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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-01-08 compared with 2020-01-03 · 56 added, 78 removed, 14 unchanged (91% of the section changed)

and Qualitative Disclosures About Market Risk

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Interest on borrowings under our bank credit

agreements are tied to prevailing domestic and foreign interest rates.

At October 31, 2019, we had no borrowings outstanding under

any of our credit facilities.

Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign interest rates.

At October 31, 2020, we had no borrowings outstanding under any of our credit facilities.

Foreign Currency Exchange Risk

In fiscal 2019, we derived

approximately 63% of our revenues from customers located outside of the Americas, where we invoiced and received payments in several

foreign currencies.

All of our computerized machine tools and computer control systems, as well as certain proprietary service

parts, are sourced by our U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries,

primarily in their functional currencies.

Our products are sourced

from foreign suppliers or built to our specifications by either our wholly-owned subsidiaries in Taiwan, the U.S., Italy and China

or an affiliated contract manufacturer in Taiwan.

Our purchases are predominantly in foreign currencies and in some cases our arrangements

with these suppliers include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency

fluctuations on product costs.

The predominant portion of the exchange rate risk associated with our product purchases relates

to the New Taiwan Dollar and the Euro.

We enter into foreign

currency forward exchange contracts from time to time to hedge the cash flow risk related to forecasted inter-company sales and

purchases denominated in, or based on, foreign currencies (primarily the Euro, Pound Sterling, and New Taiwan Dollar).

enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on receivables

and payables denominated in foreign currencies.

We do not speculate in the financial markets and, therefore, do not enter into

these contracts for trading purposes.

Forward contracts for

the sale or purchase of foreign currencies as of October 31, 2019, which are designated as cash flow hedges under FASB guidance

related to accounting for derivative instruments and hedging activities, were as follows (in thousands, except weighted average

forward rates):

2019 - Oct 2020

In fiscal 2020, we derived approximately 61% of our revenues from customers located outside of the Americas, where we invoiced and received payments in several foreign currencies.

All of our computerized machine tools and computer control systems, as well as certain proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies.

Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned subsidiaries in Taiwan, the U.S., Italy, and China or an affiliated contract manufacturer in Taiwan.

Our purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency fluctuations on product costs.

The predominant portion of the exchange rate risk associated with our product purchases relates to the New Taiwan Dollar and the Euro.

We enter into foreign currency forward exchange contracts from time to time to hedge the cash flow risk related to forecasted inter-company sales and purchases denominated in, or based on, foreign currencies (primarily the Euro, Pound Sterling, and New Taiwan Dollar).

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

We do not speculate in the financial markets and, therefore, do not enter into these contracts for trading purposes.

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2020, which are designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging activities, were as follows (in thousands, except weighted average forward rates):

Contract Amount at

Forward Rates in

Maturity Dates

Sale Contracts:

Nov 2020 - Oct 2021

Pound Sterling

Nov 2020 - Oct 2021

Purchase Contracts:

New Taiwan Dollar*

2019 - Oct 2020

*New Taiwan Dollars per

contracts for the sale or purchase of foreign currencies as of October 31, 2019, which were entered into to protect against the

effects of foreign currency fluctuations on receivables and payables and are not designated as hedges under this guidance denominated

in foreign currencies, were as follows (in thousands, except weighted average forward rates):

Taiwan Dollar

* New Taiwan Dollars

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 2018.

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

in Euro denominated assets.

We selected the forward method under the FASB guidance related to the accounting for derivative instruments

and hedging activities.

The forward method requires all changes in the fair value of the contract to be reported as a cumulative

translation adjustment, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying hedged net assets.

This forward contract matured in November 2019 and we entered into a new forward contract for the same notional amount that is

set to mature in November 2020.

As of October 31, 2019, we had $804,000 of realized gains and $129,000 of unrealized gains, net

of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

contracts designated as net investment hedges under this guidance as of October 31, 2019 were as follows (in thousands, except

weighted average forward rates):

Nov 2020 - Oct 2021

*New Taiwan Dollars per U.S.

Forward contracts for the sale or purchase of foreign currencies as of October 31, 2020, which were entered into to protect against the effects of foreign currency fluctuations on inter-company receivables, payables and loans and are not designated as hedges under this guidance denominated in foreign currencies, were as follows (in thousands, except weighted average forward rates):

Contract Amount at

Forward Rates in

Maturity Dates

Sale Contracts:

Nov 2020 – Oct 2021

Pound Sterling

Nov 2020 – Oct 2021

Purchase Contracts:

New Taiwan Dollar

Nov 2020 – Oct 2021

* New Taiwan Dollars per U.S.

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

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

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

We selected the forward method under the FASB guidance related to the accounting for derivative instruments and hedging activities.

The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying hedged net assets.

This forward contract matured in November 2020 and we entered into a new forward contract for the same notional amount that is set to mature in November 2021.

As of October 31, 2020, we had $947,000 of realized gains and $78,000 of unrealized loss, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

Forward contracts designated as net investment hedges under this guidance as of October 31, 2020 were as follows (in thousands, except weighted average forward rates):

Contract Amount at

Forward Rates in

in Foreign Currency

Contract Date

October 31, 2020

Maturity Date

Sale Contracts:

Management’s Annual Report on Internal

Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

To the Shareholders and

2 unchanged sentences

Management of Hurco Companies, Inc.

“Company”) has assessed the effectiveness of the Company’s internal control over financial reporting as of October

31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission (2013 framework) (COSO).

Management is responsible for the Company’s financial statements, for

maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control

over financial reporting.

Because of its inherent limitations, the

Company’s internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

In management’s opinion, the Company’s

internal control over financial reporting as of October 31, 2019, was effective based on the criteria specified above.

Our independent registered public accounting

firm, RSM US LLP (“RSM”), which also audited our consolidated financial statements, audited the effectiveness of our

internal control over financial reporting as of October 31, 2019.

RSM has issued their attestation report, which is included in

Part II, Item 8 of this Annual Report on Form 10-K.

(the “Company”) has assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO).

Management is responsible for the Company’s financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.

Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In management’s opinion, the Company’s internal control over financial reporting as of October 31, 2020, was effective based on the criteria specified above.

Our independent registered public accounting firm, RSM US LLP (“RSM”), which also audited our consolidated financial statements, audited the effectiveness of our internal control over financial reporting as of October 31, 2020.

RSM has issued their attestation report, which is included in Part II, Item 8 of this Annual Report on Form 10-K.

/s/ Michael Doar

Chairman and Chief Executive

Executive Vice President, Secretary,

Treasurer and Chief Financial Officer

Chairman and Chief Executive Officer

Executive Vice President, Secretary, Treasurer, and

Chief Financial Officer

Indianapolis, Indiana

1 unchanged sentence

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-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk