What changed in this filing

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Item 1. Financial Statements

2020-09-04 compared with 2020-06-08 · 314 added, 642 removed, 281 unchanged (77% of the section changed)

1 unchanged sentence

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

Sales and service fees

4 unchanged sentences

Interest income

Investment income

Investment income (loss)

Other income (expense), net

5 unchanged sentences

Dividends paid per share

The accompanying notes are an integral

part of the condensed consolidated financial statements.

The accompanying notes are an integral part of the condensed consolidated financial statements.

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Three Months Ended

Six Months Ended

Nine Months Ended

Net income (loss)

4 unchanged sentences

Total other comprehensive income (loss)

Comprehensive income (loss)

The accompanying notes are an integral

part of the condensed consolidated financial statements.

Comprehensive income

The accompanying notes are an integral part of the condensed consolidated financial statements.

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share

(In thousands, except share and per share data)

Current assets:

13 unchanged sentences

Intangible assets, net

Operating lease –

right-of-use assets, net

Operating lease – right-of-use assets, net

Deferred income taxes

1 unchanged sentence

Total non–current assets

LIABILITIES AND SHAREHOLDERS’

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

13 unchanged sentences

Total non–current liabilities

Shareholders’

Shareholders’ equity:

Preferred stock:

2 unchanged sentences

Common stock:

no par value, $.10 stated value per share, 12,500,000 shares authorized 6,737,969 and 6,824,451 shares issued and 6,666,226 and 6,767,237 shares outstanding, as of April 30, 2020 and October 31, 2019, respectively

no par value, $.10 stated value per share, 12,500,000 shares authorized 6,636,906 and 6,824,451 shares issued and 6,565,163 and 6,767,237 shares outstanding, as of July 31, 2020 and October 31, 2019, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

Total shareholders’

Total liabilities and shareholders’

The accompanying notes are an integral

part of the condensed consolidated financial statements.

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes are an integral part of the condensed consolidated financial statements.

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

22 unchanged sentences

Software development costs

Other investments

Net cash provided by (used for) investing activities

2 unchanged sentences

Taxes paid related to net settlement of restricted shares

Proceeds from exercise of common stock options

Stock repurchases

5 unchanged sentences

Cash and cash equivalents at end of period

The accompanying notes are an integral

part of the condensed consolidated financial statements.

The accompanying notes are an integral part of the condensed consolidated financial statements.

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except shares outstanding)

Three Months Ended April 30, 2020 and 2019

Three Months Ended July 31, 2020 and 2019

Comprehensive

Income (Loss)

Balances, January 31, 2019

Balances, April 30, 2019

Other comprehensive income (loss)

1 unchanged sentence

Dividends paid

Balances, July 31, 2019

Balances, April 30, 2020

Balances, January 31, 2020

Other comprehensive income (loss)

Stock–based compensation expense, net of taxes withheld for vested restricted shares

Exercise of common stock options

Stock repurchases

Dividends paid

Balances, April 30, 2020

Six Months Ended April 30, 2020 and 2019

Retained Earnings

Balances, July 31, 2020

Nine Months Ended July 31, 2020 and 2019

Comprehensive

4 unchanged sentences

Dividends paid

Balances, April 30, 2019

Balances, July 31, 2019

Balances, October 31, 2019

1 unchanged sentence

Stock–based compensation expense, net of taxes withheld for vested restricted shares

Exercise of common stock options

Stock repurchases

Dividends paid

Balances, April 30, 2020

The accompanying notes are an integral

part of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

The unaudited Condensed Consolidated Financial

Statements include the accounts of Hurco Companies, Inc.

Balances, July 31, 2020

The accompanying notes are an integral part of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited Condensed Consolidated Financial Statements include the accounts of Hurco Companies, Inc.

and its consolidated subsidiaries.

As used in this report, the words

“we”, “us”, “our”, “Hurco”

and the “Company”

refer to Hurco Companies, Inc.

As used in this report, the words “we”, “us”, “our”, “Hurco” and the “Company” refer to Hurco Companies, Inc.

and its consolidated subsidiaries.

We design, manufacture and sell computerized

(i.e., Computer Numeric Control (“CNC”)) machine tools, consisting primarily of vertical machining centers (mills)

and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network.

the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal

computer components.

Our computer control systems and software products are primarily sold as integral components of

our computerized machine tool products.

We also provide machine tool components, automation integration equipment and

solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer

service and training and applications support.

We operate in the industrial

equipment industry and have a global footprint that subjects us to various business risks in many different countries.

We design, manufacture and sell computerized (i.e., Computer Numeric Control (“CNC”)) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network.

Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.

We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service and training and applications support.

We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in many different countries.

The COVID-19 pandemic has had a significant impact on our business and industry during fiscal 2020.

Over the past few months,

governmental authorities in many of the major global machine tool markets implemented mandatory stay-at-home or shelter

orders requiring most businesses to close or to significantly limit operations, resulting in a sudden decrease in demand for

many goods and services.

Although the mandatory stay-at-home or shelter orders in many jurisdictions permitted our local

operations to continue as an essential business or a supplier to critical infrastructure industries or otherwise with remote

work capabilities, many of our customers experienced significant disruptions in their business operations and normal

purchasing cycles.

Because of this disruption in demand and the potential for extended vulnerability during the

remainder of this fiscal year, we have closely evaluated the estimates we have made in preparing the financial statements as

of April 30, 2020 with the understanding that these estimates could change in the near term.

We cannot predict the

duration or scope of the 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.

We will continue to evaluate and disclose

any uncertainty associated with key assumptions underlying fair value estimates, trends and uncertainties that have had, or

are reasonably expected to have, a material effect on our consolidated financial position, results of operations, changes in

shareholders’

equity and cash flows for and at the end of each interim period.

The condensed financial information as

of April 30, 2020 and for the three and six months ended April 30, 2020 and April 30, 2019 is unaudited.

in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present

fairly our consolidated financial position, results of operations, changes in shareholders’

equity and cash flows for and

at the end of the interim periods.

We suggest that you read these Condensed Consolidated Financial Statements in conjunction with

the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended October 31,

Beginning in early 2020, governmental authorities in many of the major global machine tool markets implemented mandatory stay-at-home or shelter orders requiring most businesses to close or to significantly limit operations, resulting in a sudden decrease in demand for many goods and services.

Although the mandatory stay-at-home or shelter orders in many jurisdictions permitted our local operations to continue as an essential business or a supplier to critical infrastructure industries or otherwise with remote work capabilities, many of our customers experienced, and continue to experience, significant disruptions in their business operations and normal purchasing cycles.

Because of this disruption in demand and the potential for extended vulnerability during the remainder of this fiscal year, we have closely evaluated the estimates we have made in preparing the financial statements as of July 31, 2020 with the understanding that these estimates could change in the near term.

We cannot predict the duration or scope of the 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.

We will continue to evaluate and disclose any uncertainty associated with key assumptions underlying fair value estimates, trends and uncertainties that have had, or are reasonably expected to have, a material effect on our consolidated financial position, results of operations, changes in shareholders' equity and cash flows for and at the end of each interim period.

The condensed financial information as of July 31, 2020 and for the three and nine months ended July 31, 2020 and July 31, 2019 is unaudited.

However, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, results of operations, changes in shareholders’ equity and cash flows for and at the end of the interim periods.

We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2019.

REVENUE RECOGNITION

We design, manufacture and sell computerized

machine tools.

Our computer control systems and software products are primarily sold as integral components of our computerized

machine tool products.

We also provide machine tool components, automation integration equipment and solutions for job

shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training

and applications support.

We adopted Accounting Standards Codification

(“ASC”) 606 “Revenue from Contracts with Customers”

(“ASC 606”) on November 1, 2018, the

start of our 2019 fiscal year, and elected the modified retrospective method as of the date of adoption.

Prior to the adoption

of ASC 606, our revenues were already recognized in the same manner as that required by ASC 606.

Therefore, the adoption of ASC

606 did not have an effect on our overall financial statements.

We recognize revenues from the sale of

machine tools, components and accessories and services and reflect the consideration to which we expect to be entitled.

record revenues based on a five-step model in accordance with Financial Accounting Standards Board (“FASB”) guidance

codified in ASC 606.

In accordance with ASC 606, we have defined contracts as agreements with our customers and distributors in

the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories.

For each contract, we identify our performance obligations, which are delivering goods or services, determine the transaction price,

allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when

(or as) each of the performance obligations to the customer is fulfilled.

A good or service is transferred when the customer

obtains control of that good or service.

Our computerized machine tools are general purpose computer-controlled machine tools

that are typically used in stand-alone operations.

Prior to shipment, we test each machine to ensure the machine’s compliance

with standard operating specifications.

We deem that the customer obtains control upon delivery of the product and that obtaining

control is not contingent upon contractual customer acceptance.

Therefore, we recognize revenue from sales of our machine tool

systems upon delivery of the product to the customer or distributor, which is normally at the time of shipment.

Depending upon geographic location, after

shipment, a machine may be installed at the customer’s facilities by a distributor, independent contractor or by one of our

service technicians.

We design, manufacture and sell computerized machine tools.

Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.

We adopted Accounting Standards Codification (“ASC”) 606 “Revenue from Contracts with Customers” (“ASC 606”) on November 1, 2018, the start of our 2019 fiscal year, and elected the modified retrospective method as of the date of adoption.

Prior to the adoption of ASC 606, our revenues were already recognized in the same manner as that required by ASC 606.

Therefore, the adoption of ASC 606 did not have an effect on our overall financial statements.

We recognize revenues from the sale of machine tools, components and accessories and services and reflect the consideration to which we expect to be entitled.

We record revenues based on a five-step model in accordance with Financial Accounting Standards Board (“FASB”) guidance codified in ASC 606.

In accordance with ASC 606, we have defined contracts as agreements with our customers and distributors in the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories.

For each contract, we identify our performance obligations, which are delivering goods or services, determine the transaction price, allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when (or as) each of the performance obligations to the customer is fulfilled.

A good or service is transferred when the customer obtains control of that good or service.

Our computerized machine tools are general purpose computer-controlled machine tools that are typically used in stand-alone operations.

Prior to shipment, we test each machine to ensure the machine’s compliance with standard operating specifications.

We deem that the customer obtains control upon delivery of the product and that obtaining control is not contingent upon contractual customer acceptance.

Therefore, we recognize revenue from sales of our machine tool systems upon delivery of the product to the customer or distributor, which is normally at the time of shipment.

Depending upon geographic location, after shipment, a machine may be installed at the customer’s facilities by a distributor, independent contractor or by one of our service technicians.

In most instances where a machine is sold through a distributor, we have no installation involvement.

are direct or through sales agents, we will typically complete the machine installation, which consists of the reassembly of certain

parts that were removed for shipping and the re-testing of the machine to ensure that it is performing within the standard specifications.

If sales are direct or through sales agents, we will typically complete the machine installation, which consists of the reassembly of certain parts that were removed for shipping and the re-testing of the machine to ensure that it is performing within the standard specifications.

We consider the machine installation process for our three-axis machines to be inconsequential and perfunctory.

For our five-axis

machines that we install, we estimate the fair value of the installation performance obligation and recognize that installation

revenue on a prorata basis over the period of the installation process.

From time to time, and depending upon geographic

location, we may provide training or freight services.

We consider these services to be perfunctory within the context of the contract,

as the value of these services typically does not rise to a material level as a component of the total contract value.

fees from maintenance contracts are deferred and recognized in earnings on a prorata basis over the term of the contract and are

generally sold on a stand-alone basis.

Customer discounts and estimated product returns are considered variable consideration and

are recorded as a reduction of revenue in the same period that the related sales are recorded.

We have reviewed the overall

sales transactions for variable consideration and have determined that these amounts are not significant.

For our five-axis machines that we install, we estimate the fair value of the installation performance obligation and recognize that installation revenue on a prorata basis over the period of the installation process.

From time to time, and depending upon geographic location, we may provide training or freight services.

We consider these services to be perfunctory within the context of the contract, as the value of these services typically does not rise to a material level as a component of the total contract value.

Service fees from maintenance contracts are deferred and recognized in earnings on a prorata basis over the term of the contract and are generally sold on a stand-alone basis.

Customer discounts and estimated product returns are considered variable consideration and are recorded as a reduction of revenue in the same period that the related sales are recorded.

We have reviewed the overall sales transactions for variable consideration and have determined that these amounts are not significant.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to certain market risks

relating to our ongoing business operations, including foreign currency risk, interest rate risk and credit risk.

We manage our

exposure to these and other market risks through regular operating and financing activities.

Currently, the only risk that we manage

through the use of derivative instruments is foreign currency risk, for which we enter into derivative instruments in the form

of foreign currency forward exchange contracts with a few major financial institutions.

We enter into these forward exchange contracts

to reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries,

to reduce the impact on gross profit and net earnings from sales and purchases denominated in foreign currencies, and to reduce

the impact on our net earnings of foreign currency fluctuations on receivables and payables denominated in foreign currencies that

are different than the subsidiaries’

functional currency.

We are primarily exposed to foreign currency exchange rate risk

with respect to transactions and net assets denominated in Euros, Pounds Sterling, Indian Rupee, Singapore Dollars, Chinese

Yuan, Polish Zloty, and New Taiwan Dollars.

We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, interest rate risk and credit risk.

We manage our exposure to these and other market risks through regular operating and financing activities.

Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk, for which we enter into derivative instruments in the form of foreign currency forward exchange contracts with a few major financial institutions.

We enter into these forward exchange contracts to reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, to reduce the impact on gross profit and net earnings from sales and purchases denominated in foreign currencies, and to reduce the impact on our net earnings of foreign currency fluctuations on receivables and payables denominated in foreign currencies that are different than the subsidiaries’ functional currency.

We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Pounds Sterling, Indian Rupee, Singapore Dollars, Chinese Yuan, Polish Zloty, and New Taiwan Dollars.

We record all derivative instruments as assets or liabilities at fair value.

Derivatives Designated as Hedging Instruments

We enter into foreign currency forward

exchange contracts periodically to hedge certain forecasted inter-company sales and purchases denominated in the following foreign

We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-company sales and purchases denominated in the following foreign currencies:

the Pound Sterling, Euro and New Taiwan Dollar.

The purpose of these instruments is to mitigate the risk that the U.S.

Dollar net cash inflows and outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected

by changes in exchange rates.

These forward contracts have been designated as cash flow hedge instruments and are recorded in the

Condensed Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities.

The effective portion of the

gains and losses resulting from the changes in the fair value of these hedge contracts is deferred in Accumulated other comprehensive

loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the

subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding

change in the U.S.

