ANNUAL REPORT
M
A
E
HIP T
S
R
E
D
A
E
L
Gregory S. Volovic
President and Chief Executive Officer
Sonja McClelland
Executive Vice President, Treasurer, and
Chief Financial Officer
Michael Doar
Executive Chairman
REPORT TO SHAREHOLDERS
2021 Overview
2021 was a year with unique and unprecedented challenges, and
that is precisely when the benefits of experience, agility, and
pragmatic strategic planning are realized. We managed to shift
approximately $10.0 million in operating losses in fiscal 2020
to $10.0 million in operating profits in fiscal 2021. We delivered
products in high demand to our customers as we navigated
supply chain issues, inflationary cost increases, and competitive
labor markets. We increased factory production, hired new
employees, and reached an important technological milestone
with the completion of our new software control platform for
multi-axis, multi-spindle turning centers. Most importantly, we
provided outstanding customer support and service, a signature
part of our brands that sets us apart from the competition.
When Michael Doar wrote his first letter to shareholders as CEO
20 years ago, Hurco had one brand of CNC machines with just 12
models, was $12 million in debt, and had posted a net loss. In that
inaugural letter, he pledged to focus the company’s attention on
three areas: profitability, customers, and core competencies.
Hurco Companies, Inc., now has three brands of CNC machines
in its portfolio with over 150 models in addition to an automation
brand and a brand of electro-mechanical components for CNC
machines. During the past 20 years, Hurco achieved record
breaking sales and profits, eliminated its debt and emerged more
resilient after each economic downturn precipitated by 9/11, the
Great Recession, and the global pandemic.
I am fortunate to have been a part of Michael’s team since 2005
and I appreciate his mentorship and the trust he bestowed on
me that has allowed me to gain a wealth of experience in roles of
increasing responsibility. While I’m a person who thrives on action
and movement, a foundation of stability and consistency is
essential to successfully commit to continuous innovation in the
manufacturing technology space. Hurco has the perfect balance
of stability and innovation with strong financials that allow us to
minimize risk as we innovate for the future.
Customers
While we have plenty of Fortune 500 companies that use our
products, the majority of our customers are small, often family-
owned, businesses that have been operating for generations.
They are smart, down to earth, pragmatic, entrepreneurial, and
resilient. In short, our customers are why we exist and providing
products and technologies that make them successful drives
innovation at Hurco.
Core Competencies
Our core competencies include software and product innovation;
efficient design and manufacture of machine tools with a well-
developed supply chain; targeted expansion of products and
markets; and strategic acquisitions. Customers rely on our
technology to simplify complex processes due to the user-friendly
attributes of our products. As we expand our product lines and
develop new technologies, we continue to focus on products and
software features that solve problems for our customers.
Profitability
Global sales for fiscal 2021 totaled $235.2 million and orders
totaled $265.4 million, reflecting a year-over-year increase of
38% and 59%, respectively. The fourth quarter of fiscal 2021
was the strongest of the year for both sales and orders with
all regions participating. Even more encouraging, all regions
exceeded pre-pandemic order numbers for the fourth quarter
of 2021 when compared to the pre-pandemic fourth quarter of
2019. For the fifth consecutive quarter, orders outpaced sales,
which is a trend we typically see during a sustainable recovery.
We will continue to be good stewards of our financial assets that
provide the confidence and freedom to continuously innovate.
Going Forward
Whether in life or in business, reflection can help identify what’s
truly important to make sure you move forward in the right
direction. Technology continues to accelerate at warp speed and
it is important to know how and where to focus our efforts for
maximum impact and success.
We reflected on the history of Hurco when our co-founder,
Gerald V. Roch, was memorialized this summer in Indianapolis
after his death at the age of 89. While he had numerous patents,
his invention of Conversational Programming is considered
the most significant for Hurco and our entire industry at large.
It was responsible for countless machinists being able to
successfully transition from manual machining to computerized
technology. I feel fortunate that Gerry would call me and stop
by periodically to see what was new even though he hadn’t been
directly involved with Hurco for years. I always appreciated his
enthusiasm when I would show him the latest control features.
Gerald Roch’s passion to create technology that helps job shops
increase efficiencies by simplifying complex and redundant
processes, his dedication to customers, and his entrepreneurial
spirit are an indelible part of our culture at Hurco.
We will continue to honor the legacy of those who came
before us by focusing on customers, profitability, and our core
competencies, in order to continue growing this company for
those who will come after us. Ultimately, we are here to serve. To
serve our customers by providing manufacturing technologies
that make them successful. To serve our shareholders by
continuously striving to increase profitability. To serve our
employees by providing opportunities for their talents to thrive.
In closing, I would like to thank our customers, shareholders,
board of directors, and employees for their dedication and
support. We remain prepared to overcome unexpected
challenges, poised for further growth, and focused on
continuous innovation as we look forward to 2022!
Gregory S. Volovic
President and Chief Executive Officer
Gregory S. Volovic
President and Chief Executive Officer
Sonja McClelland
Executive Vice President, Treasurer, and
Chief Financial Officer
Michael Doar
Executive Chairman
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.
IN MEMORIAM
Gerald V. Roch
Hurco Co-Founder
Inventor • Engineer • Pioneer
May 11, 1931 – December 24, 2020
Mr. Roch acquired more than 40 patents, due in large part to his fascination
with efficiency combined with his background at the family tool and die shop,
his collaborative personality, and his drive to solve problems. His patents
for interactive control technology, which we refer to as conversational
programming, are considered the most significant.
Despite all of his inventions and success, Mr. Roch was extremely humble, saying
in an interview for the company’s anniversary, “I’ve never really been an expert
in any one area. I know relatively little about software and electronics, but I’ve
been fortunate enough that I conceptually understand how things should work.
Then, it’s a matter of hiring capable engineers to make it happen.”
Hurco.com/History
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.
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
electro-mechanical spindles.
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
automate redundant processes. ProCobots Systems 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.
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
2021
2020
$ 235,195
$
170,627
$
$
$
10,248
6,764
1.01
($ 9,862)
($ 6,247)
($
0.93)
$ 265,421
$
166,938
$ 208,700
$ 200,974
—
$ 238,419
706
32.45
38.83
28.27
$
$
$
$
$
$
$
$
—
231,148
710
29.84
39.38
20.39
350
300
250
200
150
100
50
0
$263.4
$235.2
$170.6
2020
2019
Sales and Service Fees
(Millions)
2021
250
200
150
100
50
0
$240.2
$231.1
$238.4
2020
2019
Shareholders’ Equity
(Millions)
2021
25
20
15
10
5
0
-5
-10
$17.5
$6.8
2021
2019
2020
($6.2)
Net Income (Loss)
(Millions)
HURCO COMPANIES, INC., ELEVEN-YEAR
SELECTED FINANCIAL DATA
For the Fiscal Year Ended
(In thousands except per share data and stock price)
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
2021
$235,195
178,946
46,001
—
10,248
(127)
10,121
3,357
$6,764
6,595
6,608
$1.01
$1.01
2,369
4,193
14,314
23.9%
4.4%
2.9%
2.9%
$38.83
$28.27
$32.45
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
At Fiscal Year End
(In thousands except per share data and number of employees)
2021
2020
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.
$208,700
3.57
$332,935
—
238,419
0.0%
$36.08
$0.656
706
$0.55
$200,974
4.98
$295,655
—
231,148
0.0%
$34.65
$1.016
710
$0.51
ANNUAL REPORT 2021
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
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
ANNUAL REPORT 2021
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
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
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
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
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
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
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
2017
2016
2015
2014
2013
2012
2011
$175,526
3.48
$277,808
1,507
203,085
0.7%
$30.40
$0.568
749
$0.39
$160,413
3.77
$251,949
1,476
185,475
0.8%
$27.92
$0.641
758
$0.35
$151,026
3.32
$248,577
1,583
174,568
0.9%
$26.44
$0.551
769
$0.31
$141,888
3.12
$239,176
3,272
164,645
1.9%
$25.18
$0.513
617
$0.26
$127,235
3.28
$212,804
3,665
151,491
2.4%
$23.32
$0.583
625
$0.10
$122,828
3.49
$197,360
3,206
143,793
2.2%
$22.22
$0.548
560
$ —
$104,154
2.82
$186,870
865
126,212
0.7%
$19.50
$0.455
520
$ —
HURCO COMPANIES, INC., LEADERSHIP
BOARD OF DIRECTORS
CORPORATE OFFICERS AND DIVISION EXECUTIVES
Thomas Aaro
Marketing Consultant (1, 3)
Michael Doar
Executive Chairman
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 (1, 3)
Richard Porter
Private Equity Manager (1, 2, 4)
Janaki Sivanesan
Attorney, Sivanesan Law (2)
Gregory S. Volovic
President and Chief Executive Officer
Hurco Companies, Inc.
1 Nominating and Governance Committee
2 Audit Committee
3 Compensation Committee
4 Presiding Independent Director
CORPORATE INFORMATION
ANNUAL MEETING
All shareholders are invited to attend
our annual meeting, which will be held on
Thursday, March 10, 2022, at 10:00 a.m.
Eastern Time.(A)
TRANSFER AGENT
Computershare Investor Services
462 South 4th Street, Louisville, KY 40202
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,
Treasurer, and Chief Financial Officer
One Technology Way
Indianapolis, IN 46268
Telephone (317) 293-5309
Michael Doar
Executive Chairman
Gregory S. Volovic
President and Chief Executive Officer
Sonja K. McClelland
Executive Vice President, Treasurer, and
Chief Financial Officer
HaiQuynh Jamison
Corporate Controller and
Principal Accounting Officer
Jonathon D. Wright
General Counsel and Corporate Secretary
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)
Paul Gray
Operations Manager, ProCobots
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 Stock
Market LLC.
FISCAL QUARTER ENDED
2021
2020
High
Low
High
Low
January 31
$33.85
$28.27
$39.38
$31.25
April 30
July 31
$38.83
$29.12
$33.89
$20.39
$38.80
$32.76
$34.97
$24.06
October 31
$35.38
$30.00
$31.87
$27.51
There were approximately 104 holders of record of
Hurco Common Stock as of December 31, 2021.
ANNUAL REPORT 2021
Roberto La Vista
General Manager,
LCM Precision Technology S.r.l. (Italy)
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
Jeff Nixon
General Manager,
Milltronics Europe, B.V.
Louie Pavlakos
General Manager, Milltronics USA
David Waghorn
General Manager, Hurco Europe Limited
(United Kingdom)
Scott Yao
General Manager, Ningbo Hurco
Trading Co., Ltd. (Shanghai, China)
Charlie Tsai, Martin Lee, and Luke Wang
General Managers,
Hurco Manufacturing Limited (Taiwan) and
Ningbo Hurco Machine Tool Co., Ltd.
(Ningbo, China)
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.
(A) in virtual meeting format only, via webcast. For details
please visit www.proxydocs.com/HURC.
Yes No
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
Washington, D.C. 20549
FORM 10-K
☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
(Mark One)
31, 2021 or
☐
_________ to
_________
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
35-1150732
(I.R.S. Employer Identification Number)
One Technology Way
Indianapolis, Indiana
(Address of principal executive offices)
46268
(Zip code)
Registrant’s telephone number, including area code (317) 293–5309
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common Stock, no par value
HURC
The Nasdaq Stock Market LLC
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.
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
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.
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.
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, 2021 or
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
_________ to
_________
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
35-1150732
(I.R.S. Employer Identification Number)
One Technology Way
Indianapolis, Indiana
(Address of principal executive offices)
46268
(Zip code)
Registrant’s telephone number, including area code (317) 293–5309
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Common Stock, no par value
HURC
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which
registered
The Nasdaq Stock Market LLC
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, 2021 (the last business day of
our most recently completed second quarter) was $226,758,000.
The number of shares of the registrant’s common stock outstanding as of December 31, 2021 was 6,613,699.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its 2022 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, among others, the impact of the
COVID-19 pandemic and other public health epidemics and pandemics on the global economy, our business
and operations, our employees and the business, operations and economies of our customers and suppliers; the
cyclical nature of the machine tool industry; uncertain economic conditions, which may adversely affect overall
demand, in the Americas, Europe and Asia Pacific markets; the risks of our international operations;
governmental actions, initiatives and regulations, including import and export restrictions, duties and tariffs and
changes to tax laws; the effects of changes in currency exchange rates; competition with larger companies that
have greater financial resources; the United Kingdom’s withdrawal from the European Union (Brexit); our
dependence on new product development; the need and/or ability to protect our intellectual property assets; the
limited number of our manufacturing and supply chain sources; increases in the prices of raw materials,
especially steel and iron products; the effect of the loss of members of senior management and key personnel;
our ability to integrate acquisitions; acquisitions that could disrupt our operations and affect operating results;
failure to comply with data privacy and security regulations; breaches of our network and system security
measures; possible obsolescence of our technology and the need to make technological advances; impairment
of our assets; negative or unforeseen tax consequences; uncertainty concerning our ability to use tax loss
carryforwards; and changes in the LIBOR rate, SOFR rate, and/or other benchmarking interest rates; and the
risks and other important factors under the heading “Risk Factors” in Part I, Item 1A of this report. You should
understand that it is not possible to predict or identify all factors that could cause actual results to differ
materially from forward-looking statements. Consequently, you should not consider any list or discussion of
such factors to be a complete set of all potential risks or uncertainties. Readers of this report are cautioned not
to place undue reliance on these forward-looking statements. While we believe the assumptions on which the
forward-looking statements are based are reasonable, there can be no assurance that these forward-looking
statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements
contained in this report. We expressly disclaim any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. You are advised, however, to
consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our
other filings with the Securities and Exchange Commission (“SEC”).
3
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, 2021 (the last business day of
our most recently completed second quarter) was $226,758,000.
The number of shares of the registrant’s common stock outstanding as of December 31, 2021 was 6,613,699.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for its 2022 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, among others, the impact of the
COVID-19 pandemic and other public health epidemics and pandemics on the global economy, our business
and operations, our employees and the business, operations and economies of our customers and suppliers; the
cyclical nature of the machine tool industry; uncertain economic conditions, which may adversely affect overall
demand, in the Americas, Europe and Asia Pacific markets; the risks of our international operations;
governmental actions, initiatives and regulations, including import and export restrictions, duties and tariffs and
changes to tax laws; the effects of changes in currency exchange rates; competition with larger companies that
have greater financial resources; the United Kingdom’s withdrawal from the European Union (Brexit); our
dependence on new product development; the need and/or ability to protect our intellectual property assets; the
limited number of our manufacturing and supply chain sources; increases in the prices of raw materials,
especially steel and iron products; the effect of the loss of members of senior management and key personnel;
our ability to integrate acquisitions; acquisitions that could disrupt our operations and affect operating results;
failure to comply with data privacy and security regulations; breaches of our network and system security
measures; possible obsolescence of our technology and the need to make technological advances; impairment
of our assets; negative or unforeseen tax consequences; uncertainty concerning our ability to use tax loss
carryforwards; and changes in the LIBOR rate, SOFR rate, and/or other benchmarking interest rates; and the
risks and other important factors under the heading “Risk Factors” in Part I, Item 1A of this report. You should
understand that it is not possible to predict or identify all factors that could cause actual results to differ
materially from forward-looking statements. Consequently, you should not consider any list or discussion of
such factors to be a complete set of all potential risks or uncertainties. Readers of this report are cautioned not
to place undue reliance on these forward-looking statements. While we believe the assumptions on which the
forward-looking statements are based are reasonable, there can be no assurance that these forward-looking
statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements
contained in this report. We expressly disclaim any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. You are advised, however, to
consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our
other filings with the Securities and Exchange Commission (“SEC”).
3
3
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.
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
4
4
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 2021, our sales and service fees were $235.2 million, an increase of $64.6 million, or 38%,
compared to fiscal 2020 and included a favorable currency impact of $7.7 million, or 5%, when translating
foreign sales to U.S. Dollars for financial reporting purposes. For fiscal 2021, we reported net income of $6.8
million, or $1.01 per diluted share, compared to a net loss of $6.2 million, or $(0.93) per diluted share, for fiscal
2020. During fiscal 2021, sales increased year-over-year for all product brands and in all regions as countries
began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions
put in place in fiscal 2020. The net loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill
impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global markets due
to the COVID-19 pandemic.
Industry
been highly cyclical.
Machine tool products are considered capital goods, which makes them part of an industry that has historically
Industry association data for the U.S. machine tool market is available, and that market accounts for
approximately 13% of worldwide consumption. Reports available for the U.S. machine tool market include:
• United States Machine Tool Consumption – generated by the Association for Manufacturing
Technology, this report includes metal cutting machines of all types and sizes, including
segments in which we do not compete;
•
Purchasing Manager’s Index – developed by the Institute for Supply Management, this report
includes activity levels in U.S. manufacturing plants that purchase machine tools; and
• Capacity Utilization of Manufacturing Companies – issued by the Federal Reserve Board.
A limited amount of information is available for foreign markets, and different reporting methodologies are
used by various countries. Machine tool consumption data, published by the Association of Manufacturing
Technology (“AMT”), calculates machine tool consumption annually by country. It is important to note that
data for foreign countries are based on government reports that may lag 6 to 12 months behind real-time and,
therefore, are unreliable for forecasting purposes.
Demand for capital equipment can fluctuate significantly during periods of changing economic conditions.
Manufacturers and suppliers of capital goods, such as our company, are often the first to experience these
changes in demand. Additionally, since build to stock and our typical order backlog is approximately 45 days,
it is difficult to estimate demand with any reasonable certainty. Therefore, we do not have the benefit of relying
on the common leading indicators that other industries use for market analysis and forecasting purposes.
Products
Our core products consist of general-purpose, computerized machine tools for the metal cutting industry,
principally, vertical and horizontal machining centers (mills), turning centers (lathes) and toolroom machines.
The majority of our machine tools are equipped with our fully integrated computer control systems that are
5
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.
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
4
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 2021, our sales and service fees were $235.2 million, an increase of $64.6 million, or 38%,
compared to fiscal 2020 and included a favorable currency impact of $7.7 million, or 5%, when translating
foreign sales to U.S. Dollars for financial reporting purposes. For fiscal 2021, we reported net income of $6.8
million, or $1.01 per diluted share, compared to a net loss of $6.2 million, or $(0.93) per diluted share, for fiscal
2020. During fiscal 2021, sales increased year-over-year for all product brands and in all regions as countries
began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions
put in place in fiscal 2020. The net loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill
impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global markets due
to the COVID-19 pandemic.
Industry
Machine tool products are considered capital goods, which makes them part of an industry that has historically
been highly cyclical.
Industry association data for the U.S. machine tool market is available, and that market accounts for
approximately 13% of worldwide consumption. Reports available for the U.S. machine tool market include:
• United States Machine Tool Consumption – generated by the Association for Manufacturing
Technology, this report includes metal cutting machines of all types and sizes, including
segments in which we do not compete;
Purchasing Manager’s Index – developed by the Institute for Supply Management, this report
includes activity levels in U.S. manufacturing plants that purchase machine tools; and
• Capacity Utilization of Manufacturing Companies – issued by the Federal Reserve Board.
•
A limited amount of information is available for foreign markets, and different reporting methodologies are
used by various countries. Machine tool consumption data, published by the Association of Manufacturing
Technology (“AMT”), calculates machine tool consumption annually by country. It is important to note that
data for foreign countries are based on government reports that may lag 6 to 12 months behind real-time and,
therefore, are unreliable for forecasting purposes.
Demand for capital equipment can fluctuate significantly during periods of changing economic conditions.
Manufacturers and suppliers of capital goods, such as our company, are often the first to experience these
changes in demand. Additionally, since build to stock and our typical order backlog is approximately 45 days,
it is difficult to estimate demand with any reasonable certainty. Therefore, we do not have the benefit of relying
on the common leading indicators that other industries use for market analysis and forecasting purposes.
Products
Our core products consist of general-purpose, computerized machine tools for the metal cutting industry,
principally, vertical and horizontal machining centers (mills), turning centers (lathes) and toolroom machines.
The majority of our machine tools are equipped with our fully integrated computer control systems that are
5
5
powered by our proprietary software, 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 and 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
2021
Year Ended October 31,
2020
2019
$ 198,602
85 % $ 139,577
Computerized Machine Tools
Computer Control Systems and
Software †
1 %
11 %
Service Parts
3 %
Service Fees
100 %
Total
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
2,818
27,854
8,970
100 % $ 263,377
1,699
22,484
6,867
100 % $ 170,627
2,528
26,425
7,640
$ 235,195
1 %
13 %
4 %
1 %
11 %
3 %
82 % $ 223,735
85 %
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 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, such as feeders and collaborative robots (cobots). 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 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, we 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
6
6
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 must be designed to meet customer demand to machine 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 and 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:
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 eight models in three sizes with X-axis (horizontal) travels of 26 (four models), 40 (two models),
and 50 inches (two models).
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 drive) spindles and the larger models are
offered as either #40 or #50 taper. The VMX line consists of 14 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.
7
powered by our proprietary software, 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 and 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,
2021
2020
2019
$ 198,602
85 % $ 139,577
82 % $ 223,735
85 %
2,528
26,425
7,640
1 %
11 %
3 %
1,699
22,484
6,867
1 %
13 %
4 %
2,818
27,854
8,970
1 %
11 %
3 %
$ 235,195
100 % $ 170,627
100 % $ 263,377
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 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, such as feeders and collaborative robots (cobots). 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 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, we 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
6
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 must be designed to meet customer demand to machine 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 and 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:
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 eight models in three sizes with X-axis (horizontal) travels of 26 (four models), 40 (two models),
and 50 inches (two models).
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 drive) spindles and the larger models are
offered as either #40 or #50 taper. The VMX line consists of 14 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.
7
7
HSi Product Line
Due to the integral, motorized spindle with a maximum 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, and 14-inch diameter
rotary tables with either standard (belted) or direct drive (inline) spindles.
SRTi/SWi Product Line
The SRT Series of five-axis machines utilizes motor spindles and a swivel head with a C-axis rotary table
embedded into and flush with the machine table, making them among the most flexible machines in the
industry. The SW model utilizes the swivel head and a traditional machine table that can be then fitted with an
A-axis rotary table to machine long five-axis parts. These models are available in either 42 or 60-inch X-axis
travels. Customers can choose between standard and high-speed spindles.
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-axis travels (a three-axis version and a five-axis version), as well as
53-inch and 63-inch X-axis 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-axis
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.
machine equipped with an articulating head. DCX machines are the largest models offered by Hurco that
feature the powerful and flexible WinMax® control.
TMi/TM-Mi Product Line
The TM/TM-M product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops
and contract manufacturers seeking efficient processing of small to medium lot sizes. There is one TM model
in 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 TM-M product line. These
turning centers with live tooling allow our customers to complete a number of secondary milling, drilling, and
tapping operations while the part is still held in the chuck after the turning operations are complete, which
provides significant productivity gains. The TM-M product line consists of three models: TM8Mi, TM10Mi,
and TM12Mi.
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.
They are available in either 8 or 10 inch main chuck sizes.
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 2021 include a new feature for Solid Model Import, which allows
customers to create Conversational Data Blocks with 3D attributes and new lathe programming features, such
as radius wear offsets for live tools. New hardware options included expanded capacity automatic tool changers
(60 ATC) and 24,000 rpm high-speed spindles for SRT/SW Series. New models include VMX42UDi and
VMX60HSRTi. We also upgraded our Industry 4.0 websites for Hurco’s UltiMonitor and Milltronics Shop
View (MSV) options. These tools allow users to collect data and optimize efficiency of their machine tools
using the Internet of Things (“IoT”).
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 a fully integrated interactive
computer control system called the Milltronics 9000 Series DGI CNC. The control is compatible with G & M
Code programs (generated from CAD/CAM software) and also features onboard conversational visual aid
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.
programming.
VK Series
The Milltronics portfolio consists of the following product lines:
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
The VK is our CNC knee mill designed for prototype, R&D, maintenance, and other general-purpose
applications. It offers the easy table access of a conventional knee mill, with the power and flexibility of the
9000 DGI CNC control and motion system. Unlike most competitive models, it is not a retrofit kit but rather
designed from the ground up as a CNC.
8
8
9
HSi Product Line
Due to the integral, motorized spindle with a maximum 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, and 14-inch diameter
rotary tables with either standard (belted) or direct drive (inline) spindles.
SRTi/SWi Product Line
The SRT Series of five-axis machines utilizes motor spindles and a swivel head with a C-axis rotary table
embedded into and flush with the machine table, making them among the most flexible machines in the
industry. The SW model utilizes the swivel head and a traditional machine table that can be then fitted with an
A-axis rotary table to machine long five-axis parts. These models are available in either 42 or 60-inch X-axis
travels. Customers can choose between standard and high-speed spindles.
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-axis travels (a three-axis version and a five-axis version), as well as
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-axis
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
53-inch and 63-inch X-axis travel models.
HMi Product Line
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
8
machine equipped with an articulating head. DCX machines are the largest models offered by Hurco that
feature the powerful and flexible WinMax® control.
TMi/TM-Mi Product Line
The TM/TM-M product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops
and contract manufacturers seeking efficient processing of small to medium lot sizes. There is one TM model
in 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 TM-M product line. These
turning centers with live tooling allow our customers to complete a number of secondary milling, drilling, and
tapping operations while the part is still held in the chuck after the turning operations are complete, which
provides significant productivity gains. The TM-M product line consists of three models: TM8Mi, TM10Mi,
and TM12Mi.
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.
They are available in either 8 or 10 inch main chuck sizes.
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 2021 include a new feature for Solid Model Import, which allows
customers to create Conversational Data Blocks with 3D attributes and new lathe programming features, such
as radius wear offsets for live tools. New hardware options included expanded capacity automatic tool changers
(60 ATC) and 24,000 rpm high-speed spindles for SRT/SW Series. New models include VMX42UDi and
VMX60HSRTi. We also upgraded our Industry 4.0 websites for Hurco’s UltiMonitor and Milltronics Shop
View (MSV) options. These tools allow users to collect data and optimize efficiency of their machine tools
using the Internet of Things (“IoT”).
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 a fully integrated interactive
computer control system called the Milltronics 9000 Series DGI CNC. The control is compatible with G & M
Code programs (generated from CAD/CAM software) and also features onboard conversational visual aid
programming.
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
9000 DGI CNC control and motion system. Unlike most competitive models, it is not a retrofit kit but rather
designed from the ground up as a CNC.
9
9
TRQ/TRM Product Line
Products with the TRQ or TRM designation are part of the tool room bed mill category, which are machines
that are available without an enclosure, also referred to as open bed machines, that provide easy access to the
work table. Typical applications for these machines include general machining, job shops, prototype, or
maintenance and repair. Available with quill-head or rigid-head designs, there are six models in four sizes with
X-axis travels of 30, 40, 60 and 78 inches. The 60 inch model is also available with a high-torque option.
VM General Purpose (GP) Product Line
The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,
prototype, research and development, and other general machining applications. These belt-driven models are
40-taper spindles and are available in four different sizes. Customers can choose models with X-axis
(horizontal) travels of 25, 30, 40, or 50 inches. There is also a model with extended spindle nose-to-table
dimensions for large fourth-axis rotary applications.
VM Inline Performance (IL) Product Line
The VM-IL product line consists of moderately-priced performance vertical machining centers for high-speed
applications, such as die and mold, aerospace, and medical machining. Featuring heavier castings, faster
motion, and inline spindles, these 40-taper machines 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. Customers can choose from three different models with X-
axis travels of 50, 60, or 84 inches.
BR Product Line
The BR product line consists of high-speed bridge mills that are used in pattern shops and the aerospace
industry, in addition to job shops, due to the large table and travels that support a wide range of part sizes. BR
machines have inline spindles and are available as six models with up to 200 inches in X-axis travel by 80
inches in Y-axis travel.
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.
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.
New Products
In fiscal 2021, Milltronics launched a new high torque version of its 60 inch TRM model called the TRM30HT.
Hardware upgrades included a new semi-enclosure option for the BR Series and expanded capacity automatic
tool changers (24 ATC) for the GP Series.
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10
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, five-axis machining centers and high-speed horizontal machining centers.
Takumi machines are hand built and fitted to exacting standards to produce high accuracies and superior surface
The Takumi portfolio consists of the following product lines:
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.
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 three 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
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 11 models with X-axis travels of 24, 40, 49,
63, 86, 126, 157, and 197 inches, with select models available with extended Y-axis travel and/or high-speed
spindles. These machines are specifically targeted for die and mold and aerospace customers.
Designed with trunnion tables or 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
________________________
*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.
finishes.
PV Series
VC Series
V Series
126 inches.
H Series
U Series
11
TRQ/TRM Product Line
Products with the TRQ or TRM designation are part of the tool room bed mill category, which are machines
that are available without an enclosure, also referred to as open bed machines, that provide easy access to the
work table. Typical applications for these machines include general machining, job shops, prototype, or
maintenance and repair. Available with quill-head or rigid-head designs, there are six models in four sizes with
X-axis travels of 30, 40, 60 and 78 inches. The 60 inch model is also available with a high-torque option.
VM General Purpose (GP) Product Line
The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops,
prototype, research and development, and other general machining applications. These belt-driven models are
40-taper spindles and are available in four different sizes. 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.
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, five-axis machining centers and high-speed horizontal 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:
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 are available in four sizes. Models include X-axis travels
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.
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. Customers can choose from three different models with X-
of 30, 42, 50, or 60 inches.
VM Extra Power (XP) Product Line
axis travels of 50, 60, or 84 inches.
BR Product Line
The BR product line consists of high-speed bridge mills that are used in pattern shops and the aerospace
industry, in addition to job shops, due to the large table and travels that support a wide range of part sizes. BR
machines have inline spindles and are available as six models with up to 200 inches in X-axis travel by 80
inches in Y-axis travel.
ML Product Line
SL Product Line
New Products
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.
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.
In fiscal 2021, Milltronics launched a new high torque version of its 60 inch TRM model called the TRM30HT.
Hardware upgrades included a new semi-enclosure option for the BR Series and expanded capacity automatic
tool changers (24 ATC) for the GP Series.
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 three 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 11 models with X-axis travels of 24, 40, 49,
63, 86, 126, 157, and 197 inches, with select models available with extended Y-axis travel and/or high-speed
spindles. These machines are specifically targeted for die and mold and aerospace customers.
U Series
Designed with trunnion tables or 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
________________________
*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.
10
11
11
offer trunnion table sizes of 10, 16, 24, and 31.5 inches. The UB version is equipped with a B/C swivel head
and a 12,000 rpm built-in spindle. Its double-column design provides a spacious X-axis travel of 126 inches.
An additional model called the UR1000 has a two-axis head and a 39-inch rotary table integrated into a double-
column machine, designed for large and heavy five-axis parts, such as those found in die and mold, aerospace,
and energy applications.
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 with high-speed, direct-drive spindles, or built-in HSK spindles, that have up to 20,000 rpm, but are also
equipped with a graphite dust extraction system. The G Series product line consists of three models with X-
axis travels of 22, 30, and 40 inches.
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 for maximum cutting power. The BC Series models are available in eight sizes,
including X-axis travels of 83, 122, 126, 157 and 197 inches, with several models featuring different choices
of Y-axis travel.
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, both available with 10 inch
chucks; and the SL300, which has a 12 inch chuck.
New Products
In 2021, Takumi redesigned its popular H12 double column machining center. Now called the H12E,
improvements include faster rapid traverses and trimmed dimensions to reduce shipping cost, as the redesigned
model can now fit inside a standard high cube shipping container. The new H12E is also available with an
optional 15,000 rpm high-speed spindle. Another new model is the H27S, a 106 inch X-axis travel, high-speed,
bridge type machining center. Hardware upgrades include expanded automatic tool changer (32 ATC) for #50
taper models and new high-torque #50 taper options for V-Series box way machines. Takumi also developed
software to become the first CNC machine with a FANUC control that provides a seamless interface with the
Renishaw Set & Inspect program to facilitate on-machine inspection probing that doesn’t require macro-
programming.
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”).
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12
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, Automation 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 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.
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.
Designed to take advantage of the IoT, UltiMonitor is a web-based productivity, management, and service tool
that enables customers to monitor, inspect, and receive notifications about their Hurco machines from any
location where they can access the internet. Customers can transfer part designs, receive event notifications
via email 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.
___________________
countries.
* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other
13
offer trunnion table sizes of 10, 16, 24, and 31.5 inches. The UB version is equipped with a B/C swivel head
and a 12,000 rpm built-in spindle. Its double-column design provides a spacious X-axis travel of 126 inches.
An additional model called the UR1000 has a two-axis head and a 39-inch rotary table integrated into a double-
column machine, designed for large and heavy five-axis parts, such as those found in die and mold, aerospace,
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 with high-speed, direct-drive spindles, or built-in HSK spindles, that have up to 20,000 rpm, but are also
equipped with a graphite dust extraction system. The G Series product line consists of three models with X-
and energy applications.
G Series
axis travels of 22, 30, and 40 inches.
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 for maximum cutting power. The BC Series models are available in eight sizes,
including X-axis travels of 83, 122, 126, 157 and 197 inches, with several models featuring different choices
of Y-axis travel.
HMX Series
SL Lathes
New Products
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 slant-bed lathes are turning centers equipped with box ways and designed for heavy cutting to provide
superior part finishes. The SL Series includes three models: the SL200, SL250, both available with 10 inch
chucks; and the SL300, which has a 12 inch chuck.
In 2021, Takumi redesigned its popular H12 double column machining center. Now called the H12E,
improvements include faster rapid traverses and trimmed dimensions to reduce shipping cost, as the redesigned
model can now fit inside a standard high cube shipping container. The new H12E is also available with an
optional 15,000 rpm high-speed spindle. Another new model is the H27S, a 106 inch X-axis travel, high-speed,
bridge type machining center. Hardware upgrades include expanded automatic tool changer (32 ATC) for #50
taper models and new high-torque #50 taper options for V-Series box way machines. Takumi also developed
software to become the first CNC machine with a FANUC control that provides a seamless interface with the
Renishaw Set & Inspect program to facilitate on-machine inspection probing that doesn’t require macro-
programming.
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, Automation 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 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.
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.
Designed to take advantage of the IoT, UltiMonitor is a web-based productivity, management, and service tool
that enables customers to monitor, inspect, and receive notifications about their Hurco machines from any
location where they can access the internet. Customers can transfer part designs, receive event notifications
via email 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.
___________________
* 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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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.
believe these non-Hurco branded products help us partially offset the cyclical nature of the machine tool market
by diversifying our product offering. These non-Hurco branded products are sold by our wholly-owned
distributors and 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 the Hurco SRT line of five-axis machining centers to achieve
simultaneous five-axis machining.
CNC Rotary Tables
Automation Job Manager is a software feature designed specifically for seamless integration of the Hurco
control to our automation package called Job Shop Automation, which promotes intuitive programming of
collaborative robots for machine tending applications.
LCM has several 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.
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.
CNC Tilt Tables
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.
ProCobots CNC Automation
ProCobots provides automation solutions including collaborative robots (cobots), grippers, material handling,
and Industry 4.0-capable software and controls. Designed to be easy to use, safe, and flexible, ProCobots
solutions are standardized systems aimed at customers who are in the high-mix, low-volume manufacturing
environment. Products include portable models, such as the ER Work and ProFeeder Table, as well as flexible
cell solutions, including the ProFeeder, ProFeeder Flex, ProFeeder Compact, and ProFeeder X. ProCobots
solutions are available for any Hurco, Milltronics or Takumi machine.
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.
Non-Hurco Branded Products & Technologies
Manufacturing
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 provide
product diversity; and market penetration opportunity – while minimizing the impact of geographic cyclicality
– with products priced from entry-level to high performance serving a variety of different industries. We
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”)). HML conducts final
assembly operations and is 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
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LCM has several lines of CNC tilting rotary tables, intended specifically for five-axis machining centers. Each
of the 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
several electro-spindle (built-in motors for swivel heads) options. The two lines of swivel heads are
differentiated by the type of transmission (either mechanical transmission or torque motor).
In 2021, LCM developed a new high performance tilting rotary table called BRATT400, with the tilting axis
positioned at 45 degrees. It is powered by new LCM torque motors and designed for specific applications on
Product Development
highly dynamic five-axis machines.
Parts and Service
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.
Automation Job Manager is a software feature designed specifically for seamless integration of the Hurco
control to our automation package called Job Shop Automation, which promotes intuitive programming of
collaborative robots for machine tending applications.
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.
ProCobots CNC Automation
believe these non-Hurco branded products help us partially offset the cyclical nature of the machine tool market
by diversifying our product offering. These non-Hurco branded products are sold by our wholly-owned
distributors and 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 the Hurco SRT line of five-axis machining centers to achieve
simultaneous five-axis machining.
CNC Rotary Tables
LCM has several 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 several lines of CNC tilting rotary tables, intended specifically for five-axis machining centers. Each
of the 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
several electro-spindle (built-in motors for swivel heads) options. The two lines of swivel heads are
differentiated by the type of transmission (either mechanical transmission or torque motor).
Product Development
In 2021, LCM developed a new high performance tilting rotary table called BRATT400, with the tilting axis
positioned at 45 degrees. It is powered by new LCM torque motors and designed for specific applications on
highly dynamic five-axis machines.
Parts and Service
ProCobots provides automation solutions including collaborative robots (cobots), grippers, material handling,
and Industry 4.0-capable software and controls. Designed to be easy to use, safe, and flexible, ProCobots
solutions are standardized systems aimed at customers who are in the high-mix, low-volume manufacturing
environment. Products include portable models, such as the ER Work and ProFeeder Table, as well as flexible
cell solutions, including the ProFeeder, ProFeeder Flex, ProFeeder Compact, and ProFeeder X. ProCobots
solutions are available for any Hurco, Milltronics or Takumi machine.
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.
Non-Hurco Branded Products & Technologies
Manufacturing
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 provide
product diversity; and market penetration opportunity – while minimizing the impact of geographic cyclicality
– with products priced from entry-level to high performance serving a variety of different industries. We
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”)). HML conducts final
assembly operations and is 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
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Co. Ltd (“NHML”)) focuses on the machining of castings to support HML’s production in Taiwan. The LCM
line of electro-mechanical components and accessories for machine tools is designed and manufactured in Italy.
Our facility in Indianapolis, Indiana, also conducts final assembly operations for certain Hurco VMX machines
and Milltronics bridge mills for the American market and manufactures certain electro-spindle components for
LCM.
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 180 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. Our selling divisions in the United States have responsibility for the
Americas, which includes Canada, Mexico, Central America, South America, and the U.S.
Approximately 87% of the worldwide demand for computerized machine tools and computer control systems
is outside of the U.S. In fiscal 2021, approximately 63% of our revenues were derived from customers outside
of the Americas. No single end-user or distributor of our products accounted for more than 5% of our total
sales and service fees. The end-users of our products are precision tool, die and mold manufacturers,
independent job shops, specialized short-run production applications within large manufacturing operations,
and manufacturing facilities that focus on medium to high run production, wherein they run large batches of a
few types of parts instead of small batches of many different parts. Industries served include aerospace,
defense, medical equipment, energy, automotive/ transportation, electronics, and computer industries.
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;
16
16
•
•
•
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 Corporation, Haas Automation, Inc., Doosan Corporation, Okuma
Machinery Works, Ltd., Fryer Machine Systems, ProtoTRAK CNC Machines, Quick Jet Machine, Co., Ltd.,
Gentiger Machinery Industrial, Co., Ltd., and Yeong Chin Machinery Industries, Co., Ltd. (YCM).
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, 2021, Hurco had approximately 706
full-time employees, of which approximately 28% were in the Americas, and 72% 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 advanced manufacturing, and many of them hold masters’, doctorate, or
equivalent advanced degrees. Hurco emphasizes a number of measures and objectives in managing its human
capital assets, including, among others, employee safety and wellness, talent acquisition and retention,
employee engagement, development, and training, diversity and inclusion, and compensation and pay equity.
None of our employees are covered by a collective-bargaining agreement. 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,
17
Co. Ltd (“NHML”)) focuses on the machining of castings to support HML’s production in Taiwan. The LCM
line of electro-mechanical components and accessories for machine tools is designed and manufactured in Italy.
Our facility in Indianapolis, Indiana, also conducts final assembly operations for certain Hurco VMX machines
and Milltronics bridge mills for the American market and manufactures certain electro-spindle components for
LCM.
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 180 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. Our selling divisions in the United States have responsibility for the
Americas, which includes Canada, Mexico, Central America, South America, and the U.S.
Approximately 87% of the worldwide demand for computerized machine tools and computer control systems
is outside of the U.S. In fiscal 2021, approximately 63% of our revenues were derived from customers outside
of the Americas. No single end-user or distributor of our products accounted for more than 5% of our total
sales and service fees. The end-users of our products are precision tool, die and mold manufacturers,
independent job shops, specialized short-run production applications within large manufacturing operations,
and manufacturing facilities that focus on medium to high run production, wherein they run large batches of a
few types of parts instead of small batches of many different parts. Industries served include aerospace,
defense, medical equipment, energy, automotive/ transportation, electronics, and computer industries.
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;
16
•
•
•
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 Corporation, Haas Automation, Inc., Doosan Corporation, Okuma
Machinery Works, Ltd., Fryer Machine Systems, ProtoTRAK CNC Machines, Quick Jet Machine, Co., Ltd.,
Gentiger Machinery Industrial, Co., Ltd., and Yeong Chin Machinery Industries, Co., Ltd. (YCM).
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, 2021, Hurco had approximately 706
full-time employees, of which approximately 28% were in the Americas, and 72% 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 advanced manufacturing, and many of them hold masters’, doctorate, or
equivalent advanced degrees. Hurco emphasizes a number of measures and objectives in managing its human
capital assets, including, among others, employee safety and wellness, talent acquisition and retention,
employee engagement, development, and training, diversity and inclusion, and compensation and pay equity.
None of our employees are covered by a collective-bargaining agreement. 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,
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and/or maintenance of critical infrastructure. Our global pandemic efforts include leveraging the advice and
recommendations of infectious disease experts and organizations to establish appropriate safety standards and
secure appropriate levels of personal protective equipment for our workforce. Based upon this advice and
recommendations, we have adopted and implemented the Hurco COVID-19 Exposure Prevention,
Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to outline our policies and procedures
designed to mitigate the potential for transmission of COVID-19 and prevent exposure to illness from certain
other infectious diseases. Among other things, the Hurco COVID Response Plan memorializes employee,
manager, and company responsibilities related to house-keeping and sanitization, hygiene and respiratory
etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and
accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work
and/or when to return to work upon potential and/or confirmed COVID-19 exposure or infection. In addition
to procuring personal protective equipment, automatic screening stations, and other preventative resources, we
also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco
products during fiscal 2020 and distributed the same to our personnel and customers around the world.
We have 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.
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
We are committed to fostering work environments that value and promote diversity and inclusion. This
commitment includes a policy to provide equal access to, and participation in, equal employment opportunities,
programs, and services without regard to race, religion, color, national origin, disability, sex, sexual orientation,
gender identity, stereotypes or assumptions based thereon. We pride ourselves on policies and programs
designed for the development and fair treatment of our global workforce, including generous healthcare and
benefit programs for our employees, equal employment hiring practices and policies, anti-harassment,
workforce safety, and anti-retaliation policies, and implementation of affirmative action programs. We
welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged,
diverse, and inclusive workforce.
Ethical Business Practices
We also foster a strong corporate culture that promotes high standards of ethics and compliance for our
businesses, including policies that set forth 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
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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
Condition and Results of Operations in this report.
Availability of Reports and Other Information
For information on orders and backlog, see Item 7. Management’s Discussion and Analysis of Financial
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
•
Press releases on quarterly earnings, product announcements, legal developments and other material
file that material with or furnish it to the SEC;
news that we may post from time to time;
• Corporate governance information including our Corporate Governance Principles, Code of Business
Conduct and Ethics, information concerning our Board of Directors and its committees, including the
charters of the Audit Committee, Compensation Committee, Nominating and Governance Committee
and other governance-related policies; and
• Opportunities to sign up for email alerts and RSS feeds to have information provided in real time.
The information available on our website is not incorporated by reference in, or a part of, this or any other
report we file with, or furnish to, the SEC.
Item 1A.
RISK FACTORS
In this section, we describe what we believe to be the material risks related to our business. The risks and
uncertainties described below or elsewhere in this report are not the only ones to which we are exposed.
Additional risks and uncertainties not presently known and/or risks we currently deem immaterial may also
adversely affect our business and operations. If any of the developments included in the following risks were
to occur, our business, financial condition, results of operations, cash flows or prospects could be materially
adversely affected.
Risks Related to the COVID-19 Pandemic
Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and
could continue to disrupt, our operations and materially and adversely affect our business, financial
condition, and results of operations.
Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as
the COVID-19 pandemic, have had, and could continue to have, a material adverse effect on our business,
financial condition, and results of operations. As a result of the COVID-19 pandemic, governmental authorities
in jurisdictions where our facilities, customers, and suppliers are located have imposed mandatory closures,
19
and/or maintenance of critical infrastructure. Our global pandemic efforts include leveraging the advice and
recommendations of infectious disease experts and organizations to establish appropriate safety standards and
secure appropriate levels of personal protective equipment for our workforce. Based upon this advice and
recommendations, we have adopted and implemented the Hurco COVID-19 Exposure Prevention,
Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to outline our policies and procedures
designed to mitigate the potential for transmission of COVID-19 and prevent exposure to illness from certain
other infectious diseases. Among other things, the Hurco COVID Response Plan memorializes employee,
manager, and company responsibilities related to house-keeping and sanitization, hygiene and respiratory
etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and
accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work
and/or when to return to work upon potential and/or confirmed COVID-19 exposure or infection. In addition
to procuring personal protective equipment, automatic screening stations, and other preventative resources, we
also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco
products during fiscal 2020 and distributed the same to our personnel and customers around the world.
We have 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.
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
We are committed to fostering work environments that value and promote diversity and inclusion. This
commitment includes a policy to provide equal access to, and participation in, equal employment opportunities,
programs, and services without regard to race, religion, color, national origin, disability, sex, sexual orientation,
gender identity, stereotypes or assumptions based thereon. We pride ourselves on policies and programs
designed for the development and fair treatment of our global workforce, including generous healthcare and
benefit programs for our employees, equal employment hiring practices and policies, anti-harassment,
workforce safety, and anti-retaliation policies, and implementation of affirmative action programs. We
welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged,
diverse, and inclusive workforce.
Ethical Business Practices
We also foster a strong corporate culture that promotes high standards of ethics and compliance for our
businesses, including policies that set forth 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
18
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.
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 on our business,
financial condition, and results of operations. As a result of the COVID-19 pandemic, governmental authorities
in jurisdictions where our facilities, customers, and suppliers are located have imposed mandatory closures,
19
19
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. We may continue to experience additional temporary facility closures in response to
government mandates and/or the incidence of additional 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. In addition, fluctuations in demand and
other implications associated with the COVID-19 pandemic have resulted in, and could continue resulting in,
certain supply chain constraints and challenges. Specifically, we have begun to experience vendor delays,
bottlenecks and significant cost increases in transportation and freight services, and inflationary and similar
cost increases for the cost of our materials and components. These issues could impact our ability to timely ship
products to meet customer demand and/or impose pricing pressures on our product margin. Should these
pressures continue for a significant period of time, and if we are unable to pass on cost or inflationary input
increases to customers, our future operations, operating results, and cash flows could be materially adversely
impacted.
Significant increases in economic and demand uncertainty have led to disruption and volatility in the global
credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both
our company and our customers and suppliers. In addition, resulting changes in our access to or cost of capital,
expected cash flows, or other factors could cause our intangible assets to be impaired, resulting in a non-cash
charge against results of operations to write down the intangible assets for the amount of the impairment. The
duration and scope of the COVID-19 pandemic remains uncertain and, therefore, we cannot reasonably estimate
its potential impact on our business, financial condition, or results of operations, but such impact has been, and
could continue to be, material.
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.
20
20
Our international operations pose additional risks that may adversely impact sales and earnings.
During fiscal 2021, approximately 63% 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;
and raw materials;
difficulty in obtaining distribution support;
difficulty in staffing and managing widespread operations;
differences in the availability and terms of financing;
political instability and unrest;
current and changing regulatory environments affecting the importation and exportation of products
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. Similarly, significant delays at one or more of the
ports where our products are shipped or received has impacted, and could continue to impact, the amount of
time required to ship our products to customers, which could materially adversely impact our business, demand
for our product, our ability to meet quoted delivery dates, our results of operations, future operations, and/or
financial condition.
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
21
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. We may continue to experience additional temporary facility closures in response to
government mandates and/or the incidence of additional 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. In addition, fluctuations in demand and
other implications associated with the COVID-19 pandemic have resulted in, and could continue resulting in,
certain supply chain constraints and challenges. Specifically, we have begun to experience vendor delays,
bottlenecks and significant cost increases in transportation and freight services, and inflationary and similar
cost increases for the cost of our materials and components. These issues could impact our ability to timely ship
products to meet customer demand and/or impose pricing pressures on our product margin. Should these
pressures continue for a significant period of time, and if we are unable to pass on cost or inflationary input
increases to customers, our future operations, operating results, and cash flows could be materially adversely
impacted.
Significant increases in economic and demand uncertainty have led to disruption and volatility in the global
credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both
our company and our customers and suppliers. In addition, resulting changes in our access to or cost of capital,
expected cash flows, or other factors could cause our intangible assets to be impaired, resulting in a non-cash
charge against results of operations to write down the intangible assets for the amount of the impairment. The
duration and scope of the COVID-19 pandemic remains uncertain and, therefore, we cannot reasonably estimate
its potential impact on our business, financial condition, or results of operations, but such impact has been, and
could continue to be, material.
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 2021, approximately 63% 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. Similarly, significant delays at one or more of the
ports where our products are shipped or received has impacted, and could continue to impact, the amount of
time required to ship our products to customers, which could materially adversely impact our business, demand
for our product, our ability to meet quoted delivery dates, our results of operations, future operations, and/or
financial condition.
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
20
21
21
compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents
will not violate our policies.
Finally, a significant portion of our manufacturing, production, and assembly operations are located in certain
limited geographic territories, including the People’s Republic of China (“China”) and the Republic of China
(“Taiwan”). An unplanned interruption in manufacturing or supply, or significant increase in price from third
party suppliers, could have a material adverse effect on our business, results of operations, and financial
condition. Such an interruption or increase in price could result from various factors, including a change in the
political environment, such as trade wars or tariffs, a natural disaster, such as an earthquake, typhoon, or
tsunami, or vulnerabilities in our technology or cyber-attacks against our information systems, such as
ransomware attacks. Also, any interruption in service by one of our key component suppliers, if prolonged,
could have a material adverse effect on our business, results of operations and financial condition. Additionally,
the geopolitical environment and ongoing sovereign relationship between China and Taiwan could have a
material impact on our business. Specifically, if a trade war, tariff, physical or economical blockade, or war
ensued and impacted access to or from the Taiwan or Chinese markets or workforce, we could have challenges
maintaining production plans or output, accessing the skilled labor necessary to produce our products without
interruption, accessing and/or shipping our finished goods, work in progress, or other inventories located in
either of those territories, accessing or maintaining our supply base that is located in those territories or
elsewhere, and/or otherwise experience significant disruptions in our business. Such disruptions, if prolonged,
could have a material adverse effect on our business, results of operations, and financial condition. In such a
case, we may be forced to relocate and/or shift production facilities to other geographic territories to mitigate
the risks associated with consolidating our manufacturing operations in such territories, which would likely
result in disruptions to our production plans and/or our ability to meet forecasted customer demand in the near
term, all of which could have a material adverse effect on our business, financial results, future operations,
and/or financial position.
Fluctuations in the exchange rates between the U.S. Dollar and any of several foreign currencies can
increase our costs and decrease our revenues.
Our sales to customers located outside of the Americas, which generated approximately 63% of our revenues
in fiscal 2021, are invoiced and received in several foreign currencies, primarily the Euro, Pound Sterling and
Chinese Yuan. Therefore, our results of operations and financial condition are affected by fluctuations in
exchange rates between these currencies and the U.S. Dollar, both for purposes of actual conversion and for
financial reporting purposes. In addition, we are exposed to exchange risk associated with our purchases of
materials and components for our Taiwan manufacturing operations, which are primarily made in the New
Taiwan Dollar and the Euro. We hedge a portion of our foreign currency exposure with the purchase of forward
exchange contracts. These hedge contracts only mitigate the impact of changes in foreign currency exchange
rates that occur during the term of the related contract period and carry risks of counterparty failure. There can
be no assurance that our hedges will have their intended effects.
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.
22
22
The United Kingdom's withdrawal from the European Union could have an adverse impact on our business,
financial condition, operating results, and cash flows.
On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly
referred to as “Brexit.” On or around that time, the U.K. and E.U. agreed to participate in a transition period
(the “Transition Period”), which expired on December 31, 2020, to negotiate a trade agreement and other
aspects of their relationship after the Transition Period. During the Transition Period, free trade continued
between the U.K. and E.U. without checks or extra charges. Following the Transition Period, the U.K. is no
longer a part of the single market and customs union of the E.U. However, immediately prior to expiration of
the Transition Period, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects
of trade and other strategic and political issues (the “December 2020 Brexit Deal”) – avoiding some of the
anticipated disruption of a no-deal, “hard” Brexit.
We have operations in the U.K. related to Hurco Europe Ltd. (“HEL”), our sales and service business unit
located there. Changes resulting from Brexit,
the December 2020 Brexit Deal, and/or subsequent transition
agreements or arrangements could subject us or our subsidiaries, including HEL, to increased risk, including,
among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs
on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold between the U.K.
and the E.U., extra charges, and/or difficulty staffing. We have evaluated the impact of Brexit on us, our
subsidiaries, including HEL, our business, and our future operations, operating results, and cash flows and it
has not materially change our business to date.
In addition, we do not know if the U.K. and E.U. will succeed in negotiating all material terms not otherwise
addressed or covered by the December 2020 Brexit Deal or subsequent transition agreements or arrangements
and/or if previously agreed upon items will be renegotiated in the future. Changes in these or other terms
resulting from Brexit could, similarly, subject us or our subsidiaries, including HEL, to increased risk,
including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes
or tariffs on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold between
the U.K. and the E.U., extra charges, and/or difficulty staffing.
Brexit may also cause fluctuations in the value of the Pound Sterling and the Euro. Fluctuations in exchange
rates between the U.S. Dollar and foreign currencies may adversely affect our expenses, earnings, cash flows,
results of operations, and revenues. Although we attempt to mitigate our exposure to some of our foreign
currency exchange risks through hedging arrangements, our hedging arrangements may not target the potential
impacts associated with fluctuations in currency resulting from Brexit or otherwise effectively offset the adverse
financial impacts.
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 acceptance, our business would be materially adversely
affected. Developments by others may render our products or technologies obsolete or noncompetitive.
23
compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents
will not violate our policies.
Finally, a significant portion of our manufacturing, production, and assembly operations are located in certain
limited geographic territories, including the People’s Republic of China (“China”) and the Republic of China
(“Taiwan”). An unplanned interruption in manufacturing or supply, or significant increase in price from third
party suppliers, could have a material adverse effect on our business, results of operations, and financial
condition. Such an interruption or increase in price could result from various factors, including a change in the
political environment, such as trade wars or tariffs, a natural disaster, such as an earthquake, typhoon, or
tsunami, or vulnerabilities in our technology or cyber-attacks against our information systems, such as
ransomware attacks. Also, any interruption in service by one of our key component suppliers, if prolonged,
could have a material adverse effect on our business, results of operations and financial condition. Additionally,
the geopolitical environment and ongoing sovereign relationship between China and Taiwan could have a
material impact on our business. Specifically, if a trade war, tariff, physical or economical blockade, or war
ensued and impacted access to or from the Taiwan or Chinese markets or workforce, we could have challenges
maintaining production plans or output, accessing the skilled labor necessary to produce our products without
interruption, accessing and/or shipping our finished goods, work in progress, or other inventories located in
either of those territories, accessing or maintaining our supply base that is located in those territories or
elsewhere, and/or otherwise experience significant disruptions in our business. Such disruptions, if prolonged,
could have a material adverse effect on our business, results of operations, and financial condition. In such a
case, we may be forced to relocate and/or shift production facilities to other geographic territories to mitigate
the risks associated with consolidating our manufacturing operations in such territories, which would likely
result in disruptions to our production plans and/or our ability to meet forecasted customer demand in the near
term, all of which could have a material adverse effect on our business, financial results, future operations,
and/or financial position.
Fluctuations in the exchange rates between the U.S. Dollar and any of several foreign currencies can
increase our costs and decrease our revenues.
Our sales to customers located outside of the Americas, which generated approximately 63% of our revenues
in fiscal 2021, are invoiced and received in several foreign currencies, primarily the Euro, Pound Sterling and
Chinese Yuan. Therefore, our results of operations and financial condition are affected by fluctuations in
exchange rates between these currencies and the U.S. Dollar, both for purposes of actual conversion and for
financial reporting purposes. In addition, we are exposed to exchange risk associated with our purchases of
materials and components for our Taiwan manufacturing operations, which are primarily made in the New
Taiwan Dollar and the Euro. We hedge a portion of our foreign currency exposure with the purchase of forward
exchange contracts. These hedge contracts only mitigate the impact of changes in foreign currency exchange
rates that occur during the term of the related contract period and carry risks of counterparty failure. There can
be no assurance that our hedges will have their intended effects.
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.
22
The United Kingdom's withdrawal from the European Union could have an adverse impact on our business,
financial condition, operating results, and cash flows.
On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly
referred to as “Brexit.” On or around that time, the U.K. and E.U. agreed to participate in a transition period
(the “Transition Period”), which expired on December 31, 2020, to negotiate a trade agreement and other
aspects of their relationship after the Transition Period. During the Transition Period, free trade continued
between the U.K. and E.U. without checks or extra charges. Following the Transition Period, the U.K. is no
longer a part of the single market and customs union of the E.U. However, immediately prior to expiration of
the Transition Period, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects
of trade and other strategic and political issues (the “December 2020 Brexit Deal”) – avoiding some of the
anticipated disruption of a no-deal, “hard” Brexit.
We have operations in the U.K. related to Hurco Europe Ltd. (“HEL”), our sales and service business unit
located there. Changes resulting from Brexit,
the December 2020 Brexit Deal, and/or subsequent transition
agreements or arrangements could subject us or our subsidiaries, including HEL, to increased risk, including,
among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs
on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold between the U.K.
and the E.U., extra charges, and/or difficulty staffing. We have evaluated the impact of Brexit on us, our
subsidiaries, including HEL, our business, and our future operations, operating results, and cash flows and it
has not materially change our business to date.
In addition, we do not know if the U.K. and E.U. will succeed in negotiating all material terms not otherwise
addressed or covered by the December 2020 Brexit Deal or subsequent transition agreements or arrangements
and/or if previously agreed upon items will be renegotiated in the future. Changes in these or other terms
resulting from Brexit could, similarly, subject us or our subsidiaries, including HEL, to increased risk,
including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes
or tariffs on goods that are sold between the E.U. and the U.K., inspections or barriers on goods sold between
the U.K. and the E.U., extra charges, and/or difficulty staffing.
Brexit may also cause fluctuations in the value of the Pound Sterling and the Euro. Fluctuations in exchange
rates between the U.S. Dollar and foreign currencies may adversely affect our expenses, earnings, cash flows,
results of operations, and revenues. Although we attempt to mitigate our exposure to some of our foreign
currency exchange risks through hedging arrangements, our hedging arrangements may not target the potential
impacts associated with fluctuations in currency resulting from Brexit or otherwise effectively offset the adverse
financial impacts.
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 acceptance, our business would be materially adversely
affected. Developments by others may render our products or technologies obsolete or noncompetitive.
23
23
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.
Finally, certain subcontractors, vendors, and third parties provide inputs, components, code, and/or similar
items that are complimentary and compatible with our products, software, and controls. If we are unable to
secure access and/or rights to any such inputs, components, code, or similar items, our ability to continue to
produce our products without interruption could be challenged, which could materially and adversely impact
our business, financial condition, results of operation, and demand for our products.
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. Recent inflationary
pressures and other factors have resulted in increases to the cost of the inputs or materials for our products.
Similarly, recently, costs associated with transportation and freight services have increased significantly due
limited capacity and/or availability of containers, shipping vessels, and/or receiving port services. If prolonged,
24
24
and if they cannot be passed on to customers in the form of price increases, these fluctuations in the price of
raw materials, product components, and/or transportation services could adversely affect our sales, costs,
margin, and profitability.
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:
interest;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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
diversion of management’s attention from normal daily operations of the business;
potential difficulties completing projects associated with in-process research and development;
difficulties entering markets in which we have no or limited prior experience, especially when
competitors in such markets have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenues to offset increased expenses associated with acquisitions;
the potential loss of key employees of the acquired companies; and
the potential for recording goodwill and intangible assets that later can be subject to impairment.
Acquisitions may also cause us to:
issue common stock that would dilute our current shareholders’ percentage ownership;
borrow and subject us to increasing interest rates;
assume or otherwise be subject to liabilities of an acquired company;
record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a
regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur large acquisition and integration costs, immediate write-offs, and restructuring and other related
expenses; and
become subject to litigation.
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,
25
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.
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
Finally, certain subcontractors, vendors, and third parties provide inputs, components, code, and/or similar
items that are complimentary and compatible with our products, software, and controls. If we are unable to
secure access and/or rights to any such inputs, components, code, or similar items, our ability to continue to
produce our products without interruption could be challenged, which could materially and adversely impact
our business, financial condition, results of operation, and demand for our products.
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. Recent inflationary
pressures and other factors have resulted in increases to the cost of the inputs or materials for our products.
Similarly, recently, costs associated with transportation and freight services have increased significantly due
limited capacity and/or availability of containers, shipping vessels, and/or receiving port services. If prolonged,
24
and if they cannot be passed on to customers in the form of price increases, these fluctuations in the price of
raw materials, product components, and/or transportation services could adversely affect our sales, costs,
margin, and profitability.
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;
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;
borrow and subject us to increasing interest rates;
assume or otherwise be subject to liabilities of an acquired company;
record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a
regular basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur large acquisition and integration costs, immediate write-offs, and restructuring and other related
expenses; and
become subject to litigation.
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,
25
25
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 gives California residents
certain privacy rights in the collection and disclosure of their personal information and requires businesses to
make certain disclosures and take certain other acts in furtherance of those rights. Additionally, effective
starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand
the scope of the CCPA. The CPRA also creates a new California data protection agency authorized to
implement and enforce the CCPA and the CPRA, which could result in increased privacy and information
security enforcement. Other states have considered and/or enacted similar privacy laws. We will continue to
monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose
significant costs for investigations and compliance, allow private class-action litigation and carry significant
potential liability for our business.
Outside of the U.S., data protection laws, including the U.K. and E.U. General Data Protection Regulation (the
“GDPR”), also apply to some of our operations. Legal requirements in these countries relating to the collection,
storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among other things,
data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and
transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory
authorities in certain circumstances, and possible substantial fines for any violations (including possible fines
for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue under
the E.U. GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K.
GDPR). Other governmental authorities around the world are considering and, in some cases, have enacted,
similar privacy and data security laws.
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.
26
26
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, for indications of impairment annually and when events or
changes in circumstances indicate the carrying value may not be recoverable. We could be required to record
a significant charge to earnings in our financial statements for the period in which any impairment of these
assets is determined, which would adversely affect our results of operations for that period. In the fourth quarter
27
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 gives California residents
certain privacy rights in the collection and disclosure of their personal information and requires businesses to
make certain disclosures and take certain other acts in furtherance of those rights. Additionally, effective
starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand
the scope of the CCPA. The CPRA also creates a new California data protection agency authorized to
implement and enforce the CCPA and the CPRA, which could result in increased privacy and information
security enforcement. Other states have considered and/or enacted similar privacy laws. We will continue to
monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose
significant costs for investigations and compliance, allow private class-action litigation and carry significant
potential liability for our business.
Outside of the U.S., data protection laws, including the U.K. and E.U. General Data Protection Regulation (the
“GDPR”), also apply to some of our operations. Legal requirements in these countries relating to the collection,
storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among other things,
data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and
transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory
authorities in certain circumstances, and possible substantial fines for any violations (including possible fines
for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue under
the E.U. GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K.
GDPR). Other governmental authorities around the world are considering and, in some cases, have enacted,
similar privacy and data security laws.
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,
threats, computer denial-of-service attacks, computer viruses, ransomware and
other malware, wire fraud or other cyber incidents.
insider
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, for indications of impairment annually and when events or
changes in circumstances indicate the carrying value may not be recoverable. We could be required to record
a significant charge to earnings in our financial statements for the period in which any impairment of these
assets is determined, which would adversely affect our results of operations for that period. In the fourth quarter
26
27
27
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.
Item 2.
PROPERTIES
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.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
The following table sets forth the principal use, location, and size of each of our facilities:
Locations
Square Footage
Principal Uses
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
Ningbo, China
Sales, application engineering,
customer service, and warehousing
Indianapolis, Indiana, U.S.
165,000
Taichung, Taiwan
Waconia, Minnesota, U.S.
Castell’Alfero, Italy
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.
Shanghai, Dongguan, Qingdao and Kunshan, China
408,900
61,000
32,300
31,000
26,300
12,800
22,400
12,900
9,700
3,900
24,200
15,000
1,000
3,700
11,400
We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various dates
ranging from January 2022 to November 2029. We believe that all of our facilities are well maintained and are
adequate for our needs now and in the foreseeable future. We do not believe that we would experience
significant difficulty in replacing any of the currently leased facilities if any of our leases were not renewed at
expiration.
28
28
29
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.
Item 2.
PROPERTIES
The following table sets forth the principal use, location, and size of each of our facilities:
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.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
28
Principal Uses
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
Locations
Square Footage
Indianapolis, Indiana, U.S.
165,000
Taichung, Taiwan
Waconia, Minnesota, U.S.
Castell’Alfero, Italy
Manufacturing
Ningbo, China
Sales, application engineering,
customer service, and warehousing
High Wycombe, England
Paris, France
Munich and Verl, Germany
Milan, Italy
Venlo, the Netherlands
Toh Guan, Singapore
Shanghai, Dongguan, Qingdao and Kunshan, China
Chennai and Pune, India
Liegnitz, Poland
Grand Rapids, Michigan, U.S.
Los Angeles, California, U.S.
408,900
61,000
32,300
31,000
26,300
12,800
22,400
12,900
9,700
3,900
24,200
15,000
1,000
3,700
11,400
We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various dates
ranging from January 2022 to November 2029. We believe that all of our facilities are well maintained and are
adequate for our needs now and in the foreseeable future. We do not believe that we would experience
significant difficulty in replacing any of the currently leased facilities if any of our leases were not renewed at
expiration.
29
29
Item 3.
LEGAL PROCEEDINGS
From time to time, we are involved in various claims and lawsuits arising in the normal course of
business. Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim when
the estimated outcome is a range of possible loss and no one amount within that range is more likely than
another. We maintain insurance policies for such matters, and we record insurance recoveries when we
determine such recovery to be probable. We do not expect any of these claims, individually or in the aggregate,
to have a material adverse effect on our consolidated financial position or results of operations. We believe
that the ultimate resolution of claims for any losses will not exceed our insurance policy coverages.
Item 4.
MINE SAFETY DISCLOSURES
None.
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, 2021, the name of each executive officer and his or her
age, tenure as an officer, principal occupation and business experience:
Item 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Name
Michael Doar
Gregory S. Volovic
Sonja K. McClelland
HaiQuynh Jamison
Jonathon D. Wright
Age
66
57
50
43
39
Position(s) with the Company
Executive Chairman of the Board
Director, President and Chief Executive Officer
Executive Vice President, Treasurer and Chief Financial Officer
Corporate Controller and Principal Accounting Officer
General Counsel and Corporate Secretary
Michael Doar has been employed by us since November 2001 and has been a member of our Board of Directors
since 2000. Mr. Doar was appointed as Executive Chairman of the Board in March 2021 and previously served
as our Chairman of the Board and Chief Executive Officer from November 2001 to March 2021. Mr. Doar held
various management positions with Ingersoll Milling Machine Company from 1989 until 2001.
Gregory S. Volovic has been employed by us since March 2005 and has been a member of our Board of
Directors since 2019. Mr. Volovic was appointed as our President in March 2013, and he served as our Chief
Operating Officer from March 2019 until he was appointed as our Chief Executive Officer in March 2021.
Prior to becoming President in 2013, Mr. Volovic held various positions within our company including Vice
President Software & Controls, Executive Vice President Engineering & Technology, and Executive Vice
President Engineering & Manufacturing Operations. Prior to joining us, Mr. Volovic held various positions
with Thomson, Inc. including Director of E-Business, Engineering and Information Technology. Prior to
Thomson, Mr. Volovic was employed by Unisys Corporation.
30
30
31
Sonja K. McClelland has been employed by us since September 1996 and was appointed as Vice President,
Treasurer and Chief Financial Officer in 2014, then as Executive Vice President in March 2017. She also
served as our Corporate Secretary from 2014 until March 2021. Ms. McClelland has been an executive officer
of our company since 2004 when she was appointed as Principal Accounting Officer, Corporate Controller and
Assistant Secretary. Ms. McClelland has held various finance and accounting roles with us between 1996 and
2004. Prior to joining us, Ms. McClelland was employed by Arthur Andersen LLP.
HaiQuynh Jamison has been employed by us since March 2006 and was appointed as Corporate Controller and
Principal Accounting Officer in March 2021. Prior to her appointment as Corporate Controller, Ms. Jamison
served as the Director of Financial Reporting and Policy from 2014 to 2021 and as Corporate Accounting
Manager then Division Controller from 2006 to 2014. Prior to joining us, Ms. Jamison was employed by
various
international public accounting
firms,
including Ernst & Young Global Limited and
PricewaterhouseCoopers International Limited.
Jonathon D. Wright has been employed by us since September 2016, was appointed as Corporate Secretary in
March 2021, and has served as our General Counsel since 2016. Prior to joining us, Mr. Wright served as an
attorney for Dentons Bingham Greenebaum LLP, specializing in corporate law, mergers and acquisitions,
capital formation, and complex commercial transactions.
PART II
Market Information
Holders
Dividend Policy
Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”.
There were 104 holders of record of our common stock as of December 31, 2021.
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.
firms,
international public accounting
Sonja K. McClelland has been employed by us since September 1996 and was appointed as Vice President,
Treasurer and Chief Financial Officer in 2014, then as Executive Vice President in March 2017. She also
served as our Corporate Secretary from 2014 until March 2021. Ms. McClelland has been an executive officer
of our company since 2004 when she was appointed as Principal Accounting Officer, Corporate Controller and
Assistant Secretary. Ms. McClelland has held various finance and accounting roles with us between 1996 and
2004. Prior to joining us, Ms. McClelland was employed by Arthur Andersen LLP.
HaiQuynh Jamison has been employed by us since March 2006 and was appointed as Corporate Controller and
Principal Accounting Officer in March 2021. Prior to her appointment as Corporate Controller, Ms. Jamison
served as the Director of Financial Reporting and Policy from 2014 to 2021 and as Corporate Accounting
Manager then Division Controller from 2006 to 2014. Prior to joining us, Ms. Jamison was employed by
various
including Ernst & Young Global Limited and
PricewaterhouseCoopers International Limited.
Item 3.
LEGAL PROCEEDINGS
From time to time, we are involved in various claims and lawsuits arising in the normal course of
business. Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim when
the estimated outcome is a range of possible loss and no one amount within that range is more likely than
another. We maintain insurance policies for such matters, and we record insurance recoveries when we
determine such recovery to be probable. We do not expect any of these claims, individually or in the aggregate,
to have a material adverse effect on our consolidated financial position or results of operations. We believe
that the ultimate resolution of claims for any losses will not exceed our insurance policy coverages.
Item 4.
MINE SAFETY DISCLOSURES
None.
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.
Name
Michael Doar
Gregory S. Volovic
Sonja K. McClelland
HaiQuynh Jamison
Jonathon D. Wright
Age
Position(s) with the Company
66
57
50
43
39
Executive Chairman of the Board
Director, President and Chief Executive Officer
Executive Vice President, Treasurer and Chief Financial Officer
Corporate Controller and Principal Accounting Officer
General Counsel and Corporate Secretary
Michael Doar has been employed by us since November 2001 and has been a member of our Board of Directors
since 2000. Mr. Doar was appointed as Executive Chairman of the Board in March 2021 and previously served
as our Chairman of the Board and Chief Executive Officer from November 2001 to March 2021. Mr. Doar held
various management positions with Ingersoll Milling Machine Company from 1989 until 2001.
Gregory S. Volovic has been employed by us since March 2005 and has been a member of our Board of
Directors since 2019. Mr. Volovic was appointed as our President in March 2013, and he served as our Chief
Operating Officer from March 2019 until he was appointed as our Chief Executive Officer in March 2021.
Prior to becoming President in 2013, Mr. Volovic held various positions within our company including Vice
President Software & Controls, Executive Vice President Engineering & Technology, and Executive Vice
President Engineering & Manufacturing Operations. Prior to joining us, Mr. Volovic held various positions
with Thomson, Inc. including Director of E-Business, Engineering and Information Technology. Prior to
Thomson, Mr. Volovic was employed by Unisys Corporation.
The following information sets forth as of October 31, 2021, the name of each executive officer and his or her
age, tenure as an officer, principal occupation and business experience:
Item 5.
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
Jonathon D. Wright has been employed by us since September 2016, was appointed as Corporate Secretary in
March 2021, and has served as our General Counsel since 2016. Prior to joining us, Mr. Wright served as an
attorney for Dentons Bingham Greenebaum LLP, specializing in corporate law, mergers and acquisitions,
capital formation, and complex commercial transactions.
PART II
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”.
Holders
There were 104 holders of record of our common stock as of December 31, 2021.
Dividend Policy
We began declaring cash dividends on our common stock in the third quarter of fiscal 2013, and we expect to
continue to declare dividends on a quarterly basis; however, the declaration and amount of any future cash
dividends will be subject to the sole discretion of our Board of Directors and will depend upon many factors,
including our results of operations, financial condition, capital requirements, regulatory and contractual
restrictions, our business strategy and other factors deemed relevant by our Board of Directors 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.
30
31
31
Other Information
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
During the period covered by this report, we did not sell any equity securities that were not registered under the
Securities Act of 1933, as amended.
The disclosure under the caption “Equity Compensation Plan Information at 2021 Fiscal Year End” in our 2022
proxy statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The performance graph information is included in Item 9B. Other Information.
Item 6.
SELECTED FINANCIAL DATA
The Selected Financial Data presented below has been derived from our consolidated financial statements for
the 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.
2021
Year Ended October 31,
2019
(In thousands, except per share amounts)
2018
2020
2017
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
$ 235,195
56,249
46,001
—
10,248
(127)
6,764
1.01
$
$ 170,627
36,457
41,416
4,903
(9,862)
941
(6,247)
(0.93)
$
$ 263,377
77,208
54,668
—
22,540
784
17,495
2.55
$
$ 300,671
91,806
58,010
—
33,796
(1,300)
21,490
3.15
$
$ 243,667
70,564
49,661
—
20,903
(187)
15,115
2.25
$
6,608
0.55
6,670
0.51
$
$
6,815
0.47
6,771
0.43
6,680
0.39
$
$
$
2021
2020
As of October 31,
2019
(Dollars in thousands)
2018
2017
Balance Sheet Data:
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Non-current liabilities
Total debt
Shareholders’ equity
$ 289,870
81,170
$ 208,700
3.6
$ 332,935
13,346
—
238,419
$ 251,411
50,437
$ 200,974
5.0
$ 295,655
14,070
—
231,148
$ 261,861
54,632
$ 207,229
4.8
$ 301,065
6,188
—
240,245
32
32
3.2
86,803
$ 281,435 $ 246,415
70,889
$ 194,632 $ 175,526
3.5
$ 315,407 $ 277,808
3,834
1,507
203,085
5,751
1,434
222,853
RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
Hurco Companies, Inc. is an international, industrial technology company operating in a single segment. We
design, manufacture and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical
machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a
worldwide sales, service and distribution network. Although the majority of our computer control systems and
software products are proprietary,
they predominantly use
industry standard personal computer
components. Our computer control systems and software products are primarily sold as integral components
of our computerized machine tool products. We also provide machine tool components, automation integration
equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts
for our products, as well as customer service, 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 2021, approximately 50% of our revenues were attributable
to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series
machines. Additionally, approximately 13% 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. 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 180 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
33
Other Information
Item 7.
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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.
EXECUTIVE OVERVIEW
The disclosure under the caption “Equity Compensation Plan Information at 2021 Fiscal Year End” in our 2022
proxy statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The performance graph information is included in Item 9B. Other Information.
Item 6.
SELECTED FINANCIAL DATA
The Selected Financial Data presented below has been derived from our consolidated financial statements for
the fiscal years indicated and should be read in conjunction with the consolidated financial statements and
related notes set forth elsewhere herein and Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Year Ended October 31,
2021
2020
2019
2018
2017
(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
$
$
$ 235,195
$ 170,627
$ 263,377
$ 300,671
$ 243,667
56,249
46,001
—
10,248
(127)
6,764
1.01
6,608
0.55
36,457
41,416
4,903
(9,862)
941
(6,247)
(0.93)
6,670
0.51
$
$
77,208
54,668
—
22,540
784
17,495
2.55
6,815
0.47
$
$
91,806
58,010
—
33,796
(1,300)
21,490
3.15
6,771
0.43
70,564
49,661
—
20,903
(187)
15,115
2.25
6,680
0.39
$
$
$
$
Balance Sheet Data:
Current assets
Current liabilities
Working capital
Current ratio
Total assets
Non-current liabilities
Total debt
Shareholders’ equity
2021
2020
2019
2018
2017
As of October 31,
(Dollars in thousands)
$ 289,870
$ 251,411
$ 261,861
$ 281,435 $ 246,415
81,170
50,437
54,632
86,803
70,889
$ 208,700
$ 200,974
$ 207,229
$ 194,632 $ 175,526
3.6
5.0
3.2
3.5
$ 332,935
$ 295,655
$ 301,065
$ 315,407 $ 277,808
13,346
—
14,070
—
5,751
1,434
3,834
1,507
238,419
231,148
240,245
222,853
203,085
4.8
6,188
—
32
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,
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.
they predominantly use
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 2021, approximately 50% of our revenues were attributable
to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series
machines. Additionally, approximately 13% 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. 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 180 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
33
33
centers, such as the direct drive spindle, swivel head, and rotary table, are manufactured by our wholly-owned
subsidiary in Italy, LCM.
Results of Operations
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 not had as a significant impact on our business
and industry during fiscal 2021 as it did in fiscal 2020. Beginning in early 2020, governmental authorities in
many of the major global machine tool markets implemented mandatory stay-at-home or shelter orders
requiring most businesses to close or to significantly limit operations, resulting in a sudden decrease in demand
for many goods and services. Although the mandatory stay-at-home or shelter orders in many jurisdictions
permitted our local operations to continue as an essential business or a supplier to critical infrastructure
industries or otherwise with remote work capabilities, many of our customers experienced, and continue to
experience, significant disruptions in their business operations and normal purchasing cycles. We cannot
predict the duration or scope of impact of the COVID-19 pandemic and the negative financial impact to our
results cannot be reasonably estimated, but we believe the impact has been material thus far with regard to
revenues, income from operations, and cash flow from operations and could continue to be material in the near
future. To date, we have experienced some delays in our supply chain and have not completely ceased
operations at any of our global facilities, but have implemented remote working capabilities, as appropriate or
otherwise required under local law. We have also implemented adjustments in headcount and discretionary
spending, delayed capital expenditures, and monitored production activities closely in an effort to weather the
adverse business climate. We have also received stimulus in various countries to support operations and
implemented tax deferrals and provisions that were available to us. More recently, we have begun to see
inflationary pressures and input cost increases imposed in our supply chains on components for our products.
We have also seen capacity for transportation and freight services limited significantly by container or vessel
availability and delays at departing and receiving ports, all of which have contributed to significantly increased
costs and prices associated with the global shipment of our products.
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.
34
34
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.
Selling, general and administrative expenses
Sales and service fees
Gross profit
Goodwill impairment
Operating income (loss)
Net income (loss)
Fiscal 2021 Compared to Fiscal 2020
Percentage of Revenues
Year-to-Year % Change
2021
2020
2019
Increase/Decrease
’21 vs. ’20
’20 vs. ’19
100 % 100 % 100 %
24 %
20 %
—
4 %
3 %
21 %
24 %
(6)%
(4)%
29 %
21 %
9 %
7 %
3 % —
38 %
54 %
11 %
(100)%
204 %
208 %
(35)%
(53)%
(24)%
100 %
(144)%
(136)%
Sales and Service Fees. Sales and service fees for fiscal 2021 were $235.2 million, an increase of $64.6 million,
or 38%, compared to fiscal 2020, and included a favorable currency impact of $7.7 million, or 5%, when
translating foreign sales to U.S. Dollars for financial reporting purposes. During fiscal 2021, sales increased
year-over-year for all product brands and in all regions as countries began to lift the government-mandated
COVID-19 stay-at-home orders or other similar operating restrictions put in place in fiscal 2020.
Net Sales and Service Fees by Geographic Region
The following table sets forth net sales and service fees by geographic region for the fiscal years ended October
31, 2021 and 2020 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2021
2020
Increase/Decrease
Amount
%
$ 86,301
117,522
31,372
$ 235,195
37 % $ 67,498
39 % $ 18,803
50 %
13 %
77,936
25,193
46 %
15 %
39,586
6,179
100 % $ 170,627
100 % $ 64,568
28 %
51 %
25 %
38 %
Sales in the Americas for fiscal 2021 increased by 28%, compared to fiscal 2020. The increase in sales in the
Americas for fiscal 2021 was primarily due to an increased volume of shipments of Hurco, Takumi and
Milltronics machines, and an increase in sales of ProCobots automation solutions. The improved sales volume
of machines primarily reflected increased shipments of Hurco lathes, VM and VMX machines, as well as
Milltronics lathes and toolroom machines.
European sales for fiscal 2021 increased by 51%, compared to fiscal 2020, and included a favorable currency
impact of 8%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The year-over-
year increase in European sales was primarily attributable to an increased volume of shipments of Hurco and
Takumi machines in Germany, the United Kingdom, France and Italy, as well as increased shipments of
machine tool components and accessories manufactured by our wholly owned subsidiary, LCM. The improved
35
centers, such as the direct drive spindle, swivel head, and rotary table, are manufactured by our wholly-owned
Results of Operations
subsidiary in Italy, LCM.
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.
Sales and service fees
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Net income (loss)
Fiscal 2021 Compared to Fiscal 2020
Percentage of Revenues
2019
2020
2021
Year-to-Year % Change
Increase/Decrease
’21 vs. ’20
’20 vs. ’19
100 % 100 % 100 %
29 %
21 %
24 %
24 %
20 %
21 %
3 % —
—
(6)%
4 %
(4)%
3 %
9 %
7 %
38 %
54 %
11 %
(100)%
204 %
208 %
(35)%
(53)%
(24)%
100 %
(144)%
(136)%
Sales and Service Fees. Sales and service fees for fiscal 2021 were $235.2 million, an increase of $64.6 million,
or 38%, compared to fiscal 2020, and included a favorable currency impact of $7.7 million, or 5%, when
translating foreign sales to U.S. Dollars for financial reporting purposes. During fiscal 2021, sales increased
year-over-year for all product brands and in all regions as countries began to lift the government-mandated
COVID-19 stay-at-home orders or other similar operating restrictions put in place in fiscal 2020.
Net Sales and Service Fees by Geographic Region
The following table sets forth net sales and service fees by geographic region for the fiscal years ended October
31, 2021 and 2020 (dollars in thousands):
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 not had as a significant impact on our business
and industry during fiscal 2021 as it did in fiscal 2020. Beginning in early 2020, governmental authorities in
many of the major global machine tool markets implemented mandatory stay-at-home or shelter orders
requiring most businesses to close or to significantly limit operations, resulting in a sudden decrease in demand
for many goods and services. Although the mandatory stay-at-home or shelter orders in many jurisdictions
permitted our local operations to continue as an essential business or a supplier to critical infrastructure
industries or otherwise with remote work capabilities, many of our customers experienced, and continue to
experience, significant disruptions in their business operations and normal purchasing cycles. We cannot
predict the duration or scope of impact of the COVID-19 pandemic and the negative financial impact to our
results cannot be reasonably estimated, but we believe the impact has been material thus far with regard to
revenues, income from operations, and cash flow from operations and could continue to be material in the near
future. To date, we have experienced some delays in our supply chain and have not completely ceased
operations at any of our global facilities, but have implemented remote working capabilities, as appropriate or
otherwise required under local law. We have also implemented adjustments in headcount and discretionary
spending, delayed capital expenditures, and monitored production activities closely in an effort to weather the
adverse business climate. We have also received stimulus in various countries to support operations and
implemented tax deferrals and provisions that were available to us. More recently, we have begun to see
inflationary pressures and input cost increases imposed in our supply chains on components for our products.
We have also seen capacity for transportation and freight services limited significantly by container or vessel
availability and delays at departing and receiving ports, all of which have contributed to significantly increased
costs and prices associated with the global shipment of our products.
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.
Sales in the Americas for fiscal 2021 increased by 28%, compared to fiscal 2020. The increase in sales in the
Americas for fiscal 2021 was primarily due to an increased volume of shipments of Hurco, Takumi and
Milltronics machines, and an increase in sales of ProCobots automation solutions. The improved sales volume
of machines primarily reflected increased shipments of Hurco lathes, VM and VMX machines, as well as
Milltronics lathes and toolroom machines.
European sales for fiscal 2021 increased by 51%, compared to fiscal 2020, and included a favorable currency
impact of 8%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The year-over-
year increase in European sales was primarily attributable to an increased volume of shipments of Hurco and
Takumi machines in Germany, the United Kingdom, France and Italy, as well as increased shipments of
machine tool components and accessories manufactured by our wholly owned subsidiary, LCM. The improved
34
35
35
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2020
2021
$ 86,301
117,522
31,372
$ 235,195
37 % $ 67,498
77,936
50 %
13 %
25,193
100 % $ 170,627
Increase/Decrease
Amount
39 % $ 18,803
39,586
46 %
15 %
6,179
100 % $ 64,568
28 %
51 %
25 %
38 %
%
sales volume of machines was primarily attributable to increased shipments of Hurco Lathes, VM and VMX
machines.
Orders in the Americas for fiscal 2021 increased by 42%, compared to fiscal 2020. The increased order level
reflected a higher demand for all categories of Hurco, Takumi, and Milltronics machines as well as increased
Asian Pacific sales for fiscal 2021 increased by 25%, compared to fiscal 2020, and included a favorable
currency impact of 6%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The
year-over-year increase in Asian Pacific sales for fiscal 2021 was primarily due to increased volume of
shipments of Hurco machines in Southeast Asia and China and Takumi machines in Taiwan.
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, 2021 and 2020 (dollars in thousands):
Fiscal Year Ended October 31,
2020
2021
$ 198,602
85 % $ 139,577
Increase/Decrease
Amount
82 % $ 59,025
%
42 %
Computerized Machine Tools
Computer Control Systems and
Software †
Service Parts
Service Fees
49 %
18 %
11 %
38 %
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
1,699
22,484
6,867
100 % $ 170,627
829
3,941
773
100 % $ 64,568
2,528
26,425
7,640
$ 235,195
1 %
11 %
3 %
1 %
13 %
4 %
Total
Sales of computerized machine tools and computer control systems and software for fiscal 2021 increased by
42% and 49%, respectively, compared to fiscal 2020, and each included a favorable currency impact of 5%,
when translating foreign sales to U.S. Dollars for financial reporting purposes. Sales of service parts and service
fees increased by 18% and 11%, respectively, during fiscal 2021, compared to fiscal 2020, and each included
a favorable currency impact of 5%. During fiscal 2021, sales increased year-over-year for all product
categories as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar
operating restrictions put in place in fiscal 2020.
Orders and Backlog. Orders for fiscal 2021 were $265.4 million, an increase of $98.5 million, or 59%,
compared to fiscal 2020, and included a favorable currency impact of $8.4 million, or 5%, when translating
foreign orders to U.S. Dollars. Similar to sales, orders increased year-over-year for all product brands and in
all regions.
The following table sets forth new orders booked by geographic region for the fiscal years ended October 31,
2021 and 2020 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2020
2021
$ 95,767
133,802
35,852
$ 265,421
36 % $ 67,577
77,079
50 %
14 %
22,282
100 % $ 166,938
%
Increase/Decrease
Amount
41 % $ 28,190
46 % 56,723
13 % 13,570
100 % $ 98,483
42 %
74 %
61 %
59 %
36
36
37
demand for ProCobots automation solutions.
European orders for fiscal 2021 increased by 74%, compared to fiscal 2020, and included a favorable currency
impact of 9%, when translating foreign orders to U.S. Dollars. The year-over-year increase in orders was driven
primarily by increased customer demand for Hurco and Takumi machines in Germany, the United Kingdom,
France, and Italy, as well as increased demand for LCM machine tool components and accessories.
Asian Pacific orders for fiscal 2021 increased by 61%, compared to fiscal 2020, and included a favorable
currency impact of 8%, when translating foreign orders to U.S. Dollars. The year-over-year increase in Asian
Pacific orders for fiscal 2021 was primarily due to increased customer demand for Hurco vertical milling
machines in Southeast Asia, China and India, as well as increased customer demand for Takumi machines in
Taiwan.
Backlog at October 31, 2021 increased to $60.0 million from $29.9 million at October 31, 2020, primarily due
to increased customer demand during fiscal 2021 for all product brands and in all regions. We do not believe
backlog is a useful measure of past performance or indicative of future performance. Backlog orders as of
October 31, 2021 are expected to be fulfilled in fiscal 2022.
Gross Profit. Gross profit for fiscal 2021 was $56.2 million, or 24% of sales, compared to $36.5 million, or
21% of sales, for fiscal 2020. The year-over-year increase in gross profit as a percentage of sales for fiscal 2021
reflected improved leverage of fixed overhead costs through higher levels of machine sales, improved pricing
due to changes in demand and more normalized inventory levels, and the favorable impact of foreign currency
translation compared fiscal 2020. Additionally, approximately $1.2 million of the gross profit improvement for
fiscal 2021 was a result of recording the employee retention credit extended to Hurco under the Economic Aid
to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021 (the
“employee retention credit”). The improvement in gross profit as a percentage of sales in fiscal 2021 was
partially offset by inflationary increases in cost of materials and higher costs associated with transporting
finished goods on a global basis.
Operating Expenses. Selling, general, and administrative expenses for fiscal 2021 were $46.0 million, or 20%
of sales, compared to $41.4 million, or 24% of sales, for fiscal 2020, and included an unfavorable currency
impact of $1.2 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes.
Selling, general and administrative expenses for fiscal 2021 trended downward as a percentage of sales from
fiscal 2020 as a result of the cost management plans implemented during fiscal 2020 and continued during
fiscal 2021. Additionally, approximately $1.7 million of the selling, general, and administrative expense
reduction for fiscal 2021 was a result of recording the employee retention credit.
Operating Income (Loss). Operating income for fiscal 2021 was $10.2 million, or 4% of sales, compared to an
operating loss of $9.9 million, or (6%) of sales, for fiscal 2020. The year-over-year increase in operating income
for fiscal 2021 was primarily due to an increase in the sales volume of Hurco, Takumi and Milltronics machines,
LCM components and accessories and ProCobots automation solutions. Operating income for fiscal 2021
included a benefit of $2.9 million related to the employee retention credit recorded during fiscal 2021. The
operating loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge
attributable primarily to the then prolonged ongoing uncertainty in the global markets due to the COVID-19
pandemic.
sales volume of machines was primarily attributable to increased shipments of Hurco Lathes, VM and VMX
machines.
Asian Pacific sales for fiscal 2021 increased by 25%, compared to fiscal 2020, and included a favorable
currency impact of 6%, when translating foreign sales to U.S. Dollars for financial reporting purposes. The
year-over-year increase in Asian Pacific sales for fiscal 2021 was primarily due to increased volume of
shipments of Hurco machines in Southeast Asia and China and Takumi machines in Taiwan.
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, 2021 and 2020 (dollars in thousands):
Computerized Machine Tools
Computer Control Systems and
Software †
Service Parts
Service Fees
Total
machine systems.
Fiscal Year Ended October 31,
2021
2020
Increase/Decrease
Amount
%
$ 198,602
85 % $ 139,577
82 % $ 59,025
2,528
26,425
7,640
1 %
11 %
3 %
1,699
22,484
6,867
1 %
13 %
4 %
829
3,941
773
$ 235,195
100 % $ 170,627
100 % $ 64,568
42 %
49 %
18 %
11 %
38 %
† 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 2021 increased by
42% and 49%, respectively, compared to fiscal 2020, and each included a favorable currency impact of 5%,
when translating foreign sales to U.S. Dollars for financial reporting purposes. Sales of service parts and service
fees increased by 18% and 11%, respectively, during fiscal 2021, compared to fiscal 2020, and each included
a favorable currency impact of 5%. During fiscal 2021, sales increased year-over-year for all product
categories as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar
operating restrictions put in place in fiscal 2020.
Orders and Backlog. Orders for fiscal 2021 were $265.4 million, an increase of $98.5 million, or 59%,
compared to fiscal 2020, and included a favorable currency impact of $8.4 million, or 5%, when translating
foreign orders to U.S. Dollars. Similar to sales, orders increased year-over-year for all product brands and in
The following table sets forth new orders booked by geographic region for the fiscal years ended October 31,
2021 and 2020 (dollars in thousands):
Fiscal Year Ended October 31,
2021
2020
Increase/Decrease
Amount
%
$ 95,767
133,802
35,852
$ 265,421
36 % $ 67,577
50 %
14 %
77,079
22,282
100 % $ 166,938
41 % $ 28,190
46 % 56,723
13 % 13,570
100 % $ 98,483
42 %
74 %
61 %
59 %
all regions.
Americas
Europe
Asia Pacific
Total
Orders in the Americas for fiscal 2021 increased by 42%, compared to fiscal 2020. The increased order level
reflected a higher demand for all categories of Hurco, Takumi, and Milltronics machines as well as increased
demand for ProCobots automation solutions.
European orders for fiscal 2021 increased by 74%, compared to fiscal 2020, and included a favorable currency
impact of 9%, when translating foreign orders to U.S. Dollars. The year-over-year increase in orders was driven
primarily by increased customer demand for Hurco and Takumi machines in Germany, the United Kingdom,
France, and Italy, as well as increased demand for LCM machine tool components and accessories.
Asian Pacific orders for fiscal 2021 increased by 61%, compared to fiscal 2020, and included a favorable
currency impact of 8%, when translating foreign orders to U.S. Dollars. The year-over-year increase in Asian
Pacific orders for fiscal 2021 was primarily due to increased customer demand for Hurco vertical milling
machines in Southeast Asia, China and India, as well as increased customer demand for Takumi machines in
Taiwan.
Backlog at October 31, 2021 increased to $60.0 million from $29.9 million at October 31, 2020, primarily due
to increased customer demand during fiscal 2021 for all product brands and in all regions. We do not believe
backlog is a useful measure of past performance or indicative of future performance. Backlog orders as of
October 31, 2021 are expected to be fulfilled in fiscal 2022.
Gross Profit. Gross profit for fiscal 2021 was $56.2 million, or 24% of sales, compared to $36.5 million, or
21% of sales, for fiscal 2020. The year-over-year increase in gross profit as a percentage of sales for fiscal 2021
reflected improved leverage of fixed overhead costs through higher levels of machine sales, improved pricing
due to changes in demand and more normalized inventory levels, and the favorable impact of foreign currency
translation compared fiscal 2020. Additionally, approximately $1.2 million of the gross profit improvement for
fiscal 2021 was a result of recording the employee retention credit extended to Hurco under the Economic Aid
to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021 (the
“employee retention credit”). The improvement in gross profit as a percentage of sales in fiscal 2021 was
partially offset by inflationary increases in cost of materials and higher costs associated with transporting
finished goods on a global basis.
Operating Expenses. Selling, general, and administrative expenses for fiscal 2021 were $46.0 million, or 20%
of sales, compared to $41.4 million, or 24% of sales, for fiscal 2020, and included an unfavorable currency
impact of $1.2 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes.
Selling, general and administrative expenses for fiscal 2021 trended downward as a percentage of sales from
fiscal 2020 as a result of the cost management plans implemented during fiscal 2020 and continued during
fiscal 2021. Additionally, approximately $1.7 million of the selling, general, and administrative expense
reduction for fiscal 2021 was a result of recording the employee retention credit.
Operating Income (Loss). Operating income for fiscal 2021 was $10.2 million, or 4% of sales, compared to an
operating loss of $9.9 million, or (6%) of sales, for fiscal 2020. The year-over-year increase in operating income
for fiscal 2021 was primarily due to an increase in the sales volume of Hurco, Takumi and Milltronics machines,
LCM components and accessories and ProCobots automation solutions. Operating income for fiscal 2021
included a benefit of $2.9 million related to the employee retention credit recorded during fiscal 2021. The
operating loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge
attributable primarily to the then prolonged ongoing uncertainty in the global markets due to the COVID-19
pandemic.
36
37
37
Other Expense, Net. Other expense, net for fiscal 2021 decreased by $0.8 million from fiscal 2020, due mainly
to a reduction in foreign currency exchange losses in fiscal 2021, compared to fiscal 2020.
Provision for Income Taxes. We recorded an income tax expense of $3.4 million for fiscal 2021, compared to
income tax benefit of $4.6 million for fiscal 2020. Our effective tax rate for fiscal 2021 was 33%, compared to
42% for fiscal 2020. The year-over-year change in the effective tax rate was primarily due to changes in
geographic mix of income and loss that included jurisdictions with differing tax rates, various discrete income
tax expense items, and more specifically related to fiscal 2020, changes in income tax laws to address the
unfavorable impact of the COVID-19 pandemic.
Net Income (Loss). Net income for fiscal 2021 was $6.8 million, or $1.01 per diluted share, an increase of $13.0
million from the fiscal 2020 net loss of $6.2 million, or $(0.93) per diluted share. The year-over-year increase
from net loss to net income was primarily due to increased sales volume for all product brands and in all regions
as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating
restrictions put in place in fiscal 2020. The net loss for fiscal 2020 included a one-time $4.9 million non-cash
goodwill impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global
markets due to the COVID-19 pandemic.
Fiscal 2020 Compared to Fiscal 2019
Sales and Service Fees. Sales and service fees for fiscal 2020 were $170.6 million, a decrease of $92.8 million,
or 35%, compared to fiscal 2019, and included a favorable currency impact of $0.6 million, or less than 1%,
when translating foreign sales to U.S. Dollars for financial reporting purposes.
Net Sales and Service Fees by Geographic Region
The following table sets forth net sales and service fees by geographic region for the fiscal years ended October
31, 2020 and 2019 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2019
2020
Increase/Decrease
Amount
%
$ 67,498
77,936
25,193
$ 170,627
39 % $ 99,064
46 % 133,675
15 %
30,638
100 % $ 263,377
37 % $ (31,566)
51 % (55,739)
12 %
(5,445)
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
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):
Computerized Machine Tools
Computer Control Systems and
Software †
Service Parts
Service Fees
Total
machine systems.
Fiscal Year Ended October 31,
2020
2019
Increase/Decrease
Amount
%
$ 139,577
82 % $ 223,735
85 % $ (84,158)
(38)%
1,699
22,484
6,867
1 %
13 %
4 %
2,818
27,854
8,970
1 %
11 %
3 %
(1,119)
(5,370)
(2,103)
$ 170,627
100 % $ 263,377
100 % $ (92,750)
(40)%
(19)%
(23)%
(35)%
† 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 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.
38
38
39
Other Expense, Net. Other expense, net for fiscal 2021 decreased by $0.8 million from fiscal 2020, due mainly
to a reduction in foreign currency exchange losses in fiscal 2021, compared to fiscal 2020.
Provision for Income Taxes. We recorded an income tax expense of $3.4 million for fiscal 2021, compared to
income tax benefit of $4.6 million for fiscal 2020. Our effective tax rate for fiscal 2021 was 33%, compared to
42% for fiscal 2020. The year-over-year change in the effective tax rate was primarily due to changes in
geographic mix of income and loss that included jurisdictions with differing tax rates, various discrete income
tax expense items, and more specifically related to fiscal 2020, changes in income tax laws to address the
unfavorable impact of the COVID-19 pandemic.
Net Income (Loss). Net income for fiscal 2021 was $6.8 million, or $1.01 per diluted share, an increase of $13.0
million from the fiscal 2020 net loss of $6.2 million, or $(0.93) per diluted share. The year-over-year increase
from net loss to net income was primarily due to increased sales volume for all product brands and in all regions
as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating
restrictions put in place in fiscal 2020. The net loss for fiscal 2020 included a one-time $4.9 million non-cash
goodwill impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global
markets due to the COVID-19 pandemic.
Fiscal 2020 Compared to Fiscal 2019
Sales and Service Fees. Sales and service fees for fiscal 2020 were $170.6 million, a decrease of $92.8 million,
or 35%, compared to fiscal 2019, and included a favorable currency impact of $0.6 million, or less than 1%,
when translating foreign sales to U.S. Dollars for financial reporting purposes.
Net Sales and Service Fees by Geographic Region
The following table sets forth net sales and service fees by geographic region for the fiscal years ended October
31, 2020 and 2019 (dollars in thousands):
Americas
Europe
Asia Pacific
Total
Fiscal Year Ended October 31,
2020
2019
Increase/Decrease
Amount
%
$ 67,498
77,936
25,193
$ 170,627
39 % $ 99,064
46 % 133,675
15 %
30,638
100 % $ 263,377
37 % $ (31,566)
51 % (55,739)
12 %
(5,445)
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
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,
2020
2019
$ 139,577
82 % $ 223,735
Increase/Decrease
Amount
85 % $ (84,158)
%
(38)%
Computerized Machine Tools
Computer Control Systems and
Software †
Service Parts
Service Fees
(40)%
(19)%
(23)%
(35)%
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized
machine systems.
(1,119)
(5,370)
(2,103)
100 % $ (92,750)
2,818
27,854
8,970
100 % $ 263,377
1,699
22,484
6,867
$ 170,627
1 %
13 %
4 %
1 %
11 %
3 %
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. Dollars.
38
39
39
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,
2019
2020
$ 67,577
77,079
22,282
$ 166,938
41 % $ 89,136
46 % 120,191
13 %
31,779
100 % $ 241,106
%
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.
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
40
40
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.
Liquidity and Capital Resources
At October 31, 2021, we had cash and cash equivalents of $84.1 million, compared to $57.9 million at October
31, 2020. The increase in cash and cash equivalents was primarily a result of increases in accounts payable,
accrued payroll and employee benefits and customer deposits, partially offset by an increase in accounts
receivable. Approximately 34% of our $84.1 million of cash and cash equivalents is held in the U.S. The balance
is attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject
to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds
offshore impairs our ability to meet our domestic working capital needs.
Working capital (including cash and cash equivalents) was $208.7 million at October 31, 2021, compared to
$201.0 million at October 31, 2020. The increase in working capital was primarily driven by increases in cash
and accounts receivable, partially offset by increases in accounts payable, accrued expenses and customer
deposits. Inventories, net were $148.2 million at October 31, 2021, compared to $149.9 million at October 31,
2020. Inventory turns at October 31, 2021 were 1.2, compared to 0.9 turns at October 31, 2020.
41
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
Increase/Decrease
Amount
%
$ 67,577
77,079
22,282
41 % $ 89,136
46 % 120,191
13 %
31,779
37 % $ (21,559)
50 % (43,112)
13 %
(9,497)
$ 166,938
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.
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
40
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.
Liquidity and Capital Resources
At October 31, 2021, we had cash and cash equivalents of $84.1 million, compared to $57.9 million at October
31, 2020. The increase in cash and cash equivalents was primarily a result of increases in accounts payable,
accrued payroll and employee benefits and customer deposits, partially offset by an increase in accounts
receivable. Approximately 34% of our $84.1 million of cash and cash equivalents is held in the U.S. The balance
is attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject
to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds
offshore impairs our ability to meet our domestic working capital needs.
Working capital (including cash and cash equivalents) was $208.7 million at October 31, 2021, compared to
$201.0 million at October 31, 2020. The increase in working capital was primarily driven by increases in cash
and accounts receivable, partially offset by increases in accounts payable, accrued expenses and customer
deposits. Inventories, net were $148.2 million at October 31, 2021, compared to $149.9 million at October 31,
2020. Inventory turns at October 31, 2021 were 1.2, compared to 0.9 turns at October 31, 2020.
41
41
Capital expenditures were $2.4 million in fiscal 2021, compared to $1.7 million in fiscal 2020. Capital
expenditures for fiscal 2021 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.
On March 12, 2021, we announced that our Board of Directors approved a share repurchase program in an
aggregate amount of up to $7.0 million. Repurchases under the program may be made in the open market or
through privately-negotiated transactions from time to time through March 10, 2023, subject to applicable laws,
regulations and contractual provisions. The program may be amended, suspended or discontinued at any time
and does not commit us to repurchase any shares of our common stock. We did not repurchase any shares of
our common stock under this program during fiscal 2021.
In addition, during fiscal 2021, we paid cash dividends to our shareholders of $3.7 million. Future dividends
are subject to approval of our Board of Directors and will depend upon many factors, including our results of
operations, financial condition, capital requirements, regulatory and contractual restrictions, our business
strategy and other factors deemed relevant by our Board of Directors from time to time.
On December 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, December 23,
2020 and December 17, 2021 (as amended, the “2018 Credit Agreement”). The 2018 Credit Agreement
provides for an unsecured revolving credit and letter of credit facility 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, 2023.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a
rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average
Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the
lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per
annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c)
the one month SOFR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an
annual rate of 1.00%.
The 2018 Credit Agreement contains customary 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; and (4) requiring that we maintain a minimum tangible net worth
of $176.5 million. We may use the proceeds from advances under the 2018 Credit Agreement for general
corporate purposes.
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, 2021, our existing credit facilities consisted of the €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, 2021.
At October 31, 2021, we had an aggregate of approximately $52.2 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 beyond, and allow us to remain committed to our strategic plan of product innovation,
acquisitions, targeted penetration of developing markets, payment of dividends and our stock repurchase
program.
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, 2021 (in thousands):
Operating leases
Accrued and deferred taxes and credits
Total
Payments Due by Period
Less than
More than
Total
$ 11,351
6,562
$ 17,913
1 Year
1-3 Years
3-5 Years
5 Years
$
$
4,375
222
4,597
$
$
4,424
677
5,101
$
$
1,495
917
2,412
$
$
1,057
4,746
5,803
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.
42
42
43
Capital expenditures were $2.4 million in fiscal 2021, compared to $1.7 million in fiscal 2020. Capital
expenditures for fiscal 2021 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.
On March 12, 2021, we announced that our Board of Directors approved a share repurchase program in an
aggregate amount of up to $7.0 million. Repurchases under the program may be made in the open market or
through privately-negotiated transactions from time to time through March 10, 2023, subject to applicable laws,
regulations and contractual provisions. The program may be amended, suspended or discontinued at any time
and does not commit us to repurchase any shares of our common stock. We did not repurchase any shares of
our common stock under this program during fiscal 2021.
In addition, during fiscal 2021, we paid cash dividends to our shareholders of $3.7 million. Future dividends
are subject to approval of our Board of Directors and will depend upon many factors, including our results of
operations, financial condition, capital requirements, regulatory and contractual restrictions, our business
strategy and other factors deemed relevant by our Board of Directors from time to time.
On December 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, December 23,
2020 and December 17, 2021 (as amended, the “2018 Credit Agreement”). The 2018 Credit Agreement
provides for an unsecured revolving credit and letter of credit facility 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, 2023.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a
rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average
Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the
lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per
annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c)
the one month SOFR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an
annual rate of 1.00%.
The 2018 Credit Agreement contains customary 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; and (4) requiring that we maintain a minimum tangible net worth
of $176.5 million. We may use the proceeds from advances under the 2018 Credit Agreement for general
corporate purposes.
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, 2021, our existing credit facilities consisted of the €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, 2021.
At October 31, 2021, we had an aggregate of approximately $52.2 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 beyond, and allow us to remain committed to our strategic plan of product innovation,
acquisitions, targeted penetration of developing markets, payment of dividends and our stock repurchase
program.
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, 2021 (in thousands):
Operating leases
Accrued and deferred taxes and credits
Total
Payments Due by Period
Total
$ 11,351
6,562
$ 17,913
Less than
1 Year
4,375
222
4,597
$
$
1-3 Years
4,424
$
677
5,101
$
3-5 Years
1,495
$
917
2,412
$
More than
5 Years
1,057
4,746
5,803
$
$
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.
42
43
43
We expect capital spending in fiscal 2022 to be approximately $5.8 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, 2021, we had eight outstanding third party payment guarantees totaling approximately $0.9 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 facility by
a distributor, independent contractor, or by one of our service technicians. In most instances, where a machine
44
44
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 immaterial within the context of the contract. For our five-axis machines that we install, we estimate the
fair value of the installation performance obligation and recognize that installation revenue on a prorata basis
over the period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services. We
consider these services to be immaterial within the context of the contract, as the value of these services
typically does not rise to a material level as a component of the total contract value. Service fees from
maintenance contracts are deferred and recognized in earnings on a 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.
affect these estimates.
In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in forward-
looking statements is based on currently effective tax laws. Significant changes in those laws could materially
We operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex.
The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications.
We recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon
examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized
is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
45
We expect capital spending in fiscal 2022 to be approximately $5.8 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, 2021, we had eight outstanding third party payment guarantees totaling approximately $0.9 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 facility by
a distributor, independent contractor, or by one of our service technicians. In most instances, where a machine
44
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 immaterial within the context of the contract. For our five-axis machines that we install, we estimate the
fair value of the installation performance obligation and recognize that installation revenue on a prorata basis
over the period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services. We
consider these services to be immaterial within the context of the contract, as the value of these services
typically does not rise to a material level as a component of the total contract value. Service fees from
maintenance contracts are deferred and recognized in earnings on a 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
45
45
settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions, and
the resolution of such audits may span multiple years. Tax law is complex and often subject to varied
interpretations. Accordingly, the ultimate outcome with respect to taxes we may owe may differ from the
amounts recognized.
Impairment of Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a
business combination are not amortized and charged to expense over time. Instead, goodwill and indefinite-
lived intangibles must be reviewed for impairment annually as of the last day of our third fiscal quarter, or more
frequently, if circumstances arise indicating potential impairment. For goodwill, if the carrying amount of the
reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is
recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit. For
indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized
in an amount equal to that excess. Intangible assets that are determined to have a finite life are amortized over
their estimated useful lives and are also subject to review for impairment, if indicators of impairment are
identified.
Impairment of Long-Lived Assets – We are required periodically to review the recoverability of certain assets,
including property, plant, and equipment, intangible assets, and goodwill, based on projections of anticipated
future cash flows, including future profitability assessments of various product lines. We estimate cash flows
using internal budgets based on recent sales data.
Capitalized Software Development Costs – Costs incurred to develop computer software products and
significant enhancements to software features of existing products are capitalized as required by FASB
guidance relating to accounting for the costs of computer software to be sold, leased, or otherwise marketed,
and such capitalized costs are amortized over the estimated product life of the related software. The
determination as to when in the product development cycle technological feasibility has been established, and
the expected product life, require judgments and estimates by management and can be affected by technological
developments, innovations by competitors, and changes in market conditions affecting demand. We
periodically review the carrying values of these assets and make judgments as to ultimate realization
considering the above-mentioned risk factors.
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, 2021, we had no borrowings outstanding under any of our credit facilities.
Interest Rate Risk
Foreign Currency Exchange Risk
In fiscal 2021, we derived approximately 63% of our revenues from customers located outside of the Americas,
where we invoiced and received payments in several foreign currencies. All of our computerized machine tools
and computer control systems, as well as certain proprietary service parts, are sourced by our U.S.-based
engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily
in their functional currencies.
Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned
subsidiaries in Taiwan, the U.S., Italy, and China or an affiliated contract manufacturer in Taiwan. Our
purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers
include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency
fluctuations on product costs. The predominant portion of the exchange rate risk associated with our product
purchases relates to the New Taiwan Dollar and the Euro.
We enter into foreign currency forward exchange contracts from time to time to hedge the cash flow risk related
to forecasted inter-company sales and purchases denominated in, or based on, foreign currencies (primarily the
Euro, Pound Sterling, and New Taiwan Dollar). We also enter into foreign currency forward exchange contracts
to protect against the effects of foreign currency fluctuations on 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, 2021, which are designated
as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging
activities, were as follows (in thousands, except weighted average forward rates):
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
October 31,
Date
2021
Maturity Dates
14,850
6,250
1.1872
1.3764
17,629
8,603
17,206 Nov 2021 - Oct 2022
8,537 Nov 2021 - Oct 2022
Forward
Contracts
Sale Contracts:
Euro
Sterling
Purchase Contracts:
New Taiwan Dollar
*New Taiwan Dollars per U.S. Dollar
720,000
27.1551 *
26,514
26,163 Nov 2021 - Oct 2022
46
46
47
settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions, and
the resolution of such audits may span multiple years. Tax law is complex and often subject to varied
interpretations. Accordingly, the ultimate outcome with respect to taxes we may owe may differ from the
amounts recognized.
Impairment of Goodwill and Intangible Assets. Goodwill and indefinite-lived intangibles arising from a
business combination are not amortized and charged to expense over time. Instead, goodwill and indefinite-
lived intangibles must be reviewed for impairment annually as of the last day of our third fiscal quarter, or more
frequently, if circumstances arise indicating potential impairment. For goodwill, if the carrying amount of the
reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is
recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit. For
indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized
in an amount equal to that excess. Intangible assets that are determined to have a finite life are amortized over
their estimated useful lives and are also subject to review for impairment, if indicators of impairment are
identified.
Impairment of Long-Lived Assets – We are required periodically to review the recoverability of certain assets,
including property, plant, and equipment, intangible assets, and goodwill, based on projections of anticipated
future cash flows, including future profitability assessments of various product lines. We estimate cash flows
using internal budgets based on recent sales data.
Capitalized Software Development Costs – Costs incurred to develop computer software products and
significant enhancements to software features of existing products are capitalized as required by FASB
guidance relating to accounting for the costs of computer software to be sold, leased, or otherwise marketed,
and such capitalized costs are amortized over the estimated product life of the related software. The
determination as to when in the product development cycle technological feasibility has been established, and
the expected product life, require judgments and estimates by management and can be affected by technological
developments, innovations by competitors, and changes in market conditions affecting demand. We
periodically review the carrying values of these assets and make judgments as to ultimate realization
considering the above-mentioned risk factors.
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, 2021, we had no borrowings outstanding under any of our credit facilities.
Foreign Currency Exchange Risk
In fiscal 2021, we derived approximately 63% of our revenues from customers located outside of the Americas,
where we invoiced and received payments in several foreign currencies. All of our computerized machine tools
and computer control systems, as well as certain proprietary service parts, are sourced by our U.S.-based
engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily
in their functional currencies.
Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned
subsidiaries in Taiwan, the U.S., Italy, and China or an affiliated contract manufacturer in Taiwan. Our
purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers
include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency
fluctuations on product costs. The predominant portion of the exchange rate risk associated with our product
purchases relates to the New Taiwan Dollar and the Euro.
We enter into foreign currency forward exchange contracts from time to time to hedge the cash flow risk related
to forecasted inter-company sales and purchases denominated in, or based on, foreign currencies (primarily the
Euro, Pound Sterling, and New Taiwan Dollar). We also enter into foreign currency forward exchange contracts
to protect against the effects of foreign currency fluctuations on 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, 2021, which are designated
as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging
activities, were as follows (in thousands, except weighted average forward rates):
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2021
Maturity Dates
14,850
6,250
1.1872
1.3764
17,629
8,603
17,206 Nov 2021 - Oct 2022
8,537 Nov 2021 - Oct 2022
Forward
Contracts
Sale Contracts:
Euro
Sterling
Purchase Contracts:
New Taiwan Dollar
*New Taiwan Dollars per U.S. Dollar
720,000
27.1551 *
26,514
26,163 Nov 2021 - Oct 2022
46
47
47
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2021, 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):
Notional Weighted
Amount
in Foreign
Currency
Avg.
Forward
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2021
Maturity Dates
10,533
1,724
1.1762
1.3676
12,389
2,357
12,199
2,358
Nov 2021 - Jul 2022
Jan 2022 - Feb 2022
Forward
Contracts
Sale Contracts:
Euro
Sterling
Purchase Contracts:
New Taiwan Dollar
* New Taiwan Dollars per U.S. Dollar
654,332
27.8115 *
23,527
23,533
Nov 2021 - Feb 2022
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 2020. We designated this forward contract as a hedge of our net investment in Euro denominated
assets. We selected the forward method under the FASB guidance related to the accounting for 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 2021 and we
entered into a new forward contract for the same notional amount that is set to mature in November 2022. As
of October 31, 2021, we had $813,000 of realized gain and $98,000 of unrealized gain, 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, 2021 were as
follows (in thousands, except weighted average forward rates):
Forward
Contracts
Sale Contracts:
Euro
Notional
Amount
in Foreign
Currency
Weighted
Avg.
Forward
Rate
Contract Amount at Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2021
Maturity
Date
3,000
1.1892
3,568
3,463
Nov 2021
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, 2021, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (COSO). Management is responsible for the Company’s financial statements,
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting.
Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2021, was
effective based on the criteria specified above.
Our independent registered public accounting firm, RSM US LLP (“RSM”), which also audited our
consolidated financial statements, audited the effectiveness of our internal control over financial reporting as
of October 31, 2021. RSM has issued their attestation report, which is included in Part II, Item 8 of this Annual
Report on Form 10-K.
/s/ Gregory S. Volovic
Gregory S. Volovic
President and Chief Executive Officer
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer, and
Chief Financial Officer
Indianapolis, Indiana
January 7, 2022
48
48
49
Forward contracts for the sale or purchase of foreign currencies as of October 31, 2021, 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):
Notional Weighted
Amount
in Foreign
Currency
Avg.
Forward
Rate
Contract Amount at
Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2021
Maturity Dates
10,533
1,724
1.1762
1.3676
12,389
2,357
12,199
2,358
Nov 2021 - Jul 2022
Jan 2022 - Feb 2022
Forward
Contracts
Sale Contracts:
Euro
Sterling
Purchase Contracts:
New Taiwan Dollar
* New Taiwan Dollars per U.S. Dollar
654,332
27.8115 *
23,527
23,533
Nov 2021 - Feb 2022
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 2020. We designated this forward contract as a hedge of our net investment in Euro denominated
assets. We selected the forward method under the FASB guidance related to the accounting for 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 2021 and we
entered into a new forward contract for the same notional amount that is set to mature in November 2022. As
of October 31, 2021, we had $813,000 of realized gain and $98,000 of unrealized gain, 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, 2021 were as
follows (in thousands, except weighted average forward rates):
Forward
Contracts
Sale Contracts:
Euro
Notional
Amount
in Foreign
Currency
Avg.
Forward
Rate
Weighted
Contract Amount at Forward Rates in
U.S. Dollars
Contract
Date
October 31,
2021
Maturity
Date
3,000
1.1892
3,568
3,463
Nov 2021
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, 2021, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (COSO). Management is responsible for the Company’s financial statements,
for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting.
Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2021, was
effective based on the criteria specified above.
Our independent registered public accounting firm, RSM US LLP (“RSM”), which also audited our
consolidated financial statements, audited the effectiveness of our internal control over financial reporting as
of October 31, 2021. RSM has issued their attestation report, which is included in Part II, Item 8 of this Annual
Report on Form 10-K.
/s/ Gregory S. Volovic
Gregory S. Volovic
President and Chief Executive Officer
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer, and
Chief Financial Officer
Indianapolis, Indiana
January 7, 2022
48
49
49
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc. and its subsidiaries
(the Company) as of October 31, 2021 and 2020, and 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, 2021, and the related notes and schedule listed in Item 15(a) (collectively, the
financial statements). We also have audited the Company’s internal control over financial reporting as of
October 31, 2021, 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 financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of October 31, 2021 and 2020, and the results of their operations and their cash
flows for each of the years in the three-year period ended October 31, 2021, in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of October 31, 2021, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on
the Company's internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our 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, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal
50
50
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 audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate
to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Accounting for Income Taxes – Deferred Tax Assets and Liabilities
As described in Notes 1 and 7 to the consolidated financial statements, the Company accounts for income taxes
under the asset and liability method. The Company operates in both the U.S. and international tax jurisdictions
and has recorded deferred tax assets relating to deductible temporary differences, net operating losses and credit
carryforwards of $10.4 million as of October 31, 2021, with an offsetting valuation allowance of $1.9 million.
The deferred tax assets are further reduced by $5.4 million deferred tax liabilities in tax jurisdictions to record
net deferred tax assets of $3.2 million and net deferred tax liabilities of $68 thousand. The Company reduces
its deferred tax assets by a valuation allowance, if based upon all the available evidence, it is more likely than
not that some portion, or all of the deferred tax asset will not be realized. Management evaluated the ability to
realize the carrying value of deferred tax assets and liabilities, which involved applying complex tax regulations
in federal, state, local and international tax jurisdictions. Management applied significant judgement in
assessing the value of and realizability of its deferred tax assets and liabilities. In determining the amount of
deferred tax assets that are more-likely-than-not to be realized, management considers by jurisdiction all
51
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders
and the Board of Directors
of Hurco Companies, Inc.
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc. and its subsidiaries
(the Company) as of October 31, 2021 and 2020, and 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, 2021, and the related notes and schedule listed in Item 15(a) (collectively, the
financial statements). We also have audited the Company’s internal control over financial reporting as of
October 31, 2021, 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 financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of October 31, 2021 and 2020, and the results of their operations and their cash
flows for each of the years in the three-year period ended October 31, 2021, in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of October 31, 2021, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on
the Company's internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our 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, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal
50
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 audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate
to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Accounting for Income Taxes – Deferred Tax Assets and Liabilities
As described in Notes 1 and 7 to the consolidated financial statements, the Company accounts for income taxes
under the asset and liability method. The Company operates in both the U.S. and international tax jurisdictions
and has recorded deferred tax assets relating to deductible temporary differences, net operating losses and credit
carryforwards of $10.4 million as of October 31, 2021, with an offsetting valuation allowance of $1.9 million.
The deferred tax assets are further reduced by $5.4 million deferred tax liabilities in tax jurisdictions to record
net deferred tax assets of $3.2 million and net deferred tax liabilities of $68 thousand. The Company reduces
its deferred tax assets by a valuation allowance, if based upon all the available evidence, it is more likely than
not that some portion, or all of the deferred tax asset will not be realized. Management evaluated the ability to
realize the carrying value of deferred tax assets and liabilities, which involved applying complex tax regulations
in federal, state, local and international tax jurisdictions. Management applied significant judgement in
assessing the value of and realizability of its deferred tax assets and liabilities. In determining the amount of
deferred tax assets that are more-likely-than-not to be realized, management considers by jurisdiction all
51
51
available positive and negative evidence, including future reversals of existing temporary differences, projected
future taxable income, ability to utilize future carrybacks, tax planning strategies and recent financial
operations.
We identified management’s evaluation of deferred tax assets and liabilities as well as the evaluation of the
realizability of deferred tax assets, as a critical audit matter. The evaluation of gross deferred tax assets and
liabilities involves complex tax regulations involving multiple tax jurisdictions. Assessing the realizability of
deferred tax assets involves complexities of identifying and adhering to tax regulations in multiple jurisdictions,
as well as the subjectivity of evaluating the realizability of the deferred tax assets. Auditing these elements
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our
tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates
and assumptions related to the valuation allowance.
Our audit procedures related to the Company’s deferred tax assets and liabilities included the following, among
others:
• We obtained an understanding of the relevant controls related to the Company’s computation and
evaluation of the gross deferred tax assets and liabilities as well as valuation allowance and tested such
controls for design and operating effectiveness.
• We utilized tax specialists in both domestic and international tax to assist in:
o Evaluating the appropriateness and accuracy of the deferred tax assets and liabilities by
considering applicable tax law and underlying financial records;
o Testing the projected future reversal of temporary differences by jurisdiction, including the
underlying management assumptions;
o Analyzing management’s application of domestic and foreign tax laws to the Company’s tax
provisions; and evaluating i.) the viability of contemplated tax planning strategies, and ii) the
Company’s assessment of its ability to carryback net operating losses and/or credits.
• We tested the completeness and accuracy of the data and inputs used to calculate the effective tax rate,
current tax provision and deferred tax assets and liabilities.
/s/ RSM US LLP
We have served as the Company's auditor since 2017.
Indianapolis, Indiana
January 7, 2022
52
52
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended October 31,
2021
2020
2019
(In thousands, except per share amounts)
$
235,195
$
170,627
$
263,377
178,946
134,170
186,169
Operating income (loss)
10,248
(9,862)
22,540
Sales and service fees
Cost of sales and service
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Interest expense
Interest income
Investment income
Income from equity investments
Other expense, net
Income (loss) before income taxes
Provision (benefit) for income taxes
Income (loss) per common share
Basic
Diluted
Basic
Diluted
Weighted average common shares outstanding
56,249
46,001
—
24
34
173
203
513
10,121
3,357
$ 1.01
$ 1.01
6,595
6,608
36,457
41,416
4,903
94
130
133
69
1,179
(10,803)
(4,556)
($ 0.93)
($ 0.93)
6,670
6,670
77,208
54,668
—
62
462
356
583
555
23,324
5,829
$ 2.57
$ 2.55
6,759
6,815
0.47
Net income (loss)
$
6,764
$
(6,247)
$
17,495
Dividends paid per share
$
0.55
$
0.51
$
The accompanying notes are an integral part of the consolidated financial statements.
53
available positive and negative evidence, including future reversals of existing temporary differences, projected
future taxable income, ability to utilize future carrybacks, tax planning strategies and recent financial
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
operations.
We identified management’s evaluation of deferred tax assets and liabilities as well as the evaluation of the
realizability of deferred tax assets, as a critical audit matter. The evaluation of gross deferred tax assets and
liabilities involves complex tax regulations involving multiple tax jurisdictions. Assessing the realizability of
deferred tax assets involves complexities of identifying and adhering to tax regulations in multiple jurisdictions,
as well as the subjectivity of evaluating the realizability of the deferred tax assets. Auditing these elements
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our
tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates
and assumptions related to the valuation allowance.
Our audit procedures related to the Company’s deferred tax assets and liabilities included the following, among
others:
• We obtained an understanding of the relevant controls related to the Company’s computation and
evaluation of the gross deferred tax assets and liabilities as well as valuation allowance and tested such
controls for design and operating effectiveness.
• We utilized tax specialists in both domestic and international tax to assist in:
o Evaluating the appropriateness and accuracy of the deferred tax assets and liabilities by
considering applicable tax law and underlying financial records;
o Testing the projected future reversal of temporary differences by jurisdiction, including the
underlying management assumptions;
o Analyzing management’s application of domestic and foreign tax laws to the Company’s tax
provisions; and evaluating i.) the viability of contemplated tax planning strategies, and ii) the
Company’s assessment of its ability to carryback net operating losses and/or credits.
• We tested the completeness and accuracy of the data and inputs used to calculate the effective tax rate,
current tax provision and deferred tax assets and liabilities.
We have served as the Company's auditor since 2017.
/s/ RSM US LLP
Indianapolis, Indiana
January 7, 2022
$
Sales and service fees
Cost of sales and service
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Year Ended October 31,
2019
2020
2021
(In thousands, except per share amounts)
235,195
170,627
$
$
263,377
178,946
134,170
186,169
56,249
46,001
—
36,457
41,416
4,903
77,208
54,668
—
Operating income (loss)
10,248
(9,862)
22,540
Interest expense
Interest income
Investment income
Income from equity investments
Other expense, net
Income (loss) before income taxes
Provision (benefit) for income taxes
24
34
173
203
513
10,121
3,357
94
130
133
69
1,179
(10,803)
(4,556)
62
462
356
583
555
23,324
5,829
Net income (loss)
$
6,764
$
(6,247)
$
17,495
Income (loss) per common share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
$ 1.01
$ 1.01
6,595
6,608
($ 0.93)
($ 0.93)
6,670
6,670
Dividends paid per share
$
0.55
$
0.51
$
The accompanying notes are an integral part of the consolidated financial statements.
$ 2.57
$ 2.55
6,759
6,815
0.47
52
53
53
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
2019
2021
Year Ended October 31,
2020
(In thousands)
Net income (loss)
$ 6,764
$ (6,247) $ 17,495
Other comprehensive income (loss):
Translation gain (loss) of foreign currency financial statements
2,405
5,969
550
(Gain) / loss on derivative instruments reclassified into operations, net
of tax of $(204), $(126) and $(70), respectively
(679)
(421)
(235)
Gain / (loss) on derivative instruments, net of tax of $(143), $118 and
$183, respectively
Total other comprehensive income (loss)
(477)
395
1,249
5,943
615
930
Comprehensive income (loss)
$ 8,013
$
(304) $ 18,425
The accompanying notes are an integral part of the consolidated financial statements.
LIABILITIES AND SHAREHOLDERS’ EQUITY
54
54
ASSETS
Accounts receivable, less allowance for doubtful accounts of $1,645 in 2021 and $1,401 in 2020
Less accumulated depreciation and amortization
Total property and equipment, net
Non–current assets:
Software development costs, less accumulated amortization
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
Intangible assets, net
Operating lease - right of use assets, net
Deferred income taxes
Investments and other assets, net
Total non–current assets
Total assets
Current liabilities:
Accounts payable
Accounts payable-related parties
Customer deposits
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:
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
As of October 31,
2021
2020
(In thousands, except share and
per share data)
$
$
84,063
42,620
148,216
905
13,091
975
289,870
868
7,352
29,533
5,172
42,925
(32,318)
10,607
7,553
1,565
10,624
3,154
9,562
32,458
332,935
6,165
8,593
467
4,221
10,389
1,192
5,911
1,516
81,170
68
1,749
6,794
4,735
13,346
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
5,356
872
4,132
6,931
285
4,018
1,200
50,437
131
1,918
7,989
4,032
14,070
$
$
$
295,655
42,716
$
26,354
662
63,924
175,574
(1,741)
238,419
332,935
657
60,997
172,484
(2,990)
231,148
295,655
$
$
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; 6,691,052 and 6,636,906
shares issued and 6,617,717 and 6,565,163 shares outstanding, as of October 31, 2021 and October 31, 2020,
The accompanying notes are an integral part of the consolidated financial statements.
55
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
HURCO COMPANIES, INC.
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
Year Ended October 31,
2021
2020
2019
(In thousands)
$ 6,764
$ (6,247) $ 17,495
Net income (loss)
Other comprehensive income (loss):
Translation gain (loss) of foreign currency financial statements
2,405
5,969
550
(Gain) / loss on derivative instruments reclassified into operations, net
of tax of $(204), $(126) and $(70), respectively
(679)
(421)
(235)
Gain / (loss) on derivative instruments, net of tax of $(143), $118 and
$183, respectively
Total other comprehensive income (loss)
(477)
395
1,249
5,943
615
930
Comprehensive income (loss)
$ 8,013
$
(304) $ 18,425
The accompanying notes are an integral part of the consolidated financial statements.
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,645 in 2021 and $1,401 in 2020
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
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
Customer deposits
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; 6,691,052 and 6,636,906
shares issued and 6,617,717 and 6,565,163 shares outstanding, as of October 31, 2021 and October 31, 2020,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
As of October 31,
2021
2020
(In thousands, except share and
per share data)
$
$
$
$
84,063
42,620
148,216
905
13,091
975
289,870
868
7,352
29,533
5,172
42,925
(32,318)
10,607
7,553
1,565
10,624
3,154
9,562
32,458
332,935
42,716
6,165
8,593
467
4,221
10,389
1,192
5,911
1,516
81,170
68
1,749
6,794
4,735
13,346
$
$
$
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
26,354
1,289
5,356
872
4,132
6,931
285
4,018
1,200
50,437
131
1,918
7,989
4,032
14,070
—
—
662
63,924
175,574
(1,741)
238,419
332,935
657
60,997
172,484
(2,990)
231,148
295,655
$
The accompanying notes are an integral part of the consolidated financial statements.
54
55
55
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
HURCO COMPANIES, INC.
$
Cash flows from operating activities:
Net income (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 customer deposits
Increase (decrease) in accrued expenses
Increase (decrease) in accrued payroll and employee benefits
Increase (decrease) in accrued income tax
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 period
2021
Year Ended October 31,
2020
(In thousands)
(6,247)
$
$
6,764
244
(112)
(203)
31
(316)
4,193
2,779
—
(15,188)
2,165
437
20,617
3,111
2,142
3,458
900
(135)
1,288
32,175
3
(1,260)
(1,109)
(979)
—
(3,345)
350
(3,674)
(197)
—
—
(3,521)
895
26,204
57,859
510
(547)
(69)
257
622
4,547
2,058
4,903
15,909
3,461
(4,364)
(2,367)
(189)
(1,603)
(4,941)
(1,695)
115
572
10,932
106
(683)
(973)
371
—
(1,179)
67
(3,420)
(498)
(7,000)
—
(10,851)
2,014
916
56,943
2019
17,495
(136)
260
(583)
730
(388)
3,745
2,670
—
11,239
(10,499)
(1,474)
(23,281)
(499)
114
(2,468)
(3,259)
330
(409)
(6,413)
83
(3,169)
(1,701)
243
(4,353)
(8,897)
—
(3,203)
(499)
—
(1,450)
(5,152)
235
(20,227)
77,170
(In thousands,
except shares outstanding)
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
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
Net income (loss)
Other comprehensive income
(loss)
Stock-based compensation
expense, net of taxes withheld
for vested restricted shares
Exercise of common stock
options
Dividends paid
Common
Stock
Shares
Common Additional
Paid–In
Capital
Stock
Retained Comprehensive
Outstanding Amount
6,723,160
$
672
$
64,185
Earnings
$ 167,859
$
Loss
Total
(9,863) $ 222,853
Accumulated
Other
17,495
—
—
930
17,495
930
Balances, October 31, 2019
6,767,237
$
677
$
66,350
$ 182,151
$
(8,933) $ 240,245
44,077
—
2,165
—
—
(3,203)
—
—
—
—
67
—
—
—
(6,247)
(3,420)
6,764
—
—
—
—
—
—
—
5,943
5,943
—
—
—
—
—
—
—
—
—
—
—
1,249
2,170
(3,203)
(6,247)
1,560
67
(7,000)
(3,420)
6,764
1,249
2,582
350
(3,674)
47,750
3,738
(253,562)
1,555
(6,975)
Balances, October 31, 2020
6,565,163
$
$
60,997
$ 172,484
$
(2,990) $ 231,148
36,243
16,311
—
2,579
348
—
(3,674)
Balances, October 31, 2021
6,617,717
$
$
63,924
$ 175,574
$
(1,741) $ 238,419
The accompanying notes are an integral part of the consolidated financial statements.
—
—
—
—
—
—
—
—
—
5
—
—
—
5
—
(25)
—
657
—
—
3
2
—
662
57
— $
$
487
The accompanying notes are an integral part of the consolidated financial statements.
— $
$
1,572
$
$
Cash and cash equivalents at end of period
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
$
84,063
$
57,859
$
56,943
11
11,025
56
56
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year Ended October 31,
2021
2020
(In thousands)
2019
$
6,764
$
(6,247)
$
17,495
244
(112)
(203)
31
(316)
4,193
2,779
—
(15,188)
2,165
437
20,617
3,111
2,142
3,458
900
(135)
1,288
32,175
3
(1,260)
(1,109)
(979)
—
(3,345)
350
(3,674)
(197)
—
—
(3,521)
895
26,204
57,859
84,063
510
(547)
(69)
257
622
4,547
2,058
4,903
15,909
3,461
(4,364)
(2,367)
(189)
(1,603)
(4,941)
(1,695)
115
572
10,932
106
(683)
(973)
371
—
(1,179)
67
(3,420)
(498)
(7,000)
—
(10,851)
2,014
916
56,943
57,859
(136)
260
(583)
730
(388)
3,745
2,670
—
11,239
(10,499)
(1,474)
(23,281)
(499)
114
(2,468)
(3,259)
330
(409)
(6,413)
83
(3,169)
(1,701)
243
(4,353)
(8,897)
—
(3,203)
(499)
—
(1,450)
(5,152)
235
(20,227)
77,170
56,943
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 customer deposits
Increase (decrease) in accrued expenses
Increase (decrease) in accrued payroll and employee benefits
Increase (decrease) in accrued income tax
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 period
Cash and cash equivalents at end of period
Supplemental disclosures:
Cash paid for:
Interest
Income taxes, net
56
The accompanying notes are an integral part of the consolidated financial statements.
$
$
$
$
$
— $
1,572
— $
487
11
11,025
$
$
(In thousands,
except shares outstanding)
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
Net income (loss)
Other comprehensive income
(loss)
Stock-based compensation
expense, net of taxes withheld
for vested restricted shares
Exercise of common stock
options
Dividends paid
Balances, October 31, 2021
Common
Stock
Shares
Common Additional
Accumulated
Other
Stock
Outstanding Amount
672
6,723,160
$
Paid–In
Capital
64,185
$
Retained Comprehensive
Earnings
$ 167,859
Loss
$
Total
(9,863) $ 222,853
—
—
—
—
—
—
17,495
—
—
930
17,495
930
44,077
—
6,767,237
$
5
—
677
2,165
—
66,350
—
(3,203)
$ 182,151
$
$
—
—
2,170
(3,203)
(8,933) $ 240,245
(6,247)
—
(6,247)
—
—
47,750
3,738
(253,562)
—
6,565,163
$
—
—
36,243
16,311
—
6,617,717
$
—
—
5
—
(25)
—
657
—
—
3
2
—
662
$
$
—
—
1,555
—
—
2,579
348
—
63,924
67
(6,975)
—
60,997
—
—
(3,420)
$ 172,484
$
—
—
6,764
—
—
5,943
5,943
—
1,560
—
—
—
67
(7,000)
(3,420)
(2,990) $ 231,148
—
1,249
6,764
1,249
—
2,582
—
(3,674)
$ 175,574
$
—
—
350
(3,674)
(1,741) $ 238,419
The accompanying notes are an integral part of the consolidated financial statements.
57
57
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 $4.8 million and $4.4 million as of October 31, 2021 and 2020,
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, 2021, were a net loss of $1.7
million, net of tax, and are included in Accumulated other comprehensive loss. Foreign currency transaction
gains and losses are recorded as income or expense as incurred and are recorded in Other expense, net.
Hedging. We are exposed to certain market risks relating to our ongoing business operations, including foreign
currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through
regular operating and financing activities. Currently, the only risk that we manage through the use of derivative
instruments is foreign currency risk.
We operate on a global basis and are exposed to the risk that our financial condition, results of operations, and
cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential
effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, and
the gross profit and net earnings of certain of our foreign subsidiaries, we enter into derivative financial
instruments in the form of foreign exchange forward contracts with a major financial institution. We are
primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated
in Euros, Pounds Sterling, Indian Rupee, 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
58
58
For derivative instruments that are not designated as accounting hedges under the Derivatives and Hedging
Topic of the Financial Accounting Standards Board (the “FASB”), changes in fair value are recognized in
earnings in the period of change. We do not hold or issue derivative financial instruments for speculative trading
purposes. We only enter into derivatives with one counterparty, which is among one of the largest U.S. banks
(ranked by assets), in order to minimize credit risk and, to date, that counterparty has not failed to meet its
financial obligations under such contracts.
Derivatives Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter–
company sales and purchases denominated in foreign currencies (the Pound Sterling, Euro, and New Taiwan
Dollar). The purpose of these instruments is to mitigate the risk that the U.S. Dollar net cash inflows and
outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected by
changes in exchange rates. These forward contracts have been designated as cash flow hedge instruments, and
are recorded in the Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities. The
effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts
are deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and
service in the period that the corresponding inventory sold that is the subject of the related hedge contract is
recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S.
Dollar value of the inter–company sale or purchase being hedged. The ineffective portion of gains and losses
resulting from the changes in the fair value of these hedge contracts is reported in Other expense, net
immediately. We perform quarterly assessments of hedge effectiveness by verifying and documenting the
critical terms of the hedge instrument and determining that forecasted transactions have not changed
significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the
risk of a counterparty default.
We had forward contracts outstanding as of October 31, 2021, in Euros, Pounds Sterling, and New Taiwan
Dollars with set maturity dates ranging from November 2021 through October 2022. The contract amount at
forward rates in U.S. Dollars at October 31, 2021 for Euros and Pounds Sterling was $17.2 million and $8.5
million, respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $26.2
million at October 31, 2021. At October 31, 2021, we had approximately $478,000 of losses, net of tax, related
to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $106,000 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 2022, 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 2020. 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 2021, and we
entered into a new forward contract for the same notional amount that is set to mature in November 2022. As
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HURCO COMPANIES, INC.
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.
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 $4.8 million and $4.4 million as of October 31, 2021 and 2020,
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, 2021, were a net loss of $1.7
million, net of tax, and are included in Accumulated other comprehensive loss. Foreign currency transaction
gains and losses are recorded as income or expense as incurred and are recorded in Other expense, net.
Hedging. We are exposed to certain market risks relating to our ongoing business operations, including foreign
currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through
regular operating and financing activities. Currently, the only risk that we manage through the use of derivative
instruments is foreign currency risk.
We operate on a global basis and are exposed to the risk that our financial condition, results of operations, and
cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential
effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, and
the gross profit and net earnings of certain of our foreign subsidiaries, we enter into derivative financial
instruments in the form of foreign exchange forward contracts with a major financial institution. We are
primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated
in Euros, Pounds Sterling, Indian Rupee, 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
For derivative instruments that are not designated as accounting hedges under the Derivatives and Hedging
Topic of the Financial Accounting Standards Board (the “FASB”), changes in fair value are recognized in
earnings in the period of change. We do not hold or issue derivative financial instruments for speculative trading
purposes. We only enter into derivatives with one counterparty, which is among one of the largest U.S. banks
(ranked by assets), in order to minimize credit risk and, to date, that counterparty has not failed to meet its
financial obligations under such contracts.
Derivatives Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter–
company sales and purchases denominated in foreign currencies (the Pound Sterling, Euro, and New Taiwan
Dollar). The purpose of these instruments is to mitigate the risk that the U.S. Dollar net cash inflows and
outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected by
changes in exchange rates. These forward contracts have been designated as cash flow hedge instruments, and
are recorded in the Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities. The
effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts
are deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and
service in the period that the corresponding inventory sold that is the subject of the related hedge contract is
recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S.
Dollar value of the inter–company sale or purchase being hedged. The ineffective portion of gains and losses
resulting from the changes in the fair value of these hedge contracts is reported in Other expense, net
immediately. We perform quarterly assessments of hedge effectiveness by verifying and documenting the
critical terms of the hedge instrument and determining that forecasted transactions have not changed
significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the
risk of a counterparty default.
We had forward contracts outstanding as of October 31, 2021, in Euros, Pounds Sterling, and New Taiwan
Dollars with set maturity dates ranging from November 2021 through October 2022. The contract amount at
forward rates in U.S. Dollars at October 31, 2021 for Euros and Pounds Sterling was $17.2 million and $8.5
million, respectively. The contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $26.2
million at October 31, 2021. At October 31, 2021, we had approximately $478,000 of losses, net of tax, related
to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $106,000 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 2022, 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 2020. 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 2021, and we
entered into a new forward contract for the same notional amount that is set to mature in November 2022. As
58
59
59
of October 31, 2021, we had a realized gain of $813,000 and an unrealized gain of $98,000, net of tax, recorded
as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward
contracts.
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency
fluctuations on inter-company receivables and payables denominated in foreign currencies. These derivative
instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are
reported currently as Other expense, net in the Consolidated Statements of Operations consistent with the
transaction gain or loss on the related inter-company receivables, payables and loans denominated in foreign
currencies.
We had forward contracts outstanding as of October 31, 2021, in Euros, Pounds Sterling, and New Taiwan
Dollars with set maturity dates ranging from November 2021 through July 2022. The contract amounts at
forward rates in U.S. Dollars at October 31, 2021 for Euros and Pounds Sterling totaled $14.6 million. The
contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $23.5 million at October 31,
2021.
Fair Value of Derivative Instruments
We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our
Consolidated Balance Sheets. As of October 31, 2021 and October 31, 2020, 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
2021
Balance Sheet
Location
Fair
Value
2020
Balance Sheet
Location
Fair
Value
Derivative assets
$
Derivative liabilities $
646 Derivative assets
$ 495
403 Derivative liabilities $ 279
Derivative assets
$
Derivative liabilities $
259 Derivative assets
$ 473
64 Derivative liabilities $ 593
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,
2021, 2020, and 2019 (in thousands):
60
60
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Location of
Gain (Loss)
Reclassified
From Other
Amount of Gain (Loss)
Reclassified from
Other Comprehensive
Income (Loss)
Comprehensive
Income (Loss)
2021
2020
2019
Income (Loss)
2021
2020
2019
Derivatives
Designated as Hedging
Instruments:
(Effective Portion)
Foreign exchange forward
contracts
Foreign exchange forward
contract
– Net investment
– Intercompany sales/purchases
(477)
395
615
679
421
235
Cost of sales
and service
43
(64)
128
We did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended
October 31, 2021, 2020, and 2019
We recognized the following gains and losses in our Consolidated Statements of Operations during the
fiscal years ended October 31, 2021, 2020, and 2019 on derivative instruments not designated as hedging
instruments (in thousands):
Derivatives
Recognized in Operations
2021
2020
2019
Location of Gain (Loss)
Amount of Gain (Loss)
Recognized in Operations
Not Designated as Hedging
Instruments:
Foreign exchange forward contracts
Other expense, net
$
(313) $
(171) $
514
The following table presents the changes in the components of Accumulated other comprehensive loss, net of
tax, for the fiscal years ended October 31, 2021 and 2020 (in thousands):
Balance, October 31, 2019
Other comprehensive income (loss) before
reclassifications
Reclassifications
Balance, October 31, 2020
reclassifications
Reclassifications
Balance, October 31, 2021
Other comprehensive income (loss) before
Foreign
Currency
Translation
Cash
Flow
Hedges
(10,042)
$
1,109
$
(8,933)
Total
5,969
—
395
(421)
(4,073)
$
1,083
$
2,405
—
(1,668)
$
(477)
(679)
(73)
$
6,364
(421)
(2,990)
1,928
(679)
(1,741)
$
$
$
61
of October 31, 2021, we had a realized gain of $813,000 and an unrealized gain of $98,000, net of tax, recorded
as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward
contracts.
currencies.
2021.
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency
fluctuations on inter-company receivables and payables denominated in foreign currencies. These derivative
instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are
reported currently as Other expense, net in the Consolidated Statements of Operations consistent with the
transaction gain or loss on the related inter-company receivables, payables and loans denominated in foreign
We had forward contracts outstanding as of October 31, 2021, in Euros, Pounds Sterling, and New Taiwan
Dollars with set maturity dates ranging from November 2021 through July 2022. The contract amounts at
forward rates in U.S. Dollars at October 31, 2021 for Euros and Pounds Sterling totaled $14.6 million. The
contract amount at forward rates in U.S. Dollars for New Taiwan Dollars was $23.5 million at October 31,
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, 2021 and October 31, 2020, 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
2021
2020
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivative assets
$
646 Derivative assets
$ 495
Derivative liabilities $
403 Derivative liabilities $ 279
Derivative assets
$
259 Derivative assets
$ 473
Derivative liabilities $
64 Derivative liabilities $ 593
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,
2021, 2020, and 2019 (in thousands):
60
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income (Loss)
2020
2021
2019
Location of
Gain (Loss)
Reclassified
From Other
Comprehensive
Income (Loss)
Amount of Gain (Loss)
Reclassified from
Other Comprehensive
Income (Loss)
2020
2021
2019
(477)
395
615
Cost of sales
and service
679
421
235
43
(64)
128
Derivatives
Designated as Hedging
Instruments:
(Effective Portion)
Foreign exchange forward
contracts
– Intercompany sales/purchases
Foreign exchange forward
contract
– Net investment
We did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended
October 31, 2021, 2020, and 2019
We recognized the following gains and losses in our Consolidated Statements of Operations during the
fiscal years ended October 31, 2021, 2020, and 2019 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
Amount of Gain (Loss)
Recognized in Operations
2020
2019
2021
Other expense, net
$
(313) $
(171) $
514
The following table presents the changes in the components of Accumulated other comprehensive loss, net of
tax, for the fiscal years ended October 31, 2021 and 2020 (in thousands):
Balance, October 31, 2019
Other comprehensive income (loss) before
reclassifications
Reclassifications
Balance, October 31, 2020
Other comprehensive income (loss) before
reclassifications
Reclassifications
Balance, October 31, 2021
Foreign
Currency
Translation
Cash
Flow
Hedges
Total
(10,042)
$
1,109
$
(8,933)
5,969
—
(4,073)
2,405
—
(1,668)
$
$
395
(421)
1,083
(477)
(679)
(73)
$
$
6,364
(421)
(2,990)
1,928
(679)
(1,741)
$
$
$
61
61
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 $2.5 million for fiscal
2021, $2.7 million for fiscal 2020, and $2.6 million for fiscal 2019.
Revenue Recognition. We design, manufacture, and sell computerized machine tools. Our computer control
systems and software products are primarily sold as integral components of our computerized machine tool
products. We also provide machine tool components, automation integration equipment and solutions for job
shops, software options, control upgrades, accessories and replacement parts for our products, as well as
customer service, training, and applications support.
We recognize revenues from the sale of machine tools, components and accessories and services, and reflect
the consideration to which we expect to be entitled. We record revenues based on a five-step model in
accordance with FASB guidance codified in Accounting Standards Codification (“ASC”) 606, “Revenue from
Contracts with Customers” (“ASC 606”). In accordance with ASC 606, we have defined contracts as
agreements with our customers and distributors in the form of purchase orders, packing or shipping documents,
invoices, and, periodically, verbal requests for components and accessories. For each contract, we identify our
performance obligations, which is delivering goods or services, determine the transaction price, allocate the
contract transaction price to each of the performance obligations (when applicable), and recognize the revenue
when (or as) the performance obligation to the customer is fulfilled. A good or service is transferred when the
customer obtains control of that good or service. Our computerized machine tools are general purpose
computer-controlled machine tools that are typically used in stand–alone operations. Prior to shipment, we test
each machine to ensure the machine’s compliance with standard operating specifications. We deem that the
customer obtains control upon delivery of the product and that obtaining control is not contingent upon
contractual customer acceptance. Therefore, we recognize revenue from sales of our machine tool systems upon
delivery of the product to the customer or distributor, which is normally at the time of shipment.
Depending upon geographic location, after shipment, a machine may be installed at the customer’s facility 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 immaterial within the context of the contract. For our five-axis machines that we install, we estimate the
fair value of the installation performance obligation and recognize that installation revenue on a prorata basis
over the period of the installation process.
From time to time, and depending upon geographic location, we may provide training or freight services. We
consider these services to be immaterial within the context of the contract, as the value of these services
typically does not rise to a material level as a component of the total contract value. Service fees from
maintenance contracts are deferred and recognized in earnings on a 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 $3.2 million, $3.5 million, and $4.4
million, in fiscal 2021, 2020, and 2019, respectively.
Software Development Costs. We sell software products that are essential to our machine tools. Costs incurred
to develop computer software products and significant enhancements to software features of existing products
to be sold or otherwise marketed are capitalized, after technological feasibility is established. Software
development costs are amortized on a straight–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 $1.1
million in fiscal 2021, $1.0 million in fiscal 2020, and $1.8 million in fiscal 2019. Amortization expense for
software development costs was $1.4 million, $1.5 million, and $1.0 million, for the fiscal years ended
October 31, 2021, 2020, and 2019, respectively. Accumulated amortization at October 31, 2021 and 2020 was
$22.0 million and $21.0 million, respectively.
62
62
63
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
fair value of the installation performance obligation and recognize that installation revenue on a prorata basis
over the period of the installation process.
realizable value.
terms as follows:
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
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 $2.5 million for fiscal
2021, $2.7 million for fiscal 2020, and $2.6 million for fiscal 2019.
Revenue Recognition. We design, manufacture, and sell computerized machine tools. Our computer control
systems and software products are primarily sold as integral components of our computerized machine tool
products. We also provide machine tool components, automation integration equipment and solutions for job
shops, software options, control upgrades, accessories and replacement parts for our products, as well as
customer service, training, and applications support.
We recognize revenues from the sale of machine tools, components and accessories and services, and reflect
the consideration to which we expect to be entitled. We record revenues based on a five-step model in
accordance with FASB guidance codified in Accounting Standards Codification (“ASC”) 606, “Revenue from
Contracts with Customers” (“ASC 606”). In accordance with ASC 606, we have defined contracts as
agreements with our customers and distributors in the form of purchase orders, packing or shipping documents,
invoices, and, periodically, verbal requests for components and accessories. For each contract, we identify our
performance obligations, which is delivering goods or services, determine the transaction price, allocate the
contract transaction price to each of the performance obligations (when applicable), and recognize the revenue
when (or as) the performance obligation to the customer is fulfilled. A good or service is transferred when the
customer obtains control of that good or service. Our computerized machine tools are general purpose
computer-controlled machine tools that are typically used in stand–alone operations. Prior to shipment, we test
each machine to ensure the machine’s compliance with standard operating specifications. We deem that the
customer obtains control upon delivery of the product and that obtaining control is not contingent upon
contractual customer acceptance. Therefore, we recognize revenue from sales of our machine tool systems upon
delivery of the product to the customer or distributor, which is normally at the time of shipment.
Depending upon geographic location, after shipment, a machine may be installed at the customer’s facility 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 immaterial within the context of the contract. For our five-axis machines that we install, we estimate the
From time to time, and depending upon geographic location, we may provide training or freight services. We
consider these services to be immaterial within the context of the contract, as the value of these services
typically does not rise to a material level as a component of the total contract value. Service fees from
maintenance contracts are deferred and recognized in earnings on a 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 $3.2 million, $3.5 million, and $4.4
million, in fiscal 2021, 2020, and 2019, respectively.
Software Development Costs. We sell software products that are essential to our machine tools. Costs incurred
to develop computer software products and significant enhancements to software features of existing products
to be sold or otherwise marketed are capitalized, after technological feasibility is established. Software
development costs are amortized on a straight–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 $1.1
million in fiscal 2021, $1.0 million in fiscal 2020, and $1.8 million in fiscal 2019. Amortization expense for
software development costs was $1.4 million, $1.5 million, and $1.0 million, for the fiscal years ended
October 31, 2021, 2020, and 2019, respectively. Accumulated amortization at October 31, 2021 and 2020 was
$22.0 million and $21.0 million, respectively.
62
63
63
Estimated amortization expense for the remaining unamortized software development costs for the fiscal years
ending October 31, is as follows (in thousands):
As of October 31, 2020, the balances of intangible assets, other than goodwill, were as follows (in thousands):
Fiscal Year
2022
2023
2024
2025
2026 and thereafter
$
Amortization Expense
1,575
1,856
1,685
1,089
1,348
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 had goodwill for our single reporting unit, arising from the acquisitions of ProCobots, LLC (“ProCobots”)
($2.5 million) in 2019, LCM Precision Technology S.r.l. (“LCM”) ($2.2 million) in 2013, and our wholly-
owned distributor located in Michigan ($0.2 million) in 2008. The adverse change in the business climate
resulting from the COVID-19 pandemic and the net loss for fiscal 2020 caused the fair value of the reporting
unit to fall below our book value of equity as of October 31, 2020, resulting in a full impairment loss of $4.9
million. As such, we have no goodwill as of October 31, 2021.
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, 2021, 2020, or 2019.
As of October 31, 2021, the balances of intangible assets, other than goodwill, were as follows (in thousands):
for the years ended October 31, 2021, 2020, or 2019.
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Noncompete
Patents
Other
Total
Weighted
Average
Period
indefinite
14 years
15 years
13 years
5 years
6 years
8 years
Gross
Amortization
Intangible
Accumulated Net Intangible
Assets
Amortization
Assets
$
$
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
Intangible asset amortization expense was $273,000, $358,000, and $117,000 for fiscal 2021, 2020, and 2019,
respectively. Annual intangible asset amortization expense for the next five years is estimated to be $278,000
per year for fiscal years 2022 through 2023, $242,000 for fiscal year 2024, $148,000 for fiscal year 2025 and
114,000 for fiscal year 2026.
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). 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 October
31, 2021. Thus, there was no impairment recognized with respect to the carrying values of long-lived assets
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.”
Accumulated
Amortization
$
Net Intangible
Assets
— $
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Noncompete
Patents
Other
Total
Weighted
Average
Amortization
Period
indefinite
14 years
15 years
13 years
5 years
6 years
8 years
Gross
Intangible
Assets
$
$
177
763
373
708
580
2,972
397
5,970
(234)
(223)
(454)
(261)
(2,860)
(373)
(4,405)
$
$
177
529
150
254
319
112
24
1,565
64
64
65
Estimated amortization expense for the remaining unamortized software development costs for the fiscal years
As of October 31, 2020, the balances of intangible assets, other than goodwill, were as follows (in thousands):
ending October 31, is as follows (in thousands):
Fiscal Year
Amortization Expense
$
2022
2023
2024
2025
2026 and thereafter
1,575
1,856
1,685
1,089
1,348
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 had goodwill for our single reporting unit, arising from the acquisitions of ProCobots, LLC (“ProCobots”)
($2.5 million) in 2019, LCM Precision Technology S.r.l. (“LCM”) ($2.2 million) in 2013, and our wholly-
owned distributor located in Michigan ($0.2 million) in 2008. The adverse change in the business climate
resulting from the COVID-19 pandemic and the net loss for fiscal 2020 caused the fair value of the reporting
unit to fall below our book value of equity as of October 31, 2020, resulting in a full impairment loss of $4.9
million. As such, we have no goodwill as of October 31, 2021.
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, 2021, 2020, or 2019.
As of October 31, 2021, 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
Weighted
Average
Amortization
Period
indefinite
14 years
15 years
13 years
5 years
6 years
8 years
Gross
Intangible
Assets
$
$
177
763
373
708
580
2,972
397
5,970
$
$
Accumulated
Amortization
Net Intangible
Assets
— $
(234)
(223)
(454)
(261)
(2,860)
(373)
(4,405)
177
529
150
254
319
112
24
$
1,565
Tradenames and trademarks
Tradenames and trademarks
Customer relationships
Technology
Noncompete
Patents
Other
Total
Weighted
Average
Amortization
Period
indefinite
14 years
15 years
13 years
5 years
6 years
8 years
Gross
Intangible
Assets
$
$
177
765
374
713
580
2,972
397
5,978
Accumulated Net Intangible
Amortization
$
— $
Assets
(181)
(199)
(402)
(145)
(2,837)
(368)
(4,132)
$
$
177
584
175
311
435
135
29
1,846
Intangible asset amortization expense was $273,000, $358,000, and $117,000 for fiscal 2021, 2020, and 2019,
respectively. Annual intangible asset amortization expense for the next five years is estimated to be $278,000
per year for fiscal years 2022 through 2023, $242,000 for fiscal year 2024, $148,000 for fiscal year 2025 and
114,000 for fiscal year 2026.
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). 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 October
31, 2021. Thus, there was no impairment recognized with respect to the carrying values of long-lived assets
for the years ended October 31, 2021, 2020, or 2019.
Earnings Per Share. Basic earnings per share is calculated by dividing net income (loss) by the weighted–
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.”
64
65
65
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
2021
Fiscal Year Ended October 31,
2020
2019
Basic
$ 6,764
Diluted
$ 6,764
Basic
Basic
Diluted
$ (6,247) $ (6,247) $ 17,495
Diluted
$ 17,495
(76)
(76)
66
66
(147)
(147)
$ 6,688
$ 6,688
$ (6,181) $ (6,181) $ 17,348
$ 17,348
6,595
6,595
6,670
6,670
6,759
6,759
—
6,595
$ 1.01
13
6,608
$ 1.01
—
6,670
—
6,670
$ (0.93) $ (0.93) $
—
6,759
2.57
56
6,815
2.55
$
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.
66
66
Stock Compensation. We account for share–based compensation according to FASB guidance relating to share–
based payments, which requires the measurement and recognition of compensation expense for all share–based
awards made to employees and directors based on estimated fair values on the grant date. This guidance requires
that we estimate the fair value of share–based awards on the date of grant and recognize as expense the value
of the portion of the award that is ultimately expected to vest over the requisite service period.
Estimates. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting
Principles requires us to make estimates and assumptions that affect the reported amounts presented and
disclosed in our consolidated financial statements. Significant estimates and assumptions in these consolidated
financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful
accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long–
lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, stock
compensation, income taxes and deferred tax valuation allowances, and contingencies. Due to the inherent
uncertainty involved in making estimates, actual results reported in future periods may be different from these
estimates.
2. BUSINESS OPERATIONS
Nature of Business. We design, manufacture, and sell computerized CNC machine tools, computer control
systems and software products, machine tool components, 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 180 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.
We operate in the industrial equipment industry and have a global footprint that subjects us to various business
risks in many different countries. During fiscal 2020, our operating results were adversely affected by the
international business disruption due to the outbreak of COVID-19 and the economic slowdown in Europe,
uncertainty surrounding the U.K. Brexit activities, and political friction in the U.S. Many of our customers
deferred or eliminated investments in capital equipment last year, which we attributed largely to the uncertainty
these events created. During fiscal 2021, our sales increased year-over-year in all regions as countries began
to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions. Because
of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing
the financial statements as of October 31, 2021, with the understanding that these estimates could change in the
near term. We will continue to evaluate and disclose any uncertainty associated with key assumptions
underlying fair value estimates, trends, and uncertainties that have had, or are reasonably expected to have, a
material effect on our consolidated financial position, results of operations, changes in shareholders' equity, and
cash flows for and at the end of each interim period.
67
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
Fiscal Year Ended October 31,
2021
2020
2019
Basic
$ 6,764
Diluted
$ 6,764
Basic
Diluted
Basic
$ (6,247) $ (6,247) $ 17,495
Diluted
$ 17,495
(76)
(76)
66
66
(147)
(147)
$ 6,688
$ 6,688
$ (6,181) $ (6,181) $ 17,348
$ 17,348
Weighted average shares outstanding
6,595
6,595
6,670
6,670
6,759
6,759
Stock options and contingently
issuable securities
Income (loss) per share
$ 1.01
$ 1.01
$ (0.93) $ (0.93) $
—
6,595
13
6,608
—
6,670
—
6,670
—
6,759
2.57
56
6,815
2.55
$
Income Taxes – We account for income taxes and the related accounts under the asset and liability method.
Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction in effect for
the year in which the temporary differences are expected to be recovered or settled. These deferred tax assets
are reduced by a valuation allowance, which is established when it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Net deferred tax assets and liabilities are classified as non-
current in the consolidated financial statements. Our judgment regarding the realization of deferred tax assets
may change due to future profitability and market conditions, changes in U.S. or foreign tax laws and other
factors. These changes, if any, may require material adjustments to these deferred tax assets and an
accompanying reduction or increase in net income in the period when such determinations are made.
The determination of our provision for income taxes requires judgment, the use of estimates, and the
interpretation and application of complex federal, state and foreign tax laws. Our provision for income taxes
reflects a combination of income earned and taxed at the federal and state level in the U.S., as well as in various
foreign jurisdictions.
affect these estimates.
In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in forward–
looking statements is based on currently effective tax laws. Significant changes in those laws could materially
We operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex.
The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications.
We recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon
examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized
is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions, and
the resolution of such audits may span multiple years. Tax law is complex and often subject to varied
interpretations. Accordingly, the ultimate outcome with respect to taxes we may owe may differ from the
amounts recognized.
Stock Compensation. We account for share–based compensation according to FASB guidance relating to share–
based payments, which requires the measurement and recognition of compensation expense for all share–based
awards made to employees and directors based on estimated fair values on the grant date. This guidance requires
that we estimate the fair value of share–based awards on the date of grant and recognize as expense the value
of the portion of the award that is ultimately expected to vest over the requisite service period.
Estimates. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting
Principles requires us to make estimates and assumptions that affect the reported amounts presented and
disclosed in our consolidated financial statements. Significant estimates and assumptions in these consolidated
financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful
accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long–
lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, stock
compensation, income taxes and deferred tax valuation allowances, and contingencies. Due to the inherent
uncertainty involved in making estimates, actual results reported in future periods may be different from these
estimates.
2. BUSINESS OPERATIONS
Nature of Business. We design, manufacture, and sell computerized CNC machine tools, computer control
systems and software products, machine tool components, 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 180 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.
We operate in the industrial equipment industry and have a global footprint that subjects us to various business
risks in many different countries. During fiscal 2020, our operating results were adversely affected by the
international business disruption due to the outbreak of COVID-19 and the economic slowdown in Europe,
uncertainty surrounding the U.K. Brexit activities, and political friction in the U.S. Many of our customers
deferred or eliminated investments in capital equipment last year, which we attributed largely to the uncertainty
these events created. During fiscal 2021, our sales increased year-over-year in all regions as countries began
to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions. Because
of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing
the financial statements as of October 31, 2021, with the understanding that these estimates could change in the
near term. We will continue to evaluate and disclose any uncertainty associated with key assumptions
underlying fair value estimates, trends, and uncertainties that have had, or are reasonably expected to have, a
material effect on our consolidated financial position, results of operations, changes in shareholders' equity, and
cash flows for and at the end of each interim period.
66
67
67
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 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, 2021 and 2020 are summarized below (in thousands):
Purchased parts and sub–assemblies
Work–in–process
Finished goods
2021
37,527
17,559
93,130
148,216
$
$
2020
30,390
12,635
106,839
149,864
$
$
Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia
was $11.8 million and $17.2 million as of October 31, 2021 and 2020, 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.
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68
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
$
$
$
349
452
148
3,500
4,449
96
96
Final
Allocation
349
452
1,120
2,528
4,449
96
96
972
(972)
—
—
—
—
—
—
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 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 credit agreement with Bank of
America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23,
2020 and December 17, 2021 (as amended, the “2018 Credit Agreement”). The 2018 Credit Agreement
provides for an unsecured revolving credit and letter of credit facility 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, 2023.
69
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 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, 2021 and 2020 are summarized below (in thousands):
Purchased parts and sub–assemblies
Work–in–process
Finished goods
$
2021
37,527
17,559
93,130
$
148,216
2020
30,390
12,635
106,839
149,864
$
$
Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia
was $11.8 million and $17.2 million as of October 31, 2021 and 2020, 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
$
Adjustments
—
—
972
(972)
—
96
96
—
—
—
$
Final
Allocation
349
452
1,120
2,528
4,449
96
96
$
4,353
Total purchase price and cash expended
$
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 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 credit agreement with Bank of
America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23,
2020 and December 17, 2021 (as amended, the “2018 Credit Agreement”). The 2018 Credit Agreement
provides for an unsecured revolving credit and letter of credit facility 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, 2023.
68
69
69
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a
rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average
Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the
lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per
annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c)
the one month SOFR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an
annual rate of 1.00%.
The 2018 Credit Agreement contains customary 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; and (4) requiring that we maintain a minimum tangible net worth
of $176.5 million. We may use the proceeds from advances under the 2018 Credit Agreement for general
corporate purposes.
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 a result, as of October 31, 2021, our existing credit facilities consisted of the €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, 2021, there were no borrowings under any of our credit facilities and there was $52.2 million
of available borrowing capacity thereunder.
6.
FINANCIAL INSTRUMENTS
Estimated Fair Value of Financial Instruments
FASB fair value guidance establishes a three–tier fair value hierarchy, which categorizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active
markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of
these instruments, and such instruments meet the Level 1 criteria of the three–tier fair value hierarchy discussed
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, 2021 and 2020 (in thousands):
Level 1
Deferred compensation
Level 2
Derivatives
Recurring Fair Value Measurements
Assets
Liabilities
October 31, October 31, October 31, October 31,
2021
2020
2021
2020
2,481
1,868
— $
—
$
$
$
$
$
$
905
968
467
$
872
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 $94.6 million and $70.8 million at October 31, 2021 and 2020, respectively.
The fair value of the foreign currency forward exchange contracts and the related currency positions are subject
to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparty to the
forward exchange contract is a substantial and creditworthy financial institution. We do not consider either the
risk of counterparty non–performance or the economic consequences of counterparty non–performance as
material risks.
7.
INCOME TAXES
We utilize the asset and liability method of accounting for income taxes. Under this method, the provision
(benefit) for income taxes represents income taxes payable or refundable for the current year plus the change
in deferred taxes during the year. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act, among
other things, included tax provisions that we applied relating to refundable payroll tax credits, the deferral of
employer’s social security payments, and modifications to net operating loss carryback provisions. After we
filed the net operating loss carryback claims during the fourth quarter of fiscal 2021, we included the $5.4
million of tax refunds in current assets. On December 27, 2020, the Consolidated Appropriations Act of 2021
(the “CAA”), which includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
and the American Rescue Plan Act of 2021, was signed into law and provided further COVID-19 economic
relief with an expansion of the employee retention credit. As a result, we recorded operating income of $2.9
million related to the employee retention credit during fiscal 2021.
70
70
71
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a
rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average
Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the
lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per
annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c)
the one month SOFR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an
annual rate of 1.00%.
The 2018 Credit Agreement contains customary 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; and (4) requiring that we maintain a minimum tangible net worth
of $176.5 million. We may use the proceeds from advances under the 2018 Credit Agreement for general
corporate purposes.
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 a result, as of October 31, 2021, our existing credit facilities consisted of the €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, 2021, there were no borrowings under any of our credit facilities and there was $52.2 million
of available borrowing capacity thereunder.
6.
FINANCIAL INSTRUMENTS
Estimated Fair Value of Financial Instruments
FASB fair value guidance establishes a three–tier fair value hierarchy, which categorizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active
markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of
these instruments, and such instruments meet the Level 1 criteria of the three–tier fair value hierarchy discussed
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.
70
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, 2021 and 2020 (in thousands):
Level 1
Deferred compensation
Level 2
Derivatives
Recurring Fair Value Measurements
Assets
Liabilities
October 31, October 31, October 31, October 31,
2021
2020
2021
2020
$
$
2,481
905
$
$
1,868
968
$
$
— $
—
467
$
872
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 $94.6 million and $70.8 million at October 31, 2021 and 2020, respectively.
The fair value of the foreign currency forward exchange contracts and the related currency positions are subject
to offsetting market risk resulting from foreign currency exchange rate volatility. The counterparty to the
forward exchange contract is a substantial and creditworthy financial institution. We do not consider either the
risk of counterparty non–performance or the economic consequences of counterparty non–performance as
material risks.
7.
INCOME TAXES
We utilize the asset and liability method of accounting for income taxes. Under this method, the provision
(benefit) for income taxes represents income taxes payable or refundable for the current year plus the change
in deferred taxes during the year. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act, among
other things, included tax provisions that we applied relating to refundable payroll tax credits, the deferral of
employer’s social security payments, and modifications to net operating loss carryback provisions. After we
filed the net operating loss carryback claims during the fourth quarter of fiscal 2021, we included the $5.4
million of tax refunds in current assets. On December 27, 2020, the Consolidated Appropriations Act of 2021
(the “CAA”), which includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
and the American Rescue Plan Act of 2021, was signed into law and provided further COVID-19 economic
relief with an expansion of the employee retention credit. As a result, we recorded operating income of $2.9
million related to the employee retention credit during fiscal 2021.
71
71
In the fiscal years set forth below, the provision (benefit) for income taxes consisted of the following (in
thousands):
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Year Ended October 31,
2020
2021
2019
$
$
1,763
1,706
3,469
66
(178)
(112)
3,357
$
$
(4,932)
923
(4,009)
(256)
(291)
(547)
(4,556)
$
$
1,854
3,715
5,569
(31)
291
260
5,829
The components of income (loss) before taxes are (in thousands):
Income (loss) before income taxes:
Domestic
Foreign
Year Ended October 31,
2020
2021
2019
$
$
4,340
5,781
10,121
$
$
(11,681)
878
(10,803)
$
$
9,793
13,531
23,324
A comparison of income tax expense at the U.S. statutory rate to our 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
Transition tax
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
Impact of CARES act
Other
Effective tax rate
1 Primarily due to discrete items for unearned stock awards
Year Ended October 31,
2021
2020
2019
21 %
4 %
— %
1 %
— %
— %
— %
(1)%
5 %
3 % 1
33 %
21 %
(2)%
— %
2 %
1 %
— %
— %
— %
22 %
(2)%
42 %
21 %
3 %
1 %
1 %
(2)%
(1)%
3 %
(3)%
— %
2 %
25 %
72
72
The Tax Reform Act enacted on December 22, 2017, made comprehensive changes to U.S. federal income tax
laws by moving from a global to a modified territorial tax regime. As a result, cash repatriated to the U.S. is
generally no longer subject to U.S federal income tax. As of October 31, 2021, the undistributed earnings of
our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations.
Accordingly, we did not accrue for any withholding taxes on the undistributed earnings of our foreign
subsidiaries, consistent with the position adopted on January 1, 2018.
Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when
changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current
in the consolidated financial statements.
As of October 31, 2021, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.7 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for tax
credits of $0.8 million. We established a valuation allowance against some of these carryforwards due to the
uncertainty of their full realization. As of October 31, 2021, and 2020, the balance of this valuation allowance
was $1.9 million and $2.2 million, respectively.
Significant components of our deferred tax assets and liabilities at October 31, 2021 and 2020 are as follows
(in thousands):
Deferred Tax Assets:
Accrued inventory reserves
Accrued warranty expenses
Compensation related expenses
Net derivative gain
Unrealized exchange gain
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 loss
Unrealized exchange loss
Other
Net deferred tax assets
Less: Valuation allowance – net operating loss and other credit carryforwards
Property and equipment and capitalized software development costs
Operating lease - right of use assets
$
$
73
October 31,
2021
2020
$
$
973
308
2,444
49
—
282
1,705
839
2,570
967
215
10,352
(1,871)
8,481
—
(15)
(2,533)
(2,495)
(352)
3,086
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
In the fiscal years set forth below, the provision (benefit) for income taxes consisted of the following (in
thousands):
Current:
U.S. taxes
Foreign taxes
Deferred:
U.S. taxes
Foreign taxes
Year Ended October 31,
2021
2020
2019
$
$
(4,932)
$
1,763
1,706
3,469
66
(178)
(112)
923
(4,009)
(256)
(291)
(547)
1,854
3,715
5,569
(31)
291
260
$
3,357
$
(4,556)
$
5,829
The components of income (loss) before taxes are (in thousands):
Income (loss) before income taxes:
Domestic
Foreign
Year Ended October 31,
2021
2020
2019
$
$
4,340
5,781
10,121
$
$
(11,681)
878
(10,803)
$
$
9,793
13,531
23,324
A comparison of income tax expense at the U.S. statutory rate to our effective tax rate is as follows:
Effect of tax rate of international jurisdictions different than
U.S. statutory rate
U.S. statutory rates
Valuation allowance
State taxes
Tax credits
Transition tax
Impact of CARES act
Other
Effective tax rate
US tax on distributed and undistributed earnings
US benefit of foreign intangible income
1 Primarily due to discrete items for unearned stock awards
Year Ended October 31,
2021
2020
2019
21 %
4 %
— %
1 %
— %
— %
— %
(1)%
5 %
3 % 1
33 %
21 %
(2)%
— %
2 %
1 %
— %
— %
— %
22 %
(2)%
42 %
21 %
3 %
1 %
1 %
(2)%
(1)%
3 %
(3)%
— %
2 %
25 %
72
The Tax Reform Act enacted on December 22, 2017, made comprehensive changes to U.S. federal income tax
laws by moving from a global to a modified territorial tax regime. As a result, cash repatriated to the U.S. is
generally no longer subject to U.S federal income tax. As of October 31, 2021, the undistributed earnings of
our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations.
Accordingly, we did not accrue for any withholding taxes on the undistributed earnings of our foreign
subsidiaries, consistent with the position adopted on January 1, 2018.
Deferred income taxes are determined based on the difference between the amounts used for financial reporting
purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when
changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current
in the consolidated financial statements.
As of October 31, 2021, we had deferred tax assets established for accumulated net operating loss carryforwards
of $1.7 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for tax
credits of $0.8 million. We established a valuation allowance against some of these carryforwards due to the
uncertainty of their full realization. As of October 31, 2021, and 2020, the balance of this valuation allowance
was $1.9 million and $2.2 million, respectively.
Significant components of our deferred tax assets and liabilities at October 31, 2021 and 2020 are as follows
(in thousands):
Deferred Tax Assets:
Accrued inventory reserves
Accrued warranty expenses
Compensation related expenses
Net derivative gain
Unrealized exchange gain
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
Deferred Tax Liabilities:
Net derivative loss
Unrealized exchange loss
Property and equipment and capitalized software development costs
Operating lease - right of use assets
Other
Net deferred tax assets
73
73
October 31,
2021
2020
$
$
973
308
2,444
49
—
282
1,705
839
2,570
967
215
10,352
(1,871)
8,481
—
(15)
(2,533)
(2,495)
(352)
3,086
$
$
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
As of October 31, 2021, we had net operating loss carryforwards for international and U.S. income tax purposes
of $6.3 million, of which $3.9 million will expire within 5 years beginning in fiscal 2022 and $0.4 million are
state net operating losses which will expire between 5 and 20 years. The remaining $2.0 million in net operating
losses will be carried forward indefinitely based on current international tax laws. We also had tax credits of
$0.8 million which will expire between years 2022 and 2031.
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
2021
2020
2019
$
$
168
74
—
(75)
—
167
$
$
193
9
(2)
(32)
—
168
$
$
180
36
—
(23)
—
193
The entire balance of the unrecognized tax benefits and related interest on October 31, 2021, 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, 2021, the amount of interest accrued, reported in other liabilities, was
approximately $31,000 which did not include the federal tax benefit of interest deductions. The statute of
limitations with respect to unrecognized tax benefits will expire between August 2022 and August 2025.
We file U.S. federal and state income tax returns, as well as tax returns in applicable foreign jurisdictions.
Currently, our subsidiary in Taiwan is under tax audit for fiscal year 2018.
A summary of open tax years by major jurisdiction is presented below:
United States federal
Germany¹
Taiwan
United Kingdom
Fiscal 2014 through the current period
Fiscal 2017 through the current period
Fiscal 2016 through the current period
Fiscal 2015 through the current period
¹
Includes federal as well as state, provincial or similar local jurisdictions, as applicable.
Balance October 31, 2020
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 $1.2 million, $1.3 million, $1.4 million, for the fiscal years ended
October 31, 2021, 2020, and 2019, respectively.
74
74
75
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.
A summary of the status of the options as of October 31, 2021, 2020 and 2019 and the related activity for
the year is as follows:
Shares Under Weighted Average Grant
Option
Date Fair Value
37,045
$
21.69
Balance October 31, 2018
Balance October 31, 2019
Granted
Cancelled
Expired
Exercised
Granted
Cancelled
Expired
Exercised
Granted
Cancelled
Expired
Exercised
Balance October 31, 2021
— $
37,045
$
(3,738)
33,307
$
—
—
—
—
—
—
—
—
—
(16,311)
16,996
$
—
—
—
—
—
—
—
—
—
—
21.69
18.13
22.09
21.45
22.71
The total intrinsic value of stock options exercised during the twelve months ended October 31, 2021, 2020
and 2019 was approximately $179,000, $44,000, and $0, 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.
A summary of the status of the options as of October 31, 2021, 2020 and 2019 and the related activity for
the year is as follows:
Shares Under Weighted Average Grant
Option
Date Fair Value
As of October 31, 2021, we had net operating loss carryforwards for international and U.S. income tax purposes
of $6.3 million, of which $3.9 million will expire within 5 years beginning in fiscal 2022 and $0.4 million are
state net operating losses which will expire between 5 and 20 years. The remaining $2.0 million in net operating
losses will be carried forward indefinitely based on current international tax laws. We also had tax credits of
$0.8 million which will expire between years 2022 and 2031.
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
2021
2020
2019
$
168
$
74
—
(75)
—
167
$
$
193
9
(2)
(32)
—
168
$
$
180
36
—
(23)
—
193
The entire balance of the unrecognized tax benefits and related interest on October 31, 2021, 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, 2021, the amount of interest accrued, reported in other liabilities, was
approximately $31,000 which did not include the federal tax benefit of interest deductions. The statute of
limitations with respect to unrecognized tax benefits will expire between August 2022 and August 2025.
We file U.S. federal and state income tax returns, as well as tax returns in applicable foreign jurisdictions.
Currently, our subsidiary in Taiwan is under tax audit for fiscal year 2018.
A summary of open tax years by major jurisdiction is presented below:
United States federal
Germany¹
Taiwan
United Kingdom
Fiscal 2014 through the current period
Fiscal 2017 through the current period
Fiscal 2016 through the current period
Fiscal 2015 through the current period
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 $1.2 million, $1.3 million, $1.4 million, for the fiscal years ended
October 31, 2021, 2020, and 2019, respectively.
¹
Includes federal as well as state, provincial or similar local jurisdictions, as applicable.
Balance October 31, 2020
Granted
Cancelled
Expired
Exercised
Balance October 31, 2021
Balance October 31, 2018
Granted
Cancelled
Expired
Exercised
Balance October 31, 2019
Granted
Cancelled
Expired
Exercised
$
37,045
—
—
—
— $
$
37,045
—
—
—
(3,738)
33,307
—
—
—
(16,311)
16,996
$
$
21.69
—
—
—
—
21.69
—
—
—
18.13
22.09
—
—
—
21.45
22.71
The total intrinsic value of stock options exercised during the twelve months ended October 31, 2021, 2020
and 2019 was approximately $179,000, $44,000, and $0, respectively.
74
75
75
As of October 31, 2021, the total intrinsic value of stock options that were outstanding and exercisable was
$166,000. Stock options outstanding and exercisable on October 31, 2021, were as follows:
achieving maximum performance. The grant date fair value of the PSUs – ROIC was based on the closing sales
price of our common stock on the grant date, which was $28.60 per share.
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
On November 12, 2020, the Compensation Committee granted a total of 11,531 shares of time-based restricted
stock to our non-executive employees. The restricted shares vest in thirds over three years from the date of
grant provided the recipient remains employed through that date. The grant date fair value of the restricted
shares was based upon the closing sales price of our common stock on the date of grant, which was $29.30 per
5,437
11,559
16,996
$
$
21.45
23.30
22.71
0.04
0.76
0.80
share.
On March 11, 2021, the Compensation Committee granted a total of 9,708 shares of time-based restricted stock
to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the
recipient remains on the board of directors through that date. The grant date fair value of the restricted shares
was based on the closing sales price of our common stock on the grant date, which was $37.06 per share.
On January 5, 2021, the Compensation Committee determined that no performance stock units (“PSUs”) were
earned pursuant to the long-term incentive compensation arrangement for the fiscal 2018-2020 performance
period based on the results of the performance metrics that were established by the Compensation Committee
in 2018.
On January 5, 2021, the Compensation Committee approved a long-term incentive compensation arrangement
for our executive officers in the form of time-based 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 2021 through fiscal 2023.
On that date, the Compensation Committee granted a total of 23,164 shares of time-based restricted stock to
our executive officers. The restricted shares vest in thirds over three years from the date of grant provided the
recipient remains employed through that date. The grant date fair value of the restricted shares was based upon
the closing sales price of our common stock on the date of grant, which was $28.60 per share.
On January 5, 2021, the Compensation Committee granted a total target number of 39,199 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2021 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 2021-2023, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200%
of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the
PSUs – TSR was $27.04 per PSU and was calculated using the Monte Carlo approach.
On January 5, 2021, the Compensation Committee granted a total target number of 32,430 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the
overall 2021 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 2021-2023. Participants will have the ability to earn between 50% of the target number of the
PSUs – ROIC for achieving threshold performance and 200% of the target number of the PSUs – ROIC for
76
76
On March 12, 2020, the Compensation Committee granted a total of 17,780 shares of time-based restricted
stock to our non-employee directors. The restricted shares vest in full one year from the date of grant provided
the recipient remains on the board of directors through that date. The grant date fair value of the restricted
shares was based on the closing sales price of our common stock on the grant date, which was $23.62 per share.
On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2017-2019 performance period was attained, and the
resulting payout level relative to the target amount for each of the metrics that were established by the
Compensation Committee in 2017. As a result, the Compensation Committee determined that a total of 28,979
PSUs were earned by our executive officers, which PSUs vested on January 2, 2020. The vesting date fair
value of the PSUs was based on the closing sales price of our common stock on the vesting date, which was
$37.79 per share.
On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation
arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan,
which will be payable in shares of our common stock if earned and vested. The awards were approximately
25% time-based vesting and approximately 75% performance-based vesting. The three-year performance
period for the PSUs is fiscal 2020 through fiscal 2022.
On that date, the Compensation Committee granted a total of 20,837 shares of time-based restricted stock to
our executive officers. The restricted shares vest in thirds over three years from the date of grant provided the
recipient remains employed through that date. The grant date fair value of the restricted shares was based upon
the closing sales price of our common stock on the date of grant, which was $37.79 per share.
On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the
overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon
the total shareholder return of our common stock over the three-year period of fiscal 2020-2022, relative to the
total shareholder return of the companies in a specified peer group over that period. Participants will have the
ability to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and
200% of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value
of the PSUs – TSR was $46.81 per PSU and was calculated using the Monte Carlo approach.
On January 2, 2020, the Compensation Committee also granted a total target number of 29,174 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the
overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon
the achievement of pre-established goals related to our average return on invested capital over the three-year
period of fiscal 2020-2022. Participants will have the ability to earn between 50% of the target number of the
PSUs - ROIC for achieving threshold performance and 200% of the target number of the PSUs - ROIC for
77
As of October 31, 2021, the total intrinsic value of stock options that were outstanding and exercisable was
$166,000. Stock options outstanding and exercisable on October 31, 2021, were as follows:
achieving maximum performance. The grant date fair value of the PSUs – ROIC was based on the closing sales
price of our common stock on the grant date, which was $28.60 per share.
Range of Exercise
Prices Per Share
Outstanding and Exercisable
Shares Under
Option
Weighted Average
Exercise Price Per
Weighted Average
Remaining Contractual
Share
Life in Years
$
$
21.45
23.30
21.45 - 23.30
5,437
11,559
16,996
$
$
21.45
23.30
22.71
0.04
0.76
0.80
On March 11, 2021, the Compensation Committee granted a total of 9,708 shares of time-based restricted stock
to our non-employee directors. The restricted shares vest in full one year from the date of grant provided the
recipient remains on the board of directors through that date. The grant date fair value of the restricted shares
was based on the closing sales price of our common stock on the grant date, which was $37.06 per share.
On January 5, 2021, the Compensation Committee determined that no performance stock units (“PSUs”) were
earned pursuant to the long-term incentive compensation arrangement for the fiscal 2018-2020 performance
period based on the results of the performance metrics that were established by the Compensation Committee
in 2018.
On January 5, 2021, the Compensation Committee approved a long-term incentive compensation arrangement
for our executive officers in the form of time-based 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 2021 through fiscal 2023.
On that date, the Compensation Committee granted a total of 23,164 shares of time-based restricted stock to
our executive officers. The restricted shares vest in thirds over three years from the date of grant provided the
recipient remains employed through that date. The grant date fair value of the restricted shares was based upon
the closing sales price of our common stock on the date of grant, which was $28.60 per share.
On January 5, 2021, the Compensation Committee granted a total target number of 39,199 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2021 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 2021-2023, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200%
of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the
PSUs – TSR was $27.04 per PSU and was calculated using the Monte Carlo approach.
On January 5, 2021, the Compensation Committee granted a total target number of 32,430 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the
overall 2021 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 2021-2023. Participants will have the ability to earn between 50% of the target number of the
PSUs – ROIC for achieving threshold performance and 200% of the target number of the PSUs – ROIC for
On November 12, 2020, the Compensation Committee granted a total of 11,531 shares of time-based restricted
stock to our non-executive employees. The restricted shares vest in thirds over three years from the date of
grant provided the recipient remains employed through that date. The grant date fair value of the restricted
shares was based upon the closing sales price of our common stock on the date of grant, which was $29.30 per
share.
On March 12, 2020, the Compensation Committee granted a total of 17,780 shares of time-based restricted
stock to our non-employee directors. The restricted shares vest in full one year from the date of grant provided
the recipient remains on the board of directors through that date. The grant date fair value of the restricted
shares was based on the closing sales price of our common stock on the grant date, which was $23.62 per share.
On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive
compensation arrangement approved for the fiscal 2017-2019 performance period was attained, and the
resulting payout level relative to the target amount for each of the metrics that were established by the
Compensation Committee in 2017. As a result, the Compensation Committee determined that a total of 28,979
PSUs were earned by our executive officers, which PSUs vested on January 2, 2020. The vesting date fair
value of the PSUs was based on the closing sales price of our common stock on the vesting date, which was
$37.79 per share.
On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation
arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan,
which will be payable in shares of our common stock if earned and vested. The awards were approximately
25% time-based vesting and approximately 75% performance-based vesting. The three-year performance
period for the PSUs is fiscal 2020 through fiscal 2022.
On that date, the Compensation Committee granted a total of 20,837 shares of time-based restricted stock to
our executive officers. The restricted shares vest in thirds over three years from the date of grant provided the
recipient remains employed through that date. The grant date fair value of the restricted shares was based upon
the closing sales price of our common stock on the date of grant, which was $37.79 per share.
On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the
overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon
the total shareholder return of our common stock over the three-year period of fiscal 2020-2022, relative to the
total shareholder return of the companies in a specified peer group over that period. Participants will have the
ability to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and
200% of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value
of the PSUs – TSR was $46.81 per PSU and was calculated using the Monte Carlo approach.
On January 2, 2020, the Compensation Committee also granted a total target number of 29,174 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the
overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon
the achievement of pre-established goals related to our average return on invested capital over the three-year
period of fiscal 2020-2022. Participants will have the ability to earn between 50% of the target number of the
PSUs - ROIC for achieving threshold performance and 200% of the target number of the PSUs - ROIC for
76
77
77
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.
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 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 remained 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 remains employed through that date. The grant date fair value of the restricted shares was based upon
the closing sales price of our common stock on the date of grant, which was $36.08 per share.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,943 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2019 executive long–term incentive compensation arrangement and will vest and be paid based upon the total
shareholder return of our common stock over the three-year period of fiscal 2019–2021, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200%
of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the
PSUs – TSR was $40.72 per PSU and was calculated using the Monte Carlo approach.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,557 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the
overall 2019 executive long–term incentive compensation arrangement and will vest and be paid based upon
the achievement of pre–established goals related to our average return on invested capital over the three-year
period of fiscal 2019–2021. Participants will have the ability to earn between 50% of the target number of the
PSUs – ROIC for achieving threshold performance and 200% of the target number of the PSUs – ROIC for
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
A reconciliation of our restricted stock, performance share and PSU activity and related information is as
share.
follows:
Unvested at October 31, 2020
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2021
Number of Shares
Date Fair Value
Weighted Average Grant
$
231,960
116,032
(36,243)
(42,625)
(6,568)
262,556
$
39.03
28.85
31.12
43.99
38.20
34.84
During fiscal 2021, 2020, and 2019, we recorded approximately $2.8 million, $2.1 million, and $2.7 million,
respectively, of stock–based compensation expense related to grants under the 2016 Equity Plan. As of
October 31, 2021, there was an estimated $3.1 million of total unrecognized stock–based compensation cost
that we expect to recognize by the end of the first quarter of fiscal 2024.
10. RELATED PARTY TRANSACTIONS
As of October 31, 2021, 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 $4.8 million and $4.4 million at October 31, 2021 and
2020, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.
Purchases of controls from HAL amounted to $4.8 million, $6.2 million, and $8.5 million in fiscal 2021, 2020
and 2019, respectively. Sales of control component parts to HAL were $262,000, $265,000 and $198,000 for
the fiscal years ended October 31, 2021, 2020, and 2019, respectively. Trade payables to HAL were $6.2
million and $1.3 million at October 31, 2021 and 2020, respectively. Trade receivables from HAL were $74,000
and $25,000 at October 31, 2021 and 2020, respectively.
78
78
79
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.
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 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 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 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 remained 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 remains employed through that date. The grant date fair value of the restricted shares was based upon
the closing sales price of our common stock on the date of grant, which was $36.08 per share.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,943 PSUs to our
executive officers designated as “PSU – TSR”. These PSUs were weighted as approximately 40% of the overall
2019 executive long–term incentive compensation arrangement and will vest and be paid based upon the total
shareholder return of our common stock over the three-year period of fiscal 2019–2021, relative to the total
shareholder return of the companies in a specified peer group over that period. Participants will have the ability
to earn between 50% of the target number of the PSUs – TSR for achieving threshold performance and 200%
of the target number of the PSUs – TSR for achieving maximum performance. The grant date fair value of the
PSUs – TSR was $40.72 per PSU and was calculated using the Monte Carlo approach.
On January 2, 2019, the Compensation Committee also granted a total target number of 30,557 PSUs to our
executive officers designated as “PSU – ROIC”. These PSUs were weighted as approximately 35% of the
overall 2019 executive long–term incentive compensation arrangement and will vest and be paid based upon
the achievement of pre–established goals related to our average return on invested capital over the three-year
period of fiscal 2019–2021. Participants will have the ability to earn between 50% of the target number of the
PSUs – ROIC for achieving threshold performance and 200% of the target number of the PSUs – ROIC for
78
A reconciliation of our restricted stock, performance share and PSU activity and related information is as
follows:
Unvested at October 31, 2020
Shares or units granted
Shares or units vested
Shares or units cancelled
Shares withheld
Unvested at October 31, 2021
Number of Shares
231,960
116,032
(36,243)
(42,625)
(6,568)
262,556
Weighted Average Grant
Date Fair Value
$
$
39.03
28.85
31.12
43.99
38.20
34.84
During fiscal 2021, 2020, and 2019, we recorded approximately $2.8 million, $2.1 million, and $2.7 million,
respectively, of stock–based compensation expense related to grants under the 2016 Equity Plan. As of
October 31, 2021, there was an estimated $3.1 million of total unrecognized stock–based compensation cost
that we expect to recognize by the end of the first quarter of fiscal 2024.
10. RELATED PARTY TRANSACTIONS
As of October 31, 2021, 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 $4.8 million and $4.4 million at October 31, 2021 and
2020, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.
Purchases of controls from HAL amounted to $4.8 million, $6.2 million, and $8.5 million in fiscal 2021, 2020
and 2019, respectively. Sales of control component parts to HAL were $262,000, $265,000 and $198,000 for
the fiscal years ended October 31, 2021, 2020, and 2019, respectively. Trade payables to HAL were $6.2
million and $1.3 million at October 31, 2021 and 2020, respectively. Trade receivables from HAL were $74,000
and $25,000 at October 31, 2021 and 2020, respectively.
79
79
Summary unaudited financial information for HAL’s operations and financial condition is as follows (in
thousands):
The increase in our warranty reserve from fiscal 2020 to fiscal 2021 was primarily due to an increase in the
number of machines under warranty from increased sales volume in fiscal 2021. The decrease in our warranty
reserve from fiscal 2019 to fiscal 2020 was primarily due to a decrease in the number of machines under
Net Sales
Gross Profit
Operating Income
Net Income
Current Assets
Non–current Assets
Current Liabilities
2021
$ 12,361
2,011
216
802
2020
$ 10,096
1,418
160
265
2019
$ 15,957
2,322
992
1,490
$ 14,695
6,850
5,339
$ 12,436
6,152
3,708
$ 12,019
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, 2021, we had eight outstanding third party payment guarantees totaling
approximately $0.9 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
2021
1,200
2,948
(2,643)
11
1,516
$
$
2020
1,760
2,075
(2,669)
34
1,200
$
$
2019
2,497
2,246
(2,991)
8
1,760
$
$
80
80
warranty from decreased sales volume.
13. LEASES
We adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on November 1, 2019,
the start of our 2020 fiscal year, and utilized the transition method allowed. Accordingly, comparative period
financial information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment
was required to 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
• We elected not to use the portfolio method if we enter into a large number of leases in the same month
updated footnote disclosures, if material.
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. 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, 2021, 2020, and 2019 of $5.2
million, $5.0 million, and $5.1 million, respectively, which is classified within Cost of sales and service and
Selling, general and administrative expenses within the Consolidated Statements of Operations. Operating
81
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
2021
2020
2019
$ 12,361
$ 10,096
$ 15,957
2,011
216
802
6,850
5,339
1,418
160
265
6,152
3,708
2,322
992
1,490
5,560
3,674
$ 14,695
$ 12,436
$ 12,019
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, 2021, we had eight outstanding third party payment guarantees totaling
approximately $0.9 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
$
$
$
2021
1,200
2,948
(2,643)
11
2020
1,760
2,075
(2,669)
34
2019
2,497
2,246
(2,991)
8
$
1,516
$
1,200
$
1,760
80
The increase in our warranty reserve from fiscal 2020 to fiscal 2021 was primarily due to an increase in the
number of machines under warranty from increased sales volume in fiscal 2021. The decrease in our warranty
reserve from fiscal 2019 to fiscal 2020 was primarily due to a decrease in the number of machines under
warranty from decreased sales volume.
13. LEASES
We adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on November 1, 2019,
the start of our 2020 fiscal year, and utilized the transition method allowed. Accordingly, comparative period
financial information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment
was required to 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. 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, 2021, 2020, and 2019 of $5.2
million, $5.0 million, and $5.1 million, respectively, which is classified within Cost of sales and service and
Selling, general and administrative expenses within the Consolidated Statements of Operations. Operating
81
81
lease expense includes short-term leases and variable lease payments which are immaterial. There has been no
cost to obtain leases capitalized on the Consolidated Balance Sheets as of October 31, 2021.
The following table summarizes supplemental cash flow information and non-cash activity related to operating
leases for fiscal 2021 (in thousands):
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Noncash information:
Right-of-use assets obtained in exchange for new operating lease liabilities
$
$
5,025
3,698
The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to
the total lease liability as of October 31, 2021 (in thousands):
Remainder of 2022
2023
2024
2025
2026
2027 and thereafter
Total
Less: Imputed interest
Present value of operating lease liabilities
$
$
4,375
3,026
1,398
829
615
1,108
11,351
(336)
11,015
As of October 31, 2021, the weighted-average remaining term of our lease portfolio was approximately 3.9
years and the weighted-average discount rate was approximately 1.6%.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
2021 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Selling, general and administrative
expenses
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
$
54,115
11,547
$
57,920
14,794
$
54,178
12,974
$
68,982
16,934
21 %
26 %
24 %
25 %
10,568
979
546
663
0.10
0.10
11,273
3,521
947
2,437
0.37
0.37
$
$
$
$
10,331
2,643
1,109
1,568
0.23
0.23
13,829
3,105
755
2,096
0.31
0.31
$
$
$
$
2020 (In thousands, except per share data)
Selling, general and administrative
Sales and service fees
Gross profit
Gross profit margin
expenses
Goodwill impairment
Operating income (loss)
Provision (benefit) for income taxes
Net income (loss)
15.
SEGMENT INFORMATION
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
43,660
9,159
$
37,126
6,709
$
45,382
11,069
$
44,459
9,520
21 %
18 %
24 %
21 %
10,846
—
(1,687)
(597)
(893)
(0.13)
(0.13)
10,599
—
(3,890)
(765)
(3,927)
(0.58)
(0.58)
9,627
—
1,442
(937)
2,162
0.32
0.32
10,344
4,903
(5,727)
(2,257)
(3,589)
(0.54)
(0.54)
Income (loss) per common share – basic
Income (loss) per common share – diluted
$
$
$
$
$
$
$
$
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 180 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 2021, no distributor accounted for more than 5% of our sales and service fees. In fiscal 2021,
approximately 63% 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.
82
82
83
$
$
5,025
3,698
$
$
4,375
3,026
1,398
829
615
1,108
11,351
(336)
11,015
lease expense includes short-term leases and variable lease payments which are immaterial. There has been no
cost to obtain leases capitalized on the Consolidated Balance Sheets as of October 31, 2021.
The following table summarizes supplemental cash flow information and non-cash activity related to operating
leases for fiscal 2021 (in thousands):
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Noncash information:
Right-of-use assets obtained in exchange for new operating lease liabilities
The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to
the total lease liability as of October 31, 2021 (in thousands):
Remainder of 2022
2023
2024
2025
2026
Total
2027 and thereafter
Less: Imputed interest
Present value of operating lease liabilities
As of October 31, 2021, the weighted-average remaining term of our lease portfolio was approximately 3.9
years and the weighted-average discount rate was approximately 1.6%.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
2021 (In thousands, except per share data)
Sales and service fees
Gross profit
Gross profit margin
Selling, general and administrative
expenses
Operating income (loss)
Provision (benefit) for income taxes
Net income (loss)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
54,115
11,547
$
57,920
14,794
$
54,178
12,974
$
68,982
16,934
21 %
26 %
24 %
25 %
10,568
979
546
663
0.10
0.10
11,273
3,521
947
2,437
0.37
0.37
10,331
2,643
1,109
1,568
0.23
0.23
13,829
3,105
755
2,096
0.31
0.31
Income (loss) per common share – basic
Income (loss) per common share – diluted
$
$
$
$
$
$
$
$
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
15.
SEGMENT INFORMATION
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
43,660
9,159
$
37,126
6,709
$
45,382
11,069
$
44,459
9,520
21 %
18 %
24 %
21 %
10,846
—
(1,687)
(597)
(893)
(0.13)
(0.13)
$
$
10,599
—
(3,890)
(765)
(3,927)
(0.58)
(0.58)
$
$
$
$
9,627
—
1,442
(937)
2,162
0.32
0.32
$
$
10,344
4,903
(5,727)
(2,257)
(3,589)
(0.54)
(0.54)
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 180 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 2021, no distributor accounted for more than 5% of our sales and service fees. In fiscal 2021,
approximately 63% 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.
82
83
83
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 assets by geographic area were (in thousands):
Net Sales and Service Fees by Product Category
Computerized Machine Tools
Computer Control Systems and Software †
Service Parts
Service Fees
Total
Year ended October 31,
2020
$ 139,577
1,699
22,484
6,867
$ 170,627
2019
$ 223,735
2,818
27,854
8,970
$ 263,377
2021
$ 198,602
2,528
26,425
7,640
$ 235,195
†
Amounts shown do not include computer control systems and software sold as an integrated component of
computerized machine systems.
The following table sets forth revenues by geographic area, based on customer location, for each of the past
three fiscal years (in thousands):
United States of America
Canada
Central & South Americas
Total Americas
Germany
United Kingdom
Italy
France
Other Europe
Total Europe
China
Other Asia Pacific
Total Asia Pacific
Other Foreign
Grand Total
Year Ended October 31,
2020
$ 64,500
1,621
1,543
67,664
2019
$ 95,196
2,580
1,409
99,185
2021
$ 83,218
2,636
989
86,843
37,584
30,314
12,718
14,252
21,467
116,335
14,284
16,047
30,331
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
15,706
16,858
32,564
1,686
$ 235,195
588
$ 170,627
1,131
$ 263,377
As of October 31,
2021
2020
2019
$
$
84,385
80,769
73,265
238,419
$
$
83,214
77,840
70,094
231,148
$
$
103,863
71,411
64,971
240,245
Americas
Europe
Asia Pacific
16. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted 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 2021 and we adopted this standard on November
1, 2020. This standard did not have a significant effect on our accounting policies or on our consolidated
financial statements and related disclosures.
New Accounting Pronouncements:
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 U.S. Generally Accepted Accounting Principles 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, 2021.
Long–lived tangible assets, net by geographic area, were (in thousands):
United States of America
Foreign countries
2021
As of October 31,
2020
6,104
6,640
12,744
$
$
6,826
7,059
13,885
$
$
2019
7,967
8,006
15,973
$
$
84
84
85
The following table sets forth the contribution of each of our product groups and services to our total sales and
Net assets by geographic area were (in thousands):
service fees during each of the past three fiscal years (in thousands):
Net Sales and Service Fees by Product Category
Computerized Machine Tools
Computer Control Systems and Software †
Service Parts
Service Fees
Total
Year ended October 31,
2021
2020
2019
$ 198,602
$ 139,577
$ 223,735
2,528
26,425
7,640
1,699
22,484
6,867
2,818
27,854
8,970
$ 235,195
$ 170,627
$ 263,377
†
Amounts shown do not include computer control systems and software sold as an integrated component of
computerized machine systems.
three fiscal years (in thousands):
The following table sets forth revenues by geographic area, based on customer location, for each of the past
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
United States of America
Foreign countries
Long–lived tangible assets, net by geographic area, were (in thousands):
Year Ended October 31,
2021
2020
2019
$ 83,218
$ 64,500
$ 95,196
2,636
989
86,843
37,584
30,314
12,718
14,252
21,467
116,335
14,284
16,047
30,331
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
130,497
15,706
16,858
32,564
1,686
588
1,131
$ 235,195
$ 170,627
$ 263,377
As of October 31,
2021
2020
2019
6,104
6,640
12,744
$
$
6,826
7,059
13,885
$
$
7,967
8,006
15,973
$
$
84
Americas
Europe
Asia Pacific
2021
84,385
80,769
73,265
238,419
$
$
As of October 31,
2020
$
$
83,214
77,840
70,094
231,148
$
$
2019
103,863
71,411
64,971
240,245
16. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted 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 2021 and we adopted this standard on November
1, 2020. This standard did not have a significant effect on our accounting policies or on our consolidated
financial statements and related disclosures.
New Accounting Pronouncements:
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 U.S. Generally Accepted Accounting Principles 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, 2021.
85
85
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index, the NASDAQ Global Select Index,
2020 Peer Group and 2021 Peer Group
Item 9.
AND FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
None.
Item 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, including our Chief Executive Officer and
Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of October 31, 2021, pursuant to Rule 13a-15(b) under the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, our management, including the Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were
effective as of the evaluation date.
There have been no changes in our internal control over financial reporting that occurred during the fourth
quarter of the fiscal year ended October 31, 2021 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
The attestation report of our independent registered public accounting firm on our internal control over financial
reporting is included in this report under Item 8. Financial Statements and Supplementary Data. Our
management’s annual report on internal control over financial reporting is included in this report immediately
preceding Item 8.
Item 9B. OTHER INFORMATION
During the fourth quarter of fiscal 2021, the Audit Committee of the Board of Directors did not engage our
independent registered public accounting firm to perform any new non-audit services. This disclosure is made
pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as amended, as added by Section 202 of
the Sarbanes-Oxley Act of 2002.
The following graph compares the cumulative 5-Year total return to shareholders of Hurco Companies, Inc.'s
common stock relative to the cumulative total returns of the Russell 2000 index, the Nasdaq Global Select index
and two customized peer groups of sixteen companies and eighteen companies for the 2020 peer group and the
2021 peer group, respectively, whose individual companies are listed below. An investment of $100 (with
reinvestment of all dividends) is assumed to have been made in our common stock, in each index and in each
of the peer groups on October 31, 2016 and its relative performance is tracked through October 31, 2021.
•
•
The sixteen companies included in the Company's first customized peer group are: Ampco-Pittsburgh
Corp, DMC Global Inc., Douglas Dynamics Inc., Eastern Co, Faro Technologies Inc., Graham Corp,
Helios Technologies Inc., Kadant Inc., Key Tronic Corp, L S Starrett Co, Novanta Inc., Onto Innovation
Inc., Proto Labs Inc., Transcat Inc., Twin Disc Inc. and Vishay Precision Group Inc.
The eighteen companies included in the Company's second customized peer group are: Ampco-Pittsburgh
Corp, Broadwind Inc., DMC Global Inc., Douglas Dynamics Inc., Eastern Co, Energy Recovery Inc.,
Faro Technologies Inc., Graham Corp, Helios Technologies Inc., Key Tronic Corp, L S Starrett Co,
Omega Flex Inc., Onto Innovation Inc., Proto Labs Inc., Transcat Inc., Twin Disc Inc., UFP Technologies
Inc. and Vishay Precision Group Inc.
$350
$300
$250
$200
$150
$100
$50
86
86
87
$0
10/16
10/17
10/18
10/19
10/20
10/21
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2020 Peer Group
2021 Peer Group
*$100 invested on 10/31/16 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Copyright© 2021 Russell Investment Group. All rights reserved.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2020 Peer Group
2021 Peer Group
10/31/16
10/31/17
10/31/18
10/31/19
10/31/20
10/31/21
100.00
100.00
100.00
100.00
100.00
172.80
127.85
129.42
181.00
152.45
158.84
130.22
142.78
200.35
167.33
137.43
136.60
162.48
205.09
163.99
120.02
136.42
209.73
221.96
175.64
132.76
205.72
293.16
328.58
238.70
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, including our Chief Executive Officer and
Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of October 31, 2021, pursuant to Rule 13a-15(b) under the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, our management, including the Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were
effective as of the evaluation date.
There have been no changes in our internal control over financial reporting that occurred during the fourth
quarter of the fiscal year ended October 31, 2021 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
The attestation report of our independent registered public accounting firm on our internal control over financial
reporting is included in this report under Item 8. Financial Statements and Supplementary Data. Our
management’s annual report on internal control over financial reporting is included in this report immediately
preceding Item 8.
Item 9B. OTHER INFORMATION
During the fourth quarter of fiscal 2021, the Audit Committee of the Board of Directors did not engage our
independent registered public accounting firm to perform any new non-audit services. This disclosure is made
pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as amended, as added by Section 202 of
the Sarbanes-Oxley Act of 2002.
The following graph compares the cumulative 5-Year total return to shareholders of Hurco Companies, Inc.'s
common stock relative to the cumulative total returns of the Russell 2000 index, the Nasdaq Global Select index
and two customized peer groups of sixteen companies and eighteen companies for the 2020 peer group and the
2021 peer group, respectively, whose individual companies are listed below. An investment of $100 (with
reinvestment of all dividends) is assumed to have been made in our common stock, in each index and in each
of the peer groups on October 31, 2016 and its relative performance is tracked through October 31, 2021.
•
•
The sixteen companies included in the Company's first customized peer group are: Ampco-Pittsburgh
Corp, DMC Global Inc., Douglas Dynamics Inc., Eastern Co, Faro Technologies Inc., Graham Corp,
Helios Technologies Inc., Kadant Inc., Key Tronic Corp, L S Starrett Co, Novanta Inc., Onto Innovation
Inc., Proto Labs Inc., Transcat Inc., Twin Disc Inc. and Vishay Precision Group Inc.
The eighteen companies included in the Company's second customized peer group are: Ampco-Pittsburgh
Corp, Broadwind Inc., DMC Global Inc., Douglas Dynamics Inc., Eastern Co, Energy Recovery Inc.,
Faro Technologies Inc., Graham Corp, Helios Technologies Inc., Key Tronic Corp, L S Starrett Co,
Omega Flex Inc., Onto Innovation Inc., Proto Labs Inc., Transcat Inc., Twin Disc Inc., UFP Technologies
Inc. and Vishay Precision Group Inc.
86
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index, the NASDAQ Global Select Index,
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hurco Companies, Inc., the Russell 2000 Index, the NASDAQ Global Select Index,
2020 Peer Group and 2021 Peer Group
2020 Peer Group and 2021 Peer Group
$350
$350
$300
$300
$250
$250
$200
$200
$150
$150
$100
$100
$50
$50
$0
10/16
$0
10/16
10/17
10/18
Hurco Companies, Inc.
10/17
Russell 2000
10/18
2020 Peer Group
Hurco Companies, Inc.
2021 Peer Group
Russell 2000
10/19
10/19
10/20
10/21
NASDAQ Global Select
10/20
10/21
NASDAQ Global Select
2020 Peer Group
*$100 invested on 10/31/16 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Copyright© 2021 Russell Investment Group. All rights reserved.
2021 Peer Group
*$100 invested on 10/31/16 in stock or index, including reinvestment of dividends.
Fiscal year ending October 31.
Copyright© 2021 Russell Investment Group. All rights reserved.
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2020 Peer Group
2021 Peer Group
Hurco Companies, Inc.
Russell 2000
NASDAQ Global Select
2020 Peer Group
2021 Peer Group
10/31/20
120.02
136.42
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
209.73
221.96
175.64
10/31/17
172.80
127.85
10/31/17
129.42
172.80
181.00
152.45
127.85
129.42
181.00
152.45
10/31/18
158.84
130.22
10/31/18
142.78
158.84
200.35
167.33
130.22
142.78
200.35
167.33
10/31/19
137.43
136.60
10/31/19
162.48
137.43
205.09
163.99
136.60
162.48
205.09
163.99
10/31/16
100.00
100.00
10/31/16
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
10/31/20
120.02
136.42
209.73
221.96
175.64
10/31/21
132.76
205.72
293.16
328.58
238.70
10/31/21
132.76
205.72
293.16
328.58
238.70
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
87
87
87
PART III
PART IV
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2022 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 2022 annual meeting of shareholders.
Item 12.
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2022 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 2022 annual meeting of shareholders.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14.
The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2022 annual meeting of shareholders.
(a)
1. Financial Statements. The following consolidated financial statements of the Company are included
herein under Item 8 of Part II:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations – years ended October 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income (Loss) – years ended October 31, 2021, 2020 and 2019
Consolidated Balance Sheets – as of October 31, 2021 and 2020
Consolidated Statements of Cash Flows – years ended October 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Shareholders’ Equity – years ended October 31, 2021, 2020 and 2019 57
Notes to Consolidated Financial Statements
Page
50
53
54
55
56
58
2.
Financial Statement Schedule. The following financial statement schedule is included in this Item.
Schedule II – Valuation and Qualifying Accounts and Reserves
for the Years Ended October 31, 2021, 2020 and 2019
(Dollars in thousands)
Charged to/
(Recovered
from)
Costs and
Expenses
Balance at
Beginning
of Period
$
$
$
$
$
$
1,401
891
1,027
2,164
2,227
2,106
$
$
$
$
$
$
$
$
$
$
$
Charged
to Other
Balance
at End
Accounts Deductions
of Period
268
575
(136) $
— $
— $
— $
24 (1) $
65 (1) $
— (1) $
1,645
1,401
891
49
50
458
— $
— $
— $
342
113
337
$
$
$
1,871
2,164
2,227
Description
Allowance for doubtful accounts for
Income tax valuation allowance for
the year ended:
October 31, 2021
October 31, 2020
October 31, 2019
the year ended:
October 31, 2021
October 31, 2020
October 31, 2019
(1) Receivable write–offs.
All other financial statement schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes thereto.
88
88
89
PART III
of Part I.
The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2022 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
Item 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the definitive proxy statement for
our 2022 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 2022 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 2022 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 2022 annual meeting of shareholders.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
1. Financial Statements. The following consolidated financial statements of the Company are included
herein under Item 8 of Part II:
Page
Reports of Independent Registered Public Accounting Firm
50
Consolidated Statements of Operations – years ended October 31, 2021, 2020 and 2019
53
Consolidated Statements of Comprehensive Income (Loss) – years ended October 31, 2021, 2020 and 2019
54
Consolidated Balance Sheets – as of October 31, 2021 and 2020
55
56
Consolidated Statements of Cash Flows – years ended October 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Shareholders’ Equity – years ended October 31, 2021, 2020 and 2019 57
58
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, 2021, 2020 and 2019
(Dollars in thousands)
Charged to/
(Recovered
from)
Costs and
Expenses
Balance at
Beginning
of Period
Charged
to Other
Accounts Deductions
Balance
at End
of Period
$
$
$
$
$
$
1,401
891
1,027
2,164
2,227
2,106
$
$
$
$
$
$
$
268
575
$
(136) $
— $
— $
— $
24 (1) $
65 (1) $
— (1) $
1,645
1,401
891
49
50
458
$
$
$
— $
— $
— $
342
113
337
$
$
$
1,871
2,164
2,227
Description
Allowance for doubtful accounts for
the year ended:
October 31, 2021
October 31, 2020
October 31, 2019
Income tax valuation allowance for
the year ended:
October 31, 2021
October 31, 2020
October 31, 2019
(1) Receivable write–offs.
All other financial statement schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes thereto.
88
89
89
(b) Exhibits
Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:
Exhibits Filed. The following exhibits are filed with this report:
EXHIBITS INDEX
21.1
23.1
31.1
31.2
32.1
32.2
101
104
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, 2021, formatted in Inline XBRL: (i) Consolidated Statements of
Operations; (ii) Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated
Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of
Changes in Shareholders’ Equity; and (vi) Notes to Consolidated Financial Statements
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
3.1
3.2
4.1
Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.
Amended and Restated By-Laws of the Registrant as amended through March 12, 2021,
incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on
March 12, 2021.
Description of the Company’s Common Stock, incorporated by reference to Exhibit 4.1 to the
Registrant’s Form 10-K filed on January 8, 2021.
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.
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 ended January 31, 2017.
10.5*
Hurco Companies, Inc. Cash Incentive Plan, incorporated herein by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on March 10, 2016.
10.6*
Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Michael Doar,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
March 16, 2012.
10.7*
First Amendment to Employment Agreement, dated as of November 11, 2021, by and between
Hurco Companies, Inc. and Michael Doar, incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on November 17, 2021.
10.8*
Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Gregory S.
Volovic, incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K
filed March 16, 2012.
10.9*
First Amendment to Employment Agreement, dated as of November 11, 2021, by and between
Hurco Companies, Inc. and Gregory Volovic, incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed on November 17, 2021.
10.10*
Employment Agreement dated March 15, 2012, between Hurco Companies, Inc. and Sonja K.
McClelland, incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-
K filed March 16, 2012.
10.11*
Hurco Companies, Inc. 2008 Equity Incentive Plan, incorporated by reference to Appendix A of the
Registrant’s definitive Proxy Statement on Schedule 14A filed January 28, 2008.
10.12*
Form of restated split-dollar insurance agreement, incorporated by reference to Exhibit 10.2 to the
Registrant’s Annual Report on Form 10-K for the year ended October 31, 2008.
10.13
Credit Agreement, dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V.,
as the Borrowers, certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A.,
as the Lender, incorporated by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form
10-K for the year ended October 31, 2018.
90
90
91
(b) Exhibits
Exhibits Incorporated by Reference. The following exhibits are incorporated into this report:
Exhibits Filed. The following exhibits are filed with this report:
EXHIBITS INDEX
21.1
23.1
31.1
31.2
32.1
32.2
101
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
Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as amended.
Exchange Act of 1934, as amended.
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
2002.
The following financial information from the Registrant’s Annual Report on Form 10-K for the
fiscal year ended October 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of
Operations; (ii) Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated
Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of
Changes in Shareholders’ Equity; and (vi) Notes to Consolidated Financial Statements
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
3.1
3.2
4.1
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.
Amended and Restated By-Laws of the Registrant as amended through March 12, 2021,
incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on
March 12, 2021.
Description of the Company’s Common Stock, incorporated by reference to Exhibit 4.1 to the
Registrant’s Form 10-K filed on January 8, 2021.
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.
First Amendment to Employment Agreement, dated as of November 11, 2021, by and between
Hurco Companies, Inc. and Michael Doar, incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on November 17, 2021.
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.
First Amendment to Employment Agreement, dated as of November 11, 2021, by and between
Hurco Companies, Inc. and Gregory Volovic, incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed on November 17, 2021.
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.
90
91
91
10.14
10.15
10.16
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.
Third Amendment to Credit Agreement, dated as of December 17, 2021, to the Credit Agreement,
dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers,
certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
December 21, 2021.
* The indicated exhibit is a management contract, compensatory plan, or arrangement required to be listed
by Item 601 of Regulation S-K.
Item 16.
FORM 10-K SUMMARY
None.
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 7th day
of January, 2022.
HURCO COMPANIES, INC.
By:
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer and
Chief Financial Officer
92
92
93
10.14
First Amendment to Credit Agreement, dated as of March 13, 2020, to the Credit Agreement, dated
as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers, certain
subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
10.15
Second Amendment to Credit Agreement, dated as of December 23, 2020, to the Credit Agreement,
dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers,
certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
March 13, 2020.
December 29, 2020.
10.16
Third Amendment to Credit Agreement, dated as of December 17, 2021, to the Credit Agreement,
dated as of December 31, 2018, among Hurco Companies, Inc. and Hurco B.V., as the Borrowers,
certain subsidiaries party thereto, as the Guarantors, and Bank of America, N.A., as the Lender,
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
* The indicated exhibit is a management contract, compensatory plan, or arrangement required to be listed
December 21, 2021.
by Item 601 of Regulation S-K.
Item 16.
FORM 10-K SUMMARY
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 7th day
of January, 2022.
HURCO COMPANIES, INC.
By:
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer and
Chief Financial Officer
92
93
93
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 21.1
Signature and Title(s)
Date
/s/ Gregory S. Volovic
Gregory S. Volovic
Chief Executive Officer and President of Hurco
Companies, Inc.
(Principal Executive Officer)
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer and
Chief Financial Officer of Hurco Companies, Inc.
(Principal Financial Officer)
/s/ HaiQuynh Jamison
HaiQuynh Jamison
Corporate Controller of Hurco Companies, Inc.
(Principal Accounting Officer)
January 7, 2022
January 7, 2022
January 7, 2022
/s/ Michael Doar
Michael Doar, Executive Chairman of the Board
January 7, 2022
/s/ Thomas A. Aaro
Thomas A. Aaro, 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
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
94
94
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF HURCO COMPANIES, INC.
Jurisdiction of Incorporation
The Netherlands
United Kingdom
Federal Republic of Germany
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.
India
Taiwan R.O.C.
France
Italy
Singapore
Italy
United States
United States
China
Hurco Companies, Inc. is the Company’s headquarters in Indianapolis, Indiana, U.S.A. The foregoing list
does not include other subsidiaries which, individually or in the aggregate, did not constitute a significant
subsidiary as of October 31, 2021.
96
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 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF HURCO COMPANIES, INC.
Name
Hurco B.V
Hurco Europe Limited
Hurco GmbH
Hurco India Private, Ltd.
Hurco Manufacturing Limited
Hurco S.a.r.l.
Hurco S.r.l.
Hurco (S.E. Asia) Pte Ltd.
LCM Precision Technology S.r.l.
Machinery Sales Co.
Milltronics USA, Inc.
Ningbo Hurco Machine Tool Co.,
Jurisdiction of Incorporation
The Netherlands
United Kingdom
Federal Republic of Germany
India
Taiwan R.O.C.
France
Italy
Singapore
Italy
United States
United States
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, 2021.
96
95
Signature and Title(s)
Date
/s/ Gregory S. Volovic
Gregory S. Volovic
Chief Executive Officer and President of Hurco
Companies, Inc.
(Principal Executive Officer)
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer and
Chief Financial Officer of Hurco Companies, Inc.
(Principal Financial Officer)
/s/ HaiQuynh Jamison
HaiQuynh Jamison
Corporate Controller of Hurco Companies, Inc.
(Principal Accounting Officer)
/s/ Michael Doar
Michael Doar, Executive Chairman of the Board
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
January 7, 2022
94
/s/ Thomas A. Aaro
Thomas A. Aaro, 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
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT
Exhibit 23.1
Exhibit 31.1
We consent to the incorporation by reference in the Registration Statement (No. 333-48204, 333-126036, 333-
149809 and 333-210072) on Form S-8 of Hurco Companies, Inc. of our report dated January 7, 2022, 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, 2021.
/s/ RSM US LLP
Indianapolis, Indiana
January 7, 2022
97
96
I, Gregory S. Volovic, certify that:
OF
1934, AS AMENDED
1.
I have reviewed this annual report on Form 10-K of Hurco Companies, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)]
and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)] for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
98
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 report dated January 7, 2022, 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, 2021.
/s/ RSM US LLP
Indianapolis, Indiana
January 7, 2022
Exhibit 23.1
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF
1934, AS AMENDED
I, Gregory S. Volovic, certify that:
1.
I have reviewed this annual report on Form 10-K of Hurco Companies, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)]
and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)] for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
97
98
97
(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.
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT
Exhibit 31.2
/s/ Gregory S. Volovic
Gregory S. Volovic
Chief Executive Officer and President
January 7, 2022
99
98
I, Sonja K McClelland, certify that:
OF
1934, AS AMENDED
1.
I have reviewed this annual report on Form 10-K of Hurco Companies, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)]
and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)] for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
100
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant's internal control over financial reporting.
/s/ Gregory S. Volovic
Gregory S. Volovic
Chief Executive Officer and President
January 7, 2022
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF
1934, AS AMENDED
I, Sonja K McClelland, certify that:
Exhibit 31.2
1.
I have reviewed this annual report on Form 10-K of Hurco Companies, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)]
and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)] for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. Generally Accepted Accounting Principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
99
100
99
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant's internal control over financial reporting.
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer and
Chief Financial Officer
January 7, 2022
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the year
ended October 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Gregory S. Volovic
Gregory S. Volovic
Chief Executive Officer and President
January 7, 2022
101
100
102
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant's internal control over financial reporting.
/s/ Sonja K. McClelland
Sonja K. McClelland
Chief Financial Officer
January 7, 2022
Executive Vice President, Treasurer and
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Hurco Companies, Inc. (the “Company”) on Form 10-K for the year
ended October 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Gregory S. Volovic
Gregory S. Volovic
Chief Executive Officer and President
January 7, 2022
101
102
101
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2021, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Treasurer and
Chief Financial Officer
January 7, 2022
103
102
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2021, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned hereby certifies, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Sonja K. McClelland
Sonja K. McClelland
Chief Financial Officer
January 7, 2022
Executive Vice President, Treasurer and
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103
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Hurco Europe Ltd. (United Kingdom)
Serving the United Kingdom, Ireland, Africa, the Middle
East, and Scandinavia
Milltronics Europe
(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)
Ningbo Hurco Trading Co., Ltd.
(Shanghai, China)
Ningbo Hurco Machine Tool Co., Ltd.
(Ningbo, China)
Takumi (Taiwan)
Hurco Companies, Inc.
Hurco North America (Indianapolis, Indiana, USA)
Serving the USA, Canada, Mexico, and South America
Takumi USA (Indianapolis, Indiana, USA)
Serving the USA
ProCobots
(Indianapolis, IN, USA)
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 Australia, Indonesia, Malaysia,
Myanmar, Philippines, Singapore,
South Korea, Thailand, and Vietnam
Hurco Manufacturing Ltd. (Taiwan)
Hurco Automation Ltd. (Taiwan)
Hurco Manufacturing Limited is responsible for the
manufacturing and assembly of Hurco, Milltronics, and
Takumi machine tools.
Hurco Automation Limited is responsible for the manufacturing
and assembly of Hurco and Milltronics controls.
One Technology Way | PO Box 68180 | Indianapolis, IN 46268
800.634.2416 | Hurco.com/Investors