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What changed in HURCO COMPANIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HURCO COMPANIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+165 added−202 removedSource: 10-K (2024-01-05) vs 10-K (2023-01-06)

Top changes in HURCO COMPANIES INC's 2023 10-K

165 paragraphs added · 202 removed · 144 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThese compact machines are available with chuck sizes of six, eight, and ten inches and support an optional conversational high-efficiency cutting cycle on the control called Bi-Directional Turning, a cutting strategy typically available only with high-end CAD/CAM systems. ​ Product Development In fiscal year 2022, Milltronics hardware upgrades included expanded capacity automatic tool changers (30-tool ATC) for the XP Series and enhanced spindle speeds (12,000 rpm standard and a 15,000 rpm option) for the IL Series. ​ Takumi CNC Machine Tools ​ The Takumi brand features machines designed for applications requiring precision and high speed, high efficiency milling.
Biggest changeThese compact machines are available with chuck sizes of six, eight, and ten inches and support an optional conversational high-efficiency cutting cycle on the control called Bi-Directional Turning, a cutting strategy typically available only with high-end CAD/CAM systems. ​ Product Development In fiscal year 2023, Milltronics introduced the new Inspire CNC control, leveraging patented Hurco intellectual property to enhance cutting precision and surface finish on Milltronics machine tools.
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. 15 ​ Demand ​ We believe demand for our products is driven by advances in industrial technology and the related demand for automated process improvements.
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.
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. ​ 9 ​ SL Product Line The SL product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract manufacturers seeking efficient processing of small to medium lot sizes.
There are 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.
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 welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse, and inclusive workforce. ​ 17 ​ 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.
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. ​ Parts and Service ​ Our service organization provides installation, warranty, operator training, and customer support for our products on a worldwide basis.
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. ​ ​ ​ ​ ​ 14 ​ Parts and Service ​ Our service organization provides installation, warranty, operator training, and customer support for our products on a worldwide basis.
The control is compatible with G & M Code programs (generated from CAD/CAM software) and also features onboard conversational visual aid programming. ​ 8 ​ The Milltronics portfolio consists of the following product lines: ​ VK Series The VK is our CNC knee mill designed for prototype, research and development, maintenance, and other general-purpose applications.
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, research and development, maintenance, and other general-purpose applications.
BR machines have inline spindles and are available in 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.
BR machines have inline spindles and are available in six models with up to 200 inches in X-axis travel by 80 inches in Y-axis travel. ​ 9 ​ 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.
We believe our after-sales parts and service business strengthens our customer relationships and provides continuous information concerning the evolving requirements of end-users. ​ ​ 14 ​ Manufacturing ​ Our computerized metal cutting machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiary in Taiwan (Hurco Manufacturing Limited (“HML”)).
We believe our after-sales parts and service business strengthens our customer relationships and provides continuous information concerning the evolving requirements of end-users. ​ Manufacturing ​ Our computerized metal cutting machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiary in Taiwan (Hurco Manufacturing Limited (“HML”)).
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.
The sale of simultaneous five-axis contouring software is subject to government export licensing requirements. ​ ​ ​ 13 ​ ProCobots CNC Automation ​ ProCobots provides automation solutions including collaborative robots (cobots), grippers, material handling, and Industry 4.0-capable software and controls.
ProCobots solutions are available for any Hurco, Milltronics, or Takumi machine. ​ ​ 13 ​ 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.
ProCobots solutions are available for any Hurco, Milltronics, or Takumi machine. ​ 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.
In addition, we routinely invest in seminar, conference, and other training or continuing education events for our employees. ​ 17 ​ Diversity and Inclusion We are committed to fostering work environments that value and promote diversity and inclusion.
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.
Designed to be easy to use, safe, and flexible, ProCobots solutions are standardized systems aimed at customers who are in the high-mix, low- and medium-volume manufacturing environments.
Designed to be easy to use, safe, and flexible, ProCobots solutions are standardized systems aimed at customers who are in high-mix, low- and medium-volume manufacturing environments.
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 approximately 200 independent agents and distributors throughout North and South America (the “Americas”), Europe, and Asia.
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 approximately 180 independent agents and distributors throughout North and South America (the “Americas”), Europe, and Asia.
Unlike most competitive models, it is not a retrofit kit but rather designed from the ground up as a CNC. ​ 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.
Unlike most competitive models, it is not a retrofit kit but rather designed from the ground up as a CNC. ​ 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 worktable.
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 sales, application engineering, and service subsidiaries in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and the U.S.
Industry association data for the U.S. machine tool market is available, and that market accounts for approximately 15% of worldwide consumption.
Industry association data for the U.S. machine tool market is available, and that market accounts for approximately 13% of worldwide consumption.
The detail allows the customer to evaluate how the part is programmed to be machined before cutting commences, which eliminates the need to scrap expensive material. ​ Our Swept Surface software option simplifies programming of 3D contours and significantly reduces programming time. ​ The DXF Transfer software option increases operator productivity because it eliminates manual data entry of part features by transferring AutoCAD ® * drawing files directly into our computer control or into our desktop programming software, WinMax ® Desktop. ​ 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. ​ Designed to take advantage of the Internet of Things, 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.
The detail allows the customer to evaluate how the part is programmed to be machined before cutting commences, which eliminates the need to scrap expensive material. ​ Our Swept Surface software option simplifies programming of 3D contours and significantly reduces programming time. ​ The DXF Transfer software option increases operator productivity because it eliminates manual data entry of part features by transferring AutoCAD ® * drawing files directly into our computer control or into our desktop programming software, WinMax ® Desktop. ​ 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. ​ ________________________ * AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries. 12 ​ Designed to take advantage of the Internet of Things, 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.
Reports available for the U.S. machine tool market include: • The 2021 World Machine Tool Survey by Gardner Intelligence; • 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.
Reports available for the U.S. machine tool market include: • Global Machine Tool Outlook – generated by Oxford Economics; • 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.
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. ​ 16 ​ Human Capital Resources ​ Hurco is committed to attracting and retaining the brightest and best talent.
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.
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, ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ Computerized Machine Tools $ 211,804 85 % $ 198,602 85 % $ 139,577 82 % Computer Control Systems and Software † ​ 2,634 1 % 2,528 1 % 1,699 1 % Service Parts ​ 28,219 11 % 26,425 11 % 22,484 13 % Service Fees ​ 8,157 3 % 7,640 3 % 6,867 4 % Total ​ $ 250,814 100 % $ 235,195 100 % $ 170,627 100 % † Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.
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, ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Computerized Machine Tools $ 188,335 83 % $ 211,804 85 % $ 198,602 85 % Computer Control Systems and Software † ​ 2,805 1 % 2,634 1 % 2,528 1 % Service Parts ​ 28,439 12 % 28,219 11 % 26,425 11 % Service Fees ​ 8,228 4 % 8,157 3 % 7,640 3 % Total ​ $ 227,807 100 % $ 250,814 100 % $ 235,195 100 % † Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.
Additionally, a new 60-station automatic tool changer was introduced for H-Series machines. ​ 11 ​ Other Computer Control Systems and Software Products ​ The following machine tool computer control systems and software products are sold directly to end-users and/or to other original equipment manufacturers (“OEMs”). ​ Autobend ® Our Autobend ® computer control systems are applied to metal bending press brake machines that form parts from sheet metal and steel plate.
Additionally, a new 60” X-travel VC1500 was introduced to the marketplace. ​ Other Computer Control Systems and Software Products ​ The following machine tool computer control systems and software products are sold directly to end-users and/or to other original equipment manufacturers (“OEMs”). ​ Autobend ® Our Autobend ® computer control systems are applied to metal bending press brake machines that form parts from sheet metal and steel plate.
The two lines of swivel heads are differentiated by the type of transmission (either mechanical transmission or torque motor). ​ Product Development In 2022, LCM developed a new high-performance Mill Turn rotary torque table with a 1200 mm diameter table capable of a speed of 800 rpm. ​ Non-Hurco Branded Products & Technologies ​ While our three brands of CNC machine tools, related software products, Autobend ® , ProCobots, and LCM are responsible for the vast majority of our revenue, we have added certain other non-Hurco OEM products to our portfolio that contribute to our top and bottom line, provide product diversity and market penetration opportunity, and reduce the impact of geographic cyclicality.
The two lines of swivel heads are differentiated by the type of transmission (either mechanical transmission or torque motor). ​ Non-Hurco Branded Products & Technologies ​ While our three brands of CNC machine tools, related software products, Autobend ® , ProCobots, and LCM are responsible for the vast majority of our revenue, we have added certain other non-Hurco OEM products to our portfolio that contribute to our top and bottom line, provide product diversity and market penetration opportunity, and reduce the impact of geographic cyclicality.
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.
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. ​ 16 ​ Intellectual Property ​ We consider the majority of our products to be proprietary.
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 year 2022, our sales and service fees were $250.8 million, an increase of $15.6 million, or 7%, compared to fiscal year 2021 and included an unfavorable currency impact of $13.9 million, or 6%, when translating foreign sales to U.S.
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 year 2023, our sales and service fees were $227.8 million, a decrease of $23.0 million, or 9%, compared to fiscal year 2022 and included an unfavorable currency impact of $2.4 million, or 1%, when translating foreign sales to U.S. dollars for financial reporting purposes.
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 85% of the worldwide demand for computerized machine tools and computer control systems is outside of the U.S. In fiscal year 2022, approximately 62% of our revenues were derived from customers outside of the Americas.
Our selling divisions in the United States have responsibility for the Americas, which includes Canada, Mexico, Central America, South America, and the U.S. ​ 15 ​ Approximately 87% of the worldwide demand for computerized machine tools and computer control systems is outside of the U.S.
Islands can also be rotated, scaled and repeated. ________________________ * AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S. and/or other countries. 12 ​ Conversational Part and Tool Probing options permit the computerized dimensional measurement of machined parts and the associated cutting tools.
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.
No single end-user or distributor of our products accounted for more than 5% of our total sales and service fees.
In fiscal year 2023, approximately 61% 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 SL Series includes four models: the SL200 and SL250, both available with ten-inch chucks; the SL300, which has a 12-inch chuck; and the SL450, which has an 18-inch chuck. ​ Product Development In 2022, Takumi launched its largest lathe, the SL450, which has an 18-inch chuck.
The SL Series includes four models: the SL200 and SL250, both available with ten-inch chucks; the SL300, which has a 12-inch chuck; and the SL450, which has an 18-inch chuck. ​ 11 ​ Product Development In fiscal year 2023, Takumi introduced a #50 taper version of the HMX500 horizontal machining center, for applications that require heavy cutting and more power.
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.
The VC machines are available in four sizes with X-axis travels of 34, 42, 50, and 60 inches. An extended Y-axis travel version of the 42-inch model is offered for mold shops making square mold bases. ________________________ * Fanuc® is a registered trademark of G E Fanuc Automation Americas, Inc. Siemens® is a registered trademark of Siemens AG.
Therefore, investing, developing, and maintaining human capital is critical to our success. As of October 31, 2022, Hurco had approximately 735 full-time employees, of which approximately 27% were in the Americas and 73% were in other global regions.
As of October 31, 2023, Hurco had approximately 716 full-time employees, of which approximately 28% were in the Americas and 72% were in other global regions.
These models include twin pallets to maximize cutting time along with very fast pallet exchange times and rapid traverse rates.
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.
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 HMX500 model is available in either #40 or #50 taper spindles. ​ SL Lathes SL slant-bed lathes are turning centers equipped with box ways and designed for heavy cutting to provide superior part finishes.
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 ​ 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.
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.
Dollars for financial reporting purposes. For fiscal year 2022, we reported net income of $8.2 million, or $1.23 per diluted share, compared to net income of $6.8 million, or $1.01 per diluted share, for fiscal year 2021.
For fiscal year 2023, we reported net income of $4.4 million, or $0.66 per diluted share, compared to net income of $8.2 million, or $1.23 per diluted share, for fiscal year 2022. ​ Industry Machine tool products are considered capital goods, which makes them part of an industry that has historically been highly cyclical.
We also introduced the VM15Di in 2022, an entry-level machining center featuring an inline spindle for improved accuracy and surface finish. ​ 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.
These efforts collectively enhance software performance and efficiency, providing a more dependable and responsive experience while using WinMax®. ​ 8 ​ 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.
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During fiscal year 2022, sales increased year-over-year due primarily to inflationary price increases and an increased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across Europe and North America. ​ Industry Machine tool products are considered capital goods, which makes them part of an industry that has historically been highly cyclical.
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Sales decreased year-over-year due primarily to a decreased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across Europe, Asia Pacific, and the Americas.
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Examples of product enhancements completed in 2022 include new #50 taper versions of the BX50 and BX60 models, as well as expanded 60 station automatic tool changers for the VMX-SRT/SW product line. HS models were upgraded from 18,000 rpm spindles to 20,000 rpm spindles, including both three and five-axis machines.
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Examples of product enhancements completed in fiscal year 2023 include new HSK spindles for our entry level high-speed VM10HSi 3-axis and VM10UHSi 5-axis machines. We also made background enhancements to our WinMax® software, focusing on bolstering reliability and optimizing resource management. These improvements are designed to ensure a smoother user experience without interrupting workflow.
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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. ________________________ *Fanuc® is a registered trademark of G E Fanuc Automation Americas, Inc. Siemens® is a registered trademark of Siemens AG.
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Features like rapid retract, leadscrew compensation, and squareness compensation enable customers to maximize their Milltronics machine tool's performance, while the Inspire control offers users a familiar user interface for seamless interaction with the machine. ​ Takumi CNC Machine Tools ​ The Takumi brand features machines designed for applications requiring precision and high speed, high efficiency milling.
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To accommodate demand for increased tool capacity, Takumi developed an efficient magazine design that can be expanded to hold 90, 120, or 150 tools without requiring an inordinate amount of floor space.
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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 ​ V Series The V Series vertical machining centers are heavy-duty, box-way machines built for tough applications such as roughing cast iron.
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We have not experienced any employee-generated work stoppages or disruptions, and we consider our employee relations to be satisfactory. ​ COVID-19 and Employee Safety and Wellness During the COVID-19 pandemic, the safety and well-being of our employees and their families has been a top priority as we continue to serve our customers – many of which are involved in the installation, production, and/or maintenance of critical infrastructure.
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These three-axis, massive machines feature belt or geared spindles to provide maximum torque.
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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.
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We offer our products in a range of prices and capabilities to target a broad potential market.
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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.
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We have not experienced any employee-generated work stoppages or disruptions, and we consider our employee relations to be satisfactory. ​ 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.
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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.
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In addition to procuring personal protective equipment, automatic screening stations, and other preventative resources, we have also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco products 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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze, and transfer U.K. or EU personal data, as applicable, 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.
Biggest changeThe GDPR imposes, among other things, strict obligations and restrictions on the collection and use of U.K. and E.U. personal data, a requirement for prompt notice of data breaches in certain circumstances, a requirement for implementation of certain approved safeguards (such as the use of approved “standard contractual clauses” and the performance of appropriate data transfer impact assessments) for transfers of personal data to other countries that have not been determined by the E.U. or the U.K. to provide adequate data privacy protections, and possible substantial fines for any violations.
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; 19 ​ ● 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 geopolitical environment, wars, conflicts, or trade barriers or blockades in the European Union and Asia, which 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.
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; 19 ​ • 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 geopolitical environment, wars, conflicts, or trade barriers or blockades in the European Union and Asia, which 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.
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.
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 to prevent misappropriation of our proprietary rights.
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. ​ 23 ​ 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.
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.
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 ​ 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.
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.
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.
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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 22 ​ Disruptions in our manufacturing operations or the supply of materials and components could adversely affect our business, results of operations and financial condition.
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.” ​ ​ 25 ​ Failure to comply with data privacy and security laws and regulations could adversely affect our operating results and business.
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 .
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. ​ 27 ​ Assets have become, and may become further, impaired, requiring us to record a significant charge to earnings.
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.
These changes, as adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes. ​ ​ ​ 28 ​
These changes, as adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes. ​ ​ ​ ​
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.
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, military conflicts, 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.
Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) revised and significantly expanded the scope of the CCPA. The CPRA also created 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.
Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) revised and significantly expanded the scope of the CCPA. The CPRA also created 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 regulatory actions.
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.
Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic, have had, and could in the future have, a material adverse effect on our business, financial condition, and results of operations.
During fiscal year 2022, approximately 62% 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.
During fiscal year 2023, approximately 61% of our revenues were derived from sales to customers located outside of the Americas. In addition, our main manufacturing facilities are located outside of the U.S.
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 and medium 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.
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 and medium 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.
Acquisitions involve numerous risks, including the following: 24 ​ ● 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 year 2020, we recorded a one-time $4.9 million non-cash impairment charge on goodwill arising from prior acquisitions.
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; and 23 ​ • the potential loss of key employees of the acquired companies. ​ 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. ​ Mergers and acquisitions are inherently risky.
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.
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. ​ 24 ​ Outside of the U.S., data protection laws, including the U.K. and E.U.
We could be required to record a significant charge to earnings in our financial statements for the period in which any impairment of these assets is determined, which would adversely affect our results of operations for that period.
We 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. ​ ​ ​ 26 ​ We may experience negative or unforeseen tax consequences.
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 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.
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 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. ​ 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.
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 62% of our revenues in fiscal year 2022, are invoiced and received in several foreign currencies, primarily the Euro, Pound Sterling and Chinese Yuan.
Our sales to customers located outside of the Americas, which generated approximately 61% of our revenues in fiscal year 2023, are invoiced and received in several foreign currencies, primarily the Euro, Pound Sterling and Chinese Yuan.
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.
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. ​ 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.
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.
Brazil, India, South Africa, Japan, China, Israel, Canada, and numerous other countries have introduced and, in some cases, enacted, similar data privacy and cyber 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.
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 have adversely affected, and may in the future adversely affect, overall demand.
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. ​ Material adverse developments in global economic conditions, or the occurrence of certain other world events, could negatively affect demand for our products and harm our business.
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 and other inputs, especially steel, iron, and energy, could adversely affect our sales, costs, and profitability.
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.
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.
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. ​ 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.
Failure to manage and successfully integrate an acquisition could harm our business and operating results in a material way.
No assurance can be given that our acquisitions will be successful. Further, no assurance can be given that an acquisition will not adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate an acquisition could harm our business and operating results in a material way.
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 and other inputs increase and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected.
If the prices of raw materials and other inputs increase and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected. ​ The unanticipated loss of current members of our senior management team and other key personnel may adversely affect our operating results.
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.
If a resurgence of COVID-19 or other severe global health crisis occurs, it could disrupt our ability to deliver and/or install machines, our procurement of supplies for our operations, and our customers’ purchasing behavior or decisions, including reduced demand for our products that 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 in the future have a material adverse effect on our business, results of operations, cash flows, and financial condition.
The duration and scope of the COVID-19 pandemic and related effects remain uncertain and, therefore, we cannot reasonably estimate the potential impact on our business, financial condition, or results of operations, but such impact has been, and could continue to be, material. ​ 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.
Our financial resources are limited compared to those of many of our competitors, making it challenging to remain competitive. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 21 ​ 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.
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.
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. Global economic uncertainty has produced, and continues to produce, substantial stress, volatility, illiquidity, and disruption of global credit and other financial markets.
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. ​ 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.
In addition, the cost and operational consequences of implementing further data protection or data restoration measures could be significant. ​ 25 ​ 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.
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Moreover, global economic uncertainty and business downturns may be exacerbated or exaggerated in markets that are subject to ongoing wars or conflicts or in markets that depend on resources, energy, or supply chains from jurisdictions participating in such wars or conflicts.
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Various factors contribute to the uncertain economic environment, including geopolitical tensions, military conflicts, the level and volatility of interest rates, the level of inflation, the continuing effects of the COVID-19 pandemic, an actual recession or fears of a recession, trade policies and tariffs, and political and governmental instability. ​ Economic uncertainty has and could continue to negatively affect the businesses and purchasing decisions of companies in the industries we serve.
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In particular, many markets in Europe and throughout the world are currently being negatively impacted by the war in Ukraine and resulting sanctions imposed on Russia. ​ Our international operations pose additional risks that may adversely impact sales and earnings.
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Such disruptions present considerable risks to our businesses and operations.
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Our financial resources are limited compared to those of many of our competitors, making it challenging to remain competitive. ​ The United Kingdom's withdrawal from the European Union could have an adverse impact on our business, financial condition, operating results, and cash flows.
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As global economic conditions experience stress and negative volatility, or if there is an escalation in regional or global conflicts, or terrorism, we will likely experience reductions in the number of available customers and in capital expenditures by our remaining customers, longer sales cycles, deferral, or delay of purchase commitments for our products and increased price competition, any of which may adversely affect our business, results of operations and liquidity. ​ Our international operations pose additional risks that may adversely impact sales and earnings.
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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.
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In addition, we may not be able to establish additional or replacement suppliers for such components in a reasonable period of time, or on commercially reasonable terms, if at all, which could result in delays or interruptions in our operations, which would adversely affect our business, results of operations and financial condition. ​ Fluctuations in the price of raw materials and other inputs, especially steel, iron, and energy, could adversely affect our sales, costs, and profitability.
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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.
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In some cases, those cost increases can be passed on to customers in the form of price increases, in other cases, they cannot.
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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. 21 ​ We have operations in the U.K. related to Hurco Europe Ltd.
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Other states have considered and/or enacted similar privacy laws.
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(“HEL”), our sales and service business unit located there.
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The full extent to which a global health crisis, such as COVID-19, will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new medical and other information that may emerge as a result and the actions by governmental entities or others to contain it or treat its impact. ​ The impacts of a potential resurgence of COVID-19 or other severe global health crisis could pose the risk that we or our employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be prudent or required by governmental authorities. ​ We, our suppliers, and our customers had modified our business practices for the continued health and safety of our employees during the outbreak of COVID-19.
Removed
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.
Removed
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 changed 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.
Removed
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.
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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.
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As a result of the COVID-19 pandemic and related resurgences, governmental authorities in jurisdictions where our facilities, customers, and suppliers are located have imposed mandatory closures, stay-at-home orders, and social distancing protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business operations or consumption patterns. ​ The COVID-19 pandemic has disrupted our operations and will likely continue to affect our business.
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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.
Removed
We may continue to experience additional temporary facility closures in response to government mandates and/or the incidence of additional spread. ​ 22 ​ 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.
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The COVID-19 pandemic has resulted in significantly reduced demand for our products in certain markets from time to time, which could continue for an extended period of time.
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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.
Removed
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.
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Recent inflationary pressures and other factors have resulted in increases to the cost of the inputs or raw materials for our products. Similarly, recently, costs associated with transportation and freight services have previously increased significantly due to limited capacity and/or availability of containers, shipping vessels, and/or receiving port services.
Removed
If prolonged, 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, other inputs, 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.
Removed
The goodwill impairment charge was attributable primarily to the prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic. ​ Mergers and acquisitions are inherently risky. No assurance can be given that our acquisitions will be successful. Further, no assurance can be given that an acquisition will not adversely affect our business, operating results, or financial condition.
Removed
GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K. GDPR).
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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.
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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.
Removed
In the fourth quarter of fiscal year 2020, we recorded a one-time $4.9 million non-cash goodwill impairment charge arising from prior acquisitions, and we may be required to record impairment charges on other assets in the future. ​ We may experience negative or unforeseen tax consequences.
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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.
Removed
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.
Removed
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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES The following table sets forth the principal use, location, and size of each of our facilities: ​ ​ ​ ​ ​ ​ Principal Uses ​ Locations ​ Square Footage Corporate headquarters, design and engineering, product testing, sales and marketing, application engineering, customer service, manufacturing and assembly Indianapolis, Indiana, U.S. 165,000 ​ Manufacturing, assembly, sales, application engineering and customer service Taichung, Taiwan 427,500 ​ Waconia, Minnesota, U.S. 61,000 ​ Castell’Alfero, Italy 32,300 ​ Manufacturing Ningbo, China 31,000 ​ Sales, application engineering, customer service, and warehousing High Wycombe, England 26,300 ​ Paris, France 12,800 ​ Munich and Verl, Germany 22,400 ​ Milan, Italy 12,900 ​ Venlo, the Netherlands 9,700 ​ Toh Guan, Singapore 5,600 ​ Shanghai, Qingdao and Kunshan, China 23,700 ​ Chennai and Pune, India 16,700 ​ Liegnitz, Poland 1,000 ​ Grand Rapids, Michigan, U.S. 3,700 ​ Los Angeles, California, U.S. 11,400 ​ Stritez, the Czech Republic ​ 5,500 ​ We own the Indianapolis facility and lease all other facilities.
Biggest changePROPERTIES The following table sets forth the principal use, location, and size of each of our facilities: ​ ​ ​ ​ ​ ​ Principal Uses ​ Locations ​ Square Footage Corporate headquarters, design and engineering, product testing, sales and marketing, application engineering, customer service, manufacturing and assembly Indianapolis, Indiana, U.S. 184,200 ​ Manufacturing, assembly, sales, application engineering and customer service Taichung, Taiwan 485,100 ​ Castell’Alfero, Italy 32,300 ​ Manufacturing Ningbo, China 31,000 ​ Sales, application engineering, customer service, and warehousing High Wycombe, England 26,300 ​ Paris, France 12,800 ​ Munich and Verl, Germany 20,900 ​ Milan, Italy 12,900 ​ Venlo, the Netherlands 9,700 ​ Toh Guan, Singapore 5,600 ​ Shanghai, Dongguan and Kunshan, China 9,700 ​ Chennai and Pune, India 16,700 ​ Liegnitz, Poland 1,000 ​ Grand Rapids, Michigan, U.S. 3,700 ​ Los Angeles, California, U.S. 11,400 ​ Stritez, the Czech Republic ​ 5,500 ​ We own the Indianapolis facility and lease all other facilities.
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 ​
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 ​
The leases have terms expiring at various dates ranging from April 2023 to January 2029. We believe that all of our facilities are well maintained and are adequate for our needs now and in the foreseeable future.
The leases have terms expiring at various dates ranging from January 2024 to July 2032. We believe that all of our facilities are well maintained and are adequate for our needs now and in the foreseeable future.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeVolovic ​ 58 ​ Director, President, and Chief Executive Officer Sonja K. McClelland ​ 51 ​ Executive Vice President, Treasurer and Chief Financial Officer HaiQuynh Jamison ​ 44 ​ Corporate Controller and Principal Accounting Officer Jonathon D.
Biggest changeVolovic ​ 59 ​ Director, President, and Chief Executive Officer Sonja K. McClelland ​ 52 ​ Executive Vice President, Treasurer and Chief Financial Officer HaiQuynh Jamison ​ 45 ​ Corporate Controller and Principal Accounting Officer Jonathon D.
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 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 held various finance and accounting roles with us between 1996 and 2004. Prior to joining us, Ms.
Volovic was employed by Unisys Corporation. ​ 30 ​ 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.
Volovic was employed by Unisys Corporation. ​ 29 ​ 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.
Wright ​ 40 ​ 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.
Wright ​ 41 ​ 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.
The following information sets forth as of October 31, 2022, the name of each executive officer and his or her age, tenure as an officer, principal occupation, and business experience: ​ ​ ​ ​ ​ Name Age Position(s) with the Company Michael Doar ​ 67 ​ Executive Chairman of the Board Gregory S.
The following information sets forth as of October 31, 2023, the name of each executive officer and his or her age, tenure as an officer, principal occupation, and business experience: ​ ​ ​ ​ ​ Name Age Position(s) with the Company Michael Doar ​ 68 ​ Executive Chairman of the Board Gregory S.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”. Holders There were 110 holders of record of our common stock as of December 31, 2022.
Biggest changeItem 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Select Market under the symbol “HURC”. Holders There were 119 holders of record of our common stock as of December 14, 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 4 of Notes to Consolidated Financial Statements. 31 ​ Other Information During the period covered by this report, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 4 of Notes to Consolidated Financial Statements. 30 ​ Other Information During the period covered by this report, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.
The disclosure under the caption “Equity Compensation Plan Information at 2022 Fiscal Year End” in our 2023 proxy statement is incorporated by reference in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The performance graph information is included in Item 9B. Other Information. ​ ​
The disclosure under the caption “Equity Compensation Plan Information at 2023 Fiscal Year End” in our 2024 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 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeHowever, intermittent lockdowns and similar restrictions in certain markets from time to time continue to impact our business, including those in China pursuant to its zero- tolerance COVID policy. ​ We will continue to evaluate and disclose any trends and uncertainties that have had or are reasonably expected to have, a material effect on our consolidated financial position, results of operations, changes in shareholders’ equity and cash flows for and at the end of each interim period. ​ Results of Operations The following table presents, for the fiscal years indicated, selected items from the Consolidated Statements of Operations expressed as a percentage of our worldwide sales and service fees and the year-to-year percentage changes in the dollar amounts of those items. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 34 ​ ​ Percentage of Revenues Year-to-Year % Change ​ 2022 2021 2020 Increase/Decrease ​ ​ ​ ​ ​ ​ ​ ​ ’22 vs. ’21 ​ ’21 vs. ’20 Sales and service fees ​ 100 % 100 % 100 % 7 % 38 % Gross profit ​ 26 % 24 % 21 % 15 % 54 % Selling, general and administrative expenses ​ 21 % 20 % 24 % 12 % 11 % Goodwill impairment ​ — ​ — ​ 3 % — ​ (100) % Operating income (loss) ​ 5 % 4 % (6) % 24 % 204 % Net income (loss) ​ 3 % 3 % (4) % 22 % 208 % ​ Fiscal Year 2022 Compared to Fiscal Year 2021 Sales and Service Fees.
Biggest changeWe seek to mitigate those risks through the use of derivative instruments – principally foreign currency forward exchange contracts. ​ ​ 32 ​ Results of Operations The following table presents, for the fiscal years indicated, selected items from the Consolidated Statements of Operations expressed as a percentage of our worldwide sales and service fees and the year-to-year percentage changes in the dollar amounts of those items. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of Revenues Year-to-Year % Change ​ 2023 2022 2021 Increase/Decrease ​ ​ ​ ​ ​ ​ ​ ​ ’23 vs. ’22 ​ ’22 vs. ’21 Sales and service fees ​ 100 % 100 % 100 % (9) % 7 % Gross profit ​ 25 % 26 % 24 % (13) % 15 % Selling, general and administrative expenses ​ 22 % 21 % 20 % (4) % 12 % Operating income ​ 3 % 5 % 4 % (48) % 24 % Net income ​ 2 % 3 % 3 % (47) % 22 % ​ Fiscal Year 2023 Compared to Fiscal Year 2022 Sales and Service Fees.
These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income in ​ 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.
These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income. ​ 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.
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, December 17, 2021, and January 4, 2023 (as amended, the “2018 Credit Agreement”).
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, December 17, 2021, January 4, 2023, and December 19, 2023 (as amended, the “2018 Credit Agreement”).
We are not aware of any events or changes in circumstances that indicate the carrying value of its finite-lived assets may not be recoverable. ​ 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 are not aware of any events or changes in circumstances that indicate the carrying value of its finite-lived assets may not be recoverable. ​ 39 ​ 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 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.
We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes. ​ 37 ​ 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.
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.
We periodically review the carrying values of these assets and make judgments as to ultimate realization considering the above-mentioned risk factors. ​ 40 ​ 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.
We are not aware of any events or changes in circumstances that indicate the carrying value of our long-lived assets may not be recoverable. 41 ​ Inventories and Related Reserves – 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.
We are not aware of any events or changes in circumstances that indicate the carrying value of our long-lived assets may not be recoverable. ​ Inventories and Related Reserves – 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.
We expect to fund these commitments with cash on hand and cash generated from operations. 40 ​ 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 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.
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.
The scheduled maturity date of the 2018 Credit Agreement is December 31, 2025. ​ 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.
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.
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.
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. ​ 42 ​
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. ​
We had no debt or borrowings under any of our credit facilities at October 31, 2022. ​ At October 31, 2022, we had an aggregate of approximately $50.6 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 had no debt or borrowings under any of our credit facilities at October 31, 2023. ​ At October 31, 2023, we had an aggregate of approximately $50.6 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.
Other indefinite-lived intangible assets primarily consist of trademarks and trade names and are not material to our consolidated financial statement. Finite-lived intangible assets are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets.
Other indefinite-lived intangible assets primarily consist of trademarks and trade names and are not material to our consolidated financial statements. Finite-lived intangible assets are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets.
This overview is intended to be read in conjunction with the more detailed information included in our financial statements, and notes thereto, that appear elsewhere in this report. ​ 32 ​ The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations.
This overview is intended to be read in conjunction with the more detailed information included in our financial statements, and notes thereto, that appear elsewhere in this report. ​ 31 ​ The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations.
The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the notes thereto included elsewhere in this report. The following MD&A generally focuses on the operating results and year-over-year comparisons between fiscal years 2022 and 2021.
The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the notes thereto included elsewhere in this report. The following MD&A generally focuses on the operating results and year-over-year comparisons between fiscal years 2023 and 2022.
Goodwill and indefinite-lived intangibles arising from a business combination are reviewed for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise indicating potential impairment. We have no goodwill as of October 31, 2022.
Goodwill and indefinite-lived intangibles arising from a business combination are reviewed for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise indicating potential impairment. We have no goodwill as of October 31, 2023.
Discussion of fiscal year 2020 results and year-over-year comparisons between fiscal years 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, filed with the SEC on January 7, 2022.
Discussion of fiscal year 2021 results and year-over-year comparisons between fiscal years 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, filed with the SEC on January 6, 2023.
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.
The vast majority of our machine tools are manufactured and assembled 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.
In addition, through our wholly-owned subsidiary LCM, we produce high value machine tool components and accessories. ​ We principally sell our products through approximately 200 independent agents and distributors throughout the Americas, Europe, and Asia. Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally.
In addition, through our wholly-owned subsidiary in Italy, LCM, we produce high value machine tool components and accessories. ​ We principally sell our products through approximately 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.
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.
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.
Unrecognized tax benefits in the amount of approximately $0.1 million, excluding any interest and penalties, have been excluded from the table above because we are unable to determine a reasonably reliable estimate of the timing of future payment. ​ We expect capital spending in fiscal year 2023 to be approximately $3.7 million, which includes investments for software development, leasehold improvement, factory equipment, and production facilities, as well as general software and equipment for selling facilities.
Unrecognized tax benefits in the amount of approximately $0.1 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. ​ 38 ​ We expect capital spending in fiscal year 2024 to be approximately $3.8 million, which includes investments for software development, leasehold improvement, factory equipment, and production facilities, as well as general software and equipment for selling facilities.
We follow Financial Accounting Standards Board (“FASB”) guidance for accounting for guarantees (codified in Accounting Standards Codification (“ASC”) 460). As of October 31, 2022, we had nine outstanding third party payment guarantees totaling approximately $0.7 million. The terms of these guarantees are consistent with the underlying customer financing terms.
We follow Financial Accounting Standards Board (“FASB”) guidance for accounting for guarantees (codified in Accounting Standards Codification (“ASC”) 460). As of October 31, 2023, we had nine outstanding third party payment guarantees totaling approximately $1.0 million. The terms of these guarantees are consistent with the underlying customer financing terms.
Selling, general, and administrative expenses for fiscal year 2022 were $51.7 million, or 21% of sales, compared to $46.0 million, or 20% of sales, for fiscal year 2021, and included a favorable currency impact of $2.2 million, when translating foreign expenses to U.S. Dollars for financial reporting purposes.
Selling, general, and administrative expenses for fiscal year 2023 were $49.6 million, or 22% of sales, compared to $51.7 million, or 21% of sales, in fiscal 2022, and included a favorable currency impact of $0.4 million, when translating foreign expenses to U.S. dollars for financial reporting purposes.
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 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.
We do not believe backlog is a useful measure of past performance or indicative of future performance. Backlog orders as of October 31, 2022 are expected to be fulfilled in fiscal year 2023. ​ Gross Profit.
We do not believe backlog is a useful measure of past performance or indicative of future performance. Backlog orders as of October 31, 2023 are expected to be fulfilled in fiscal year 2024. ​ Gross Profit. Gross profit for fiscal year 2023 was $56.2 million, or 25% of sales, compared to $64.5 million, or 26% of sales, for fiscal 2022.
Net income for fiscal year 2022 was $8.2 million, or $1.23 per diluted share, compared to $6.8 million, or $1.01 per diluted share, for fiscal year 2021.
Net income for fiscal year 2023 was $4.4 million, or $0.66 per diluted share, compared to $8.2 million, or $1.23 per diluted share, for fiscal year 2022.
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.
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 decrease was primarily attributable to the negative impact of currency and decreased customer demand for electro-mechanical components manufactured by LCM and for Hurco machines in the United Kingdom, France, and Italy, partially offset by inflationary price increases implemented during fiscal year 2022 and increased demand for Hurco and Takumi machines in Germany and for Milltronics machines across the region. ​ Asian Pacific orders for fiscal year 2022 decreased by 27%, compared to fiscal year 2021, and included an unfavorable currency impact of 4%, when translating foreign orders to U.S.
The year-over-year decrease in European demand was primarily attributable to decreased demand for Hurco machines in Germany and France, partially offset by increased customer demand for Hurco machines in the United Kingdom and Italy, and electro-mechanical components and accessories manufactured by LCM. ​ Asian Pacific orders for fiscal year 2023 decreased by 45%, compared to fiscal 2022, and included an unfavorable currency impact of 3%, when translating foreign orders to U.S. dollars.
As such, we continue to actively evaluate acquisition opportunities that support our long-term strategic plan. ​ Contractual Obligations and Commitments The following is a table of contractual obligations and commitments as of October 31, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ More ​ ​ ​ ​ ​ ​ Less than ​ ​ ​ ​ ​ ​ ​ ​ than ​ Total 1 Year 1-3 Years 3-5 Years 5 Years Operating leases ​ $ 9,092 ​ $ 4,132 ​ $ 3,477 ​ $ 986 ​ $ 497 Accrued and deferred taxes and credits ​ 5,444 ​ 38 ​ 802 ​ 509 ​ 4,095 Total ​ $ 14,536 ​ $ 4,170 ​ $ 4,279 ​ $ 1,495 ​ $ 4,592 ​ 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.
As such, we continue to actively evaluate acquisition opportunities that support our long-term strategic plan. ​ Contractual Obligations and Commitments ​ The following is a table of contractual obligations and commitments as of October 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ ​ Less than ​ ​ ​ ​ ​ ​ ​ ​ More than ​ Total 1 Year 1-3 Years 3-5 Years 5 Years Operating leases ​ $ 12,220 ​ $ 4,027 ​ $ 4,263 ​ $ 2,807 ​ $ 1,123 Accrued and deferred taxes and credits ​ 5,779 ​ 349 ​ 1,027 ​ — ​ 4,403 Total ​ $ 17,999 ​ $ 4,376 ​ $ 5,290 ​ $ 2,807 ​ $ 5,526 ​ 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.
Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time through November 10, 2024, subject to applicable laws, regulations and contractual provisions.
Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time through November 10, 2024, 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.
Inventory turns at October 31, 2022 of 1.2 remained the same as that at October 31, 2021. Capital expenditures were $2.2 million in fiscal year 2022, compared to $2.4 million in fiscal year 2021.
Inventory turns at October 31, 2023 were 1.1 compared to 1.2 at October 31, 2022. Capital expenditures were $2.6 million in fiscal year 2023, compared to $2.2 million in fiscal year 2022.
The decrease in Asian Pacific orders year-over-year was driven primarily by decreased customer demand for Hurco and Takumi machines in China and Southeast Asia due to recent COVID-19 lockdowns and similar restrictions, partially offset by increased demand for Hurco machines in India. ​ Backlog at October 31, 2022 decreased to $44.8 million from $60.0 million at October 31, 2021, primarily due to decreased customer demand during fiscal year 2022 for all product brands and in all regions where our customers are located.
The decrease in Asian Pacific orders year-over-year was driven primarily by decreased customer demand for Hurco and Takumi machines in China and Hurco machines in Southeast Asia and India, partially offset by increased demand for Takumi machines in India. ​ Backlog at October 31, 2023 decreased to $28.3 million from $44.8 million at October 31, 2022, primarily due to decreased customer demand during fiscal year 2023 for Hurco, Milltronics, and Takumi machines in the U.S., Germany, France, China and Southeast Asia.
Capital expenditures for fiscal year 2022 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.
Capital expenditures for fiscal year 2023 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 January 6, 2023, we announced a share repurchase program in an aggregate amount of up to $25.0 million.
Service fees increased by 7% during fiscal year 2022, compared to fiscal year 2021, primarily due to increased aftermarket service for Hurco and Takumi machines throughout Europe. During fiscal year 2022, sales for all product categories included an unfavorable currency impact of 6%, when translating foreign sales to U.S. Dollars for financial reporting purposes. ​ Orders and Backlog .
During fiscal year 2023, sales for all product categories included an unfavorable currency impact of 1%, when translating foreign sales to U.S. dollars for financial reporting purposes. ​ Orders and Backlog .
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, 2022 and 2021 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended October 31, ​ Increase/Decrease ​ ​ ​ 2022 2021 Amount % Americas ​ $ 95,964 38 % $ 86,301 37 % $ 9,663 11 % Europe ​ 126,050 50 % 117,522 50 % 8,528 7 % Asia Pacific ​ 28,800 12 % 31,372 13 % (2,572) (8) % Total ​ $ 250,814 100 % $ 235,195 100 % $ 15,619 7 % ​ Sales in the Americas for fiscal year 2022 increased by 11%, compared to fiscal year 2021, primarily due to inflationary price increases and an increased volume of shipments of VM and higher-performance five-axis Hurco machines. ​ European sales for fiscal year 2022 increased by 7%, compared to fiscal year 2021, and included an unfavorable currency impact of 11%, when translating foreign sales to U.S.
Sales and service fees for fiscal year 2023 were $227.8 million, a decrease of $23.0 million, or 9%, compared to fiscal year 2022, and included an unfavorable currency impact of $2.4 million, or 1%, when translating foreign sales to U.S. dollars for financial reporting purposes. ​ Net Sales and Service Fees by Geographic Region ​ The following table sets forth net sales and service fees by geographic region for the fiscal years ended October 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended October 31, ​ Increase/Decrease ​ ​ ​ 2023 2022 Amount % Americas ​ $ 88,329 39 % $ 95,964 38 % $ (7,635) (8) % Europe ​ 120,525 53 % 126,050 50 % (5,525) (4) % Asia Pacific ​ 18,953 8 % 28,800 12 % (9,847) (34) % Total ​ $ 227,807 100 % $ 250,814 100 % $ (23,007) (9) % ​ Sales in the Americas for fiscal year 2023 decreased by 8%, compared to fiscal 2022, primarily due to decreased shipments of Hurco and Milltronics machines, particularly the higher-performance VMX machines. ​ European sales for fiscal year 2023 decreased by 4%, compared to fiscal year 2022, and included an unfavorable currency impact of 1%, when translating foreign sales to U.S. dollars for financial reporting purposes.
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 remain committed to a balanced capital allocation strategy that prioritizes a strong balance sheet and liquidity position while recognizing the importance of accretive growth and returning value to shareholders through dividends and stock repurchases, where appropriate.
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.
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.
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.
The year-over-year increase in net income was primarily due to increased sales of higher-performance machines and inflationary price increases implemented during fiscal year 2022. ​ Liquidity and Capital Resources At October 31, 2022, we had cash and cash equivalents of $63.9 million, compared to $84.1 million at October 31, 2021.
The year-over-year decrease in net income was primarily due to decreased volume of machine shipments. ​ Liquidity and Capital Resources At October 31, 2023, we had cash and cash equivalents of $41.8 million, compared to $63.9 million at October 31, 2022.
The reduced volume of shipments of Hurco and Takumi machines in China was primarily due to recent COVID-19 lockdowns and similar restrictions in major Chinese markets pursuant to China’s zero-tolerance COVID-19 policy. ​ 35 ​ 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, 2022 and 2021 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended October 31, ​ Increase/Decrease ​ ​ ​ 2022 2021 Amount % Computerized Machine Tools ​ $ 211,804 85 % $ 198,602 85 % $ 13,202 7 % Computer Control Systems and Software † ​ 2,634 1 % 2,528 1 % 106 4 % Service Parts ​ 28,219 11 % 26,425 11 % 1,794 7 % Service Fees ​ 8,157 3 % 7,640 3 % 517 7 % Total ​ $ 250,814 100 % $ 235,195 100 % $ 15,619 7 % † Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.
The year-over-year decrease in Asian Pacific sales for the fiscal year primarily resulted from a reduced volume of shipments of Takumi machines in China and Hurco machines in Southeast Asia, China, and India, partially offset by an increased volume of shipments of Takumi machines in India. ​ Net Sales and Service Fees by Product Category ​ The following table sets forth net sales and service fees by product group and services for the fiscal years ended October 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended October 31, ​ Increase/Decrease ​ ​ ​ 2023 2022 Amount % Computerized Machine Tools ​ $ 188,335 83 % $ 211,804 85 % $ (23,469) (11) % Computer Control Systems and Software † ​ 2,805 1 % 2,634 1 % 171 6 % Service Parts ​ 28,439 12 % 28,219 11 % 220 1 % Service Fees ​ 8,228 4 % 8,157 3 % 71 1 % Total ​ $ 227,807 100 % $ 250,814 100 % $ (23,007) (9) % † Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems.
The year-over-year change in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, various discrete tax items, and changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic. ​ Net Income (Loss).
The year-over-year increase in the effective tax rate in the full year was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, discrete items related to stock compensation and the impact of valuation allowances for our China operations combined with lower levels of consolidated income before taxes. ​ Net Income.
During fiscal year 2022, 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.
During fiscal year 2023, approximately 53% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance VMX series machines. Additionally, approximately 8% 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.
Sales of service parts for fiscal year 2022 increased by 7%, compared to fiscal year 2021, due mainly to inflationary price increases and an increased volume of aftermarket sales in North America and the United Kingdom.
Sales of service parts for fiscal year 2023 increased by 1%, compared to fiscal year 2022, due mainly to increased volume of sales of Hurco and ProCobots parts in Europe and North America, mostly offset by a reduction in volume of sales of parts in North America.
The decrease in working capital was primarily driven by decreases in cash and cash equivalents, prepaid assets, and accounts receivable, partially offset by an increase in inventories and decreases in accounts payable and customer deposits. ​ Inventories, net were $156.2 million at October 31, 2022, compared to $148.2 million at October 31, 2021.
The decrease in working capital was primarily driven by a decrease in cash and cash equivalents, mostly offset by decreases in accounts payable and customer deposits and increases in inventory and accounts receivable. ​ Inventories, net were $158.0 million at October 31, 2023, compared to $156.2 million at October 31, 2022, and included an unfavorable currency impact of $4.9 million, or 3%, when translating foreign inventories to U.S. dollars for financial reporting purposes.
Operating income for fiscal year 2021 included a benefit of $2.9 million related to the employee retention credit. ​ 37 ​ Other Expense, Net. Other expense, net for fiscal year 2022 increased by $1.3 million from fiscal year 2021, due mainly to an increase in foreign currency exchange losses. Provision for Income Taxes .
Other expense, net for fiscal year 2023 decreased by $1.3 million from fiscal year 2022, due mainly to a decrease in foreign currency exchange losses and increased gains on sale of property and equipment. Provision for Income Taxes . We recorded income tax expense of $2.4 million for fiscal year 2023, compared to $3.7 million for fiscal year 2022.
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. 39 ​ As of October 31, 2022, 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.
In February and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits. ​ As of October 31, 2023, our existing credit facilities consisted of a €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.
This increase was primarily driven by inflationary price increases, an increased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across the European region, as well as increased sales of electro-mechanical components and accessories manufactured by LCM. ​ Asian Pacific sales for fiscal year 2022 decreased by 8%, compared to fiscal year 2021, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S.
The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco machines in Germany, France, and Italy, partially offset by increased sales of electro-mechanical components and accessories manufactured by LCM and increased shipments of Hurco machines in the United Kingdom and Milltronics machines throughout Europe where our customers are located. ​ 33 ​ Asian Pacific sales for fiscal year 2023 decreased by 34%, compared to fiscal 2022, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S. dollars for financial reporting purposes.
Sales of computerized machine tools and computer control systems and software for fiscal year 2022 increased by 7% and 4%, respectively, compared to fiscal year 2021, primarily due to inflationary price increases and an increased volume of shipments of VM and higher-performance five-axis Hurco machines in North America and Europe.
Sales of computer control systems and software for fiscal 2023 increased by 6%, compared to fiscal 2022, due to increased sales of software for Hurco machines in North America.
We recorded an income tax expense of $3.7 million for fiscal year 2022, compared to income tax expense of $3.4 million for fiscal year 2021. Our effective tax rate for fiscal year 2022 was 31%, compared to 33% for fiscal year 2021.
Our effective tax rate for fiscal year 2023 was 35%, compared to 31% for fiscal year 2022.
The following table sets forth new orders booked by geographic region for the fiscal years ended October 31, 2022 and 2021 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended October 31, ​ Increase/Decrease ​ ​ ​ 2022 2021 Amount % Americas ​ $ 92,268 38 % $ 95,767 36 % $ (3,499) (4) % Europe ​ 122,556 51 % 133,802 50 % (11,246) (8) % Asia Pacific ​ 26,107 11 % 35,852 14 % (9,745) (27) % Total ​ $ 240,931 100 % $ 265,421 100 % $ (24,490) (9) % ​ Orders in the Americas for fiscal year 2022 decreased by 4%, compared to fiscal year 2021, primarily due to decreased customer demand for Hurco and Milltronics machines, partially offset by inflationary price increases implemented during fiscal year 2022.
Orders for fiscal year 2023 were $209.7 million, a decrease of $31.3 million, or 13%, compared to fiscal 2022, and included an unfavorable currency impact of $2.0 million, or less than 1%, when translating foreign orders to U.S. dollars. 34 ​ The following table sets forth new orders booked by geographic region for the fiscal years ended October 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended October 31, ​ Increase/Decrease ​ ​ ​ 2023 2022 Amount % Americas ​ $ 80,412 38 % $ 92,268 38 % $ (11,856) (13) % Europe ​ 114,961 55 % 122,556 51 % (7,595) (6) % Asia Pacific ​ 14,303 7 % 26,107 11 % (11,804) (45) % Total ​ $ 209,676 100 % $ 240,931 100 % $ (31,255) (13) % ​ Orders in the Americas for fiscal year 2023 decreased by 13%, compared to fiscal year 2022, mainly due to decreased customer orders for Hurco and Milltronics, particularly higher-performance VMX machines, partially offset by increased demand for Takumi machines. ​ European orders for fiscal 2023 decreased by 6%, compared to fiscal 2022, and included an unfavorable currency impact of 1%, when translating foreign orders to U.S. dollars.
Operating income for fiscal year 2022 was $12.7 million, or 5% of sales, compared to an operating income of $10.2 million, or 4% of sales, for fiscal year 2021. The year-over-year increase in operating income for fiscal year 2022 was primarily due to increased sales of higher-performance machines and inflationary price increases implemented during fiscal year 2022.
Operating income for fiscal year 2023 was $6.6 million, or 3% of sales, compared to $12.7 million, or 5% of sales, for fiscal year 2022. The year-over-year decrease in operating income was primarily due to decreased volume of machine shipments. ​ 35 ​ Other Expense, Net.
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 $194.7 million at October 31, 2022, compared to $208.7 million at October 31, 2021.
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.
During fiscal year 2022, we repurchased $2.9 million in shares of our common stock, and $4.1 million remained available under the program as of January 6, 2023. ​ 38 ​ On January 6, 2023, we announced that our Board of Directors approved an additional share repurchase program in an aggregate amount of up to $25.0 million.
During fiscal year 2023, approximately 67,513 shares were repurchased at an aggregate value of approximately $1.8 million under that program, resulting in $23.2 million remaining available under the program as of October 31, 2023. ​ 36 ​ Our prior $7.0 million share repurchase program also remained in effect until its scheduled expiration on March 10, 2023.
Additionally, approximately 12% 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.
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 year-over-year increase in selling, general, and administrative expenses was driven primarily by increases in marketing and tradeshow expenses (particularly related to the International Manufacturing Technology Show in September 2022), sales commissions, and employee benefit and compensation costs, as well as increased one-time costs for administrative services.
The year-over-year decrease in selling, general and administrative expenses in absolute dollar terms was primarily attributable to lower costs related to tradeshow expenses, sales commissions, and employee support costs for our global operations. ​ Operating Income.
The decrease in cash and cash equivalents was primarily a result of increases in inventories . Approximately 31% of our $63.9 million of cash and cash equivalents is held in the U.S. The balance is attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject to fluctuations in currency exchange rates.
The decrease in cash and cash equivalents was primarily a result of net cash used for payments of outstanding accounts payable, stock repurchases and dividend payments . Approximately 26% of our $41.8 million of cash and cash equivalents is held in the U.S.
Removed
We seek to mitigate those risks through the use of derivative instruments – principally foreign currency forward exchange contracts. ​ 33 ​ We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in many different countries.
Added
Sales of computerized machine tools for fiscal year 2023 decreased by 11%, compared to fiscal year 2022, primarily due to a decreased volume of shipments of Hurco machines in all regions where our customers are located, except the United Kingdom; Milltronics machines in North America; and Takumi machines in China.
Removed
As a result of the global COVID-19 pandemic, 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.
Added
Service fees increased by 1% for fiscal year 2023, compared to fiscal year 2022, primarily due to increased service of Hurco machines in the United Kingdom, France and Italy, mostly offset by a reduction in service of Hurco machines in North America and Germany.
Removed
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.
Added
The year-over-year decreases in gross profit and gross profit as a percentage of sales were primarily due to the lower volume of sales of our higher-performance VMX machines and the negative impact of fixed costs on lower sales and production volumes. ​ Operating Expenses.
Removed
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.
Added
Working capital at October 31, 2023 was $193.3 million, compared to $194.7 million at October 31, 2022.
Removed
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.
Added
During fiscal year 2023, approximately 98,776 shares were repurchased at an aggregate value of approximately $2.8 million under that program. Aggregate repurchases under all programs during fiscal year 2023 were approximately $4.6 million. ​ In addition, during fiscal year 2023, we paid cash dividends to our shareholders equal to $4.1 million.
Removed
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 also received stimulus in various countries to support operations and implemented tax deferrals and provisions that were available to us.
Added
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.
Removed
We also experienced inflationary pressures and input cost increases in our supply chains on components for our products.
Added
We remain committed to a balanced capital allocation strategy that prioritizes a strong balance sheet and liquidity position while recognizing the importance of accretive growth and returning value to shareholders through dividends and stock repurchases, where appropriate.
Removed
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. ​ The COVID-19 pandemic did not have as significant an impact on our business and industry during fiscal year 2022 as it did in fiscal years 2020 and 2021.
Removed
Sales and service fees for fiscal year 2022 were $250.8 million, an increase of $15.6 million, or 7%, compared to fiscal year 2021, and included an unfavorable currency impact of $13.9 million, or 6%, when translating foreign sales to U.S.
Removed
Dollars for financial reporting purposes. The year-over-year decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco and Takumi machines in China and Southeast Asia, partially offset by an increased volume of shipments of Hurco machines in India.
Removed
Orders for fiscal year 2022 were $240.9 million, a decrease of $24.5 million, or 9%, compared to fiscal year 2021, and included an unfavorable currency impact of $14.3 million, or 5%, when translating foreign orders to U.S. Dollars.
Removed
Despite the year-over-year decrease in total machine order volume, machine orders for Hurco lathes and higher-performance five-axis machines increased during the fiscal year. ​ 36 ​ European orders for fiscal year 2022 decreased by 8%, compared to fiscal year 2021, and included an unfavorable currency impact of 10%, when translating foreign orders to U.S. Dollars.
Removed
Gross profit for fiscal year 2022 was $64.5 million, or 26% of sales, compared to $56.2 million, or 24% of sales, for fiscal year 2021.
Removed
During fiscal year 2021, we recorded approximately $1.2 million, or 1% of sales, for the employee retention credit extended to companies 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”).
Removed
While the employee retention credit did not recur in fiscal year 2022, gross profit as a percentage of sales benefited from increased sales of higher-performance machines, improved leverage of fixed overhead costs and inflationary price increases implemented during fiscal year 2022. ​ Operating Expenses.
Removed
The increase in selling, general, and administrative expenses year-over-year also reflected the employee retention credit recorded in those expenses in fiscal year 2021 of $1.7 million, or 1% of sales. ​ Operating Income (Loss).
Removed
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.
Removed
The program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+0 added−2 removed8 unchanged
Biggest changeDollar 43 ​ Forward contracts for the sale or purchase of foreign currencies as of October 31, 2022, 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ Notional ​ Weighted ​ Forward Rates in ​ ​ ​ ​ Amount ​ Avg. ​ U.S.
Biggest changeDollars ​ ​ Forward in Foreign Forward Contract October 31, ​ ​ Contracts Currency Rate Date 2023 Maturity Dates Sale Contracts: ​ ​ Euro 12,400 1.0850 13,454 13,196 Nov 2023 - Oct 2024 Sterling 4,100 1.2349 5,063 4,981 Nov 2023 - Oct 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ New Taiwan Dollar 660,000 30.3066 * 21,777 20,655 Nov 2023 - Oct 2024 * New Taiwan Dollars per U.S. dollar Forward contracts for the sale or purchase of foreign currencies as of October 31, 2023, 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ Notional ​ Weighted ​ Forward Rates in ​ ​ ​ ​ Amount ​ Avg. ​ U.S.
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, 2022, which are designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging activities, were as follows (in thousands, except weighted average forward rates): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ Notional ​ Weighted ​ Forward Rates in ​ ​ ​ ​ Amount ​ Avg. ​ U.S.
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, 2023, 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 41 ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ Notional ​ Weighted ​ Forward Rates in ​ ​ ​ ​ Amount ​ Avg. ​ U.S.
In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2022, 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, 2022.
In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2023, 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, 2023.
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, 2022, we had no borrowings outstanding under any of our credit facilities.
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, 2023, we had no borrowings outstanding under any of our credit facilities.
Management of Hurco Companies, Inc. (the “Company”) has assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO).
Management of Hurco Companies, Inc. (the “Company”) has assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO).
This forward contract matured in November 2022 and we entered into a new forward contract for the same notional amount that is set to mature in November 2023.
This forward contract matured in November 2023 and we entered into a new forward contract for the same notional amount that is set to mature in November 2024.
Foreign Currency Exchange Risk In fiscal year 2022, we derived approximately 62% of our revenues from customers located outside of the Americas, where we invoiced and received payments in several foreign currencies.
Foreign Currency Exchange Risk In fiscal year 2023, we derived approximately 61% of our revenues from customers located outside of the Americas, where we invoiced and received payments in several foreign currencies.
Dollars ​ ​ ​ Forward ​ Amount ​ Avg. ​ Contract ​ October 31, ​ ​ ​ Contracts in Foreign Currency Forward Rate Date 2022 Maturity Date Sale Contracts: Euro 3,000 1.1557 3,467 2,966 Nov 2022 ​ ​ ​ ​ ​ ​ ​ ​ 44 ​ Management’s Annual Report on Internal Control over Financial Reporting ​ To the Shareholders and Board of Directors of Hurco Companies, Inc.
Dollars ​ ​ ​ Forward ​ Amount ​ Avg. ​ Contract ​ October 31, ​ Maturity ​ Contracts in Foreign Currency Forward Rate Date 2023 Date Sale Contracts: Euro 3,000 1.0275 3,083 3,169 Nov 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ 43 ​ Management’s Annual Report on Internal Control over Financial Reporting ​ To the Shareholders and Board of Directors of Hurco Companies, Inc.
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.
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.
McClelland Executive Vice President, Treasurer, and Chief Financial Officer ​ Indianapolis, Indiana January 6, 2023 ​ ​ ​ ​ ​ ​ 45 ​
McClelland Executive Vice President, Treasurer, and Chief Financial Officer ​ Indianapolis, Indiana January 5, 2024 ​ ​ ​ ​ ​ ​ 44 ​
Dollar We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2021. We designated this forward contract as a hedge of our net investment in Euro denominated assets.
To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2022. 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.
Forward contracts designated as net investment hedges under this guidance as of October 31, 2022, were as follows (in thousands, except weighted average forward rates): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ ​ Notional ​ Weighted Forward Rates in U.S.
As of October 31, 2023, we had $1.3 million of realized gain and $0.1 million of unrealized loss, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts. 42 ​ Forward contracts designated as net investment hedges under this guidance as of October 31, 2023, were as follows (in thousands, except weighted average forward rates): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ ​ Notional ​ Weighted Forward Rates in U.S.
Dollars ​ ​ Forward in Foreign Forward Contract October 31, ​ ​ Contracts Currency Rate Date 2022 Maturity Dates Sale Contracts: Euro 20,056 0.9981 20,018 19,853 Nov 2022 - Dec 2022 Sterling 999 1.1452 1,145 1,148 Nov 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ New Taiwan Dollar 708,811 31.1668 * 22,743 22,039 Nov 2022 - Feb 2023 * New Taiwan Dollars per U.S.
Dollars ​ ​ Forward in Foreign Forward Contract October 31, ​ ​ Contracts Currency Rate Date 2023 Maturity Dates Sale Contracts: Euro 16,024 1.0783 17,278 16,975 Nov 2023 - Feb 2024 Sterling 738 1.2125 895 895 Nov 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ New Taiwan Dollar 1,139,418 31.4244 * 36,259 35,685 Nov 2023 - Mar 2024 * New Taiwan Dollars per U.S. dollar We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries.
Removed
Dollars ​ ​ Forward in Foreign Forward Contract October 31, ​ ​ Contracts Currency Rate Date 2022 Maturity Dates Sale Contracts: ​ ​ Euro 18,750 1.0689 20,041 18,715 Nov 2022 - Oct 2023 Sterling 5,250 1.2342 6,479 6,053 Nov 2022 - Oct 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ ​ New Taiwan Dollar 830,000 28.7542 * 28,865 25,993 Nov 2022 - Oct 2023 *New Taiwan Dollars per U.S.
Removed
As of October 31, 2022, we had $0.9 million of realized gain and $0.4 million of unrealized gain, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

Other HURC 10-K year-over-year comparisons