Dollar net cash inflows and outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected by changes in exchange rates.

These forward contracts have been designated as cash flow hedge instruments and are recorded in the Condensed Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities.

The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts is deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S.

Dollar value of the inter-company sale or purchase being hedged.

The ineffective portion of gains and losses

resulting from the changes in the fair value of these hedge contracts is immediately reported in Other income, net.

quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining

that forecasted transactions have not changed significantly.

We also assess on a quarterly basis whether there have been adverse

developments regarding the risk of a counterparty default.

We had forward contracts outstanding as

of April 30, 2020, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from May 2020

through April 2021.

The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is immediately reported in Other income (expense), net.

We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining that forecasted transactions have not changed significantly.

We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default.

We had forward contracts outstanding as of July 31, 2020, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from August 2020 through July 2021.

The contract amounts, expressed at forward rates in U.S.

Dollars at April 30, 2020, were $8.5 million

for Euros, $3.2 million for Pounds Sterling and $14.5 million for New Taiwan Dollars.

At April 30, 2020, we had approximately

$547,000 of gains, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

Included in this amount

were $490,000 of unrealized gains, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation

The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through April 2021,

when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above.

We are also exposed to foreign currency

exchange risk related to our investment in net assets in foreign countries.

To manage this risk, we entered into a forward contract

with a notional amount of €3.0 million in November 2019.

We designated this forward contract as a hedge of our net investment

in Euro denominated assets.

We selected the forward method under 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 in Accumulated other comprehensive loss, net of tax, in the same manner as the underlying hedged net assets.

dollars at July 31, 2020, were $ 5.6 million for Euros, $ 2.5 million for Pounds Sterling and $ 11.8 million for New Taiwan Dollars.

At July 31, 2020, we had approximately $ 67,000 of gains, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

Included in this amount was $ 102,000 of unrealized loss, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk.

The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through July 2021, when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above.

We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries.

To manage this risk, we entered into a forward contract with a notional amount of € 3.0 million in November 2019.

We designated this forward contract as a hedge of our net investment in Euro denominated assets.

We selected the forward method under 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 in Accumulated other comprehensive loss, net of tax, in the same manner as the underlying hedged net assets.

This forward contract matures in November 2020.

As of April 30, 2020, we had a realized gain of $947,000 and an unrealized

gain of $75,000, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss related to

this forward contract.

Derivatives Not Designated as Hedging

We also enter into foreign currency forward

exchange contracts to protect against the effects of foreign currency fluctuations on receivables and payables denominated in

foreign currencies.

These derivative instruments are not designated as hedges under FASB guidance and, as a result, changes in

their fair value are reported currently as Other income (expense), net in the Condensed Consolidated Statements of Operations

consistent with the transaction gain or loss on the related receivables and payables denominated in foreign currencies.

We had forward contracts outstanding as

of April 30, 2020, denominated in Euros, Pounds Sterling, South African Rand, and New Taiwan Dollar with set maturity dates

ranging from May 2020 through April 2021.

As of July 31, 2020, we had a realized gain of $ 947,000 and an unrealized loss of $ 118,000 , net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss related to this forward contract.

Derivatives Not Designated as Hedging Instruments

We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on receivables and payables denominated in foreign currencies.

These derivative instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are reported currently as Other income (expense), net in the Condensed Consolidated Statements of Operations consistent with the transaction gain or loss on the related receivables and payables denominated in foreign currencies.

We had forward contracts outstanding as of July 31, 2020, denominated in Euros, Pounds Sterling, and New Taiwan Dollar with set maturity dates ranging from August 2020 through July 2021.

The contract amounts, expressed at forward rates in U.S.

Dollars at April 30,

2020, totaled $46.7 million.

dollars at July 31, 2020, totaled $ 43.3 million.

Fair Value of Derivative Instruments

We recognize the fair value of derivative

instruments as assets and liabilities on a gross basis on our Condensed Consolidated Balance Sheets.

As of April 30, 2020

and October 31, 2019, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets

as follows (in thousands):

April 30, 2020

We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Condensed Consolidated Balance Sheets.

As of July 31, 2020 and October 31, 2019, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

July 31, 2020

October 31, 2019

15 unchanged sentences

Derivative liabilities

Effect of Derivative Instruments on the Condensed Consolidated

Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’

Equity and Condensed Consolidated Statements

of Operations

Derivative instruments had the following

effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’

and Condensed Consolidated Statements of Operations, net of tax, during the three months ended April 30, 2020 and 2019 (in

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations

Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations, net of tax, during the three months ended July 31, 2020 and 2019 (in thousands):

Location of Gain

Amount of Gain

Amount of Gain (Loss)

(Loss) Reclassified

Recognized in Other

Comprehensive

Income (Loss)

Location of Gain

(Loss) Reclassified

Comprehensive

Income (Loss)

Amount of Gain

(Loss) Reclassified

Comprehensive

Income (Loss)

Three Months Ended

2 unchanged sentences

(Effective portion)

Foreign exchange forward contracts –

Foreign exchange forward contracts

– Intercompany sales/purchases

Cost of sales and service

Foreign exchange forward contract –

Foreign exchange forward contract

– Net investment

We did not recognize any gains or losses

as a result of hedges deemed ineffective for either of the three months ended April 30, 2020 or 2019.

We recognized the following

gains in our Condensed Consolidated Statements of Operations during the three months ended April 30, 2020 and 2019 on derivative

instruments not designated as hedging instruments (in thousands):

We did not recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended July 31, 2020 or 2019.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the three months ended July 31, 2020 and 2019 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

(Loss) Recognized

in Operations

Amount of Gain (Loss)

in Operations

Recognized in Operations

3 unchanged sentences

Other income (expense), net

The following table presents the changes in the components of

Accumulated other comprehensive loss, net of tax, for the three months ended April 30, 2020 (in thousands):

The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for the three months ended July 31, 2020 (in thousands):

Foreign Currency

Balance, January 31, 2020

Balance, April 30, 2020

Other comprehensive income (loss) before reclassifications

Reclassifications

Balance, April 30, 2020

Derivative instruments had the following

effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’

and Condensed Consolidated Statements of Operations, net of tax, during the six months ended April 30, 2020 and 2019 (in thousands):

Balance, July 31, 2020

Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders' Equity and Condensed Consolidated Statements of Operations, net of tax, during the nine months ended July 31, 2020 and 2019 (in thousands):

Location of Gain

Amount of Gain (Loss)

(Loss) Reclassified

Amount of Gain (Loss)

Recognized in Other

Reclassified from Other

Comprehensive

Income (Loss)

Location of Gain

(Loss) Reclassified

Comprehensive

Income (Loss)

Amount of Gain

(Loss) Reclassified

Comprehensive

Income (Loss)

Six Months Ended

Income (Loss)

Nine Months Ended

Designated as Hedging Instruments:

(Effective portion)

Foreign exchange forward contracts –

Foreign exchange forward contracts

– Intercompany sales/purchases

Cost of sales and service

Foreign exchange forward contract –

Foreign exchange forward contract

– Net investment

We did not recognize any gains or losses

as a result of hedges deemed ineffective for either of the six months ended April 30, 2020 or 2019.

We recognized the following

gains in our Condensed Consolidated Statements of Operations during the six months ended April 30, 2020 and 2019 on derivative

instruments not designated as hedging instruments (in thousands):

We did not recognize any gains or losses as a result of hedges deemed ineffective for either of the nine months ended July 31, 2020 or 2019.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the nine months ended July 31, 2020 and 2019 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

(Loss) Recognized

in Operations

Amount of Gain (Loss)

in Operations

Recognized in Operations

Six Months Ended

Nine Months Ended

Not Designated as Hedging Instruments:

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Other income (expense), net

The following table presents the changes

in the components of Accumulated other comprehensive loss, net of tax, for the six months ended April 30, 2020 (in thousands):

The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for the nine months ended July 31, 2020 (in thousands):

Foreign Currency

2 unchanged sentences

Reclassifications

Balance, April 30, 2020

Balance, July 31, 2020

EQUITY INCENTIVE PLAN

In March 2016, we adopted the Hurco

Companies, Inc.

2016 Equity Incentive Plan (the “2016 Equity Plan”), which allows us to grant awards of stock

options, stock appreciation rights, restricted stock, stock units and other stock-based awards.

The 2016 Equity Plan replaced the

Hurco Companies, Inc.

2008 Equity Incentive Plan (the “2008 Plan”) and is the only active plan under which equity

awards may be made by us to our employees and non-employee directors.

In March 2016, we adopted the Hurco Companies, Inc.

2016 Equity Incentive Plan (the “2016 Equity Plan”), which allows us to grant awards of stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards.

The 2016 Equity Plan replaced the Hurco Companies, Inc.

2008 Equity Incentive Plan (the “2008 Plan”) and is the only active plan under which equity awards may be made by us to our employees and non-employee directors.

No further awards will be made under our 2008 Plan.

number of shares of our common stock that may be issued pursuant to awards under the 2016 Equity Plan is 856,048, which includes

386,048 shares remaining available for future grants under the 2008 Plan as of March 10, 2016, the date our shareholders approved

the 2016 Equity Plan.

The Compensation Committee of our Board

of Directors has the authority to determine the officers, directors and key employees who will be granted awards under the 2016

The total number of shares of our common stock that may be issued pursuant to awards under the 2016 Equity Plan is 856,048 , which includes 386,048 shares remaining available for future grants under the 2008 Plan as of March 10, 2016, the date our shareholders approved the 2016 Equity Plan.

The Compensation Committee of our Board of Directors has the authority to determine the officers, directors and key employees who will be granted awards under the 2016 Equity Plan;

designate the number of shares subject to each award;

determine the terms and conditions upon which awards will be

determine the terms and conditions upon which awards will be granted;

and prescribe the form and terms of award agreements.

We have granted restricted shares and performance units under the

2016 Equity Plan that are currently outstanding, and we have granted stock options under the 2008 Plan that are currently outstanding.

No stock option may be exercised more than ten years after the date of grant or such shorter period as the Compensation Committee

may determine at the date of grant.

The market value of a share of our common stock, for purposes of the 2016 Equity Plan, is the

closing sale price as reported by the Nasdaq Global Select Market on the date in question or, if not a trading day, on the last

preceding trading date.

A summary of stock option activity for

the six-month period ended April 30, 2020, is as follows:

Stock Options

We have granted restricted shares and performance units under the 2016 Equity Plan that are currently outstanding, and we have granted stock options under the 2008 Plan that are currently outstanding.

No stock option may be exercised more than ten years after the date of grant or such shorter period as the Compensation Committee may determine at the date of grant.

The market value of a share of our common stock, for purposes of the 2016 Equity Plan, is the closing sale price as reported by the Nasdaq Global Select Market on the date in question or, if not a trading day, on the last preceding trading date.

A summary of stock option activity for the nine-month period ended July 31, 2020, is as follows:

Weighted Average

Stock Options

Exercise Price

3 unchanged sentences

Options cancelled

Outstanding at April 30, 2020

Summarized information about outstanding

stock options as of April 30, 2020, that have already vested and are currently exercisable, are as follows:

Outstanding at July 31, 2020

Summarized information about outstanding stock options as of July 31, 2020, that have already vested and are currently exercisable, are as follows:

Options Already Vested and

4 unchanged sentences

Intrinsic value of outstanding options

The intrinsic value of an outstanding stock

option is calculated as the difference between the stock price as of April 30, 2020 and the exercise price of the option.

On March 12, 2020, the Compensation

Committee granted a total of 17,780 shares of time-based restricted stock to our non-employee directors.

The restricted shares

vest in full one year from the date of grant provided the recipient remains on the board of directors through that date.

date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was

$23.62 per share.

On January 2, 2020, the Compensation

Committee determined the degree to which the long-term incentive compensation arrangement approved for the fiscal 2017-2019 performance

period was attained, and the resulting payout level relative to the target amount for each of the metrics that were established

by the Compensation Committee in 2017.

As a result, the Compensation Committee determined that a total of 28,979 performance share

units (“PSUs”) were earned by our executive officers, which PSUs vested on January 2, 2020.

The vesting date fair

value of the PSUs was based on the closing sales price of our common stock on the vesting date, which was $37.79 per share.

On January 2, 2020, the Compensation

Committee also approved a long-term incentive compensation arrangement for our executive officers in the form of restricted shares

and PSUs under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested.

The awards were

approximately 25% time-based vesting and approximately 75% performance-based vesting.

The three-year performance period for the

PSUs is fiscal 2020 through fiscal 2022.

On that date, the Compensation Committee

granted a total of 20,837 shares of time-based restricted stock to our executive officers.

The restricted shares vest in thirds

over three years from the date of grant provided the recipient remains employed through that date.

The grant date fair value of

the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $37.79 per share.

On January 2, 2020, the Compensation

Committee also granted a total target number of 26,918 PSUs to our executive officers designated as “PSU –

These PSUs were weighted as approximately 40% of the overall 2020 executive long-term incentive compensation arrangement and will

vest and be paid based upon the total shareholder return of our common stock over the three-year period of fiscal 2020-2022, relative

to the total shareholder return of the companies in a specified peer group over that period.

Participants will have the ability

to earn between 50% of the target number of the PSUs –

TSR for achieving threshold performance and 200% of the target number

of the PSUs –

TSR for achieving maximum performance.

The grant date fair value of the PSUs –

TSR was $46.81 per PSU

and was calculated using the Monte Carlo approach.

On January 2, 2020, the Compensation

Committee also granted a total target number of 29,174 PSUs to our executive officers designated as “PSU –

These PSUs were weighted as approximately 35% of the overall 2020 executive long-term incentive compensation arrangement and will

vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the

three-year period of fiscal 2020-2022.

Participants will have the ability to earn between 50% of the target number of the PSUs

- ROIC for achieving threshold performance and 200% of the target number of the PSUs - ROIC for achieving maximum performance.

The grant date fair value of the PSUs –

ROIC was based on the closing sales price of our common stock on the grant date,

which was $37.79 per share.

On November 13, 2019, the Compensation

Committee granted a total of 8,052 shares of time-based restricted stock to our non-executive employees.

The restricted shares

vest in thirds over three years from the date of grant provided the recipient remains employed through that date.

The grant date

fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was

$35.75 per share.

A reconciliation of our restricted stock and PSU activity and

related information for the six-month period ended April 30, 2020 is as follows:

The intrinsic value of an outstanding stock option is calculated as the difference between the stock price as of July 31, 2020 and the exercise price of the option.

On March 12, 2020, the Compensation Committee granted a total of 17,780 shares of time-based restricted stock to our non-employee directors.

The restricted shares vest in full one year from the date of grant provided the recipient remains on the board of directors through that date.

The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $ 23.62 per share.

On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive compensation arrangement approved for the fiscal 2017-2019 performance period was attained, and the resulting payout level relative to the target amount for each of the metrics that were established by the Compensation Committee in 2017.

As a result, the Compensation Committee determined that a total of 28,979 performance share units (“PSUs”) were earned by our executive officers, which PSUs vested on January 2, 2020.

The vesting date fair value of the PSUs was based on the closing sales price of our common stock on the vesting date, which was $ 37.79 per share.

On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested.

The awards were approximately 25 % time-based vesting and approximately 75 % performance-based vesting.

The three-year performance period for the PSUs is fiscal 2020 through fiscal 2022.

On that date, the Compensation Committee granted a total of 20,837 shares of time-based restricted stock to our executive officers.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date.

The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $ 37.79 per share.

On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our executive officers designated as “PSU – TSR”.

These PSUs were weighted as approximately 40 % of the overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over the three-year period of fiscal 2020-2022, relative to the total shareholder return of the companies in a specified peer group over that period.

Participants will have the ability to earn between 50 % of the target number of the PSUs – TSR for achieving threshold performance and 200 % of the target number of the PSUs – TSR for achieving maximum performance.

The grant date fair value of the PSUs – TSR was $ 46.81 per PSU and was calculated using the Monte Carlo approach.

On January 2, 2020, the Compensation Committee also granted a total target number of 29,174 PSUs to our executive officers designated as “PSU – ROIC”.

These PSUs were weighted as approximately 35 % of the overall 2020 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the three-year period of fiscal 2020-2022.

Participants will have the ability to earn between 50 % of the target number of the PSUs - ROIC for achieving threshold performance and 200 % of the target number of the PSUs - ROIC for achieving maximum performance.

The grant date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which was $ 37.79 per share.

On November 13, 2019, the Compensation Committee granted a total of 8,052 shares of time-based restricted stock to our non-executive employees.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date.

The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $ 35.75 per share.

A reconciliation of our restricted stock and PSU activity and related information for the nine-month period ended July 31, 2020 is as follows:

Weighted Average Grant

Number of Shares

Weighted Average

Date Fair Value

Unvested at October 31, 2019

3 unchanged sentences

Shares or units withheld

Unvested at April 30, 2020

During the first six months of fiscal 2020

and 2019, we recorded approximately $779,000 and $1.4 million, respectively, of stock-based compensation expense related to grants

under the 2016 Equity Plan.

As of April 30, 2020, there was an estimated $4.1 million of total unrecognized stock-based compensation

cost that we expect to recognize by the end of the first quarter of fiscal 2023.

Unvested at July 31, 2020

During the nine months of fiscal 2020 and 2019, we recorded approximately $ 1.4 million and $ 2.1 million, respectively, of stock-based compensation expense related to grants under the 2016 Equity Plan.

As of July 31, 2020, there was an estimated $ 3.4 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2023.

ACQUISITION OF BUSINESS

2019, we (through a newly-formed subsidiary, ProCobots, LLC (“ProCobots”)) acquired substantially all of the assets

of a U.S.-based automation integration company for approximately $4.4 million.

This acquired business provides automation

solutions that can be integrated with any machine tool.

The purchase price has been

preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values, and approximated $4.4 million.

On August 5, 2019, we (through a newly-formed subsidiary, ProCobots, LLC (“ProCobots”)) acquired substantially all of the assets of a U.S.-based automation integration company for approximately $ 4.4 million.

This acquired business provides automation solutions that can be integrated with any machine tool.

The purchase price has been preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values, and approximated $ 4.4 million.

The allocation of the opening balance sheet of ProCobots as of August 5, 2019 was as follows (in thousands):

4 unchanged sentences

Total purchase price and cash expended

The acquisition was accounted for in accordance

with ASC Topic 805, Business Combinations.

Accordingly, the total purchase price was allocated to tangible assets and liabilities

based on their fair value and the intangibles and goodwill were allocated on a provisional basis at the date of acquisition.

allocations reflected various provisional estimates that were available at the time and are subject to change during the purchase

price allocation period as valuations are in the process of being finalized.

The results of operations of ProCobots

have been included in the consolidated financial statements from the date of acquisition.

The acquisition was accounted for in accordance with ASC Topic 805, Business Combinations.

Accordingly, the total purchase price was allocated to tangible assets and liabilities based on their fair value and the intangibles and goodwill were allocated on a provisional basis.

These allocations reflected various provisional estimates and are subject to change during the purchase price allocation period as valuations are in the process of being finalized.

The results of operations of ProCobots have been included in the consolidated financial statements from the date of acquisition.

EARNINGS PER SHARE

Per share results have been computed based

on the average number of common shares outstanding over the period in question.

The computation of basic and diluted net income

(loss) per share is determined using net income (loss) applicable to common shareholders as the numerator and the number of shares

outstanding as the denominator as follows (in thousands, except per share amounts):

Per share results have been computed based on the average number of common shares outstanding over the period in question.

The computation of basic and diluted net income (loss) per share is determined using net income (loss) applicable to common shareholders as the numerator and the number of shares outstanding as the denominator as follows (in thousands, except per share amounts):

Three Months Ended

Six Months Ended

Nine Months Ended

Net income (loss)

Undistributed earnings

allocated to participating shares

Net income (loss) applicable to

common shareholders

Weighted average shares

Stock options and

contingently issuable securities

Undistributed earnings allocated to participating shares

Net income (loss) applicable to common shareholders

Weighted average shares outstanding

Stock options and contingently issuable securities

Income (loss) per share

ACCOUNTS RECEIVABLE

Accounts receivable are net of allowances

for doubtful accounts of $1.0 million as of April 30, 2020 and $891,000 as of October 31, 2019.

Inventories, priced at the lower of cost

(first-in, first-out method) or net realizable value, are summarized below (in thousands):

April 30, 2020

October 31, 2019

Accounts receivable are net of allowances for doubtful accounts of $ 1.3 million as of July 31, 2020 and $ 891,000 as of October 31, 2019.

Inventories, priced at the lower of cost (first-in, first-out method) or net realizable value, are summarized below (in thousands):

Purchased parts and sub–assemblies

1 unchanged sentence

Finished goods

We adopted Accounting Standards Update

(“ASU”) No.

2016-02, “Leases”

(“ASC 842”) on November 1, 2019, the start of our 2020

fiscal year, and utilized the transition method allowed.

Accordingly, comparative period financial information was not adjusted

for the effects of adopting ASC 842 and no cumulative-effect adjustment was required to the opening balance of retained earnings

on the adoption date.

Upon adoption of ASC 842, we utilized the

following elections and practical expedients:

We adopted Accounting Standards Update (“ASU”) No.

2016-02, “Leases” (“ASC 842”) on November 1, 2019, the start of our 2020 fiscal year, and utilized the transition method allowed.

Accordingly, comparative period financial information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date.

Upon adoption of ASC 842, we utilized the following elections and practical expedients:

● We have elected to combine non-lease components with lease components.

If at the lease commencement date, a lease has a lease term of 12 months or less and does not include

a purchase option that is reasonably certain to be exercised, we have elected not to apply ASC 842 recognition requirements.

we intend to include leases of less than 12 months within the updated footnote disclosures, if material.

We have elected not to use the portfolio method if we enter into a large number of leases in the

same month with the same terms and conditions.

As we have applied the new transition method allowed per ASU 2018-11, we have elected not to reassess

arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease, the lease classification

applied or to separate initial direct costs.

We have elected not to use hindsight in determining the lease term for lease contracts that have

historically been renewed or amended.

Our lease portfolio includes leased production

and assembly facilities, warehouses and distribution centers, office space, vehicles, material handling equipment utilized in our

production and assembly facilities, laptops and other information technology equipment, as well as other miscellaneous leased equipment.

Most of the leased production and assembly facilities have lease terms ranging from two to five years, although the terms and conditions

of our leases can vary significantly from lease to lease.

We have assessed the specific terms and conditions of each lease to determine

the amount of the lease payments and the length of the lease term, which includes the minimum period over which lease payments

are required plus any renewal options that are both within our control to exercise and reasonably certain of being exercised upon

lease commencement.

In determining whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant

factors to determine if sufficient incentives exist as of lease commencement to conclude renewal is reasonably certain.

no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases to which we are a

In determining the lease liability, we utilize our incremental borrowing rate to discount the future lease payments over

the lease term to present value.

We record a right-of-use asset and lease

liability on our Condensed Consolidated Balance Sheets for all leases for which we are a lessee, in accordance with ASC 842.

are a lessor in a small number of lease agreements associated with our automation integration equipment for which the impact to

our consolidated financial statements is immaterial.

All our leases for which we are a lessee are classified as operating leases

under the guidance in Topic 840.

We recorded total operating lease expense

of $2.5 million and $2.4 million for the six months ended April 30, 2020 and 2019, respectively, which is classified within Cost

of sales and service and Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

● If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a purchase option that is reasonably certain to be exercised, we have elected not to apply ASC 842 recognition requirements.

Nonetheless, we intend to include leases of less than 12 months within the updated footnote disclosures, if material.

● We have elected not to use the portfolio method if we enter into a large number of leases in the same month with the same terms and conditions.

● As we have applied the new transition method allowed per ASU 2018-11, we have elected not to reassess arrangements entered into prior to November 1, 2019 for whether an arrangement is or contains a lease, the lease classification applied or to separate initial direct costs.

● We have elected not to use hindsight in determining the lease term for lease contracts that have historically been renewed or amended.

Our lease portfolio includes leased production and assembly facilities, warehouses and distribution centers, office space, vehicles, material handling equipment utilized in our production and assembly facilities, laptops and other information technology equipment, as well as other miscellaneous leased equipment.

Most of the leased production and assembly facilities have lease terms ranging from two to five years , although the terms and conditions of our leases can vary significantly from lease to lease.

We have assessed the specific terms and conditions of each lease to determine the amount of the lease payments and the length of the lease term, which includes the minimum period over which lease payments are required plus any renewal options that are both within our control to exercise and reasonably certain of being exercised upon lease commencement.

In determining whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant factors to determine if sufficient incentives exist as of lease commencement to conclude renewal is reasonably certain.

There are no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases to which we are a party.

In determining the lease liability, we utilize our incremental borrowing rate to discount the future lease payments over the lease term to present value.

We record a right-of-use asset and lease liability on our Condensed Consolidated Balance Sheets for all leases for which we are a lessee, in accordance with ASC 842.

We are a lessor in a small number of lease agreements associated with our automation integration equipment for which the impact to our consolidated financial statements is immaterial.

All our leases for which we are a lessee are classified as operating leases under the guidance in Topic 840.

We recorded total operating lease expense of $ 3.7 million for each of the nine months ended July 31, 2020 and 2019, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

Operating lease expense includes short-term leases and variable lease payments which are immaterial.

There have been no lease costs

capitalized on the Condensed Consolidated Balance Sheets as of April 30, 2020.

The following

table summarizes supplemental cash flow information and non-cash activity related to operating leases for the six months ended

April 30, 2020 (in thousands):

Six Months Ended

April 30, 2020

There have been no lease costs capitalized on the Condensed Consolidated Balance Sheets as of July 31, 2020.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the nine months ended July 31, 2020 (in thousands):

Nine Months Ended

July 31, 2020

Operating cash flow information:

2 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities

The following

table summarizes the maturities of lease commitments as of October 31, 2019, prior to the adoption of the new lease guidance,

as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019 (in thousands):

The following table summarizes the maturities of lease commitments as of October 31, 2019, prior to the adoption of the new lease guidance, as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019 (in thousands):

2024 and thereafter

The following

table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of April 30,

2020 (in thousands):

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of July 31, 2020 (in thousands):

Remainder of 2020

2 unchanged sentences

Present value of operating lease liabilities

As of April 30, 2020,

the weighted-average remaining term of our lease portfolio was approximately 4.1 years and the weighted-average discount rate

was approximately 1.6%.

As of July 31, 2020, the weighted-average remaining term of our lease portfolio was approximately 4.1 years and the weighted-average discount rate was approximately 1.5 %.

SEGMENT INFORMATION

We operate in a single segment:

automation equipment.

We design, manufacture and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical

machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service

and distribution network.

Although the majority of our computer control systems and software products are proprietary,

they predominantly use industry standard personal computer components.

Our computer control systems and software products

are primarily sold as integral components of our computerized machine tool products.

We also provide machine tool components,

automation equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our

products, as well as customer service and training and applications support.

industrial automation equipment.

We design, manufacture and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network.

Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.

We also provide machine tool components, automation equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service and training and applications support.

GUARANTEES AND PRODUCT WARRANTIES

From time to time,

our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing.

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing.

We follow FASB guidance for accounting for guarantees (codified in ASC 460).

As of April 30, 2020, we had 23 outstanding third

party payment guarantees totaling approximately $0.5 million.

The terms of these guarantees are consistent with the underlying

customer financing terms.

As of July 31, 2020, we had 17 outstanding third party payment guarantees totaling approximately $ 0.5 million.

The terms of these guarantees are consistent with the underlying customer financing terms.

Upon shipment of a machine, the customer assumes the risk of ownership.

The customer does not obtain

title, however, until it has paid for the machine.

A retention of title clause allows us to recover the machine if the customer

defaults on the financing.

The customer does not obtain title, however, until it has paid for the machine.

A retention of title clause allows us to recover the machine if the customer defaults on the financing.

We accrue liabilities under these guarantees at fair value, which amounts are insignificant.

We provide warranties on our products with

respect to defects in material and workmanship.

The terms of these warranties are generally one year for machines and shorter periods

for service parts.

We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty

claims recorded against the reserve.

The amount of the warranty reserve is determined based on historical trend experience and

any known warranty issues that could cause future warranty costs to differ from historical experience.

A reconciliation of the

changes in our warranty reserve is as follows (in thousands):

Six Months Ended

We provide warranties on our products with respect to defects in material and workmanship.

The terms of these warranties are generally one year for machines and shorter periods for service parts.

We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve.

The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience.

A reconciliation of the changes in our warranty reserve is as follows (in thousands):

Nine Months Ended

Balance, beginning of period

3 unchanged sentences

Balance, end of period

The year-over-year decrease in our warranty

reserve was primarily due to a decrease in the number of machines under warranty resulting from decreased sales volume.

The year-over-year decrease in our warranty reserve was primarily due to a decrease in the number of machines under warranty resulting from decreased sales volume.

