What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-06-04 compared with 2021-03-05 · 154 added, 84 removed, 422 unchanged (36% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Sales and service fees

5 unchanged sentences

Investment income

Other income, net

Other expense, net

Income (loss) before income taxes

9 unchanged sentences

Three Months Ended

Six Months Ended

Net income (loss)

31 unchanged sentences

Accounts payable

Customer deposits

Derivative liabilities

16 unchanged sentences

Common stock:

no par value, $ .10 stated value per share, 12,500,000 shares authorized 6,665,033 and 6,636,906 shares issued;

and 6,583,626 and 6,565,163 shares outstanding, as of January 31, 2021 and October 31, 2020, respectively

no par value, $ .10 stated value per share, 12,500,000 shares authorized;

6,674,741 and 6,636,906 shares issued and 6,601,406 and 6,565,163 shares outstanding, as of April 30, 2021 and October 31, 2020, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total shareholders’ equity

5 unchanged sentences

Three Months Ended

Six Months Ended

Cash flows from operating activities:

13 unchanged sentences

Increase (decrease) in accounts payable

Increase (decrease) in customer deposits

Increase (decrease) in accrued expenses

Increase (decrease) in accrued income tax

Net change in derivative assets and liabilities

9 unchanged sentences

Taxes paid related to net settlement of restricted shares

Stock repurchases

Net cash provided by (used for) financing activities

1 unchanged sentence

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

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

2 unchanged sentences

(In thousands, except shares outstanding)

Three Months Ended April 30, 2021 and 2020

Comprehensive

Income (Loss)

Balances, October 31, 2019

Balances, January 31, 2020

Net income (loss)

1 unchanged sentence

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

Stock repurchases

Dividends paid

Balances, April 30, 2020

Balances, January 31, 2021

Net income (loss)

Other comprehensive income (loss)

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

Dividends paid

Balances, April 30, 2021

Six Months Ended April 30, 2021 and 2020

Comprehensive

Income (Loss)

Balances, October 31, 2019

2 unchanged sentences

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

Stock repurchases

Dividends paid

Balances, January 31, 2021

Balances, April 30, 2020

Balances, October 31, 2020

Net income (loss)

Other comprehensive income (loss)

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

Dividends paid

Balances, April 30, 2021

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

9 unchanged sentences

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

During fiscal 2020, our operating results were adversely affected by the international business disruption due to the outbreak of coronavirus and the ongoing economic slowdown in Europe, uncertainty surrounding the U.K.

During fiscal 2020, our operating results were adversely affected by the international business disruption due to the outbreak of COVID-19 and the economic slowdown in Europe, uncertainty surrounding the U.K.

Brexit activities, and political friction in the U.S.

Many of our customers deferred or eliminated investments in capital equipment last year, which we attributed largely to the uncertainty these events created.

During the first quarter of fiscal 2021, our sales increased year-over-year in all regions, particularly in the Americas and Europe, our primary markets for our higher-performance, higher-priced machines.

We also saw global machine tool manufacturers price their excess inventories aggressively to compete in the market recovery.

Because of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing the financial statements as of January 31, 2021 with the understanding that these estimates could change in the near term.

During the first six months of fiscal 2021, our sales increased year-over-year in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions.

Because of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing the financial statements as of April 30, 2021 with the understanding that these estimates could change in the near term.

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

The condensed financial information as of January 31, 2021 and for the three months ended January 31, 2021 and January 31, 2020 is unaudited.

The condensed financial information as of April 30, 2021 and for the three and six months ended April 30, 2021 and April 30, 2020 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.

5 unchanged sentences

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 Accounting Standard Codification (“ASC 606”).

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

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

4 unchanged sentences

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.

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

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

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

10 unchanged sentences

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.

7 unchanged sentences

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 income (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.

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.

The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is immediately reported in Other 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 January 31, 2021, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from February 2021 through January 2022.

We had forward contracts outstanding as of April 30, 2021, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from May 2021 through April 2022.

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

dollars at January 31, 2021, were $ 15.8 million for Euros, $ 4.9 million for Pounds Sterling and $ 18.4 million for New Taiwan Dollars.

At January 31, 2021, we had approximately $ 554,000 of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss).

Dollars at April 30, 2021, were $ 14.9 million for Euros, $ 7.3 million for Pounds Sterling and $ 23.0 million for New Taiwan Dollars.

At April 30, 2021, we had approximately $ 629,000 of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

Included in this amount was $ 254,000 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 January 2022, when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above.

The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through April 2022, 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.

2 unchanged sentences

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 income (loss), net of tax, in the same manner as the underlying hedged net assets.

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

This forward contract matures in November 2021.

As of January 31, 2021, we had a realized gain of $ 813,000 and an unrealized loss of $ 72,000 , net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive income (loss) related to this forward contract.

As of April 30, 2021, we had a realized gain of $ 813,000 and an unrealized loss of $ 42,000 , 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 inter-company receivables, payables and loans 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, 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 January 31, 2021, denominated in Euros, Pounds Sterling, and New Taiwan Dollar with set maturity dates ranging from February 2021 through October 2021.

These derivative instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are reported currently as Other expense, net in the 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 not designated as hedges under FASB guidance as of April 30, 2021, denominated in Euros, Pounds Sterling, and New Taiwan Dollar with set maturity dates ranging from May 2021 through April 2022.

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

dollars at January 31, 2021, totaled $ 43.4 million.

Dollars at April 30, 2021, totaled $ 30.8 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 January 31, 2021 and October 31, 2020, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

January 31, 2021

As of April 30, 2021 and October 31, 2020, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

April 30, 2021

October 31, 2020

16 unchanged sentences

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 January 31, 2021 and 2020 (in thousands):

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 April 30, 2021 and 2020 (in thousands):

Location of Gain

19 unchanged sentences

– Net investment

We did no t recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended January 31, 2021 or 2020.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the three months ended January 31, 2021 and 2020 on derivative instruments not designated as hedging instruments (in thousands):

We did no t recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended April 30, 2021 or 2020.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the three months ended April 30, 2021 and 2020 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

6 unchanged sentences

Foreign exchange forward contracts

Other income, net

The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the three months ended January 31, 2021 (in thousands):

Other 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, 2021 (in thousands):

Foreign Currency

Balance, January 31, 2021

Other comprehensive income (loss) before reclassifications

Reclassifications

Balance, April 30, 2021

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 six months ended April 30, 2021 and 2020 (in thousands):

Location of Gain

Amount of Gain

Amount of Gain (Loss)

(Loss) Reclassified

Recognized in Other

Comprehensive

Income (Loss)

Six Months Ended

Designated as Hedging Instruments:

(Effective Portion)

Foreign exchange forward contracts

– Intercompany sales/purchases

Cost of sales and service

Foreign exchange forward contract

– Net investment

We did no t recognize any gains or losses as a result of hedges deemed ineffective for either of the six months ended April 30, 2021 or 2020.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the six months ended April 30, 2021 and 2020 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

(Loss) Recognized

Amount of Gain (Loss)

in Operations

Recognized in Operations

Six Months Ended

Not Designated as Hedging Instruments:

Foreign exchange forward contracts

Other 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, 2021 (in thousands):

Balance, October 31, 2020

1 unchanged sentence

Reclassifications

Balance, January 31, 2021

Balance, April 30, 2021

EQUITY INCENTIVE PLAN

3 unchanged sentences

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

No further awards will be made under our 2008 Equity Plan.

No further awards will be made under the 2008 Equity Plan.

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

6 unchanged sentences

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 three-month period ended January 31, 2021, is as follows:

A summary of stock option activity for the six-month period ended April 30, 2021, is as follows:

Weighted Average

5 unchanged sentences

Options cancelled

Outstanding at January 31, 2021

Summarized information about outstanding stock options as of January 31, 2021, that have already vested and are currently exercisable, are as follows:

Outstanding at April 30, 2021

Summarized information about outstanding stock options as of April 30, 2021, 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 January 31, 2021 and the exercise price of the option.

The intrinsic value of an outstanding stock option is calculated as the difference between the stock price as of April 30, 2021 and the exercise price of the option.

On March 11, 2021, the Compensation Committee granted a total of 9,708 shares of time-based restricted stock to our non-employee directors.

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

The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $ 37.06 per share.

On January 5, 2021, the Compensation Committee approved a long-term incentive compensation arrangement for our executive officers in the form of time-based restricted shares and performance stock units (“PSUs”) under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested.

15 unchanged sentences

The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $ 29.30 per share.

A reconciliation of our restricted stock and PSU activity and related information for the three-month period ended January 31, 2021 is as follows:

A reconciliation of our restricted stock and PSU activity and related information for the six-month period ended April 30, 2021 is as follows:

Weighted Average Grant

6 unchanged sentences

Shares withheld

Unvested at January 31, 2021

During the first three months of fiscal 2021 and 2020, we recorded approximately $ 659,000 and $ 136,000 , respectively, of stock-based compensation expense related to grants under the 2016 Equity Plan.

As of January 31, 2021, there was an estimated $ 4.2 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2024.

Unvested at April 30, 2021

During the first six months of fiscal 2021 and 2020, we recorded approximately $ 1.4 million and $ 0.8 million, respectively, of stock-based compensation expense related to grants under the 2016 Equity Plan.

As of April 30, 2021, there was an estimated $ 4.4 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2024.

EARNINGS PER SHARE

2 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands, except per share amounts)

Net income (loss)

5 unchanged sentences

ACCOUNTS RECEIVABLE

Accounts receivable are net of allowances for doubtful accounts of $ 1.5 million as of January 31, 2021 and $ 1.4 million as of October 31, 2020.

Accounts receivable are net of allowances for doubtful accounts of $ 1.6 million as of April 30, 2021 and $ 1.4 million as of October 31, 2020.

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

14 unchanged sentences

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.

There are no material residual value guarantees provided by us, nor any material 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.

We are a lessor in a small number of lease agreements associated with our machine tools and/or 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 $ 1.3 million for each of the three months ended January 31, 2021 and 2020, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

We recorded total operating lease expense of $ 2.6 million and $ 2.5 million for the six months ended April 30, 2021 and 2020, respectively, 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 January 31, 2021.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the three months ended January 31, 2021 (in thousands):

Three Months Ended

January 31, 2021

There have been no lease costs capitalized on the Condensed Consolidated Balance Sheets as of April 30, 2021.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the six months ended April 30, 2021 (in thousands):

Six Months Ended

April 30, 2021

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

Noncash information:

Non-cash information:

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

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of January 31, 2021 (in thousands):

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of April 30, 2021 (in thousands):

Remainder of 2021

2 unchanged sentences

Present value of operating lease liabilities

As of January 31, 2021, the weighted-average remaining term of our lease portfolio was approximately 4.2 years and the weighted-average discount rate was approximately 1.6 %.

As of April 30, 2021, the weighted-average remaining term of our lease portfolio was approximately 4.1 years and the weighted-average discount rate was approximately 1.6 %.

SEGMENT INFORMATION

6 unchanged sentences

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, we 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 January 31, 2021, we had 15 outstanding third party payment guarantees totaling approximately $ 0.8 million.

As of April 30, 2021, we had 13 outstanding third party payment guarantees totaling approximately $ 0.7 million.

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

8 unchanged sentences

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

Three Months Ended

Balance, beginning of year

Provision for warranties during the year

Six Months Ended

Balance, beginning of period

Provision for warranties during the period

Charges to the reserve

Impact of foreign currency translation

Balance, end of year

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

Balance, end of period

The year-over-year increase in our warranty reserve was primarily due to an increase in unit sales volume.

DEBT AGREEMENTS

15 unchanged sentences

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

In December 2018, in connection with our entry into the 2018 Credit Agreement, (1) using cash on hand, we repaid in full the $ 1.4 million outstanding under, and terminated, our credit facility in China and (2) we terminated our United Kingdom credit facility.

In March 2019, our wholly-owned subsidiaries in Taiwan (Hurco Manufacturing Limited (“HML”)) and China (Ningbo Hurco Machine Tool, Ltd (“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 a result, as of January 31, 2021, our existing credit facilities consisted 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.

As of January 31, 2021, there were no borrowings under any of our credit facilities and there was $ 52.2 million of available borrowing capacity thereunder.

As a result, as of April 30, 2021, our existing credit facilities consisted 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.

As of April 30, 2021, there were no borrowings under any of our credit facilities and there was approximately $ 52.2 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.

The Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law on December 27, 2020.

The CAA provides further COVID-19 economic relief by providing an expansion of the employee retention tax credit.

At this time, we are still evaluating the impact of the CAA on our results and will monitor any additional legislation related to COVID-19 and its impact on our results.

During the first quarter of fiscal 2021, 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 several provisions that provide economic relief for individuals and businesses.

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

On December 27, 2020, the Consolidated

Appropriations Act of 2021 (the “CAA”), which includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act

and the American Rescue Plan Act of 2021, was signed into law and provided further COVID-19 economic relief with an expansion of

the employee retention credit.

As a result, we recorded a benefit of $ 1.9 million related to the employee retention credit during the

second quarter of fiscal 2021.

During the second quarter of fiscal 2021, 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 first quarter of fiscal 2021, we recorded an income tax expense of $ 546,000 compared to income tax benefit of $ 597,000 for the same period in fiscal 2020.

Our effective tax rate for the first quarter of fiscal 2021 was 45 %, compared to 40 % in the corresponding prior year period.

The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss which includes jurisdictions with differing tax rates and other events that are not consistent from period to period, such as changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic and a discrete income tax expense related to unvested stock awards in the first three months of fiscal 2021.

Our unrecognized tax benefits were $ 221,000 as of January 31, 2021 and $ 204,000 as of October 31, 2020, and in each case included accrued interest.

We recorded an income tax expense during the six months of fiscal 2021 of $ 1.5 million compared to an income tax benefit of $ 1.4 million for the same period in 2020.

Our effective tax rate for the first six months of fiscal 2021 was 33 %, compared to 22 % in the corresponding prior year period.

The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss 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 to address the unfavorable impact of the COVID-19 pandemic and a discrete income tax expense related to unvested stock awards in fiscal 2021.

Our unrecognized tax benefits were $ 211,000 as of April 30, 2021 and $ 204,000 as of October 31, 2020, 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 January 31, 2021, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 38,000 , which did not include the federal tax benefit of interest deductions.

As of April 30, 2021, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 39,000 , 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 August 2021 and August 2024 .

Currently, our subsidiary in France is under tax audit for the fiscal years 2018 and 2019.

Currently, our subsidiary in Taiwan is under tax audit for fiscal year 2018.

FINANCIAL INSTRUMENTS

4 unchanged sentences

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 January 31, 2021 and October 31, 2020 (in thousands):

January 31, 2021

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, 2021 and October 31, 2020 (in thousands):

April 30, 2021

October 31, 2020

January 31, 2021

April 30, 2021

October 31, 2020

6 unchanged sentences

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 $ 84.5 million and $ 70.8 million at January 31, 2021 and October 31, 2020, respectively.

Dollar equivalent notional amounts of these contracts was $ 79.1 million and $ 70.8 million at April 30, 2021 and October 31, 2020, 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.

25 unchanged sentences

2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This standard provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR.

This standard provides temporary optional expedients and exceptions to the U.S.

Generally Accepted Accounting Principles guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR.

This standard is effective for all entities beginning March 12, 2020 through December 31, 2022.

We are assessing the impact this new accounting standard will have on our consolidated financial statements and related disclosures.

There have been no other significant changes in the Company’s critical accounting policies and estimates during the three months ended January 31, 2021.

There have been no other significant changes in the Company’s critical accounting policies and estimates during the six months ended April 30, 2021.

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