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R E S I L I E N T .
E S S E N T I A L .
D E D I C A T E D .
M I N D O V E R M E T A L
Hurco Companies, Inc.
Michael Doar
Chairman and Chief Executive Officer
Sonja McClelland
Executive Vice President, Secretary, Treasurer, and
Chief Financial Officer
Gregory S. Volovic
President and Chief Operating Officer
Hurco Companies, Inc.
REPORT TO SHAREHOLDERS
2020 Overview
Summarizing a year like 2020 is difficult, at best. While we are
responsible for reporting on financial metrics, a global pandemic
stretches beyond dollars and cents. We appreciate the millions
of essential workers around the world who met the challenge
of COVID-19. As individuals and as a company, we acknowledge
and admire the sacrifice, dedication, and tireless efforts of our
frontline workers.
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. Customers rely on our technology to simplify complex
processes due to the user-friendly attributes of our products.
Additionally, we appreciate our customers, not only for their
loyalty and support, but for the part they have played as essential
businesses retooling to help the cause—manufacturing critical
infrastructure and components to alleviate shortages in supplies.
Profitability
For fiscal 2020, Hurco reported a net loss of $6,247,000, or $(0.93)
per diluted share, compared to net income of $17,495,000, or $2.55
per diluted share, for the corresponding period in fiscal 2019.
The extraordinary challenges of 2020 have reconfirmed that Hurco
is, indeed, resilient, dedicated, and essential. With an understanding
that we can only control our response to external factors, we
focus on preparedness and strategic planning. Hurco has three
critical attributes that allow us to be successful in our response to
external factors—even a global pandemic: decades of experience
in this highly cyclical industry; a history of financial discipline and a
pragmatic approach to expenses; and seasoned strategic planning
processes that afford us the agility to pivot and adapt quickly. It
might sound old fashioned, especially for a tech company, but we
prepare for rainy days while we simultaneously innovate for the
future. Our preparedness promotes continuous innovation, which is
the lifeblood of any tech company, whether industrial or consumer.
As a global company, we responded to varying degrees of business
disruption due to COVID-19. However, these pervasive characteristics
of Hurco allowed us to continue our product development and
technology innovation plans all while executing our charge to serve
our customers.
Our Customers
During this unprecedented global pandemic, we saw scores of
customers quickly pivot and convert their manufacturing to much
needed components for medical devices, such as respirators,
masks, filters, and critical
infrastructure. Boyce Technologies,
a Hurco customer in New York who primarily makes life safety
communications and security systems for the mass transit systems
and advanced urban technology systems, is one such example. In
just 30 days, Boyce Technologies designed, developed, gained FDA
approval, retooled, and mass produced ventilators.
When Charles Boyce, president and founder of Boyce Technologies
heard about the shortage of respirators in New York, he said, “I often
tell people we can build anything in this factory, and I started to realize
it was our turn to step up to the plate and solve this problem.” Solving
problems is exactly what Hurco customers do – each and every day.
Adaptability is always important, but during a crisis, adaptability
is essential. The CNC machines Hurco provides are equipped with
the type of control technology that promotes adaptability for our
customers, and we are proud to play a small part in helping them
successfully navigate an incredibly difficult year.
Core Competencies
Our core competencies include software and product innovation;
Sales and service fees for fiscal 2020 were $170,627,000, a decrease
of $92,750,000, or 35%, compared to the corresponding period in
fiscal 2019.
Even though this year was challenging, we are encouraged by
the growing demand we saw in the second half of the fiscal year,
particularly in Europe and Asia. While experience tells us the recovery
won’t be immediate, we know that our strong position will enable us
to capitalize on opportunities as global economies fight their way
back to normalcy.
Going Forward
The pandemic has forever changed the way we connect with
customers. The goal is to meet them where they are and when they
need us. With face-to-face meetings virtually eliminated during
2020, we quickly adapted to more fully leverage all digital channels to
stay connected. Hundreds of customers around the world attended
weekly online training sessions during shelter in place mandates.
While we all look forward to the time when we can routinely meet in
person again, our conversion to a broader communication footprint
will continue to serve us well.
While 2020 was a difficult year, we look ahead to 2021 with optimism
that our financial strength, preparedness, and product positioning
will make for a strong recovery. Hurco is well positioned to continue
its leadership in meaningful technology innovation that makes
manufacturing more efficient and our customers more profitable.
We remain focused on the return to profitability.
On behalf of everyone at Hurco, thank you to all of our customers
for choosing Hurco, Milltronics, and/or Takumi CNC machines.
Thank you to our shareholders for believing in Hurco. We also
want to acknowledge our Board of Directors for their counsel and
guidance, which was especially appreciated during a year of chronic
uncertainty. We are extremely fortunate to have energetic, resilient,
and industrious employees, and we appreciate their ingenuity,
adaptability, dedication to our customers, and commitment to
continuous improvement—all of which are critical to our success.
Michael Doar
Chairman and Chief Executive Officer
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.
MILLTRONICS – HASSLE-FREE CNC™
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.
RESILIENT. ESSENTIAL. DEDICATED. MIND OVER METAL.
TAKUMI – WHEN PRECISION MATTERS™
Takumi CNC machines are designed and built for high efficiency milling
and high level precision. Equipped with control systems made by third
parties, such as Fanuc ®, Siemens ®, Mitsubishi ®, and Heidenhain ®, the
Takumi brand includes six product lines.
LCM PRECISION TECHNOLOGY
LCM designs and manufactures advanced
components for machine tools, such as
rotary tables, tilt tables, swivel heads, and
electrospindles.
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.
HURCO COMPANIES, INC. LEADERSHIP
BOARD OF DIRECTORS
CORPORATE OFFICERS AND DIVISION EXECUTIVES
Michael Doar
Chairman and Chief Executive Officer
Gregory S. Volovic
President and Chief Operating Officer
Sonja K. McClelland
Executive Vice President, Secretary,
Treasurer, and Chief Financial Officer
Bruno Afonso
General Manager,
Milltronics Europe, B.V.
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)
Brian Knopp
General Manager, ProCobots
ANNUAL REPORT 2020
Wai Yip Lee
General Manager,
Hurco (S.E. Asia) Pte. Ltd. (Singapore)
Leanor Lin
Vice General Manager, Takumi (Taiwan)
Cory Miller
General Manager, Hurco North America
Louie Pavlakos
General Manager, Milltronics USA
Nicola La Vista
General Manager,
LCM Precision Technology S.r.l. (Italy)
David Waghorn
General Manager, Hurco Europe Limited
(United Kingdom)
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
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
2020
2019
High
Low
High
Low
January 31
$39.38
$31.25
$44.99
$31.96
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.
April 30
July 31
$33.89
$20.39
$44.05
$37.57
(A) in virtual meeting format only, via webcast. For details
$34.97
$24.06
$40.65
$33.49
please visit www.proxydocs.com/HURC.
October 31
$31.87
$27.51
$35.02
$31.07
There were approximately 102 holders of record of
Hurco Common Stock as of December 31, 2020.
Thomas Aaro
Marketing Consultant (1, 3)
Robert W. Cruickshank
Independent Business Consultant (1,3,4)
Michael Doar
Chairman and 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)
Richard Porter
Private Equity Manager (1, 2)
Janaki Sivanesan
Attorney, Sivanesan Law (2)
Gregory S. Volovic
President and Chief Operating Officer
Hurco Companies, Inc.
CORPORATE INFORMATION
ANNUAL MEETING
All shareholders are invited to attend
our annual meeting, which will be held on
Thursday, March 11, 2021, at 10:00 a.m.
Eastern Time.(A)
TRANSFER AGENT
Computershare Investor Services
150 Royall Street, Canton, MA 02021
LEGAL COUNSEL
Corporate Law: Faegre Drinker Biddle & Reath LLP
Patent Law: Faegre Drinker Biddle & Reath 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
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
2020
2019
$
170,627
$ 263,377
($ 9,862)
($ 6,247)
($
0.93)
$ 166,938
$
$
$
$
22,540
17,495
2.55
241,106
$ 200,974
$ 207,229
$
—
$
—
$ 231,148
$ 240,245
710
29.84
39.38
20.39
$
$
$
785
34.79
44.99
31.07
$
$
$
350
300
250
200
150
100
50
0
$300.7
$263.4
$170.6
2019
2018
Sales and Service Fees
(Millions)
2020
250
200
150
100
50
0
$240.2
$222.9
$231.1
2019
2018
Shareholders’ Equity
(Millions)
2020
25
20
15
10
5
0
-5
-10
$21.5
$17.5
2018
2019
Net Income (Loss)
(Millions)
2020
($6.3)
HURCO COMPANIES, INC. ELEVEN-YEAR
SELECTED FINANCIAL DATA
(In thousands except per share data and number of employees)
For the Fiscal Year Ended
Sales and service fees
Cost of sales and service
Selling, general, and administrative expenses
Goodwill impairment
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.
2020
$170,627
134,170
41,416
4,903
(9,862)
(941)
(10,803)
(4,556)
$(6,247)
6,670
6,670
$ (0.93)
$ (0.93)
1,656
4,547
(6,256)
21.4%
(5.8%)
(3.7%)
(2.7%)
$39.38
$20.39
$29.84
2020
$200,974
4.98
$295,655
—
231,148
0.0%
$34.65
$1.016
710
$0.51
2019
$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 2020
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
ANNUAL REPORT 2020
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
$ —
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
$ —
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
Hurco customer, Boyce Technologies, based out of Long Island City,
New York, has a fleet of Hurco CNC machines that are used for the
company’s core business: the design and manufacture of security
and communications equipment for the mass transit market. This
equipment includes emergency response systems, intercom systems,
security alarm systems, radio and wireless networks, and customer
information display systems. Boyce Technologies quickly pivoted to
help fight COVID-19 and was producing FDA approved bridge ventilators
within 30 days.
Image courtesy of Boyce Technologies.
Liberty Molds in Michigan answered the call to help with COVID-19
shortages when they received a request from Ford Motor
Company and 3M to help manufacture components for critically
important respirators. While Liberty Molds has a fleet of Hurco
CNC machines, they needed to add more capacity to meet the
accelerated lead times needed for the project. Of the 72-hour
turnaround time from order to delivery and installation of two
Hurco CNC machines, Liberty Molds President Brian Scott said, “We
ordered and they were put in place within 72 hours and we were
cutting steel on new molds. It was pretty impressive on Hurco’s
part… I was proud of them [Hurco]. They really stepped up.”
Image courtesy of Braun Machinery and Liberty Molds.
The IndyCar chassis division of Dallara, in Indianapolis, primarily uses
their Hurco CNC machines for R&D and prototyping, and small-scale
manufacturing. As an essential business, they were able to remain open during
the shelter in place order mandated by the state to mitigate COVID-19. Dallara
wanted to determine how they could best help with the supply shortage local
hospitals were facing. They connected with the medical community and
realized the cutting machines they use to cut carbon fiber could just as easily
tackle the necessary fabrics needed to make hospital gowns and masks. Thanks
to their dedication, they were able to speed up the process and provide local
hospitals the gowns and masks needed when the supply chain was strained.
Image courtesy of Dallara.
RESILIENT. ESSENTIAL. DEDICATED. MIND OVER METAL.
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, 2020 or
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to
_________
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
35-1150732
(I.R.S. Employer Identification Number)
One Technology Way
Indianapolis, Indiana
(Address of principal executive offices)
46268
(Zip code)
Registrant’s telephone number, including area code (317) 293–5309
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, no par value
Trading Symbol(s)
HURC
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well–known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
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
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 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 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
Non–accelerated filer
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act).
Yes ☐ No
The aggregate market value of the registrant’s voting stock held by non–affiliates as of April 30, 2020 (the last business day of our most recently completed
second quarter) was $217,919,000.
The number of shares of the registrant’s common stock outstanding as of December 31, 2020 was 6,570,635.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its 2021 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 impact of the COVID-19 pandemic and other widespread public health emergencies and outbreaks,
pandemics, or contagious diseases on the global economy, our business and operations, our employees, and the business,
operations and economies of our customers and vendors, the risks of our international operations, changes in
manufacturing markets, fluctuations in foreign currency exchange rates, innovations by competitors, increases in prices of
raw materials, 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, quality and delivery performance by
our vendors, our ability to effectively integrate acquisitions, negative or unforeseen tax consequences, loss of key
personnel, failure to comply with data privacy and security regulations, 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, 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 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. We
have sales, application engineering, and service subsidiaries in China, France, Germany, India, Italy, the Netherlands,
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.
We are an industrial technology company that designs, produces, and sells computerized machine tools. Our strategic
plans focus on market expansion to reach more customers with more products on a global basis. We have made five
acquisitions since 2013, and the products we have added through these acquisitions have given us more advanced products
with unprecedented improvements in our machine tool accuracy and precision, allow us to seek higher productivity in
complex manufacturing environments, provide automation for machine tending solutions, and minimize dependencies
associated with volatilities from economic and geographic cyclicality. While the Hurco-branded computer control systems
have been, and continue to be, our premium flagship product line, we have added other products to our portfolio that
provide product diversity and market penetration opportunity priced from entry-level to high performance serving a variety
of different industries. We have not changed our overall strategy to design, manufacture, and sell a comprehensive line of
computerized machine tools; rather, we have enhanced this strategy through growth both organically and through
acquisitions in an effort to attain long-term stability and profitability.
During fiscal 2020, our sales and service fees were $170.6 million, a decrease of $92.8 million, or 35%, compared to fiscal
2019 and included a favorable currency impact of $0.6 million, or less than 1%, when translating foreign sales to U.S.
dollars for financial reporting purposes. For fiscal 2020, we reported a net loss of $6.2 million, or $(0.93) per diluted
share, compared to net income of $17.5 million, or $2.55 per diluted share, for fiscal 2019. The steep decline in sales
volume from fiscal 2019 to fiscal 2020 reflected the significant impact of the COVID-19 pandemic and related
government-mandated stay-at-home or shelter orders that imposed operating restrictions across the globe during fiscal
2020. The year-over-year swing from net income to net loss included a one-time, non-cash goodwill impairment charge
of $4.9 million that resulted from the prolonged ongoing uncertainty in the global markets due to the COVID-19
pandemic. Excluding the impact of this one-time charge, earnings per diluted share for fiscal 2020 would have been $0.69
higher than the earnings per diluted share we reported for fiscal year 2020. While fiscal 2020 presented significant
unexpected challenges due to the COVID-19 pandemic, we continued to focus on our long-term sustainable future,
preserved by a strong balance sheet, cashflow, and continued investment in products and technologies that will create
opportunity for market expansion and the potential for more strategic acquisitions in the near future.
Industry
cyclical.
Machine tool products are considered capital goods, which makes them part of an industry that has historically been highly
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.
2
2
3
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 impact of the COVID-19 pandemic and other widespread public health emergencies and outbreaks,
pandemics, or contagious diseases on the global economy, our business and operations, our employees, and the business,
operations and economies of our customers and vendors, the risks of our international operations, changes in
manufacturing markets, fluctuations in foreign currency exchange rates, innovations by competitors, increases in prices of
raw materials, 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, quality and delivery performance by
our vendors, our ability to effectively integrate acquisitions, negative or unforeseen tax consequences, loss of key
personnel, failure to comply with data privacy and security regulations, 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”).
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, 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 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.
PART I
2
Our executive offices and principal design and engineering operations are headquartered in Indianapolis, Indiana, U.S. We
have sales, application engineering, and service subsidiaries in China, France, Germany, India, Italy, the Netherlands,
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.
We are an industrial technology company that designs, produces, and sells computerized machine tools. Our strategic
plans focus on market expansion to reach more customers with more products on a global basis. We have made five
acquisitions since 2013, and the products we have added through these acquisitions have given us more advanced products
with unprecedented improvements in our machine tool accuracy and precision, allow us to seek higher productivity in
complex manufacturing environments, provide automation for machine tending solutions, and minimize dependencies
associated with volatilities from economic and geographic cyclicality. While the Hurco-branded computer control systems
have been, and continue to be, our premium flagship product line, we have added other products to our portfolio that
provide product diversity and market penetration opportunity priced from entry-level to high performance serving a variety
of different industries. We have not changed our overall strategy to design, manufacture, and sell a comprehensive line of
computerized machine tools; rather, we have enhanced this strategy through growth both organically and through
acquisitions in an effort to attain long-term stability and profitability.
During fiscal 2020, our sales and service fees were $170.6 million, a decrease of $92.8 million, or 35%, compared to fiscal
2019 and included a favorable currency impact of $0.6 million, or less than 1%, when translating foreign sales to U.S.
dollars for financial reporting purposes. For fiscal 2020, we reported a net loss of $6.2 million, or $(0.93) per diluted
share, compared to net income of $17.5 million, or $2.55 per diluted share, for fiscal 2019. The steep decline in sales
volume from fiscal 2019 to fiscal 2020 reflected the significant impact of the COVID-19 pandemic and related
government-mandated stay-at-home or shelter orders that imposed operating restrictions across the globe during fiscal
2020. The year-over-year swing from net income to net loss included a one-time, non-cash goodwill impairment charge
of $4.9 million that resulted from the prolonged ongoing uncertainty in the global markets due to the COVID-19
pandemic. Excluding the impact of this one-time charge, earnings per diluted share for fiscal 2020 would have been $0.69
higher than the earnings per diluted share we reported for fiscal year 2020. While fiscal 2020 presented significant
unexpected challenges due to the COVID-19 pandemic, we continued to focus on our long-term sustainable future,
preserved by a strong balance sheet, cashflow, and continued investment in products and technologies that will create
opportunity for market expansion and the potential for more strategic acquisitions in the near future.
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.
3
3
A limited amount of information is available for foreign markets, and different reporting methodologies are used by
various countries. Machine tool consumption data, published by Gardner Publications, Inc., calculates machine tool
consumption annually by country. It is important to note that data for foreign countries are based on government reports
that may lag 6 to 12 months behind real-time and, therefore, are unreliable for forecasting purposes.
Demand for capital equipment can fluctuate significantly during periods of changing economic conditions. Manufacturers
and suppliers of capital goods, such as our company, are often the first to experience these changes in demand.
Additionally, since our typical order backlog is approximately 45 days, it is difficult to estimate demand with any
reasonable certainty. Therefore, we do not have the benefit of relying on the common leading indicators that other
industries use for market analysis and forecasting purposes.
Products
Our core products consist of general-purpose, computerized machine tools for the metal cutting industry, principally,
vertical machining centers (mills) and turning centers (lathes). The majority of our machine tools are equipped and
integrated fully with our proprietary software and computer control systems, while the remaining machine tools are
equipped with industry standard controls. Additionally, we produce and distribute software options, control upgrades,
hardware accessories and replacement parts for our machine tool product lines, and we provide operator training and
support services to our customers. We also produce computer control systems and related software for press brake
applications that are sold as retrofit units for installation on existing or new press brake machines. 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
Year Ended October 31,
2019
$ 139,577 82 % $ 223,735 85 % $ 261,710 87 %
Computerized Machine Tools
Computer Control Systems and Software †
1 %
9 %
Service Parts
3 %
Service Fees
Total
$ 170,627 100 % $ 263,377 100 % $ 300,671 100 %
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
1 %
2,818
13 % 27,854
8,970
4 %
1 %
2,870
11 % 27,501
8,590
3 %
1,699
22,484
6,867
2020
2018
machine systems.
Product Portfolio by Brand
We have three brands of CNC machine tools in our product portfolio: Hurco is the technology and 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 precision and 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 practical 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 CNC machine 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.
4
4
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 a solid model. An operator with little or no machine tool programming experience can
successfully create a program with minimal training and begin machining the part in a short period of time. The control
features an operator console with a touch-screen, 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 (“CAD”) and
computer aided manufacturing (“CAM”) programmers. With the ability to transfer most CAD 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:
HTMi/HTLi Product Line
The HTMi/HTLi 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.
VMi 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 six models in
four sizes with X-axis (horizontal) travels of 18, 26 (three models), 40, and 50 inches.
VMXi Product Line
The VMX product line is our flagship series of machining centers and consists of higher performing vertical machining
centers aimed at manufacturers that require faster speeds and greater part accuracy. 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.
________________________
††Windows® is a registered trademark of Microsoft Corporation in the United States and other countries.
A limited amount of information is available for foreign markets, and different reporting methodologies are used by
various countries. Machine tool consumption data, published by Gardner Publications, Inc., calculates machine tool
consumption annually by country. It is important to note that data for foreign countries are based on government reports
that may lag 6 to 12 months behind real-time and, therefore, are unreliable for forecasting purposes.
Demand for capital equipment can fluctuate significantly during periods of changing economic conditions. Manufacturers
and suppliers of capital goods, such as our company, are often the first to experience these changes in demand.
Additionally, since our typical order backlog is approximately 45 days, it is difficult to estimate demand with any
reasonable certainty. Therefore, we do not have the benefit of relying on the common leading indicators that other
industries use for market analysis and forecasting purposes.
Products
Our core products consist of general-purpose, computerized machine tools for the metal cutting industry, principally,
vertical machining centers (mills) and turning centers (lathes). The majority of our machine tools are equipped and
integrated fully with our proprietary software and computer control systems, while the remaining machine tools are
equipped with industry standard controls. Additionally, we produce and distribute software options, control upgrades,
hardware accessories and replacement parts for our machine tool product lines, and we provide operator training and
support services to our customers. We also produce computer control systems and related software for press brake
applications that are sold as retrofit units for installation on existing or new press brake machines. 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
Year Ended October 31,
2020
2019
2018
$ 139,577 82 % $ 223,735 85 % $ 261,710 87 %
1,699
1 %
2,818
1 %
2,870
22,484
13 % 27,854
11 % 27,501
6,867
4 %
8,970
3 %
8,590
1 %
9 %
3 %
$ 170,627 100 % $ 263,377 100 % $ 300,671 100 %
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
Computerized Machine Tools
Computer Control Systems and Software †
Service Parts
Service Fees
Total
machine systems.
Product Portfolio by Brand
We have three brands of CNC machine tools in our product portfolio: Hurco is the technology and 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 precision and 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 practical 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 CNC machine models. The combined machine tool product lines also provide benefits related to the development
of product enhancements, technologies, and models, due to leverage of shared resources and cross-utilization of proven
engineering designs, that allow us to achieve manufacturing cost reductions from economies of scale and manufacturing
efficiencies.
Hurco CNC Machine Tools
Hurco computerized machine tools are equipped with a fully integrated interactive computer control system that features
our proprietary WinMax® software. Our computer control system enables a machine tool operator to create complex two-
dimensional (“2D”) or three-dimensional (“3D”) machining programs directly from an engineering drawing or computer-
aided design geometry file, such as a solid model. An operator with little or no machine tool programming experience can
successfully create a program with minimal training and begin machining the part in a short period of time. The control
features an operator console with a touch-screen, 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 (“CAD”) and
computer aided manufacturing (“CAM”) programmers. With the ability to transfer most CAD 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:
HTMi/HTLi Product Line
The HTMi/HTLi 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.
VMi 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 six models in
four sizes with X-axis (horizontal) travels of 18, 26 (three models), 40, and 50 inches.
VMXi Product Line
The VMX product line is our flagship series of machining centers and consists of higher performing vertical machining
centers aimed at manufacturers that require faster speeds and greater part accuracy. 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.
________________________
††Windows® is a registered trademark of Microsoft Corporation in the United States and other countries.
4
5
5
HSi 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.
Ui 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.
SRTi/SWi 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 table to machine long five-axis parts. These
models are available in either 42 or 60-inch X-axis travels.
VCi/VCXi Product Line
The B-axis configuration of the VC/VCX Series provides greater undercut capability in both positive and negative
directions, allowing users to access more part surface area for machining. These cantilever models are available in a 20-
inch pallet, moderately-priced model, as well as a high speed, high performance model, with a torque motor-driven 23.6-
inch-diameter rotary table.
BXi Product Line
The BX product line is for customers that require higher accuracy parts, as they are built with an extremely rigid double
column design that offers superior vibration dampening and excellent thermal characteristics. 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.
HMi 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 do
not require an expensive pallet switching system typically found on competitive horizontal machines.
HBMXi Product Line
The HBMX product line is beneficial to manufacturers that build custom machinery and parts for a multitude of industries,
such as packaging, pharmaceutical, automotive, energy, and medical. Additionally, boring mills are also used to repair
and/or rebuild large components. The HBMX boring mill product line consists of four models with X-axis travels of 55,
79, 94, and 120 inches.
DCXi Product Line
The double column DCX series includes six models in four sizes. Based on 2-meter, 3-meter, and 4-meter X-axis travels,
these machining centers are designed to facilitate production of large parts and molds often required by the aerospace,
energy, and custom machinery industries. The 3-meter model is available as a five-axis machine equipped with an
articulating head. DCX machines are the largest models offered by Hurco that feature the powerful and flexible WinMax®
control.
TMi/TMMi Product Line
The TM/TMM product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and
contract manufacturers seeking efficient processing of small to medium lot sizes. There is one TM model in four sizes,
measured by chuck size: 6, 8, 10, and 12 inches. We added motorized tooling on the lathe turret to further enhance the
capability of the TM turning centers and designated it as the 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.
TMXi 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.
Product Development
Since Hurco is the technology and 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 2020 include an upgrade to the control software on our lathe with live tooling designated as TM6M, TM8M,
and TM12M models, new inline spindle options for our trunnion 5-axis machines, and a new proprietary thermal growth
compensation system available for 3-axis vertical machining centers. We also introduced a new, affordable, entry-level
model called the VMOne.
Milltronics CNC Machine Tools
Our Milltronics line of CNC machine tools is designed for excellent value with more standard features for the price versus
competitors. 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:
The VK is our CNC knee mill designed for prototype, R&D, maintenance, and other general-purpose applications. It
offers the easy table access of a conventional knee mill, with the power and flexibility of the 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
VK Series
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.
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.
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HSi 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.
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
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 table to machine long five-axis parts. These
models are available in either 42 or 60-inch X-axis travels.
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-
Ui Series Product Line
standard and high-speed spindles.
SRTi/SWi Product Line
VCi/VCXi Product Line
inch-diameter rotary table.
BXi Product Line
The BX product line is for customers that require higher accuracy parts, as they are built with an extremely rigid double
column design that offers superior vibration dampening and excellent thermal characteristics. 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.
HMi 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 do
not require an expensive pallet switching system typically found on competitive horizontal machines.
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,
HBMXi Product Line
79, 94, and 120 inches.
DCXi Product Line
The double column DCX series includes six models in four sizes. Based on 2-meter, 3-meter, and 4-meter X-axis travels,
these machining centers are designed to facilitate production of large parts and molds often required by the aerospace,
energy, and custom machinery industries. The 3-meter model is available as a five-axis machine equipped with an
articulating head. DCX machines are the largest models offered by Hurco that feature the powerful and flexible WinMax®
control.
TMi/TMMi Product Line
The TM/TMM product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and
contract manufacturers seeking efficient processing of small to medium lot sizes. There is one TM model in four sizes,
measured by chuck size: 6, 8, 10, and 12 inches. We added motorized tooling on the lathe turret to further enhance the
capability of the TM turning centers and designated it as the 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.
TMXi 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.
Product Development
Since Hurco is the technology and 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 2020 include an upgrade to the control software on our lathe with live tooling designated as TM6M, TM8M,
and TM12M models, new inline spindle options for our trunnion 5-axis machines, and a new proprietary thermal growth
compensation system available for 3-axis vertical machining centers. We also introduced a new, affordable, entry-level
model called the VMOne.
Milltronics CNC Machine Tools
Our Milltronics line of CNC machine tools is designed for excellent value with more standard features for the price versus
competitors. 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 our CNC knee mill designed for prototype, R&D, maintenance, and other general-purpose applications. It
offers the easy table access of a conventional knee mill, with the power and flexibility of the 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.
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.
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VM Inline Performance (IL) Product Line
The VM-IL product line consists of moderately-priced performance vertical machining centers for high-speed applications,
such as die and mold, aerospace, and 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.
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 job shops. 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, 70, 78, 86, and 126 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.
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 spindles, or
built-in HSK spindles, with up to 20,000 rpm, in addition to spindle speed options of 24,000 rpm and 36,000 rpm. The H
Series product line consists of 12 models with X-axis travels of 24, 30, 35, 40, 53, 63, 86, 126, 157, and 197 inches, with
select models available with extended Y-axis travel. These machines are specifically targeted for die and mold and
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.
SL Product Line
The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract
manufacturers seeking efficient processing of small to medium lot sizes. These compact machines are available with chuck
sizes of 6, 8, and 10 inches. These compact machines feature the Series 9000 DGI control.
Designed with trunnion tables and swivel heads, these five-axis simultaneous machining centers provide versatility, as
well as reduce setup time and process time. Most models are offered with a 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.
New Products
In fiscal 2020, Milltronics updated its MB/RH Series of tool room mills. Now called the TRQ/TRM Series, these models
feature updated controls, specifications, and sheet metal guarding. Additionally, all models will now feature the Series
9000 DGI control, instead of certain models having the legacy 8200-B control.
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 spindles, or built-in HSK spindles, with up to 20,000 rpm. The G Series product line consists of
three models with X-axis travels of 22, 30, and 40 inches, and are equipped with a graphite dust extraction system.
Takumi CNC Machine Tools
The Takumi brand features machines designed for applications requiring precision and high speed, high efficiency milling.
Market segments that require such applications include die and mold, aerospace, medical, and energy, or any customer
that needs to produce very high-accuracy parts quickly. Takumi machines are available with a variety of industry standard
CNC controls, including Fanuc®*, Siemens®, Mitsubishi®, or Heidenhain®. Models include three- axis vertical machining
centers with linear guides; three-axis vertical machining centers with box ways; high-speed, double column vertical
machining centers; and heavy-duty, double-column machining centers, and five-axis machining centers. Takumi machines
are hand built and fitted to exacting standards to produce high accuracies and superior surface finishes.
The Takumi portfolio consists of the following product lines:
PV Series
The PV Series are entry-level vertical machining centers, yet feature high performance direct drive spindles and robust
roller way technology. PV machines are available in two sizes with X-axis travels of either 26 or 41 inches. They are
designed for general purpose and job shop applications.
________________________
*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.
BC Series machines are double column, three-axis machining centers designed for heavy cutting and applications that
require high power and torque, such as die and mold. These models include a heavy cutting, 6,000 rpm geared-head
spindle design with X-axis travels of 82 or 122 inches.
The HMX Series are high-speed horizontal machining centers that are capable of up to 1G acceleration. These models
include twin pallets to maximize cutting time along with very fast pallet exchange times and rapid traverse rates. Available
in 400, 500, and 630 mm pallet sizes, they can also be fitted with expandable automatic tool changers that hold up to 220
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.
VC Series
V Series
H Series
aerospace customers.
U Series
G Series
BC Series
HMX Series
tools.
SL Lathes
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VM Inline Performance (IL) Product Line
The VM-IL product line consists of moderately-priced performance vertical machining centers for high-speed applications,
such as die and mold, aerospace, and 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
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
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
of 30, 42, 50, or 60 inches.
VM Extra Power (XP) Product Line
X-axis travels of 50, 60, or 84 inches.
BR Product Line
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.
SL Product Line
New Products
The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract
manufacturers seeking efficient processing of small to medium lot sizes. These compact machines are available with chuck
sizes of 6, 8, and 10 inches. These compact machines feature the Series 9000 DGI control.
In fiscal 2020, Milltronics updated its MB/RH Series of tool room mills. Now called the TRQ/TRM Series, these models
feature updated controls, specifications, and sheet metal guarding. Additionally, all models will now feature the Series
9000 DGI control, instead of certain models having the legacy 8200-B control.
Takumi CNC Machine Tools
The Takumi brand features machines designed for applications requiring precision and high speed, high efficiency milling.
Market segments that require such applications include die and mold, aerospace, medical, and energy, or any customer
that needs to produce very high-accuracy parts quickly. Takumi machines are available with a variety of industry standard
CNC controls, including Fanuc®*, Siemens®, Mitsubishi®, or Heidenhain®. Models include three- axis vertical machining
centers with linear guides; three-axis vertical machining centers with box ways; high-speed, double column vertical
machining centers; and heavy-duty, double-column machining centers, and five-axis machining centers. Takumi machines
are hand built and fitted to exacting standards to produce high accuracies and superior surface finishes.
The Takumi portfolio consists of the following product lines:
PV Series
The PV Series are entry-level vertical machining centers, yet feature high performance direct drive spindles and robust
roller way technology. PV machines are available in two sizes with X-axis travels of either 26 or 41 inches. They are
designed for general purpose and job shop applications.
________________________
*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.
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 job shops. 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.
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 spindles, or
built-in HSK spindles, with up to 20,000 rpm, in addition to spindle speed options of 24,000 rpm and 36,000 rpm. The H
Series product line consists of 12 models with X-axis travels of 24, 30, 35, 40, 53, 63, 86, 126, 157, and 197 inches, with
select models available with extended Y-axis travel. These machines are specifically targeted for die and mold and
aerospace customers.
U Series
Designed with trunnion tables and swivel heads, these five-axis simultaneous machining centers provide versatility, as
well as reduce setup time and process time. Most models are offered with a 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 spindles, or built-in HSK spindles, with up to 20,000 rpm. The G Series product line consists of
three models with X-axis travels of 22, 30, and 40 inches, and are equipped with a graphite dust extraction system.
BC Series
BC Series machines are double column, three-axis machining centers designed for heavy cutting and applications that
require high power and torque, such as die and mold. These models include a heavy cutting, 6,000 rpm geared-head
spindle design with X-axis travels of 82 or 122 inches.
HMX Series
The HMX Series are high-speed horizontal machining centers that are capable of up to 1G acceleration. These models
include twin pallets to maximize cutting time along with very fast pallet exchange times and rapid traverse rates. Available
in 400, 500, and 630 mm pallet sizes, they can also be fitted with expandable automatic tool changers that hold up to 220
tools.
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.
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New Products
In 2020, Takumi introduced the PV Series, a new line of entry-level vertical machining centers for general purpose
machining that offers lower cost, yet retains key performance features such as direct-drive spindles and rigid roller ways.
Also in 2020, Takumi began offering four-meter and five-meter versions of its H Series product line, called the H42S and
H52S, specifically aimed at die and mold shops and the aerospace industry. Finally, a new line of high velocity horizontal
machining centers was introduced. Called the HMX Series, these machines are very fast (capable of up to 1G acceleration)
and include twin pallets that can be rapidly exchanged to maximize part cutting time.
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, Job Manager, Stream Load, Active 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.
ProCobots CNC Automation
________________________
* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.
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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 designs, receive event notifications via email for
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.
Job Manager is a software feature designed specifically for seamless integration of the Hurco control to our automation
package called Job Shop Automation, which promotes intuitive programming of collaborative robots for machine
tending applications.
to avoid exceeding memory limits.
Stream Load allows the user to run very large NC files without the need to upload the entire file into the control’s memory
Active Thermal Compensation is a feature that uses sensors to measure head casting temperature growth and software that
automatically compensates for that growth, improving part accuracy.
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.
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
customers who are in the high-mix, low-volume manufacturing environment. Products include portable models, such as
the 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 our portfolio that have contributed to our top and bottom line growth and will provide product diversity, market
New Products
In 2020, Takumi introduced the PV Series, a new line of entry-level vertical machining centers for general purpose
machining that offers lower cost, yet retains key performance features such as direct-drive spindles and rigid roller ways.
Also in 2020, Takumi began offering four-meter and five-meter versions of its H Series product line, called the H42S and
H52S, specifically aimed at die and mold shops and the aerospace industry. Finally, a new line of high velocity horizontal
machining centers was introduced. Called the HMX Series, these machines are very fast (capable of up to 1G acceleration)
and include twin pallets that can be rapidly exchanged to maximize part cutting time.
The following machine tool computer control systems and software products are sold directly to end-users and/or to other
Other Control Systems, Software, and Accessories
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, Job Manager, Stream Load, Active 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.
________________________
* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries.
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 designs, receive event notifications via email for
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.
Job Manager is a software feature designed specifically for seamless integration of the Hurco control to our automation
package called Job Shop Automation, which promotes intuitive programming of collaborative robots for machine
tending applications.
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.
Active Thermal Compensation is a feature that uses sensors to measure head casting temperature growth and software that
automatically compensates for that growth, improving part accuracy.
Thread Repair is a feature for turning applications that provides an efficient way to repair existing threads, which is
especially beneficial for large pipes and other parts manufactured for the oil/energy sector.
Simultaneous Five-Axis Contouring software enables a five-axis machine to command motion concurrently on all axes.
This allows the user to create continuous tool-paths along complex geometries with only a single machine/part setup,
providing increased productivity along with the performance benefits of using shorter cutting tools. The sale of
simultaneous five-axis contouring software is subject to government export licensing requirements.
3D DXF and Solid Model Import automatically uses geometry from a 3D CAD model to easily create conversational
ProCobots CNC Automation
programs for 2D and 3D parts or even 3+2 and 5-sided parts.
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
customers who are in the high-mix, low-volume manufacturing environment. Products include portable models, such as
the 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 our portfolio that have contributed to our top and bottom line growth and will provide product diversity, market
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penetration opportunity – while minimizing the impact of geographic cyclicality – with products priced from entry-level
to high performance serving a variety of different industries. We believe these non-Hurco branded products help us
partially offset the cyclical nature of the machine tool market by diversifying our product offering. These non-Hurco
branded products are 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).
Product Development
In 2020, LCM developed a new high-performance, triple-torque, motor-drive, trunnion table for five-axis machines. The
table has two torque motors on either side of the tilting axis of the trunnion as well as a separate torque motor for the rotary
table.
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 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 200 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, the Netherlands, 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 2020, approximately 61% of our revenues were derived from customers outside of the Americas, (our
U.S. selling divisions have responsibility for the Americas, which includes Canada, Mexico, Central America, South
America, and the U.S.) No single end-user or distributor of our products accounted for more than 5% of our total sales
and service fees. The end-users of our products are precision tool, die and mold manufacturers, independent job shops,
specialized short-run production applications within large manufacturing operations, and manufacturing facilities that
focus on medium to high run production, wherein they run large batches of a few types of parts instead of small batches
of many different parts. Industries served include aerospace, defense, medical equipment, energy, automotive/
transportation, electronics, and computer industries.
We also sell our Autobend® computer control systems to 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 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.
Demand
•
•
•
•
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.
12
12
13
penetration opportunity – while minimizing the impact of geographic cyclicality – with products priced from entry-level
to high performance serving a variety of different industries. We believe these non-Hurco branded products help us
partially offset the cyclical nature of the machine tool market by diversifying our product offering. These non-Hurco
branded products are 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.
LCM has five lines of CNC rotary tables for both horizontal and vertical-horizontal positioning. Customers can choose
rotary tables with either hydraulic or pneumatic clamping systems. Additionally, LCM offers CNC rotary tables powered
by either a torque motor or a high-precision mechanical transmission.
CNC Rotary Tables
CNC Tilt Tables
LCM has seven lines of CNC tilting rotary tables, of which four lines are intended specifically for five-axis machining
centers. Each of the seven lines is differentiated by the technology used for clamping (hydraulic or pneumatic) and by the
type of transmission (either mechanical transmission or torque motor).
Swivel Heads and Electro-spindles
LCM has two primary lines of swivel heads that enable the spindle axis to be tilted with continuous motion and one line
of electro-spindles (built-in motors for swivel heads). The two lines of swivel heads are differentiated by the type of
transmission (either mechanical transmission or torque motor).
In 2020, LCM developed a new high-performance, triple-torque, motor-drive, trunnion table for five-axis machines. The
table has two torque motors on either side of the tilting axis of the trunnion as well as a separate torque motor for the rotary
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
Product Development
table.