DEBT AGREEMENTS

On December 31, 2018, we and our subsidiary

entered into a new credit agreement, which was amended by that certain First Amendment dated March 13, 2020 (as

amended, the “2018 Credit Agreement”), with Bank of America, N.A., as the lender.

The 2018 Credit Agreement provides

for an unsecured revolving credit and letter of credit facility in a maximum aggregate amount of $40.0 million.

The 2018 Credit

Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum

amount of outstanding loans made to our subsidiary Hurco B.V.

at any one time may not exceed $20.0 million, and the maximum amount

of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million.

Under the 2018 Credit

Agreement, we and Hurco B.V.

On December 31, 2018, we and our subsidiary Hurco B.V.

entered into a new credit agreement , which was amended by that certain First Amendment dated March 13, 2020 (as amended, the “2018 Credit Agreement”), with Bank of America, N.A., as the lender.

The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility in a maximum aggregate amount of $ 40.0 million.

The 2018 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V.

at any one time may not exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million.

Under the 2018 Credit Agreement, we and Hurco B.V.

are borrowers, and certain of our other subsidiaries are guarantors.

The scheduled maturity date of

the 2018 Credit Agreement is December 31, 2020.

Borrowings under the 2018 Credit Agreement

bear interest at floating rates based on, at our option, either (i) a LIBOR-based rate, or other alternative currency-based

rate approved by the lender, plus 0.75% per annum, or (ii) a base rate (which is the highest of (a) the federal funds

rate plus 0.50%, (b) the prime rate or (c) the one month LIBOR-based rate plus 1.00%), plus 0.00% per annum.

letters of credit will carry an annual rate of 0.75%.

The 2018 Credit Agreement contains customary

affirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments,

loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $10.0 million);

(2) restricting

us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately

before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement

plus our cash on hand is not less than $10.0 million, and as long as we are not in default before and after giving effect to such

dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of

our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of

payments made by us for all such repurchases during any fiscal year does not exceed $10.0 million;

(3) requiring that we maintain

a minimum working capital of $125.0 million;

The scheduled maturity date of the 2018 Credit Agreement is December 31, 2020 .

Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a LIBOR-based rate, or other alternative currency-based rate approved by the lender, plus 0.75% per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month LIBOR-based rate plus 1.00%), plus 0.00% per annum.

Outstanding letters of credit will carry an annual rate of 0.75%.

The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $10.0 million);

(2) restricting us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not less than $ 10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $10.0 million;

(3) requiring that we maintain a minimum working capital of $ 125.0 million;

and (4) requiring that we maintain a minimum tangible net worth of $ 170.0 million.

We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes.

In March 2019, our wholly-owned subsidiaries

in Taiwan, Hurco Manufacturing Limited.

(“HML”), and China, Ningbo Hurco Machine Tool Co.

(“NHML”),

closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New Taiwan Dollars (the “Taiwan

credit facility”) and 32.5 million Chinese Yuan (the “China credit facility”), respectively.

As uncommitted facilities,

both the Taiwan and China credit facilities are subject to review and termination by the respective underlying lending institutions

from time to time.

As of April 30, 2020, our existing

credit facilities consist of our €1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan

credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the

2018 Credit Agreement.

There were no borrowings under any of our credit facilities and there was $51.3 million of available borrowing

capacity thereunder.

Our provision for income taxes and effective

tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates,

conditional reduced tax rates and other events that are not consistent from period to period, such as changes in income tax laws.

In response to the COVID-19 pandemic, the

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020.

Act includes several provisions that provide economic relief for individuals and businesses.

The CARES Act, among other things,

includes tax provisions relating to refundable payroll tax credits, the deferral of employer’s social security payments,

and modifications to net operating loss carryback provisions.

We are currently evaluating the impact of the CARES Act on our financial

position, results of operations and cash flows.

We recorded an income tax benefit during

the first six months of fiscal 2020 of $1.4 million compared to a tax expense of $4.9 million for the same period in fiscal 2019.

Our effective tax rate for the first six months of fiscal 2020 was 22%, compared to 29% for the same period in fiscal 2019.

Our unrecognized

tax benefits were $230,000 as of April 30, 2020 and $225,000 as of October 31, 2019, and in each case included accrued interest.

We recognize accrued interest and penalties

related to unrecognized tax benefits as components of income tax expense.

As of April 30, 2020, the gross amount of

interest accrued, reported in Accrued expenses, was approximately $37,000, which did not include the federal tax benefit

of interest deductions.

federal and state income tax

returns, as well as tax returns in several foreign jurisdictions.

The statutes of limitations with respect to unrecognized

tax benefits will expire between July 2020 and July 2024.

In March 2019, our wholly-owned subsidiaries in Taiwan, Hurco Manufacturing Limited.

("HML"), and China, Ningbo Hurco Machine Tool Co.

("NHML"), closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New Taiwan Dollars (the "Taiwan credit facility") and 32.5 million Chinese Yuan (the "China credit facility"), respectively.

As uncommitted facilities, both the Taiwan and China credit facilities are subject to review and termination by the respective underlying lending institutions from time to time.

As of July 31, 2020, our existing credit facilities consist of our € 1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $ 40.0 million revolving credit facility under the 2018 Credit Agreement.

There were no borrowings under any of our credit facilities and there was $ 51.5 million of available borrowing capacity thereunder.

Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other events that are not consistent from period to period, such as changes in income tax laws.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020.

The CARES Act includes several provisions that provide economic relief for individuals and businesses.

The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, the deferral of employer’s social security payments, and modifications to net operating loss carryback provisions.

During the third quarter of fiscal 2020, we assessed and recorded the estimated year to date impact of recent changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.

The CARES Act included economic relief and modifications, most notably the net operating loss carryback provisions for the U.S.

For the third quarter of fiscal 2020, we recorded an income tax benefit of $ 0.9 million compared to a tax expense of $ 1.2 million for the same period in fiscal 2019.

We recorded an income tax benefit during the nine months of fiscal 2020 of $ 2.3 million compared to a tax expense of $ 6.1 million for the same period in fiscal 2019.

Our unrecognized tax benefits were $ 194,000 as of July 31, 2020 and $ 225,000 as of October 31, 2019, and in each case included accrued interest.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of income tax expense.

As of July 31, 2020, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 33,000 , which did not include the federal tax benefit of interest deductions.

federal and state income tax returns, as well as tax returns in several foreign jurisdictions.

The statutes of limitations with respect to unrecognized tax benefits will expire between July 2021 and July 2024 .

FINANCIAL INSTRUMENTS

FASB fair value guidance establishes a

three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value.

FASB fair value guidance establishes a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value.

These tiers include:

1, defined as observable inputs, such as quoted prices in active markets;

Level 2, defined as inputs other than quoted prices in

active markets that are either directly or indirectly observable;

and Level 3, defined as unobservable inputs in which little or

no market data exist, therefore requiring an entity to develop its own assumptions.

In accordance with this guidance, the following

table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of April 30,

2020 and October 31, 2019 (in thousands):

April 30, 2020

Level 1, defined as observable inputs, such as quoted prices in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;

and Level 3, defined as unobservable inputs in which little or no market data exist, therefore requiring an entity to develop its own assumptions.

In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of July 31, 2020 and October 31, 2019 (in thousands):

July 31, 2020

October 31, 2019

April 30, 2020

July 31, 2020

October 31, 2019

Deferred Compensation

Included in Level 1 assets are mutual fund

investments under a nonqualified deferred compensation plan.

We estimate the fair value of these investments on a recurring basis

using market prices that are readily available.

Included in Level 2 fair value measurements

are derivative assets and liabilities related to gains and losses on foreign currency forward exchange contracts entered into with

a third party.

We estimate the fair value of these derivatives on a recurring basis using foreign currency exchange rates obtained

from active markets.

Derivative instruments are reported in the accompanying Condensed Consolidated Financial Statements at fair

We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note

3 of Notes to the Condensed Consolidated Financial Statements.

Dollar equivalent notional amounts of these contracts was

$76.6 million and $108.6 million at April 30, 2020 and October 31, 2019, respectively.

The fair value of our foreign currency

forward exchange contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency

exchange rate volatility.

Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan.

We estimate the fair value of these investments on a recurring basis using market prices that are readily available.

Included in Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on foreign currency forward exchange contracts entered into with a third party.

We estimate the fair value of these derivatives on a recurring basis using foreign currency exchange rates obtained from active markets.

Derivative instruments are reported in the accompanying Condensed Consolidated Financial Statements at fair value.

We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note 3 of Notes to the Condensed Consolidated Financial Statements.

Dollar equivalent notional amounts of these contracts was $ 64.7 million and $ 108.6 million at July 31, 2020 and October 31, 2019, respectively.

The fair value of our foreign currency forward exchange contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency exchange rate volatility.

The counterparties to the forward exchange contracts are substantial and creditworthy financial institutions.

We do not consider either the risk of counterparties’

non-performance or the economic consequences of counterparties’

non-performance to be material risks.

We do not consider either the risk of counterparties’ non-performance or the economic consequences of counterparties’ non-performance to be material risks.

CONTINGENCIES AND LITIGATION

From time to time, we are involved in various

claims and lawsuits arising in the normal course of business.

Pursuant to applicable accounting rules, we accrue the minimum

liability for each known claim when the estimated outcome is a range of possible loss and no one amount within that range is more

likely than another.

We maintain insurance policies for such matters, and we record insurance recoveries when we determine

such recovery to be probable.

We do not expect any of these claims, individually or in the aggregate, to have a material

adverse effect on our consolidated financial position or results of operations.

We believe that the ultimate resolution of

claims for any losses will not exceed our insurance policy coverages.

From time to time, we are involved in various claims and lawsuits arising in the normal course of business.

Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim when the estimated outcome is a range of possible loss and no one amount within that range is more likely than another.

We maintain insurance policies for such matters, and we record insurance recoveries when we determine such recovery to be probable.

We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations.

We believe that the ultimate resolution of claims for any losses will not exceed our insurance policy coverages.

NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements:

Between February 2016 and February 2019,

FASB issued ASC 842, and various related updates, which establish a comprehensive new lease accounting model.

ASC 842 clarifies

the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and requires

lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a

lease-term of more than twelve months.

Under ASC 842, the income statement will reflect lease expense for operating leases and

amortization/interest expense for financing leases.

ASC 842 is effective for our fiscal year

2020, including interim periods within the fiscal year, and requires modified retrospective application.

We adopted ASC 842 on

November 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information

was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required to the opening balance of

retained earnings on the adoption date.

Between February 2016 and February 2019, FASB issued ASC 842, and various related updates, which establish a comprehensive new lease accounting model.

ASC 842 clarifies the definition of a lease, requires a dual approach to lease classification similar to previous lease classifications, and requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months.

Under ASC 842, the income statement reflects lease expense for operating leases and amortization/interest expense for financing leases.

ASC 842 is effective for our fiscal year 2020, including interim periods within the fiscal year, and requires modified retrospective application.

We adopted ASC 842 on November 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date.

See Note 9 of Notes to the Condensed Consolidated Financial Statements for further information.

LONG-LIVED ASSETS AND GOODWILL

of Long-Lived Assets.

Annually, or more often when there are indicators of impairment, we evaluate the carrying value of long-lived

assets to be held and used.

The carrying value of a long-lived asset (or group of assets) to be held and used is considered impaired

when the anticipated separately identifiable undiscounted cash flows from such an asset (or group of assets) are less than the

carrying value of the asset (or group of assets).

The adverse change in the business climate resulting from the COVID-19

pandemic created triggering events during the second quarter of fiscal 2020, which warranted our review of these assets for potential

impairment as of April 30, 2020.

We determined that we have a single asset group due to the interdependent nature of our

We estimated the cash flows during the remaining useful life of the primary asset, and our undiscounted cash

flow was in excess of the book value of our single asset group, and therefore, there was no impairment indications for our long-lived

assets for the period ended April 30, 2020.

and Intangible Assets.

Goodwill and indefinite-lived intangibles arising from a business combination are not amortized and

charged to expense over time.

Instead, goodwill and indefinite-lived intangibles must be reviewed annually for impairment, or

more frequently, if circumstances arise indicating potential impairment.

For goodwill, if the carrying amount of the reporting

unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized for that excess,

but only to the extent of the goodwill amount allocated to that reporting unit.

For indefinite-lived intangible assets,

if the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to that excess.

assets that are determined to have a finite life are amortized over their estimated useful lives and are also subject to review

for impairment if indicators of impairment are identified.

The adverse change in the business climate resulting from the

COVID-19 pandemic created triggering events during the second quarter of fiscal 2020, which warranted our review of these assets

for potential impairment as of April 30, 2020.

For the goodwill impairment test we developed a discounted cash flow model

for our single reporting unit.

The discounted cash flows were in excess of our book value of equity, and therefore we determined

that goodwill and indefinite lived assets were not impaired.

Should actual cash flows differ from the assumptions used in

the discounted cash flow estimates, it is reasonably possible that there could be impairment of these assets in the future .

Impairment of Long-Lived Assets.

Annually, or more often when there are indicators of impairment, we evaluate the carrying value of long-lived assets to be held and used.

The carrying value of a long-lived asset (or group of assets) to be held and used is considered impaired when the anticipated separately identifiable undiscounted cash flows from such an asset (or group of assets) are less than the carrying value of the asset (or group of assets).

The adverse change in the business climate resulting from the COVID-19 pandemic created triggering events during the second quarter of fiscal 2020, which warranted our review of these assets for potential impairment as of April 30, 2020.

We determined that we have a single asset group due to the interdependent nature of our operations.

We estimated the cash flows during the remaining useful life of the primary asset, and our undiscounted cash flow was in excess of the book value of our single asset group, and therefore, there were no impairment indications for our long-lived assets for the period ended April 30, 2020.

There were no triggering events during the third quarter of fiscal 2020 which warranted our review of these assets for potential impairment as of July 31,2020.

Goodwill and Intangible Assets.

Goodwill and indefinite -lived intangibles arising from a business combination are not amortized and charged to expense over time.

Instead, goodwill and indefinite-lived intangibles must be reviewed annually for impairment, or more frequently, if circumstances arise indicating potential impairment.

For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit.

For indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to that excess.

Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are also subject to review for impairment if indicators of impairment are identified.

For the goodwill impairment test we developed a discounted cash flow model for our single reporting unit.

The discounted cash flows were in excess of our book value of equity, and therefore we determined that goodwill and indefinite lived assets were not impaired as of April 30, 2020.

Should actual cash flows differ from the assumptions used in the discounted cash flow estimates, it is reasonably possible that there could be impairment of these assets in the future.

There were no triggering events during the third quarter of fiscal 2020 which warranted our review of these assets for potential impairment as of July 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements