Hurco(HURC) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements for Hurco Companies, Inc. are presented, including statements of operations, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with detailed notes on accounting policies and financial instruments Condensed Consolidated Statements of Operations The company experienced a significant decline in net income for both the three and nine months ended July 31, 2023, compared to the prior year, primarily due to decreased sales and higher effective tax rates Three Months Ended July 31, 2023 vs. 2022 (in thousands, except per share data) | Metric | 2023 | 2022 | Change (YoY) | | :----------------------- | :----- | :----- | :----------- | | Sales and service fees | $53,201 | $57,640 | -8% | | Gross profit | $13,448 | $14,399 | -6.6% | | Operating income | $1,012 | $1,752 | -42.3% | | Net income | $260 | $1,238 | -79% | | Basic income per common share | $0.04 | $0.19 | -78.9% | | Diluted income per common share | $0.04 | $0.18 | -77.8% | | Dividends paid per share | $0.16 | $0.15 | +6.7% | Nine Months Ended July 31, 2023 vs. 2022 (in thousands, except per share data) | Metric | 2023 | 2022 | Change (YoY) | | :----------------------- | :------- | :------- | :----------- | | Sales and service fees | $161,702 | $187,352 | -13.7% | | Gross profit | $38,749 | $46,908 | -17.4% | | Operating income | $3,237 | $10,049 | -67.8% | | Net income | $1,967 | $6,802 | -71.1% | | Basic income per common share | $0.30 | $1.02 | -70.6% | | Diluted income per common share | $0.30 | $1.01 | -70.3% | | Dividends paid per share | $0.47 | $0.44 | +6.8% | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss for the three months ended July 31, 2023, and a comprehensive income for the nine months, primarily influenced by foreign currency translation gains/losses and derivative instrument gains/losses Comprehensive Income (Loss) (in thousands) | Period | 2023 | 2022 | | :------------------- | :------- | :------- | | Three Months Ended July 31 | $(1,601) | $(1,670) | | Nine Months Ended July 31 | $8,622 | $(5,129) | Total Other Comprehensive Income (Loss) (in thousands) | Period | 2023 | 2022 | | :------------------- | :------- | :-------- | | Three Months Ended July 31 | $(1,861) | $(2,908) | | Nine Months Ended July 31 | $6,655 | $(11,931) | Condensed Consolidated Balance Sheets As of July 31, 2023, total assets slightly decreased compared to October 31, 2022, with a notable decrease in cash and cash equivalents but an increase in inventories. Total liabilities decreased, while shareholders' equity increased Balance Sheet Highlights (in thousands) | Metric | July 31, 2023 | October 31, 2022 | Change | | :-------------------------- | :-------------- | :--------------- | :------- | | Cash and cash equivalents | $41,030 | $63,922 | -35.8% | | Accounts receivable, net | $33,281 | $38,444 | -13.4% | | Inventories, net | $178,423 | $156,207 | +14.2% | | Total current assets | $261,963 | $268,069 | -2.3% | | Total assets | $303,217 | $306,237 | -1.0% | | Total current liabilities | $63,843 | $73,336 | -12.9% | | Total non-current liabilities | $13,573 | $10,257 | +32.3% | | Total liabilities | $77,416 | $83,593 | -7.4% | | Total shareholders' equity | $225,801 | $222,644 | +1.4% | Condensed Consolidated Statements of Cash Flows The company experienced negative cash flow from operating activities for both the three and nine months ended July 31, 2023, primarily due to changes in working capital, particularly an increase in inventories. Cash and cash equivalents decreased significantly Cash Flows from Operating Activities (in thousands) | Period | 2023 | 2022 | | :------------------- | :-------- | :-------- | | Three Months Ended July 31 | $(9,147) | $(5,871) | | Nine Months Ended July 31 | $(16,182) | $2,441 | Net Increase (Decrease) in Cash and Cash Equivalents (in thousands) | Period | 2023 | 2022 | | :------------------- | :--------- | :--------- | | Three Months Ended July 31 | $(11,125) | $(8,506) | | Nine Months Ended July 31 | $(22,892) | $(10,527) | Cash and Cash Equivalents at End of Period (in thousands) | Period | 2023 | 2022 | | :------------------- | :-------- | :-------- | | July 31 | $41,030 | $73,536 | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased slightly from October 31, 2022, to July 31, 2023, driven by net income and other comprehensive income, partially offset by dividends paid and stock repurchases Shareholders' Equity (in thousands) | Metric | July 31, 2023 | October 31, 2022 | | :-------------------------- | :-------------- | :--------------- | | Total Shareholders' Equity | $225,801 | $222,644 | - Key changes for the nine months ended July 31, 2023 (in thousands) include net income of $1,967, other comprehensive income of $6,655, stock-based compensation expense of $1,967, stock repurchases of $(4,609), and dividends paid of $(3,093)[19] Notes to Condensed Consolidated Financial Statements These notes provide additional information and details regarding the company's accounting policies, financial instruments, equity compensation, debt, and other financial matters, offering context to the condensed consolidated financial statements 1. GENERAL This section provides an overview of Hurco Companies, Inc.'s business, including its products, global operations, and factors affecting operating results - Hurco Companies, Inc. designs, manufactures, and sells computerized (CNC) machine tools (vertical machining centers and turning centers) to the metal cutting industry globally, along with components, automation integration, software, accessories, and customer support[21][24] - Operating results have been affected by international business disruption due to COVID-19, vendor delays, transportation issues, high inflation, foreign currency volatility, competitive labor markets, and political friction[22] 2. REVENUE RECOGNITION This section details the company's policies for recognizing revenue from machine tool sales, installation services, and maintenance contracts - Revenue from sales of machine tool systems is recognized upon delivery of the product to the customer or distributor, normally at the time of shipment, as the customer obtains control[26] - Installation for three-axis machines is considered inconsequential; for five-axis machines, installation revenue is recognized prorata over the installation process[27] - Service fees from maintenance contracts are deferred and recognized prorata over the contract term[28] 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The company utilizes foreign currency forward exchange contracts to mitigate risks from exchange rate fluctuations on investments, sales, purchases, receivables, and payables - The company uses foreign currency forward exchange contracts to reduce the potential effects of foreign exchange rate movements on its net equity investment in foreign subsidiaries, gross profit, net earnings from foreign currency sales/purchases, and foreign currency receivables/payables[29][30] - Derivatives designated as cash flow hedges mitigate risk from forecasted inter-company sales and purchases (Pound Sterling, Euro, New Taiwan Dollar), with effective portions of gains/losses deferred in Accumulated other comprehensive income (loss) and reclassified to Cost of sales and service[31] - A forward contract with a notional amount of €3.0 million is designated as a net investment hedge for Euro-denominated assets, with changes in fair value reported as a cumulative translation adjustment in Accumulated other comprehensive income (loss)[33] Fair Value of Derivative Instruments (July 31, 2023, in thousands) | Derivative Type | Balance Sheet Location | Fair Value | | :---------------------------------- | :--------------------- | :--------- | | Designated as Hedging Instruments (Assets) | Derivative assets | $7 | | Designated as Hedging Instruments (Liabilities) | Derivative liabilities | $1,457 | | Not Designated as Hedging Instruments (Assets) | Derivative assets | $162 | | Not Designated as Hedging Instruments (Liabilities) | Derivative liabilities | $1,146 | 4. EQUITY INCENTIVE PLAN This section outlines the company's equity incentive plan, including grants of restricted stock and performance units to directors and executive officers - The 2016 Equity Incentive Plan is the active plan for granting stock options, restricted stock, and performance units; no stock options remained outstanding as of July 31, 2023[39][41] - On March 9, 2023, 17,226 shares of time-based restricted stock were granted to non-employee directors, vesting in one year, with a grant date fair value of $27.86 per share[42] - On January 3, 2023, executive officers received 29,376 time-based restricted shares (vesting over three years, $26.38/share fair value) and performance stock units (PSUs) tied to average net income (47,003 target PSUs-NI) and free cash flow (41,126 target PSUs-FCF) for fiscal years 2023-2025[43][44][45][46] - Stock-based compensation expense for the nine months ended July 31, 2023, was approximately $2.3 million, with an estimated $4.5 million of unrecognized cost remaining as of July 31, 2023[48] 5. EARNINGS PER SHARE This section presents the basic and diluted earnings per common share for the three and nine months ended July 31, 2023 and 2022 Income Per Common Share (Three Months Ended July 31) | Metric | 2023 | 2022 | | :----------- | :--- | :--- | | Basic | $0.04 | $0.19 | | Diluted | $0.04 | $0.18 | Income Per Common Share (Nine Months Ended July 31) | Metric | 2023 | 2022 | | :----------- | :--- | :--- | | Basic | $0.30 | $1.02 | | Diluted | $0.30 | $1.01 | 6. ACCOUNTS RECEIVABLE This section details the company's accounts receivable, net of allowances for doubtful accounts - Accounts receivable are net of allowances for doubtful accounts of $1.5 million as of both July 31, 2023, and October 31, 2022[50] 7. INVENTORIES This section provides a breakdown of the company's inventories, including purchased parts, work-in-process, and finished goods, net of reserves Inventories, Net (in thousands) | Metric | July 31, 2023 | October 31, 2022 | Change | | :-------------------------- | :-------------- | :--------------- | :------- | | Purchased parts and sub-assemblies | $46,884 | $46,796 | +0.2% | | Work-in-process | $19,446 | $16,539 | +17.6% | | Finished goods | $115,852 | $96,305 | +20.3% | | Inventories, gross | $182,182 | $159,640 | +14.1% | | Reserve for purchased parts and sub-assemblies | $(3,759) | $(3,433) | +9.5% | | Inventories, net | $178,423 | $156,207 | +14.2% | 8. LEASES This section describes the company's accounting for operating leases, including right-of-use assets, lease liabilities, and related expenses - The company records right-of-use assets and lease liabilities for operating leases with terms over 12 months[53] Operating Lease Expense (Nine Months Ended July 31, in thousands) | Year | Amount | | :--- | :----- | | 2023 | $3,900 | | 2022 | $3,800 | - As of July 31, 2023, the weighted-average remaining lease term was approximately 4.2 years, and the weighted-average discount rate was approximately 2.9%[56] 9. SEGMENT INFORMATION The company operates as a single segment focused on industrial automation equipment, specifically CNC machine tools and related products/services - Hurco operates in a single segment: industrial automation equipment, focusing on the design, manufacture, and sale of computerized (CNC) machine tools and related products/services to the metal cutting industry[57] 10. GUARANTEES AND PRODUCT WARRANTIES This section details the company's outstanding third-party payment guarantees and its product warranty reserve - As of July 31, 2023, the company had nine outstanding third-party payment guarantees totaling approximately $0.9 million, which are accrued at fair value and considered insignificant[58] Warranty Reserve (in thousands) | Metric | July 31, 2023 | July 31, 2022 | | :-------------------------- | :-------------- | :-------------- | | Balance, beginning of period | $1,426 | $1,516 | | Provision for warranties | $1,949 | $2,183 | | Charges to the reserve | $(2,119) | $(2,177) | | Impact of foreign currency translation | $62 | $(85) | | Balance, end of period | $1,318 | $1,437 | - The year-over-year decrease in the warranty reserve was primarily due to a lower volume of machine sales[59] 11. DEBT AGREEMENTS This section outlines the company's revolving credit facilities and other uncommitted credit lines, along with associated covenants and available borrowing capacity - The company maintains a $40.0 million unsecured revolving credit facility (2018 Credit Agreement) with Bank of America, N.A., maturing December 31, 2023, and other uncommitted credit facilities in Taiwan (150 million NTD), China (32.5 million CNY), and Germany (€1.5 million)[60][63][64] - As of July 31, 2023, there were no borrowings outstanding under any credit facilities, with approximately $51.0 million of available borrowing capacity[65] - The 2018 Credit Agreement includes covenants requiring a minimum working capital of $125.0 million and a minimum tangible net worth of $176.5 million, along with restrictions on dividends and stock repurchases[62] 12. INCOME TAXES This section provides details on the company's income tax expense and effective tax rates, highlighting factors influencing year-over-year changes Income Tax Expense (Nine Months Ended July 31, in thousands) | Year | Amount | | :--- | :----- | | 2023 | $1,300 | | 2022 | $3,000 | Effective Tax Rate (Nine Months Ended July 31) | Year | Rate | | :--- | :--- | | 2023 | 40% | | 2022 | 31% | - The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss, discrete items related to stock compensation, the impact of valuation allowances for China operations, and lower levels of consolidated income before taxes[69] - The Inflation Reduction Act of 2022 is not expected to have a material impact on the company's income taxes[67] 13. FINANCIAL INSTRUMENTS This section describes the company's financial instruments, their fair value categorization, and derivative notional amounts - The company categorizes financial assets and liabilities measured at fair value into a three-tier hierarchy: Level 1 (observable inputs like quoted prices), Level 2 (inputs other than quoted prices, directly or indirectly observable), and Level 3 (unobservable inputs)[72] - Cash and cash equivalents, along with deferred compensation mutual fund investments, are classified as Level 1 assets. Derivative assets and liabilities related to foreign currency forward exchange contracts are classified as Level 2[73][74][75] Derivative Notional Amounts (U.S. dollar equivalent, in millions) | Date | Amount | | :----------- | :----- | | July 31, 2023 | $93.0 | | October 31, 2022 | $102.8 | 14. CONTINGENCIES AND LITIGATION The company is involved in various claims and lawsuits, none of which are expected to have a material adverse effect on its financial position or operations - The company is involved in various claims and lawsuits arising in the normal course of business, but does not expect any of these to have a material adverse effect on its consolidated financial position or results of operations[78] 15. NEW ACCOUNTING PRONOUNCEMENTS The company has reviewed recent accounting pronouncements and anticipates no material impact on its condensed consolidated financial statements - The company reviewed all recently issued accounting pronouncements and concluded they are either not applicable or not expected to have a significant impact on its condensed consolidated financial statements as of July 31, 2023[79] Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial condition, liquidity, capital resources, and operating results, highlighting its business model and challenges in a volatile global environment EXECUTIVE OVERVIEW Hurco is an international industrial technology company specializing in CNC machine tools (Hurco, Milltronics, Takumi brands) and automation solutions (ProCobots), with significant foreign sales (56% Europe, 8% Asia Pacific in 9M FY23) and manufacturing operations. The company faces risks from global economic disruptions, inflation, and currency volatility - Hurco designs, manufactures, and sells computerized (CNC) machine tools (vertical machining centers and turning centers) to the metal cutting industry, along with machine tool components, automation integration equipment, software, and support services[82][85] - Approximately 56% of revenues for the nine months of fiscal year 2023 were from Europe, and 8% from the Asia Pacific region[84] - The company's operating results have been affected by international business disruption due to COVID-19, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, and political friction[89] RESULTS OF OPERATIONS Sales and profitability declined for both the three and nine months ended July 31, 2023, driven by decreased machine tool shipments, though gross profit margins remained stable Three Months Ended July 31, 2023 Compared to Three Months Ended July 31, 2022 Sales and operating income decreased significantly for the three months ended July 31, 2023, primarily due to lower machine tool sales in the Americas and Asia Pacific - Sales and service fees for the third quarter of fiscal year 2023 decreased by $4.4 million, or 8%, to $53.2 million, compared to the prior year, including a favorable currency impact of $0.6 million (1%)[90] Sales and Service Fees by Geographic Region (Three Months Ended July 31, in thousands) | Region | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :----------- | :----- | :--------- | :----- | :--------- | :------- | :------- | | Americas | $18,272 | 34% | $23,736 | 41% | $(5,464) | (23)% | | Europe | $31,162 | 59% | $28,932 | 50% | $2,230 | 8% | | Asia Pacific | $3,767 | 7% | $4,972 | 9% | $(1,205) | (24)% | | Total | $53,201 | 100% | $57,640 | 100% | $(4,439) | (8)% | - European sales increased by 8% due to increased volume and improved mix of higher-performance Hurco VMX and five-axis machines, and increased sales of Milltronics machines and LCM components, despite overall sales decline[92] Sales and Service Fees by Product Category (Three Months Ended July 31, in thousands) | Product Category | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :-------------------------- | :----- | :--------- | :----- | :--------- | :------- | :------- | | Computerized Machine Tools | $43,189 | 81% | $48,414 | 84% | $(5,225) | (11)% | | Computer Control Systems and Software | $778 | 1% | $652 | 1% | $126 | 19% | | Service Parts | $7,166 | 14% | $6,588 | 11% | $578 | 9% | | Service Fees | $2,068 | 4% | $1,986 | 4% | $82 | 4% | | Total | $53,201 | 100% | $57,640 | 100% | $(4,439) | (8)% | - Orders for the third quarter decreased by $10.8 million, or 20%, to $42.1 million, with significant declines in the Americas (33%) and Asia Pacific (43%), partially offset by a favorable currency impact of $1.1 million (2%)[96][97][99] - Gross profit decreased by $1.0 million to $13.4 million, but the gross profit margin remained stable at 25% due to an increased mix of higher-performance VMX and five-axis machines sold in Europe[100] - Operating income decreased by $2.2 million to $1.0 million, primarily due to lower sales volume and the negative impact of fixed costs[102] - The effective tax rate increased to 60% from 28%, driven by changes in geographic income mix, stock compensation items, valuation allowances for China operations, and lower consolidated income before taxes[103] Nine Months Ended July 31, 2023 Compared to Nine Months Ended July 31, 2022 Sales and operating income declined substantially for the nine months ended July 31, 2023, driven by reduced machine tool shipments across all regions, especially Asia Pacific - Sales and service fees for the nine months of fiscal year 2023 decreased by $25.7 million, or 14%, to $161.7 million, compared to the prior year, including an unfavorable currency impact of $4.1 million (2%)[104] Sales and Service Fees by Geographic Region (Nine Months Ended July 31, in thousands) | Region | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :----------- | :------- | :--------- | :------- | :--------- | :------- | :------- | | Americas | $58,609 | 36% | $70,154 | 38% | $(11,545) | (16)% | | Europe | $89,745 | 56% | $93,932 | 50% | $(4,187) | (4)% | | Asia Pacific | $13,348 | 8% | $23,266 | 12% | $(9,918) | (43)% | | Total | $161,702 | 100% | $187,352 | 100% | $(25,650) | (14)% | - Asian Pacific sales decreased significantly by 43% due to reduced shipments of Hurco and Takumi machines in China, Southeast Asia, and India[107] Sales and Service Fees by Product Category (Nine Months Ended July 31, in thousands) | Product Category | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :-------------------------- | :------- | :--------- | :------- | :--------- | :------- | :------- | | Computerized Machine Tools | $132,535 | 82% | $158,774 | 85% | $(26,239) | (17)% | | Computer Control Systems and Software | $1,916 | 1% | $2,017 | 1% | $(101) | (5)% | | Service Parts | $21,101 | 13% | $20,496 | 11% | $605 | 3% | | Service Fees | $6,150 | 4% | $6,065 | 3% | $85 | 1% | | Total | $161,702 | 100% | $187,352 | 100% | $(25,650) | (14)% | - Orders for the nine months decreased by $27.1 million, or 15%, to $155.5 million, with an unfavorable currency impact of $4.0 million (2%). All geographic regions experienced declines, particularly Asia Pacific (42%) and Americas (17%)[110][113][115] - Gross profit decreased by $8.2 million to $38.7 million, but the gross profit margin remained relatively stable at 24% due to an increased mix of higher-performance VMX and five-axis machines sold in Europe[116] - Operating income decreased by $6.8 million to $3.2 million, primarily due to lower sales volume and the negative impact of fixed costs[118] - The effective tax rate increased to 40% from 31%, driven by changes in geographic income mix, stock compensation items, valuation allowances for China operations, and lower consolidated income before taxes[120] LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased, while working capital increased, with the company maintaining adequate liquidity through credit facilities despite share repurchases and dividends Cash and Cash Equivalents (in thousands) | Date | Amount | | :----------- | :------- | | July 31, 2023 | $41,030 | | October 31, 2022 | $63,922 | Working Capital (in thousands) | Date | Amount | | :----------- | :------- | | July 31, 2023 | $198,100 | | October 31, 2022 | $194,700 | - During the nine months of fiscal year 2023, the company repurchased approximately $4.6 million in shares under its repurchase programs and paid $3.1 million in cash dividends[125][126] - As of July 31, 2023, the company had approximately $51.0 million available for borrowing under its credit facilities and was in compliance with all covenants[132] - The company believes its international cash pooling strategy and available borrowing capacity provide adequate liquidity to fund global operations and strategic plans, including product innovation, acquisitions, market penetration, dividends, and stock repurchases[133] CRITICAL ACCOUNTING ESTIMATES There were no material changes to the critical accounting estimates described in the Annual Report on Form 10-K for the fiscal year ended October 31, 2022 - No material changes to critical accounting estimates occurred during the nine months of fiscal year 2023[135] CONTRACTUAL OBLIGATIONS AND COMMITMENTS There have been no material changes related to contractual obligations and commitments from the information provided in the Annual Report on Form 10-K for the fiscal year ended October 31, 2022 - No material changes related to contractual obligations and commitments from the prior Annual Report on Form 10-K[136] OFF BALANCE SHEET ARRANGEMENTS The company has off-balance sheet arrangements primarily consisting of third-party payment guarantees for customer machine sales, totaling approximately $0.9 million as of July 31, 2023. These are accrued at fair value and are considered insignificant - As of July 31, 2023, the company had nine outstanding third-party payment guarantees totaling approximately $0.9 million, which are accrued at fair value and considered insignificant[137] CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This section cautions that forward-looking statements are subject to various risks and uncertainties, including industry cyclicality, economic conditions, and international operations - Forward-looking statements are subject to risks including the cyclical nature of the machine tool industry, uncertain economic conditions, international operations, governmental actions, currency exchange rates, competition, dependence on new product development, intellectual property protection, supply chain limitations, raw material prices, loss of key personnel, acquisition integration, data privacy/security, technology obsolescence, asset impairment, tax consequences, tax loss carryforwards, SOFR rate changes, and the impact of the COVID-19 pandemic[139][140] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's exposure to interest rate and foreign currency exchange risks, and its use of hedging instruments to manage these exposures Interest Rate Risk The company's interest rate risk is tied to variable rates on credit agreements, though no borrowings were outstanding as of July 31, 2023 - Interest on borrowings under bank credit agreements is tied to prevailing domestic and foreign interest rates; however, as of July 31, 2023, the company had no borrowings outstanding under any of its credit facilities[141] Foreign Currency Exchange Risk The company faces significant foreign currency exchange risk from international sales and uses forward exchange contracts to hedge these exposures - Approximately 64% of revenues for the nine months of fiscal year 2023 were derived from customers outside the Americas, with invoices and payments in various foreign currencies, exposing the company to significant foreign currency exchange risk[142] - The company uses foreign currency forward exchange contracts to hedge cash flow risk related to forecasted inter-company sales and purchases (primarily Euro, Pound Sterling, and New Taiwan Dollar) and to protect against fluctuations on receivables and payables[144] Forward Contracts Designated as Cash Flow Hedges (July 31, 2023, in thousands) | Currency | Notional Amount | USD Equivalent | Maturity Dates | | :--------------- | :-------------- | :------------- | :--------------- | | Euro (Sale) | €10,500 | $11,643 | Aug 2023 - Jul 2024 | | Sterling (Sale) | £4,100 | $5,267 | Aug 2023 - Jul 2024 | | New Taiwan Dollar (Purchase) | NT$565,000 | $18,291 | Aug 2023 - Jul 2024 | Forward Contracts Not Designated as Hedges (July 31, 2023, in thousands) | Currency | Notional Amount | USD Equivalent | Maturity Dates | | :--------------- | :-------------- | :------------- | :--------------- | | Euro (Sale) | €16,296 | $18,024 | Aug 2023 - Jan 2024 | | Sterling (Sale) | £815 | $1,048 | Aug 2023 | | New Taiwan Dollar (Purchase) | NT$1,080,500 | $34,514 | Aug 2023 - Sep 2023 | - A forward contract with a notional amount of €3.0 million is designated as a net investment hedge for Euro-denominated assets, resulting in a realized gain of $1.3 million and an unrealized loss of $0.2 million (net of tax) as of July 31, 2023[146] Item 4. CONTROLS AND PROCEDURES Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of July 31, 2023. No material changes in internal control over financial reporting occurred during the three months ended July 31, 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of July 31, 2023[147] - There were no changes in internal control over financial reporting during the three months ended July 31, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[148] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits Item 1. LEGAL PROCEEDINGS The company is involved in various claims and lawsuits arising in the normal course of business, for which it accrues minimum liabilities and maintains insurance. No material adverse effect on financial position or results of operations is expected - The company does not expect any current claims or lawsuits, individually or in the aggregate, to have a material adverse effect on its consolidated financial position or results of operations[150] Item 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended October 31, 2022 - No material changes from the risk factors disclosed in Part I, Item 1A – Risk Factors in the Annual Report on Form 10-K for the year ended October 31, 2022[151] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not repurchase any shares of its common stock in the third quarter of fiscal 2023 - The company did not repurchase any shares of its common stock in the third quarter of fiscal 2023[152] Item 5. OTHER INFORMATION During the period covered by this report, the Audit Committee engaged the independent registered public accounting firm to perform non-audit, tax planning services. No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the period - The Audit Committee engaged the independent registered public accounting firm to perform non-audit, tax planning services[153] - No directors or officers adopted, modified, or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy Rule 10b5-1(c) of the Exchange Act during the three months ended July 31, 2023[154] Item 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including corporate documents, certifications by the Chief Executive Officer and Chief Financial Officer, and financial information formatted in Inline XBRL - Key exhibits include Amended and Restated Articles of Incorporation and By-Laws, certifications by the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a) and Section 906 of Sarbanes-Oxley Act), and financial information formatted in Inline XBRL[158] SIGNATURES The report is signed on behalf of Hurco Companies, Inc. by Sonja K. McClelland, Executive Vice President, Treasurer & Chief Financial Officer, on September 8, 2023 - The report was signed by Sonja K. McClelland, Executive Vice President, Treasurer & Chief Financial Officer, on September 8, 2023[160]