Parts and Service
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 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 200 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, the Netherlands, 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 2020, approximately 61% of our revenues were derived from customers outside of the Americas, (our
U.S. selling divisions have responsibility for the Americas, which includes Canada, Mexico, Central America, South
America, and the U.S.) No single end-user or distributor of our products accounted for more than 5% of our total sales
and service fees. The end-users of our products are precision tool, die and mold manufacturers, independent job shops,
specialized short-run production applications within large manufacturing operations, and manufacturing facilities that
focus on medium to high run production, wherein they run large batches of a few types of parts instead of small batches
of many different parts. Industries served include aerospace, defense, medical equipment, energy, automotive/
transportation, electronics, and computer industries.
We also sell our Autobend® computer control systems to 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.
12
13
13
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.
Human Capital Resources
Hurco is committed to attracting and retaining the brightest and best talent. Therefore, investing, developing, and
maintaining human capital is critical to our success. As of October 31, 2020, Hurco had approximately 710 full-time
employees, of which approximately 29% are in the Americas, and 71% in other global regions. As a global industrial
technology company, a large number of our employees are engineers or trained trade or technical workers focusing on
advance manufacturing, and many of them hold masters’, doctorate, or equivalent or higher degrees. Hurco emphasizes a
number of measures and objectives in managing its human capital assets, including, among others, employee safety and
wellness, talent acquisition and retention, employee engagement, development, and training, diversity and inclusion, and
compensation and pay equity. None of our employees are covered by a collective-bargaining agreement. We have not
experienced any employee-generated work stoppages or disruptions, and we consider our employee relations to be
satisfactory.
COVID-19 and Employee Safety and Wellness
During the COVID-19 pandemic, the safety and well-being of our employees and their families has been a top priority as
we continue to serve our customers – many of which are involved in the installation, production, and/or maintenance of
critical infrastructure. Our global pandemic efforts include leveraging the advice and recommendations of infectious
disease experts and organizations to establish appropriate safety standards and secure appropriate levels of personal
protective equipment for our workforce. Based upon this advice and recommendations, we have adopted and implemented
the Hurco COVID-19 Exposure Prevention, Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to
outline the Company’s policies and procedures designed to mitigate the potential for transmission of COVID-19 and
prevent exposure to illness from certain other infectious diseases. Among other things, the Hurco COVID Response Plan
memorializes employee, manager, and company responsibilities related to house-keeping and sanitization, hygiene and
respiratory etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and
accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work and/or when to
return to work upon potential and/or confirmed COVID-19 exposure or infection. In addition to procuring personal
protective equipment, automatic screening stations, and other preventative resources, the Company also leveraged Hurco
technology and human capital to directly produce personal protective equipment on Hurco products and distributed the
same to Hurco personnel and customers around the world.
Hurco has also implemented a wellness program aimed at engaging employees with healthcare providers to promote the
proactive evaluation, tracking, and management of major health and wellness indicators, such as blood pressure, weight,
and routine blood laboratory analysis. As part of this program, participants receive a discount to already-low employee
premium responsibilities associated with generous medical and/or health insurance coverages.
Employee Engagement, Development, and Training
We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by
promotion and transfer from within the organization. We advance continual learning and career development through
ongoing performance and development conversations or evaluations with employees, internally and externally developed
training programs, and educational reimbursement programs. In connection with the latter, reimbursement is available to
employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or
knowledge relative to our business or otherwise to the development of the employee’s skill set or knowledge base. In
addition, we routinely invest in seminar, conference, and other training or continuing education events for our employees.
Diversity and Inclusion and Ethical Business Practices
Hurco is committed to fostering work environments that value and promote diversity and inclusion. This commitment
includes providing equal access to, and participation in, equal employment opportunities, programs, and services without
regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identity, stereotypes or
assumptions based thereon. We pride ourselves in the development and fair treatment of our global workforce, including
generous healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-
harassment, workforce safety, and anti-retaliation policies, and implementation of affirmative action programs. We
welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse,
and inclusive workforce.
Hurco also fosters a strong corporate culture that promotes high standards of ethics and compliance for our businesses,
including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of
Business Conduct and Ethics. We also maintain a whistleblower policy and anonymous hotline for the confidential
reporting of any suspected policy violations or unethical business conduct on the part of our businesses, employees,
officers, directors, or vendors and provide training and education to our global workforce with respect to our Code of
Business Conduct and Ethics and anti-corruption and anti-bribery policies. We intend to disclose any amendment to, or a
waiver from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting
such information on our website at www.hurco.com.
For information on orders and backlog, see Item 7. Management’s Discussion and Analysis of Financial Condition and
Backlog
Results of Operations in this report.
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;
we may post from time to time;
• Press releases on quarterly earnings, product announcements, legal developments and other material news that
• 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
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.
Human Capital Resources
Hurco is committed to attracting and retaining the brightest and best talent. Therefore, investing, developing, and
maintaining human capital is critical to our success. As of October 31, 2020, Hurco had approximately 710 full-time
employees, of which approximately 29% are in the Americas, and 71% in other global regions. As a global industrial
technology company, a large number of our employees are engineers or trained trade or technical workers focusing on
advance manufacturing, and many of them hold masters’, doctorate, or equivalent or higher degrees. Hurco emphasizes a
number of measures and objectives in managing its human capital assets, including, among others, employee safety and
wellness, talent acquisition and retention, employee engagement, development, and training, diversity and inclusion, and
compensation and pay equity. None of our employees are covered by a collective-bargaining agreement. We have not
experienced any employee-generated work stoppages or disruptions, and we consider our employee relations to be
satisfactory.
COVID-19 and Employee Safety and Wellness
During the COVID-19 pandemic, the safety and well-being of our employees and their families has been a top priority as
we continue to serve our customers – many of which are involved in the installation, production, and/or maintenance of
critical infrastructure. Our global pandemic efforts include leveraging the advice and recommendations of infectious
disease experts and organizations to establish appropriate safety standards and secure appropriate levels of personal
protective equipment for our workforce. Based upon this advice and recommendations, we have adopted and implemented
the Hurco COVID-19 Exposure Prevention, Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to
outline the Company’s policies and procedures designed to mitigate the potential for transmission of COVID-19 and
prevent exposure to illness from certain other infectious diseases. Among other things, the Hurco COVID Response Plan
memorializes employee, manager, and company responsibilities related to house-keeping and sanitization, hygiene and
respiratory etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and
accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work and/or when to
return to work upon potential and/or confirmed COVID-19 exposure or infection. In addition to procuring personal
protective equipment, automatic screening stations, and other preventative resources, the Company also leveraged Hurco
technology and human capital to directly produce personal protective equipment on Hurco products and distributed the
same to Hurco personnel and customers around the world.
Hurco has also implemented a wellness program aimed at engaging employees with healthcare providers to promote the
proactive evaluation, tracking, and management of major health and wellness indicators, such as blood pressure, weight,
and routine blood laboratory analysis. As part of this program, participants receive a discount to already-low employee
premium responsibilities associated with generous medical and/or health insurance coverages.
Employee Engagement, Development, and Training
We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by
promotion and transfer from within the organization. We advance continual learning and career development through
ongoing performance and development conversations or evaluations with employees, internally and externally developed
training programs, and educational reimbursement programs. In connection with the latter, reimbursement is available to
employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or
knowledge relative to our business or otherwise to the development of the employee’s skill set or knowledge base. In
addition, we routinely invest in seminar, conference, and other training or continuing education events for our employees.
Diversity and Inclusion and Ethical Business Practices
Hurco is committed to fostering work environments that value and promote diversity and inclusion. This commitment
includes providing equal access to, and participation in, equal employment opportunities, programs, and services without
regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identity, stereotypes or
assumptions based thereon. We pride ourselves in the development and fair treatment of our global workforce, including
generous healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-
harassment, workforce safety, and anti-retaliation policies, and implementation of affirmative action programs. We
welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse,
and inclusive workforce.
Hurco also fosters a strong corporate culture that promotes high standards of ethics and compliance for our businesses,
including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of
Business Conduct and Ethics. We also maintain a whistleblower policy and anonymous hotline for the confidential
reporting of any suspected policy violations or unethical business conduct on the part of our businesses, employees,
officers, directors, or vendors and provide training and education to our global workforce with respect to our Code of
Business Conduct and Ethics and anti-corruption and anti-bribery policies. We intend to disclose any amendment to, or a
waiver from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting
such information on our website at www.hurco.com.
Backlog
For information on orders and backlog, see Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations in this report.
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
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.
Risks Related to the COVID-19 Pandemic
Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and could
continue to disrupt, our operations and materially and adversely affect our business, financial condition, and results
of operations.
Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-
19 pandemic, have had, and could continue to have, a material adverse effect our business, financial condition, and results
of operations. As a result of the COVID-19 pandemic, governmental authorities in jurisdictions where our facilities,
customers, and suppliers are located have imposed mandatory closures, stay-at-home orders, and social distancing
protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business
operations or consumption patterns.
The COVID-19 pandemic has disrupted our operations and will likely continue to affect our business. Specifically, many
of our sales and service organizations throughout the Americas, Europe and Asia Pacific have, at one time or another, been
subject to temporary closures or otherwise been required to adopt remote work strategies. And, we may continue to
experience additional temporary facility closures in response to government mandates and/or the incidence of additional
contagion spread.
Additionally, the COVID-19 outbreak has disrupted and could in the future disrupt our ability to deliver and/or install
machines, our procurement of supplies for our operations, and our customers’ purchasing behavior or decisions. The
COVID-19 pandemic has resulted in significantly reduced demand for our products, which could continue for an extended
period of time. Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or business partners are
located have had and could continue to have a material adverse effect on our business, results of operations, cash flows,
and financial condition.
Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and
financial markets, which increases the cost of capital and adversely impacts access to capital for both our company and
our customers and suppliers. In addition, resulting changes in our access to or cost of capital, expected cash flows, or other
factors could cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write down
goodwill for the amount of the impairment. The duration and scope of the COVID-19 pandemic remains uncertain and,
therefore, we cannot reasonably estimate its potential impact on our business, financial condition, or results of operations,
but such impact has been, and could continue to be, material.
Risks Related to Our Industry and International Operations
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 have adversely affected, and may in the future adversely affect, our results of
operations and financial condition.
Our international operations pose additional risks that may adversely impact sales and earnings.
During fiscal 2020, approximately 61% of our revenues were derived from sales to customers located outside of the
Americas. In addition, our main manufacturing facilities are located outside of the U.S. Our international operations are
current and changing regulatory environments affecting the importation and exportation of products and raw
subject to a number of risks, including:
trade barriers;
regional economic uncertainty and nationalistic trade strategies;
differing labor regulation;
governmental expropriation;
domestic and foreign customs and tariffs;
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 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.
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 61% of our revenues in fiscal
2020, 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
16
16
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.
Risks Related to the COVID-19 Pandemic
Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and could
continue to disrupt, our operations and materially and adversely affect our business, financial condition, and results
of operations.
Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-
19 pandemic, have had, and could continue to have, a material adverse effect our business, financial condition, and results
of operations. As a result of the COVID-19 pandemic, governmental authorities in jurisdictions where our facilities,
customers, and suppliers are located have imposed mandatory closures, stay-at-home orders, and social distancing
protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business
operations or consumption patterns.
The COVID-19 pandemic has disrupted our operations and will likely continue to affect our business. Specifically, many
of our sales and service organizations throughout the Americas, Europe and Asia Pacific have, at one time or another, been
subject to temporary closures or otherwise been required to adopt remote work strategies. And, we may continue to
experience additional temporary facility closures in response to government mandates and/or the incidence of additional
contagion spread.
Additionally, the COVID-19 outbreak has disrupted and could in the future disrupt our ability to deliver and/or install
machines, our procurement of supplies for our operations, and our customers’ purchasing behavior or decisions. The
COVID-19 pandemic has resulted in significantly reduced demand for our products, which could continue for an extended
period of time. Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or business partners are
located have had and could continue to have a material adverse effect on our business, results of operations, cash flows,
and financial condition.
Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and
financial markets, which increases the cost of capital and adversely impacts access to capital for both our company and
our customers and suppliers. In addition, resulting changes in our access to or cost of capital, expected cash flows, or other
factors could cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write down
goodwill for the amount of the impairment. The duration and scope of the COVID-19 pandemic remains uncertain and,
therefore, we cannot reasonably estimate its potential impact on our business, financial condition, or results of operations,
but such impact has been, and could continue to be, material.
Risks Related to Our Industry and International Operations
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 have adversely affected, and may in the future adversely affect, our results of
operations and financial condition.
Our international operations pose additional risks that may adversely impact sales and earnings.
During fiscal 2020, approximately 61% of our revenues were derived from sales to customers located outside of the
Americas. In addition, our main manufacturing facilities are located outside of the U.S. Our international operations are
subject to a number of risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
trade barriers;
regional economic uncertainty and nationalistic trade strategies;
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 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.
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 61% of our revenues in fiscal
2020, 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
16
17
17
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.
acceptance, our business would be materially adversely affected. Developments by others may render our products or
technologies obsolete or noncompetitive.
We compete with larger companies that have greater financial resources, and our business could be harmed by
competitors’ actions.
The markets in which our products are sold are extremely competitive and highly fragmented. In marketing our products,
we compete with other manufacturers in terms of quality, reliability, price, value, delivery time, service, and technological
characteristics. We compete with a number of U.S., European, and Asian competitors, most of which are larger 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.
The United Kingdom's withdrawal from the European Union could have an adverse impact on our business, financial
condition, operating results, and cash flows.
On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly referred to
as “Brexit.” The U.K. and E.U. agreed to participate in a transition period (the “Transition Period”), due to expire on
December 31, 2020, to negotiate a trade agreement and other aspects of their future relationship. During the Transition
Period, free trade has continued and will continue between the U.K. and E.U. without checks or extra charges. Following
the Transition Period, the U.K. will no longer be a part of the single market and customs union of the E.U. In December
2020, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic
and political issues (the “December 2020 Brexit Deal”) – potentially avoiding some of the anticipated disruption of a no-
deal, “hard” Brexit.
We have operations in the U.K. related to Hurco Europe Ltd. (“HEL”), our sales and service business unit located there.
Changes resulting from Brexit and the newly-announced December 2020 Brexit Deal could subject us or our subsidiaries,
including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases
in prices, fees, taxes or tariffs on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold
between the U.K. and the E.U., extra charges, and/or difficulty staffing. We are in the process of evaluating the potential
impact of Brexit and the December 2020 Brexit Deal on us, our subsidiaries, including HEL, our business, and our future
operations, operating results, and cash flows.
In addition, we do not know if the U.K. and E.U. will succeed in negotiating certain terms not addressed or covered by the
December 2020 Brexit Deal. Changes in these other terms resulting from Brexit after the Transition Period could, similarly,
subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight,
disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U. and the U.K.,
inspections or barriers on goods sold between the U.K. and the E.U., extra charges, and/or difficulty staffing.
Brexit may cause fluctuations in the value of the U.K. Pound Sterling and E.U. Euro. Fluctuations in exchange rates
between the U.S. Dollar and foreign currencies may adversely affect our expenses, earnings, cash flows, results of
operations, and revenues. Although we attempt to mitigate our exposure to some of our foreign currency
exchange risks through hedging arrangements, our hedging arrangements may not target the potential impacts associated
with fluctuations in currency resulting from Brexit or otherwise effectively offset the adverse financial impacts.
Operational and Strategic Risks
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
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.
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 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.
affect our operating results.
The unanticipated loss of current members of our senior management team and other key personnel may adversely
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.
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;
•
•
18
18
19
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.
acceptance, our business would be materially adversely affected. Developments by others may render our products or
technologies obsolete or noncompetitive.
We compete with larger companies that have greater financial resources, and our business could be harmed by
competitors’ actions.
The markets in which our products are sold are extremely competitive and highly fragmented. In marketing our products,
we compete with other manufacturers in terms of quality, reliability, price, value, delivery time, service, and technological
characteristics. We compete with a number of U.S., European, and Asian competitors, most of which are larger 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.
The United Kingdom's withdrawal from the European Union could have an adverse impact on our business, financial
condition, operating results, and cash flows.
On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly referred to
as “Brexit.” The U.K. and E.U. agreed to participate in a transition period (the “Transition Period”), due to expire on
December 31, 2020, to negotiate a trade agreement and other aspects of their future relationship. During the Transition
Period, free trade has continued and will continue between the U.K. and E.U. without checks or extra charges. Following
the Transition Period, the U.K. will no longer be a part of the single market and customs union of the E.U. In December
2020, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic
and political issues (the “December 2020 Brexit Deal”) – potentially avoiding some of the anticipated disruption of a no-
deal, “hard” Brexit.
We have operations in the U.K. related to Hurco Europe Ltd. (“HEL”), our sales and service business unit located there.
Changes resulting from Brexit and the newly-announced December 2020 Brexit Deal could subject us or our subsidiaries,
including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases
in prices, fees, taxes or tariffs on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold
between the U.K. and the E.U., extra charges, and/or difficulty staffing. We are in the process of evaluating the potential
impact of Brexit and the December 2020 Brexit Deal on us, our subsidiaries, including HEL, our business, and our future
operations, operating results, and cash flows.
In addition, we do not know if the U.K. and E.U. will succeed in negotiating certain terms not addressed or covered by the
December 2020 Brexit Deal. Changes in these other terms resulting from Brexit after the Transition Period could, similarly,
subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight,
disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U. and the U.K.,
inspections or barriers on goods sold between the U.K. and the E.U., extra charges, and/or difficulty staffing.
Brexit may cause fluctuations in the value of the U.K. Pound Sterling and E.U. Euro. Fluctuations in exchange rates
between the U.S. Dollar and foreign currencies may adversely affect our expenses, earnings, cash flows, results of
operations, and revenues. Although we attempt to mitigate our exposure to some of our foreign currency
exchange risks through hedging arrangements, our hedging arrangements may not target the potential impacts associated
with fluctuations in currency resulting from Brexit or otherwise effectively offset the adverse financial impacts.
Operational and Strategic Risks
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
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.
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 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.
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.
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;
18
19
19
•
•
•
•
•
•
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.
For example, in the fourth quarter of fiscal 2020, we recorded a one-time $4.9 million non-cash impairment charge on
goodwill arising from prior acquisitions. The goodwill impairment charge was attributable primarily to the prolonged
ongoing uncertainty in the global markets due to the COVID-19 pandemic.
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
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.”
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 E.U. General Data Protection Regulation (the “GDPR”), also apply
to some of our operations. Legal requirements in these countries relating to the collection, storage, processing and transfer
of personal data continue to evolve. The GDPR imposes, among other things, data protection requirements that include
strict obligations and restrictions on the ability to collect, analyze and transfer E.U. 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
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.
Financial, Credit, and Liquidity Risks
Due to future changes in technology, changes in market demand, or changes in market expectations, portions of our
inventory may become obsolete or excessive.
The technology within our products evolves, and we periodically bring new versions of our machines to market. The
phasing out of an old product involves estimating the amount of inventory required to satisfy the final demand for those
machines and to satisfy future repair part needs. Based on changing customer demand and expectations of delivery times
for repair parts, we may find that we have either obsolete or excess inventory on hand. Because of unforeseen future
changes in technology, market demand or competition, we might have to write off unusable inventory, which would
adversely affect our results of operations.
Assets have become, and may become further, 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
20
20
21
•
•
•
•
•
•
•
•
•
•
•
•
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.
For example, in the fourth quarter of fiscal 2020, we recorded a one-time $4.9 million non-cash impairment charge on
goodwill arising from prior acquisitions. The goodwill impairment charge was attributable primarily to the prolonged
ongoing uncertainty in the global markets due to the COVID-19 pandemic.
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
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.”
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 E.U. General Data Protection Regulation (the “GDPR”), also apply
to some of our operations. Legal requirements in these countries relating to the collection, storage, processing and transfer
of personal data continue to evolve. The GDPR imposes, among other things, data protection requirements that include
strict obligations and restrictions on the ability to collect, analyze and transfer E.U. personal data, a requirement for prompt
notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines
20
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
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.
Financial, Credit, and Liquidity Risks
Due to future changes in technology, changes in market demand, or changes in market expectations, portions of our
inventory may become obsolete or excessive.
The technology within our products evolves, and we periodically bring new versions of our machines to market. The
phasing out of an old product involves estimating the amount of inventory required to satisfy the final demand for those
machines and to satisfy future repair part needs. Based on changing customer demand and expectations of delivery times
for repair parts, we may find that we have either obsolete or excess inventory on hand. Because of unforeseen future
changes in technology, market demand or competition, we might have to write off unusable inventory, which would
adversely affect our results of operations.
Assets have become, and may become further, 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
21
21
determined, which would adversely affect our results of operations for that period. In the fourth quarter of fiscal 2020, we
recorded a one-time $4.9 million non-cash goodwill impairment charge arising from prior acquisitions, and we may be
required to record impairment charges on other assets in the future.
We may experience negative or unforeseen tax consequences.
We may experience negative or unforeseen tax consequences, which could materially adversely affect our results of
operations. We review the probability of the realization of our net deferred tax assets each period based on forecasts of
taxable income in both the U.S. and foreign jurisdictions. This review uses historical results, projected future operating
results based upon approved business plans, eligible carryforward periods, tax-planning opportunities and other relevant
considerations. Adverse changes in our profitability and financial outlook in the U.S. or foreign jurisdictions may require
the creation of a valuation allowance to reduce our net deferred tax assets. Such changes could result in material non-cash
expenses in the period in which the changes are made and could have a material adverse impact on our results of operations
and financial condition. We also earn a significant amount of our operating income from outside the U.S., and any
repatriation of funds representing earnings of foreign subsidiaries may significantly impact our effective tax rates.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political conditions, tax rates
in various jurisdictions, including the U.S., may be subject to significant change. Our effective tax rates could be adversely
affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of
deferred tax assets and liabilities, or changes in tax laws or their interpretation, including tax laws in the U.S. Similarly,
changes in tax laws or regulations, including those in the U.S., could negatively impact our effective tax rate and results
of operations. A change in a statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related
to the relevant jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit
recorded in our Consolidated Statements of Income for that period.
In December 2017, the U.S. passed the Tax Cuts and Jobs Act. The Company has evaluated and recorded the aggregate
impact of this passed legislation on our financial condition, cash flows and results of operations. Any benefits associated
with lower U.S. corporate tax rates could be reduced or outweighed by other tax changes adverse to our business or
operations, such as new or additional taxes imposed on earnings and/or reinvested earnings of our foreign subsidiaries.
The aggregate impact of such legislation, including adverse future regulatory guidance, could have a material adverse
impact on our cash flows and results of operations.
Other changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse
change in the treatment of an item of income or expense, could result in a material increase in our tax expense. For example,
changes in the tax laws of foreign jurisdictions could arise as a result of the “base erosion and profit shifting” project
undertaken by the Organisation for Economic Co-operation and Development (“OECD”). The OECD, which represents a
coalition of member countries, has recommended changes to numerous long-standing tax principles. These changes, as
adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes.
An increase in the LIBOR rate or a phase-out or replacement of LIBOR with a benchmark rate that is higher or more
volatile than the LIBOR rate could increase our cost of borrowing and could adversely affect our financial position.
The interest rates applicable to certain of our debt obligations are based on a fluctuating rate of interest determined by
reference to the London Interbank Offered Rate (“LIBOR”). Any increase in interest rates applicable to our debt
obligations would increase our cost of borrowing and could adversely affect our financial position, results of operations,
or cash flows. Further, in July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it
intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The cessation
date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark
Administration until mid-2023. In response to concerns regarding the future of LIBOR, the Board of Governors of the
Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee
(“ARRC”) to identify alternatives to LIBOR. The ARRC has recommended a benchmark replacement procedures to assist
issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation. The initial steps in the
ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”). Additionally,
it is uncertain if applicable tenors of LIBOR will cease to exist after calendar year 2021, or whether additional reforms to
LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for
LIBOR. At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR
replacement. Additionally, it is uncertain if applicable tenors of LIBOR will cease to exist after calendar year 2021, or
whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance
as a replacement for LIBOR. At this time, all of our debt obligations that are based on LIBOR will mature at the end of
2021, but in anticipation of LIBOR’s phase out, the Second Amendment to our [2018 Credit Agreement] provides for
alternative benchmark rates (including a hard-wired SOFR-based alternative benchmark) as well as transition mechanisms
for selecting another benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed
with the lender. We will continue to monitor the situation and address the potential reference rate changes in future debt
obligations that we may incur. Accordingly, the potential effect of the phase-out or replacement of LIBOR on our cost of
capital cannot yet be determined. Further, the use of an alternative base rate or a benchmark replacement rate as a basis
for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest
we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business,
financial condition or results of operations.
The following table sets forth the principal use, location, and size of each of our facilities:
Principal Uses
Locations
Square Footage
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Corporate headquarters, design and engineering,
product testing, sales and marketing, application
engineering, customer service, manufacturing and
assembly
Manufacturing, assembly, sales, application
engineering and customer service
Manufacturing
Sales, application engineering, customer service,
and warehousing
Indianapolis, Indiana, U.S.
Taichung, Taiwan
Waconia, Minnesota, U.S.
Castell’Alfero, Italy
Ningbo, China
High Wycombe, England
Paris, France
Munich and Verl, Germany
Milan, Italy
Venlo, the Netherlands
Toh Guan, Singapore
Chennai and Pune, India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.
Los Angeles, California, U.S.
Pittsburg, Pennsylvania, U.S.
Shanghai, Qingdao and Kunshan, China
165,000
384,700
61,000
32,300
31,000
26,300
12,800
22,400
12,900
9,700
3,900
10,800
8,900
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 2021 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 currently leased facilities if any of our leases were not renewed at expiration.
22
22
23
determined, which would adversely affect our results of operations for that period. In the fourth quarter of fiscal 2020, we
recorded a one-time $4.9 million non-cash goodwill impairment charge arising from prior acquisitions, and we may be
required to record impairment charges on other assets in the future.
We may experience negative or unforeseen tax consequences.
We may experience negative or unforeseen tax consequences, which could materially adversely affect our results of
operations. We review the probability of the realization of our net deferred tax assets each period based on forecasts of
taxable income in both the U.S. and foreign jurisdictions. This review uses historical results, projected future operating
results based upon approved business plans, eligible carryforward periods, tax-planning opportunities and other relevant
considerations. Adverse changes in our profitability and financial outlook in the U.S. or foreign jurisdictions may require
the creation of a valuation allowance to reduce our net deferred tax assets. Such changes could result in material non-cash
expenses in the period in which the changes are made and could have a material adverse impact on our results of operations
and financial condition. We also earn a significant amount of our operating income from outside the U.S., and any
repatriation of funds representing earnings of foreign subsidiaries may significantly impact our effective tax rates.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Due to economic and political conditions, tax rates
in various jurisdictions, including the U.S., may be subject to significant change. Our effective tax rates could be adversely
affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of
deferred tax assets and liabilities, or changes in tax laws or their interpretation, including tax laws in the U.S. Similarly,
changes in tax laws or regulations, including those in the U.S., could negatively impact our effective tax rate and results
of operations. A change in a statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related
to the relevant jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit
recorded in our Consolidated Statements of Income for that period.
In December 2017, the U.S. passed the Tax Cuts and Jobs Act. The Company has evaluated and recorded the aggregate
impact of this passed legislation on our financial condition, cash flows and results of operations. Any benefits associated
with lower U.S. corporate tax rates could be reduced or outweighed by other tax changes adverse to our business or
operations, such as new or additional taxes imposed on earnings and/or reinvested earnings of our foreign subsidiaries.
The aggregate impact of such legislation, including adverse future regulatory guidance, could have a material adverse
impact on our cash flows and results of operations.
Other changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse
change in the treatment of an item of income or expense, could result in a material increase in our tax expense. For example,
changes in the tax laws of foreign jurisdictions could arise as a result of the “base erosion and profit shifting” project
undertaken by the Organisation for Economic Co-operation and Development (“OECD”). The OECD, which represents a
coalition of member countries, has recommended changes to numerous long-standing tax principles. These changes, as
adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes.
An increase in the LIBOR rate or a phase-out or replacement of LIBOR with a benchmark rate that is higher or more
volatile than the LIBOR rate could increase our cost of borrowing and could adversely affect our financial position.
The interest rates applicable to certain of our debt obligations are based on a fluctuating rate of interest determined by
reference to the London Interbank Offered Rate (“LIBOR”). Any increase in interest rates applicable to our debt
obligations would increase our cost of borrowing and could adversely affect our financial position, results of operations,
or cash flows. Further, in July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it
intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. The cessation
date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark
Administration until mid-2023. In response to concerns regarding the future of LIBOR, the Board of Governors of the
Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee
(“ARRC”) to identify alternatives to LIBOR. The ARRC has recommended a benchmark replacement procedures to assist
issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation. The initial steps in the
ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”). Additionally,
it is uncertain if applicable tenors of LIBOR will cease to exist after calendar year 2021, or whether additional reforms to
LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for
LIBOR. At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR
replacement. Additionally, it is uncertain if applicable tenors of LIBOR will cease to exist after calendar year 2021, or
whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance
as a replacement for LIBOR. At this time, all of our debt obligations that are based on LIBOR will mature at the end of
2021, but in anticipation of LIBOR’s phase out, the Second Amendment to our [2018 Credit Agreement] provides for
alternative benchmark rates (including a hard-wired SOFR-based alternative benchmark) as well as transition mechanisms
for selecting another benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed
with the lender. We will continue to monitor the situation and address the potential reference rate changes in future debt
obligations that we may incur. Accordingly, the potential effect of the phase-out or replacement of LIBOR on our cost of
capital cannot yet be determined. Further, the use of an alternative base rate or a benchmark replacement rate as a basis
for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest
we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business,
financial condition or results of operations.
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
Manufacturing, assembly, sales, application
engineering and customer service
Manufacturing
Sales, application engineering, customer service,
and warehousing
Indianapolis, Indiana, U.S.
Taichung, Taiwan
Waconia, Minnesota, U.S.
Castell’Alfero, Italy
Ningbo, China
High Wycombe, England
Paris, France
Munich and Verl, Germany
Milan, Italy
Venlo, the Netherlands
Toh Guan, Singapore
Shanghai, Qingdao and Kunshan, China
Chennai and Pune, India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.
Los Angeles, California, U.S.
Pittsburg, Pennsylvania, U.S.
165,000
384,700
61,000
32,300
31,000
26,300
12,800
22,400
12,900
9,700
3,900
10,800
8,900
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 2021 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 currently leased facilities if any of our leases were not renewed at expiration.
22
23
23
Item 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”.
There were 102 holders of record of our common stock as of December 31, 2020.
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
Market Information
Holders
Dividend Policy
Statements.
Other Information
Act of 1933, as amended.
During the period covered by this report, we did not sell any equity securities that were not registered under the Securities
The performance graph information is included in Item 9B. Other Information.
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, 2020, the name of each executive officer and his or her age, tenure
as an officer, principal occupation and business experience:
Name
Michael Doar
Gregory S. Volovic
Sonja K. McClelland
Age
65
56
49
Position(s) with the Company
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.
The disclosure under the caption “Equity Compensation Plan Information at 2020 Fiscal Year End” in our 2021 proxy
statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
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 has 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 appointed as Vice President, Secretary,
Treasurer, and Chief Financial Officer in March 2014, and then as 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
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 policy
Item 5.
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”.
Item 4.
MINE SAFETY DISCLOSURES
There were 102 holders of record of our common stock as of December 31, 2020.
Holders
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.
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.
The disclosure under the caption “Equity Compensation Plan Information at 2020 Fiscal Year End” in our 2021 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.
coverages.
None.
Directors.
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
The following information sets forth as of October 31, 2020, 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
65
56
49
Chairman of the Board and Chief Executive Officer
Director, President and Chief Operating Officer
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
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 has 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 appointed as Vice President, Secretary,
Treasurer, and Chief Financial Officer in March 2014, and then as 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
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
The Selected Financial Data presented below has been derived from our consolidated financial statements for the fiscal
years indicated and should be read in conjunction with the consolidated financial statements and related notes set forth
elsewhere herein and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
2017
2016
2020
2019
Year Ended October 31,
2018
(In thousands, except per share amounts)
Statement of Operations Data:
Sales and service fees
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Other income (expense)
Net income (loss)
Earnings (loss) per common share - diluted
Weighted average common shares outstanding-diluted
Dividends declared per common share
Balance Sheet Data:
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Non-current liabilities
Total debt
Shareholders’ equity
—
36,457
41,416
4,903
(9,862)
(941)
(6,247)
77,208 91,806
54,668 58,010
—
22,540 33,796
(1,300)
17,495 21,490
$ 170,627 $ 263,377 $ 300,671 $ 243,667 $ 227,289
70,440
50,824
—
19,616
(731)
13,292
1.99
6,642
0.35
70,564
49,661
—
20,903
(187)
15,115
2.55 $
6,815
0.47 $
(0.93) $
6,670
0.39 $
0.51 $
2.25 $
3.15 $
0.43 $
6,680
6,771
784
$
$
2020
2019
As of October 31,
2018
(Dollars in thousands)
2017
2016
pricing pressures.
$ 251,411 $ 261,861 $ 281,435 $ 246,415 $ 218,381
57,968
70,889
175,526 160,413
3.8
277,808 251,949
8,506
1,476
203,085 185,475
54,632
207,229
4.8
301,065
6,188
—
240,245
50,437
200,974
5.0
295,655
14,070
—
231,148
86,803
194,632
3.2
315,407
5,751
1,434
222,853
3,834
1,507
3.5
26
26
27
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, 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 2020, approximately 46% 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 15% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater
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. These three brands of CNC machine
tools are responsible for the vast majority of our revenue. However, we have added other non-Hurco branded products to
our product portfolio that have contributed product diversity and market penetration opportunity. These non-Hurco
branded products are sold by our wholly-owned distributors and are comprised primarily of other general-purpose vertical
milling centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machines,
metal cutting saws and CNC swill lathes. ProCobots is our wholly-owned subsidiary that provides automation solutions
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 200 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,
the Netherlands, 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.
Item 6.
SELECTED FINANCIAL DATA
Item 7.
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
The Selected Financial Data presented below has been derived from our consolidated financial statements for the fiscal
years indicated and should be read in conjunction with the consolidated financial statements and related notes set forth
elsewhere herein and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
EXECUTIVE OVERVIEW
Statement of Operations Data:
Sales and service fees
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Other income (expense)
Net income (loss)
Year Ended October 31,
2020
2019
2018
2017
2016
(In thousands, except per share amounts)
$ 170,627 $ 263,377 $ 300,671 $ 243,667 $ 227,289
36,457
77,208 91,806
70,564
41,416
54,668 58,010
49,661
4,903
—
—
—
70,440
50,824
—
(9,862)
22,540 33,796
20,903
19,616
(941)
784
(1,300)
(187)
(731)
(6,247)
17,495 21,490
15,115
13,292
Earnings (loss) per common share - diluted
$
(0.93) $
2.55 $
3.15 $
2.25 $
Weighted average common shares outstanding-diluted
6,670
6,815
6,771
6,680
Dividends declared per common share
$
0.51 $
0.47 $
0.43 $
0.39 $
1.99
6,642
0.35
Balance Sheet Data:
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Non-current liabilities
Total debt
Shareholders’ equity
2020
2019
2018
2017
2016
As of October 31,
(Dollars in thousands)
$ 251,411 $ 261,861 $ 281,435 $ 246,415 $ 218,381
50,437
54,632
86,803
70,889
57,968
200,974
207,229
194,632
175,526 160,413
5.0
4.8
3.2
3.5
3.8
295,655
301,065
315,407
277,808 251,949
14,070
—
6,188
—
5,751
1,434
3,834
1,507
8,506
1,476
231,148
240,245
222,853
203,085 185,475
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, 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 2020, approximately 46% 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 15% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater
pricing 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 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. These three brands of CNC machine
tools are responsible for the vast majority of our revenue. However, we have added other non-Hurco branded products to
our product portfolio that have contributed product diversity and market penetration opportunity. These non-Hurco
branded products are sold by our wholly-owned distributors and are comprised primarily of other general-purpose vertical
milling centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machines,
metal cutting saws and CNC swill lathes. ProCobots is our wholly-owned subsidiary that provides automation solutions
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 200 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,
the Netherlands, 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.
26
27
27
Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies
in the countries in which those customers are located (primarily the Euro, Pound Sterling, and Chinese Yuan). Our product
costs are incurred and paid primarily in the New Taiwan Dollar and the U.S. Dollar. Changes in currency exchange rates
may have a material effect on our operating results and consolidated financial statements as reported under U.S. Generally
Accepted Accounting Principles. For example, when the U.S. Dollar weakens in value relative to a foreign currency, sales
made, and expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements, are
higher than would be the case when the U.S. Dollar is stronger. In the comparison of our period-to-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.
We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in
many different countries. The COVID-19 pandemic has had a significant impact on our business and industry during fiscal
2020. Beginning in early 2020, governmental authorities in many of the major global machine tool markets implemented
mandatory stay-at-home or shelter orders requiring most businesses to close or to significantly limit operations, resulting
in a sudden decrease in demand for many goods and services. Although the mandatory stay-at-home or shelter orders in
many jurisdictions permitted our local operations to continue as an essential business or a supplier to critical infrastructure
industries or otherwise with remote work capabilities, many of our customers experienced, and continue to experience,
significant disruptions in their business operations and normal purchasing cycles. We cannot predict the duration or scope
of impact of the COVID-19 pandemic and the negative financial impact to our results cannot be reasonably estimated, but
we believe the impact has been material thus far with regard to revenues, income from operations, and cash flow from
operations and could continue to be material in the near future. To date, we have not experienced material disruptions in
our supply chain and have not completely ceased operations at any of our global facilities, but have implemented remote
working capabilities, as appropriate or otherwise required under local law. We have also implemented reductions in
headcount and discretionary spending, delayed capital expenditures, and pulled back production activities in an effort to
weather the adverse business climate. We have also received stimulus in various countries to support operations and
implemented tax deferrals and provisions that were available to us. We will continue to evaluate and disclose any trends
and uncertainties that have had or are reasonably expected to have, a material effect on our consolidated financial position,
results of operations, changes in shareholders’ equity and cash flows for and at the end of each interim period.
Results of Operations
The following table presents, for the fiscal years indicated, selected items from the Consolidated Statements of Operations
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.
The following table sets forth net sales and service fees by product group and services for the fiscal years ended October
31, 2020 and 2019 (dollars in thousands):
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, 2020
and 2019 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
Increase/Decrease
2020
2019
Amount
%
$ 67,498
39 % $ 99,064
37 % $ (31,566)
77,936
25,193
46 % 133,675
15 % 30,638
51 % (55,739)
12 % (5,445)
$ 170,627
100 % $ 263,377
100 % $ (92,750)
(32) %
(42) %
(18) %
(35) %
Sales in the Americas for fiscal 2020 decreased by 32%, compared to fiscal 2019, primarily due to a reduced volume of
shipments of Hurco, Milltronics, and Takumi machines. The reduction in shipment volume was mainly attributable to
government-mandated COVID-19 stay-at-home or shelter orders imposed across the region during portions of fiscal 2020.
Additionally, sales in the Americas in the first half of fiscal 2019 benefitted from strong demand and backlog generated in
the fourth quarter of fiscal 2018.
European sales for fiscal 2020 decreased by 42%, compared to fiscal 2019, and included a favorable currency impact of
less than 1%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The decrease in European
sales for fiscal 2020 was primarily attributable to a reduced volume of shipments of Hurco and Takumi machines and a
decrease in sales of electro-mechanical components and accessories manufactured by our wholly-owned Italian subsidiary,
LCM. Like the Americas, the reduction in shipment volume was mainly driven by government-mandated COVID-19
stay-at-home or shelter orders or other similar operating restrictions imposed across the region during portions of fiscal
2020. Additionally, sales in Europe during the first half of fiscal 2019 benefitted from higher demand and backlog coming
off fiscal 2018, the recent peak of the European market, particularly for Germany.
Asian Pacific sales for fiscal 2020 decreased by 18%, compared to fiscal 2019, and included a favorable currency impact
of less than 1%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The year-over-year
decrease in Asian Pacific sales resulted primarily from a reduction in the volume of shipments of Hurco and Takumi
machines in all Asian Pacific regions, where our customers are located, as many customers were negatively impacted by
government-mandated COVID-19 stay-at-home orders or similar operating restrictions during the first six months of fiscal
2020.
Net Sales and Service Fees by Product Category
Computerized Machine Tools
Computer Control Systems and Software †
Service Parts
Service Fees
Total
machine systems.
Fiscal Year Ended October 31,
Increase/Decrease
2020
2019
Amount
%
$ 139,577 82 % $ 223,735 85 % $ (84,158)
1,699
1 %
2,818
1 % (1,119)
22,484
13 % 27,854
11 % (5,370)
6,867
4 %
8,970
3 % (2,103)
(38) %
(40) %
(19) %
(23) %
$ 170,627 100 % $ 263,377 100 % $ (92,750)
(35) %
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
Sales and service fees
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Net income (loss)
Fiscal 2020 Compared to Fiscal 2019
100 %
21 %
24 %
3 %
(6) %
(4) %
100 %
29 %
21 %
—
9 %
7 %
100 %
31 %
19 %
—
11 %
7 %
(35) %
(53) %
(24) %
100 %
(144) %
(136) %
(12) %
(16) %
(6) %
—
(33) %
(19) %
Sales and Service Fees. Sales and service fees for fiscal 2020 were $170.6 million, a decrease of $92.8 million, or 35%,
compared to fiscal 2019, and included a favorable currency impact of $0.6 million, or less than 1%, when translating
foreign sales to U.S. Dollars for financial reporting purposes.
28
28
29
Year-to-Year % Change
Increase/Decrease
’20 vs. ’19
’19 vs. ’18
Percentage of Revenues
2019
2020
2018
Increase/Decrease
%
(32) %
(42) %
(18) %
(35) %
Amount
37 % $ (31,566)
51 % (55,739)
12 % (5,445)
100 % $ (92,750)
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, 2020
and 2019 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2019
2020
39 % $ 99,064
$ 67,498
46 % 133,675
77,936
15 % 30,638
25,193
100 % $ 263,377
$ 170,627
Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies
in the countries in which those customers are located (primarily the Euro, Pound Sterling, and Chinese Yuan). Our product
costs are incurred and paid primarily in the New Taiwan Dollar and the U.S. Dollar. Changes in currency exchange rates
may have a material effect on our operating results and consolidated financial statements as reported under U.S. Generally
Accepted Accounting Principles. For example, when the U.S. Dollar weakens in value relative to a foreign currency, sales
made, and expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements, are
higher than would be the case when the U.S. Dollar is stronger. In the comparison of our period-to-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.
We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in
many different countries. The COVID-19 pandemic has had a significant impact on our business and industry during fiscal
2020. Beginning in early 2020, governmental authorities in many of the major global machine tool markets implemented
mandatory stay-at-home or shelter orders requiring most businesses to close or to significantly limit operations, resulting
in a sudden decrease in demand for many goods and services. Although the mandatory stay-at-home or shelter orders in
many jurisdictions permitted our local operations to continue as an essential business or a supplier to critical infrastructure
industries or otherwise with remote work capabilities, many of our customers experienced, and continue to experience,
significant disruptions in their business operations and normal purchasing cycles. We cannot predict the duration or scope
of impact of the COVID-19 pandemic and the negative financial impact to our results cannot be reasonably estimated, but
we believe the impact has been material thus far with regard to revenues, income from operations, and cash flow from
operations and could continue to be material in the near future. To date, we have not experienced material disruptions in
our supply chain and have not completely ceased operations at any of our global facilities, but have implemented remote
working capabilities, as appropriate or otherwise required under local law. We have also implemented reductions in
headcount and discretionary spending, delayed capital expenditures, and pulled back production activities in an effort to
weather the adverse business climate. We have also received stimulus in various countries to support operations and
implemented tax deferrals and provisions that were available to us. We will continue to evaluate and disclose any trends
and uncertainties that have had or are reasonably expected to have, a material effect on our consolidated financial position,
results of operations, changes in shareholders’ equity and cash flows for and at the end of each interim period.
Results of Operations
amounts of those items.
The following table presents, for the fiscal years indicated, selected items from the Consolidated Statements of Operations
expressed as a percentage of our worldwide sales and service fees and the year-to-year percentage changes in the dollar
Selling, general and administrative expenses
Sales and service fees
Gross profit
Goodwill impairment
Operating income (loss)
Net income (loss)
Fiscal 2020 Compared to Fiscal 2019
Percentage of Revenues
Year-to-Year % Change
2020
2019
2018
Increase/Decrease
’20 vs. ’19
’19 vs. ’18
100 %
100 %
100 %
21 %
24 %
3 %
(6) %
(4) %
29 %
21 %
—
9 %
7 %
31 %
19 %
—
11 %
7 %
(35) %
(53) %
(24) %
100 %
(144) %
(136) %
(12) %
(16) %
(6) %
—
(33) %
(19) %
Sales and Service Fees. Sales and service fees for fiscal 2020 were $170.6 million, a decrease of $92.8 million, or 35%,
compared to fiscal 2019, and included a favorable currency impact of $0.6 million, or less than 1%, when translating
foreign sales to U.S. Dollars for financial reporting purposes.
Sales in the Americas for fiscal 2020 decreased by 32%, compared to fiscal 2019, primarily due to a reduced volume of
shipments of Hurco, Milltronics, and Takumi machines. The reduction in shipment volume was mainly attributable to
government-mandated COVID-19 stay-at-home or shelter orders imposed across the region during portions of fiscal 2020.
Additionally, sales in the Americas in the first half of fiscal 2019 benefitted from strong demand and backlog generated in
the fourth quarter of fiscal 2018.
European sales for fiscal 2020 decreased by 42%, compared to fiscal 2019, and included a favorable currency impact of
less than 1%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The decrease in European
sales for fiscal 2020 was primarily attributable to a reduced volume of shipments of Hurco and Takumi machines and a
decrease in sales of electro-mechanical components and accessories manufactured by our wholly-owned Italian subsidiary,
LCM. Like the Americas, the reduction in shipment volume was mainly driven by government-mandated COVID-19
stay-at-home or shelter orders or other similar operating restrictions imposed across the region during portions of fiscal
2020. Additionally, sales in Europe during the first half of fiscal 2019 benefitted from higher demand and backlog coming
off fiscal 2018, the recent peak of the European market, particularly for Germany.
Asian Pacific sales for fiscal 2020 decreased by 18%, compared to fiscal 2019, and included a favorable currency impact
of less than 1%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The year-over-year
decrease in Asian Pacific sales resulted primarily from a reduction in the volume of shipments of Hurco and Takumi
machines in all Asian Pacific regions, where our customers are located, as many customers were negatively impacted by
government-mandated COVID-19 stay-at-home orders or similar operating restrictions during the first six months of fiscal
2020.
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, 2020 and 2019 (dollars in thousands):
Fiscal Year Ended October 31,
2019
2020
Increase/Decrease
Amount
%
(38) %
Computerized Machine Tools
(40) %
Computer Control Systems and Software †
(19) %
Service Parts
(23) %
Service Fees
Total
(35) %
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
$ 139,577 82 % $ 223,735 85 % $ (84,158)
1 % (1,119)
11 % (5,370)
3 % (2,103)
$ 170,627 100 % $ 263,377 100 % $ (92,750)
2,818
1 %
13 % 27,854
8,970
4 %
1,699
22,484
6,867
28
29
29
Sales of computerized machine tools and computer control systems and software for fiscal 2020 decreased by 38% and
40%, respectively, compared to fiscal 2019, and each included a favorable currency impact of less than 1%. Sales of
service parts and service fees decreased by 19% and 23%, respectively, during fiscal 2020, compared to fiscal 2019, and
each included a favorable currency impact of less than 1%. The decreases in all product categories were primarily due to
a reduced volume of shipments of Hurco, Milltronics and Takumi machines, parts, and services provided, as well as the
impact of government-mandated COVID-19 restrictions across all regions.
Orders and Backlog. Orders for fiscal 2020 were $166.9 million, a decrease of $74.2 million, or 31%, compared to fiscal
2019, and included a favorable currency impact of $1.2 million, or less than 1%, 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, 2020 and
2019 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2020
2019
41 % $ 89,136
$ 67,577
46 % 120,191
77,079
13 % 31,779
22,282
100 % $ 241,106
$ 166,938
Increase/Decrease
%
Amount
37 % $ (21,559)
50 % (43,112)
13 % (9,497)
100 % $ (74,168)
(24) %
(36) %
(30) %
(31) %
Orders in the Americas for fiscal 2020 decreased by 24%, compared to fiscal 2019, primarily due to decreased customer
demand for Hurco, Milltronics and Takumi machines during the COVID-19 pandemic. Orders in the Americas of $17.2
million for the fourth quarter of fiscal 2020 reflected a slight improvement over orders in the second and third quarters of
fiscal 2020 of $15.9 million and $16.3 million, respectively, but fell short of pre-pandemic order levels in the first quarter
of $18.2 million.
European orders for fiscal 2020 decreased by 36%, compared to fiscal 2019, and included a favorable currency impact of
less than 1%, 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, and a decrease in sales of electro-mechanical components
and accessories manufactured by LCM, during the COVID-19 pandemic. European orders for the fourth quarter of fiscal
2020 were the highest quarter of the fiscal year at $25.6 million, rebounding from the fiscal year low third quarter orders
of $14.2 million, second quarter orders of $15.6 million, and first quarter pre-pandemic orders of $21.7 million.
Asian Pacific orders for fiscal 2020 decreased by 30%, compared to fiscal 2019, and included a favorable currency impact
of less than 1%, when translating foreign orders to U.S. Dollars. The year-over-year decrease in Asian Pacific orders was
driven primarily by a reduction in customer demand for Hurco and Takumi machines during the COVID-19 pandemic
throughout the Asian Pacific region where our customers are located. Asian Pacific orders for the fourth quarter of fiscal
2020 reflected the same trend as the European orders, marking the highest quarter of orders of fiscal 2020 at $5.9 million,
outpacing the third quarter orders of $5.6 million, second quarter orders of $5.1 million, and first quarter orders of $5.7
million.
Backlog at October 31, 2020 decreased to $29.9 million from $32.7 million at October 31, 2019, primarily due to a
reduction in customer demand during fiscal 2020. We do not believe backlog is a useful measure of past performance or
indicative of future performance. Backlog orders as of October 31, 2020 are expected to be fulfilled in fiscal 2021.
Gross Profit. Gross profit for fiscal 2020 was $36.5 million, or 21% of sales, compared to $77.2 million, or 29% of sales,
for fiscal 2019. The decrease in gross profit as a percentage of sales was primarily due to lower sales across all sales
regions, particularly the European sales region where we typically sell higher-priced, higher-performance machines,
competitive pricing pressures on a global basis, and the negative impact of fixed costs leveraged against lower sales and
production volumes.
30
30
31
Operating Expenses. Selling, general, and administrative expenses for fiscal 2020 were $41.4 million, or 24% of sales,
compared to $54.7 million, or 21% of sales, for fiscal 2019, and included an unfavorable currency impact of $0.3 million,
when translating foreign expenses to U.S. Dollars for financial reporting purposes. Selling, general, and administrative
expenses for fiscal 2020 trended downward as a percentage of sales from the first half of fiscal 2020 to the second half of
fiscal 2020 by approximately 5% due to the implementation of cost reduction plans, including changes in employee
headcount, decreases in incentive and performance compensation, and reductions in other discretionary spending, partially
offset by increased operating expenses associated with ProCobots, the U.S.-based automation integration business acquired
by Hurco in the fourth quarter of fiscal 2019, and the unfavorable currency impact when translating foreign expenses to
U.S Dollars for financial reporting purposes.
Operating Income (Loss). The operating loss for fiscal 2020 was $9.9 million, or (6%) of sales, compared to operating
income of $22.5 million, or 9% of sales, for fiscal 2019. The year-over-year decrease from operating income to operating
loss was primarily due to reduced sales volume that resulted from government-mandated stay-at-home or shelter orders
imposed across the globe during 2020. The operating loss for fiscal 2020 included a one-time $4.9 million non-cash
goodwill impairment charge attributable primarily to the prolonged ongoing uncertainty in the global markets due to the
COVID-19 pandemic.
Other Expense, Net. Other expense, net for fiscal 2020 increased by $0.6 million from fiscal 2019, due mainly to a
reduction in foreign currency exchange losses in fiscal 2020, compared to fiscal 2019.
Provision for Income Taxes. We recorded an income tax benefit of $4.6 million for fiscal 2020, compared to income tax
expense of $5.8 million for fiscal 2019. During the third and fourth quarters of fiscal 2020, we assessed and recorded the
year-to-date impact of recent changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was
signed into law in the U.S. on March 27, 2020. The CARES Act included economic relief and modifications, most notably
the net operating loss carryback provisions. In addition, the year-over-year changes in our income tax benefits and expenses
reflected the shift in the geographic mix of income and loss among international tax jurisdictions, which resulted in changes
in foreign tax credits, deductions for foreign derived intangible income, and recording of a provision for global intangible
low taxed income.
Net Income (Loss). Net loss for fiscal 2020 was $6.2 million, or $(0.93) per diluted share, a decrease of $23.7 million, or
136%, from fiscal 2019 net income of $17.5 million, or $2.55 per diluted share. The year-over-year decrease from net
income to net loss was primarily due to reduced sales volume that resulted from government-mandated stay-at-home or
shelter orders imposed across the globe during 2020. The net loss for fiscal 2020 included a one-time $4.9 million non-
cash goodwill impairment charge attributable primarily to the prolonged ongoing uncertainty in the global markets due to
the COVID-19 pandemic.
Fiscal 2019 Compared to Fiscal 2018
sales to U.S. Dollars for financial reporting purposes.
Net Sales and Service Fees by Geographic Region
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
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,
Increase/Decrease
2019
2018
Amount
%
$ 99,064
37 % $ 90,902
30 % $
8,162
133,675
30,638
51 % 166,202
12 % 43,567
55 % (32,527)
15 % (12,929)
$ 263,377
100 % $ 300,671
100 % $ (37,294)
9 %
(20) %
(30) %
(12) %
Dollars.
2019 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Sales of computerized machine tools and computer control systems and software for fiscal 2020 decreased by 38% and
40%, respectively, compared to fiscal 2019, and each included a favorable currency impact of less than 1%. Sales of
service parts and service fees decreased by 19% and 23%, respectively, during fiscal 2020, compared to fiscal 2019, and
each included a favorable currency impact of less than 1%. The decreases in all product categories were primarily due to
a reduced volume of shipments of Hurco, Milltronics and Takumi machines, parts, and services provided, as well as the
impact of government-mandated COVID-19 restrictions across all regions.
Orders and Backlog. Orders for fiscal 2020 were $166.9 million, a decrease of $74.2 million, or 31%, compared to fiscal
2019, and included a favorable currency impact of $1.2 million, or less than 1%, when translating foreign orders to U.S.
The following table sets forth new orders booked by geographic region for the fiscal years ended October 31, 2020 and
Fiscal Year Ended October 31,
Increase/Decrease
2020
2019
Amount
%
$ 67,577
41 % $ 89,136
77,079
22,282
$ 166,938
46 % 120,191
13 % 31,779
37 % $ (21,559)
50 % (43,112)
13 % (9,497)
100 % $ 241,106
100 % $ (74,168)
(24) %
(36) %
(30) %
(31) %
Orders in the Americas for fiscal 2020 decreased by 24%, compared to fiscal 2019, primarily due to decreased customer
demand for Hurco, Milltronics and Takumi machines during the COVID-19 pandemic. Orders in the Americas of $17.2
million for the fourth quarter of fiscal 2020 reflected a slight improvement over orders in the second and third quarters of
fiscal 2020 of $15.9 million and $16.3 million, respectively, but fell short of pre-pandemic order levels in the first quarter
of $18.2 million.
European orders for fiscal 2020 decreased by 36%, compared to fiscal 2019, and included a favorable currency impact of
less than 1%, 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, and a decrease in sales of electro-mechanical components
and accessories manufactured by LCM, during the COVID-19 pandemic. European orders for the fourth quarter of fiscal
2020 were the highest quarter of the fiscal year at $25.6 million, rebounding from the fiscal year low third quarter orders
of $14.2 million, second quarter orders of $15.6 million, and first quarter pre-pandemic orders of $21.7 million.
Asian Pacific orders for fiscal 2020 decreased by 30%, compared to fiscal 2019, and included a favorable currency impact
of less than 1%, when translating foreign orders to U.S. Dollars. The year-over-year decrease in Asian Pacific orders was
driven primarily by a reduction in customer demand for Hurco and Takumi machines during the COVID-19 pandemic
throughout the Asian Pacific region where our customers are located. Asian Pacific orders for the fourth quarter of fiscal
2020 reflected the same trend as the European orders, marking the highest quarter of orders of fiscal 2020 at $5.9 million,
outpacing the third quarter orders of $5.6 million, second quarter orders of $5.1 million, and first quarter orders of $5.7
million.
Backlog at October 31, 2020 decreased to $29.9 million from $32.7 million at October 31, 2019, primarily due to a
reduction in customer demand during fiscal 2020. We do not believe backlog is a useful measure of past performance or
indicative of future performance. Backlog orders as of October 31, 2020 are expected to be fulfilled in fiscal 2021.
Gross Profit. Gross profit for fiscal 2020 was $36.5 million, or 21% of sales, compared to $77.2 million, or 29% of sales,
for fiscal 2019. The decrease in gross profit as a percentage of sales was primarily due to lower sales across all sales
regions, particularly the European sales region where we typically sell higher-priced, higher-performance machines,
competitive pricing pressures on a global basis, and the negative impact of fixed costs leveraged against lower sales and
production volumes.
Operating Expenses. Selling, general, and administrative expenses for fiscal 2020 were $41.4 million, or 24% of sales,
compared to $54.7 million, or 21% of sales, for fiscal 2019, and included an unfavorable currency impact of $0.3 million,
when translating foreign expenses to U.S. Dollars for financial reporting purposes. Selling, general, and administrative
expenses for fiscal 2020 trended downward as a percentage of sales from the first half of fiscal 2020 to the second half of
fiscal 2020 by approximately 5% due to the implementation of cost reduction plans, including changes in employee
headcount, decreases in incentive and performance compensation, and reductions in other discretionary spending, partially
offset by increased operating expenses associated with ProCobots, the U.S.-based automation integration business acquired
by Hurco in the fourth quarter of fiscal 2019, and the unfavorable currency impact when translating foreign expenses to
U.S Dollars for financial reporting purposes.
Operating Income (Loss). The operating loss for fiscal 2020 was $9.9 million, or (6%) of sales, compared to operating
income of $22.5 million, or 9% of sales, for fiscal 2019. The year-over-year decrease from operating income to operating
loss was primarily due to reduced sales volume that resulted from government-mandated stay-at-home or shelter orders
imposed across the globe during 2020. The operating loss for fiscal 2020 included a one-time $4.9 million non-cash
goodwill impairment charge attributable primarily to the prolonged ongoing uncertainty in the global markets due to the
COVID-19 pandemic.
Other Expense, Net. Other expense, net for fiscal 2020 increased by $0.6 million from fiscal 2019, due mainly to a
reduction in foreign currency exchange losses in fiscal 2020, compared to fiscal 2019.
Provision for Income Taxes. We recorded an income tax benefit of $4.6 million for fiscal 2020, compared to income tax
expense of $5.8 million for fiscal 2019. During the third and fourth quarters of fiscal 2020, we assessed and recorded the
year-to-date impact of recent changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was
signed into law in the U.S. on March 27, 2020. The CARES Act included economic relief and modifications, most notably
the net operating loss carryback provisions. In addition, the year-over-year changes in our income tax benefits and expenses
reflected the shift in the geographic mix of income and loss among international tax jurisdictions, which resulted in changes
in foreign tax credits, deductions for foreign derived intangible income, and recording of a provision for global intangible
low taxed income.
Net Income (Loss). Net loss for fiscal 2020 was $6.2 million, or $(0.93) per diluted share, a decrease of $23.7 million, or
136%, from fiscal 2019 net income of $17.5 million, or $2.55 per diluted share. The year-over-year decrease from net
income to net loss was primarily due to reduced sales volume that resulted from government-mandated stay-at-home or
shelter orders imposed across the globe during 2020. The net loss for fiscal 2020 included a one-time $4.9 million non-
cash goodwill impairment charge attributable primarily to the prolonged ongoing uncertainty in the global markets due to
the COVID-19 pandemic.
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,
2018
2019
37 % $ 90,902
51 % 166,202
12 % 43,567
100 % $ 300,671
$ 99,064
133,675
30,638
$ 263,377
Increase/Decrease
%
Amount
30 % $
8,162
55 % (32,527)
15 % (12,929)
100 % $ (37,294)
9 %
(20) %
(30) %
(12) %
30
31
31
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 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):
indicative of future performance.
Fiscal Year Ended October 31,
2018
2019
Increase/Decrease
%
Amount
(15) %
Computerized Machine Tools
(2) %
Computer Control Systems and Software †
1 %
Service Parts
4 %
Service Fees
Total
(12) %
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
$ 223,735 85 % $ 261,710 87 % $ (37,975)
(52)
353
380
$ 263,377 100 % $ 300,671 100 % $ (37,294)
2,870
1 %
11 % 27,501
8,590
3 %
2,818
27,854
8,970
1 %
9 %
3 %
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.
Other Income (Expense). 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.
The following table sets forth new orders booked by geographic region for the fiscal years ended October 31, 2019 and
2018 (dollars in thousands):
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 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
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.
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 that 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.
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2019
2018
37 % $ 94,160
$ 89,136
50 % 170,366
120,191
13 % 41,319
31,779
100 % $ 305,845
$ 241,106
Amount
31 % $ (5,024)
56 % (50,175)
13 % (9,540)
100 % $ (64,739)
(5) %
(29) %
(23) %
(21) %
Increase/Decrease
%
32
32
33
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 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):
Fiscal Year Ended October 31,
Increase/Decrease
2019
2018
Amount
%
$ 223,735 85 % $ 261,710 87 % $ (37,975)
(15) %
2,818
1 %
2,870
27,854
11 % 27,501
8,970
3 %
8,590
1 %
9 %
3 %
(52)
353
380
(2) %
1 %
4 %
$ 263,377 100 % $ 300,671 100 % $ (37,294)
(12) %
Computerized Machine Tools
Computer Control Systems and Software †
Service Parts
Service Fees
Total
machine systems.
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
Sales of computerized machine tools and computer control systems and software for fiscal 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 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 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.
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.
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.
Other Income (Expense). 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.
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,
Increase/Decrease
2019
2018
Amount
%
$ 89,136
37 % $ 94,160
120,191
31,779
$ 241,106
50 % 170,366
13 % 41,319
31 % $ (5,024)
56 % (50,175)
13 % (9,540)
100 % $ 305,845
100 % $ (64,739)
(5) %
(29) %
(23) %
(21) %
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 that 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.
32
33
33
Liquidity and Capital Resources
At October 31, 2020, we had cash and cash equivalents of $57.9 million, compared to $56.9 million at October 31, 2019.
The increase in cash and cash equivalents was primarily a result of a decrease in accounts receivable, partially offset by
the repurchase of common stock during the second and third quarters of fiscal 2020, as well as a decrease in accrued
payroll and employee benefits. Approximately 15% of our $57.9 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 $201.0 million at October 31, 2020, compared to $207.2 million
at October 31, 2019. The decrease in working capital was mostly driven by a decrease in accounts receivable and an
increase in operating lease liabilities, partially offset by an increase in prepaid expenses and a decrease in accrued payroll
and employee benefits. Inventories, net were $149.9 million at October 31, 2020, compared to $148.9 million at October
31, 2019. Inventory turns at October 31, 2020 were 0.9, compared to 1.3 turns at October 31, 2019.
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 (a) cash
dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment,
the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not less than
$10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b)
payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as
long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments
made by us for all such repurchases during any fiscal year does not exceed $10.0 million; (3) requiring that we maintain a
minimum working capital of $125.0 million; (4) requiring that we maintain a minimum tangible net worth of $170.0
million; and (5) providing that if the total amount of indebtedness outstanding owed by the Company and its Taiwanese
and Chinese subsidiaries to the lender or its affiliates (the “Specified Outstanding Amount”) exceeds $25.0 million, then
the Company will not permit the amount of unrestricted cash-on-hand of the Company and its subsidiaries to be less than
the Specified Outstanding Amount. We may use the proceeds from advances under the 2018 Credit Agreement for general
corporate purposes.
Capital expenditures were $1.7 million in fiscal 2020, compared to $4.9 million in fiscal 2019. Capital expenditures for
fiscal 2020 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.
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 and 32.5 million Chinese Yuan,
respectively. As uncommitted facilities, both the Taiwan and China credit facilities are subject to review and termination
by the respective underlying lending institution from time to time.
On March 13, 2020, we announced that our Board of Directors approved a share repurchase program in an aggregate
amount of up to $7.0 million. Repurchases under the program could be made in the open market or through privately-
negotiated transactions from time to time through March 11, 2022, subject to applicable laws, regulations, and contractual
provisions. The program could have been amended, suspended, or discontinued at any time and did not commit us to
repurchase any shares of our common stock. During fiscal 2020, we repurchased all $7.0 million in shares of our common
stock. As a result of our repurchase of the maximum aggregate amount under the program, this share repurchase program
has concluded.
In addition, during fiscal 2020, we paid cash dividends to our shareholders of $3.4 million. Future dividends are subject
to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial
condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed
relevant by our Board of Directors from time to time.
On December 31, 2018, we and our subsidiary Hurco B.V. entered into a Credit Agreement with Bank of America, N.A.,
as the lender, which was subsequently amended on each of March 13, 2020 and December 23, 2020 (as amended, the
“2018 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, 2021.
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 1.25% 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 1.25%.
As of October 31, 2020, our existing credit facilities consisted 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. We had no debt or borrowings under any of our
credit facilities at October 31, 2020.
At October 31, 2020, we had an aggregate of $51.8 million available for borrowing under our credit facilities and were in
compliance with all covenants relating thereto.
We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities
when needed in the U.S., Europe or Asia Pacific. We believe our access to cash pooling and our borrowing capacity under
our credit facilities provide adequate liquidity to fund our global operations over the next twelve months and allow us to
remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets,
and payment of dividends.
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, 2020 (in thousands):
Operating leases
Total
Accrued and deferred taxes and credits
6,081
266
551
724
$
18,562 $
4,552 $
5,588 $
2,303 $
Less than
Total
1 Year
1-3 Years
3-5 Years
$
12,481 $
4,286 $
5,037 $
1,579 $
More
than
5 Years
1,579
4,540
6,119
Payments Due by Period
34
34
35
Liquidity and Capital Resources
At October 31, 2020, we had cash and cash equivalents of $57.9 million, compared to $56.9 million at October 31, 2019.
The increase in cash and cash equivalents was primarily a result of a decrease in accounts receivable, partially offset by
the repurchase of common stock during the second and third quarters of fiscal 2020, as well as a decrease in accrued
payroll and employee benefits. Approximately 15% of our $57.9 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 $201.0 million at October 31, 2020, compared to $207.2 million
at October 31, 2019. The decrease in working capital was mostly driven by a decrease in accounts receivable and an
increase in operating lease liabilities, partially offset by an increase in prepaid expenses and a decrease in accrued payroll
and employee benefits. Inventories, net were $149.9 million at October 31, 2020, compared to $148.9 million at October
31, 2019. Inventory turns at October 31, 2020 were 0.9, compared to 1.3 turns at October 31, 2019.
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 (a) cash
dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment,
the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not less than
$10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b)
payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as
long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments
made by us for all such repurchases during any fiscal year does not exceed $10.0 million; (3) requiring that we maintain a
minimum working capital of $125.0 million; (4) requiring that we maintain a minimum tangible net worth of $170.0
million; and (5) providing that if the total amount of indebtedness outstanding owed by the Company and its Taiwanese
and Chinese subsidiaries to the lender or its affiliates (the “Specified Outstanding Amount”) exceeds $25.0 million, then
the Company will not permit the amount of unrestricted cash-on-hand of the Company and its subsidiaries to be less than
the Specified Outstanding Amount. We may use the proceeds from advances under the 2018 Credit Agreement for general
corporate purposes.
Capital expenditures were $1.7 million in fiscal 2020, compared to $4.9 million in fiscal 2019. Capital expenditures for
fiscal 2020 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.
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 and 32.5 million Chinese Yuan,
respectively. As uncommitted facilities, both the Taiwan and China credit facilities are subject to review and termination
by the respective underlying lending institution from time to time.
As of October 31, 2020, our existing credit facilities consisted 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. We had no debt or borrowings under any of our
credit facilities at October 31, 2020.
At October 31, 2020, we had an aggregate of $51.8 million available for borrowing under our credit facilities and were in
compliance with all covenants relating thereto.
We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities
when needed in the U.S., Europe or Asia Pacific. We believe our access to cash pooling and our borrowing capacity under
our credit facilities provide adequate liquidity to fund our global operations over the next twelve months and allow us to
remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets,
and payment of dividends.
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, 2020 (in thousands):
Payments Due by Period
On March 13, 2020, we announced that our Board of Directors approved a share repurchase program in an aggregate
amount of up to $7.0 million. Repurchases under the program could be made in the open market or through privately-
negotiated transactions from time to time through March 11, 2022, subject to applicable laws, regulations, and contractual
provisions. The program could have been amended, suspended, or discontinued at any time and did not commit us to
repurchase any shares of our common stock. During fiscal 2020, we repurchased all $7.0 million in shares of our common
stock. As a result of our repurchase of the maximum aggregate amount under the program, this share repurchase program
has concluded.
In addition, during fiscal 2020, we paid cash dividends to our shareholders of $3.4 million. Future dividends are subject
to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial
condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed
relevant by our Board of Directors from time to time.
On December 31, 2018, we and our subsidiary Hurco B.V. entered into a Credit Agreement with Bank of America, N.A.,
as the lender, which was subsequently amended on each of March 13, 2020 and December 23, 2020 (as amended, the
“2018 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, 2021.
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 1.25% 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 1.25%.
1-3 Years
3-5 Years
More
than
5 Years
Operating leases
Accrued and deferred taxes and credits
Total
$
$
4,286 $
266
4,552 $
5,037 $
551
5,588 $
1,579 $
724
2,303 $
1,579
4,540
6,119
Total
12,481 $
6,081
18,562 $
Less than
1 Year
34
35
35
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 2021 to be approximately $9.7 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, 2020, we had 14 outstanding
third party payment guarantees totaling approximately $0.4 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 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.
estimates.
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
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.
36
36
37
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 2021 to be approximately $9.7 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, 2020, we had 14 outstanding
third party payment guarantees totaling approximately $0.4 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 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.
36
37
37
Impairment of Goodwill and Intangible Assets – Goodwill and indefinite-lived intangibles arising from a business
combination are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must
be reviewed for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise
indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds
the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of the goodwill
amount allocated to that reporting unit. For indefinite-lived intangible assets, if the carrying amount exceeds the fair value,
an impairment loss is recognized in an amount equal to that excess. Intangible assets that are determined to have a finite
life are amortized over their estimated useful lives and are also subject to review for impairment, if indicators of impairment
are identified.
Impairment of Long-Lived Assets – We are required periodically to review the recoverability of certain assets, including
property, plant, and equipment, intangible assets, and goodwill, based on projections of anticipated future cash flows,
including future profitability assessments of various product lines. We estimate cash flows using internal budgets based
on recent sales data.
Capitalized Software Development Costs – Costs incurred to develop computer software products and significant
enhancements to software features of existing products are capitalized as required by FASB guidance relating to
accounting for the costs of computer software to be sold, leased, or otherwise marketed, and such capitalized costs are
amortized over the estimated product life of the related software. The determination as to when in the product development
cycle technological feasibility has been established, and the expected product life, require judgments and estimates by
management and can be affected by technological developments, innovations by competitors, and changes in market
conditions affecting demand. We periodically review the carrying values of these assets and make judgments as to ultimate
realization considering the above-mentioned risk factors.
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.
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, 2020, we had no borrowings outstanding under any of our credit facilities.
Interest Rate Risk
Foreign Currency Exchange Risk
In fiscal 2020, we derived approximately 61% 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 inter-company receivables, payables, and loans 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, 2020, 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):
Forward
Contracts
in Foreign
Forward
Contract
October 31,
Date
2020
Maturity Dates
Notional
Weighted
Amount
Currency
Avg.
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Sale Contracts:
Euro
Pound Sterling
Purchase Contracts:
New Taiwan Dollar*
*New Taiwan Dollars per U.S. Dollar
7,700
2,425
1.1587
1.3038
8,922
3,162
9,004 Nov 2020 - Oct 2021
3,144 Nov 2020 - Oct 2021
385,000
28.4620 *
13,527
13,931 Nov 2020 - Oct 2021
38
38
39
Impairment of Goodwill and Intangible Assets – Goodwill and indefinite-lived intangibles arising from a business
combination are not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must
be reviewed for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise
indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds
the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of the goodwill
amount allocated to that reporting unit. For indefinite-lived intangible assets, if the carrying amount exceeds the fair value,
an impairment loss is recognized in an amount equal to that excess. Intangible assets that are determined to have a finite
life are amortized over their estimated useful lives and are also subject to review for impairment, if indicators of impairment
are identified.
on recent sales data.
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
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.
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, 2020, we had no borrowings outstanding under any of our credit facilities.
Foreign Currency Exchange Risk
In fiscal 2020, we derived approximately 61% 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 inter-company receivables, payables, and loans 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, 2020, 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):
Forward
Contracts
Sale Contracts:
Euro
Pound Sterling
Purchase Contracts:
New Taiwan Dollar*
*New Taiwan Dollars per U.S. Dollar
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2020
Maturity Dates
7,700
2,425
1.1587
1.3038
8,922
3,162
9,004 Nov 2020 - Oct 2021
3,144 Nov 2020 - Oct 2021
385,000
28.4620 *
13,527
13,931 Nov 2020 - Oct 2021
38
39
39
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2020, which were entered into to protect
against the effects of foreign currency fluctuations on inter-company receivables, payables and loans and are not designated
as hedges under this guidance denominated in foreign currencies, were as follows (in thousands, except weighted average
forward rates):
To the Shareholders and
Board of Directors
of Hurco Companies, Inc.
Management’s Annual Report on Internal Control over Financial Reporting
Management of Hurco Companies, Inc. (the “Company”) has assessed the effectiveness of the Company’s internal control
over financial reporting as of October 31, 2020, 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, 2020, 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, 2020. 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
Chief Financial Officer
Indianapolis, Indiana
January 8, 2021
Executive Vice President, Secretary, Treasurer, and
Forward
Contracts
Sale Contracts:
Euro
Pound Sterling
Purchase Contracts:
New Taiwan Dollar
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2020
Maturity Dates
14,112
1,186
1.1372
1.2979
16,047
1,540
16,494 Nov 2020 – Oct 2021
1,537 Nov 2020 – Oct 2021
701,711
28.9949 *
24,201
24,541 Nov 2020 – Oct 2021
* 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 2019. 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 2020 and we entered into a new forward contract for the same notional amount that is set
to mature in November 2021. As of October 31, 2020, we had $947,000 of realized gains and $78,000 of unrealized loss,
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, 2020 were as follows (in
thousands, except weighted average forward rates):
Forward
Contracts
Sale Contracts:
Euro
Notional
Amount
in Foreign Currency
Weighted
Avg.
Contract Amount at
Forward Rates in
U.S. Dollars
Forward Rate Contract Date
October 31, 2020
Maturity Date
3,000
1.1231
3,369
3,494
Nov 2020
40
40
41
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2020, which were entered into to protect
against the effects of foreign currency fluctuations on inter-company receivables, payables and loans and are not designated
as hedges under this guidance denominated in foreign currencies, were as follows (in thousands, except weighted average
forward rates):
Forward
Contracts
Sale Contracts:
Euro
Pound Sterling
Purchase Contracts:
New Taiwan Dollar
Notional
Weighted
Amount
Avg.
in Foreign
Forward
Currency
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2020
Maturity Dates
14,112
1,186
1.1372
1.2979
16,047
1,540
16,494 Nov 2020 – Oct 2021
1,537 Nov 2020 – Oct 2021
* New Taiwan Dollars per U.S. Dollar
701,711
28.9949 *
24,201
24,541 Nov 2020 – Oct 2021
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 2019. 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 2020 and we entered into a new forward contract for the same notional amount that is set
to mature in November 2021. As of October 31, 2020, we had $947,000 of realized gains and $78,000 of unrealized loss,
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, 2020 were as follows (in
thousands, except weighted average forward rates):
Forward
Contracts
Sale Contracts:
Euro
Notional
Amount
Weighted
Avg.
Contract Amount at
Forward Rates in
U.S. Dollars
in Foreign Currency
Forward Rate Contract Date
October 31, 2020
Maturity Date
3,000
1.1231
3,369
3,494
Nov 2020
Management’s Annual Report on Internal Control over Financial Reporting
To the Shareholders and
Board of Directors
of Hurco Companies, Inc.
Management of Hurco Companies, Inc. (the “Company”) has assessed the effectiveness of the Company’s internal control
over financial reporting as of October 31, 2020, 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, 2020, 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, 2020. 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 8, 2021
40
41
41
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
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, 2020 and 2019, the related consolidated statements of operations, comprehensive income
(loss), changes in shareholders' equity, and cash flows for each of the three years in the period ended October 31, 2020,
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, 2020 and 2019,
and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2020, 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, 2020, 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 8, 2021 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 8, 2021
42
42
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, 2020,
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, 2020, 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, 2020 and 2019, the related
consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows, for
each of the three years in the period ended October 31, 2020, and the related notes and schedule listed in Item 15(a) of the
Company, and our report dated January 8, 2021 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.
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 8, 2021
43
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
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, 2020 and 2019, the related consolidated statements of operations, comprehensive income
(loss), changes in shareholders' equity, and cash flows for each of the three years in the period ended October 31, 2020,
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, 2020 and 2019,
and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2020, 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, 2020, 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 8, 2021 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 8, 2021
We have served as the Company's auditor since 2017.
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, 2020,
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, 2020, 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, 2020 and 2019, the related
consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows, for
each of the three years in the period ended October 31, 2020, and the related notes and schedule listed in Item 15(a) of the
Company, and our report dated January 8, 2021 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.
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 8, 2021
42
43
43
Year Ended October 31,
2020
2019
2018
(In thousands)
$
(6,247) $
17,495 $
21,490
Translation gain (loss) of foreign currency financial statements
5,969
550
(3,183)
(Gain) / loss on derivative instruments reclassified into operations, net of tax
of $(126), $(70) and $453, respectively
(421)
(235)
1,355
Gain / (loss) on derivative instruments, net of tax of $118, $183 and $52,
respectively
395
615
155
Total other comprehensive income (loss)
5,943
930
(1,673)
Comprehensive income (loss)
$
(304) $
18,425 $
19,817
The accompanying notes are an integral part of the consolidated financial statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
HURCO COMPANIES, INC.
Sales and service fees
Cost of sales and service
Gross profit
Year Ended October 31,
2020
2018
2019
(In thousands, except per share amounts)
$ 170,627 $ 263,377 $ 300,671
134,170
186,169
208,865
36,457
77,208
91,806
Net income (loss)
Other comprehensive income (loss):
Selling, general and administrative expenses
41,416
54,668
58,010
Goodwill impairment
Operating income (loss)
Interest expense
Interest income
Investment income
Income from equity investments
Other expense, net
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Income (loss) per common share – basic
Weighted average common shares outstanding – basic
Income (loss) per common share – diluted
Weighted average common shares outstanding – diluted
4,903
—
—
(9,862)
22,540
33,796
94
62
130
462
133
356
69
583
100
189
339
639
1,179
555
2,367
(10,803)
23,324
32,496
(4,556)
5,829
11,006
$
(6,247) $
17,495 $
21,490
$
$
(0.93) $
6,670
(0.93) $
6,670
2.57 $
6,759
2.55 $
6,815
3.19
6,700
3.15
6,771
Dividends paid per share
$
0.51 $
0.47 $
0.43
The accompanying notes are an integral part of the consolidated financial statements.
44
44
45
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)
Other comprehensive income (loss):
2020
Year Ended October 31,
2019
(In thousands)
2018
$
(6,247) $
17,495 $
21,490
Translation gain (loss) of foreign currency financial statements
5,969
550
(3,183)
(Gain) / loss on derivative instruments reclassified into operations, net of tax
of $(126), $(70) and $453, respectively
(421)
(235)
1,355
Gain / (loss) on derivative instruments, net of tax of $118, $183 and $52,
respectively
395
615
155
Total other comprehensive income (loss)
5,943
930
(1,673)
Comprehensive income (loss)
$
(304) $
18,425 $
19,817
The accompanying notes are an integral part of the consolidated financial statements.
Selling, general and administrative expenses
41,416
54,668
58,010
Sales and service fees
Cost of sales and service
Gross profit
Goodwill impairment
Operating income (loss)
Interest expense
Interest income
Investment income
Income from equity investments
Other expense, net
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Year Ended October 31,
2020
2019
2018
(In thousands, except per share amounts)
$ 170,627 $ 263,377 $ 300,671
134,170
186,169
208,865
36,457
77,208
91,806
4,903
—
—
(9,862)
22,540
33,796
94
62
130
462
133
356
69
583
100
189
339
639
1,179
555
2,367
(10,803)
23,324
32,496
(4,556)
5,829
11,006
$
(6,247) $
17,495 $
21,490
$
(0.93) $
2.57 $
6,670
6,759
$
(0.93) $
2.55 $
6,670
6,815
3.19
6,700
3.15
6,771
Income (loss) per common share – basic
Weighted average common shares outstanding – basic
Income (loss) per common share – diluted
Weighted average common shares outstanding – diluted
Dividends paid per share
$
0.51 $
0.47 $
0.43
The accompanying notes are an integral part of the consolidated financial statements.
44
45
45
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,401 in 2020 and $891 in 2019
Inventories, net
Derivative assets
Prepaid assets
Other
Total current assets
Property and equipment:
Land
Building
Machinery and equipment
Leasehold improvements
Less accumulated depreciation and amortization
Total property and equipment, net
Non–current assets:
Software development costs, less accumulated amortization
Goodwill
Intangible assets, net
Operating lease - right of use 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
Derivative liabilities
Operating lease liabilities
Accrued payroll and employee benefits
Accrued income taxes
Accrued expenses
Accrued warranty expenses
Total current liabilities
Non–current liabilities:
Deferred income taxes
Accrued tax liability
Operating lease liabilities
Deferred credits and other
Total non–current liabilities
Shareholders’ equity:
Preferred stock: no par value per share, 1,000,000 shares authorized; no shares issued
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized 6,636,906 and
6,967,719 shares issued; and 6,565,163 and 6,767,237 shares outstanding, as of October 31, 2020 and
October 31, 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
As of October 31,
2020
2019
(In thousands, except share
and per share data)
$
$
57,859
27,686
149,864
968
13,803
1,231
251,411
868
7,352
29,195
4,754
42,169
(30,248)
11,921
7,840
—
1,846
11,748
2,479
8,410
32,323
$
295,655
$
$
$
31,710
1,289
872
4,132
6,209
285
4,740
1,200
50,437
131
1,918
7,989
4,032
14,070
—
56,943
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
388
—
11,564
1,936
5,015
1,760
54,632
160
2,036
—
3,992
6,188
—
657
60,997
172,484
(2,990)
231,148
295,655
$
677
66,350
182,151
(8,933)
240,245
301,065
$
The accompanying notes are an integral part of the consolidated financial statements.
46
46
Adjustments to reconcile net income (loss) to net cash provided by (used for)
2020
Year Ended October 31,
2019
(In thousands)
2018
$
(6,247)
$
17,495
$
21,490
Cash flows from operating activities:
Net income (loss)
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
Goodwill impairment charge
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 operating lease assets and liabilities
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
Stock repurchases
Repayment of short-term debt
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
510
(547)
(69)
257
622
4,547
2,058
4,903
15,909
3,461
(4,364)
(2,556)
(6,544)
(1,695)
(119)
370
115
321
10,932
106
(683)
(973)
371
—
(1,179)
67
(3,420)
(498)
(7,000)
—
(10,851)
2,014
916
56,943
(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)
235
(20,227)
77,170
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)
(990)
10,863
66,307
Cash and cash equivalents at end of year
57,859
$
56,943
$
77,170
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
The accompanying notes are an integral part of the consolidated financial statements.
—
487
$
$
11
11,025
$
$
64
6,172
$
$
$
47
Accounts receivable, less allowance for doubtful accounts of $1,401 in 2020 and $891 in 2019
ASSETS
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
Non–current assets:
Software development costs, less accumulated amortization
Goodwill
Intangible assets, net
Operating lease - right of use 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
Derivative liabilities
Operating lease liabilities
Accrued payroll and employee benefits
Accrued income taxes
Accrued expenses
Accrued warranty expenses
Total current liabilities
Non–current liabilities:
Deferred income taxes
Accrued tax liability
Operating lease liabilities
Deferred credits and other
Total non–current liabilities
Shareholders’ equity:
October 31, 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
Preferred stock: no par value per share, 1,000,000 shares authorized; no shares issued
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized 6,636,906 and
6,967,719 shares issued; and 6,565,163 and 6,767,237 shares outstanding, as of October 31, 2020 and
As of October 31,
2020
2019
(In thousands, except share
and per share data)
$
$
$
295,655
$
$
31,710
$
33,031
57,859
27,686
149,864
968
13,803
1,231
251,411
868
7,352
29,195
4,754
42,169
(30,248)
11,921
7,840
—
1,846
11,748
2,479
8,410
32,323
1,289
872
4,132
6,209
285
4,740
1,200
50,437
131
1,918
7,989
4,032
14,070
—
657
60,997
172,484
(2,990)
231,148
56,943
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
938
388
—
11,564
1,936
5,015
1,760
54,632
160
2,036
—
3,992
6,188
—
677
66,350
182,151
(8,933)
240,245
301,065
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) 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
Goodwill impairment charge
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 operating lease assets and liabilities
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
Stock repurchases
Repayment of short-term debt
Net cash provided by (used for) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
2020
Year Ended October 31,
2019
(In thousands)
2018
$
(6,247)
$
17,495
$
21,490
510
(547)
(69)
257
622
4,547
2,058
4,903
15,909
3,461
(4,364)
(2,556)
(6,544)
(1,695)
(119)
370
115
321
10,932
106
(683)
(973)
371
—
(1,179)
67
(3,420)
(498)
(7,000)
—
(10,851)
2,014
916
56,943
(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)
235
(20,227)
77,170
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)
(990)
10,863
66,307
$
$
$
57,859
$
56,943
$
77,170
—
487
$
$
11
11,025
$
$
64
6,172
The accompanying notes are an integral part of the consolidated financial statements.
$
295,655
$
The accompanying notes are an integral part of the consolidated financial statements.
46
47
47
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except shares outstanding)
Balances, October 31, 2017
Net income (loss)
Other comprehensive income (loss)
Exercise of common stock options
Stock–based compensation expense, net of
taxes withheld for vested restricted shares
Dividends paid
Balances, October 31, 2018
Net income (loss)
Other comprehensive income (loss)
Stock–based compensation expense, net of
taxes withheld for vested restricted shares
Dividends paid
Balances, October 31, 2019
Net income (loss)
Other comprehensive income (loss)
Stock-based compensation expense, net of
taxes withheld for vested restricted shares
Exercise of common stock options
Stock repurchases
Dividends paid
Balances, October 31, 2020
Common
Stock
Shares
Common Additional
Paid–In
Stock
Outstanding Amount Capital
Retained
Earnings
6,641,197 $
664 $ 61,344 $ 149,267 $
Accumulated
Other
Comprehensive
Loss
(8,190) $ 203,085
Total
—
—
843
21,490
—
—
—
(1,673)
—
21,490
(1,673)
847
—
—
41,680
40,283
—
—
—
4
4
—
—
—
44,077
—
—
—
5
—
6,723,160 $
672 $ 64,185 $ 167,859 $
1,998
—
—
(2,898)
—
—
2,002
(2,898)
(9,863) $ 222,853
—
—
17,495
—
—
930
17,495
930
6,767,237 $
677 $ 66,350 $ 182,151 $
2,165
—
—
(3,203)
—
—
2,170
(3,203)
(8,933) $ 240,245
—
—
47,750
3,738
(253,562)
—
—
—
5
(25)
—
—
—
(6,247)
—
—
5,943
(6,247)
5,943
1,555
67
(6,975)
—
—
(3,420)
—
1,560
67
(7,000)
(3,420)
(2,990) $ 231,148
—
6,565,163 $
657 $ 60,997 $ 172,484 $
The accompanying notes are an integral part of the consolidated financial statements.
48
48
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an Indiana
corporation) and its wholly–owned subsidiaries (“we”, “us”, “our”, “Hurco” or the “Company”). We have a 35%
ownership interest in a Taiwan affiliate that is accounted for using the equity method. Our investment in that affiliate
was approximately $4.4 million and $4.2 million as of October 31, 2020 and 2019, respectively. That investment is
included in Investments and other assets, net on the accompanying Consolidated Balance Sheets. Inter-company
accounts and transactions have been eliminated.
Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. This
reclassification has no impact on previously reported net income or shareholders’ equity.
Statements of Cash Flows. We consider all highly liquid investments with a stated maturity at the date of purchase of
three months or less to be cash equivalents. Cash flows from hedges are classified consistent with the items being
hedged.
Translation of Foreign Currencies. All balance sheet accounts of non–U.S. 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, 2020, were a net loss of $4.1 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,
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
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
HURCO COMPANIES, INC.
(In thousands, except shares outstanding)
Outstanding Amount Capital
Earnings
Loss
Total
Balances, October 31, 2017
6,641,197 $
664 $ 61,344 $ 149,267 $
(8,190) $ 203,085
Common
Stock
Shares
Common Additional
Stock
Paid–In
Retained
Comprehensive
Accumulated
Other
Balances, October 31, 2018
6,723,160 $
672 $ 64,185 $ 167,859 $
(9,863) $ 222,853
Net income (loss)
Other comprehensive income (loss)
Exercise of common stock options
Stock–based compensation expense, net of
taxes withheld for vested restricted shares
Dividends paid
Net income (loss)
Other comprehensive income (loss)
Stock–based compensation expense, net of
taxes withheld for vested restricted shares
Dividends paid
—
—
843
1,998
21,490
—
—
—
—
(2,898)
(1,673)
—
—
—
—
21,490
(1,673)
847
2,002
(2,898)
—
—
2,165
17,495
—
—
—
(3,203)
—
930
17,495
930
—
—
2,170
(3,203)
—
—
41,680
40,283
—
—
—
44,077
—
—
—
—
—
4
4
—
—
—
5
—
—
—
Balances, October 31, 2019
6,767,237 $
677 $ 66,350 $ 182,151 $
(8,933) $ 240,245
Net income (loss)
Other comprehensive income (loss)
Stock-based compensation expense, net of
taxes withheld for vested restricted shares
Exercise of common stock options
Stock repurchases
Dividends paid
—
—
(6,247)
—
—
47,750
3,738
5
1,555
67
(253,562)
(25)
(6,975)
—
—
—
(3,420)
—
5,943
(6,247)
5,943
—
—
1,560
67
(7,000)
(3,420)
Balances, October 31, 2020
6,565,163 $
657 $ 60,997 $ 172,484 $
(2,990) $ 231,148
The accompanying notes are an integral part of the consolidated financial statements.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of Hurco Companies, Inc. (an Indiana
corporation) and its wholly–owned subsidiaries (“we”, “us”, “our”, “Hurco” or the “Company”). We have a 35%
ownership interest in a Taiwan affiliate that is accounted for using the equity method. Our investment in that affiliate
was approximately $4.4 million and $4.2 million as of October 31, 2020 and 2019, respectively. That investment is
included in Investments and other assets, net on the accompanying Consolidated Balance Sheets. Inter-company
accounts and transactions have been eliminated.
Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. This
reclassification has no impact on previously reported net income or shareholders’ equity.
Statements of Cash Flows. We consider all highly liquid investments with a stated maturity at the date of purchase of
three months or less to be cash equivalents. Cash flows from hedges are classified consistent with the items being
hedged.
Translation of Foreign Currencies. All balance sheet accounts of non–U.S. 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, 2020, were a net loss of $4.1 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,
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
48
49
into derivatives with one counterparty, which is among one of the largest U.S. banks (ranked by assets), in order to
minimize credit risk and, to date, that counterparty has not failed to meet its financial obligations under such contracts.
Derivatives Designated as Hedging Instruments
We had forward contracts outstanding as of October 31, 2020, in Euros, Pound Sterling, and New Taiwan Dollars
with set maturity dates ranging from November 2020 through October 2021. The contract amounts at forward rates in
U.S. Dollars at October 31, 2020 for Euros and Pounds Sterling totaled $18.0 million. The contract amount at forward
rates in U.S. Dollars for New Taiwan Dollars was $24.5 million at October 31, 2020.
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, 2020, in Euros, Pounds Sterling, and New Taiwan Dollars
with set maturity dates ranging from November 2020 through October 2021. The contract amount at forward rates in
U.S. Dollars at October 31, 2020 for Euros and Pounds Sterling was $9.0 million and $3.1 million, respectively. The
contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $13.9 million at October 31, 2020. At
October 31, 2020, we had approximately $395,000 of gains, net of tax, related to cash flow hedges deferred in
Accumulated other comprehensive loss. Of this amount, $262,000 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 2021, 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 2019. We
designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward
method under 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 2020, and we entered into a new forward contract for the same notional amount that is
set to mature in November 2021. As of October 31, 2020, we had a realized gain of $947,000 and an unrealized loss
of $78,000, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss,
related to these forward contracts.
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency
fluctuations on inter-company receivables, payables, and loans 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 Operations consistent with the transaction gain or
loss on the related inter-company receivables, payables and loans denominated in foreign currencies.
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, 2020 and October 31, 2019, all derivative instruments were recorded at fair value
on the balance sheets as follows (in thousands):
Derivatives
Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
2020
2019
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivative assets
$
495 Derivative assets
$
Derivative liabilities $
279 Derivative liabilities $
751
99
Derivative assets
$
Derivative liabilities $
473 Derivative assets
$
593 Derivative liabilities $
640
289
Effect of Derivative Instruments on the Consolidated Balance Sheets, Statements of Changes in Shareholders’
Equity, and Statements of Operations
Derivative instruments had the following effects on our Consolidated Balance Sheets, Statements of Changes in
Shareholders’ Equity, and Statements of Operations, net of tax, during the fiscal years ended October 31, 2020, 2019,
and 2018 (in thousands):
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income (Loss)
Location of
Gain (Loss)
Reclassified
From Other
Comprehensive
Amount of Gain (Loss)
Reclassified from
Other Comprehensive
Income (Loss)
2020
2019
2018
Income (Loss)
2020
2019
2018
Derivatives
Designated as Hedging
Instruments:
(Effective Portion)
Foreign exchange forward
contracts
– Intercompany sales/purchases $
–Net Investment
395 $
(64) $
615 $
128 $
155
136
$
Cost of sales
and service $
421 $
235 $ (1,355)
We did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October 31,
2020, 2019, and 2018.
50
50
51
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, 2020, in Euros, Pounds Sterling, and New Taiwan Dollars
with set maturity dates ranging from November 2020 through October 2021. The contract amount at forward rates in
U.S. Dollars at October 31, 2020 for Euros and Pounds Sterling was $9.0 million and $3.1 million, respectively. The
contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $13.9 million at October 31, 2020. At
October 31, 2020, we had approximately $395,000 of gains, net of tax, related to cash flow hedges deferred in
Accumulated other comprehensive loss. Of this amount, $262,000 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 2021, 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 2019. We
designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward
method under 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 2020, and we entered into a new forward contract for the same notional amount that is
set to mature in November 2021. As of October 31, 2020, we had a realized gain of $947,000 and an unrealized loss
of $78,000, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss,
related to these forward contracts.
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency
fluctuations on inter-company receivables, payables, and loans 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 Operations consistent with the transaction gain or
loss on the related inter-company receivables, payables and loans denominated in foreign currencies.
into derivatives with one counterparty, which is among one of the largest U.S. banks (ranked by assets), in order to
minimize credit risk and, to date, that counterparty has not failed to meet its financial obligations under such contracts.
Derivatives Designated as Hedging Instruments
We had forward contracts outstanding as of October 31, 2020, in Euros, Pound Sterling, and New Taiwan Dollars
with set maturity dates ranging from November 2020 through October 2021. The contract amounts at forward rates in
U.S. Dollars at October 31, 2020 for Euros and Pounds Sterling totaled $18.0 million. The contract amount at forward
rates in U.S. Dollars for New Taiwan Dollars was $24.5 million at October 31, 2020.
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, 2020 and October 31, 2019, all derivative instruments were recorded at fair value
on the balance sheets as follows (in thousands):
Derivatives
Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
2020
2019
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivative assets
$
Derivative liabilities $
495 Derivative assets
$
279 Derivative liabilities $
751
99
Derivative assets
$
Derivative liabilities $
473 Derivative assets
$
593 Derivative liabilities $
640
289
Effect of Derivative Instruments on the Consolidated Balance Sheets, Statements of Changes in Shareholders’
Equity, and Statements of Operations
Derivative instruments had the following effects on our Consolidated Balance Sheets, Statements of Changes in
Shareholders’ Equity, and Statements of Operations, net of tax, during the fiscal years ended October 31, 2020, 2019,
and 2018 (in thousands):
Derivatives
Designated as Hedging
Instruments:
(Effective Portion)
Foreign exchange forward
contracts
– Intercompany sales/purchases $
$
–Net Investment
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income (Loss)
2019
2020
2018
Location of
Gain (Loss)
Reclassified
From Other
Comprehensive
Income (Loss)
Amount of Gain (Loss)
Reclassified from
Other Comprehensive
Income (Loss)
2019
2018
2020
395 $
(64) $
615 $
128 $
155
136
and service $
421 $
235 $ (1,355)
Cost of sales
We did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October 31,
2020, 2019, and 2018.
50
51
51
We recognized the following gains and losses in our Consolidated Statements of Operations during the fiscal years
ended October 31, 2020, 2019, and 2018 on derivative instruments not designated as hedging instruments (in
thousands):
Derivatives
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Location of Gain (Loss)
Recognized in Operations
2020
Amount of Gain (Loss)
Recognized in Operations
2019
2018
Other expense, net
$
(171) $
514 $
(963)
The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for
the fiscal years ended October 31, 2020 and 2019 (in thousands):
Balance, October 31, 2018
Other comprehensive income (loss) before reclassifications
Reclassifications
Balance, October 31, 2019
Other comprehensive income (loss) before reclassifications
Reclassifications
Balance, October 31, 2020
Foreign
Currency
Translation
$
Cash
Flow
Hedges
Total
(10,592) $
550
—
(10,042) $
5,969
—
(4,073) $
729 $ (9,863)
615
1,165
(235)
(235)
1,109 $ (8,933)
6,364
395
(421)
(421)
1,083 $ (2,990)
$
$
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 $2.7 million for fiscal 2020,
$2.6 million for fiscal 2019, and $2.5 million for fiscal 2018.
Revenue Recognition. We design, manufacture, and sell computerized machine tools. Our computer control systems
and software products are primarily sold as integral components of our computerized machine tool products. We also
provide machine tool components, automation integration equipment and solutions for job shops, software options,
control upgrades, accessories and replacement parts for our products, as well as customer service, training, and
applications support.
We recognize revenues from the sale of machine tools, components and accessories and services, and reflect the
consideration to which we expect to be entitled. We record revenues based on a five-step model in accordance with
FASB guidance codified in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with
Customers” (“ASC 606”). In accordance with ASC 606, we have defined contracts as agreements with our customers
and distributors in the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal
52
52
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 these
Notes to Consolidated Financial Statements for further discussion of warranties.
Research and Development Costs. The costs associated with research and development programs for new products
and significant product improvements, other than software development costs, which are eligible for capitalization per
FASB guidance, are expensed as incurred and are included in Selling, general, and administrative expenses. Research
and development expenses totaled $3.5 million, $4.4 million, and $4.7 million, in fiscal 2020, 2019, and 2018,
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
53
We recognized the following gains and losses in our Consolidated Statements of Operations during the fiscal years
ended October 31, 2020, 2019, and 2018 on derivative instruments not designated as hedging instruments (in
thousands):
Derivatives
Recognized in Operations
2020
2019
2018
Location of Gain (Loss)
Amount of Gain (Loss)
Recognized in Operations
Not Designated as Hedging Instruments:
Foreign exchange forward contracts
Other expense, net
$
(171) $
514 $
(963)
The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for
the fiscal years ended October 31, 2020 and 2019 (in thousands):
Other comprehensive income (loss) before reclassifications
Other comprehensive income (loss) before reclassifications
Balance, October 31, 2018
Reclassifications
Balance, October 31, 2019
Reclassifications
Balance, October 31, 2020
Foreign
Currency
Cash
Flow
Translation
Hedges
Total
$
(10,592) $
729 $ (9,863)
$
(10,042) $
1,109 $ (8,933)
550
—
5,969
—
615
(235)
395
(421)
1,165
(235)
6,364
(421)
$
(4,073) $
1,083 $ (2,990)
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 $2.7 million for fiscal 2020,
$2.6 million for fiscal 2019, and $2.5 million for fiscal 2018.
Revenue Recognition. We design, manufacture, and sell computerized machine tools. Our computer control systems
and software products are primarily sold as integral components of our computerized machine tool products. We also
provide machine tool components, automation integration equipment and solutions for job shops, software options,
control upgrades, accessories and replacement parts for our products, as well as customer service, training, and
applications support.
We recognize revenues from the sale of machine tools, components and accessories and services, and reflect the
consideration to which we expect to be entitled. We record revenues based on a five-step model in accordance with
FASB guidance codified in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with
Customers” (“ASC 606”). In accordance with ASC 606, we have defined contracts as agreements with our customers
and distributors in the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal
52
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 these
Notes to Consolidated Financial Statements for further discussion of warranties.
Research and Development Costs. The costs associated with research and development programs for new products
and significant product improvements, other than software development costs, which are eligible for capitalization per
FASB guidance, are expensed as incurred and are included in Selling, general, and administrative expenses. Research
and development expenses totaled $3.5 million, $4.4 million, and $4.7 million, in fiscal 2020, 2019, and 2018,
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
53
53
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 related to software development projects of $1.0 million in fiscal 2020, $1.8 million
in fiscal 2019, and $2.3 million in fiscal 2018. Amortization expense for software development costs was $1.5 million,
$1.0 million, and $1.1 million, for the fiscal years ended October 31, 2020, 2019, and 2018, respectively. Accumulated
amortization at October 31, 2020 and 2019 was $21.0 million and $19.5 million, respectively.
Estimated amortization expense for the remaining unamortized software development costs for the fiscal years ending
October 31, is as follows (in thousands):
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. There
were no impairments recognized with respect to the carrying value of intangible assets for the years ended October 31,
2020, 2019, or 2018.
As of October 31, 2020, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Fiscal Year
2021
2022
2023
2024
2025 and thereafter
$
Amortization Expense
1,369
1,883
1,742
1,503
1,343
Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a business combination are
not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be reviewed
for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise
indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill
exceeds the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of
the goodwill amount allocated to that reporting unit.
We have a total of $4.9 million of goodwill for our single reporting unit, arising from the acquisitions of ProCobots,
LLC (“ProCobots”) ($2.5 million) in 2019, LCM Precision Technology S.r.l. (“LCM”) ($2.2 million) in 2013, and
our wholly-owned distributor located in Michigan ($0.2 million) in 2008. The adverse change in the business climate
resulting from the COVID-19 pandemic created triggering events during the second quarter of fiscal 2020, which
warranted our review of these assets for potential impairment. With the assistance of a third-party expert, we
developed a discounted cash flow model, which included projected growth rates and an appropriate market-participant
discount rate, to compute the fair value of the reporting unit as of April 30, 2020. In addition, the fair value determined
was also compared to the value obtained using a market approach from guideline public company multiples. The
computed fair value of the reporting unit was in excess of our book value of equity as of April 30, 2020, and, therefore,
we determined that goodwill and indefinite-lived assets were not impaired at that time.
Due to the prolonged ongoing uncertainty in the global markets as a result of the COVID-19 pandemic and the net
loss for fiscal 2020, we believed there was a risk that the total cash flow projections of this reporting unit could fall
short of its previous projections, As such, we reperformed the goodwill impairment test as of October 31, 2020 using
a similar discounted cash flow model. As a result of the net loss for fiscal 2020 and the delayed timing of the recovery
period, the total cash flow projected at October 31, 2020 fell short of those projected at April 30, 2020, causing the
fair value of the reporting unit to fall below our book value of equity as of October 31, 2020, thus, resulting in a full
impairment loss of $4.9 million.
The changes in the carrying amounts of goodwill for the fiscal year ended October 31, 2020 were as follows (in
thousands):
Balance as of October 31, 2019
Changes in goodwill acquired
Goodwill impairment
Impact of foreign currency translation
Balance as of October 31, 2020
$
$
5,847
(972)
(4,903)
28
0
54
54
As of October 31, 2019, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Noncompete
Patents
Other
Total
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total
through 2025.
Weighted
Average
Gross
Amortization Intangible Accumulated Net Intangible
Period
Assets
Amortization
Assets
indefinite $
177 $
— $
14 years
15 years
13 years
5 years
6 years
8 years
765
374
713
580
2,972
397
(181)
(199)
(402)
(145)
(2,837)
(368)
$ 5,978 $
(4,132) $
1,846
Weighted
Average
Gross
Amortization Intangible Accumulated Net Intangible
Period
Assets
Amortization
Assets
indefinite $
60 $
— $
13 years
15 years
13 years
6 years
8 years
408
372
683
2,972
375
(114)
(173)
(333)
(2,813)
(341)
$ 4,870 $
(3,774) $
1,096
177
584
175
311
435
135
29
60
294
199
350
159
34
Intangible asset amortization expense was $358,000, $117,000, and $107,000 for fiscal 2020, 2019, and 2018,
respectively. Annual intangible asset amortization expense is estimated to be $280,000 per year for fiscal years 2021
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). The adverse change in the business climate resulting from the COVID-19 pandemic created
triggering events during the second quarter of fiscal 2020, which warranted our review of these assets for potential
impairment as of April 30, 2020. We determined that we have a single asset group due to the interdependent nature
of our operations. We estimated the cash flows during the remaining useful life of the primary asset, and our
undiscounted cash flow was in excess of the book value of our single asset group, and therefore, there was no
impairment indications for our long-lived assets for the period ended April 30, 2020.
Due to the prolonged ongoing uncertainty in the global markets as a result of the COVID-19 pandemic and the net
loss for fiscal 2020, we believed there was a risk that the total cash flow projections could fall short of its previous
55
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 related to software development projects of $1.0 million in fiscal 2020, $1.8 million
in fiscal 2019, and $2.3 million in fiscal 2018. Amortization expense for software development costs was $1.5 million,
$1.0 million, and $1.1 million, for the fiscal years ended October 31, 2020, 2019, and 2018, respectively. Accumulated
amortization at October 31, 2020 and 2019 was $21.0 million and $19.5 million, respectively.
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. There
were no impairments recognized with respect to the carrying value of intangible assets for the years ended October 31,
2020, 2019, or 2018.
Estimated amortization expense for the remaining unamortized software development costs for the fiscal years ending
As of October 31, 2020, the balances of intangible assets, other than goodwill, were as follows (in thousands):
October 31, is as follows (in thousands):
Weighted
Average
Amortization Intangible Accumulated Net Intangible
Period
Amortization
Assets
Assets
Gross
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Noncompete
Patents
Other
Total
indefinite $
14 years
15 years
13 years
5 years
6 years
8 years
177 $
765
374
713
580
2,972
397
$ 5,978 $
— $
(181)
(199)
(402)
(145)
(2,837)
(368)
(4,132) $
177
584
175
311
435
135
29
1,846
As of October 31, 2019, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Weighted
Average
Gross
Amortization Intangible Accumulated Net Intangible
Period
Amortization
Assets
Assets
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Patents
Other
Total
indefinite $
60 $
— $
13 years
15 years
13 years
6 years
8 years
408
372
683
2,972
375
$ 4,870 $
(114)
(173)
(333)
(2,813)
(341)
(3,774) $
60
294
199
350
159
34
1,096
Intangible asset amortization expense was $358,000, $117,000, and $107,000 for fiscal 2020, 2019, and 2018,
respectively. Annual intangible asset amortization expense is estimated to be $280,000 per year for fiscal years 2021
through 2025.
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). The adverse change in the business climate resulting from the COVID-19 pandemic created
triggering events during the second quarter of fiscal 2020, which warranted our review of these assets for potential
impairment as of April 30, 2020. We determined that we have a single asset group due to the interdependent nature
of our operations. We estimated the cash flows during the remaining useful life of the primary asset, and our
undiscounted cash flow was in excess of the book value of our single asset group, and therefore, there was no
impairment indications for our long-lived assets for the period ended April 30, 2020.
Due to the prolonged ongoing uncertainty in the global markets as a result of the COVID-19 pandemic and the net
loss for fiscal 2020, we believed there was a risk that the total cash flow projections could fall short of its previous
55
55
Fiscal Year
2021
2022
2023
2024
2025 and thereafter
Amortization Expense
$
1,369
1,883
1,742
1,503
1,343
Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a business combination are
not amortized and charged to expense over time. Instead, goodwill and indefinite-lived intangibles must be reviewed
for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise
indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill
exceeds the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of
the goodwill amount allocated to that reporting unit.
We have a total of $4.9 million of goodwill for our single reporting unit, arising from the acquisitions of ProCobots,
LLC (“ProCobots”) ($2.5 million) in 2019, LCM Precision Technology S.r.l. (“LCM”) ($2.2 million) in 2013, and
our wholly-owned distributor located in Michigan ($0.2 million) in 2008. The adverse change in the business climate
resulting from the COVID-19 pandemic created triggering events during the second quarter of fiscal 2020, which
warranted our review of these assets for potential impairment. With the assistance of a third-party expert, we
developed a discounted cash flow model, which included projected growth rates and an appropriate market-participant
discount rate, to compute the fair value of the reporting unit as of April 30, 2020. In addition, the fair value determined
was also compared to the value obtained using a market approach from guideline public company multiples. The
computed fair value of the reporting unit was in excess of our book value of equity as of April 30, 2020, and, therefore,
we determined that goodwill and indefinite-lived assets were not impaired at that time.
Due to the prolonged ongoing uncertainty in the global markets as a result of the COVID-19 pandemic and the net
loss for fiscal 2020, we believed there was a risk that the total cash flow projections of this reporting unit could fall
short of its previous projections, As such, we reperformed the goodwill impairment test as of October 31, 2020 using
a similar discounted cash flow model. As a result of the net loss for fiscal 2020 and the delayed timing of the recovery
period, the total cash flow projected at October 31, 2020 fell short of those projected at April 30, 2020, causing the
fair value of the reporting unit to fall below our book value of equity as of October 31, 2020, thus, resulting in a full
impairment loss of $4.9 million.
The changes in the carrying amounts of goodwill for the fiscal year ended October 31, 2020 were as follows (in
thousands):
Balance as of October 31, 2019
Changes in goodwill acquired
Goodwill impairment
Impact of foreign currency translation
Balance as of October 31, 2020
$
5,847
(972)
(4,903)
28
0
$
54
projections, As such, we reevaluated the cash flows during the remaining useful life of the primary asset as of October
31, 2020. The result indicated that our undiscounted cash flow continued to be in excess of the book value of our
single asset group, and therefore, there was no impairment indications for our long-lived assets for the period ended
October 31, 2020. Thus, there was no impairment recognized with respect to the carrying values of long-lived assets
for the years ended October 31, 2020, 2019, or 2018.
Earnings Per Share. Basic earnings per share is calculated by dividing net income (loss) by the weighted–average
number of common shares actually outstanding during the period. Diluted earnings per share assumes the issuance of
additional shares of common stock upon exercise of all outstanding stock options and contingently issuable securities
if the effect is dilutive, in accordance with the treasury stock method discussed in FASB guidance on “Earnings Per
Share.”
The following table presents a reconciliation of our basic and diluted earnings per share computation (in thousands,
except per share amounts):
Net income (loss)
Undistributed earnings (loss) allocated
to participating shares
Net income (loss) applicable to
common shareholders
Weighted average shares outstanding
Stock options and contingently issuable
securities
Income (loss) per share
2020
Diluted
Basic
Fiscal Year Ended October 31,
2019
Diluted
Basic
2018
Diluted
Basic
$ (6,247) $ (6,247) $ 17,495 $ 17,495 $ 21,490 $ 21,490
66
66
(147)
(147)
(132)
(132)
2. BUSINESS OPERATIONS
$ (6,181) $ (6,181) $ 17,348 $ 17,348 $ 21,358 $ 21,358
6,670
6,670
6,759
6,759
6,700
6,700
—
6,670
(0.93) $
—
6,670
(0.93) $
—
6,759
56
6,815
—
6,700
2.57 $
2.55 $
3.19 $
71
6,771
3.15
$
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
56
56
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.
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 integration equipment and solutions for job shops,
software options, control upgrades, accessories and replacement parts for our products, as well as customer service,
training, and applications support, 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 200 independent agents and distributors throughout
the Americas, Europe and Asia. We also have our own direct sales and service organizations in China, France,
Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain areas of the
United States.
risk.
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
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. 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
57
projections, As such, we reevaluated the cash flows during the remaining useful life of the primary asset as of October
31, 2020. The result indicated that our undiscounted cash flow continued to be in excess of the book value of our
single asset group, and therefore, there was no impairment indications for our long-lived assets for the period ended
October 31, 2020. Thus, there was no impairment recognized with respect to the carrying values of long-lived assets
for the years ended October 31, 2020, 2019, or 2018.
Earnings Per Share. Basic earnings per share is calculated by dividing net income (loss) 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
The following table presents a reconciliation of our basic and diluted earnings per share computation (in thousands,
Share.”
except per share amounts):
Net income (loss)
Undistributed earnings (loss) allocated
to participating shares
Net income (loss) applicable to
common shareholders
Weighted average shares outstanding
Stock options and contingently issuable
securities
Fiscal Year Ended October 31,
2020
2019
2018
Basic
Diluted
Basic
Diluted
Basic
Diluted
$ (6,247) $ (6,247) $ 17,495 $ 17,495 $ 21,490 $ 21,490
$ (6,181) $ (6,181) $ 17,348 $ 17,348 $ 21,358 $ 21,358
6,670
6,670
6,759
6,759
6,700
6,700
Income (loss) per share
$
(0.93) $
(0.93) $
2.57 $
2.55 $
3.19 $
—
—
—
6,670
6,670
6,759
56
6,815
—
6,700
71
6,771
3.15
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
56
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.
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.
66
66
(147)
(147)
(132)
(132)
2. BUSINESS OPERATIONS
Nature of Business. We design, manufacture, and sell computerized CNC machine tools, computer control systems
and software products, machine tool components, automation integration equipment and solutions for job shops,
software options, control upgrades, accessories and replacement parts for our products, as well as customer service,
training, and 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 200 independent agents and distributors throughout
the Americas, Europe and Asia. We also have our own direct sales and service organizations in China, France,
Germany, India, Italy, the Netherlands, Poland, Singapore, 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. 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
57
57
in manufacturing at one of these locations could result from a change in the political environment or a natural disaster,
such as trade wars or tariffs, or an earthquake, typhoon, or tsunami. Any interruption with one of our other third-party
key suppliers may also have an adverse effect on our operating results and our financial condition.
Intangible assets of $1.1 million were recorded as a result of the purchase. The fair value of the intangible assets was
based upon a discounted cash flow method that involves inputs that are not observable in the market (Level 3).
Intangible assets are amortized primarily using a straight-line methodology. The intangible assets consisted of the
3. INVENTORIES
Inventories as of October 31, 2020 and 2019 are summarized below (in thousands):
Purchased parts and sub-assemblies
Work-in-process
Finished goods
2020
2019
$ 30,390 $ 32,074
12,635 20,901
106,839 95,876
$ 149,864 $ 148,851
Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia was
$17.2 million and $12.0 million as of October 31, 2020 and 2019, respectively.
4. ACQUISITION OF BUSINESS
On August 5, 2019, we (through a newly-formed subsidiary, ProCobots) acquired substantially all of the assets of a
U.S.-based automation integration company for approximately $4.4 million. This acquired business provides
automation solutions that can be integrated with any machine tool.
The acquisition was accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the total
purchase price was allocated to tangible assets and liabilities based on their fair value and the intangibles and goodwill
were allocated on a provisional basis at the date of acquisition. These allocations reflected various provisional
estimates that were available at the time and were subject to change during the purchase price allocation period as
valuations were finalized. All valuations are now final.
The following table summarizes the allocation of the opening balance sheet of ProCobots as of August 5, 2019 (in
thousands):
Current assets
Property plant and equipment
Intangibles
Goodwill
Total assets
Current liabilities
Total liabilities
$
Initial
Allocation
349
452
148
3,500
4,449
96
96
Adjustments
—
$
—
972
(972)
—
Final Allocation
349
$
452
1,120
2,528
4,449
—
—
96
96
Total purchase price and cash expended $
4,353
$
—
$
4,353
58
58
following (in thousands):
Trademark/name
Noncompete
Other
Remaining
Economic
Useful Life
15
5
1
$
520
580
20
1,120
The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as
goodwill in the amount of $2.5 million. Goodwill recognized in the acquisition relates primarily to expanding our
current product offering. The amount recorded as goodwill will be fully deductible for tax purposes.
As of October 31, 2020, we have recognized an impairment loss for the full $2.5 million of goodwill relating to
ProCobots. See Note 1 of these Notes to Consolidated Financial Statements for further information.
The results of operations of ProCobots have been included in the consolidated financial statements from the date of
acquisition.
5. CREDIT AGREEMENTS AND BORROWINGS
On December 31, 2018, we and our subsidiary Hurco B.V. entered into a new credit agreement, which was amended
by that certain First Amendment dated March 13, 2020 and that certain Second Amendment dated December 23, 2020
(as amended, the “2018 Credit Agreement”), with Bank of America, N.A., as the lender. 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, 2021.
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 1.25% 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 1.25%.
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
(a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to
such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on
hand is not less than $10.0 million, and as long as we are not in default before and after giving effect to such dividend
payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares
of our common stock as long as we are not in default before and after giving effect to such repurchases and the
aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $10.0
million; (3) requiring that we maintain a minimum working capital of $125.0 million; (4) requiring that we maintain
a minimum tangible net worth of $170.0 million; and (5) providing that if the total amount of indebtedness outstanding
59
in manufacturing at one of these locations could result from a change in the political environment or a natural disaster,
such as trade wars or tariffs, or an earthquake, typhoon, or tsunami. Any interruption with one of our other third-party
key suppliers may also have an adverse effect on our operating results and our financial condition.
3. INVENTORIES
Inventories as of October 31, 2020 and 2019 are summarized below (in thousands):
Purchased parts and sub-assemblies
Work-in-process
Finished goods
2020
2019
$ 30,390 $ 32,074
12,635 20,901
106,839 95,876
$ 149,864 $ 148,851
Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia was
$17.2 million and $12.0 million as of October 31, 2020 and 2019, respectively.
4. ACQUISITION OF BUSINESS
On August 5, 2019, we (through a newly-formed subsidiary, ProCobots) acquired substantially all of the assets of a
U.S.-based automation integration company for approximately $4.4 million. This acquired business provides
automation solutions that can be integrated with any machine tool.
The acquisition was accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the total
purchase price was allocated to tangible assets and liabilities based on their fair value and the intangibles and goodwill
were allocated on a provisional basis at the date of acquisition. These allocations reflected various provisional
estimates that were available at the time and were subject to change during the purchase price allocation period as
valuations were finalized. All valuations are now final.
The following table summarizes the allocation of the opening balance sheet of ProCobots as of August 5, 2019 (in
thousands):
Current assets
Property plant and equipment
Intangibles
Goodwill
Total assets
Current liabilities
Total liabilities
Initial
Allocation
$
$
$
Adjustments
Final Allocation
349
452
148
3,500
4,449
96
96
—
—
972
(972)
—
—
—
349
452
1,120
2,528
4,449
96
96
Total purchase price and cash expended $
4,353
$
—
$
4,353
Intangible assets of $1.1 million were recorded as a result of the purchase. The fair value of the intangible assets was
based upon a discounted cash flow method that involves inputs that are not observable in the market (Level 3).
Intangible assets are amortized primarily using a straight-line methodology. The intangible assets consisted of the
following (in thousands):
Trademark/name
Noncompete
Other
Remaining
Economic
Useful Life
15
5
1
$
520
580
20
1,120
The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as
goodwill in the amount of $2.5 million. Goodwill recognized in the acquisition relates primarily to expanding our
current product offering. The amount recorded as goodwill will be fully deductible for tax purposes.
As of October 31, 2020, we have recognized an impairment loss for the full $2.5 million of goodwill relating to
ProCobots. See Note 1 of these Notes to Consolidated Financial Statements for further information.
The results of operations of ProCobots have been included in the consolidated financial statements from the date of
acquisition.
5. CREDIT AGREEMENTS AND BORROWINGS
On December 31, 2018, we and our subsidiary Hurco B.V. entered into a new credit agreement, which was amended
by that certain First Amendment dated March 13, 2020 and that certain Second Amendment dated December 23, 2020
(as amended, the “2018 Credit Agreement”), with Bank of America, N.A., as the lender. 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, 2021.
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 1.25% 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 1.25%.
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
(a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to
such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on
hand is not less than $10.0 million, and as long as we are not in default before and after giving effect to such dividend
payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares
of our common stock as long as we are not in default before and after giving effect to such repurchases and the
aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $10.0
million; (3) requiring that we maintain a minimum working capital of $125.0 million; (4) requiring that we maintain
a minimum tangible net worth of $170.0 million; and (5) providing that if the total amount of indebtedness outstanding
58
59
59
owed by the Company and its Taiwanese and Chinese subsidiaries to the lender or its affiliates (the “Specified
Outstanding Amount”) exceeds $25.0 million, then the Company will not permit the amount of unrestricted cash-on-
hand of the Company and its subsidiaries to be less than the Specified Outstanding Amount. 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. As uncommitted
facilities, both the Taiwan and China credit facilities are subject to review and termination by the respective underlying
lending institutions from time to time.
As a result, as of October 31, 2020, our existing credit facilities consisted 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, 2020, there were no borrowings under any of our credit facilities and there was $51.8 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 above. The
carrying amount of short-term debt approximates fair value due to the variable rate of the interest and the short term
nature of the instrument.
In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and
liabilities measured at fair value as of October 31, 2020 and 2019 (in thousands):
subsidiaries.
Level 1
Deferred compensation
Level 2
Derivatives
Recurring Fair Value Measurements
Assets
Liabilities
October 31,
October 31,
2020
2019
October 31,
2020
October 31,
2019
$
1,868
$
1,991 $
— $
—
$
968
$
1,391 $
872 $
388
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 $70.8 million and $108.6
million at October 31, 2020 and 2019, 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
We account for income taxes using the asset and liability method. Under this method, the (benefit) provision for
income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes
during the year. On March 27, 2020, the U.S. Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”) was enacted in response to COVID-19 pandemic. The CARES Act, among other things, allows net
operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried
back to each of the five preceding taxable years to generate a refund of previously paid income taxes, permits net
operating loss carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before
January 1, 2021. Any net operating losses arising in taxable years beginning after December 31, 2017 and before
January 1, 2021, are created in years that have a 21.0% federal income tax rate. If these net operating losses are carried
back to years prior to December 31, 2017, the resulting refund would be in years with a 34.0% federal income tax
rate. We are planning to carry back our taxable loss in the U.S. for fiscal 2020 under the provisions of the CARES
Act and have recorded a tax benefit in the current year at 34%.
The 2019 rate and 2018 rate reflect several effects associated with the U.S. Tax Cuts and Jobs Act (the “Tax Reform
Act”), which was enacted in December 2017. 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,
implemented 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. These
provisions under the Tax Reform Act became effective for our fiscal 2019. The Tax Reform Act also imposed a one-
time transition tax which was recorded in the fiscal 2018, on deemed repatriation of historical earnings of foreign
The components of income (loss) before taxes are (in thousands):
Income (loss) before income taxes:
Domestic
Foreign
Year Ended October 31,
2020
2019
2018
$
(11,681) $
878
$
(10,803) $
9,793
$
13,531
23,324
$
14,101
18,395
32,496
60
60
61
owed by the Company and its Taiwanese and Chinese subsidiaries to the lender or its affiliates (the “Specified
Outstanding Amount”) exceeds $25.0 million, then the Company will not permit the amount of unrestricted cash-on-
hand of the Company and its subsidiaries to be less than the Specified Outstanding Amount. 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. As uncommitted
facilities, both the Taiwan and China credit facilities are subject to review and termination by the respective underlying
lending institutions from time to time.
As a result, as of October 31, 2020, our existing credit facilities consisted 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, 2020, there were no borrowings under any of our credit facilities and there was $51.8 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 above. The
carrying amount of short-term debt approximates fair value due to the variable rate of the interest and the short term
nature of the instrument.
In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and
liabilities measured at fair value as of October 31, 2020 and 2019 (in thousands):
Level 1
Deferred compensation
Level 2
Derivatives
Recurring Fair Value Measurements
Assets
Liabilities
October 31,
October 31,
October 31,
October 31,
2020
2019
2020
2019
$
1,868
$
1,991 $
— $
—
$
968
$
1,391 $
872 $
388
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.
60
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 $70.8 million and $108.6
million at October 31, 2020 and 2019, 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
We account for income taxes using the asset and liability method. Under this method, the (benefit) provision for
income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes
during the year. On March 27, 2020, the U.S. Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”) was enacted in response to COVID-19 pandemic. The CARES Act, among other things, allows net
operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried
back to each of the five preceding taxable years to generate a refund of previously paid income taxes, permits net
operating loss carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before
January 1, 2021. Any net operating losses arising in taxable years beginning after December 31, 2017 and before
January 1, 2021, are created in years that have a 21.0% federal income tax rate. If these net operating losses are carried
back to years prior to December 31, 2017, the resulting refund would be in years with a 34.0% federal income tax
rate. We are planning to carry back our taxable loss in the U.S. for fiscal 2020 under the provisions of the CARES
Act and have recorded a tax benefit in the current year at 34%.
The 2019 rate and 2018 rate reflect several effects associated with the U.S. Tax Cuts and Jobs Act (the “Tax Reform
Act”), which was enacted in December 2017. 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,
implemented 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. These
provisions under the Tax Reform Act became effective for our fiscal 2019. The Tax Reform Act also imposed a one-
time transition tax which was recorded in the fiscal 2018, on deemed repatriation of historical earnings of foreign
subsidiaries.
The components of income (loss) before taxes are (in thousands):
Income (loss) before income taxes:
Domestic
Foreign
2020
Year Ended October 31,
2019
2018
$
$
(11,681) $
878
(10,803) $
9,793
13,531
23,324
$
$
14,101
18,395
32,496
61
61
The components of income tax provision (benefit) are (in thousands):
Significant components of our deferred tax assets and liabilities at October 31, 2020 and 2019 were as follows (in
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Year Ended October 31,
2020
2019
2018
$ (4,932) $ 1,854 $ 6,333
5,203
3,715
11,536
5,569
923
(4,009)
(256)
(291)
(547)
(326)
(204)
(530)
$ (4,556) $ 5,829 $ 11,006
(31)
291
260
A comparison of income tax expense at the U.S. statutory rate to the Company’s effective tax rate is as follows:
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
Impact of CARES act
Other
Effective tax rate
2020
Year Ended October 31,
2019
2018
21 %
21 %
23 %
3 %
0 %
2 %
1 %
0 %
0 %
0 %
0 %
16 %
(1) %
42 %
4 %
1 %
1 %
(2) %
0 %
(1) %
3 %
(3) %
0 %
1 %
25 %
2 %
0 %
0 %
(1) %
4 %
7 %
0 %
0 %
0 %
(1) %
34 %
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. On October 31, 2020, undistributed earnings of our foreign subsidiaries are expected to be permanently
reinvested or otherwise retained for continuing operations. Accordingly, we have not provided for any withholding
taxes on the undistributed earnings of our foreign subsidiaries beginning 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, 2020, we had deferred tax assets established for accumulated net operating loss carryforwards of
$2.0 million, primarily related to certain states in the U.S. and foreign jurisdictions. We also had deferred tax assets
for tax credits of $0.9 million. We have established a valuation allowance against some of these carryforwards due to
the uncertainty of their full realization. As of October 31, 2020 and 2019, the balance of this valuation allowance was
$2.2 million for each fiscal year.
62
62
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
Operating lease liabilities
Goodwill and intangibles
Other
Deferred tax assets
Deferred Tax Liabilities:
Net derivative instruments
Operating lease - right of use assets
Other
Net deferred tax assets
Less: Valuation allowance – net operating loss and other credit carryforwards
Property and equipment and capitalized software development costs
October 31,
2020
2019
$
1,241 $
248
1,849
14
226
1,957
887
2,736
1,019
183
10,360
(2,164)
8,196
(305)
(2,563)
(2,666)
(314)
$
2,348 $
1,224
363
2,723
143
170
1,380
766
—
99
194
7,062
(2,227)
4,835
(313)
(2,632)
—
(204)
1,686
As of October 31, 2020, we had net operating loss carryforwards for international and U.S. income tax purposes of
$6.8 million, of which $5.1 million related to foreign jurisdictions will expire within 5 years beginning in fiscal 2021
and $1.7 million will expire between 5 and 20 years. We also had tax credits of $0.9 million that will expire
between years 2021 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
2020
2019
2018
$
193 $
180 $
1,101
9
(2)
(32)
—
36
—
(23)
—
$
168 $
193 $
37
(945)
(18)
5
180
The entire balance of the unrecognized tax benefits and related interest at October 31, 2020, 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, 2020, the amount of interest accrued, reported in other liabilities, was approximately
$36,000 which did not include the federal tax benefit of interest deductions. The statute of limitations with respect to
unrecognized tax benefits will expire between August 2021 and August 2024.
63
The components of income tax provision (benefit) are (in thousands):
Significant components of our deferred tax assets and liabilities at October 31, 2020 and 2019 were as follows (in
thousands):
A comparison of income tax expense at the U.S. statutory rate to the Company’s effective tax rate is as follows:
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Effect of tax rate of international jurisdictions different than
U.S. statutory rate
U.S. statutory rates
Valuation allowance
State taxes
Tax credits
Effect of tax rate changes
Transition tax
Impact of CARES act
Other
Effective tax rate
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
Year Ended October 31,
2020
2019
2018
$ (4,932) $ 1,854 $ 6,333
923
3,715
5,203
(4,009)
5,569
11,536
(256)
(291)
(547)
(31)
291
260
(326)
(204)
(530)
$ (4,556) $ 5,829 $ 11,006
Year Ended October 31,
2020
2019
2018
21 %
21 %
23 %
3 %
0 %
2 %
1 %
0 %
0 %
0 %
0 %
16 %
(1) %
42 %
4 %
1 %
1 %
(2) %
0 %
(1) %
3 %
(3) %
0 %
1 %
25 %
2 %
0 %
0 %
(1) %
4 %
7 %
0 %
0 %
0 %
(1) %
34 %
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. On October 31, 2020, undistributed earnings of our foreign subsidiaries are expected to be permanently
reinvested or otherwise retained for continuing operations. Accordingly, we have not provided for any withholding
taxes on the undistributed earnings of our foreign subsidiaries beginning 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, 2020, we had deferred tax assets established for accumulated net operating loss carryforwards of
$2.0 million, primarily related to certain states in the U.S. and foreign jurisdictions. We also had deferred tax assets
for tax credits of $0.9 million. We have established a valuation allowance against some of these carryforwards due to
the uncertainty of their full realization. As of October 31, 2020 and 2019, the balance of this valuation allowance was
$2.2 million for each fiscal year.
62
October 31,
2020
2019
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
Operating lease liabilities
Goodwill and intangibles
Other
Less: Valuation allowance – net operating loss and other credit carryforwards
Deferred tax assets
$
1,241 $
248
1,849
14
226
1,957
887
2,736
1,019
183
10,360
(2,164)
8,196
Deferred Tax Liabilities:
Net derivative instruments
Property and equipment and capitalized software development costs
Operating lease - right of use assets
Other
Net deferred tax assets
(305)
(2,563)
(2,666)
(314)
2,348 $
$
1,224
363
2,723
143
170
1,380
766
—
99
194
7,062
(2,227)
4,835
(313)
(2,632)
—
(204)
1,686
As of October 31, 2020, we had net operating loss carryforwards for international and U.S. income tax purposes of
$6.8 million, of which $5.1 million related to foreign jurisdictions will expire within 5 years beginning in fiscal 2021
and $1.7 million will expire between 5 and 20 years. We also had tax credits of $0.9 million that will expire
between years 2021 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
2020
2019
$
$
193 $
9
(2)
(32)
—
168 $
180 $
36
—
(23)
—
193 $
2018
1,101
37
(945)
(18)
5
180
The entire balance of the unrecognized tax benefits and related interest at October 31, 2020, 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, 2020, the amount of interest accrued, reported in other liabilities, was approximately
$36,000 which did not include the federal tax benefit of interest deductions. The statute of limitations with respect to
unrecognized tax benefits will expire between August 2021 and August 2024.
63
63
We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. Currently, our
subsidiary in France is under tax audit for fiscal years 2018 and 2019.
as follows:
A summary of the status of the options as of October 31, 2020, 2019 and 2018 and the related activity for the year is
A summary of open tax years by major jurisdiction is presented below:
United States federal
Germany¹
Taiwan
Fiscal 2017 through the current period
Fiscal 2018 through the current period
Fiscal 2018 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 U.S. employees, under which our matching
contributions are primarily discretionary. The purpose of these plans is generally to provide additional financial
security during retirement by providing employees with an incentive to save throughout their employment. Our
contributions and related expense totaled $1.3 million, $1.4 million, $1.2 million, for the fiscal years ended
October 31, 2020, 2019, and 2018, 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
Equity 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 Equity Plan. The total number of shares of our
common stock that may be issued pursuant to awards under the 2016 Equity Plan is 856,048, which includes 386,048
shares remaining available for future grants under the 2008 Equity Plan as of March 10, 2016, the date our shareholders
approved the 2016 Equity Plan.
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 Equity Plan that are currently outstanding.
No stock option may be exercised more than ten years after the date of grant or such shorter period as the
Compensation Committee may determine at the date of grant. The market value of a share of our common stock, for
purposes of the 2016 Equity Plan, is the closing sale price as reported by the Nasdaq Global Select Market on the date
in question or, if not a trading day, on the last preceding trading date.
64
64
Granted
Cancelled
Expired
Exercised
Granted
Cancelled
Expired
Exercised
Granted
Cancelled
Expired
Exercised
Balance October 31, 2017
Shares Under Weighted Average Grant
Option
Date Fair Value
78,725 $
20.97
Balance October 31, 2018
(41,680) $
37,045 $
20.33
21.69
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance October 31, 2019
37,045 $
21.69
Balance October 31, 2020
(3,738)
33,307 $
18.13
22.09
The total intrinsic value of stock options exercised during the twelve months ended October 31, 2020, 2019 and 2018
was approximately $44,000, $0, and $847,000, respectively.
As of October 31, 2020, the total intrinsic value of stock options that were outstanding and exercisable was $258,000.
Stock options outstanding and exercisable on October 31, 2020, were as follows:
Range of Exercise
Prices Per Share
Shares Under
Option
Outstanding and Exercisable
21.45
23.30
$
21.45 - 23.30
21,748
11,559
33,307 $
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining Contractual
Life in Years
21.45
23.30
22.09
0.73
0.73
1.47
On March 12, 2020, the Compensation Committee granted a total of 17,780 shares of time-based restricted stock to
our non-employee directors. The restricted shares vest in full one year from the date of grant provided the recipient
remains on the board of directors through that date. The grant date fair value of the restricted shares was based on the
closing sales price of our common stock on the grant date, which was $23.62 per share.
On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2017-2019 performance period was attained, and the resulting
payout level relative to the target amount for each of the metrics that were established by the Compensation Committee
in 2017. As a result, the Compensation Committee determined that a total of 28,979 performance stock units (“PSUs”)
were earned by our executive officers, which PSUs vested on January 2, 2020. The vesting date fair value of the PSUs
was based on the closing sales price of our common stock on the vesting date, which was $37.79 per share.
On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation arrangement
for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan, which will be payable
in shares of our common stock if earned and vested. The awards were approximately 25% time-based vesting and
65
We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. Currently, our
subsidiary in France is under tax audit for fiscal years 2018 and 2019.
A summary of the status of the options as of October 31, 2020, 2019 and 2018 and the related activity for the year is
as follows:
A summary of open tax years by major jurisdiction is presented below:
United States federal
Germany¹
Taiwan
Fiscal 2017 through the current period
Fiscal 2018 through the current period
Fiscal 2018 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 U.S. employees, under which our matching
contributions are primarily discretionary. The purpose of these plans is generally to provide additional financial
security during retirement by providing employees with an incentive to save throughout their employment. Our
contributions and related expense totaled $1.3 million, $1.4 million, $1.2 million, for the fiscal years ended
October 31, 2020, 2019, and 2018, 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
Equity 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 Equity Plan. The total number of shares of our
common stock that may be issued pursuant to awards under the 2016 Equity Plan is 856,048, which includes 386,048
shares remaining available for future grants under the 2008 Equity Plan as of March 10, 2016, the date our shareholders
approved the 2016 Equity Plan.
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 Equity Plan that are currently outstanding.
No stock option may be exercised more than ten years after the date of grant or such shorter period as the
Compensation Committee may determine at the date of grant. The market value of a share of our common stock, for
purposes of the 2016 Equity Plan, is the closing sale price as reported by the Nasdaq Global Select Market on the date
in question or, if not a trading day, on the last preceding trading date.
Balance October 31, 2017
Granted
Cancelled
Expired
Exercised
Balance October 31, 2018
Granted
Cancelled
Expired
Exercised
Balance October 31, 2019
Granted
Cancelled
Expired
Exercised
Balance October 31, 2020
Shares Under Weighted Average Grant
Option
Date Fair Value
78,725 $
—
—
—
(41,680) $
37,045 $
—
—
—
—
37,045 $
—
—
—
(3,738)
33,307 $
20.97
—
—
—
20.33
21.69
—
—
—
—
21.69
—
—
—
18.13
22.09
The total intrinsic value of stock options exercised during the twelve months ended October 31, 2020, 2019 and 2018
was approximately $44,000, $0, and $847,000, respectively.
As of October 31, 2020, the total intrinsic value of stock options that were outstanding and exercisable was $258,000.
Stock options outstanding and exercisable on October 31, 2020, were as follows:
Range of Exercise
Prices Per Share
Outstanding and Exercisable
21.45
23.30
21.45 - 23.30
$
Shares Under
Option
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining Contractual
Life in Years
21,748
11,559
33,307 $
21.45
23.30
22.09
0.73
0.73
1.47
On March 12, 2020, the Compensation Committee granted a total of 17,780 shares of time-based restricted stock to
our non-employee directors. The restricted shares vest in full one year from the date of grant provided the recipient
remains on the board of directors through that date. The grant date fair value of the restricted shares was based on the
closing sales price of our common stock on the grant date, which was $23.62 per share.
On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2017-2019 performance period was attained, and the resulting
payout level relative to the target amount for each of the metrics that were established by the Compensation Committee
in 2017. As a result, the Compensation Committee determined that a total of 28,979 performance stock units (“PSUs”)
were earned by our executive officers, which PSUs vested on January 2, 2020. The vesting date fair value of the PSUs
was based on the closing sales price of our common stock on the vesting date, which was $37.79 per share.
On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation arrangement
for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan, which will be payable
in shares of our common stock if earned and vested. The awards were approximately 25% time-based vesting and
64
65
65
approximately 75% performance-based vesting. The three-year performance period for the PSUs is fiscal 2020
through fiscal 2022.
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 that date, the Compensation Committee granted a total of 20,837 shares of time-based restricted stock to our
executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient
remains employed through that date. The grant date fair value of the restricted shares was based upon the closing
sales price of our common stock on the date of grant, which was $37.79 per share.
On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our executive
officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall 2020 executive
long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of
our common stock over the three-year period of fiscal 2020-2022, relative to the total shareholder return of the
companies in a specified peer group over that period. Participants will have the ability to earn between 50% of the
target number of the PSUs – TSR for achieving threshold performance and 200% of the target number of the PSUs –
TSR for achieving maximum performance. The grant date fair value of the PSUs – TSR was $46.81 per PSU and was
calculated using the Monte Carlo approach.
On January 2, 2020, the Compensation Committee also granted a total target number of 29,174 PSUs to our executive
officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall 2020 executive
long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-
established goals related to our average return on invested capital over the three-year period of fiscal 2020-2022.
Participants will have the ability to earn between 50% of the target number of the PSUs - ROIC for achieving threshold
performance and 200% of the target number of the PSUs - ROIC for achieving maximum performance. The grant
date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which
was $37.79 per share.
On November 13, 2019, the Compensation Committee granted a total of 8,052 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 $35.75 per share.
On March 14, 2019, the Compensation Committee granted a total of 11,824 shares of time-based restricted stock to
our non-employee directors. The restricted shares vest in full one year from the date of grant provided the recipient
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 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
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 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.
66
66
67
approximately 75% performance-based vesting. The three-year performance period for the PSUs is fiscal 2020
through fiscal 2022.
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 that date, the Compensation Committee granted a total of 20,837 shares of time-based restricted stock to our
executive officers. The restricted shares vest in thirds over three years from the date of grant provided the recipient
remains employed through that date. The grant date fair value of the restricted shares was based upon the closing
sales price of our common stock on the date of grant, which was $37.79 per share.
On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our executive
officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall 2020 executive
long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of
our common stock over the three-year period of fiscal 2020-2022, relative to the total shareholder return of the
companies in a specified peer group over that period. Participants will have the ability to earn between 50% of the
target number of the PSUs – TSR for achieving threshold performance and 200% of the target number of the PSUs –
TSR for achieving maximum performance. The grant date fair value of the PSUs – TSR was $46.81 per PSU and was
calculated using the Monte Carlo approach.
On January 2, 2020, the Compensation Committee also granted a total target number of 29,174 PSUs to our executive
officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the overall 2020 executive
long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-
established goals related to our average return on invested capital over the three-year period of fiscal 2020-2022.
Participants will have the ability to earn between 50% of the target number of the PSUs - ROIC for achieving threshold
performance and 200% of the target number of the PSUs - ROIC for achieving maximum performance. The grant
date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which
was $37.79 per share.
On November 13, 2019, the Compensation Committee granted a total of 8,052 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 $35.75 per share.
On March 14, 2019, the Compensation Committee granted a total of 11,824 shares of time-based restricted stock to
our non-employee directors. The restricted shares vest in full one year from the date of grant provided the recipient
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 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
66
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 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.
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67
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.
A reconciliation of our restricted stock, performance share and PSU activity and related information is as follows:
Unvested at October 31, 2019
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2020
Number of Shares
Weighted Average Grant
Date Fair Value
200,482 $
102,761
(47,750)
(10,164)
(13,369)
231,960 $
39.62
37.54
38.35
40.88
37.38
39.03
During fiscal 2020, 2019, and 2018, we recorded approximately $2.1 million, $2.7 million, and $2.5 million,
respectively, of stock-based compensation expense related to grants under the 2008 Equity Plan and the 2016 Equity
Plan. As of October 31, 2020, there was an estimated $2.8 million of total unrecognized stock-based compensation
cost that we expect to recognize by the end of the first quarter of fiscal 2023.
10. RELATED PARTY TRANSACTIONS
As of October 31, 2020, 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 $4.4 million and $4.2 million at October 31, 2020 and 2019, respectively,
is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases of controls from HAL
amounted to $6.2 million, $8.5 million, and $11.3 million in fiscal 2020, 2019 and 2018, respectively. Sales of control
component parts to HAL were $265,000, $198,000 and $197,000 for the fiscal years ended October 31, 2020, 2019,
and 2018, respectively. Trade payables to HAL were $1.3 million and $938,000 at October 31, 2020 and 2019,
respectively. Trade receivables from HAL were $25,000 and $22,000 at October 31, 2020 and 2019, 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
2020
2019
2018
$ 10,096 $ 15,957 $ 17,841
1,418
2,322
2,944
160
265
992
1,490
1,534
1,845
$ 12,436 $ 12,019 $ 12,870
6,152
5,560
4,579
3,708
3,674
4,666
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, 2020, we had 14 outstanding third-party payment guarantees totaling approximately $0.4 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.
We provide warranties on our products with respect to defects in material and workmanship. The terms of these
warranties are generally one year for machines and shorter periods for service parts. We recognize a reserve with
respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve.
The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues
that could cause future warranty costs to differ from historical experience. A reconciliation of the changes in our
warranty reserve for each of the last three fiscal years is as follows (in thousands):
Balance, beginning of year
Provision for warranties during the year
Charges to the accrual
Impact of foreign currency translation
Balance, end of year
2020
2019
$
1,760 $
2,497 $
2,075
(2,669)
34
2,246
(2,991)
8
2018
1,772
4,121
(3,326)
(70)
$
1,200 $
1,760 $
2,497
The decreases in our warranty reserve from fiscal 2019 to fiscal 2020 and from fiscal 2018 to fiscal 2019 were
primarily due to a decrease in the number of machines under warranty resulting from decreased sales volume.
68
68
69
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.
A reconciliation of our restricted stock, performance share and PSU activity and related information is as follows:
Unvested at October 31, 2019
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2020
Number of Shares
Date Fair Value
Weighted Average Grant
200,482 $
102,761
(47,750)
(10,164)
(13,369)
231,960 $
39.62
37.54
38.35
40.88
37.38
39.03
During fiscal 2020, 2019, and 2018, we recorded approximately $2.1 million, $2.7 million, and $2.5 million,
respectively, of stock-based compensation expense related to grants under the 2008 Equity Plan and the 2016 Equity
Plan. As of October 31, 2020, there was an estimated $2.8 million of total unrecognized stock-based compensation
cost that we expect to recognize by the end of the first quarter of fiscal 2023.
10. RELATED PARTY TRANSACTIONS
As of October 31, 2020, 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 $4.4 million and $4.2 million at October 31, 2020 and 2019, respectively,
is included in Investments and other assets, net on the Consolidated Balance Sheets. Purchases of controls from HAL
amounted to $6.2 million, $8.5 million, and $11.3 million in fiscal 2020, 2019 and 2018, respectively. Sales of control
component parts to HAL were $265,000, $198,000 and $197,000 for the fiscal years ended October 31, 2020, 2019,
and 2018, respectively. Trade payables to HAL were $1.3 million and $938,000 at October 31, 2020 and 2019,
respectively. Trade receivables from HAL were $25,000 and $22,000 at October 31, 2020 and 2019, respectively.
68
Summary unaudited financial information for HAL’s operations and financial condition is as follows (in thousands):
2020
2019
2018
Net Sales
Gross Profit
Operating Income
Net Income
Current Assets
Non-current Assets
Current Liabilities
$ 10,096 $ 15,957 $ 17,841
2,944
1,534
1,845
1,418
160
265
2,322
992
1,490
$ 12,436 $ 12,019 $ 12,870
4,579
4,666
6,152
3,708
5,560
3,674
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, 2020, we had 14 outstanding third-party payment guarantees totaling approximately $0.4 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.
We provide warranties on our products with respect to defects in material and workmanship. The terms of these
warranties are generally one year for machines and shorter periods for service parts. We recognize a reserve with
respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve.
The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues
that could cause future warranty costs to differ from historical experience. A reconciliation of the changes in our
warranty reserve for each of the last three fiscal years is as follows (in thousands):
Balance, beginning of year
Provision for warranties during the year
Charges to the accrual
Impact of foreign currency translation
Balance, end of year
2020
1,760 $
2,075
(2,669)
34
1,200 $
2019
2,497 $
2,246
(2,991)
8
1,760 $
2018
1,772
4,121
(3,326)
(70)
2,497
$
$
The decreases in our warranty reserve from fiscal 2019 to fiscal 2020 and from fiscal 2018 to fiscal 2019 were
primarily due to a decrease in the number of machines under warranty resulting from decreased sales volume.
69
69
13. LEASES
We adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on November 1, 2019, the
start of our 2020 fiscal year, and utilized the transition method allowed. Accordingly, comparative period financial
information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required
to the opening balance of retained earnings on the adoption date.
Upon adoption of ASC 842, we utilized the following elections and practical expedients:
• We elected to combine non-lease components with lease components.
•
If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a
purchase option that is reasonably certain to be exercised, we have elected not to apply ASC 842 recognition
requirements. Nonetheless, we intend to include leases of less than 12 months within the updated footnote
disclosures, if material.
• We elected not to use the portfolio method if we enter into a large number of leases in the same month with
the same terms and conditions.
• As we have applied the new transition method allowed per ASU 2018-11, we have elected not to reassess
arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease, the
lease classification applied or to separate initial direct costs.
• We elected not to use hindsight in determining the lease term for lease contracts that have historically been
renewed or amended.
Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office
space, vehicles, material handling equipment utilized in 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.
We record a right-of-use asset and lease liability on our Consolidated Balance Sheets for all leases for which we are a
lessee, in accordance with ASC 842. We are a lessor in a small number of lease agreements associated with our
automation integration equipment for which the impact to our consolidated financial statements is immaterial. All our
leases for which we are a lessee are classified as operating leases under the guidance in Topic 840.
We recorded total operating lease expense for the fiscal years ended October 31, 2020, 2019, and 2018 of $5.0 million,
$5.1 million, and $4.5 million, respectively, which is classified within Cost of sales and service and Selling, general
and administrative expenses within the Consolidated Statements of Operations. Operating lease expense includes
short-term leases and variable lease payments which are immaterial. There have been no cost to obtain leases
capitalized on the Consolidated Balance Sheets as of October 31, 2020.
70
70
The following table summarizes supplemental cash flow information and non-cash activity related to operating leases
for fiscal 2020 (in thousands):
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Noncash information:
Right-of-use assets obtained in exchange for new operating lease liabilities
The following table summarizes the maturities of lease commitments as of October 31, 2019, prior to the adoption of
the new lease guidance, as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October
31, 2019 (in thousands):
The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the
total lease liability as of October 31, 2020 (in thousands):
2024 and thereafter
2020
2021
2022
2023
Total
2021
2022
2023
2024
2025
Total
2026 and thereafter
Less: Imputed interest
Present value of operating lease liabilities
$
$
4,892
2,600
$
4,015
3,149
2,224
1,482
2,531
$
13,401
$
4,286
3,124
1,913
913
666
1,579
12,481
(360)
$
12,121
As of October 31, 2020, the weighted-average remaining term of our lease portfolio was approximately 4.4 years
and the weighted-average discount rate was approximately 1.5%.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Selling, general and administrative expenses
10,846
10,599
2020 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Goodwill impairment
Operating income (loss)
Provision (benefit) for income taxes
Net income (loss)
$
43,660 $
37,126 $
45,382 $
9,159
21 %
6,709
11,069
18 %
24 %
—
(1,687)
(597)
(893)
—
(3,890)
(765)
(3,927)
9,627
—
1,442
(937)
2,162
Income (loss) per common share – basic
Income (loss) per common share – diluted
$
$
(0.13) $
(0.13) $
(0.58) $
(0.58) $
0.32 $
0.32 $
44,459
9,520
21 %
10,344
4,903
(5,727)
(2,257)
(3,589)
(0.54)
(0.54)
71
13. LEASES
We adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on November 1, 2019, the
start of our 2020 fiscal year, and utilized the transition method allowed. Accordingly, comparative period financial
information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required
to the opening balance of retained earnings on the adoption date.
Upon adoption of ASC 842, we utilized the following elections and practical expedients:
• We elected to combine non-lease components with lease components.
•
If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a
purchase option that is reasonably certain to be exercised, we have elected not to apply ASC 842 recognition
requirements. Nonetheless, we intend to include leases of less than 12 months within the updated footnote
disclosures, if material.
the same terms and conditions.
• We elected not to use the portfolio method if we enter into a large number of leases in the same month with
• As we have applied the new transition method allowed per ASU 2018-11, we have elected not to reassess
arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease, the
lease classification applied or to separate initial direct costs.
• We elected not to use hindsight in determining the lease term for lease contracts that have historically been
renewed or amended.
Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office
space, vehicles, material handling equipment utilized in 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.
We record a right-of-use asset and lease liability on our Consolidated Balance Sheets for all leases for which we are a
lessee, in accordance with ASC 842. We are a lessor in a small number of lease agreements associated with our
automation integration equipment for which the impact to our consolidated financial statements is immaterial. All our
leases for which we are a lessee are classified as operating leases under the guidance in Topic 840.
We recorded total operating lease expense for the fiscal years ended October 31, 2020, 2019, and 2018 of $5.0 million,
$5.1 million, and $4.5 million, respectively, which is classified within Cost of sales and service and Selling, general
and administrative expenses within the Consolidated Statements of Operations. Operating lease expense includes
short-term leases and variable lease payments which are immaterial. There have been no cost to obtain leases
capitalized on the Consolidated Balance Sheets as of October 31, 2020.
The following table summarizes supplemental cash flow information and non-cash activity related to operating leases
for fiscal 2020 (in thousands):
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Noncash information:
Right-of-use assets obtained in exchange for new operating lease liabilities
$
$
4,892
2,600
The following table summarizes the maturities of lease commitments as of October 31, 2019, prior to the adoption of
the new lease guidance, as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October
31, 2019 (in thousands):
2020
2021
2022
2023
2024 and thereafter
Total
$
$
4,015
3,149
2,224
1,482
2,531
13,401
The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the
total lease liability as of October 31, 2020 (in thousands):
2021
2022
2023
2024
2025
2026 and thereafter
Total
Less: Imputed interest
Present value of operating lease liabilities
$
$
4,286
3,124
1,913
913
666
1,579
12,481
(360)
12,121
As of October 31, 2020, the weighted-average remaining term of our lease portfolio was approximately 4.4 years
and the weighted-average discount rate was approximately 1.5%.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
2020 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Provision (benefit) for income taxes
Net income (loss)
Income (loss) per common share – basic
Income (loss) per common share – diluted
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
43,660 $
9,159
21 %
10,846
—
(1,687)
(597)
(893)
(0.13) $
(0.13) $
37,126 $
6,709
18 %
45,382 $
11,069
24 %
10,599
—
(3,890)
(765)
(3,927)
9,627
—
1,442
(937)
2,162
(0.58) $
(0.58) $
0.32 $
0.32 $
44,459
9,520
21 %
10,344
4,903
(5,727)
(2,257)
(3,589)
(0.54)
(0.54)
70
71
71
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
fiscal years (in thousands):
The following table sets forth revenues by geographic area, based on customer location, for each of the past three
2019 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Selling, general and administrative expenses
Operating income
Provision (benefit) for income taxes
Net income
Income per common share – basic
Income per common share – diluted
15. SEGMENT INFORMATION
$
74,213 $
22,142
30 %
70,674 $
21,637
31 %
58,501 $
17,189
29 %
13,914
8,228
2,453
6,654
14,111
7,526
2,481
5,252
12,592
4,597
1,155
3,491
$
$
0.98 $
0.97 $
0.77 $
0.76 $
0.51 $
0.51 $
59,989
16,240
27 %
14,051
2,189
(260)
2,098
0.31
0.31
We operate in a single segment: industrial automation equipment. We design, manufacture, and sell computerized
(i.e., Computer Numeric Control) machine tools, consisting primarily of vertical machining centers (mills) and turning
centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution
network. Although the majority of our computer control systems and software products are proprietary, they
predominantly use industry standard personal computer components. Our computer control systems and software
products are primarily sold as integral components of our computerized machine tool products. We also provide
machine tool components, automation integration equipment and solutions for job shops, software options, control
upgrades, accessories and replacement parts for our products, as well as customer service, training, and applications
support.
We principally sell our products through more than 200 independent agents and distributors throughout the Americas,
Europe and Asia. Our line is the primary line for the majority of our distributors globally even though some may carry
competitive products. We also have our own direct sales and service organizations in China, France, Germany, India,
Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain areas of the United States, which
are among the world's principal machine tool consuming countries. During fiscal 2020, no distributor accounted for
more than 5% of our sales and service fees. In fiscal 2020, approximately 61% of our revenues were from customers
located outside of the Americas, 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
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
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):
Americas
Europe
Asia Pacific
16. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements:
Year Ended October 31,
2020
2019
2018
$ 64,500 $ 95,196 $ 87,231
1,621
1,543
67,664
24,993
19,679
8,599
10,797
14,034
78,102
14,225
10,048
24,273
2,580
1,409
99,185
52,002
29,349
14,772
14,346
20,028
2,915
2,194
92,340
62,346
34,216
16,691
15,815
32,034
130,497
161,102
15,706
16,858
32,564
27,748
17,937
45,685
588
1,131
1,544
$ 170,627 $ 263,377 $ 300,671
As of October 31,
2020
2019
$
6,826 $
7,967 $
7,059
8,006
2018
8,375
6,617
$ 13,885 $ 15,973 $ 14,992
As of October 31,
2020
2019
2018
$ 83,214 $ 103,863 $ 96,348
77,840
70,094
71,411
64,971
74,558
51,947
$ 231,148 $ 240,245 $ 222,853
Between February 2016 and February 2019, FASB issued ASC 842, and various related updates, which establish a
comprehensive new lease accounting model. ASC 842 clarifies the definition of a lease, requires a dual approach to
lease classification similar to previous 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 ASC 842, the income statement reflects lease expense for operating leases and amortization/interest
expense for financing leases.
73
2018
261,710
Computerized Machine Tools
Computer Control Systems and Software †
2,870
27,501
Service Parts
8,590
Service Fees
Total
300,671
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
Year ended October 31,
2019
223,735 $
2,818
27,854
8,970
263,377 $
2020
139,577 $
1,699
22,484
6,867
170,627 $
$
$
machine systems.
72
72
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2019 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
$
74,213 $
70,674 $
58,501 $
22,142
21,637
17,189
30 %
31 %
29 %
Selling, general and administrative expenses
Operating income
Provision (benefit) for income taxes
Net income
13,914
8,228
2,453
6,654
14,111
7,526
2,481
5,252
12,592
4,597
1,155
3,491
Income per common share – basic
Income per common share – diluted
$
$
0.98 $
0.97 $
0.77 $
0.76 $
0.51 $
0.51 $
59,989
16,240
27 %
14,051
2,189
(260)
2,098
0.31
0.31
15. SEGMENT INFORMATION
We operate in a single segment: industrial automation equipment. We design, manufacture, and sell computerized
(i.e., Computer Numeric Control) machine tools, consisting primarily of vertical machining centers (mills) and turning
centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution
network. Although the majority of our computer control systems and software products are proprietary, they
predominantly use industry standard personal computer components. Our computer control systems and software
products are primarily sold as integral components of our computerized machine tool products. We also provide
machine tool components, automation integration equipment and solutions for job shops, software options, control
upgrades, accessories and replacement parts for our products, as well as customer service, training, and applications
support.
We principally sell our products through more than 200 independent agents and distributors throughout the Americas,
Europe and Asia. Our line is the primary line for the majority of our distributors globally even though some may carry
competitive products. We also have our own direct sales and service organizations in China, France, Germany, India,
Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain areas of the United States, which
are among the world's principal machine tool consuming countries. During fiscal 2020, no distributor accounted for
more than 5% of our sales and service fees. In fiscal 2020, approximately 61% of our revenues were from customers
located outside of the Americas, 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
machine systems.
Year ended October 31,
2020
2019
2018
$
139,577 $
223,735 $
261,710
1,699
22,484
6,867
2,818
27,854
8,970
2,870
27,501
8,590
$
170,627 $
263,377 $
300,671
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
The following table sets forth revenues by geographic area, based on customer location, for each of the past three
fiscal years (in thousands):
Year Ended October 31,
2019
2018
2020
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
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):
Americas
Europe
Asia Pacific
16. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements:
$ 64,500 $ 95,196 $ 87,231
2,915
2,194
92,340
2,580
1,409
99,185
1,621
1,543
67,664
24,993
19,679
8,599
10,797
14,034
78,102
14,225
10,048
24,273
52,002
29,349
14,772
14,346
20,028
130,497
62,346
34,216
16,691
15,815
32,034
161,102
15,706
16,858
32,564
27,748
17,937
45,685
588
1,544
$ 170,627 $ 263,377 $ 300,671
1,131
$
As of October 31,
2019
7,967 $
8,006
2020
6,826 $
7,059
2018
8,375
6,617
$ 13,885 $ 15,973 $ 14,992
2020
As of October 31,
2019
2018
$ 83,214 $ 103,863 $ 96,348
74,558
51,947
$ 231,148 $ 240,245 $ 222,853
71,411
64,971
77,840
70,094
Between February 2016 and February 2019, FASB issued ASC 842, and various related updates, which establish a
comprehensive new lease accounting model. ASC 842 clarifies the definition of a lease, requires a dual approach to
lease classification similar to previous 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 ASC 842, the income statement reflects lease expense for operating leases and amortization/interest
expense for financing leases.
72
73
73
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, 2020, 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, 2020 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
On January 7, 2021, our Board of Directors approved and adopted amendments to the Company’s Amended and
Restated By-Laws, effective on that date. The amendments amend Section 1, Section 4, Section 5, Section 6(e), and
Section 7(c) of Article II of the Amended and Restated By-Laws to explicitly provide for shareholder meetings to be
conducted by means of remote communication and related matters. The foregoing summary is qualified in its entirety
by reference to the full text of the Amended and Restated By-Laws, as so amended, a copy of which is filed as Exhibit
3.2 hereto and is incorporated herein by reference.
During the fourth quarter of fiscal 2020, 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.
ASC 842 was effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified
retrospective application. We adopted ASC 842 on November 1, 2019 utilizing the transition method allowed per
ASU 2018-11, and accordingly, comparative period financial information was not adjusted for the effects of adopting
ASC 842 and no cumulative-effect adjustment was required to the opening balance of retained earnings on the
adoption date. See Note 13 of these Notes to the Consolidated Financial Statements for further information.
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 was
effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified retrospective
application. We adopted this standard on November 1, 2019. This standard did not have a significant effect on our
accounting policies or on our consolidated financial statements and related disclosures.
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 became
effective for our fiscal year 2020 and we adopted this standard on November 1, 2019. This standard did not have a
significant effect on our accounting policies or on our consolidated financial statements and related disclosures.
New Accounting Pronouncements:
In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. This standard modifies the impairment model by requiring entities to use a
forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments,
including trade receivables. This may result in the earlier recognition of allowances for losses. This standard is
effective for our fiscal year 2021. We do not anticipate that the adoption of this ASU will have a material impact on
our consolidated financial statements and related disclosures.
In December 2019, FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which allows for companies to remove certain exceptions and clarifies certain requirements regarding
franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. This standard is
effective for our fiscal year 2022, with early adoption permitted. We are assessing the impact this new accounting
standard will have on our consolidated financial statements and related disclosures.
In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. This standard provides temporary optional expedients and exceptions
to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the
expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR.
This standard is effective for all entities as of March 12, 2020 through December 31, 2022. We are assessing the
impact this new accounting standard will have on our consolidated financial statements and related disclosures.
There have been no other significant changes in the Company’s critical accounting policies and estimates during the
fiscal year ended October 31, 2020.
Item 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
74
74
75
ASC 842 was effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified
retrospective application. We adopted ASC 842 on November 1, 2019 utilizing the transition method allowed per
ASU 2018-11, and accordingly, comparative period financial information was not adjusted for the effects of adopting
ASC 842 and no cumulative-effect adjustment was required to the opening balance of retained earnings on the
adoption date. See Note 13 of these Notes to the Consolidated Financial Statements for further information.
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 was
effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified retrospective
application. We adopted this standard on November 1, 2019. This standard did not have a significant effect on our
accounting policies or on our consolidated financial statements and related disclosures.
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 became
effective for our fiscal year 2020 and we adopted this standard on November 1, 2019. This standard did not have a
significant effect on our accounting policies or on our consolidated financial statements and related disclosures.
New Accounting Pronouncements:
In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. This standard modifies the impairment model by requiring entities to use a
forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments,
including trade receivables. This may result in the earlier recognition of allowances for losses. This standard is
effective for our fiscal year 2021. We do not anticipate that the adoption of this ASU will have a material impact on
our consolidated financial statements and related disclosures.
In December 2019, FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which allows for companies to remove certain exceptions and clarifies certain requirements regarding
franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations. This standard is
effective for our fiscal year 2022, with early adoption permitted. We are assessing the impact this new accounting
standard will have on our consolidated financial statements and related disclosures.
In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. This standard provides temporary optional expedients and exceptions
to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the
expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR.
This standard is effective for all entities as of March 12, 2020 through December 31, 2022. We are assessing the
impact this new accounting standard will have on our consolidated financial statements and related disclosures.
There have been no other significant changes in the Company’s critical accounting policies and estimates during the
fiscal year ended October 31, 2020.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
74
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, 2020, 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, 2020 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
On January 7, 2021, our Board of Directors approved and adopted amendments to the Company’s Amended and
Restated By-Laws, effective on that date. The amendments amend Section 1, Section 4, Section 5, Section 6(e), and
Section 7(c) of Article II of the Amended and Restated By-Laws to explicitly provide for shareholder meetings to be
conducted by means of remote communication and related matters. The foregoing summary is qualified in its entirety
by reference to the full text of the Amended and Restated By-Laws, as so amended, a copy of which is filed as Exhibit
3.2 hereto and is incorporated herein by reference.
During the fourth quarter of fiscal 2020, 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.
75
75
The graph below matches the cumulative 5-Year total return of holders of Hurco Companies, Inc.'s common stock
with the cumulative total returns of the Russell 2000 index, the NASDAQ Global Select index and a customized peer
group of eighteen companies that includes: Ampco-Pittsburgh Corp, DMC Global Inc., Douglas Dynamics Inc.,
Eastern Co, FARO Technologies Inc., Graham Corp, Helios Technologies Inc., IEC Electronics Corp, Kadant Inc.,
Key Tronic Corp, L S Starrett Co, Novanta Inc., Onto Innovation Inc., Proto Labs Inc., QAD Inc., Transcat Inc., Twin
Disc Inc. and Vishay Precision Group Inc. The graph assumes that the value of the investment in our common stock,
in each index, and in the peer group (including reinvestment of dividends) was $100 on October 31, 2015 and tracks
it through October 31, 2020.
$250
$200
$150
$100
$50
$0
10/15
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index,
the NASDAQ Global Select Index, and a Peer Group
10/16
Hurco Companies, Inc.
10/17
NASDAQ Global Select
10/18
10/19
10/20
Russell 2000
Peer Group
*$100 invested on 10/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
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
2021 annual meeting of shareholders except that the information required by Item 10 regarding our executive officers
is included herein under the caption “Information about our Executive Officers” 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
2021 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
2021 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
2021 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
2021 annual meeting of shareholders.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
Peer Group
10/15
10/16
10/17
10/18
10/19
10/20
100.00
100.00
100.00
100.00
98.70
104.11
104.76
103.48
170.56
133.11
137.55
185.41
156.78
135.57
150.03
205.72
135.65
142.22
173.35
211.64
118.46
142.03
229.57
227.44
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
76
76
77
The graph below matches the cumulative 5-Year total return of holders of Hurco Companies, Inc.'s common stock
with the cumulative total returns of the Russell 2000 index, the NASDAQ Global Select index and a customized peer
group of eighteen companies that includes: Ampco-Pittsburgh Corp, DMC Global Inc., Douglas Dynamics Inc.,
Eastern Co, FARO Technologies Inc., Graham Corp, Helios Technologies Inc., IEC Electronics Corp, Kadant Inc.,
Key Tronic Corp, L S Starrett Co, Novanta Inc., Onto Innovation Inc., Proto Labs Inc., QAD Inc., Transcat Inc., Twin
Disc Inc. and Vishay Precision Group Inc. The graph assumes that the value of the investment in our common stock,
in each index, and in the peer group (including reinvestment of dividends) was $100 on October 31, 2015 and tracks
it through October 31, 2020.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index,
the NASDAQ Global Select Index, and a Peer Group
$250
$200
$150
$100
$50
$0
10/15
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
2021 annual meeting of shareholders except that the information required by Item 10 regarding our executive officers
is included herein under the caption “Information about our Executive Officers” 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
2021 annual meeting of shareholders.
Item 12.
AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2021 annual meeting of shareholders.
Item 13.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
The information required by this item is incorporated herein by reference to the definitive proxy statement for our
2021 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
2021 annual meeting of shareholders.
10/16
10/17
Hurco Companies, Inc.
NASDAQ Global Select
Russell 2000
Peer Group
10/18
10/19
10/20
*$100 invested on 10/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
Peer Group
10/15
10/16
10/17
10/18
10/19
10/20
100.00
100.00
100.00
100.00
98.70
104.11
104.76
103.48
170.56
133.11
137.55
185.41
156.78
135.57
150.03
205.72
135.65
142.22
173.35
211.64
118.46
142.03
229.57
227.44
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
76
77
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
Exhibits Filed. The following exhibits are filed with this report:
under Item 8 of Part II:
3.2
4.1
21.1
23.1
31.1
31.2
32.1
32.2
101
Amended and Restated By-Laws of the Registrant as amended through January 7, 2021.
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 Exchange Act
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of
of 1934, as amended.
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.
The following financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year
ended October 31, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii)
Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated Balance Sheets; (iv)
Consolidated Statements of Cash Flows; (v) Consolidated Statements of Changes in Shareholders’ Equity;
and (vi) Notes to Consolidated Financial Statements
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Page
42
Reports of Independent Registered Public Accounting Firm
44
Consolidated Statements of Operations – years ended October 31, 2020, 2019 and 2018
45
Consolidated Statements of Comprehensive Income (Loss) – years ended October 31, 2020, 2019 and 2018
46
Consolidated Balance Sheets – as of October 31, 2020 and 2019
47
Consolidated Statements of Cash Flows – years ended October 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity – years ended October 31, 2020, 2019 and 2018 48
49
Notes to Consolidated Financial Statements
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, 2020, 2019 and 2018
(Dollars in thousands)
Description
Allowance for doubtful accounts for
the year ended:
October 31, 2020
October 31, 2019
October 31, 2018
Charged to/
(Recovered
from)
Costs and
Expenses
Charged
to Other
Accounts
Balance at
Beginning
of Period
Deductions
Balance
at End
of Period
$
$
$
891 $
1,027 $
639 $
575 $
(136) $
394 $
— $
— $
— $
65 (1) $
— (1) $
6 (1) $
1,401
891
1,027
Income tax valuation allowance for the year
ended:
October 31, 2020
October 31, 2019
October 31, 2018
$
$
$
(1) Receivable write-offs.
2,227 $
2,106 $
2,282 $
50 $
458 $
253 $
— $
— $
— $
113 $
337 $
429 $
2,164
2,227
2,106
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.
78
78
79
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
Exhibits Filed. The following exhibits are filed with this report:
under Item 8 of Part II:
3.2
4.1
21.1
23.1
31.1
31.2
32.1
32.2
101
104
Amended and Restated By-Laws of the Registrant as amended through January 7, 2021.
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 Exchange Act
of 1934, as amended.
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities 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.
The following financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year
ended October 31, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii)
Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated Balance Sheets; (iv)
Consolidated Statements of Cash Flows; (v) Consolidated Statements of Changes in Shareholders’ Equity;
and (vi) Notes to Consolidated Financial Statements
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations – years ended October 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) – years ended October 31, 2020, 2019 and 2018
Consolidated Balance Sheets – as of October 31, 2020 and 2019
Consolidated Statements of Cash Flows – years ended October 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity – years ended October 31, 2020, 2019 and 2018 48
Notes to Consolidated Financial Statements
Page
42
44
45
46
47
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, 2020, 2019 and 2018
(Dollars in thousands)
Allowance for doubtful accounts for
Description
of Period
Expenses
Accounts
Deductions
of Period
Balance at
Beginning
Charged to/
(Recovered
from)
Costs and
Charged
to Other
Balance
at End
Income tax valuation allowance for the year
the year ended:
October 31, 2020
October 31, 2019
October 31, 2018
ended:
October 31, 2020
October 31, 2019
October 31, 2018
(1) Receivable write-offs.
$
$
$
891 $
1,027 $
639 $
575 $
(136) $
394 $
— $
— $
— $
65 (1) $
— (1) $
6 (1) $
1,401
891
1,027
$
$
$
2,227 $
2,106 $
2,282 $
50 $
458 $
253 $
— $
— $
— $
113 $
337 $
429 $
2,164
2,227
2,106
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.
78
79
79
SIGNATURES
None.
2021.
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 8th day of January,
HURCO COMPANIES, INC.
By: /s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and
Chief Financial Officer
Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:
Item 16.
FORM 10-K SUMMARY
3.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
10.12
10.13
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.
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.
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.
First Amendment to Credit Agreement, dated as of March 13, 2020, to the Credit Agreement, dated as of
December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain subsidiaries
party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 13, 2020.
Second Amendment to Credit Agreement, dated as of December 23, 2020, to the Credit Agreement, dated
as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain
subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 29, 2020.
*
The indicated exhibit is a management contract, compensatory plan, or arrangement required to be listed by Item 601 of
Regulation S-K.
80
80
81
Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:
Item 16.
FORM 10-K SUMMARY
3.1
Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, this 8th day of January,
2021.
HURCO COMPANIES, INC.
By: /s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and
Chief Financial Officer
3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.
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, 2016.
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 quarter
ended January 31, 2017.
ended January 31, 2017.
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 the quarter
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,
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 filed March 16,
2012.
2012.
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
filed March 16, 2012.
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.
10.10*
Form of restated split-dollar insurance agreement, incorporated by reference to Exhibit 10.2 to the
Registrant’s Annual Report on Form 10-K for the year ended October 31, 2008.
10.11
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.
10.12
First Amendment to Credit Agreement, dated as of March 13, 2020, to the Credit Agreement, dated as of
December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain subsidiaries
party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 13, 2020.
10.13
Second Amendment to Credit Agreement, dated as of December 23, 2020, to the Credit Agreement, dated
as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain
subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 29, 2020.
*
The indicated exhibit is a management contract, compensatory plan, or arrangement required to be listed by Item 601 of
Regulation S-K.
80
81
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:
Exhibit 3.2
Signature and Title(s)
Date
/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/ Timothy J. Gardner
Timothy J. Gardner, Director
/s/ Jay C. Longbottom
Jay C. Longbottom, Director
/s/ Richard Porter
Richard Porter, Director
/s/ Janaki Sivanesan
Janaki Sivanesan, Director
/s/ Gregory Volovic
Gregory Volovic, Director
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
82
82
AMENDED AND RESTATED
BY-LAWS
OF
HURCO COMPANIES, INC.
AS AMENDED THROUGH JANUARY 7, 2021
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:
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
HURCO COMPANIES, INC.
AS AMENDED THROUGH JANUARY 7, 2021
Signature and Title(s)
Date
/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/ Timothy J. Gardner
Timothy J. Gardner, Director
/s/ Jay C. Longbottom
Jay C. Longbottom, Director
/s/ Richard Porter
Richard Porter, Director
/s/ Janaki Sivanesan
Janaki Sivanesan, Director
/s/ Gregory Volovic
Gregory Volovic, Director
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
January 8, 2021
82
TABLE OF CONTENTS
ARTICLE I Identification............................................................................................................................................. 1
Section 1. Name ....................................................................................................................................................... 1
Section 2. Registered Office and Registered Agent ................................................................................................. 1
Section 3. Principal Office ....................................................................................................................................... 1
Section 4. Other Offices ........................................................................................................................................... 1
Section 5. Seal ......................................................................................................................................................... 1
Section 6. Fiscal Year .............................................................................................................................................. 1
ARTICLE II Shareholders ............................................................................................................................................ 2
Section 1. Place of Meetings and Participation in Meetings by Remote Communication ....................................... 2
Section 2. Annual Meetings ..................................................................................................................................... 2
Section 3. Special Meetings ..................................................................................................................................... 2
Section 4. Notice of Meeting ................................................................................................................................... 2
Section 5. Waiver of Notice ..................................................................................................................................... 2
Section 6. Voting at Meetings .................................................................................................................................. 2
(a) Voting Rights ............................................................................................................................................. 2
(b) Record Date ............................................................................................................................................... 3
(c)
Proxies ....................................................................................................................................................... 3
(d) Quorum ...................................................................................................................................................... 3
(e) Adjournments ............................................................................................................................................ 3
Section 7. List of Shareholders ................................................................................................................................ 3
Section 14. Action by Written Consent ................................................................................................................... 6
Section 15. Committees ........................................................................................................................................... 7
Section 16. Meeting by Telephone or Similar Communication Equipment ............................................................ 7
ARTICLE IV Officers .................................................................................................................................................. 7
Section 1. Principal Officers .................................................................................................................................... 7
Section 2. Election and Terms ................................................................................................................................. 7
Section 3. Resignation and Removal ....................................................................................................................... 7
Section 4. Vacancies ................................................................................................................................................ 8
Section 5. Powers and Duties of Officers ................................................................................................................ 8
Section 6. Chairman of the Board ............................................................................................................................ 8
Section 7. The President .......................................................................................................................................... 8
Section 8. Vice Presidents........................................................................................................................................ 8
Section 9. Secretary ................................................................................................................................................. 8
Section 10. Treasurer ............................................................................................................................................... 9
Section 11. The Controller ....................................................................................................................................... 9
Section 12. Assistant Secretaries ............................................................................................................................. 9
Section 13. Assistant Treasurers .............................................................................................................................. 9
Section 14. Delegation of Authority ........................................................................................................................ 9
Section 15. Securities of Other Corporations ........................................................................................................... 9
ARTICLE V Directors' Services, Limitation of Liability and Reliance on Corporate Records, and Interest of
Directors in Contracts .................................................................................................................................................. 10
Section 8. Notice of Shareholder Business .............................................................................................................. 4
Section 1. Services ................................................................................................................................................. 10
Section 9. Notice of Shareholder Nominees ............................................................................................................ 4
Section 2. General Limitation of Liability ............................................................................................................. 10
ARTICLE III Directors ................................................................................................................................................ 5
Section 3. Reliance on Corporate Records and Other Information ........................................................................ 10
Section 1. Duties ...................................................................................................................................................... 5
Section 4. Interest of Directors in Contracts .......................................................................................................... 10
Section 2. Number of Directors ............................................................................................................................... 5
ARTICLE VI Indemnification ............................................................................................................................... 11
Section 3. Election and Term ................................................................................................................................... 5
Section 1. Indemnification Against Underlying Liability ...................................................................................... 11
Section 4. Resignation ............................................................................................................................................. 5
Section 2. Successful Defense ............................................................................................................................... 11
Section 5. Vacancies ................................................................................................................................................ 5
Section 3. Determination of Conduct ..................................................................................................................... 11
Section 6. Annual Meetings ..................................................................................................................................... 6
Section 4. Definition of Good Faith ....................................................................................................................... 11
Section 7. Regular Meetings .................................................................................................................................... 6
Section 5. Payment of Expenses in Advance ......................................................................................................... 12
Section 8. Special Meetings ..................................................................................................................................... 6
Section 6. Indemnity Not Exclusive ...................................................................................................................... 12
Section 9. Notice ...................................................................................................................................................... 6
Section 7. Vested Right to Indemnification ........................................................................................................... 12
Section 10. Waiver of Notice ................................................................................................................................... 6
Section 8. Insurance ............................................................................................................................................... 12
Section 11. Business to be Transacted ..................................................................................................................... 6
Section 9. Additional Definitions .......................................................................................................................... 12
Section 12. Quorum — Adjournment if Quorum is Not Present ............................................................................. 6
Section 10. Payments a Business Expense ............................................................................................................. 13
Section 13. Presumption of Assent .......................................................................................................................... 6
ii
i
i
TABLE OF CONTENTS
ARTICLE I Identification............................................................................................................................................. 1
Section 1. Name ....................................................................................................................................................... 1
Section 2. Registered Office and Registered Agent ................................................................................................. 1
Section 3. Principal Office ....................................................................................................................................... 1
Section 4. Other Offices ........................................................................................................................................... 1
Section 5. Seal ......................................................................................................................................................... 1
Section 6. Fiscal Year .............................................................................................................................................. 1
ARTICLE II Shareholders ............................................................................................................................................ 2
Section 1. Place of Meetings and Participation in Meetings by Remote Communication ....................................... 2
Section 2. Annual Meetings ..................................................................................................................................... 2
Section 3. Special Meetings ..................................................................................................................................... 2
Section 4. Notice of Meeting ................................................................................................................................... 2
Section 5. Waiver of Notice ..................................................................................................................................... 2
Section 6. Voting at Meetings .................................................................................................................................. 2
(a) Voting Rights ............................................................................................................................................. 2
(b) Record Date ............................................................................................................................................... 3
(c)
Proxies ....................................................................................................................................................... 3
(d) Quorum ...................................................................................................................................................... 3
(e) Adjournments ............................................................................................................................................ 3
Section 7. List of Shareholders ................................................................................................................................ 3
Section 14. Action by Written Consent ................................................................................................................... 6
Section 15. Committees ........................................................................................................................................... 7
Section 16. Meeting by Telephone or Similar Communication Equipment ............................................................ 7
ARTICLE IV Officers .................................................................................................................................................. 7
Section 1. Principal Officers .................................................................................................................................... 7
Section 2. Election and Terms ................................................................................................................................. 7
Section 3. Resignation and Removal ....................................................................................................................... 7
Section 4. Vacancies ................................................................................................................................................ 8
Section 5. Powers and Duties of Officers ................................................................................................................ 8
Section 6. Chairman of the Board ............................................................................................................................ 8
Section 7. The President .......................................................................................................................................... 8
Section 8. Vice Presidents........................................................................................................................................ 8
Section 9. Secretary ................................................................................................................................................. 8
Section 10. Treasurer ............................................................................................................................................... 9
Section 11. The Controller ....................................................................................................................................... 9
Section 12. Assistant Secretaries ............................................................................................................................. 9
Section 13. Assistant Treasurers .............................................................................................................................. 9
Section 14. Delegation of Authority ........................................................................................................................ 9
Section 15. Securities of Other Corporations ........................................................................................................... 9
ARTICLE V Directors' Services, Limitation of Liability and Reliance on Corporate Records, and Interest of
Directors in Contracts .................................................................................................................................................. 10
Section 8. Notice of Shareholder Business .............................................................................................................. 4
Section 1. Services ................................................................................................................................................. 10
Section 9. Notice of Shareholder Nominees ............................................................................................................ 4
Section 2. General Limitation of Liability ............................................................................................................. 10
ARTICLE III Directors ................................................................................................................................................ 5
Section 3. Reliance on Corporate Records and Other Information ........................................................................ 10
Section 1. Duties ...................................................................................................................................................... 5
Section 4. Interest of Directors in Contracts .......................................................................................................... 10
Section 2. Number of Directors ............................................................................................................................... 5
ARTICLE VI Indemnification ............................................................................................................................... 11
Section 3. Election and Term ................................................................................................................................... 5
Section 1. Indemnification Against Underlying Liability ...................................................................................... 11
Section 4. Resignation ............................................................................................................................................. 5
Section 2. Successful Defense ............................................................................................................................... 11
Section 5. Vacancies ................................................................................................................................................ 5
Section 3. Determination of Conduct ..................................................................................................................... 11
Section 6. Annual Meetings ..................................................................................................................................... 6
Section 4. Definition of Good Faith ....................................................................................................................... 11
Section 7. Regular Meetings .................................................................................................................................... 6
Section 5. Payment of Expenses in Advance ......................................................................................................... 12
Section 8. Special Meetings ..................................................................................................................................... 6
Section 6. Indemnity Not Exclusive ...................................................................................................................... 12
Section 9. Notice ...................................................................................................................................................... 6
Section 7. Vested Right to Indemnification ........................................................................................................... 12
Section 10. Waiver of Notice ................................................................................................................................... 6
Section 8. Insurance ............................................................................................................................................... 12
Section 11. Business to be Transacted ..................................................................................................................... 6
Section 9. Additional Definitions .......................................................................................................................... 12
Section 12. Quorum — Adjournment if Quorum is Not Present ............................................................................. 6
Section 10. Payments a Business Expense ............................................................................................................. 13
Section 13. Presumption of Assent .......................................................................................................................... 6
i
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ii
HURCO COMPANIES, INC.
BY-LAWS
OF
ARTICLE I
Identification
referred to as the "Corporation").
Section 1. Name . The name of the Corporation is HURCO COMPANIES, INC. (hereinafter
the Corporation is One Technology Way, Indianapolis, Indiana 46268; and the name of its Registered Agent located
Section 2. Registered Office and Registered Agent . The street address of the Registered Office of
at such office is Sonja McClelland.
Section 3. Principal Office. The address of the Principal Office of the Corporation is One
Technology Way, Indianapolis, Indiana 46268. The Principal Office of the Corporation shall be the principal
executive offices of the Corporation, and such Principal Office may be changed from time to time by the Board of
Directors in the manner provided by law and need not be the same as the Registered Office of the Corporation.
within or without the State of Indiana, as the Board of Directors may determine or the business of the Corporation
Section 4. Other Offices. The Corporation may also have offices at such other places or locations,
may require.
Section 5. Seal . The Corporation need not use a seal. If one is used, it shall be circular in form
and mounted upon a metal die suitable for impressing the same upon paper. About the upper periphery of the seal
shall appear the words "HURCO COMPANIES, INC." and about the lower periphery thereof the word "Indiana". In
the center of the seal shall appear the word "Seal". The seal may be altered by the Board of Directors at its pleasure
and may be used by causing it or a facsimile thereof to be impressed, affixed, printed or otherwise reproduced.
day of November in each year and end at the close of the last day of October next succeeding.
ARTICLE VII Shares ................................................................................................................................................. 13
Section 1. Share Certificates .................................................................................................................................. 13
Section 2. Transfer of Shares ................................................................................................................................. 13
Section 3. Transfer Agent ...................................................................................................................................... 13
Section 4. Registered Holders ................................................................................................................................ 13
Section 5. Lost, Destroyed and Mutilated Certificates ........................................................................................... 13
Section 6. Consideration for Shares ....................................................................................................................... 13
Section 7. Payment for Shares ............................................................................................................................... 14
Section 8. Distributions to Shareholders ................................................................................................................ 14
Section 9. Regulations ........................................................................................................................................... 14
ARTICLE VIII Corporate Books and Reports ........................................................................................................... 14
Section 1. Place of Keeping Corporate Books and Records .................................................................................. 14
Section 2. Place of Keeping Certain Corporate Books and Records ...................................................................... 14
Section 3. Permanent Records ............................................................................................................................... 14
Section 4. Shareholder Records ............................................................................................................................. 15
Section 5. Shareholder Rights of Inspection .......................................................................................................... 15
Section 6. Additional Rights of Inspection ............................................................................................................ 15
ARTICLE IX Miscellaneous ...................................................................................................................................... 15
Section 1. Notice and Waiver of Notice ................................................................................................................ 15
Section 2. Depositories .......................................................................................................................................... 15
Section 3. Signing of Checks, Notes, etc. .............................................................................................................. 15
Section 4. Gender and Number .............................................................................................................................. 16
Section 5. Laws ...................................................................................................................................................... 16
Section 6. Headings ............................................................................................................................................... 16
Section 6. Fiscal Year . The fiscal year of the Corporation shall begin at the beginning of the first
ARTICLE X Amendments ......................................................................................................................................... 16
ARTICLE XI The Indiana Business Corporation Law ............................................................................................... 16
Section 1. The Indiana Business Corporation Law ................................................................................................ 16
Section 2. Mandatory Classified Board Structure .................................................................................................. 16
iii
iii
1
BY-LAWS
OF
HURCO COMPANIES, INC.
ARTICLE I
Identification
referred to as the "Corporation").
Section 1. Name . The name of the Corporation is HURCO COMPANIES, INC. (hereinafter
Section 2. Registered Office and Registered Agent . The street address of the Registered Office of
the Corporation is One Technology Way, Indianapolis, Indiana 46268; and the name of its Registered Agent located
at such office is Sonja McClelland.
Section 3. Principal Office. The address of the Principal Office of the Corporation is One
Technology Way, Indianapolis, Indiana 46268. The Principal Office of the Corporation shall be the principal
executive offices of the Corporation, and such Principal Office may be changed from time to time by the Board of
Directors in the manner provided by law and need not be the same as the Registered Office of the Corporation.
Section 4. Other Offices. The Corporation may also have offices at such other places or locations,
within or without the State of Indiana, as the Board of Directors may determine or the business of the Corporation
may require.
Section 5. Seal . The Corporation need not use a seal. If one is used, it shall be circular in form
and mounted upon a metal die suitable for impressing the same upon paper. About the upper periphery of the seal
shall appear the words "HURCO COMPANIES, INC." and about the lower periphery thereof the word "Indiana". In
the center of the seal shall appear the word "Seal". The seal may be altered by the Board of Directors at its pleasure
and may be used by causing it or a facsimile thereof to be impressed, affixed, printed or otherwise reproduced.
Section 6. Headings ............................................................................................................................................... 16
Section 6. Fiscal Year . The fiscal year of the Corporation shall begin at the beginning of the first
day of November in each year and end at the close of the last day of October next succeeding.
ARTICLE VII Shares ................................................................................................................................................. 13
Section 1. Share Certificates .................................................................................................................................. 13
Section 2. Transfer of Shares ................................................................................................................................. 13
Section 3. Transfer Agent ...................................................................................................................................... 13
Section 4. Registered Holders ................................................................................................................................ 13
Section 5. Lost, Destroyed and Mutilated Certificates ........................................................................................... 13
Section 6. Consideration for Shares ....................................................................................................................... 13
Section 7. Payment for Shares ............................................................................................................................... 14
Section 8. Distributions to Shareholders ................................................................................................................ 14
Section 9. Regulations ........................................................................................................................................... 14
ARTICLE VIII Corporate Books and Reports ........................................................................................................... 14
Section 1. Place of Keeping Corporate Books and Records .................................................................................. 14
Section 2. Place of Keeping Certain Corporate Books and Records ...................................................................... 14
Section 3. Permanent Records ............................................................................................................................... 14
Section 4. Shareholder Records ............................................................................................................................. 15
Section 5. Shareholder Rights of Inspection .......................................................................................................... 15
Section 6. Additional Rights of Inspection ............................................................................................................ 15
ARTICLE IX Miscellaneous ...................................................................................................................................... 15
Section 1. Notice and Waiver of Notice ................................................................................................................ 15
Section 2. Depositories .......................................................................................................................................... 15
Section 3. Signing of Checks, Notes, etc. .............................................................................................................. 15
Section 4. Gender and Number .............................................................................................................................. 16
Section 5. Laws ...................................................................................................................................................... 16
ARTICLE X Amendments ......................................................................................................................................... 16
ARTICLE XI The Indiana Business Corporation Law ............................................................................................... 16
Section 1. The Indiana Business Corporation Law ................................................................................................ 16
Section 2. Mandatory Classified Board Structure .................................................................................................. 16
iii
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1
ARTICLE II
Shareholders
any meeting shall be ten (10) days prior to the date of such meeting or such different date not more than seventy (70)
(b)
Record Date . The record date for purposes of determining shareholders entitled to vote at
days prior to such meeting as may be fixed by the Board of Directors.
Section 1. Place of Meetings
and Participation in Meetings by Remote Communication . All
meetings of shareholders of the Corporation shall be held at such place, if any, within or without the State of Indiana,
as may be determined by the President or Board of Directors and specified in the notices or waivers of notice thereof
The Board of Directors, acting in its sole discretion, may
or proxies to represent shareholders at such meetings.
establish guidelines and procedures in accordance with applicable provisions of the Indiana Business Corporation
Law, as then in effect and as amended from time to time, and any other applicable law for the participation by
shareholders in a meeting of shareholders by means of remote communication, and may determine that any meeting
of shareholders will not be held at any place but will instead be held solely by means of remote communication.
Shareholders complying with such procedures and guidelines and otherwise entitled to vote at a meeting of
shareholders shall be deemed present in person and entitled to vote at the meeting of shareholders, whether such
meeting is to be held at a designated place or solely by means of remote communication.
Section 2. Annual Meetings . An annual meeting of shareholders shall be held each year on such
date and at such time as may be determined by the President or Board of Directors. The failure to hold an annual
meeting at the designated time shall not affect the validity of any corporate action. Any and all business of any nature
or character may be transacted, and action may be taken thereon, at any annual meeting, except as otherwise provided
by law or by these By-laws.
Section 3. Special Meetings . A special meeting of shareholders shall be held: (a) on call of the
Board of Directors or the President; or (b) if 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 sign, date and deliver to the Secretary one (1) or more
written demands for the meeting describing the purpose or purposes for which it is to be held. At any special meeting
of the shareholders, only business within the purpose or purposes described in the notice of the meeting may be
conducted.
Section 4. Notice of Meeting . Written or electronic notice stating the date, time and place, if any,
of a meeting, the means of remote communication, if any, by which shareholders may be deemed to be present in
person and vote at such meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given by the Corporation to each shareholder of record of the Corporation entitled to vote at the
meeting, at such address as appears upon the records of the Corporation, no fewer than ten (10) days nor more than
sixty (60) days, before the meeting date. If mailed, such notice shall be effective when mailed if correctly addressed
to the shareholder's address shown in the Corporation's current record of shareholders.
Section 5. Waiver of Notice . A shareholder may waive any notice required by law, the Articles of
Incorporation or these By-laws before or after the date and time stated in the notice. The waiver by the shareholder
entitled to the notice must be in writing and be delivered to the Corporation for inclusion in the minutes or filing with
the corporate records. A shareholder's attendance at a meeting, in person or by proxy, or participation in a meeting
by remote communication in accordance with the Indiana Business Corporation Law, as then in effect and as amended
from time to time, and these By-laws: (a) waives objection to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting;
and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
Section 6. Voting at Meetings .
Voting Rights . At each meeting of the shareholders, each outstanding share, regardless of
class, is entitled to one (1) vote on each matter voted on at such meeting, except to the extent cumulative voting is
allowed by the Articles of Incorporation. Only shares are entitled to vote.
(a)
(c)
Proxies .
(1)
(2)
shareholder.
A shareholder may vote the shareholder's shares in person or by proxy.
A shareholder may appoint a proxy to vote or otherwise act for the shareholder by
executing in writing an appointment form, either personally or by the shareholder's attorney-in-fact.
For purposes of this Section, a proxy appointed by telegram, telex, telecopy or other document
transmitted electronically for or by a shareholder shall be deemed "executed in writing" by the
(3)
An appointment of a proxy is effective when received by the Secretary or other
officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months, unless
a longer period is expressly provided in the appointment form.
(4)
An appointment of a proxy is revocable by the shareholder, unless the
appointment form conspicuously states that is irrevocable and the appointment is coupled with an
interest.
(d)
Quorum . At all meetings of shareholders, a majority of the votes entitled to be cast on a
particular matter constitutes a quorum on that matter. If a quorum exists, action on a matter (other than the election
of directors) is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the
Articles of Incorporation or law require a greater number of affirmative votes.
(e)
Adjournments . Any meeting of shareholders, including both annual and special meetings
and any adjournments thereof, may be adjourned to a different date, time or place. Notice need not be given of the
new date, time or place, if any, if the new date, time or place and the means of remote communication, if any, by
which shareholders may be deemed to be present in person and vote at such meeting are announced at the meeting
before adjournment, even though less than a quorum is present. At any such adjourned meeting at which a quorum is
present, in person or by proxy, any business may be transacted which might have been transacted at the meeting as
originally notified or called.
Section 7. List of Shareholders .
(a)
After a record date has been fixed for a meeting of shareholders, the Secretary shall prepare
or cause to be prepared an alphabetical list of the names of the shareholders of the Corporation who are entitled to
vote at such meeting. The list shall show the address of and number of shares held by each shareholder.
(b)
The shareholders' list must be available for inspection by any shareholder entitled to vote
at the meeting, beginning five (5) business days before the date of the meeting for which the list was prepared and
continuing through the meeting, at the Corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. Subject to the restrictions of applicable law, a shareholder, or the shareholder's
agent or attorney authorized in writing, is entitled on written demand to inspect and to copy the list during regular
business hours and at the shareholder's expense, during the period it is available for inspection.
(c)
The Corporation shall make the shareholders' list available at the meeting, and any
shareholder, or the shareholder's agent or attorney authorized in writing, is entitled to inspect the list at any time during
the meeting or any adjournment.
f the meeting is held solely by means of remote communication, the list shall be
open to examination by any shareholder at any time during the meeting on a reasonably accessible electronic network,
and information required to access this list shall be provided with the notice of the meeting.
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ARTICLE II
Shareholders
Record Date . The record date for purposes of determining shareholders entitled to vote at
any meeting shall be ten (10) days prior to the date of such meeting or such different date not more than seventy (70)
days prior to such meeting as may be fixed by the Board of Directors.
(b)
(c)
Proxies .
(1)
A shareholder may vote the shareholder's shares in person or by proxy.
(2)
A shareholder may appoint a proxy to vote or otherwise act for the shareholder by
executing in writing an appointment form, either personally or by the shareholder's attorney-in-fact.
For purposes of this Section, a proxy appointed by telegram, telex, telecopy or other document
transmitted electronically for or by a shareholder shall be deemed "executed in writing" by the
shareholder.
(3)
An appointment of a proxy is effective when received by the Secretary or other
officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months, unless
a longer period is expressly provided in the appointment form.
(4)
An appointment of a proxy is revocable by the shareholder, unless the
appointment form conspicuously states that is irrevocable and the appointment is coupled with an
interest.
(d)
Quorum . At all meetings of shareholders, a majority of the votes entitled to be cast on a
particular matter constitutes a quorum on that matter. If a quorum exists, action on a matter (other than the election
of directors) is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the
Articles of Incorporation or law require a greater number of affirmative votes.
(e)
Adjournments . Any meeting of shareholders, including both annual and special meetings
and any adjournments thereof, may be adjourned to a different date, time or place. Notice need not be given of the
new date, time or place, if any, if the new date, time or place and the means of remote communication, if any, by
which shareholders may be deemed to be present in person and vote at such meeting are announced at the meeting
before adjournment, even though less than a quorum is present. At any such adjourned meeting at which a quorum is
present, in person or by proxy, any business may be transacted which might have been transacted at the meeting as
originally notified or called.
Section 7. List of Shareholders .
After a record date has been fixed for a meeting of shareholders, the Secretary shall prepare
or cause to be prepared an alphabetical list of the names of the shareholders of the Corporation who are entitled to
vote at such meeting. The list shall show the address of and number of shares held by each shareholder.
(a)
(b)
The shareholders' list must be available for inspection by any shareholder entitled to vote
at the meeting, beginning five (5) business days before the date of the meeting for which the list was prepared and
continuing through the meeting, at the Corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. Subject to the restrictions of applicable law, a shareholder, or the shareholder's
agent or attorney authorized in writing, is entitled on written demand to inspect and to copy the list during regular
business hours and at the shareholder's expense, during the period it is available for inspection.
Section 1. Place of Meetings
and Participation in Meetings by Remote Communication . All
meetings of shareholders of the Corporation shall be held at such place, if any, within or without the State of Indiana,
as may be determined by the President or Board of Directors and specified in the notices or waivers of notice thereof
or proxies to represent shareholders at such meetings.
The Board of Directors, acting in its sole discretion, may
establish guidelines and procedures in accordance with applicable provisions of the Indiana Business Corporation
Law, as then in effect and as amended from time to time, and any other applicable law for the participation by
shareholders in a meeting of shareholders by means of remote communication, and may determine that any meeting
of shareholders will not be held at any place but will instead be held solely by means of remote communication.
Shareholders complying with such procedures and guidelines and otherwise entitled to vote at a meeting of
shareholders shall be deemed present in person and entitled to vote at the meeting of shareholders, whether such
meeting is to be held at a designated place or solely by means of remote communication.
Section 2. Annual Meetings . An annual meeting of shareholders shall be held each year on such
date and at such time as may be determined by the President or Board of Directors. The failure to hold an annual
meeting at the designated time shall not affect the validity of any corporate action. Any and all business of any nature
or character may be transacted, and action may be taken thereon, at any annual meeting, except as otherwise provided
by law or by these By-laws.
Section 3. Special Meetings . A special meeting of shareholders shall be held: (a) on call of the
Board of Directors or the President; or (b) if 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 sign, date and deliver to the Secretary one (1) or more
written demands for the meeting describing the purpose or purposes for which it is to be held. At any special meeting
of the shareholders, only business within the purpose or purposes described in the notice of the meeting may be
conducted.
Section 4. Notice of Meeting . Written or electronic notice stating the date, time and place, if any,
of a meeting, the means of remote communication, if any, by which shareholders may be deemed to be present in
person and vote at such meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given by the Corporation to each shareholder of record of the Corporation entitled to vote at the
meeting, at such address as appears upon the records of the Corporation, no fewer than ten (10) days nor more than
sixty (60) days, before the meeting date. If mailed, such notice shall be effective when mailed if correctly addressed
to the shareholder's address shown in the Corporation's current record of shareholders.
Section 5. Waiver of Notice . A shareholder may waive any notice required by law, the Articles of
Incorporation or these By-laws before or after the date and time stated in the notice. The waiver by the shareholder
entitled to the notice must be in writing and be delivered to the Corporation for inclusion in the minutes or filing with
the corporate records. A shareholder's attendance at a meeting, in person or by proxy, or participation in a meeting
by remote communication in accordance with the Indiana Business Corporation Law, as then in effect and as amended
from time to time, and these By-laws: (a) waives objection to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting;
and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
Section 6. Voting at Meetings .
class, is entitled to one (1) vote on each matter voted on at such meeting, except to the extent cumulative voting is
(a)
Voting Rights . At each meeting of the shareholders, each outstanding share, regardless of
allowed by the Articles of Incorporation. Only shares are entitled to vote.
The Corporation shall make the shareholders' list available at the meeting, and any
shareholder, or the shareholder's agent or attorney authorized in writing, is entitled to inspect the list at any time during
the meeting or any adjournment.
f the meeting is held solely by means of remote communication, the list shall be
open to examination by any shareholder at any time during the meeting on a reasonably accessible electronic network,
and information required to access this list shall be provided with the notice of the meeting.
(c)
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Section 8. Notice of Shareholder Business . At an annual meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the meeting. To be properly brought before
an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have the legal right and authority to make
the proposal for consideration at the meeting and the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 60 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and record address of the shareholder(s)
proposing such business, (c) the class and shares of number of the Corporation's capital stock which are beneficially
owned by such shareholder(s), and (d) any material interest of such shareholder(s) in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance
with the procedures set forth in this Section 8. The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the meeting and in accordance with the
provisions of this Section 8, and if he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. At any special meeting of the shareholders, only such
business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of
Directors.
Section 9. Notice of Shareholder Nominees . Only persons who are nominated in accordance with
the procedures set forth in this Section 9 shall be eligible for election as Directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of shareholders by or at the direction of the Board of Directors,
by any nominating committee or person appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this
Section 9. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholders to be timely must be so received not later
than the close of business on the 10th day following the date on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and
residence address of such person; (ii) the principal occupation or employment of such person, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange act of 1934, as
amended (including without limitation such person's written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice (i) the name and record
address of such shareholder and (ii) the class and number of shares of capital stock of the Corporation which are
beneficially owned by such shareholder. No person shall be eligible for election as a Director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 9. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was not so declared in accordance with the
procedures prescribed by these By-Laws, and if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
ARTICLE III
Directors
Section 1. Duties . The business, property and affairs of the Corporation shall be managed and
controlled by the Board of Directors and, subject to such restrictions, if any, as may be imposed by law, the Articles
of Incorporation or by these By-laws, the Board of Directors may, and are fully authorized to, do all such lawful acts
and things as may be done by the Corporation which are not directed or required to be exercised or done by the
shareholders. Directors need not be residents of the State of Indiana or shareholders of the Corporation.
Section 2. Number of Directors . The Board of Directors shall consist of nine (9) members, which
number may be increased or reduced from time to time by resolution adopted by not less than a majority of the
Directors then in office; provided that no reduction in number shall have the effect of shortening the term of any
incumbent Director.
Section 3. Election and Term . Except as otherwise provided in Section 5 of this Article, the
directors shall be elected each year at the annual meeting of the shareholders, or at any special meeting of the
shareholders. Each such director shall hold office, unless he is removed in accordance with the provisions of these
By-laws or he resigns or dies or becomes so incapacitated he can no longer perform any of his duties as a director, for
the term for which he is elected and until his successor shall have been elected and qualified. Each director shall
qualify by accepting his election to office either expressly or by acting as a director. The shareholders or directors
may remove any director, with or without cause, and elect a successor at a meeting called expressly for such purpose.
Each director shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. If, as of the record date for such meeting, the number of director nominees to
be considered at the meeting does not exceed the number of directors to be elected, then if a nominee for director who
is an incumbent director does not receive more “for” votes than “withhold” votes with respect to his or her election,
such director shall promptly tender his or her resignation to the Board of Directors, subject to acceptance by the Board
of Directors. The Nominating and Governance Committee shall make a recommendation to the Board of Directors
on whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of
Directors, taking into account the recommendation of the Nominating and Governance Committee, shall, within 90
days of the certification of the shareholder director election at issue, determine the appropriate responsive action with
respect to the tendered resignation. Promptly after the Board of Directors takes action on a resignation tendered under
this Section, the Corporation shall issue a press release regarding the Board of Directors’ response thereto. The
Nominating and Governance Committee, in making its recommendation, and the Board of Directors, in making its
decision, may each consider any factors or other recommendations that it considers relevant and appropriate. The
incumbent director who tenders his or her resignation shall not participate in the Nominating and Governance
Committee’s recommendation, or the Board of Director’s decision, with respect to that director. If the resignation is
not accepted, such director shall continue to serve until the next annual meeting of shareholders and until his or her
successor has been elected and qualified, or unless he or she is removed or he or she resigns or dies or becomes so
incapacitated he or she can no longer perform any of his or her duties as a director. If the resignation is accepted, the
Board of Directors may decide to fill any resulting vacancy or decrease the number of directors.
Section 4. Resignation . Any director may resign at any time by delivering written notice to the
Board of Directors, the President, or the Secretary of the Corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date and except for resignations tendered under Section 3 of this
Article. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in
the resignation and except for resignations tendered pursuant to Section 3 of this Article.
Section 5. Vacancies . Vacancies occurring in the membership of the Board of Directors caused by
resignation, death or other incapacity, or increase in the number of directors shall be filled by a majority vote of the
remaining members of the Board, and each director so elected shall serve until the next meeting of the shareholders,
or until a successor shall have been duly elected and qualified.
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Section 8. Notice of Shareholder Business . At an annual meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the meeting. To be properly brought before
an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have the legal right and authority to make
the proposal for consideration at the meeting and the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 60 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and record address of the shareholder(s)
proposing such business, (c) the class and shares of number of the Corporation's capital stock which are beneficially
owned by such shareholder(s), and (d) any material interest of such shareholder(s) in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance
with the procedures set forth in this Section 8. The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the meeting and in accordance with the
provisions of this Section 8, and if he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. At any special meeting of the shareholders, only such
business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of
Directors.
Section 9. Notice of Shareholder Nominees . Only persons who are nominated in accordance with
the procedures set forth in this Section 9 shall be eligible for election as Directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of shareholders by or at the direction of the Board of Directors,
by any nominating committee or person appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this
Section 9. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholders to be timely must be so received not later
than the close of business on the 10th day following the date on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and
residence address of such person; (ii) the principal occupation or employment of such person, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange act of 1934, as
amended (including without limitation such person's written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice (i) the name and record
address of such shareholder and (ii) the class and number of shares of capital stock of the Corporation which are
beneficially owned by such shareholder. No person shall be eligible for election as a Director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 9. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was not so declared in accordance with the
procedures prescribed by these By-Laws, and if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
ARTICLE III
Directors
Section 1. Duties . The business, property and affairs of the Corporation shall be managed and
controlled by the Board of Directors and, subject to such restrictions, if any, as may be imposed by law, the Articles
of Incorporation or by these By-laws, the Board of Directors may, and are fully authorized to, do all such lawful acts
and things as may be done by the Corporation which are not directed or required to be exercised or done by the
shareholders. Directors need not be residents of the State of Indiana or shareholders of the Corporation.
Section 2. Number of Directors . The Board of Directors shall consist of nine (9) members, which
number may be increased or reduced from time to time by resolution adopted by not less than a majority of the
Directors then in office; provided that no reduction in number shall have the effect of shortening the term of any
incumbent Director.
Section 3. Election and Term . Except as otherwise provided in Section 5 of this Article, the
directors shall be elected each year at the annual meeting of the shareholders, or at any special meeting of the
shareholders. Each such director shall hold office, unless he is removed in accordance with the provisions of these
By-laws or he resigns or dies or becomes so incapacitated he can no longer perform any of his duties as a director, for
the term for which he is elected and until his successor shall have been elected and qualified. Each director shall
qualify by accepting his election to office either expressly or by acting as a director. The shareholders or directors
may remove any director, with or without cause, and elect a successor at a meeting called expressly for such purpose.
Each director shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. If, as of the record date for such meeting, the number of director nominees to
be considered at the meeting does not exceed the number of directors to be elected, then if a nominee for director who
is an incumbent director does not receive more “for” votes than “withhold” votes with respect to his or her election,
such director shall promptly tender his or her resignation to the Board of Directors, subject to acceptance by the Board
of Directors. The Nominating and Governance Committee shall make a recommendation to the Board of Directors
on whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of
Directors, taking into account the recommendation of the Nominating and Governance Committee, shall, within 90
days of the certification of the shareholder director election at issue, determine the appropriate responsive action with
respect to the tendered resignation. Promptly after the Board of Directors takes action on a resignation tendered under
this Section, the Corporation shall issue a press release regarding the Board of Directors’ response thereto. The
Nominating and Governance Committee, in making its recommendation, and the Board of Directors, in making its
decision, may each consider any factors or other recommendations that it considers relevant and appropriate. The
incumbent director who tenders his or her resignation shall not participate in the Nominating and Governance
Committee’s recommendation, or the Board of Director’s decision, with respect to that director. If the resignation is
not accepted, such director shall continue to serve until the next annual meeting of shareholders and until his or her
successor has been elected and qualified, or unless he or she is removed or he or she resigns or dies or becomes so
incapacitated he or she can no longer perform any of his or her duties as a director. If the resignation is accepted, the
Board of Directors may decide to fill any resulting vacancy or decrease the number of directors.
Section 4. Resignation . Any director may resign at any time by delivering written notice to the
Board of Directors, the President, or the Secretary of the Corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date and except for resignations tendered under Section 3 of this
Article. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in
the resignation and except for resignations tendered pursuant to Section 3 of this Article.
Section 5. Vacancies . Vacancies occurring in the membership of the Board of Directors caused by
resignation, death or other incapacity, or increase in the number of directors shall be filled by a majority vote of the
remaining members of the Board, and each director so elected shall serve until the next meeting of the shareholders,
or until a successor shall have been duly elected and qualified.
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immediately following, and at the same place as, the annual meeting of the shareholders.
Section 6. Annual Meetings . The Board of Directors shall meet annually, without notice,
Section 7. Regular Meetings . Regular meetings shall be held at such times and places, either within
or without the State of Indiana, as may be determined by the Chairman of the Board, the President or the Board of
Directors.
Section 8. Special Meetings . Special meetings of the Board of Directors may be called by the
President or by two (2) or more members of the Board of Directors, at any place within or without the State of Indiana,
upon twenty-four (24) hours' notice, specifying the time, place and general purposes of the meeting, given to each
director personally, by telephone, telegraph, teletype, or other form of wire or wireless communication; or notice may
be given by mail if mailed at least three (3) days before such meeting.
Section 9. Notice . The Secretary or an Assistant Secretary shall give notice of each special meeting,
and of the date, time and place of the particular meeting, in person or by mail, or by telephone, telegraph, teletype, or
other form of wire or wireless communication, and in the event of the absence of the Secretary or an Assistant
Secretary or the failure, inability, refusal or omission on the part of the Secretary or an Assistant Secretary so to do,
any other officer of the Corporation may give said notice.
Section 10. Waiver of Notice . A director may waive any notice required by law, the Articles of
Incorporation, or these By-laws before or after the date and time stated in the notice. Except as otherwise provided in
this Section, the waiver by the director must be in writing, signed by the director entitled to the notice, and included
in the minutes or filed with the corporate records. A director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the
director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
Section 11. Business to be Transacted . Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified in the notice or any waiver of notice of
such meeting. Any and all business of any nature or character whatsoever may be transacted and action may be taken
thereon at any meeting, regular or special, of the Board of Directors.
Section 12. Quorum — Adjournment if Quorum is Not Present . A majority of the number of
directors fixed by, or in the manner provided in, the Articles of Incorporation or these By-laws shall constitute a
quorum for the transaction of any and all business, unless a greater number is required by law or Articles of
Incorporation or these By-laws. At any meeting, regular or special, of the Board of Directors, if there be less than a
quorum present, a majority of those present, or if only one director be present, then such director, may adjourn the
meeting from time to time without notice until the transaction of any and all business submitted or proposed to be
submitted to such meeting or any adjournment thereof shall have been completed. In the event of such adjournment,
written, telegraphic or telephonic announcement of the time and place at which the meeting will reconvene must be
provided to all directors. The act of the majority of the directors present at any meeting of the Board of Directors at
which a quorum is present shall constitute the act of the Board of Directors, unless the act of a greater number is
required by law or the Articles of Incorporation or these By-laws.
Section 13. Presumption of Assent . A director of the Corporation who is present at a meeting of
the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the
action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file his
written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof
or to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent or
abstain shall not apply to a director who voted in favor of such action.
Section 14. Action by Written Consent . Any action required or permitted to be taken at a meeting
of the Board of Directors or any committee thereof may be taken without a meeting if the action is taken by all the
members of the Board of Directors or committee, as the case may be. The action must be evidenced by one or more
written consents describing the action taken, signed by each director or committee member, and included in the
minutes or filed with the corporate records reflecting the action taken. Such action is effective when the last director
or committee member signs the consent, unless the consent specifies a different prior or subsequent effective date.
Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be described as such in
any document or instrument.
Section 15. Committees . The Board of Directors, by resolution adopted by a majority of the Board
of Directors, may designate from among its members an executive committee and one or more other committees, each
of which, to the extent provided in such resolution or in the Articles of Incorporation or in these By-laws of the
Corporation, shall have and may exercise such authority of the Board of Directors as shall be expressly delegated by
the Board from time to time; except that no such committee shall have the authority of the Board of Directors in
reference to (a) amending the Articles of Incorporation; (b) approving a plan of merger even if the plan does not
require shareholder approval; (c) authorizing dividends or distributions, except a committee may authorize or approve
a reacquisition of shares, if done according to a formula or method prescribed by the Board of Directors; (d) approving
or proposing to shareholders action that requires shareholder approval; (e) amending, altering or repealing the By-laws
of the Corporation or adopting new By-laws for the Corporation; (f) filling vacancies in the Board of Directors or in
any of its committees; or (g) electing or removing officers or members of any such committee. A majority of all the
members of any such committee may determine its action and fix the time and place of its meetings, unless the Board
of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the number and
members of any such committee, to fill vacancies and to discharge any such committee. The designation of such
committee and the delegation thereto of authority shall not alone constitute compliance by the Board of Directors, or
any member thereof, with the standard of conduct imposed upon it or him by the Indiana Business Corporation Law,
as the same may, from time to time, be amended.
Section 16. Meeting by Telephone or Similar Communication Equipment . Any or all directors
may participate in and hold a regular or special meeting of the Board of Directors or any committee thereof by, or
through the use of, any means of conference telephone or other similar communications equipment by which all
directors participating in the meeting may simultaneously hear each other during the meeting. Participation in a
meeting pursuant to this Section shall constitute presence in person at such meeting, except where a director
participates in the meeting for the express purpose of objecting to holding the meeting or transacting business at the
meeting on the ground that the meeting is not lawfully called or convened.
ARTICLE IV
Officers
Section 1. Principal Officers . The officers of the Corporation shall be chosen by the Board of
Directors and shall consist of a Chairman of the Board, a President, a Treasurer and a Secretary. There may also be
one or more Vice Presidents, a Controller, and such other officers or assistant officers as the Board shall from time to
time create and so elect. Any two (2) or more offices may be held by the same person.
Section 2. Election and Terms . Each officer shall be elected by the Board of Directors at the annual
meeting thereof and shall hold office until the next annual meeting of the Board or until his or her successor shall have
been elected and qualified or until his or her death, resignation or removal. The election of an officer shall not of itself
create contract rights.
Section 3. Resignation and Removal . An officer may resign at any time by delivering notice to the
Board of Directors, its Chairman, or the Secretary of the Corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date. If an officer's resignation is made effective at a later date
and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the
effective date, if the Board of Directors provides that the successor does not take office until the effective date. The
acceptance of a resignation shall not be necessary to make it effective, unless expressly provided in the resignation.
An officer's resignation does not affect the Corporation's contract rights, if any, with the officer. Any officer may be
removed at any time, with or without cause, by vote of a majority of the whole Board. Such removal shall not affect
the contract rights, if any, of the officer so removed.
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immediately following, and at the same place as, the annual meeting of the shareholders.
Section 6. Annual Meetings . The Board of Directors shall meet annually, without notice,
or without the State of Indiana, as may be determined by the Chairman of the Board, the President or the Board of
Section 7. Regular Meetings . Regular meetings shall be held at such times and places, either within
Directors.
Section 8. Special Meetings . Special meetings of the Board of Directors may be called by the
President or by two (2) or more members of the Board of Directors, at any place within or without the State of Indiana,
upon twenty-four (24) hours' notice, specifying the time, place and general purposes of the meeting, given to each
director personally, by telephone, telegraph, teletype, or other form of wire or wireless communication; or notice may
be given by mail if mailed at least three (3) days before such meeting.
Section 9. Notice . The Secretary or an Assistant Secretary shall give notice of each special meeting,
and of the date, time and place of the particular meeting, in person or by mail, or by telephone, telegraph, teletype, or
other form of wire or wireless communication, and in the event of the absence of the Secretary or an Assistant
Secretary or the failure, inability, refusal or omission on the part of the Secretary or an Assistant Secretary so to do,
any other officer of the Corporation may give said notice.
Section 10. Waiver of Notice . A director may waive any notice required by law, the Articles of
Incorporation, or these By-laws before or after the date and time stated in the notice. Except as otherwise provided in
this Section, the waiver by the director must be in writing, signed by the director entitled to the notice, and included
in the minutes or filed with the corporate records. A director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the
director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
Section 11. Business to be Transacted . Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified in the notice or any waiver of notice of
such meeting. Any and all business of any nature or character whatsoever may be transacted and action may be taken
thereon at any meeting, regular or special, of the Board of Directors.
Section 12. Quorum — Adjournment if Quorum is Not Present . A majority of the number of
directors fixed by, or in the manner provided in, the Articles of Incorporation or these By-laws shall constitute a
quorum for the transaction of any and all business, unless a greater number is required by law or Articles of
Incorporation or these By-laws. At any meeting, regular or special, of the Board of Directors, if there be less than a
quorum present, a majority of those present, or if only one director be present, then such director, may adjourn the
meeting from time to time without notice until the transaction of any and all business submitted or proposed to be
submitted to such meeting or any adjournment thereof shall have been completed. In the event of such adjournment,
written, telegraphic or telephonic announcement of the time and place at which the meeting will reconvene must be
provided to all directors. The act of the majority of the directors present at any meeting of the Board of Directors at
which a quorum is present shall constitute the act of the Board of Directors, unless the act of a greater number is
required by law or the Articles of Incorporation or these By-laws.
Section 13. Presumption of Assent . A director of the Corporation who is present at a meeting of
the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the
action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file his
written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof
or to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent or
abstain shall not apply to a director who voted in favor of such action.
Section 14. Action by Written Consent . Any action required or permitted to be taken at a meeting
of the Board of Directors or any committee thereof may be taken without a meeting if the action is taken by all the
members of the Board of Directors or committee, as the case may be. The action must be evidenced by one or more
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written consents describing the action taken, signed by each director or committee member, and included in the
minutes or filed with the corporate records reflecting the action taken. Such action is effective when the last director
or committee member signs the consent, unless the consent specifies a different prior or subsequent effective date.
Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be described as such in
any document or instrument.
Section 15. Committees . The Board of Directors, by resolution adopted by a majority of the Board
of Directors, may designate from among its members an executive committee and one or more other committees, each
of which, to the extent provided in such resolution or in the Articles of Incorporation or in these By-laws of the
Corporation, shall have and may exercise such authority of the Board of Directors as shall be expressly delegated by
the Board from time to time; except that no such committee shall have the authority of the Board of Directors in
reference to (a) amending the Articles of Incorporation; (b) approving a plan of merger even if the plan does not
require shareholder approval; (c) authorizing dividends or distributions, except a committee may authorize or approve
a reacquisition of shares, if done according to a formula or method prescribed by the Board of Directors; (d) approving
or proposing to shareholders action that requires shareholder approval; (e) amending, altering or repealing the By-laws
of the Corporation or adopting new By-laws for the Corporation; (f) filling vacancies in the Board of Directors or in
any of its committees; or (g) electing or removing officers or members of any such committee. A majority of all the
members of any such committee may determine its action and fix the time and place of its meetings, unless the Board
of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the number and
members of any such committee, to fill vacancies and to discharge any such committee. The designation of such
committee and the delegation thereto of authority shall not alone constitute compliance by the Board of Directors, or
any member thereof, with the standard of conduct imposed upon it or him by the Indiana Business Corporation Law,
as the same may, from time to time, be amended.
Section 16. Meeting by Telephone or Similar Communication Equipment . Any or all directors
may participate in and hold a regular or special meeting of the Board of Directors or any committee thereof by, or
through the use of, any means of conference telephone or other similar communications equipment by which all
directors participating in the meeting may simultaneously hear each other during the meeting. Participation in a
meeting pursuant to this Section shall constitute presence in person at such meeting, except where a director
participates in the meeting for the express purpose of objecting to holding the meeting or transacting business at the
meeting on the ground that the meeting is not lawfully called or convened.
ARTICLE IV
Officers
Section 1. Principal Officers . The officers of the Corporation shall be chosen by the Board of
Directors and shall consist of a Chairman of the Board, a President, a Treasurer and a Secretary. There may also be
one or more Vice Presidents, a Controller, and such other officers or assistant officers as the Board shall from time to
time create and so elect. Any two (2) or more offices may be held by the same person.
Section 2. Election and Terms . Each officer shall be elected by the Board of Directors at the annual
meeting thereof and shall hold office until the next annual meeting of the Board or until his or her successor shall have
been elected and qualified or until his or her death, resignation or removal. The election of an officer shall not of itself
create contract rights.
Section 3. Resignation and Removal . An officer may resign at any time by delivering notice to the
Board of Directors, its Chairman, or the Secretary of the Corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date. If an officer's resignation is made effective at a later date
and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the
effective date, if the Board of Directors provides that the successor does not take office until the effective date. The
acceptance of a resignation shall not be necessary to make it effective, unless expressly provided in the resignation.
An officer's resignation does not affect the Corporation's contract rights, if any, with the officer. Any officer may be
removed at any time, with or without cause, by vote of a majority of the whole Board. Such removal shall not affect
the contract rights, if any, of the officer so removed.
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Section 4. Vacancies . Whenever any vacancy shall occur in any office by death, resignation,
increase in the number of officers of the Corporation, or otherwise, the same shall be filled by the Board of Directors,
and the officer so elected shall hold office until the next annual meeting of the Board or until his or her successor shall
have been elected and qualified.
Section 5. Powers and Duties of Officers . The officers so chosen shall perform the duties and
exercise the powers expressly conferred or provided for in these By-laws, as well as the usual duties and powers
incident to such office, respectively, and such other duties and powers as may be assigned to them by the Board of
Directors or by the President.
Section 6. Chairman of the Board . The Chairman of the Board shall be the Chief Executive Officer
of the Corporation and shall have charge of and supervision and authority over all of the affairs, business and
operations of the Corporation in the ordinary course of its business, with all such duties, powers and authority with
respect to such affairs, business and operations as may be reasonably incident to such responsibilities. He shall have
general supervision of and direct all officers, agents and employees of the Corporation and shall see that all orders and
resolutions of the Board are carried into effect. He shall have the authority to sign all deeds, bonds, mortgages,
contracts, notes and other instruments on behalf of the Corporation (except in cases where the signing and execution
thereof shall be expressly delegated by the Board or by these By-laws, or by law to some other officer or agent of the
Corporation). He shall preside at meetings of the shareholders and of the Board of Directors. He shall also perform
such other duties and have such additional authority and powers as are incident to his office or as may be delegated to
him from time to time by the Board of Directors."
Section 7. The President . The President shall be the Chief Operating Officer of the Corporation
and shall supervise the day-to-day operations of the Corporation subject to the supervision of the Chairman of the
Board and the Board of Directors. He shall have the authority to sign all deeds, mortgages, bonds, contracts, notes
and other instruments on behalf of the Corporation (except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by these By-laws or by law to some other officer or agent of the Corporation). In
the absence of the Chairman of the Board, he shall preside at meetings of the shareholders. He shall also perform such
other duties and have such additional authority and powers as are incident to his office or as may be delegated to him
from time to time by the Chairman of the Board or the Board of Directors.
Section 8. Vice Presidents . The Vice Presidents shall assist the President and shall perform such
duties as may be assigned to them by the Board of Directors or the President. Unless otherwise provided by the Board,
in the absence or disability of the President, the Vice President (or, if there be more than one, the Vice President first
named as such by the Board of Directors at its most recent meeting at which Vice Presidents were elected) shall
execute the powers and perform the duties of the President. Any action taken by a Vice President in the performance
of the duties of the President shall be conclusive evidence of the absence or inability to act of the President at the time
such action was taken.
Section 9. Secretary . The Secretary (a) shall keep the minutes of all meetings of the Board of
Directors and the minutes of all meetings of the shareholders in books provided for that purpose; (b) shall attend to
the giving and serving of all notices; (c) when required, may sign with the President or a Vice President in the name
of the Corporation, and may attest the signature of any other officers of the Corporation to all contracts, conveyances,
transfers, assignments, encumbrances, authorizations and all other instruments, documents and papers, of any and
every description whatsoever, of or executed for or on behalf of the Corporation and affix the seal of the Corporation
thereto; (d) may sign with the President or a Vice President all certificates for shares of the capital stock of the
Corporation and affix the corporate seal of the Corporation thereto; (e) shall have charge of and maintain and keep or
supervise and control the maintenance and keeping of the stock certificate books, transfer books and stock ledgers and
such other books and papers as the Board of Directors may authorize, direct or provide for, all of which shall at all
reasonable times be open to the inspection of any director, upon request, at the office of the Corporation during
business hours; (f) shall, in general, perform all the duties incident to the office of Secretary; and (g) shall have such
other powers and duties as may be conferred upon or assigned to him by the Board of Directors.
Section 10. Treasurer . The Treasurer shall have custody of all the funds and securities of the
Corporation which come into his hands. When necessary or proper, he may endorse on behalf of the Corporation, for
collection, checks, notes and other obligations, and shall deposit the same to the credit of the Corporation in such
banks or depositories as shall be selected or designated by or in the manner prescribed by the Board of Directors. He
may sign all receipts and vouchers for payments made to the Corporation, either alone or jointly with such officer as
may be designated by the Board of Directors. Whenever required by the Board of Directors, he shall render a statement
of his cash account. He shall enter or cause to be entered, punctually and regularly, on the books of the Corporation,
to be kept by him or under his supervision or direction for that purpose, full and accurate accounts of all moneys
received and paid out by, for or on account of the Corporation. He shall at all reasonable times exhibit his books and
accounts and other financial records to any director of the Corporation during business hours. He shall have such
other powers and duties as may be conferred upon or assigned to him by the Board of Directors. The Treasurer shall
perform all acts incident to the position of Treasurer, subject always to the control of the Board of Directors. He shall,
if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form and amount
as the Board of Directors may require.
Section 11. The Controller . The Controller shall be the chief accounting officer of the Corporation
and in such capacity shall keep full and accurate accounts of all assets, liabilities, commitments, receipts,
disbursements, and other financial transactions of the Corporation and its subsidiaries in books belonging to the
Corporation; shall cause audits of such books and records to be made at regular intervals as required by law and in
accordance with guidelines established by the Audit Committee of the Board of Directors; shall see that all
expenditures are made in accordance with procedures duly established, from time to time by the Corporation; shall
prepare financial statements for the Corporation and its subsidiaries at regular intervals as required by law or at the
request of the Board of Directors, the Chairman, the President or the Vice President, Finance; and, in general shall
perform all the duties ordinarily connected with the office of Controller and such other duties as, from time to time,
may be assigned to him by the Board of Directors, the Chairman, the President or the Vice President, Finance.
Section 12. Assistant Secretaries . The Assistant Secretaries shall assist the Secretary in the
performance of his or her duties. In the absence of the Secretary, any Assistant Secretary shall exercise the powers
and perform the duties of the Secretary. The Assistant Secretaries shall exercise such other powers and perform such
other duties as may from time to time be assigned to them by the Board, the President, or the Secretary.
Section 13. Assistant Treasurers . The Assistant Treasurers shall assist the Treasurer in the
performance of his or her duties. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, exercise
the powers and perform the duties of the Treasurer. The Assistant Treasurers shall exercise such other duties as may
from time to time be assigned to them by the Board, the President, or the Treasurer.
Section 14. Delegation of Authority . In case of the absence of any officer of the Corporation, or
for any reason that the Board may deem sufficient, a majority of the entire Board may transfer or delegate the powers
or duties of any officer to any other officer or officers for such length of time as the Board may determine.
Section 15. Securities of Other Corporations . The President or any Vice President or Secretary or
Treasurer of the Corporation shall have power and authority to transfer, endorse for transfer, vote, consent or take any
other action with respect to any securities of another issuer which may be held or owned by the Corporation and to
make, execute and deliver any waiver, proxy or consent with respect to any such securities.
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Section 4. Vacancies . Whenever any vacancy shall occur in any office by death, resignation,
increase in the number of officers of the Corporation, or otherwise, the same shall be filled by the Board of Directors,
and the officer so elected shall hold office until the next annual meeting of the Board or until his or her successor shall
have been elected and qualified.
Section 5. Powers and Duties of Officers . The officers so chosen shall perform the duties and
exercise the powers expressly conferred or provided for in these By-laws, as well as the usual duties and powers
incident to such office, respectively, and such other duties and powers as may be assigned to them by the Board of
Directors or by the President.
Section 6. Chairman of the Board . The Chairman of the Board shall be the Chief Executive Officer
of the Corporation and shall have charge of and supervision and authority over all of the affairs, business and
operations of the Corporation in the ordinary course of its business, with all such duties, powers and authority with
respect to such affairs, business and operations as may be reasonably incident to such responsibilities. He shall have
general supervision of and direct all officers, agents and employees of the Corporation and shall see that all orders and
resolutions of the Board are carried into effect. He shall have the authority to sign all deeds, bonds, mortgages,
contracts, notes and other instruments on behalf of the Corporation (except in cases where the signing and execution
thereof shall be expressly delegated by the Board or by these By-laws, or by law to some other officer or agent of the
Corporation). He shall preside at meetings of the shareholders and of the Board of Directors. He shall also perform
such other duties and have such additional authority and powers as are incident to his office or as may be delegated to
him from time to time by the Board of Directors."
Section 7. The President . The President shall be the Chief Operating Officer of the Corporation
and shall supervise the day-to-day operations of the Corporation subject to the supervision of the Chairman of the
Board and the Board of Directors. He shall have the authority to sign all deeds, mortgages, bonds, contracts, notes
and other instruments on behalf of the Corporation (except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by these By-laws or by law to some other officer or agent of the Corporation). In
the absence of the Chairman of the Board, he shall preside at meetings of the shareholders. He shall also perform such
other duties and have such additional authority and powers as are incident to his office or as may be delegated to him
from time to time by the Chairman of the Board or the Board of Directors.
Section 8. Vice Presidents . The Vice Presidents shall assist the President and shall perform such
duties as may be assigned to them by the Board of Directors or the President. Unless otherwise provided by the Board,
in the absence or disability of the President, the Vice President (or, if there be more than one, the Vice President first
named as such by the Board of Directors at its most recent meeting at which Vice Presidents were elected) shall
execute the powers and perform the duties of the President. Any action taken by a Vice President in the performance
of the duties of the President shall be conclusive evidence of the absence or inability to act of the President at the time
such action was taken.
Section 9. Secretary . The Secretary (a) shall keep the minutes of all meetings of the Board of
Directors and the minutes of all meetings of the shareholders in books provided for that purpose; (b) shall attend to
the giving and serving of all notices; (c) when required, may sign with the President or a Vice President in the name
of the Corporation, and may attest the signature of any other officers of the Corporation to all contracts, conveyances,
transfers, assignments, encumbrances, authorizations and all other instruments, documents and papers, of any and
every description whatsoever, of or executed for or on behalf of the Corporation and affix the seal of the Corporation
thereto; (d) may sign with the President or a Vice President all certificates for shares of the capital stock of the
Corporation and affix the corporate seal of the Corporation thereto; (e) shall have charge of and maintain and keep or
supervise and control the maintenance and keeping of the stock certificate books, transfer books and stock ledgers and
such other books and papers as the Board of Directors may authorize, direct or provide for, all of which shall at all
reasonable times be open to the inspection of any director, upon request, at the office of the Corporation during
business hours; (f) shall, in general, perform all the duties incident to the office of Secretary; and (g) shall have such
other powers and duties as may be conferred upon or assigned to him by the Board of Directors.
Section 10. Treasurer . The Treasurer shall have custody of all the funds and securities of the
Corporation which come into his hands. When necessary or proper, he may endorse on behalf of the Corporation, for
collection, checks, notes and other obligations, and shall deposit the same to the credit of the Corporation in such
banks or depositories as shall be selected or designated by or in the manner prescribed by the Board of Directors. He
may sign all receipts and vouchers for payments made to the Corporation, either alone or jointly with such officer as
may be designated by the Board of Directors. Whenever required by the Board of Directors, he shall render a statement
of his cash account. He shall enter or cause to be entered, punctually and regularly, on the books of the Corporation,
to be kept by him or under his supervision or direction for that purpose, full and accurate accounts of all moneys
received and paid out by, for or on account of the Corporation. He shall at all reasonable times exhibit his books and
accounts and other financial records to any director of the Corporation during business hours. He shall have such
other powers and duties as may be conferred upon or assigned to him by the Board of Directors. The Treasurer shall
perform all acts incident to the position of Treasurer, subject always to the control of the Board of Directors. He shall,
if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form and amount
as the Board of Directors may require.
Section 11. The Controller . The Controller shall be the chief accounting officer of the Corporation
and in such capacity shall keep full and accurate accounts of all assets, liabilities, commitments, receipts,
disbursements, and other financial transactions of the Corporation and its subsidiaries in books belonging to the
Corporation; shall cause audits of such books and records to be made at regular intervals as required by law and in
accordance with guidelines established by the Audit Committee of the Board of Directors; shall see that all
expenditures are made in accordance with procedures duly established, from time to time by the Corporation; shall
prepare financial statements for the Corporation and its subsidiaries at regular intervals as required by law or at the
request of the Board of Directors, the Chairman, the President or the Vice President, Finance; and, in general shall
perform all the duties ordinarily connected with the office of Controller and such other duties as, from time to time,
may be assigned to him by the Board of Directors, the Chairman, the President or the Vice President, Finance.
Section 12. Assistant Secretaries . The Assistant Secretaries shall assist the Secretary in the
performance of his or her duties. In the absence of the Secretary, any Assistant Secretary shall exercise the powers
and perform the duties of the Secretary. The Assistant Secretaries shall exercise such other powers and perform such
other duties as may from time to time be assigned to them by the Board, the President, or the Secretary.
Section 13. Assistant Treasurers . The Assistant Treasurers shall assist the Treasurer in the
performance of his or her duties. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, exercise
the powers and perform the duties of the Treasurer. The Assistant Treasurers shall exercise such other duties as may
from time to time be assigned to them by the Board, the President, or the Treasurer.
Section 14. Delegation of Authority . In case of the absence of any officer of the Corporation, or
for any reason that the Board may deem sufficient, a majority of the entire Board may transfer or delegate the powers
or duties of any officer to any other officer or officers for such length of time as the Board may determine.
Section 15. Securities of Other Corporations . The President or any Vice President or Secretary or
Treasurer of the Corporation shall have power and authority to transfer, endorse for transfer, vote, consent or take any
other action with respect to any securities of another issuer which may be held or owned by the Corporation and to
make, execute and deliver any waiver, proxy or consent with respect to any such securities.
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ARTICLE V
Directors' Services, Limitation of Liability
and Reliance on Corporate Records, and
Interest of Directors in Contracts
or transaction may be counted; provided, however, that a majority of such shares, whether or not present, shall
constitute a quorum for the purpose of authorizing, approving or ratifying such a contract or transaction. This Section
shall not be construed to require authorization, ratification or approval by the shareholder of any such contract or
transaction, or to invalidate any such contract or transaction that is fair to the Corporation or would otherwise be valid
under the common and statutory law applicable thereto.
Section 1. Services . No director of this Corporation who is not an officer or employee of this
Corporation shall be required to devote his time or any particular portion of his time or render services or any particular
services exclusively to this Corporation. Every director of this Corporation shall be entirely free to engage, participate
and invest in any and all such businesses, enterprises and activities, either similar or dissimilar to the business,
enterprise and activities of this Corporation, without breach of duty to this Corporation or to its shareholders and
without accountability or liability to this Corporation or to its shareholders.
Every director of this Corporation shall be entirely free to act for, serve and represent any other
corporation, any entity or any person, in any capacity, and be or become a director or officer, or both, of any other
corporation or any entity, irrespective of whether or not the business, purposes, enterprises and activities, or any of
them thereof, be similar or dissimilar to the business, purposes, enterprises and activities, or any of them, of this
Corporation, without breach of duty to this Corporation or to its shareholders and without accountability or liability
of any character or description to this Corporation or to its shareholders.
Section 2. General Limitation of Liability . A director shall, based on facts then known to the
director, discharge the duties as a director, including the director's duties as a member of a committee, in good faith,
with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a
manner the director reasonably believes to be in the best interests of the Corporation. A director is not liable to the
Corporation for any action taken as a director, or any failure to take any action, unless: (a) the director has breached
or failed to perform the duties of the director's office in accordance with the standard of care set forth above; and
(b) the breach or failure to perform constitutes willful misconduct or recklessness.
Section 3. Reliance on Corporate Records and Other Information . Any person acting as a director
of the Corporation shall be fully protected, and shall be deemed to have complied with the standard of care set forth
in Section 2 of this Article, in relying in good faith upon any information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by (a) one or more officers or employees of the
Corporation whom such person reasonably believes to be reliable and competent in the matters presented; (b) legal
counsel, public accountants, or other persons as to matters such person reasonably believes are within the person's
professional or expert competence; or (c) a committee of the Board of Directors of which such person is not a member,
if such person reasonably believes the committee merits confidence; provided, however, that such person shall not be
considered to be acting in good faith if such person has knowledge concerning the matter in question that would cause
such reliance to be unwarranted.
Section 4. Interest of Directors in Contracts . Any contract or other transaction between the
Corporation and (a) any director, or (b) any corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity (1) in which any director has a material financial interest or is a
general partner, or (2) of which any director is a director, officer, or trustee, shall be valid for all purposes, if the
material facts of the contract or transaction and the director's interest were disclosed or known to the Board of
Directors, a committee of the Board of Directors with authority to act thereon, or the shareholders entitled to vote
thereon, and the Board of Directors, such committee or such shareholders authorized, approved or ratified the contract
or transaction. Such a contract or transaction is authorized, approved or ratified: (i) by the Board of Directors or such
committee, if it receives the affirmative vote of a majority of the directors who have no interest in the contract or
transaction, notwithstanding the fact that such majority may not constitute a quorum or a majority of the directors
present at the meeting, and notwithstanding the presence or vote of any director who does have such an interest;
provided, however, that no such contract or transaction may be authorized, approved or ratified by a single director;
and (ii) by such shareholders, if it receives the vote of a majority of the shares entitled to be counted, in which vote
shares owned by or voted under the control of any director who, or of any corporation, unincorporated association,
business trust, estate, partnership, trust, joint venture, individual or other legal entity that, has an interest in the contract
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ARTICLE VI
Indemnification
Section 1. Indemnification Against Underlying Liability . The Corporation shall, to the fullest
extent to which it is empowered to do so by the Corporation Law, or any other applicable law, as from time to time in
effect, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative, or investigative and whether formal or
informal, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or who, while
serving as such director, officer, employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (collectively, "Agent") against expenses (including attorneys' fees), judgments, fines,
penalties, court costs and amounts paid in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement
(whether with or without court approval), conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Agent did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe that his conduct was unlawful. If several claims, issues or matters are involved,
an Agent may be entitled to indemnification as to some matters even though he is not entitled as to other matters.
Section 2. Successful Defense . To the extent that an Agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 of this Article VI, or in
defense of any claim, issue or matter therein, the Corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection therewith.
Section 3. Determination of Conduct . Subject to any rights under any contract between the
Corporation and any Agent, any indemnification against underlying liability provided for in Section 1 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in said Section. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors not at the time parties to such action, suit or proceeding; (2) if such
an independent quorum cannot be obtained, by majority vote of a committee duly designated by the full Board of
Directors (in which designation directors who are parties may participate), consisting solely of one or more directors
not at the time parties to the action, suit or proceeding; (3) by special legal counsel (A) selected by the independent
quorum of the Board of Directors (or the independent committee thereof if no such quorum can be obtained), or (B) if
no such independent quorum or committee thereof can be obtained, selected by majority vote of the full Board of
Directors (in which selection directors who are parties may participate); or (4) by the shareholders, but shares owned
by or voted under the control of directors who are at the time parties to such action, suit or proceeding may not be
voted on the determination. Notwithstanding the foregoing, an Agent shall be able to contest any determination that
the Agent has not met the applicable standard of conduct by petitioning a court of appropriate jurisdiction.
Section 4. Definition of Good Faith . For purposes of any determination under Section 1 of this
Article VI, a person shall be deemed to have acted in good faith and to have otherwise met the applicable standard of
conduct set forth in Section 1 if his action is based on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by (1) one or more officers or employees of the
Corporation or another enterprise whom he reasonably believes to be reliable and competent in the matters presented;
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ARTICLE V
Directors' Services, Limitation of Liability
and Reliance on Corporate Records, and
Interest of Directors in Contracts
or transaction may be counted; provided, however, that a majority of such shares, whether or not present, shall
constitute a quorum for the purpose of authorizing, approving or ratifying such a contract or transaction. This Section
shall not be construed to require authorization, ratification or approval by the shareholder of any such contract or
transaction, or to invalidate any such contract or transaction that is fair to the Corporation or would otherwise be valid
under the common and statutory law applicable thereto.
Section 1. Services . No director of this Corporation who is not an officer or employee of this
Corporation shall be required to devote his time or any particular portion of his time or render services or any particular
services exclusively to this Corporation. Every director of this Corporation shall be entirely free to engage, participate
and invest in any and all such businesses, enterprises and activities, either similar or dissimilar to the business,
enterprise and activities of this Corporation, without breach of duty to this Corporation or to its shareholders and
without accountability or liability to this Corporation or to its shareholders.
Every director of this Corporation shall be entirely free to act for, serve and represent any other
corporation, any entity or any person, in any capacity, and be or become a director or officer, or both, of any other
corporation or any entity, irrespective of whether or not the business, purposes, enterprises and activities, or any of
them thereof, be similar or dissimilar to the business, purposes, enterprises and activities, or any of them, of this
Corporation, without breach of duty to this Corporation or to its shareholders and without accountability or liability
of any character or description to this Corporation or to its shareholders.
Section 2. General Limitation of Liability . A director shall, based on facts then known to the
director, discharge the duties as a director, including the director's duties as a member of a committee, in good faith,
with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a
manner the director reasonably believes to be in the best interests of the Corporation. A director is not liable to the
Corporation for any action taken as a director, or any failure to take any action, unless: (a) the director has breached
or failed to perform the duties of the director's office in accordance with the standard of care set forth above; and
(b) the breach or failure to perform constitutes willful misconduct or recklessness.
Section 3. Reliance on Corporate Records and Other Information . Any person acting as a director
of the Corporation shall be fully protected, and shall be deemed to have complied with the standard of care set forth
in Section 2 of this Article, in relying in good faith upon any information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by (a) one or more officers or employees of the
Corporation whom such person reasonably believes to be reliable and competent in the matters presented; (b) legal
counsel, public accountants, or other persons as to matters such person reasonably believes are within the person's
professional or expert competence; or (c) a committee of the Board of Directors of which such person is not a member,
if such person reasonably believes the committee merits confidence; provided, however, that such person shall not be
considered to be acting in good faith if such person has knowledge concerning the matter in question that would cause
such reliance to be unwarranted.
Section 4. Interest of Directors in Contracts . Any contract or other transaction between the
Corporation and (a) any director, or (b) any corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity (1) in which any director has a material financial interest or is a
general partner, or (2) of which any director is a director, officer, or trustee, shall be valid for all purposes, if the
material facts of the contract or transaction and the director's interest were disclosed or known to the Board of
Directors, a committee of the Board of Directors with authority to act thereon, or the shareholders entitled to vote
thereon, and the Board of Directors, such committee or such shareholders authorized, approved or ratified the contract
or transaction. Such a contract or transaction is authorized, approved or ratified: (i) by the Board of Directors or such
committee, if it receives the affirmative vote of a majority of the directors who have no interest in the contract or
transaction, notwithstanding the fact that such majority may not constitute a quorum or a majority of the directors
present at the meeting, and notwithstanding the presence or vote of any director who does have such an interest;
provided, however, that no such contract or transaction may be authorized, approved or ratified by a single director;
and (ii) by such shareholders, if it receives the vote of a majority of the shares entitled to be counted, in which vote
shares owned by or voted under the control of any director who, or of any corporation, unincorporated association,
business trust, estate, partnership, trust, joint venture, individual or other legal entity that, has an interest in the contract
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ARTICLE VI
Indemnification
Section 1. Indemnification Against Underlying Liability . The Corporation shall, to the fullest
extent to which it is empowered to do so by the Corporation Law, or any other applicable law, as from time to time in
effect, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative, or investigative and whether formal or
informal, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or who, while
serving as such director, officer, employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (collectively, "Agent") against expenses (including attorneys' fees), judgments, fines,
penalties, court costs and amounts paid in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement
(whether with or without court approval), conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Agent did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe that his conduct was unlawful. If several claims, issues or matters are involved,
an Agent may be entitled to indemnification as to some matters even though he is not entitled as to other matters.
Section 2. Successful Defense . To the extent that an Agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 of this Article VI, or in
defense of any claim, issue or matter therein, the Corporation shall indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection therewith.
Section 3. Determination of Conduct . Subject to any rights under any contract between the
Corporation and any Agent, any indemnification against underlying liability provided for in Section 1 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in said Section. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors not at the time parties to such action, suit or proceeding; (2) if such
an independent quorum cannot be obtained, by majority vote of a committee duly designated by the full Board of
Directors (in which designation directors who are parties may participate), consisting solely of one or more directors
not at the time parties to the action, suit or proceeding; (3) by special legal counsel (A) selected by the independent
quorum of the Board of Directors (or the independent committee thereof if no such quorum can be obtained), or (B) if
no such independent quorum or committee thereof can be obtained, selected by majority vote of the full Board of
Directors (in which selection directors who are parties may participate); or (4) by the shareholders, but shares owned
by or voted under the control of directors who are at the time parties to such action, suit or proceeding may not be
voted on the determination. Notwithstanding the foregoing, an Agent shall be able to contest any determination that
the Agent has not met the applicable standard of conduct by petitioning a court of appropriate jurisdiction.
Section 4. Definition of Good Faith . For purposes of any determination under Section 1 of this
Article VI, a person shall be deemed to have acted in good faith and to have otherwise met the applicable standard of
conduct set forth in Section 1 if his action is based on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by (1) one or more officers or employees of the
Corporation or another enterprise whom he reasonably believes to be reliable and competent in the matters presented;
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11
(2) legal counsel, public accountants, appraisers or other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (3) a committee of the Board of Directors of the Corporation or another
enterprise of which the person is not a member if he reasonably believes the committee merits confidence. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set forth in Section 1 of this Article VI.
Section 5. Payment of Expenses in Advance . Expenses incurred in connection with any civil,
criminal, administrative or investigative action, suit or proceeding by an Agent who may be entitled to indemnification
pursuant to Section 1 of this Article VI shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of a written affirmation by the Agent of his good faith belief that he has met
the applicable standard of conduct set forth in Section 1 of this Article VI and upon receipt of a written undertaking
by or on behalf of the Agent to repay such amount if it is ultimately determined that he is not entitled to be indemnified
by the Corporation as authorized in this Article VI. Notwithstanding the foregoing, such expenses shall not be
advanced if the Corporation conducts the determination of conduct procedure referred to in Section 3 of this Article VI
and it is determined from the facts then known that the Agent will be precluded from indemnification against
underlying liability because he has failed to meet the applicable standard of conduct set forth in Section 1 of this
Article VI. The full Board of Directors (including directors who are parties) may authorize the Corporation to
implement the determination of conduct procedure, but such procedure is not required for the advancement of
expenses. The full Board of Directors (including directors who are parties) may authorize the Corporation to assume
the Agent's defense where appropriate, rather than to advance expenses for such defense.
Section 6. Indemnity Not Exclusive . The indemnification against underlying liability, and
advancement of expenses provided by, or granted pursuant to, this Article VI shall not be deemed exclusive of, and
shall be subject to, any other rights to which those seeking indemnification or advancement of expenses may be entitled
under the Corporation's Articles of Incorporation, these Bylaws, any resolution of the Board of Directors or
shareholders, any other authorization, whenever adopted, after notice, by a majority vote of all voting shares then
outstanding, or any contract, both as to action in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be an Agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7. Vested Right to Indemnification . The right of any individual to indemnification under
this Article shall vest at the time of occurrence or performance of any event, act or omission giving rise to any action,
suit or proceeding of the nature referred to in Section 1 of this Article VI and, once vested, shall not later be impaired
as a result of any amendment, repeal, alteration or other modification of any or all of these provisions. Notwithstanding
the foregoing, the indemnification afforded under this Article shall be applicable to all alleged prior acts or omissions
of any individual seeking indemnification hereunder, regardless of the fact that such alleged acts or omissions may
have occurred prior to the adoption of this Article. To the extent such prior acts or omissions cannot be deemed to be
covered by this Article VI, the right of any individual to indemnification shall be governed by the indemnification
provisions in effect at the time of such prior acts or omissions.
Section 8. Insurance . The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Agent of the Corporation against any liability asserted against him or incurred
by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article VI.
Section 9. Additional Definitions . For purposes of this Article VI references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries. A
person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
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12
Section 10. Payments a Business Expense . Any payments made to any indemnified party under
this Article or under any other right to indemnification shall be deemed to be an ordinary and necessary business
expense of the Corporation, and payment thereof shall not subject any person responsible for the payment, or the
Board of Directors, to any action for corporate waste or to any similar action.
ARTICLE VII
Shares
Section 1. Share Certificates . The certificate for shares of the Corporation shall be in such form as
shall be approved by the Board of Directors. Each share certificate shall state on its face the name and state of
organization of the Corporation, the name of the person to whom the certificate is issued, and the number and class of
shares the certificate represents. Share certificates shall be consecutively numbered and shall be entered in the books
of the Corporation as they are issued. Every certificate for shares of the Corporation shall be signed (either manually
or in facsimile) by, or in the name of, the Corporation by the President or a Vice President and either the Secretary or
an Assistant Secretary of the Corporation, with the seal of the Corporation, if any, or a facsimile thereof impressed or
printed thereon. If the person who signed (either manually or in facsimile) a share certificate no longer holds office
when the certificate is issued, the certificate is nevertheless valid.
Section 2. Transfer of Shares . Except as otherwise provided by law, transfers of shares of the
capital stock of the Corporation, whether part paid or fully paid, shall be made only on the books of the Corporation
by the owner thereof in person or by duly authorized attorney, on payment of all taxes thereon and surrender for
cancellation of the certificate or certificates for such shares (except as hereinafter provided in the case of loss,
destruction or mutilation of certificate) properly endorsed by the holder thereof or accompanied by the proper evidence
of succession, assignment or authority to transfer, and delivered to the Secretary or an Assistant Secretary. All such
transfers shall be made in accordance with the relevant provisions of Indiana Code §§26-1-8-101 et seq.
Section 3. Transfer Agent . The Board of Directors shall have power to appoint one or more transfer
agents and registrars for the transfer and registration of certificates of stock of the Corporation, and may require that
such certificates shall be countersigned and registered by one or more of such transfer agents and registrars.
Section 4. Registered Holders . The Corporation shall be entitled to treat the person in whose name
any share of stock or any warrant, right or option is registered as the owner thereof for all purposes and shall not be
bound to recognize any equitable or other claim to, or interest in, such share, warrant, right or option on the part of
any other person, whether or not the Corporation shall have notice thereof, save as may be expressly provided
otherwise by the laws of the State of Indiana, the Articles of Incorporation of the Corporation or these By-laws. In no
event shall any transferee of shares of the Corporation become a shareholder of the Corporation until express notice
of the transfer shall have been received by the Corporation.
Section 5. Lost, Destroyed and Mutilated Certificates . The holder of any share certificate of the
Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate, and the
Board may, in its discretion, cause to be issued to such holder of shares a new certificate or certificates of shares of
capital stock, upon the surrender of the mutilated certificate, or, in case of loss or destruction, upon the furnishing of
an affidavit or satisfactory proof of such loss or destruction. The Board may, in its discretion, require the owner of
the lost or destroyed certificate or such owner's legal representative to give the Corporation a bond in such sum and
in such form, and with such surety or sureties as it may direct, to indemnify the Corporation, its transfer agents and
registrars, if any, against any claim that may be made against them or any of them with respect to the certificate or
certificates alleged to have been lost or destroyed, but the Board may, in its discretion, refuse to issue a new certificate
or new certificates, save upon the order of a court having jurisdiction in such matters.
Section 6. Consideration for Shares . The Corporation may issue shares for such consideration
received or to be received as the Board of Directors determines to be adequate. That determination by the Board of
Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares
13
(2) legal counsel, public accountants, appraisers or other persons as to matters he reasonably believes are within the
person's professional or expert competence; or (3) a committee of the Board of Directors of the Corporation or another
enterprise of which the person is not a member if he reasonably believes the committee merits confidence. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set forth in Section 1 of this Article VI.
Section 5. Payment of Expenses in Advance . Expenses incurred in connection with any civil,
criminal, administrative or investigative action, suit or proceeding by an Agent who may be entitled to indemnification
pursuant to Section 1 of this Article VI shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of a written affirmation by the Agent of his good faith belief that he has met
the applicable standard of conduct set forth in Section 1 of this Article VI and upon receipt of a written undertaking
by or on behalf of the Agent to repay such amount if it is ultimately determined that he is not entitled to be indemnified
by the Corporation as authorized in this Article VI. Notwithstanding the foregoing, such expenses shall not be
advanced if the Corporation conducts the determination of conduct procedure referred to in Section 3 of this Article VI
and it is determined from the facts then known that the Agent will be precluded from indemnification against
underlying liability because he has failed to meet the applicable standard of conduct set forth in Section 1 of this
Article VI. The full Board of Directors (including directors who are parties) may authorize the Corporation to
implement the determination of conduct procedure, but such procedure is not required for the advancement of
expenses. The full Board of Directors (including directors who are parties) may authorize the Corporation to assume
the Agent's defense where appropriate, rather than to advance expenses for such defense.
Section 6. Indemnity Not Exclusive . The indemnification against underlying liability, and
advancement of expenses provided by, or granted pursuant to, this Article VI shall not be deemed exclusive of, and
shall be subject to, any other rights to which those seeking indemnification or advancement of expenses may be entitled
under the Corporation's Articles of Incorporation, these Bylaws, any resolution of the Board of Directors or
shareholders, any other authorization, whenever adopted, after notice, by a majority vote of all voting shares then
outstanding, or any contract, both as to action in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be an Agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7. Vested Right to Indemnification . The right of any individual to indemnification under
this Article shall vest at the time of occurrence or performance of any event, act or omission giving rise to any action,
suit or proceeding of the nature referred to in Section 1 of this Article VI and, once vested, shall not later be impaired
as a result of any amendment, repeal, alteration or other modification of any or all of these provisions. Notwithstanding
the foregoing, the indemnification afforded under this Article shall be applicable to all alleged prior acts or omissions
of any individual seeking indemnification hereunder, regardless of the fact that such alleged acts or omissions may
have occurred prior to the adoption of this Article. To the extent such prior acts or omissions cannot be deemed to be
covered by this Article VI, the right of any individual to indemnification shall be governed by the indemnification
provisions in effect at the time of such prior acts or omissions.
Section 8. Insurance . The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Agent of the Corporation against any liability asserted against him or incurred
by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article VI.
Section 9. Additional Definitions . For purposes of this Article VI references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries. A
person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
Section 10. Payments a Business Expense . Any payments made to any indemnified party under
this Article or under any other right to indemnification shall be deemed to be an ordinary and necessary business
expense of the Corporation, and payment thereof shall not subject any person responsible for the payment, or the
Board of Directors, to any action for corporate waste or to any similar action.
ARTICLE VII
Shares
Section 1. Share Certificates . The certificate for shares of the Corporation shall be in such form as
shall be approved by the Board of Directors. Each share certificate shall state on its face the name and state of
organization of the Corporation, the name of the person to whom the certificate is issued, and the number and class of
shares the certificate represents. Share certificates shall be consecutively numbered and shall be entered in the books
of the Corporation as they are issued. Every certificate for shares of the Corporation shall be signed (either manually
or in facsimile) by, or in the name of, the Corporation by the President or a Vice President and either the Secretary or
an Assistant Secretary of the Corporation, with the seal of the Corporation, if any, or a facsimile thereof impressed or
printed thereon. If the person who signed (either manually or in facsimile) a share certificate no longer holds office
when the certificate is issued, the certificate is nevertheless valid.
Section 2. Transfer of Shares . Except as otherwise provided by law, transfers of shares of the
capital stock of the Corporation, whether part paid or fully paid, shall be made only on the books of the Corporation
by the owner thereof in person or by duly authorized attorney, on payment of all taxes thereon and surrender for
cancellation of the certificate or certificates for such shares (except as hereinafter provided in the case of loss,
destruction or mutilation of certificate) properly endorsed by the holder thereof or accompanied by the proper evidence
of succession, assignment or authority to transfer, and delivered to the Secretary or an Assistant Secretary. All such
transfers shall be made in accordance with the relevant provisions of Indiana Code §§26-1-8-101 et seq.
Section 3. Transfer Agent . The Board of Directors shall have power to appoint one or more transfer
agents and registrars for the transfer and registration of certificates of stock of the Corporation, and may require that
such certificates shall be countersigned and registered by one or more of such transfer agents and registrars.
Section 4. Registered Holders . The Corporation shall be entitled to treat the person in whose name
any share of stock or any warrant, right or option is registered as the owner thereof for all purposes and shall not be
bound to recognize any equitable or other claim to, or interest in, such share, warrant, right or option on the part of
any other person, whether or not the Corporation shall have notice thereof, save as may be expressly provided
otherwise by the laws of the State of Indiana, the Articles of Incorporation of the Corporation or these By-laws. In no
event shall any transferee of shares of the Corporation become a shareholder of the Corporation until express notice
of the transfer shall have been received by the Corporation.
Section 5. Lost, Destroyed and Mutilated Certificates . The holder of any share certificate of the
Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate, and the
Board may, in its discretion, cause to be issued to such holder of shares a new certificate or certificates of shares of
capital stock, upon the surrender of the mutilated certificate, or, in case of loss or destruction, upon the furnishing of
an affidavit or satisfactory proof of such loss or destruction. The Board may, in its discretion, require the owner of
the lost or destroyed certificate or such owner's legal representative to give the Corporation a bond in such sum and
in such form, and with such surety or sureties as it may direct, to indemnify the Corporation, its transfer agents and
registrars, if any, against any claim that may be made against them or any of them with respect to the certificate or
certificates alleged to have been lost or destroyed, but the Board may, in its discretion, refuse to issue a new certificate
or new certificates, save upon the order of a court having jurisdiction in such matters.
Section 6. Consideration for Shares . The Corporation may issue shares for such consideration
received or to be received as the Board of Directors determines to be adequate. That determination by the Board of
Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares
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are validly issued, fully paid and nonassessable. When the Corporation receives the consideration for which the Board
of Directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable.
Section 7. Payment for Shares . The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to the Corporation, including cash,
promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation.
If shares are authorized to be issued for promissory notes or for promises to render services in the future, the
Corporation must report in writing to the shareholders the number of shares authorized to be so issued before or with
the notice of the next shareholders' meeting.
Section 8. Distributions to Shareholders . The Board of Directors may authorize and the
Corporation may make distributions to the shareholders subject to any restrictions set forth in the Articles of
Incorporation of the Corporation and any limitations in the Indiana Business Corporation Law, as amended.
Section 9. Regulations . The Board of Directors shall have power and authority to make all such
rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of
certificates for shares of the Corporation.
ARTICLE VIII
Corporate Books and Reports
Section 1. Place of Keeping Corporate Books and Records . Except as expressly provided otherwise
in this Article, the books of account, records, documents and papers of the Corporation shall be kept at any place or
places, within or without the State of Indiana, as directed by the Board of Directors. In the absence of a direction, the
books of account, records, documents and papers shall be kept at the principal office of the Corporation.
copy of the following records at its principal office:
Section 2. Place of Keeping Certain Corporate Books and Records . The Corporation shall keep a
in effect;
(1)
Its Articles or restated Articles of Incorporation and all amendments to them currently
(2)
Its By-laws or restated By-laws and all amendments to them currently in effect;
Resolutions adopted by the Board of Directors with respect to one or more classes or series
of shares and fixing their relative rights, preferences and limitations, if shares issued pursuant to those resolutions are
outstanding;
(3)
without a meeting, for the past three (3) years;
(4)
The minutes of all shareholders' meetings and records of all action taken by shareholders
including financial statements furnished to shareholders;
(5)
All written communications to shareholders generally within the past three (3) years,
(6)
(7)
A list of the names and business addresses of its current directors and officers; and
The Corporation's most recent annual report.
Section 3. Permanent Records . The Corporation shall keep as permanent records minutes of all
meetings of its shareholders and Board of Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the Corporation. The Corporation shall also maintain appropriate accounting records.
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form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of
Section 4. Shareholder Records . The Corporation shall maintain a record of its shareholders, in a
shares showing the number and class of shares held by each.
Section 5. Shareholder Rights of Inspection . The records designated in Section 2 of this Article
may be inspected and copied by shareholders of record, during regular business hours at the Corporation's principal
office, provided that the shareholder gives the Corporation written notice of the shareholder's demand at least five (5)
business days before the date on which the shareholder wishes to inspect and copy. A shareholder's agent or attorney,
if authorized in writing, has the same inspection and copying rights as the shareholder represented. The Corporation
may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to
the shareholder.
Section 6. Additional Rights of Inspection . Shareholder rights enumerated in Section 5 of this
Article may also apply to the following corporate records, provided that the notice requirements of Section 5 are met,
the shareholder's demand is made in good faith and for a proper purpose, the shareholder describes with reasonable
particularity the shareholder's purpose and the records the shareholder desires to inspect, and the records are directly
connected with the shareholder's purpose: excerpts from minutes of any meeting of the Board of Directors, records
of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the
Corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or Board of
Directors without a meeting, to the extent not subject to inspection under Section 5 of this Article, as well as accounting
records of the Corporation and the record of shareholders. Such inspection and copying is to be done during regular
business hours at a reasonable location specified by the Corporation. The Corporation may impose a reasonable
charge, covering the costs of labor and material, for copies of any documents provided to the shareholder.
ARTICLE IX
Miscellaneous
Section 1. Notice and Waiver of Notice . Subject to the specific and express notice requirements
set forth in other provisions of these By-laws, the Articles of Incorporation, and the Indiana Business Corporation
Law, as the same may, from time to time, be amended, notice may be communicated to any shareholder or director in
person, by telephone, telegraph, teletype, or other form of wire or wireless communication, or by mail. If the foregoing
forms of personal notice are deemed to be impracticable, notice may be communicated in a newspaper of general
circulation in the area where published or by radio, television, or other form of public broadcast communication.
Subject to Section 4 of ARTICLE II of these By-laws, written notice is effective at the earliest of the following:
(a) when received; (b) if correctly addressed to the address listed in the most current records of the Corporation, five
days after its mailing, as evidenced by the postmark or private carrier receipt; or (c) if sent by registered or certified
United States mail, return receipt requested, on the date shown on the return receipt which is signed by or on behalf
of the addressee. Oral notice is effective when communicated. A written waiver of notice, signed by the person or
persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such
notice.
such banks or other depositories as the Board of Directors, the President or the Treasurer may select or approve.
Section 2. Depositories . Funds of the Corporation not otherwise employed shall be deposited in
or restricting, any other provision of these By-laws which confers any authority relative thereto, all checks, drafts and
Section 3. Signing of Checks, Notes, etc. In addition to and cumulative of, but in no way limiting
other orders for the payment of money out of funds of
the Corporation and all notes and other evidence of indebtedness of the Corporation may be signed on behalf of the
Corporation, in such manner, and by such officer or person as shall be determined or designated by the Board of
Directors; provided, however, that if, when, after and as authorized or provided for by the Board of Directors, the
signature of any such officer or person may be a facsimile or engraved or printed, and shall have the same force and
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are validly issued, fully paid and nonassessable. When the Corporation receives the consideration for which the Board
of Directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable.
Section 7. Payment for Shares . The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to the Corporation, including cash,
promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation.
If shares are authorized to be issued for promissory notes or for promises to render services in the future, the
Corporation must report in writing to the shareholders the number of shares authorized to be so issued before or with
the notice of the next shareholders' meeting.
Section 8. Distributions to Shareholders . The Board of Directors may authorize and the
Corporation may make distributions to the shareholders subject to any restrictions set forth in the Articles of
Incorporation of the Corporation and any limitations in the Indiana Business Corporation Law, as amended.
rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of
Section 9. Regulations . The Board of Directors shall have power and authority to make all such
certificates for shares of the Corporation.
ARTICLE VIII
Corporate Books and Reports
Section 1. Place of Keeping Corporate Books and Records . Except as expressly provided otherwise
in this Article, the books of account, records, documents and papers of the Corporation shall be kept at any place or
places, within or without the State of Indiana, as directed by the Board of Directors. In the absence of a direction, the
books of account, records, documents and papers shall be kept at the principal office of the Corporation.
copy of the following records at its principal office:
Section 2. Place of Keeping Certain Corporate Books and Records . The Corporation shall keep a
(1)
Its Articles or restated Articles of Incorporation and all amendments to them currently
in effect;
outstanding;
(2)
(3)
(6)
(7)
Its By-laws or restated By-laws and all amendments to them currently in effect;
of shares and fixing their relative rights, preferences and limitations, if shares issued pursuant to those resolutions are
Resolutions adopted by the Board of Directors with respect to one or more classes or series
without a meeting, for the past three (3) years;
(4)
The minutes of all shareholders' meetings and records of all action taken by shareholders
including financial statements furnished to shareholders;
(5)
All written communications to shareholders generally within the past three (3) years,
A list of the names and business addresses of its current directors and officers; and
The Corporation's most recent annual report.
Section 3. Permanent Records . The Corporation shall keep as permanent records minutes of all
meetings of its shareholders and Board of Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the
Board of Directors on behalf of the Corporation. The Corporation shall also maintain appropriate accounting records.
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Section 4. Shareholder Records . The Corporation shall maintain a record of its shareholders, in a
form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of
shares showing the number and class of shares held by each.
Section 5. Shareholder Rights of Inspection . The records designated in Section 2 of this Article
may be inspected and copied by shareholders of record, during regular business hours at the Corporation's principal
office, provided that the shareholder gives the Corporation written notice of the shareholder's demand at least five (5)
business days before the date on which the shareholder wishes to inspect and copy. A shareholder's agent or attorney,
if authorized in writing, has the same inspection and copying rights as the shareholder represented. The Corporation
may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to
the shareholder.
Section 6. Additional Rights of Inspection . Shareholder rights enumerated in Section 5 of this
Article may also apply to the following corporate records, provided that the notice requirements of Section 5 are met,
the shareholder's demand is made in good faith and for a proper purpose, the shareholder describes with reasonable
particularity the shareholder's purpose and the records the shareholder desires to inspect, and the records are directly
connected with the shareholder's purpose: excerpts from minutes of any meeting of the Board of Directors, records
of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the
Corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or Board of
Directors without a meeting, to the extent not subject to inspection under Section 5 of this Article, as well as accounting
records of the Corporation and the record of shareholders. Such inspection and copying is to be done during regular
business hours at a reasonable location specified by the Corporation. The Corporation may impose a reasonable
charge, covering the costs of labor and material, for copies of any documents provided to the shareholder.
ARTICLE IX
Miscellaneous
Section 1. Notice and Waiver of Notice . Subject to the specific and express notice requirements
set forth in other provisions of these By-laws, the Articles of Incorporation, and the Indiana Business Corporation
Law, as the same may, from time to time, be amended, notice may be communicated to any shareholder or director in
person, by telephone, telegraph, teletype, or other form of wire or wireless communication, or by mail. If the foregoing
forms of personal notice are deemed to be impracticable, notice may be communicated in a newspaper of general
circulation in the area where published or by radio, television, or other form of public broadcast communication.
Subject to Section 4 of ARTICLE II of these By-laws, written notice is effective at the earliest of the following:
(a) when received; (b) if correctly addressed to the address listed in the most current records of the Corporation, five
days after its mailing, as evidenced by the postmark or private carrier receipt; or (c) if sent by registered or certified
United States mail, return receipt requested, on the date shown on the return receipt which is signed by or on behalf
of the addressee. Oral notice is effective when communicated. A written waiver of notice, signed by the person or
persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such
notice.
such banks or other depositories as the Board of Directors, the President or the Treasurer may select or approve.
Section 2. Depositories . Funds of the Corporation not otherwise employed shall be deposited in
Section 3. Signing of Checks, Notes, etc. In addition to and cumulative of, but in no way limiting
or restricting, any other provision of these By-laws which confers any authority relative thereto, all checks, drafts and
other orders for the payment of money out of funds of
the Corporation and all notes and other evidence of indebtedness of the Corporation may be signed on behalf of the
Corporation, in such manner, and by such officer or person as shall be determined or designated by the Board of
Directors; provided, however, that if, when, after and as authorized or provided for by the Board of Directors, the
signature of any such officer or person may be a facsimile or engraved or printed, and shall have the same force and
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effect and bind the Corporation as though such officer or person had signed the same personally; and, in the event of
the death, disability, removal or resignation of any such officer or person, if the Board of Directors shall so determine
or provide, as though and with the same effect as if such death, disability, removal or resignation had not occurred.
Section 4. Gender and Number . Wherever used or appearing in these By-laws, pronouns of the
masculine gender shall include the female gender and the neuter gender, and the singular shall include the plural
wherever appropriate.
Section 5. Laws . Wherever used or appearing in these By-laws, the words "law" or "laws" shall
mean and refer to laws of the State of Indiana, to the extent only that such are expressly applicable, except where
otherwise expressly stated or the context requires that such words not be so limited.
Section 6. Headings . The headings of the Articles and Sections of these By-laws are inserted for
convenience of reference only and shall not be deemed to be a part thereof or used in the construction or interpretation
thereof.
ARTICLE X
Amendments
These By-laws may, from time to time, be added to, changed, altered, amended or repealed or new
By-laws may be made or adopted by a majority vote of the whole Board of Directors at any meeting of the Board of
Directors, if the notice or waiver of notice of such meeting shall have stated that the By-laws are to be amended,
altered or repealed at such meeting, or if all directors at the time are present at such meeting, have waived notice of
such meeting, or have consented to such action in writing.
Common Stock
ARTICLE XI
Other Provisions
Section 1. The Indiana Business Corporation Law. Except as otherwise expressly
provided herein, the provisions of the Indiana Business Corporation Law, as the same may, from time to
time be amended, applicable to any of the matters not herein specifically covered by these By-laws, are
hereby incorporated by reference in and made a part of these By-laws.
shall not apply to the Corporation. ”
Section 2. Mandatory Classified Board Structure. The provisions of IC 23-1-33-6 (c)
DESCRIPTION OF HURCO COMPANIES, INC.’S
COMMON STOCK
Exhibit 4.1
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.
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
Transfer Agent and Registrar. The transfer agent and registrar for the Common Stock is Computershare Trust Company,
the 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.
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effect and bind the Corporation as though such officer or person had signed the same personally; and, in the event of
the death, disability, removal or resignation of any such officer or person, if the Board of Directors shall so determine
or provide, as though and with the same effect as if such death, disability, removal or resignation had not occurred.
masculine gender shall include the female gender and the neuter gender, and the singular shall include the plural
Section 4. Gender and Number . Wherever used or appearing in these By-laws, pronouns of the
wherever appropriate.
mean and refer to laws of the State of Indiana, to the extent only that such are expressly applicable, except where
Section 5. Laws . Wherever used or appearing in these By-laws, the words "law" or "laws" shall
otherwise expressly stated or the context requires that such words not be so limited.
convenience of reference only and shall not be deemed to be a part thereof or used in the construction or interpretation
Section 6. Headings . The headings of the Articles and Sections of these By-laws are inserted for
thereof.
These By-laws may, from time to time, be added to, changed, altered, amended or repealed or new
By-laws may be made or adopted by a majority vote of the whole Board of Directors at any meeting of the Board of
Directors, if the notice or waiver of notice of such meeting shall have stated that the By-laws are to be amended,
altered or repealed at such meeting, or if all directors at the time are present at such meeting, have waived notice of
such meeting, or have consented to such action in writing.
Section 1. The Indiana Business Corporation Law. Except as otherwise expressly
provided herein, the provisions of the Indiana Business Corporation Law, as the same may, from time to
time be amended, applicable to any of the matters not herein specifically covered by these By-laws, are
hereby incorporated by reference in and made a part of these By-laws.
shall not apply to the Corporation. ”
Section 2. Mandatory Classified Board Structure. The provisions of IC 23-1-33-6 (c)
ARTICLE X
Amendments
ARTICLE XI
Other Provisions
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DESCRIPTION OF HURCO COMPANIES, INC.’S
COMMON STOCK
Exhibit 4.1
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.
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 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.
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 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.
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.
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
Exhibit 21.1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 8, 2021, 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, 2020.
/s/ RSM US LLP
Indianapolis, Indiana
January 8, 2021
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, 2020.
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.
Machinery Sales Co.
Milltronics USA, Inc.
Jurisdiction of Incorporation
Federal Republic of Germany
The Netherlands
United Kingdom
India
Taiwan R.O.C.
France
Italy
Singapore
Italy
United States
United States
Ningbo Hurco Machine Tool Co., Ltd.
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, 2020.
Exhibit 21.1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 8, 2021, 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, 2020.
/s/ RSM US LLP
Indianapolis, Indiana
January 8, 2021
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED
I, Michael Doar, certify that:
I, Sonja K McClelland, certify that:
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
Exhibit 31.1
Exhibit 31.2
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;
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;
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:
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
(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
(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
(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):
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
(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
(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.
role in the registrant's internal control over financial reporting.
/s/ Michael Doar
Michael Doar
Chairman and Chief Executive Officer
January 8, 2021
/s/ Sonja K. McClelland
Sonja K. McClelland
January 8, 2021
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED
I, Michael Doar, certify that:
I, Sonja K McClelland, certify that:
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
1. I have reviewed this annual report on Form 10-K of Hurco Companies, Inc.;
Exhibit 31.1
Exhibit 31.2
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;
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;
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:
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
(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
(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
(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):
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
(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
(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.
role in the registrant's internal control over financial reporting.
/s/ Michael Doar
Michael Doar
January 8, 2021
Chairman and Chief Executive Officer
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
January 8, 2021
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Exhibit 32.2
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the year ended
October 31, 2020, 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:
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the year ended October
31, 2020, 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;
(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
(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 8, 2021
and
of operations of the Company.
/s/ Sonja K. McClelland
Sonja K. McClelland
January 8, 2021
Executive Vice President, Secretary, Treasurer and Chief Financial Officer
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Exhibit 32.2
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the year ended
October 31, 2020, 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:
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the year ended October
31, 2020, 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;
(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
(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 8, 2021
and
of operations of the Company.
/s/ Michael Doar
Michael Doar
January 8, 2021
Chairman and Chief Executive Officer
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Hurco Europe Ltd. (United Kingdom)
Serving the United Kingdom, Ireland, Africa, the Middle
East, and Scandinavia
Hurco B.V.
(The Netherlands)
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
Milltronics (Waconia, Minnesota, USA)
Hurco S.a.r.l. (France)
Serving France and
Belgium (Wallonia)
Hurco Sp. z o.o. (Poland)
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
Ningbo Hurco Trading Co., Ltd.
(Shanghai, China)
Ningbo Hurco Machine Tool Co., Ltd.
(Ningbo, China)
Takumi (Taiwan)
Hurco India Private Ltd.
Serving India,
Pakistan, Bangladesh, and
Sri Lanka
Hurco S.r.l. (Italy)
LCM Precision Technology S.r.l. (Italy)
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.
Hurco Companies, Inc.
Hurco Companies, Inc.
One Technology Way | PO Box 68180 | Indianapolis, IN 46268
800.634.2416 | Hurco.com/Investors
P r in te d in t h e U S A . HP G 1. 2 M C 0 5 0 S K U: