet
Location
Derivative assets
Derivative liabilities
$ 751
$ 99
Derivative assets
Derivative liabilities
Fair
Value
$ 2,654
$ 1,616
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
Derivative assets
Derivative liabilities
$ 640
Derivative assets
$ 289 Derivative liabilities
$ 431
$ 404
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, 2019, 2018,
and 2017 (in thousands):
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income (Loss)
Location of
Gain (Loss)
Reclassified
From Other
Comprehensive
Income (Loss)
Amount of Gain (Loss)
Reclassified from
Other Comprehensive
Income (Loss)
2019
2018
2017
2019
2018
2017
$ 615
$ 155
$ (709)
$ 128
$ 136
$ (96)
Cost of sales
and service
$ 235
$(1,355)
$1,354
We did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October
31, 2019 and 2018. We recognized a gain of $18,000 during the fiscal year ended October 31, 2017 as a result of
contracts closed early that were deemed ineffective for financial reporting and did not qualify as cash flow hedges.
Derivatives
Designated as
Hedging Instruments:
(Effective Portion)
Foreign exchange
forward contracts
– Intercompany
sales/purchases
– Net Investment
50
50
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
We had forward contracts outstanding as of October 31, 2019, in Euros, Pound Sterling, South African Rand and
New Taiwan Dollars with set maturity dates ranging from November 2019 through October 2020. The contract
amounts at forward rates in U.S. Dollars at October 31, 2019 for Euros, Pounds Sterling and South African Rand
totaled $36.3 million. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $28.2
million at October 31, 2019.
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, 2019 and October 31, 2018, 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
2019
Balance Sheet
Location
Fair
Value
2018
Balance Sheet
Location
Derivative assets
Derivative liabilities
$ 751
$ 99
Derivative assets
Derivative liabilities
Fair
Value
$ 2,654
$ 1,616
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
Derivative assets
Derivative liabilities
$ 640
Derivative assets
$ 289 Derivative liabilities
$ 431
$ 404
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, 2019, 2018,
and 2017 (in thousands):
(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.
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 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, 2019, in Euros, Pounds Sterling and New Taiwan Dollars
with set maturity dates ranging from November 2019 through October 2020. The contract amount at forward
rates in U.S. Dollars at October 31, 2019 for Euros and Pounds Sterling was $16.5 million and $5.4 million,
respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $18.7 million at
October 31, 2019. At October 31, 2019, we had approximately $612,000 of gains, net of tax, related to cash flow
hedges deferred in Accumulated other comprehensive loss. Of this amount, $373,000 represented unrealized
gains, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The
majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through
October 2020, 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 2018.
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 derivative 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 2019, and we entered into a new forward contract
for the same notional amount that is set to mature in November 2020. As of October 31, 2019, we had a realized
gain of $804,000 and an unrealized gain of $129,000, 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 did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October
31, 2019 and 2018. We recognized a gain of $18,000 during the fiscal year ended October 31, 2017 as a result of
contracts closed early that were deemed ineffective for financial reporting and did not qualify as cash flow hedges.
50
51
51
Derivatives
Designated as
Hedging Instruments:
(Effective Portion)
Foreign exchange
forward contracts
– Intercompany
sales/purchases
– Net Investment
$ 615
$ 155
$ (709)
$ 128
$ 136
$ (96)
Cost of sales
and service
$ 235
$(1,355)
$1,354
Amount of Gain (Loss)
Reclassified from
Other Comprehensive
Income (Loss)
2018
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income (Loss)
2018
Location of
Gain (Loss)
Reclassified
From Other
Comprehensive
Income (Loss)
2019
2017
2019
2017
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, 2019, 2018, and 2017 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
2018
2019
2017
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Other expense, net
$ 514
$ (963)
$(1,001)
The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax,
for the fiscal years ended October 31, 2019 and 2018 (in thousands):
Balance, October 31, 2017
Other comprehensive income (loss) before reclassifications
Reclassifications
Balance, October 31, 2018
Other comprehensive income (loss) before reclassifications
Reclassifications
Balance, October 31, 2019
Foreign
Currency
Translation
$ (7,409)
(3,183)
--
$ (10,592)
Cash
Flow
Hedges
$ (781)
155
1,355
$ 729
550
--
$ (10,042)
615
(235)
$ 1,109
Total
$ (8,190)
(3,028)
1,355
$ (9,863)
1,165
(235)
$ (8,933)
Inventories. Inventories are stated at the lower of cost or net realizable value, 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 was $2.6 million for fiscal
2019 and $2.5 million for each of the fiscal years ended October 31, 2018 and 2017.
Revenue Recognition. We design, manufacture and sell computerized machine tools. Our computer control
systems and software products are primarily sold as integral components of our computerized machine tool
products. We also provide machine tool components, automation equipment and solutions for job shops, software
options, control upgrades, accessories and replacement parts for our products, as well as customer service, training
and applications support.
52
52
We adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC
606”) on November 1, 2018, the start of our 2019 fiscal year, and elected the modified retrospective method as of
the date of adoption. Prior to the adoption of ASC 606, our revenues were already recognized in the same manner
as that required by ASC 606. Therefore, the adoption of ASC 606 did not have an effect on our beginning retained
earnings or our overall financial statements as of and for the twelve months ended October 31, 2019.
We recognize revenues from the sale of machine tools, components and accessories and services, and reflect the
consideration to which we expect to be entitled. We record revenues based on a five-step model in accordance
with FASB guidance codified in ASC 606. In accordance with ASC 606, we have defined contracts as agreements
with our customers and distributors in the form of purchase orders, packing or shipping documents, invoices, and,
periodically, verbal requests for components and accessories. For each contract, we identify our performance
obligations, which is delivering goods or services, determine the transaction price, allocate the contract transaction
price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the
performance obligation to the customer is fulfilled. A good or service is transferred when the customer obtains
control of that good or service. Our computerized machine tools are general purpose computer-controlled machine
tools that are typically used in stand-alone operations. Prior to shipment, we test each machine to ensure the
machine’s compliance with standard operating specifications. We deem that the customer obtains control upon
delivery of the product and that obtaining control is not contingent upon contractual customer acceptance.
Therefore, we recognize revenue from sales of our machine tool systems upon delivery of the product to the
customer or distributor, which is normally at the time of shipment.
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 for our three-axis machines to be inconsequential and perfunctory.
For our five-axis machines that we install, we estimate the fair value of the installation performance obligation
and recognize that installation revenue on a prorata basis over the period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services. We
consider these services to be perfunctory within the context of the contract, as the value of these services typically
does not rise to a material level as a component of the total contract value. Service fees from maintenance contracts
are deferred and recognized in earnings on a prorata basis over the term of the contract and are generally sold on
a stand-alone basis. Customer discounts and estimated product returns are considered variable consideration and
are recorded as a reduction of revenue in the same period that the related sales are recorded. We have reviewed
the overall sales transactions for variable consideration and have determined that these amounts are not significant.
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 12 of Notes to Consolidated Financial Statements for further discussion of warranties.
53
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, 2019, 2018, and 2017 on derivative instruments not designated as hedging instruments (in
thousands):
Derivatives
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Other expense, net
Location of Gain (Loss)
Recognized in Operations
Amount of Gain (Loss)
Recognized in Operations
2019
2018
2017
$ 514
$ (963)
$(1,001)
The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax,
for the fiscal years ended October 31, 2019 and 2018 (in thousands):
Other comprehensive income (loss) before reclassifications
(3,183)
Other comprehensive income (loss) before reclassifications
Foreign
Currency
Translation
Cash
Flow
Hedges
$ (7,409)
--
$ (10,592)
550
--
$ (781)
155
1,355
$ 729
615
(235)
Total
$ (8,190)
(3,028)
1,355
$ (9,863)
1,165
(235)
$ (10,042)
$ 1,109
$ (8,933)
Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-
in, first-out method. Provisions are made to reduce excess or obsolete inventories to their estimated realizable
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
Balance, October 31, 2017
Reclassifications
Balance, October 31, 2018
Reclassifications
Balance, October 31, 2019
value.
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 was $2.6 million for fiscal
2019 and $2.5 million for each of the fiscal years ended October 31, 2018 and 2017.
Revenue Recognition. We design, manufacture and sell computerized machine tools. Our computer control
systems and software products are primarily sold as integral components of our computerized machine tool
products. We also provide machine tool components, automation equipment and solutions for job shops, software
options, control upgrades, accessories and replacement parts for our products, as well as customer service, training
and applications support.
52
We adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC
606”) on November 1, 2018, the start of our 2019 fiscal year, and elected the modified retrospective method as of
the date of adoption. Prior to the adoption of ASC 606, our revenues were already recognized in the same manner
as that required by ASC 606. Therefore, the adoption of ASC 606 did not have an effect on our beginning retained
earnings or our overall financial statements as of and for the twelve months ended October 31, 2019.
We recognize revenues from the sale of machine tools, components and accessories and services, and reflect the
consideration to which we expect to be entitled. We record revenues based on a five-step model in accordance
with FASB guidance codified in ASC 606. In accordance with ASC 606, we have defined contracts as agreements
with our customers and distributors in the form of purchase orders, packing or shipping documents, invoices, and,
periodically, verbal requests for components and accessories. For each contract, we identify our performance
obligations, which is delivering goods or services, determine the transaction price, allocate the contract transaction
price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the
performance obligation to the customer is fulfilled. A good or service is transferred when the customer obtains
control of that good or service. Our computerized machine tools are general purpose computer-controlled machine
tools that are typically used in stand-alone operations. Prior to shipment, we test each machine to ensure the
machine’s compliance with standard operating specifications. We deem that the customer obtains control upon
delivery of the product and that obtaining control is not contingent upon contractual customer acceptance.
Therefore, we recognize revenue from sales of our machine tool systems upon delivery of the product to the
customer or distributor, which is normally at the time of shipment.
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 for our three-axis machines to be inconsequential and perfunctory.
For our five-axis machines that we install, we estimate the fair value of the installation performance obligation
and recognize that installation revenue on a prorata basis over the period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services. We
consider these services to be perfunctory within the context of the contract, as the value of these services typically
does not rise to a material level as a component of the total contract value. Service fees from maintenance contracts
are deferred and recognized in earnings on a prorata basis over the term of the contract and are generally sold on
a stand-alone basis. Customer discounts and estimated product returns are considered variable consideration and
are recorded as a reduction of revenue in the same period that the related sales are recorded. We have reviewed
the overall sales transactions for variable consideration and have determined that these amounts are not significant.
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 12 of Notes to Consolidated Financial Statements for further discussion of warranties.
53
53
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
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 $4.4 million, $4.7 million, and $4.2 million, in fiscal 2019, 2018, and
2017, 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 $1.8 million in fiscal 2019, $2.3 million in fiscal 2018, and $2.3
million in fiscal 2017 related to software development projects. Amortization expense for software development
costs was $1.0 million, $1.1 million, and $1.0 million, for the fiscal years ended October 31, 2019, 2018, and
2017, respectively. Accumulated amortization at October 31, 2019 and 2018 was $19.5 million and $18.5 million,
respectively.
Estimated amortization expense for the remaining unamortized software development costs for the fiscal years
ending October 31, is as follows (in thousands):
Fiscal Year
2020
2021
2022
2023
2024
Amortization Expense
$ 1,500
1,950
1,900
1,550
1,000
Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a business combination
are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be
reviewed annually for impairment, or more frequently, if circumstances arise indicating potential impairment.
This impairment review was most recently completed as of July 31, 2019. For goodwill, if the carrying amount of
the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is
recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit. For
indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized
in an amount equal to that excess. Intangible assets that are determined to have a finite life are amortized over
their estimated useful lives and are also subject to review for impairment, if indicators of impairment are identified.
The changes in the carrying amounts of goodwill for the fiscal year ended October 31, 2019 were as follows (in
thousands):
Balance as of October 31, 2018
Goodwill acquired
Impact of foreign currency translation
Balance as of October 31, 2019
$ 2,377
3,500
(30)
$ 5,847
There were no impairments recognized with respect to the carrying value of goodwill or intangible assets for the
years ended October 31, 2019, 2018 or 2017.
“Earnings Per Share.”
54
54
55
As of October 31, 2019, the balances of intangible assets, other than goodwill, were as follows (in thousands):
As of October 31, 2018, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Weighted
Average
Amortization
Period
indefinite
13 years
15 years
13 years
6 years
8 years
Weighted
Average
Amortization
Period
indefinite
13 years
15 years
13 years
6 years
8 years
Gross
Intangible
Assets
$ 60
408
372
683
2,972
375
$ 4,870
Gross
Intangible
Assets
$ 60
238
255
692
2,973
377
$ 4,595
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total
Accumulated
Amortization
Net Intangible
Assets
$ --
$ 60
(114)
(173)
(333)
(2,813)
(341)
$ (3,774)
294
199
350
159
34
$ 1,096
Accumulated
Amortization
Net Intangible
Assets
$ --
$ 60
(98)
(148)
(284)
(2,790)
(337)
$ (3,657)
140
107
408
183
40
$ 938
Intangible asset amortization expense was $117,000, $107,000, and $136,000 for fiscal 2019, 2018 and 2017,
respectively. Annual intangible asset amortization expense is estimated to be $132,000 per year for fiscal years
2020 through 2024.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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 $4.4 million, $4.7 million, and $4.2 million, in fiscal 2019, 2018, and
2017, 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 $1.8 million in fiscal 2019, $2.3 million in fiscal 2018, and $2.3
million in fiscal 2017 related to software development projects. Amortization expense for software development
costs was $1.0 million, $1.1 million, and $1.0 million, for the fiscal years ended October 31, 2019, 2018, and
2017, respectively. Accumulated amortization at October 31, 2019 and 2018 was $19.5 million and $18.5 million,
respectively.
Estimated amortization expense for the remaining unamortized software development costs for the fiscal years
ending October 31, is as follows (in thousands):
Fiscal Year
Amortization Expense
2020
2021
2022
2023
2024
$ 1,500
1,950
1,900
1,550
1,000
Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a business combination
are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be
reviewed annually for impairment, or more frequently, if circumstances arise indicating potential impairment.
This impairment review was most recently completed as of July 31, 2019. For goodwill, if the carrying amount of
the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is
recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit. For
indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized
in an amount equal to that excess. Intangible assets that are determined to have a finite life are amortized over
their estimated useful lives and are also subject to review for impairment, if indicators of impairment are identified.
The changes in the carrying amounts of goodwill for the fiscal year ended October 31, 2019 were as follows (in
thousands):
Balance as of October 31, 2018
Goodwill acquired
Impact of foreign currency translation
Balance as of October 31, 2019
$ 2,377
3,500
(30)
$ 5,847
There were no impairments recognized with respect to the carrying value of goodwill or intangible assets for the
years ended October 31, 2019, 2018 or 2017.
As of October 31, 2019, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Weighted
Average
Amortization
Period
indefinite
13 years
15 years
13 years
6 years
8 years
Gross
Intangible
Assets
$ 60
408
372
683
2,972
375
$ 4,870
Accumulated
Amortization
$ --
(114)
(173)
(333)
(2,813)
(341)
$ (3,774)
Net Intangible
Assets
$ 60
294
199
350
159
34
$ 1,096
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total
As of October 31, 2018, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Weighted
Average
Amortization
Period
indefinite
13 years
15 years
13 years
6 years
8 years
Gross
Intangible
Assets
$ 60
238
255
692
2,973
377
$ 4,595
Accumulated
Amortization
$ --
(98)
(148)
(284)
(2,790)
(337)
$ (3,657)
Net Intangible
Assets
$ 60
140
107
408
183
40
$ 938
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total
Intangible asset amortization expense was $117,000, $107,000, and $136,000 for fiscal 2019, 2018 and 2017,
respectively. Annual intangible asset amortization expense is estimated to be $132,000 per year for fiscal years
2020 through 2024.
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.”
54
55
55
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
The following table presents a reconciliation of our basic and diluted earnings per share computation:
(in thousands, except per share amounts)
2019
Fiscal Year Ended October 31,
2018
2017
Net income
Undistributed earnings allocated to
participating shares
Net income applicable to common
Shareholders
Weighted average shares outstanding
Stock options and contingently issuable
securities
Income per share
Basic
$17,495
Diluted
$17,495
Basic
Diluted
$21,490 $21,490
Basic
Diluted
$15,115 $15,115
(147)
(147)
(132)
(132)
(100)
(100)
$17,348
$17,348
$21,358 $21,358
$15,015 $15,015
2. BUSINESS OPERATIONS
6,759
6,759
6,700
6,700
6,615
6,615
--
6,759
$2.57
56
6,815
$2.55
--
6,700
$3.19
71
6,771
$3.15
--
6,615
$2.27
65
6,680
$2.25
Income Taxes – We account for income taxes and the related accounts under the asset and liability
method. Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction in
effect for the year in which the temporary differences are expected to be recovered or settled. These deferred tax
assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Net deferred tax assets and liabilities are classified as non-
current in the consolidated financial statements. Our judgment regarding the realization of deferred tax assets
may change due to future profitability and market conditions, changes in U.S. or foreign tax laws and other
factors. These changes, if any, may require material adjustments to these deferred tax assets and an accompanying
reduction or increase in net income in the period when such determinations are made.
The determination of our provision for income taxes requires judgment, the use of estimates and the interpretation
and application of complex federal, state and foreign tax laws. Our provision for income taxes reflects a
combination of income earned and taxed at the federal and state level in the U.S., as well as in various foreign
jurisdictions.
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 operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex. The
estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications. We
recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon
examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized
is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions and the
resolution of such audits may span multiple years. Tax law is complex and often subject to varied interpretations,
accordingly, the ultimate outcome with respect to taxes we may owe may differ from the amounts recognized.
Stock Compensation. We account for share-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.
56
56
57
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.
Nature of Business. We design, manufacture and sell computerized CNC machine tools, computer control systems
and software products, machine tool components, automation equipment and solutions for job shops, software
options, control upgrades, accessories and replacement parts for our products, as well as customer service and
training and applications support, 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
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 principally through more than 190 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, Taiwan, the United Kingdom, and certain areas of the United
condition.
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 Machine Tool Co., Ltd. (“NHML”) and Milltronics USA, Inc. (“Milltronics”) produce the vast majority of
our machine tools for all three brands, Hurco, Milltronics and Takumi. In addition, we manufacture electro-
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 trade wars or tariffs, or 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.
The following table presents a reconciliation of our basic and diluted earnings per share computation:
(in thousands, except per share amounts)
2019
2018
2017
Fiscal Year Ended October 31,
Net income
Undistributed earnings allocated to
participating shares
Net income applicable to common
Shareholders
Weighted average shares outstanding
Stock options and contingently issuable
securities
Income per share
Basic
Diluted
Basic
Diluted
Basic
Diluted
$17,495
$17,495
$21,490 $21,490
$15,115 $15,115
(147)
(147)
(132)
(132)
(100)
(100)
6,759
6,759
6,700
6,700
6,615
6,615
--
6,759
$2.57
56
6,815
$2.55
--
6,700
$3.19
71
6,771
$3.15
--
6,615
$2.27
65
6,680
$2.25
Income Taxes – We account for income taxes and the related accounts under the asset and liability
method. Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction in
effect for the year in which the temporary differences are expected to be recovered or settled. These deferred tax
assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Net deferred tax assets and liabilities are classified as non-
current in the consolidated financial statements. Our judgment regarding the realization of deferred tax assets
may change due to future profitability and market conditions, changes in U.S. or foreign tax laws and other
factors. These changes, if any, may require material adjustments to these deferred tax assets and an accompanying
reduction or increase in net income in the period when such determinations are made.
The determination of our provision for income taxes requires judgment, the use of estimates and the interpretation
and application of complex federal, state and foreign tax laws. Our provision for income taxes reflects a
combination of income earned and taxed at the federal and state level in the U.S., as well as in various foreign
jurisdictions.
affect these estimates.
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
We operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex. The
estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications. We
recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon
examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized
is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions and the
resolution of such audits may span multiple years. Tax law is complex and often subject to varied interpretations,
accordingly, the ultimate outcome with respect to taxes we may owe may differ from the amounts recognized.
Stock Compensation. We account for share-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.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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.
$17,348
$17,348
$21,358 $21,358
$15,015 $15,015
2. BUSINESS OPERATIONS
Nature of Business. We design, manufacture and sell computerized CNC machine tools, computer control systems
and software products, machine tool components, automation equipment and solutions for job shops, software
options, control upgrades, accessories and replacement parts for our products, as well as customer service and
training and applications support, 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 principally through more than 190 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, 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 Machine Tool Co., Ltd. (“NHML”) and Milltronics USA, Inc. (“Milltronics”) produce the vast majority of
our machine tools for all three brands, Hurco, Milltronics and Takumi. In addition, we manufacture electro-
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 trade wars or tariffs, or 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.
57
57
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
3. INVENTORIES
Inventories as of October 31, 2019 and 2018 are summarized below (in thousands):
Purchased parts and sub-assemblies
Work-in-process
Finished goods
2019
$ 32,074
20,901
95,876
$ 148,851
2018
$ 38,303
22,786
76,520
$ 137,609
Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe and Asia was
$12.0 million and $9.9 million as of October 31, 2019 and 2018, respectively.
4.
ACQUISITION OF BUSINESS
On August 5, 2019, we (through a newly-formed subsidiary, ProCobots, LLC) acquired substantially all of the
assets of a U.S.-based automation integration company for approximately $4.4 million. This acquired business
provides automation solutions that can be integrated with any machine tool. The purchase price has been
preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values, and
approximated $4.4 million. The allocation of the opening balance sheet of ProCobots as of August 5, 2019 is as
follows (in thousands):
Current assets
Property plant and equipment
Intangibles
Goodwill
Total assets
Current liabilities
Total liabilities
$ 349
452
148
3,500
4,449
96
96
Total purchase price and cash expended
$ 4,353
The acquisition was accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the
total purchase price was allocated to tangible assets and liabilities based on their fair value and the intangibles and
goodwill were allocated on a provisional basis at the date of acquisition. These allocations reflected various
provisional estimates that were available at the time and are subject to change during the purchase price allocation
period as valuations are in the process of being finalized.
The results of operations of ProCobots have been included in the consolidated financial statements from the date
of acquisition.
5.
CREDIT AGREEMENTS AND BORROWINGS
On December 7, 2012, we entered into a credit agreement, which was subsequently amended on May 9, 2014,
June 5, 2014, December 5, 2014 and December 6, 2016 (as amended, the “2012 Credit Agreement”) with JP
Morgan Chase Bank, N.A that provided us with an unsecured revolving credit and letter of credit facility. The
2012 Credit Agreement terminated on its scheduled maturity date of December 31, 2018.
On December 31, 2018, we and our subsidiary Hurco B.V. entered into a new credit agreement (the “2018 Credit
Agreement”) with Bank of America, N.A., as the lender. The 2018 Credit Agreement replaced the 2012 Credit
58
58
Agreement. The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility in
a maximum aggregate amount of $40.0 million. The 2018 Credit Agreement provides that the maximum amount
of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum amount of outstanding
loans made to our subsidiary Hurco B.V. at any one time may not exceed $20.0 million, and the maximum amount
of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million.
Under the 2018 Credit Agreement, we and Hurco B.V. are borrowers, and certain of our other subsidiaries are
guarantors. The scheduled maturity date of the 2018 Credit Agreement is December 31, 2020.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a
LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per annum, or (ii)
a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month
LIBOR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an annual rate of
0.75%.
The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default,
including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but
permitting us to make investments in subsidiaries of up to $10.0 million); (2) restricting us from making certain
payments, including cash dividends, except that we may pay cash dividends as long as immediately before and
after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit
Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not in default before and
after giving effect to such dividend payments; (3) requiring that we maintain a minimum working capital of $125.0
million; and (4) requiring that we maintain a minimum tangible net worth of $170.0 million. We may use the
proceeds from advances under the 2018 Credit Agreement for general corporate purposes.
In December 2018, in connection with our entry into the 2018 Credit Agreement, (1) using cash on hand, we
repaid in full the $1.4 million outstanding under, and terminated, our credit facility in China and (2) we terminated
our United Kingdom credit facility. In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China,
NHML, closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New
Taiwan Dollars (the “Taiwan credit facility”) and 32.5 million Chinese Yuan (the “China credit facility”),
respectively. Both the Taiwan and China credit facilities have a final maturity date of March 5, 2020.
As a result, as of October 31, 2019, our existing credit facilities consist of our €1.5 million revolving credit facility
in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China
credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.
As of October 31, 2019, there were no borrowings under any of our credit facilities and there was $51.2 million
of available borrowing capacity thereunder.
6.
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
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
3. INVENTORIES
Inventories as of October 31, 2019 and 2018 are summarized below (in thousands):
Purchased parts and sub-assemblies
Work-in-process
Finished goods
2019
$ 32,074
20,901
95,876
$ 148,851
2018
$ 38,303
22,786
76,520
$ 137,609
Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe and Asia was
$12.0 million and $9.9 million as of October 31, 2019 and 2018, respectively.
4.
ACQUISITION OF BUSINESS
On August 5, 2019, we (through a newly-formed subsidiary, ProCobots, LLC) acquired substantially all of the
assets of a U.S.-based automation integration company for approximately $4.4 million. This acquired business
provides automation solutions that can be integrated with any machine tool. The purchase price has been
preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values, and
approximated $4.4 million. The allocation of the opening balance sheet of ProCobots as of August 5, 2019 is as
follows (in thousands):
Current assets
Property plant and equipment
Intangibles
Goodwill
Total assets
Current liabilities
Total liabilities
$ 349
452
148
3,500
4,449
96
96
Total purchase price and cash expended
$ 4,353
The acquisition was accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the
total purchase price was allocated to tangible assets and liabilities based on their fair value and the intangibles and
goodwill were allocated on a provisional basis at the date of acquisition. These allocations reflected various
provisional estimates that were available at the time and are subject to change during the purchase price allocation
period as valuations are in the process of being finalized.
The results of operations of ProCobots have been included in the consolidated financial statements from the date
of acquisition.
5.
CREDIT AGREEMENTS AND BORROWINGS
On December 7, 2012, we entered into a credit agreement, which was subsequently amended on May 9, 2014,
June 5, 2014, December 5, 2014 and December 6, 2016 (as amended, the “2012 Credit Agreement”) with JP
Morgan Chase Bank, N.A that provided us with an unsecured revolving credit and letter of credit facility. The
2012 Credit Agreement terminated on its scheduled maturity date of December 31, 2018.
On December 31, 2018, we and our subsidiary Hurco B.V. entered into a new credit agreement (the “2018 Credit
Agreement”) with Bank of America, N.A., as the lender. The 2018 Credit Agreement replaced the 2012 Credit
58
Agreement. The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility in
a maximum aggregate amount of $40.0 million. The 2018 Credit Agreement provides that the maximum amount
of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum amount of outstanding
loans made to our subsidiary Hurco B.V. at any one time may not exceed $20.0 million, and the maximum amount
of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million.
Under the 2018 Credit Agreement, we and Hurco B.V. are borrowers, and certain of our other subsidiaries are
guarantors. The scheduled maturity date of the 2018 Credit Agreement is December 31, 2020.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a
LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per annum, or (ii)
a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month
LIBOR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an annual rate of
0.75%.
The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default,
including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but
permitting us to make investments in subsidiaries of up to $10.0 million); (2) restricting us from making certain
payments, including cash dividends, except that we may pay cash dividends as long as immediately before and
after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit
Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not in default before and
after giving effect to such dividend payments; (3) requiring that we maintain a minimum working capital of $125.0
million; and (4) requiring that we maintain a minimum tangible net worth of $170.0 million. We may use the
proceeds from advances under the 2018 Credit Agreement for general corporate purposes.
In December 2018, in connection with our entry into the 2018 Credit Agreement, (1) using cash on hand, we
repaid in full the $1.4 million outstanding under, and terminated, our credit facility in China and (2) we terminated
our United Kingdom credit facility. In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China,
NHML, closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New
Taiwan Dollars (the “Taiwan credit facility”) and 32.5 million Chinese Yuan (the “China credit facility”),
respectively. Both the Taiwan and China credit facilities have a final maturity date of March 5, 2020.
As a result, as of October 31, 2019, our existing credit facilities consist of our €1.5 million revolving credit facility
in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China
credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.
As of October 31, 2019, there were no borrowings under any of our credit facilities and there was $51.2 million
of available borrowing capacity thereunder.
6.
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
59
59
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
policy choice of either (1) treating taxes due on U.S. inclusions in taxable income related to GILTI as a current
period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
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.
GILTI tax.
measurement of its deferred taxes (the “deferred method”). We have elected the period cost method to account for
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, 2019 and 2018 (in thousands):
The Tax Reform Act also created FDII for US companies that derive income from the export of tangible and
intangible property and services effective for us in fiscal 2019. We have recorded a deduction attributable to FDII
Assets
Liabilities
October 31,
2019
October 31,
2018
October 31,
2019
October 31,
2018
Level 1
Deferred compensation
Level 2
Derivatives
Recurring Fair Value Measurements
$ 1,991
$ 1,391
$ 1,723
$ --
$ 3,085
$ 388
$ --
$ 2,020
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
$108.6 million and $145.2 million at October 31, 2019 and 2018, 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.
7.
INCOME TAXES
In December 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. The Tax Reform Act
significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate
tax rate from 35% to 21% effective January 1, 2018, and implementing a modified territorial tax system from a
global system by adding provisions related to Global Intangible Low Taxed Income (“GILTI”) and Foreign-
derived Intangible Income (”FDII”) among other provisions. The GILTI and FDII provisions under the Tax
Reform Act became effective for the Company in fiscal 2019. The Tax Reform Act also imposed a one-time
transition tax on deemed repatriation of historical earnings of foreign subsidiaries, which was recorded in fiscal
2018. In December 2017, the United States Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax
Reform Act.
The Tax Reform Act created a new requirement that GILTI income earned by Controlled Foreign Corporations
(“CFC’s”) must be included in the gross income of the CFC’s U.S. shareholder effective for us in fiscal 2019 for
the Company. Under U.S. Generally Accepted Accounting Principles, we are allowed to make an accounting
policy choice of either (1) treating taxes due on U.S. inclusions in taxable income related to GILTI as a current
period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s
60
HURCO COMPANIES, INC.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
measurement of its deferred taxes (the “deferred method”). We have elected the period cost method to account for
GILTI tax.
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):
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Income before income taxes:
Domestic
Foreign
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
Transition Tax
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
Other
Effective tax rate
Year Ended October 31,
2019
$ 1,854
3,715
5,569
2018
$ 6,333
5,203
11,536
2017
$ 308
4,185
4,493
(31)
291
260
(326)
(204)
(530)
1,236
(128)
1,108
$ 5,829
$ 11,006
$ 5,601
Year Ended October 31,
2019
2018
2017
$ 9,793
13,531
$ 23,324
$ 14,101
18,395
$ 32,496
$ 5,477
15,239
$ 20,716
21%
4%
1%
1%
(2%)
0%
(1%)
3%
(3%)
1%
25%
23%
34%
2%
0%
0%
(1%)
4%
7%
0%
0%
(1%)
(5%)
1%
0%
(3%)
0%
0%
0%
0%
0%
34%
27%
based on our current operations.
In the fiscal years set forth below, the provision for income taxes consisted of the following (in thousands):
A comparison of income tax expense at the U.S. statutory rate to the Company’s effective tax rate is as follows
(dollars in thousands):
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Income before income taxes:
Domestic
Foreign
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
Transition Tax
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
Other
Effective tax rate
Year Ended October 31,
2019
$ 1,854
3,715
5,569
2018
$ 6,333
5,203
11,536
2017
$ 308
4,185
4,493
(31)
291
260
(326)
(204)
(530)
1,236
(128)
1,108
$ 5,829
$ 11,006
$ 5,601
Year Ended October 31,
2019
2018
2017
$ 9,793
13,531
$ 23,324
$ 14,101
18,395
$ 32,496
$ 5,477
15,239
$ 20,716
21%
4%
1%
1%
(2%)
0%
(1%)
3%
(3%)
1%
25%
23%
34%
2%
0%
0%
(1%)
4%
7%
0%
0%
(1%)
(5%)
1%
0%
(3%)
0%
0%
0%
0%
0%
34%
27%
The Tax Reform Act also made comprehensive changes to U.S. federal income tax laws by moving from a global
to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S
federal income tax. At October 31, 2019, undistributed earnings of our foreign subsidiaries are expected to be
permanently reinvested. Accordingly, we have not provided for any withholding taxes on the undistributed
earnings of our foreign subsidiaries since January 1, 2018.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are
enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated
As of October 31, 2019, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.4 million, primarily related to certain states in the U.S. and foreign jurisdictions. We also had deferred tax
assets for research and development tax credits of $0.8 million. We have established a valuation allowance against
some of these carryforwards due to the uncertainty of their full realization. As of October 31, 2019 and 2018, the
balance of this valuation allowance was $2.2 million and $2.1 million, respectively.
Significant components of our deferred tax assets and liabilities at October 31, 2019 and 2018 are as follows (in
thousands):
Deferred Tax Assets:
Accrued inventory reserves
Accrued warranty expenses
Compensation related expenses
Unrealized exchange gain/loss
Other accrued expenses
Net operating loss carryforwards
Other credit carryforwards
Other
carryforwards
Deferred tax assets
Deferred Tax Liabilities:
Net derivative instruments
Other
Net deferred tax assets
Less: Valuation allowance - net operating loss and other credit
Property and equipment and capitalized software development costs
October 31,
2019
2018
$ 1,224
$ 1,325
363
2,723
143
170
1,380
766
293
7,062
499
2,644
159
170
1,316
686
350
7,149
(2,227)
4,835
(2,106)
5,043
(313)
(2,632)
(204)
$ 1,686
(208)
(2,370)
(231)
$ 2,234
As of October 31, 2019, we had net operating losses carryforwards for international and U.S. income tax purposes
of $5.9 million, of which $5.2 million related to foreign jurisdictions will expire within 5 years beginning in fiscal
2020 and $0.7 million will expire between 5 and 20 years. We also had tax credits of $765,000 that will expire
between years 2023 and 2030.
The Tax Reform Act also created FDII for US companies that derive income from the export of tangible and
intangible property and services effective for us in fiscal 2019. We have recorded a deduction attributable to FDII
financial statements.
based on our current operations.
In the fiscal years set forth below, the provision for income taxes consisted of the following (in thousands):
The Tax Reform Act also made comprehensive changes to U.S. federal income tax laws by moving from a global
to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S
federal income tax. At October 31, 2019, undistributed earnings of our foreign subsidiaries are expected to be
62
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
policy choice of either (1) treating taxes due on U.S. inclusions in taxable income related to GILTI as a current
period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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.
measurement of its deferred taxes (the “deferred method”). We have elected the period cost method to account for
GILTI tax.
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, 2019 and 2018 (in thousands):
Assets
Liabilities
October 31,
October 31,
October 31,
October 31,
2019
2018
2019
2018
$ 1,991
$ 1,391
$ 1,723
$ --
$ 3,085
$ 388
$ --
$ 2,020
Level 1
Deferred compensation
Level 2
Derivatives
Recurring Fair Value Measurements
Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan. We
estimate the fair value of these investments on a recurring basis using market prices which are readily available.
Included as Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on
foreign currency forward exchange contracts entered into with a third party. We estimate the fair value of these
derivatives on a recurring basis using foreign currency exchange rates obtained from active markets. Derivative
instruments are reported in the accompanying consolidated financial statements at fair value. We have derivative
financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes
to Consolidated Financial Statements in which the U.S. Dollar equivalent notional amount of these contracts was
$108.6 million and $145.2 million at October 31, 2019 and 2018, 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.
7.
INCOME TAXES
In December 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted. The Tax Reform Act
significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate
tax rate from 35% to 21% effective January 1, 2018, and implementing a modified territorial tax system from a
global system by adding provisions related to Global Intangible Low Taxed Income (“GILTI”) and Foreign-
derived Intangible Income (”FDII”) among other provisions. The GILTI and FDII provisions under the Tax
Reform Act became effective for the Company in fiscal 2019. The Tax Reform Act also imposed a one-time
transition tax on deemed repatriation of historical earnings of foreign subsidiaries, which was recorded in fiscal
2018. In December 2017, the United States Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax
Reform Act.
The Tax Reform Act created a new requirement that GILTI income earned by Controlled Foreign Corporations
(“CFC’s”) must be included in the gross income of the CFC’s U.S. shareholder effective for us in fiscal 2019 for
the Company. Under U.S. Generally Accepted Accounting Principles, we are allowed to make an accounting
policy choice of either (1) treating taxes due on U.S. inclusions in taxable income related to GILTI as a current
period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
measurement of its deferred taxes (the “deferred method”). We have elected the period cost method to account for
GILTI tax.
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):
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Income before income taxes:
Domestic
Foreign
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
Transition Tax
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
Other
Effective tax rate
Year Ended October 31,
2019
$ 1,854
3,715
5,569
2018
$ 6,333
5,203
11,536
2017
$ 308
4,185
4,493
(31)
291
260
(326)
(204)
(530)
1,236
(128)
1,108
$ 5,829
$ 11,006
$ 5,601
Year Ended October 31,
2019
2018
2017
$ 9,793
13,531
$ 23,324
$ 14,101
18,395
$ 32,496
$ 5,477
15,239
$ 20,716
21%
4%
1%
1%
(2%)
0%
(1%)
3%
(3%)
1%
25%
23%
34%
2%
0%
0%
(1%)
4%
7%
0%
0%
(1%)
(5%)
1%
0%
(3%)
0%
0%
0%
0%
0%
34%
27%
The Tax Reform Act also created FDII for US companies that derive income from the export of tangible and
intangible property and services effective for us in fiscal 2019. We have recorded a deduction attributable to FDII
based on our current operations.
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,
2018
$ 6,333
5,203
11,536
2019
$ 1,854
3,715
5,569
2017
$ 308
4,185
4,493
(31)
291
260
(326)
(204)
(530)
1,236
(128)
1,108
$ 5,829
$ 11,006
$ 5,601
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:
Domestic
Foreign
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
Transition Tax
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
Other
Effective tax rate
Year Ended October 31,
2018
2019
2017
$ 9,793
13,531
$ 23,324
$ 14,101
18,395
$ 32,496
$ 5,477
15,239
$ 20,716
21%
4%
1%
1%
(2%)
0%
(1%)
3%
(3%)
1%
25%
23%
34%
2%
0%
0%
(1%)
4%
7%
0%
0%
(1%)
34%
(5%)
1%
0%
(3%)
0%
0%
0%
0%
0%
27%
The Tax Reform Act also made comprehensive changes to U.S. federal income tax laws by moving from a global
to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S
federal income tax. At October 31, 2019, undistributed earnings of our foreign subsidiaries are expected to be
permanently reinvested. Accordingly, we have not provided for any withholding taxes on the undistributed
earnings of our foreign subsidiaries since January 1, 2018.
61
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
61
Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are
enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated
As of October 31, 2019, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.4 million, primarily related to certain states in the U.S. and foreign jurisdictions. We also had deferred tax
assets for research and development tax credits of $0.8 million. We have established a valuation allowance against
some of these carryforwards due to the uncertainty of their full realization. As of October 31, 2019 and 2018, the
balance of this valuation allowance was $2.2 million and $2.1 million, respectively.
Significant components of our deferred tax assets and liabilities at October 31, 2019 and 2018 are as follows (in
thousands):
Deferred Tax Assets:
Accrued inventory reserves
Accrued warranty expenses
Compensation related expenses
Unrealized exchange gain/loss
Other accrued expenses
Net operating loss carryforwards
Other credit carryforwards
Other
carryforwards
Deferred tax assets
Deferred Tax Liabilities:
Net derivative instruments
Other
Net deferred tax assets
Less: Valuation allowance - net operating loss and other credit
Property and equipment and capitalized software development costs
October 31,
2019
2018
$ 1,224
$ 1,325
363
2,723
143
170
1,380
766
293
7,062
499
2,644
159
170
1,316
686
350
7,149
(2,227)
4,835
(2,106)
5,043
(313)
(2,632)
(204)
$ 1,686
(208)
(2,370)
(231)
$ 2,234
As of October 31, 2019, we had net operating losses carryforwards for international and U.S. income tax purposes
of $5.9 million, of which $5.2 million related to foreign jurisdictions will expire within 5 years beginning in fiscal
2020 and $0.7 million will expire between 5 and 20 years. We also had tax credits of $765,000 that will expire
between years 2023 and 2030.
The Tax Reform Act also created FDII for US companies that derive income from the export of tangible and
intangible property and services effective for us in fiscal 2019. We have recorded a deduction attributable to FDII
financial statements.
based on our current operations.
In the fiscal years set forth below, the provision for income taxes consisted of the following (in thousands):
The Tax Reform Act also made comprehensive changes to U.S. federal income tax laws by moving from a global
to a modified territorial tax regime. As a result, cash repatriated to the U.S. is generally no longer subject to U.S
federal income tax. At October 31, 2019, undistributed earnings of our foreign subsidiaries are expected to be
62
61
permanently reinvested. Accordingly, we have not provided for any withholding taxes on the undistributed
earnings of our foreign subsidiaries since January 1, 2018.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are
enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated
financial statements.
As of October 31, 2019, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.4 million, primarily related to certain states in the U.S. and foreign jurisdictions. We also had deferred tax
assets for research and development tax credits of $0.8 million. We have established a valuation allowance against
some of these carryforwards due to the uncertainty of their full realization. As of October 31, 2019 and 2018, the
balance of this valuation allowance was $2.2 million and $2.1 million, respectively.
Significant components of our deferred tax assets and liabilities at October 31, 2019 and 2018 are as follows (in
thousands):
Deferred Tax Assets:
Accrued inventory reserves
Accrued warranty expenses
Compensation related expenses
Unrealized exchange gain/loss
Other accrued expenses
Net operating loss carryforwards
Other credit carryforwards
Other
Less: Valuation allowance - net operating loss and other credit
carryforwards
Deferred tax assets
Deferred Tax Liabilities:
Net derivative instruments
Property and equipment and capitalized software development costs
Other
Net deferred tax assets
October 31,
2019
2018
$ 1,224
363
2,723
143
170
1,380
766
293
7,062
(2,227)
4,835
(313)
(2,632)
(204)
$ 1,686
$ 1,325
499
2,644
159
170
1,316
686
350
7,149
(2,106)
5,043
(208)
(2,370)
(231)
$ 2,234
As of October 31, 2019, we had net operating losses carryforwards for international and U.S. income tax purposes
of $5.9 million, of which $5.2 million related to foreign jurisdictions will expire within 5 years beginning in fiscal
2020 and $0.7 million will expire between 5 and 20 years. We also had tax credits of $765,000 that will expire
between years 2023 and 2030.
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
2019
$ 180
36
--
(23)
--
2018
$ 1,101
37
(945)
(18)
5
2017
$ 1,102
37
(20)
(74)
56
$ 193
$ 180
$ 1,101
The entire balance of the unrecognized tax benefits and related interest at October 31, 2019, if recognized, could
affect the effective tax rate in future periods.
We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax
provision. As of October 31, 2019, the amount of interest accrued, reported in other liabilities, was approximately
$32,000, 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 2020 and August 2023.
We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. A summary
of open tax years by major jurisdiction is presented below:
United States federal
Fiscal 2016 through the current period
Germany¹
Taiwan
Fiscal 2017 through the current period
Fiscal 2017 through the current period
¹ Includes federal as well as state, provincial or similar local jurisdictions, as applicable.
8.
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 $1.4 million, $1.2 million, $1.1 million, for the fiscal years ended
October 31, 2019, 2018, and 2017, respectively.
9.
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.
62
62
63
permanently reinvested. Accordingly, we have not provided for any withholding taxes on the undistributed
earnings of our foreign subsidiaries since January 1, 2018.
Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are
enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated
financial statements.
As of October 31, 2019, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.4 million, primarily related to certain states in the U.S. and foreign jurisdictions. We also had deferred tax
assets for research and development tax credits of $0.8 million. We have established a valuation allowance against
some of these carryforwards due to the uncertainty of their full realization. As of October 31, 2019 and 2018, the
balance of this valuation allowance was $2.2 million and $2.1 million, respectively.
Significant components of our deferred tax assets and liabilities at October 31, 2019 and 2018 are as follows (in
thousands):
Deferred Tax Assets:
Accrued inventory reserves
Accrued warranty expenses
Compensation related expenses
Unrealized exchange gain/loss
Other accrued expenses
Net operating loss carryforwards
Other credit carryforwards
Other
carryforwards
Deferred tax assets
Deferred Tax Liabilities:
Net derivative instruments
Other
Net deferred tax assets
October 31,
2019
2018
$ 1,224
$ 1,325
363
2,723
143
170
1,380
766
293
7,062
499
2,644
159
170
1,316
686
350
7,149
(2,227)
4,835
(2,106)
5,043
(313)
(2,632)
(204)
$ 1,686
(208)
(2,370)
(231)
$ 2,234
Property and equipment and capitalized software development costs
As of October 31, 2019, we had net operating losses carryforwards for international and U.S. income tax purposes
of $5.9 million, of which $5.2 million related to foreign jurisdictions will expire within 5 years beginning in fiscal
2020 and $0.7 million will expire between 5 and 20 years. We also had tax credits of $765,000 that will expire
between years 2023 and 2030.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding the related accrual
for interest or penalties, is as follows (in thousands):
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
2019
$ 180
36
--
(23)
--
$ 193
2018
$ 1,101
37
(945)
(18)
5
$ 180
2017
$ 1,102
37
(20)
(74)
56
$ 1,101
The entire balance of the unrecognized tax benefits and related interest at October 31, 2019, if recognized, could
affect the effective tax rate in future periods.
We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax
provision. As of October 31, 2019, the amount of interest accrued, reported in other liabilities, was approximately
$32,000, 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 2020 and August 2023.
We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. A summary
of open tax years by major jurisdiction is presented below:
United States federal
Germany¹
Taiwan
Fiscal 2016 through the current period
Fiscal 2017 through the current period
Fiscal 2017 through the current period
¹ Includes federal as well as state, provincial or similar local jurisdictions, as applicable.
Less: Valuation allowance - net operating loss and other credit
8.
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 $1.4 million, $1.2 million, $1.1 million, for the fiscal years ended
October 31, 2019, 2018, and 2017, respectively.
9.
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.
62
63
63
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 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, 2019, 2018 and 2017 and the related activity for the year
is as follows:
date, which was $36.08 per share.
Shares Under
Option
Weighted Average Grant
Date Fair Value
Balance October 31, 2016
Granted
Cancelled
Expired
Exercised
Balance October 31, 2017
Granted
Cancelled
Expired
Exercised
Balance October 31, 2018
Granted
Cancelled
Expired
Exercised
Balance October 31, 2019
107,889
--
--
--
(29,164)
78,725
--
--
--
(41,680)
37,045
--
--
--
--
37,045
$20.25
--
--
--
$18.31
$20.97
--
--
--
$20.33
$21.69
--
--
--
--
$21.69
The total intrinsic value of stock options exercised during the twelve months ended October 31, 2019, 2018 and
2017 was approximately $0, $847,000 and $771,000, respectively.
As of October 31, 2019, the total intrinsic value of stock options that are outstanding and exercisable was
$485,000. Stock options outstanding and exercisable on October 31, 2019, were as follows:
Range of Exercise
Prices Per Share
Outstanding and
Exercisable
18.13
21.45
23.30
$ 18.13 – 23.30
Shares Under
Option
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining Contractual
Life in Years
3,738
21,748
11,559
37,045
18.13
21.45
23.30
$21.69
0.5
2.1
3.1
2.3
65
64
66
On March 14, 2019, the Compensation Committee granted a total of 11,824 shares of time-based restricted stock
to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the
recipient 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 $40.58 per share.
On January 2, 2019, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2016-2018 performance period was attained, and the resulting
payout level relative to the target amount for each of the metrics that were established by the Compensation
Committee in 2016. As a result, the Compensation Committee determined that a total of 32,559 performance
shares were earned by our executive officers, which performance shares vested on January 2, 2019. The vesting
date fair value of the performance shares was based on the closing sales price of our common stock on the vesting
On January 2, 2019, 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
approximately 25% time-based vesting and approximately 75% performance-based vesting. The three-year
performance period for the PSUs is fiscal 2019 through fiscal 2021.
On that date, the Compensation Committee granted a total of 21,825 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 $36.08 per share.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,943 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2019 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 2019-2021, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of 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 $40.72 per PSU and was calculated using the Monte Carlo approach.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,557 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall
2019 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 2019-2021. 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 $36.08 per share.
On November 14, 2018, the Compensation Committee granted a total of 7,200 shares of time-based restricted
stock to our non-executive employees. The restricted shares vest in thirds over three years from the date of grant
provided the recipient remains employed through that date. The grant date fair value of the restricted shares was
based upon the closing sales price of our common stock on the date of grant, which was $40.01 per share.
On March 15, 2018, the Compensation Committee granted a total of 9,114 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
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 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, 2019, 2018 and 2017 and the related activity for the year
is as follows:
Shares Under
Option
107,889
Weighted Average Grant
Date Fair Value
Balance October 31, 2016
Balance October 31, 2017
Granted
Cancelled
Expired
Exercised
Granted
Cancelled
Expired
Exercised
Granted
Cancelled
Expired
Exercised
Balance October 31, 2018
(29,164)
78,725
(41,680)
37,045
--
--
--
--
--
--
--
--
--
--
Balance October 31, 2019
37,045
$21.69
The total intrinsic value of stock options exercised during the twelve months ended October 31, 2019, 2018 and
2017 was approximately $0, $847,000 and $771,000, respectively.
As of October 31, 2019, the total intrinsic value of stock options that are outstanding and exercisable was
$485,000. Stock options outstanding and exercisable on October 31, 2019, were as follows:
Shares Under
Option
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining Contractual
Life in Years
Range of Exercise
Prices Per Share
Outstanding and
Exercisable
18.13
21.45
23.30
$ 18.13 – 23.30
3,738
21,748
11,559
37,045
18.13
21.45
23.30
$21.69
65
$20.25
$18.31
$20.97
--
--
--
--
--
--
--
--
--
--
$20.33
$21.69
0.5
2.1
3.1
2.3
On March 14, 2019, the Compensation Committee granted a total of 11,824 shares of time-based restricted stock
to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the
recipient 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 $40.58 per share.
On January 2, 2019, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2016-2018 performance period was attained, and the resulting
payout level relative to the target amount for each of the metrics that were established by the Compensation
Committee in 2016. As a result, the Compensation Committee determined that a total of 32,559 performance
shares were earned by our executive officers, which performance shares vested on January 2, 2019. The vesting
date fair value of the performance shares was based on the closing sales price of our common stock on the vesting
date, which was $36.08 per share.
On January 2, 2019, 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
approximately 25% time-based vesting and approximately 75% performance-based vesting. The three-year
performance period for the PSUs is fiscal 2019 through fiscal 2021.
On that date, the Compensation Committee granted a total of 21,825 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 $36.08 per share.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,943 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2019 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 2019-2021, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of 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 $40.72 per PSU and was calculated using the Monte Carlo approach.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,557 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall
2019 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 2019-2021. 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 $36.08 per share.
On November 14, 2018, the Compensation Committee granted a total of 7,200 shares of time-based restricted
stock to our non-executive employees. The restricted shares vest in thirds over three years from the date of grant
provided the recipient remains employed through that date. The grant date fair value of the restricted shares was
based upon the closing sales price of our common stock on the date of grant, which was $40.01 per share.
On March 15, 2018, the Compensation Committee granted a total of 9,114 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
66
65
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
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 $46.05 per share.
On January 3, 2018, the Compensation Committee determined the degree to which the long–term incentive
compensation arrangement approved for the fiscal 2015–2017 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 2015. As a result, the Compensation Committee determined that a total of 23,299 performance
shares were earned by our executive officers, which performance shares vested on January 3, 2018. 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 $42.20 per share. All related stock–based compensation cost for these vested performance shares
was expensed accordingly during the three–year performance period ended October 31, 2017.
On January 3, 2018, the Compensation Committee also approved a long–term incentive compensation
arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan,
which will be payable in shares of our common stock if earned and vested. The awards were 25% time–based
vesting and 75% performance–based vesting. The three–year performance period for the PSUs is fiscal 2018
through fiscal 2020.
On that date, the Compensation Committee granted a total of 14,810 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 $42.20 per share.
On January 3, 2018, the Compensation Committee also granted a total target number of 21,891 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2018 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 2018–2020, 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 $45.68 per PSU and was calculated using the Monte Carlo approach.
On January 3, 2018, the Compensation Committee also granted a total target number of 20,734 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall
2018 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 2018–2020. 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 $42.20 per share.
On November 15, 2017, the Compensation Committee granted a total of 2,364 shares of time–based restricted
stock to our non–executive employees. The restricted shares vest in thirds over three years from the date of grant
provided the recipient remains employed through that date. The grant date fair value of the restricted shares was
based upon the closing sales price of our common stock on the date of grant, which was $42.30 per share.
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.
67
66
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 ended 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 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.
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.
A reconciliation of our restricted stock, performance share and PSU activity and related information is as follows:
Number of Shares
Grant Date Fair Value
Weighted Average
Unvested at October 31, 2018
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2019
168,348
102,349
(44,077)
(12,462)
(13,676)
200,482
$ 37.24
38.28
33.29
29.82
29.67
$ 39.62
During fiscal 2019, 2018, and 2017, we recorded approximately $2.7 million, $2.5 million, and $1.7 million,
respectively, of stock–based compensation expense related to grants under the 2008 Plan and the 2016 Equity
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
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 $46.05 per share.
On January 3, 2018, the Compensation Committee determined the degree to which the long–term incentive
compensation arrangement approved for the fiscal 2015–2017 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 2015. As a result, the Compensation Committee determined that a total of 23,299 performance
shares were earned by our executive officers, which performance shares vested on January 3, 2018. 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 $42.20 per share. All related stock–based compensation cost for these vested performance shares
was expensed accordingly during the three–year performance period ended October 31, 2017.
On January 3, 2018, the Compensation Committee also approved a long–term incentive compensation
arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan,
which will be payable in shares of our common stock if earned and vested. The awards were 25% time–based
vesting and 75% performance–based vesting. The three–year performance period for the PSUs is fiscal 2018
through fiscal 2020.
On that date, the Compensation Committee granted a total of 14,810 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 $42.20 per share.
On January 3, 2018, the Compensation Committee also granted a total target number of 21,891 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2018 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 2018–2020, 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 $45.68 per PSU and was calculated using the Monte Carlo approach.
On January 3, 2018, the Compensation Committee also granted a total target number of 20,734 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall
2018 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 2018–2020. 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 $42.20 per share.
On November 15, 2017, the Compensation Committee granted a total of 2,364 shares of time–based restricted
stock to our non–executive employees. The restricted shares vest in thirds over three years from the date of grant
provided the recipient remains employed through that date. The grant date fair value of the restricted shares was
based upon the closing sales price of our common stock on the date of grant, which was $42.30 per share.
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.
67
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 ended 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 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.
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.
A reconciliation of our restricted stock, performance share and PSU activity and related information is as follows:
Number of Shares
Weighted Average
Grant Date Fair Value
Unvested at October 31, 2018
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2019
168,348
102,349
(44,077)
(12,462)
(13,676)
200,482
$ 37.24
38.28
33.29
29.82
29.67
$ 39.62
During fiscal 2019, 2018, and 2017, we recorded approximately $2.7 million, $2.5 million, and $1.7 million,
respectively, of stock–based compensation expense related to grants under the 2008 Plan and the 2016 Equity
68
67
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
Plan. As of October 31, 2019, there was an estimated $3.2 million of total unrecognized stock–based
compensation cost that we expect to recognize by the end of the first quarter of fiscal 2022.
10.
RELATED PARTY TRANSACTIONS
As of October 31, 2019, 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 $4.2 million and $4.0 million at October 31, 2019 and
2018, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases
of controls from HAL amounted to $8.5 million, $11.3 million and $10.0 million in fiscal 2019, 2018 and 2017,
respectively. Sales of control component parts to HAL were $198,000, $197,000 and $139,000 for the fiscal years
ended October 31, 2019, 2018 and 2017, respectively. Trade payables to HAL were $938,000 and $3.4 million
at October 31, 2019 and 2018, respectively. Trade receivables from HAL were $22,000 and $68,000 at October
31, 2019 and 2018, 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
2019
2018
2017
$15,957
2,322
992
1,490
$12,019
5,560
3,674
$17,841
2,944
1,534
1,845
$12,870
4,579
4,666
$15,800
2,457
1,037
1,320
$11,310
4,440
3,916
11.
CONTINGENCIES AND LITIGATION
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.
12.
GUARANTEES AND PRODUCT WARRANTIES
From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of
machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in
ASC 460). As of October 31, 2019, we had 21 outstanding third party payment guarantees totaling approximately
$0.5 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon
shipment of a machine, the customer assumes 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.
69
68
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
2019
$ 2,497
2,246
(2,991)
8
$ 1,760
2018
$ 1,772
4,121
(3,326)
(70)
$ 2,497
2017
$ 1,523
3,379
(3,203)
73
$ 1,772
The decrease in our warranty reserve from fiscal 2018 to fiscal 2019 was primarily due to a decrease in the number
of machines under warranty resulting from decreased sales volume. The increase in our warranty reserve from
fiscal 2017 to fiscal 2018 was primarily due to an increase in the number of machines under warranty resulting
from increased sales volume.
13.
OPERATING LEASES
We lease facilities, certain equipment and vehicles under operating leases that expire at various dates through
2029. Future payments required under operating leases as of October 31, 2019, are summarized as follows (in
thousands):
2020 ...................................................................................................
$ 4,015
2021 ...................................................................................................
2022… ...............................................................................................
2023 ...................................................................................................
2024 and thereafter ............................................................................
3,149
2,224
1,482
2,531
Total ..................................................................................................
$ 13,401
Lease expense for the fiscal years ended October 31, 2019, 2018, and 2017 was $5.1 million, $4.5 million, and
$4.4 million, respectively.
14.
QUARTERLY FINANCIAL INFORMATION (Unaudited)
2019 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Selling, general and administrative expenses
Operating income
Provision for income taxes
Net income
Income per common share – basic
Income per common share – diluted
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
$ 70,674
21,637
31%
14,111
7,526
2,481
5,252
$ 0.77
$ 0.76
$ 58,501
17,189
29%
12,592
4,597
1,155
3,491
$ 59,989
16,240
27%
14,051
2,189
(260)
2,098
$ 0.51
$ 0.51
$ 0.31
$ 0.31
$ 74,213
22,142
30%
13,914
8,228
2,453
6,654
$ 0.98
$ 0.97
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Plan. As of October 31, 2019, there was an estimated $3.2 million of total unrecognized stock–based
compensation cost that we expect to recognize by the end of the first quarter of fiscal 2022.
10.
RELATED PARTY TRANSACTIONS
As of October 31, 2019, 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 $4.2 million and $4.0 million at October 31, 2019 and
2018, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases
of controls from HAL amounted to $8.5 million, $11.3 million and $10.0 million in fiscal 2019, 2018 and 2017,
respectively. Sales of control component parts to HAL were $198,000, $197,000 and $139,000 for the fiscal years
ended October 31, 2019, 2018 and 2017, respectively. Trade payables to HAL were $938,000 and $3.4 million
at October 31, 2019 and 2018, respectively. Trade receivables from HAL were $22,000 and $68,000 at October
31, 2019 and 2018, 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
2019
2018
2017
$15,957
2,322
992
1,490
$12,019
5,560
3,674
$17,841
2,944
1,534
1,845
$12,870
4,579
4,666
$15,800
2,457
1,037
1,320
$11,310
4,440
3,916
11.
CONTINGENCIES AND LITIGATION
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.
12.
GUARANTEES AND PRODUCT WARRANTIES
From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of
machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in
ASC 460). As of October 31, 2019, we had 21 outstanding third party payment guarantees totaling approximately
$0.5 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon
shipment of a machine, the customer assumes 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.
69
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
2019
$ 2,497
2,246
(2,991)
8
$ 1,760
2018
$ 1,772
4,121
(3,326)
(70)
$ 2,497
2017
$ 1,523
3,379
(3,203)
73
$ 1,772
The decrease in our warranty reserve from fiscal 2018 to fiscal 2019 was primarily due to a decrease in the number
of machines under warranty resulting from decreased sales volume. The increase in our warranty reserve from
fiscal 2017 to fiscal 2018 was primarily due to an increase in the number of machines under warranty resulting
from increased sales volume.
13.
OPERATING LEASES
We lease facilities, certain equipment and vehicles under operating leases that expire at various dates through
2029. Future payments required under operating leases as of October 31, 2019, are summarized as follows (in
thousands):
2020 ...................................................................................................
2021 ...................................................................................................
2022… ...............................................................................................
2023 ...................................................................................................
2024 and thereafter ............................................................................
Total ..................................................................................................
$ 4,015
3,149
2,224
1,482
2,531
$ 13,401
Lease expense for the fiscal years ended October 31, 2019, 2018, and 2017 was $5.1 million, $4.5 million, and
$4.4 million, respectively.
14.
QUARTERLY FINANCIAL INFORMATION (Unaudited)
2019 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Selling, general and administrative expenses
Operating income
Provision for income taxes
Net income
Income per common share – basic
Income per common share – diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 70,674
21,637
31%
14,111
7,526
2,481
5,252
$ 0.77
$ 0.76
$ 58,501
17,189
29%
12,592
4,597
1,155
3,491
$ 0.51
$ 0.51
$ 59,989
16,240
27%
14,051
2,189
(260)
2,098
$ 0.31
$ 0.31
$ 74,213
22,142
30%
13,914
8,228
2,453
6,654
$ 0.98
$ 0.97
70
69
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
2018 (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
15.
SEGMENT INFORMATION
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 68,444
20,121
29%
12,966
7,155
4,500
2,937
$ 0.44
$ 0.43
$ 70,424
19,313
27%
13,320
5,993
1,656
3,751
$ 0.55
$ 0.55
$ 78,752
24,521
31%
15,160
9,361
2,511
6,500
$ 0.96
$ 0.95
$ 83,051
27,851
34%
16,564
11,287
2,339
8,302
$ 1.24
$ 1.22
We operate in a single segment: industrial automation equipment. We design, manufacture and sell computerized
(i.e., Computer Numeric Control) machine tools, consisting primarily of vertical machining centers (mills) and
turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and
distribution network. Although the majority of our computer control systems and software products are
proprietary, they predominantly use industry standard personal computer components. Our computer control
systems and software products are primarily sold as integral components of our computerized machine tool
products. We also provide machine tool components, automation equipment and solutions for job shops, software
options, control upgrades, accessories and replacement parts for our products, as well as customer service and
training and applications support.
We principally sell our products through more than 190 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, Taiwan, the United Kingdom, and certain areas of the United
States, which are among the world's principal machine tool consuming countries. During fiscal 2019, no
distributor accounted for more than 5% of our sales and service fees. In fiscal 2019, approximately 64% of our
revenues were from customers located outside of the U.S., including customers located in Canada, Mexico and
Central and South America, and no single end-user of our products accounted for more than 5% of our total sales
and service fees.
The following table sets forth the contribution of each of our product groups and services to our total sales and
service fees during each of the past three fiscal years (in thousands):
Net Sales and Service Fees by Product Category
Computerized Machine Tools
Computer Control Systems and Software ††
Service Parts
Service Fees
Total
Year ended October 31,
2018
2019
$ 223,735
2,818
27,854
8,970
$ 263,377
$ 261,710
2,870
27,501
8,590
$ 300,671
2017
$ 209,311
2,324
24,255
7,777
$ 243,667
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
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
China
Other Asia Pacific
Total Asia Pacific
Other Foreign
Grand Total
Year Ended October 31,
2018
2017
$ 87,231
$ 70,912
2,915
2,194
92,340
62,346
34,216
16,691
15,815
32,034
161,102
27,748
17,937
45,685
3,801
1,844
76,557
48,786
28,019
13,416
13,917
27,583
131,721
22,456
10,238
32,694
2019
$ 95,196
2,580
1,409
99,185
52,002
29,349
14,772
14,346
20,028
130,497
15,706
16,858
32,564
1,131
$ 263,377
1,544
$ 300,671
2,695
$ 243,667
Long-lived tangible assets, net by geographic area, were (in thousands):
United States of America
Foreign countries
Net assets by geographic area were (in thousands):
As of October 31,
2019
$ 7,967
8,006
$ 15,973
2018
$ 8,375
6,617
$ 14,992
2017
$ 7,599
6,185
$ 13,784
Americas
Europe
Asia Pacific
2019
$ 103,863
71,411
64,971
$ 240,245
As of October 31,
2018
$ 96,348
74,558
51,947
$ 222,853
2017
$ 86,432
70,536
46,117
$ 203,085
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
71
HURCO COMPANIES, INC.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
The following table sets forth revenues by geographic area, based on customer location, for each of the past
three fiscal years (in thousands):
72
Revenues by Geographic Area
United States of America
Canada
Central & South Americas
Total Americas
Germany
United Kingdom
Italy
France
Other Europe
Total Europe
China
Other Asia Pacific
Total Asia Pacific
Other Foreign
Grand Total
Year Ended October 31,
2018
2017
$ 87,231
$ 70,912
2,915
2,194
92,340
62,346
34,216
16,691
15,815
32,034
161,102
27,748
17,937
45,685
3,801
1,844
76,557
48,786
28,019
13,416
13,917
27,583
131,721
22,456
10,238
32,694
2019
$ 95,196
2,580
1,409
99,185
52,002
29,349
14,772
14,346
20,028
130,497
15,706
16,858
32,564
1,131
$ 263,377
1,544
$ 300,671
2,695
$ 243,667
Long-lived tangible assets, net by geographic area, were (in thousands):
United States of America
Foreign countries
Net assets by geographic area were (in thousands):
As of October 31,
2019
$ 7,967
8,006
$ 15,973
2018
$ 8,375
6,617
$ 14,992
2017
$ 7,599
6,185
$ 13,784
Americas
Europe
Asia Pacific
2019
$ 103,863
71,411
64,971
$ 240,245
As of October 31,
2018
$ 96,348
74,558
51,947
$ 222,853
2017
$ 86,432
70,536
46,117
$ 203,085
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
†† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
The following table sets forth revenues by geographic area, based on customer location, for each of the past
three fiscal years (in thousands):
$ 68,444
$ 70,424
$ 78,752
$ 83,051
Revenues by Geographic Area
United States of America
Canada
Central & South Americas
Total Americas
Germany
United Kingdom
Italy
France
Other Europe
Total Europe
China
Other Asia Pacific
Total Asia Pacific
Other Foreign
Grand Total
Year Ended October 31,
2018
$ 87,231
2,915
2,194
92,340
2019
$ 95,196
2,580
1,409
99,185
2017
$ 70,912
3,801
1,844
76,557
52,002
29,349
14,772
14,346
20,028
130,497
15,706
16,858
32,564
62,346
34,216
16,691
15,815
32,034
161,102
27,748
17,937
45,685
48,786
28,019
13,416
13,917
27,583
131,721
22,456
10,238
32,694
1,131
$ 263,377
1,544
$ 300,671
2,695
$ 243,667
Long-lived tangible assets, net by geographic area, were (in thousands):
United States of America
Foreign countries
2019
$ 7,967
8,006
$ 15,973
As of October 31,
2018
$ 8,375
6,617
$ 14,992
2017
$ 7,599
6,185
$ 13,784
Net assets by geographic area were (in thousands):
Americas
Europe
Asia Pacific
2019
$ 103,863
71,411
64,971
$ 240,245
As of October 31,
2018
$ 96,348
74,558
51,947
$ 222,853
2017
$ 86,432
70,536
46,117
$ 203,085
72
71
2018 (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
15.
SEGMENT INFORMATION
20,121
29%
12,966
7,155
4,500
2,937
19,313
27%
13,320
5,993
1,656
3,751
24,521
31%
15,160
9,361
2,511
6,500
27,851
34%
16,564
11,287
2,339
8,302
$ 0.44
$ 0.43
$ 0.55
$ 0.55
$ 0.96
$ 0.95
$ 1.24
$ 1.22
We operate in a single segment: industrial automation equipment. We design, manufacture and sell computerized
(i.e., Computer Numeric Control) machine tools, consisting primarily of vertical machining centers (mills) and
turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and
distribution network. Although the majority of our computer control systems and software products are
proprietary, they predominantly use industry standard personal computer components. Our computer control
systems and software products are primarily sold as integral components of our computerized machine tool
products. We also provide machine tool components, automation equipment and solutions for job shops, software
options, control upgrades, accessories and replacement parts for our products, as well as customer service and
training and applications support.
We principally sell our products through more than 190 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, Taiwan, the United Kingdom, and certain areas of the United
States, which are among the world's principal machine tool consuming countries. During fiscal 2019, no
distributor accounted for more than 5% of our sales and service fees. In fiscal 2019, approximately 64% of our
revenues were from customers located outside of the U.S., including customers located in Canada, Mexico and
Central and South America, and no single end-user of our products accounted for more than 5% of our total sales
and service fees.
The following table sets forth the contribution of each of our product groups and services to our total sales and
service fees during each of the past three fiscal years (in thousands):
Net Sales and Service Fees by Product Category
Year ended October 31,
2019
$ 223,735
2,818
27,854
8,970
$ 263,377
2018
$ 261,710
2,870
27,501
8,590
$ 300,671
2017
$ 209,311
2,324
24,255
7,777
$ 243,667
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
71
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
China
Other Asia Pacific
Total Asia Pacific
Other Foreign
Grand Total
Year Ended October 31,
2018
2017
$ 87,231
$ 70,912
2,915
2,194
92,340
62,346
34,216
16,691
15,815
32,034
161,102
27,748
17,937
45,685
3,801
1,844
76,557
48,786
28,019
13,416
13,917
27,583
131,721
22,456
10,238
32,694
2019
$ 95,196
2,580
1,409
99,185
52,002
29,349
14,772
14,346
20,028
130,497
15,706
16,858
32,564
1,131
$ 263,377
1,544
$ 300,671
2,695
$ 243,667
Long-lived tangible assets, net by geographic area, were (in thousands):
United States of America
Foreign countries
Net assets by geographic area were (in thousands):
As of October 31,
2019
$ 7,967
8,006
$ 15,973
2018
$ 8,375
6,617
$ 14,992
2017
$ 7,599
6,185
$ 13,784
Americas
Europe
Asia Pacific
2019
$ 103,863
71,411
64,971
$ 240,245
As of October 31,
2018
$ 96,348
74,558
51,947
$ 222,853
2017
$ 86,432
70,536
46,117
$ 203,085
72
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
16. NEW ACCOUNTING PRONOUNCEMENTS
We are also in the process of updating our systems, policies, and internal controls over financial reporting related
Recently Adopted Accounting Pronouncements:
Between May 2014 and December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2014–09,
Revenue from Contracts with Customers (Topic 606), and various related updates, 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
requires 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 supersedes
most of the prior revenue recognition guidance, including industry specific guidance. We had 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”). Topic 606 was effective for us beginning November 1, 2018 and we adopted it on that
date using the modified retrospective approach. Prior to the adoption of ASC 606, our revenues were already
recognized in the same manner as that required by ASC 606. Therefore, the adoption of ASC 606 did not have an
effect on our beginning retained earnings or our overall financial statements as of and for the twelve months ended
October 31, 2019.
In January 2017, 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
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 early adopted this standard in the fourth quarter of fiscal 2019. This standard did not have
a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.
Between February 2016 and February 2019, FASB issued ASU No. 2016-02, Leases (Topic 842), and various
related updates, which establish a comprehensive new lease accounting model. Topic 842 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. Under Topic 842, the income statement will reflect lease
expense for operating leases and amortization/interest expense for financing leases.
Topic 842 is effective for our fiscal year 2020, including interim periods within the fiscal year, and requires
modified retrospective application. We adopted Topic 842 on November 1, 2019 utilizing the transition method
allowed per ASU 2018-11, and accordingly, comparative period financial information will not be adjusted for the
effects of adopting Topic 842. No cumulative-effect adjustment was required to the opening balance of retained
earnings on the adoption date. We have substantially completed an assessment of the new standard’s impact and
determined the new standards will not have a material impact on our Condensed Consolidated Statements of
Income or Cash Flows; however, the estimated impact of adopting Topic 842 will result in the recognition of a
right-of-use (“ROU”) asset and lease liability on the Condensed Consolidated Balance Sheets subsequent to
October 31, 2019 in the range of approximately $12-14 million, based on the lease portfolio existing as of this
date. While the ROU asset will be classified as a noncurrent asset, approximately one-third of the lease liability
amount is expected to be classified as a current liability, with the remainder being classified as noncurrent.
73
72
to the adoption of this standard.
Upon adoption of Topic 842, we utilized the following elections and practical expedients:
We have elected to combine non-lease components with lease components.
If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a
purchase option that is reasonably certain to be exercised, we have elected not to apply Topic 842
recognition requirements. Nonetheless, we intend to include leases of less than 12 months within the
We have elected not to use the portfolio method if we enter into a large number of leases in the same
updated footnote disclosures, if material.
month with the same terms and conditions.
As we have applied the new transition method allowed per ASU 2018-11, we have elected to not reassess
arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease,
the lease classification applied or to separate initial direct costs.
We have elected not to use hindsight in determining the lease term for lease contracts that have historically
been renewed or amended.
We have no significant lease agreements in place for which we are a lessor, and substantially all of our leases for
which we are a lessee are classified as operating leases under the guidance in Topic 840 as of October 31, 2019.
As such, due to the practical expedient election to not reassess lease classification, substantially all our leases will
continue to be classified as operating leases under Topic 842. When available, we will utilize the rate implicit in
the lease as the discount rate to determine the lease liability in accordance with Topic 842. However, if this rate
is not available, we will use our incremental borrowing rate as the discount rate, which is the rate, at inception of
the lease, we would incur to borrow over a similar term the funds needed to purchase the leased asset.
Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office
space, vehicles, material handling equipment utilized in our production and assembly facilities, laptops and other
information technology equipment, as well as other miscellaneous leased equipment. Most of the leased
production and assembly facilities have lease terms ranging from two to five years, although the terms and
conditions of our leases can vary significantly from lease to lease. We have assessed the specific terms and
conditions of each lease to determine the amount of the lease payments and the length of the lease term, which
includes the minimum period over which lease payments are required plus any renewal options that are both within
our control to exercise and reasonably certain of being exercised upon lease commencement. In determining
whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant factors to
determine if sufficient incentives exist as of lease commencement to conclude renewal is reasonably certain. There
are no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases
to which we are a party. In determining the lease liability, we utilize our incremental borrowing rate to discount
the future lease payments over the lease term to present value. As of October 31, 2019, the weighted-average
remaining term of our lease portfolio was approximately 3.1 years.
New Accounting Pronouncements:
In February 2018, FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow
a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting
from the Tax Reform Act that are stranded in accumulated other comprehensive income. This standard also
requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying
guidance that requires the effect of a change in tax laws or rates be included in income from continuing operations.
ASU 2018-02 will be effective for our fiscal year 2020, with the option to early adopt at any time prior to the
effective date. It must be applied either in the period of adoption or retrospectively to each period in which the
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
16. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements:
Between May 2014 and December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2014–09,
Revenue from Contracts with Customers (Topic 606), and various related updates, 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
requires 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 supersedes
most of the prior revenue recognition guidance, including industry specific guidance. We had 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”). Topic 606 was effective for us beginning November 1, 2018 and we adopted it on that
date using the modified retrospective approach. Prior to the adoption of ASC 606, our revenues were already
recognized in the same manner as that required by ASC 606. Therefore, the adoption of ASC 606 did not have an
effect on our beginning retained earnings or our overall financial statements as of and for the twelve months ended
October 31, 2019.
In January 2017, 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
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 early adopted this standard in the fourth quarter of fiscal 2019. This standard did not have
a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.
Between February 2016 and February 2019, FASB issued ASU No. 2016-02, Leases (Topic 842), and various
related updates, which establish a comprehensive new lease accounting model. Topic 842 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. Under Topic 842, the income statement will reflect lease
expense for operating leases and amortization/interest expense for financing leases.
Topic 842 is effective for our fiscal year 2020, including interim periods within the fiscal year, and requires
modified retrospective application. We adopted Topic 842 on November 1, 2019 utilizing the transition method
allowed per ASU 2018-11, and accordingly, comparative period financial information will not be adjusted for the
effects of adopting Topic 842. No cumulative-effect adjustment was required to the opening balance of retained
earnings on the adoption date. We have substantially completed an assessment of the new standard’s impact and
determined the new standards will not have a material impact on our Condensed Consolidated Statements of
Income or Cash Flows; however, the estimated impact of adopting Topic 842 will result in the recognition of a
right-of-use (“ROU”) asset and lease liability on the Condensed Consolidated Balance Sheets subsequent to
October 31, 2019 in the range of approximately $12-14 million, based on the lease portfolio existing as of this
date. While the ROU asset will be classified as a noncurrent asset, approximately one-third of the lease liability
amount is expected to be classified as a current liability, with the remainder being classified as noncurrent.
73
We are also in the process of updating our systems, policies, and internal controls over financial reporting related
to the adoption of this standard.
Upon adoption of Topic 842, we utilized the following elections and practical expedients:
We have elected to combine non-lease components with lease components.
If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a
purchase option that is reasonably certain to be exercised, we have elected not to apply Topic 842
recognition requirements. Nonetheless, we intend to include leases of less than 12 months within the
updated footnote disclosures, if material.
We have elected not to use the portfolio method if we enter into a large number of leases in the same
month with the same terms and conditions.
As we have applied the new transition method allowed per ASU 2018-11, we have elected to not reassess
arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease,
the lease classification applied or to separate initial direct costs.
We have elected not to use hindsight in determining the lease term for lease contracts that have historically
been renewed or amended.
We have no significant lease agreements in place for which we are a lessor, and substantially all of our leases for
which we are a lessee are classified as operating leases under the guidance in Topic 840 as of October 31, 2019.
As such, due to the practical expedient election to not reassess lease classification, substantially all our leases will
continue to be classified as operating leases under Topic 842. When available, we will utilize the rate implicit in
the lease as the discount rate to determine the lease liability in accordance with Topic 842. However, if this rate
is not available, we will use our incremental borrowing rate as the discount rate, which is the rate, at inception of
the lease, we would incur to borrow over a similar term the funds needed to purchase the leased asset.
Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office
space, vehicles, material handling equipment utilized in our production and assembly facilities, laptops and other
information technology equipment, as well as other miscellaneous leased equipment. Most of the leased
production and assembly facilities have lease terms ranging from two to five years, although the terms and
conditions of our leases can vary significantly from lease to lease. We have assessed the specific terms and
conditions of each lease to determine the amount of the lease payments and the length of the lease term, which
includes the minimum period over which lease payments are required plus any renewal options that are both within
our control to exercise and reasonably certain of being exercised upon lease commencement. In determining
whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant factors to
determine if sufficient incentives exist as of lease commencement to conclude renewal is reasonably certain. There
are no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases
to which we are a party. In determining the lease liability, we utilize our incremental borrowing rate to discount
the future lease payments over the lease term to present value. As of October 31, 2019, the weighted-average
remaining term of our lease portfolio was approximately 3.1 years.
New Accounting Pronouncements:
In February 2018, FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow
a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting
from the Tax Reform Act that are stranded in accumulated other comprehensive income. This standard also
requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying
guidance that requires the effect of a change in tax laws or rates be included in income from continuing operations.
ASU 2018-02 will be effective for our fiscal year 2020, with the option to early adopt at any time prior to the
effective date. It must be applied either in the period of adoption or retrospectively to each period in which the
74
73
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. We are
currently assessing the impact this new accounting guidance will have on our consolidated financial statements
and disclosures.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities, which simplifies the application of hedge accounting and enables companies
to better portray the economics of their risk management activities in their financial statements. ASU 2017-12 is
effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified
retrospective application. Early adoption is permitted. We do not anticipate that the adoption of this new
accounting guidance will have a material impact on our consolidated financial statements and disclosures.
There have been no other significant changes in the Company’s critical accounting policies and estimates during
the fiscal year ended October 31, 2019.
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, 2019, 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, 2019 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.
Item 9B. OTHER INFORMATION
During the fourth quarter of fiscal 2019, 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 compares the cumulative 5-Year total return provided shareholders on Hurco Companies, Inc.'s
common stock relative to the cumulative total returns of the Russell 2000 index, the NASDAQ Global Select
index and two customized peer groups of sixteen companies and eighteen companies respectively, whose
individual companies are listed in footnotes (1) and (2) below. An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in our common stock, in each index and in each of the peer groups on
10/31/2014 and its relative performance is tracked through 10/31/2019.
(1.) There are sixteen companies included in the company's first customized peer group which are: Ampco-
Pittsburgh Corporation, DMC Global Inc., Douglas Dynamics Inc., The Eastern Company, FARO
Technologies Inc., Graham Corporation, Kadant Inc., Key Tronic Corporation, The L. S. Starrett Company,
Novanta Inc., Onto Innovation Inc., PDF Solutions Inc., Proto Labs Inc., QAD Inc., Helios Technologies
and Transcat Inc.
(2.) The eighteen companies included in the company's second customized peer group are: Ampco-Pittsburgh
Corporation, DMC Global Inc., Douglas Dynamics Inc., The Eastern Company, FARO Technologies Inc.,
Graham Corporation, IEC Electronics Corp, Kadant Inc., Key Tronic Corporation, The L. S. Starrett
Company, Novanta Inc., Onto Innovation Inc., Proto Labs Inc., QAD Inc., Helios Technologies, Transcat
Inc., Twin Disc Incorporated and Vishay Precision Group Inc.
75
74
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
HURCO COMPANIES, INC.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. We are
currently assessing the impact this new accounting guidance will have on our consolidated financial statements
None.
and disclosures.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities, which simplifies the application of hedge accounting and enables companies
to better portray the economics of their risk management activities in their financial statements. ASU 2017-12 is
effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified
retrospective application. Early adoption is permitted. We do not anticipate that the adoption of this new
accounting guidance will have a material impact on our consolidated financial statements and disclosures.
There have been no other significant changes in the Company’s critical accounting policies and estimates during
the fiscal year ended October 31, 2019.
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, 2019, 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, 2019 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.
Item 9B. OTHER INFORMATION
During the fourth quarter of fiscal 2019, 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 compares the cumulative 5-Year total return provided shareholders on Hurco Companies, Inc.'s
common stock relative to the cumulative total returns of the Russell 2000 index, the NASDAQ Global Select
index and two customized peer groups of sixteen companies and eighteen companies respectively, whose
individual companies are listed in footnotes (1) and (2) below. An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in our common stock, in each index and in each of the peer groups on
10/31/2014 and its relative performance is tracked through 10/31/2019.
(1.) There are sixteen companies included in the company's first customized peer group which are: Ampco-
Pittsburgh Corporation, DMC Global Inc., Douglas Dynamics Inc., The Eastern Company, FARO
Technologies Inc., Graham Corporation, Kadant Inc., Key Tronic Corporation, The L. S. Starrett Company,
Novanta Inc., Onto Innovation Inc., PDF Solutions Inc., Proto Labs Inc., QAD Inc., Helios Technologies
and Transcat Inc.
(2.) The eighteen companies included in the company's second customized peer group are: Ampco-Pittsburgh
Corporation, DMC Global Inc., Douglas Dynamics Inc., The Eastern Company, FARO Technologies Inc.,
Graham Corporation, IEC Electronics Corp, Kadant Inc., Key Tronic Corporation, The L. S. Starrett
Company, Novanta Inc., Onto Innovation Inc., Proto Labs Inc., QAD Inc., Helios Technologies, Transcat
Inc., Twin Disc Incorporated and Vishay Precision Group Inc.
75
76
75
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index, the NASDAQ Global Select Index,
Among Hurco Companies, Inc., the Russell 2000 Index, the NASDAQ Global Select Index,
2018 Peer Group and 2019 Peer Group
2018 Peer Group and 2019 Peer Group
$250
$250
$200
$200
$150
$150
$100
$100
$50
$50
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2020 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
2020 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
2020 annual meeting of shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2020 annual meeting of shareholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
$0
10/14
$0
10/14
10/15
10/15
10/16
10/16
10/17
10/17
10/18
10/19
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
10/18
10/19
2020 annual meeting of shareholders.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2018 Peer Group
Hurco Companies, Inc.
2019 Peer Group
Russell 2000
NASDAQ Global Select
2018 Peer Group
*$100 invested on 10/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Copyright© 2019 Russell Investment Group. All rights reserved.
2019 Peer Group
*$100 invested on 10/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Copyright© 2019 Russell Investment Group. All rights reserved.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2018 Peer Group
2019 Peer Group
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2018 Peer Group
2019 Peer Group
10/18
110.40
136.03
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
165.15
170.92
173.26
10/17
120.10
133.55
152.31
157.48
156.15
77
10/14
100.00
100.00
100.00
10/14
100.00
100.00
100.00
100.00
100.00
100.00
100.00
10/15
70.42
100.34
111.34
10/15
86.15
70.42
84.22
100.34
111.34
86.15
84.22
10/16
69.50
104.46
116.14
10/16
92.58
69.50
87.15
104.46
116.14
92.58
87.15
10/17
120.10
133.55
152.31
157.48
156.15
10/18
110.40
136.03
165.15
170.92
173.26
10/19
95.52
142.70
190.82
180.56
178.25
10/19
95.52
142.70
190.82
180.56
178.25
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
77
76
78
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index, the NASDAQ Global Select Index,
2018 Peer Group and 2019 Peer Group
$250
$200
$150
$100
$50
$0
10/14
10/15
10/16
10/17
10/18
10/19
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2018 Peer Group
2019 Peer Group
*$100 invested on 10/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Copyright© 2019 Russell Investment Group. All rights reserved.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2018 Peer Group
2019 Peer Group
10/14
100.00
100.00
100.00
100.00
100.00
10/15
70.42
100.34
111.34
86.15
84.22
10/16
69.50
104.46
116.14
92.58
87.15
10/17
120.10
133.55
152.31
157.48
156.15
10/18
110.40
136.03
165.15
170.92
173.26
10/19
95.52
142.70
190.82
180.56
178.25
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
77
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2020 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
2020 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
2020 annual meeting of shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2020 annual meeting of shareholders.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2020 annual meeting of shareholders.
78
77
PART IV
(b) Exhibits
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS INDEX
(a) 1. Financial Statements. The following consolidated financial statements of the Company are included
herein under Item 8 of Part II:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income – years ended
October 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income – years ended
October 31, 2019, 2018 and 2017
Consolidated Balance Sheets – as of October 31, 2019 and 2018
Consolidated Statements of Cash Flows – years
ended October 31, 2019, 2018 and 2017
Consolidated Statements of Changes in Shareholders’ Equity –
years ended October 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
41
44
45
46
47
48
49
2. Financial Statement Schedule. The following financial statement schedule is included in this Item.
Schedule II - Valuation and Qualifying Accounts and Reserves
for the Years Ended October 31, 2019, 2018 and 2017
(Dollars in thousands)
Balance at
Beginning
of Period
Charged to/
(Recovered
from)
Costs and
Expenses
Charged
to Other
Accounts
Deductions
Balance
at End
of Period
Description
Allowance for doubtful
accounts for the year ended:
October 31, 2019
$ 1,027
$ (136)
$ --
$ -- (1)
$ 891
2016.
October 31, 2018
$ 639
$ 394
$ --
$ 6 (1)
$ 1,027
October 31, 2017
$ 664
$ 46
$ --
$ 71 (1)
$ 639
Income tax valuation
allowance for the year
ended:
October 31, 2019
$ 2,106
$ 458
$ --
$ 337
$ 2,227
October 31, 2018
$ 2,282
$ 253
$ --
$ 429
$ 2,106
October 31, 2017
$ 2,067
$ 515
$ --
$ 300
$ 2,282
(1) Receivable write-offs.
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.
79
78
Exhibits Filed. The following exhibits are filed with this report:
Description of the Company’s Common Stock.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, RSM US LLP.
Certification by the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and
Exchange Act of 1934, as amended.
Exchange Act of 1934, as amended.
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
2002.
4.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:
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*
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.
10.2*
Form of Restricted Stock Agreement (Director) under the 2016 Equity Incentive Plan, incorporated
herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 10,
10.3*
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
10.4*
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
quarter ended January 31, 2017.
the quarter ended January 31, 2017.
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*
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.
filed March 16, 2012.
filed March 16, 2012.
10.7*
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
10.8*
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
10.9*
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.
80
PART IV
(b) Exhibits
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS INDEX
(a) 1. Financial Statements. The following consolidated financial statements of the Company are included
herein under Item 8 of Part II:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income – years ended
October 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income – years ended
October 31, 2019, 2018 and 2017
Consolidated Balance Sheets – as of October 31, 2019 and 2018
Consolidated Statements of Cash Flows – years
ended October 31, 2019, 2018 and 2017
Consolidated Statements of Changes in Shareholders’ Equity –
years ended October 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
41
44
45
46
47
48
49
2. Financial Statement Schedule. The following financial statement schedule is included in this Item.
Schedule II - Valuation and Qualifying Accounts and Reserves
for the Years Ended October 31, 2019, 2018 and 2017
(Dollars in thousands)
Balance at
Beginning
of Period
Charged to/
(Recovered
from)
Costs and
Expenses
Charged
to Other
Accounts
Deductions
Balance
at End
of Period
October 31, 2019
$ 1,027
$ (136)
$ --
$ -- (1)
$ 891
October 31, 2018
$ 639
$ 394
$ --
$ 6 (1)
$ 1,027
October 31, 2017
$ 664
$ 46
$ --
$ 71 (1)
$ 639
Description
Allowance for doubtful
accounts for the year ended:
Income tax valuation
allowance for the year
ended:
October 31, 2019
$ 2,106
$ 458
$ --
$ 337
$ 2,227
October 31, 2018
$ 2,282
$ 253
$ --
$ 429
$ 2,106
October 31, 2017
$ 2,067
$ 515
$ --
$ 300
$ 2,282
(1) Receivable write-offs.
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.
79
Exhibits Filed. The following exhibits are filed with this report:
4.1
21.1
23.1
31.1
Description of the Company’s Common Stock.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, RSM US 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.
31.2
32.1
32.2
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:
3.1
3.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
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.
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.
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 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.
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.
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 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.
80
79
10.10*
10.11
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.
Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V.,
as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A.,
as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form
10-K for the year ended October 31, 2018.
*
The indicated exhibit is a management contract, compensatory plan or arrangement required to be
listed by Item 601 of Regulation S-K.
SIGNATURES
January, 2020.
Item 16. FORM 10-K SUMMARY
None.
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 3rd day of
HURCO COMPANIES, INC.
By: /s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and
Chief Financial Officer
81
80
82
10.10*
Form of restated split-dollar insurance agreement, incorporated by reference to Exhibit 10.2 to the
SIGNATURES
Registrant’s Annual Report on Form 10-K for the year ended October 31, 2008.
10.11
Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V.,
as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A.,
as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form
10-K for the year ended October 31, 2018.
*
The indicated exhibit is a management contract, compensatory plan or arrangement required to be
listed by Item 601 of Regulation S-K.
Item 16. FORM 10-K SUMMARY
None.
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 3rd day of
January, 2020.
HURCO COMPANIES, INC.
By: /s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and
Chief Financial Officer
81
82
81
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
Exhibit 4.1
DESCRIPTION OF HURCO COMPANIES, INC.’S
COMMON STOCK
/s/ Michael Doar
Michael Doar, Chairman and
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/ Cynthia Dubin
Cynthia Dubin, 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/ Gregory Volovic
Gregory Volovic, Director
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
83
82
The following is a description of the common stock, no par value (the “Common Stock”), of Hurco Companies,
Inc. (the “Company”), which is the only security of the Company registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
General
The Company is authorized to issue up to 12,500,000 shares of Common Stock. As of December 31, 2019, the
Company had 6,770,233 shares of Common Stock outstanding.
The following description summarizes selected information regarding the Common Stock, as well as relevant
provisions of (i) the Company’s Amended and Restated Articles of Incorporation, as currently in effect (the
“Articles”), (ii) the Company’s Amended and Restated By-Laws, as currently in effect (the “By-Laws”), and (iii)
the Indiana Business Corporation Law (the “IBCL”). The following summary description of the Common Stock
of the Company is qualified in its entirety by reference to the provisions of the Company’s Articles and By-Laws,
copies of which have been filed as exhibits to the Company’s periodic reports under the Exchange Act, and the
applicable provisions of the IBCL.
Common Stock
Voting Rights. The holders of shares of Common Stock are entitled to one vote per share on all matters submitted
to shareholders for a vote. The holders of shares of Common Stock do not have cumulative voting rights with
respect to the election of directors or any other matter.
Dividend Rights. Subject to preferences to which holders of any preferred stock of the Company may be entitled,
the holders of shares of Common Stock are entitled to receive such dividends as may be declared from time to
time by the Board of Directors, in its discretion, from any assets legally available therefor.
Liquidation Rights. Subject to the prior payment or provision for payment of the debts and other liabilities of the
Company and any preferential amounts to be distributed to holders of any preferred stock of the Company, in the
event of any liquidation, dissolution or winding up of the Company, the holders of shares of Common Stock shall
be entitled to share ratably in the remaining net assets of the Company.
Other Rights and Preferences. The holders of shares of Common Stock have no preemptive rights to subscribe to
or purchase any shares of Common Stock or other Company securities. There are no redemption, sinking fund or
conversion provisions applicable to the Common Stock. The holders of shares of Common Stock are not subject
to further calls or assessments by the Company.
Transfer Agent and Registrar. The transfer agent and registrar for the Common Stock is Computershare Trust
Company, N.A.
Listing. The Common Stock is traded on the Nasdaq Global Select Market under the symbol “HURC.”
Anti-Takeover Effects of Provisions of the Company’s Articles, By-Laws and the IBCL
Under certain circumstances, certain provisions of the IBCL, the Company’s Articles and the Company’s By-
Laws may render more difficult, or may discourage, a merger, a tender offer, a proxy contest, the assumption of
control of the Company by a holder of a large block of the Common Stock or other person, or the removal of
incumbent management, even if such actions may be beneficial to the Company’s shareholders generally.
84
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
Exhibit 4.1
DESCRIPTION OF HURCO COMPANIES, INC.’S
COMMON STOCK
/s/ Michael Doar
Michael Doar, Chairman and
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/ Cynthia Dubin
Cynthia Dubin, 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/ Gregory Volovic
Gregory Volovic, Director
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
January 3, 2020
83
The following is a description of the common stock, no par value (the “Common Stock”), of Hurco Companies,
Inc. (the “Company”), which is the only security of the Company registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
General
The Company is authorized to issue up to 12,500,000 shares of Common Stock. As of December 31, 2019, the
Company had 6,770,233 shares of Common Stock outstanding.
The following description summarizes selected information regarding the Common Stock, as well as relevant
provisions of (i) the Company’s Amended and Restated Articles of Incorporation, as currently in effect (the
“Articles”), (ii) the Company’s Amended and Restated By-Laws, as currently in effect (the “By-Laws”), and (iii)
the Indiana Business Corporation Law (the “IBCL”). The following summary description of the Common Stock
of the Company is qualified in its entirety by reference to the provisions of the Company’s Articles and By-Laws,
copies of which have been filed as exhibits to the Company’s periodic reports under the Exchange Act, and the
applicable provisions of the IBCL.
Common Stock
Voting Rights. The holders of shares of Common Stock are entitled to one vote per share on all matters submitted
to shareholders for a vote. The holders of shares of Common Stock do not have cumulative voting rights with
respect to the election of directors or any other matter.
Dividend Rights. Subject to preferences to which holders of any preferred stock of the Company may be entitled,
the holders of shares of Common Stock are entitled to receive such dividends as may be declared from time to
time by the Board of Directors, in its discretion, from any assets legally available therefor.
Liquidation Rights. Subject to the prior payment or provision for payment of the debts and other liabilities of the
Company and any preferential amounts to be distributed to holders of any preferred stock of the Company, in the
event of any liquidation, dissolution or winding up of the Company, the holders of shares of Common Stock shall
be entitled to share ratably in the remaining net assets of the Company.
Other Rights and Preferences. The holders of shares of Common Stock have no preemptive rights to subscribe to
or purchase any shares of Common Stock or other Company securities. There are no redemption, sinking fund or
conversion provisions applicable to the Common Stock. The holders of shares of Common Stock are not subject
to further calls or assessments by the Company.
Transfer Agent and Registrar. The transfer agent and registrar for the Common Stock is Computershare Trust
Company, N.A.
Listing. The Common Stock is traded on the Nasdaq Global Select Market under the symbol “HURC.”
Anti-Takeover Effects of Provisions of the Company’s Articles, By-Laws and the IBCL
Under certain circumstances, certain provisions of the IBCL, the Company’s Articles and the Company’s By-
Laws may render more difficult, or may discourage, a merger, a tender offer, a proxy contest, the assumption of
control of the Company by a holder of a large block of the Common Stock or other person, or the removal of
incumbent management, even if such actions may be beneficial to the Company’s shareholders generally.
84
83
Meetings of Shareholders. Under Chapter 29 of the IBCL and the Company’s Articles, any action required to be
taken by the Company’s shareholders may be effected only at an annual meeting or special meeting of
shareholders, and shareholders may act in lieu of such meetings only by unanimous written consent. The
Company’s By-Laws provide that special meetings of shareholders may be called by the Company’s Board of
Directors or President, or by the holders of a majority of all the votes entitled to be cast on any issue proposed to
be considered at the proposed special meeting.
The Company’s By-Laws also establish an advance notice procedure for the nomination, other than by or at the
direction of the Company’s Board of Directors, of persons for election as directors as well as for other shareholder
proposals to be considered at annual meetings of shareholders. In general, notice of intent to nominate a director
or raise business at such meetings must be delivered to the Company by a shareholder not less than 60 days prior
to such meeting. Such notice must contain certain specified information concerning the person to be nominated
and the shareholder submitting the proposal.
Amendment of By-Laws. The Company’s Articles and By-Laws provide that the Company’s Board of Directors
has the exclusive authority to make, alter, amend or repeal the Company’s By-Laws.
Special Transactions. The Company’s Articles require the affirmative vote of the holders of not less than three-
fourths of the outstanding shares of Common Stock for certain proposed transactions, including, but not limited
to: (i) the merger or consolidation of the Company and a “related corporation”; (ii) the sale or exchange of all or
substantially all of the Company’s assets or business to or with a related corporation; (iii) the issue or delivery of
Common Stock or any other Company securities in exchange or payment for property, assets or securities of a
related corporation; and (iv) the merger of any of the Company’s affiliates with or into a related corporation or
any of its affiliates.
For purposes of the above provisions, the below definitions shall apply:
(a) “affiliate” means any person (including a corporation, partnership, trust, estate or individual) who, directly
or indirectly, controls, is controlled by, or is under common control with the person specified; and
(b) “related corporation” means a corporation or entity or any of its affiliates, singly or in the aggregate, that
are beneficial owners, directly or indirectly, of more than 5% of the total outstanding shares of Common
Stock.
The foregoing requirements shall not apply to any transaction that has been (i) approved by resolution of the Board
of Directors adopted by the affirmative vote of not less than two-thirds of the then authorized number of directors;
or (ii) approved by resolution of the Board of Directors prior to the acquisition of the beneficial ownership of more
than 5% of the total voting power of all outstanding shares of Common Stock by such related corporation and its
affiliates.
Control Share Acquisitions. Under Chapter 42 of the IBCL, an acquiring person or group who makes a “control
share acquisition” in an “issuing public corporation” may not exercise voting rights on any “control shares” unless
these voting rights are conferred by a majority vote of the disinterested shareholders of the issuing public
corporation at a special meeting of those shareholders held upon the request and at the expense of the acquiring
person. If control shares acquired in a control share acquisition are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of all voting power, all shareholders of the issuing
public corporation have dissenters’ rights to receive the fair value of their shares pursuant to Chapter 44 of the
IBCL.
For purposes of Chapter 42 of the IBCL, the below definitions shall apply:
(a) “control share acquisition” means, subject to specified exceptions, the acquisition, directly or indirectly,
by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued
and outstanding control shares. For the purposes of determining whether an acquisition constitutes a
control share acquisition, shares acquired within 90 days or under a plan to make a control share
acquisition are considered to have been acquired in the same acquisition;
(b) “control shares” means shares acquired by a person that, when added to all other shares of the issuing
public corporation owned by that person or in respect to which that person may exercise or direct the
exercise of voting power, would otherwise entitle that person to exercise voting power of the issuing
public corporation in the election of directors within any of the following ranges: (i) one-fifth or more but
less than one-third; (ii) one-third or more but less than a majority; or (iii) a majority or more; and
(c) “issuing public corporation” means a corporation which has (i) 100 or more shareholders, (ii) its principal
place of business or its principal office in Indiana, or that owns or controls assets within Indiana having a
fair market value of greater than $1,000,000, and (iii) (A) more than 10% of its shareholders resident in
Indiana, (B) more than 10% of its shares owned of record or owned beneficially by Indiana residents, or
(C) 1,000 shareholders resident in Indiana.
The above provisions do not apply if, before a control share acquisition is made, an Indiana corporation’s articles
of incorporation or by-laws, including a by-law adopted by the Indiana corporation’s board of directors, provide
that they do not apply. The Company’s Articles and By-Laws do not exclude the Company from these provisions.
Certain Business Combinations. Chapter 43 of the IBCL restricts the ability of a “resident domestic corporation”
to engage in any business combinations with an “interested shareholder” for five years after the date the interested
shareholder became such, unless the business combination or the purchase of shares by the interested shareholder
on the interested shareholder’s share acquisition date is approved by the board of directors of the resident domestic
corporation before the interested shareholder’s share acquisition date. If such prior approval is not obtained, the
interested shareholder may effect a business combination after the five-year period only if such shareholder
receives approval from a majority of the disinterested shareholders or the offer meets specified fair price criteria.
For purposes of Chapter 43 of the IBCL, the below definitions shall apply:
(a) “beneficial owner” means a person who, directly or indirectly, owns the subject shares, has the right to
acquire or vote the subject shares (excluding voting rights under revocable proxies made in accordance
with federal law), has any agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of the subject shares, or holds any derivative instrument that includes the opportunity
to profit or share in any profit derived from any increase in the value of the subject shares;
(b) “interested shareholder” means any person, other than the resident domestic corporation or its
subsidiaries, that is (i) the beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding voting shares of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation, which at any time within the five-year period immediately before the date
in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the
then outstanding shares of the resident domestic corporation; and
(c) “resident domestic corporation” means an Indiana corporation that has 100 or more shareholders.
The above provisions do not apply to corporations that elect not to be subject to Chapter 43 of the IBCL in an
amendment to their articles of incorporation approved by a majority of the disinterested shareholders. That
amendment, however, cannot become effective until 18 months after its passage and would apply only to share
85
84
86
Meetings of Shareholders. Under Chapter 29 of the IBCL and the Company’s Articles, any action required to be
taken by the Company’s shareholders may be effected only at an annual meeting or special meeting of
shareholders, and shareholders may act in lieu of such meetings only by unanimous written consent. The
Company’s By-Laws provide that special meetings of shareholders may be called by the Company’s Board of
Directors or President, or by the holders of a majority of all the votes entitled to be cast on any issue proposed to
be considered at the proposed special meeting.
The Company’s By-Laws also establish an advance notice procedure for the nomination, other than by or at the
direction of the Company’s Board of Directors, of persons for election as directors as well as for other shareholder
proposals to be considered at annual meetings of shareholders. In general, notice of intent to nominate a director
or raise business at such meetings must be delivered to the Company by a shareholder not less than 60 days prior
to such meeting. Such notice must contain certain specified information concerning the person to be nominated
and the shareholder submitting the proposal.
Amendment of By-Laws. The Company’s Articles and By-Laws provide that the Company’s Board of Directors
has the exclusive authority to make, alter, amend or repeal the Company’s By-Laws.
Special Transactions. The Company’s Articles require the affirmative vote of the holders of not less than three-
fourths of the outstanding shares of Common Stock for certain proposed transactions, including, but not limited
to: (i) the merger or consolidation of the Company and a “related corporation”; (ii) the sale or exchange of all or
substantially all of the Company’s assets or business to or with a related corporation; (iii) the issue or delivery of
Common Stock or any other Company securities in exchange or payment for property, assets or securities of a
related corporation; and (iv) the merger of any of the Company’s affiliates with or into a related corporation or
any of its affiliates.
For purposes of the above provisions, the below definitions shall apply:
(a) “affiliate” means any person (including a corporation, partnership, trust, estate or individual) who, directly
or indirectly, controls, is controlled by, or is under common control with the person specified; and
Stock.
affiliates.
The foregoing requirements shall not apply to any transaction that has been (i) approved by resolution of the Board
of Directors adopted by the affirmative vote of not less than two-thirds of the then authorized number of directors;
or (ii) approved by resolution of the Board of Directors prior to the acquisition of the beneficial ownership of more
than 5% of the total voting power of all outstanding shares of Common Stock by such related corporation and its
Control Share Acquisitions. Under Chapter 42 of the IBCL, an acquiring person or group who makes a “control
share acquisition” in an “issuing public corporation” may not exercise voting rights on any “control shares” unless
these voting rights are conferred by a majority vote of the disinterested shareholders of the issuing public
corporation at a special meeting of those shareholders held upon the request and at the expense of the acquiring
person. If control shares acquired in a control share acquisition are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of all voting power, all shareholders of the issuing
public corporation have dissenters’ rights to receive the fair value of their shares pursuant to Chapter 44 of the
IBCL.
For purposes of Chapter 42 of the IBCL, the below definitions shall apply:
(a) “control share acquisition” means, subject to specified exceptions, the acquisition, directly or indirectly,
by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued
and outstanding control shares. For the purposes of determining whether an acquisition constitutes a
control share acquisition, shares acquired within 90 days or under a plan to make a control share
acquisition are considered to have been acquired in the same acquisition;
(b) “control shares” means shares acquired by a person that, when added to all other shares of the issuing
public corporation owned by that person or in respect to which that person may exercise or direct the
exercise of voting power, would otherwise entitle that person to exercise voting power of the issuing
public corporation in the election of directors within any of the following ranges: (i) one-fifth or more but
less than one-third; (ii) one-third or more but less than a majority; or (iii) a majority or more; and
(c) “issuing public corporation” means a corporation which has (i) 100 or more shareholders, (ii) its principal
place of business or its principal office in Indiana, or that owns or controls assets within Indiana having a
fair market value of greater than $1,000,000, and (iii) (A) more than 10% of its shareholders resident in
Indiana, (B) more than 10% of its shares owned of record or owned beneficially by Indiana residents, or
(C) 1,000 shareholders resident in Indiana.
The above provisions do not apply if, before a control share acquisition is made, an Indiana corporation’s articles
of incorporation or by-laws, including a by-law adopted by the Indiana corporation’s board of directors, provide
that they do not apply. The Company’s Articles and By-Laws do not exclude the Company from these provisions.
Certain Business Combinations. Chapter 43 of the IBCL restricts the ability of a “resident domestic corporation”
to engage in any business combinations with an “interested shareholder” for five years after the date the interested
shareholder became such, unless the business combination or the purchase of shares by the interested shareholder
on the interested shareholder’s share acquisition date is approved by the board of directors of the resident domestic
corporation before the interested shareholder’s share acquisition date. If such prior approval is not obtained, the
interested shareholder may effect a business combination after the five-year period only if such shareholder
receives approval from a majority of the disinterested shareholders or the offer meets specified fair price criteria.
(b) “related corporation” means a corporation or entity or any of its affiliates, singly or in the aggregate, that
are beneficial owners, directly or indirectly, of more than 5% of the total outstanding shares of Common
For purposes of Chapter 43 of the IBCL, the below definitions shall apply:
(a) “beneficial owner” means a person who, directly or indirectly, owns the subject shares, has the right to
acquire or vote the subject shares (excluding voting rights under revocable proxies made in accordance
with federal law), has any agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of the subject shares, or holds any derivative instrument that includes the opportunity
to profit or share in any profit derived from any increase in the value of the subject shares;
(b) “interested shareholder” means any person, other than the resident domestic corporation or its
subsidiaries, that is (i) the beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding voting shares of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation, which at any time within the five-year period immediately before the date
in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the
then outstanding shares of the resident domestic corporation; and
(c) “resident domestic corporation” means an Indiana corporation that has 100 or more shareholders.
The above provisions do not apply to corporations that elect not to be subject to Chapter 43 of the IBCL in an
amendment to their articles of incorporation approved by a majority of the disinterested shareholders. That
amendment, however, cannot become effective until 18 months after its passage and would apply only to share
85
86
85
acquisitions occurring after its effective date. The Company’s Articles do not exclude the Company from Chapter
43 of the IBCL.
Mandatory Classified Board of Directors. Under Chapter 33 of the IBCL, an Indiana corporation with a class of
voting shares registered with the U.S. Securities and Exchange Commission under Section 12 of the Exchange
Act must have a classified board of directors unless the Indiana corporation adopts a by-law expressly electing
not to be governed by this provision. The Company’s By-Laws contain a provision electing not to be subject to
this mandatory requirement.
Exhibit 21.1
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.
Italy
Machinery Sales Co.
Milltronics USA, Inc.
Ningbo Hurco Machine Tool Co., Ltd.
China
Jurisdiction of Incorporation
The Netherlands
United Kingdom
Federal Republic of Germany
India
Taiwan R.O.C.
France
Italy
Singapore
United States
United States
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, 2019.
87
86
88
acquisitions occurring after its effective date. The Company’s Articles do not exclude the Company from Chapter
Exhibit 21.1
43 of the IBCL.
SUBSIDIARIES OF THE REGISTRANT
Mandatory Classified Board of Directors. Under Chapter 33 of the IBCL, an Indiana corporation with a class of
voting shares registered with the U.S. Securities and Exchange Commission under Section 12 of the Exchange
Act must have a classified board of directors unless the Indiana corporation adopts a by-law expressly electing
not to be governed by this provision. The Company’s By-Laws contain a provision electing not to be subject to
this mandatory requirement.
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.
Machinery Sales Co.
Milltronics USA, Inc.
Ningbo Hurco Machine Tool Co., Ltd.
Jurisdiction of Incorporation
The Netherlands
United Kingdom
Federal Republic of Germany
India
Taiwan R.O.C.
France
Italy
Singapore
Italy
United States
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, 2019.
87
88
87
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement (No. 333-48204, 333-126036, 333-
149809 and 333-210072) on Form S-8 of Hurco Companies, Inc. of our reports dated January 3, 2020, relating to
the consolidated financial statements, the financial statement schedule and the effectiveness of internal control
over financial reporting of Hurco Companies, Inc. appearing in this Annual Report on Form 10-K of Hurco
Companies, Inc. for the year ended October 31, 2019.
/s/ RSM US LLP
Indianapolis, Indiana
January 3, 2020
Exhibit 31.1
ACT OF 1934, AS AMENDED
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
January 3, 2020
Chairman and Chief Executive Officer
89
88
90
Exhibit 23.1
Exhibit 31.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
We consent to the incorporation by reference in the Registration Statement (No. 333-48204, 333-126036, 333-
149809 and 333-210072) on Form S-8 of Hurco Companies, Inc. of our reports dated January 3, 2020, relating to
the consolidated financial statements, the financial statement schedule and the effectiveness of internal control
over financial reporting of Hurco Companies, Inc. appearing in this Annual Report on Form 10-K of Hurco
Companies, Inc. for the year ended October 31, 2019.
/s/ RSM US LLP
Indianapolis, Indiana
January 3, 2020
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 3, 2020
89
90
89
Exhibit 31.2
Exhibit 32.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the
year ended October 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Michael Doar
Michael Doar
January 3, 2020
Chairman and Chief Executive Officer
I, Sonja K McClelland, certify that:
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and
internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)]
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
January 3, 2020
91
90
92
Exhibit 31.2
Exhibit 32.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the
year ended October 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Michael Doar
Michael Doar
Chairman and Chief Executive Officer
January 3, 2020
I, Sonja K McClelland, certify that:
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and
internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)]
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
/s/ Sonja K. McClelland
Sonja K. McClelland
January 3, 2020
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
91
92
91
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the
year ended October 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
January 3, 2020
93
92
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the
year ended October 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Sonja K. McClelland
Sonja K. McClelland
January 3, 2020
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
GLOBAL LOCATIONS
Hurco Europe Ltd. (United Kingdom)
Serving the United Kingdom, Ireland,
Africa, the Middle East, and Scandinavia
Hurco GmbH (Germany)
Serving Germany, Austria, Belarus,
Bosnia-Herzegovina, Bulgaria, Croatia, the Czech
Republic, Hungary, Latvia, Lithuania, Mazedonia,
Montenegro, the Netherlands, Portugal, Romania, Russia,
Serbia, Slovakia, Slovenia, Switzerland, Turkey, and Ukraine
Hurco B.V.
(The Netherlands)
Hurco Sp. z o.o.
(Poland)
Hurco India Private Ltd.
Serving India,
Pakistan,
Bangladesh, and
Sri Lanka
Ningbo Hurco Trading Co.,
Ltd. (Shanghai, China)
Ningbo Hurco Machine
Tool Co., Ltd.
(Ningbo, China)
Takumi (Taiwan)
Hurco (S.E. Asia) Pte. Ltd. (Singapore)
Serving Singapore, Malaysia,
Thailand, Australia, New Zealand,
Philippines, Indonesia, and Myanmar
Hurco Manufacturing Ltd. (Taiwan)
Hurco Automation Ltd. (Taiwan)
Hurco Manufacturing Limited is responsible
for the manufacturing and assembly of Hurco
machine tools.
Hurco Automation Limited is responsible
for the manufacturing and assembly of Hurco
controls.
Milltronics USA (Waconia, Minnesota, USA)
ProCobots
(Rostraver Township, PA, USA)
Hurco Companies, Inc.
Hurco North America (Indianapolis, Indiana, USA)
Serving the USA, Canada, Mexico, and South America
Takumi USA (Indianapolis, Indiana, USA)
Serving the USA
Hurco S.a.r.l. (France)
Serving France and
Belgium (Wallonia)
Hurco S.r.l. (Italy)
LCM Precision Technology S.r.l. (Italy)
93
One Technology Way | PO Box 68180 | Indianapolis, IN 46268
800.634.2416 | Hurco.com/Investors
P
r
i
n
t
e
d
i
n
t
h
e
U
S
A
.
H
P
G
1
.
2
M
C
0
4
9
S
K
U
:
0
0
1
C
S
N
4
0
A
B