What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-01-06 compared with 2022-01-07 · 121 added, 145 removed, 783 unchanged (25% of the section changed)

6 unchanged sentences

We have audited the accompanying consolidated balance sheets of Hurco Companies, Inc.

and its subsidiaries (the Company) as of October 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31, 2021, and the related notes and schedule listed in Item 15(a) (collectively, the financial statements).

and its subsidiaries

(the Company) as of October 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31, 2022, and the related notes and schedule listed in Item 15(a) (collectively, the financial statements).

We also have audited the Company’s internal control over financial reporting as of October 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

7 unchanged sentences

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Those standards require that we plan

and perform the audits to obtain reasonable assurance about whether the financial statements are free of material

misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was

maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

76 unchanged sentences

As of October 31,

(In thousands, except share and per share data)

(In thousands, except share

and per share data)

Current assets:

Cash and cash equivalents

Accounts receivable, less allowance for doubtful accounts of $ 1,645 in 2021 and $ 1,401 in 2020

Accounts receivable, net

Inventories, net

Derivative assets

Prepaid assets

Prepaid and other assets

Total current assets

14 unchanged sentences

Accounts payable

Accounts payable-related parties

Accounts payable - related party

Customer deposits

31 unchanged sentences

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities, net of acquisitions:

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

Provision for doubtful accounts

Deferred income taxes

Equity in income of affiliates

Equity in (income) loss of affiliates

Foreign currency (gain) loss

6 unchanged sentences

(Increase) decrease in inventories

(Increase) decrease in prepaid expenses

(Increase) decrease in prepaid and other current assets

Increase (decrease) in accounts payable

3 unchanged sentences

Increase (decrease) in accrued income tax

Net change in deferred tax assets and liabilities

Net change in derivative assets and liabilities

5 unchanged sentences

Other investments

Acquisition of business

Net cash provided by (used for) investing activities

4 unchanged sentences

Stock repurchases

Repayment of short-term debt

Net cash provided by (used for) financing activities

4 unchanged sentences

Supplemental disclosures:

Cash paid for:

Cash paid for (provided by):

Income taxes, net

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands,

Comprehensive

except shares outstanding)

(In thousands, except shares outstanding)

Balances, October 31, 2019

1 unchanged sentence

Other comprehensive income (loss)

Exercise of common stock options

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

Stock repurchases

Dividends paid

2 unchanged sentences

Other comprehensive income (loss)

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

Exercise of common stock options

Stock repurchases

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

Dividends paid

4 unchanged sentences

Exercise of common stock options

Stock repurchases

Dividends paid

53 unchanged sentences

Dollars for New Taiwan Dollars was $ 26.0 million at October 31, 2022.

At October 31, 2021, we had approximately $ 478,000 of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

Of this amount, $ 106,000 represented unrealized gains, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk.

At October 31, 2022, we had approximately $ 0.4 million of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

Of this amount, $ 0.9 million represented 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 October 2023, in which the corresponding inventory that is the subject of the related hedge contract is sold, as described above.

5 unchanged sentences

This forward contract matured in November 2022 , and we entered into a new forward contract for the same notional amount that is set to mature in November 2023 .

As of October 31, 2021, we had a realized gain of $ 813,000 and an unrealized gain of $ 98,000 , net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

As of October 31, 2022, we had a realized gain of $ 0.9 million and an unrealized gain of $ 0.4 million, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

Derivatives Not Designated as Hedging Instruments

1 unchanged sentence

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 Consolidated Statements of Operations consistent with the transaction gain or loss on the related inter-company receivables, payables and loans denominated in foreign currencies.

We had forward contracts outstanding as of October 31, 2021, in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from November 2021 through July 2022 .

We had forward contracts outstanding as of October 31, 2022, in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from November 2022 through February 2023 .

The contract amounts at forward rates in U.S.

40 unchanged sentences

– Net investment

We did not recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October 31, 2021, 2020, and 2019

We did no t recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October 31, 2022, 2021, and 2020.

We recognized the following gains and losses in our Consolidated Statements of Operations during the fiscal years ended October 31, 2022, 2021, and 2020 on derivative instruments not designated as hedging instruments (in thousands):

23 unchanged sentences

Building & leasehold improvements

Total depreciation and amortization expense recognized for property and equipment was $ 2.5 million for fiscal 2021, $ 2.7 million for fiscal 2020, and $ 2.6 million for fiscal 2019.

Total depreciation and amortization expense recognized for property and equipment was $ 2.3 million for fiscal year 2022, $ 2.5 million for fiscal year 2021, and $ 2.7 million for fiscal year 2020.

Revenue Recognition.

15 unchanged sentences

We consider the machine installation process for our three-axis machines to be inconsequential and immaterial within the context of the contract.

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.

For our five-axis machines and automation systems 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.

17 unchanged sentences

The costs associated with research and development programs for new products and significant product improvements, other than software development costs, which are eligible for capitalization per FASB guidance, are expensed as incurred and are included in Selling, general, and administrative expenses.

Research and development expenses totaled $ 3.2 million, $ 3.5 million, and $ 4.4 million, in fiscal 2021, 2020, and 2019, respectively.

Research and development expenses totaled $ 3.4 million, $ 3.2 million, and $ 3.5 million, in fiscal years 2022, 2021, and 2020, respectively.

Software Development Costs.

2 unchanged sentences

Software development costs are amortized on a straight–line basis over the estimated product life of the related software, which ranges from three to five years .

We capitalized costs related to software development projects of $ 1.1 million in fiscal 2021, $ 1.0 million in fiscal 2020, and $ 1.8 million in fiscal 2019.

We capitalized costs related to software development projects of $ 1.1 million in fiscal year 2022, $ 1.1 million in fiscal year 2021, and $ 1.0 million in fiscal year 2020.

Amortization expense for software development costs was $ 1.3 million, $ 1.4 million, and $ 1.5 million, for the fiscal years ended October 31, 2022, 2021, and 2020, respectively.

9 unchanged sentences

(“LCM”) ( $ 2.2 million) in 2013, and our wholly-owned distributor located in Michigan ( $ 0.2 million) in 2008.

The adverse change in the business climate resulting from the COVID-19 pandemic and the net loss for fiscal 2020 caused the fair value of the reporting unit to fall below our book value of equity as of October 31, 2020, resulting in a full impairment loss of $ 4.9 million.

The adverse change in the business climate resulting from the COVID-19 pandemic and the net loss for fiscal year 2020 caused the fair value of the reporting unit to fall below our book value of equity as of October 31, 2020, resulting in a full impairment loss of $ 4.9 million.

As such, we have no goodwill as of October 31, 2022.

12 unchanged sentences

Customer relationships

Intangible asset amortization expense was $ 273,000 , $ 358,000 , and $ 117,000 for fiscal 2021, 2020, and 2019, respectively.

Annual intangible asset amortization expense for the next five years is estimated to be $ 278,000 per year for fiscal years 2022 through 2023 , $ 242,000 for fiscal year 2024, $ 148,000 for fiscal year 2025 and 114,000 for fiscal year 2026.

Intangible asset amortization expense was $ 272,000 , $ 273,000 , and $ 358,000 for fiscal years 2022, 2021, and 2020, respectively.

Annual intangible asset amortization expense for the next five years is estimated to be $ 273,000 for fiscal year 2023, $ 223,000 for fiscal year 2024, $ 136,000 for fiscal year 2025, $ 105,000 for fiscal year 2026, and $ 45,000 for fiscal year 2027.

Impairment of Long–Lived Assets.

2 unchanged sentences

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 was no impairment indications for our long-lived assets for the period ended October 31, 2021.

Thus, there was no impairment recognized with respect to the carrying values of long-lived assets for the years ended October 31, 2021, 2020, or 2019.

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.

Based on that review, there was no impairment indications for our long-lived assets for the period ended October 31, 2022.

Therefore, there was no impairment recognized with respect to the carrying values of long-lived assets for the years ended October 31, 2022, 2021, or 2020.

Earnings Per Share.

33 unchanged sentences

Generally Accepted Accounting Principles requires us to make estimates and assumptions that affect the reported amounts presented and disclosed in our consolidated financial statements.

Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long–lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, stock compensation, income taxes and deferred tax valuation allowances, and contingencies.

Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long–lived asset impairment tests, inventory reserves, product warranties, income taxes and deferred tax valuation allowances, capitalized software development costs, derivative instruments, stock compensation, and contingencies.

Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

7 unchanged sentences

aerospace, defense, medical equipment, energy, automotive/transportation, electronics, and computer industries.

Our products are sold principally through more than 180 independent agents and distributors throughout the Americas, Europe and Asia.

We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain areas of the United States.

Our products are sold principally through approximately 200 independent agents and distributors throughout the Americas, Europe and Asia.

We also have our own direct sales and service organizations in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain areas of the United States.

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 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 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 October 31, 2021, with the understanding that these estimates could change in the near term.

During fiscal years 2020 through 2022, our operating results were adversely affected by the international business disruptions due to the outbreak of COVID-19, the economic slowdown in Europe, uncertainty surrounding the U.K.

Brexit activities, political friction in the U.S, and geopolitical tensions, conflicts, and wars in Europe and Asia.

Many of our customers deferred or eliminated investments in capital equipment in fiscal year 2020, which we attributed largely to the uncertainty these events created.

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

The COVID-19 pandemic did not have as significant an impact on our business and industry during fiscal year 2022, but intermittent lockdowns and similar restrictions in certain markets from time to time continue to impact our business, including those in China pursuant to its zero-tolerance COVID-19 policy.

Because of the potential for extended vulnerability due to these and other factors, we have closely evaluated the estimates we have made in preparing the financial statements as of October 31, 2022, 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.

12 unchanged sentences

Any interruption in manufacturing at any of these locations would have an adverse effect on our financial operating results.

Interruption in manufacturing at one of these locations could result from a change in the political environment or a natural disaster, such as trade wars or tariffs, or an earthquake, typhoon, or tsunami.

Interruption in manufacturing at one of these locations could result from a change in the political environment, such as conflicts or wars;

trade wars, blockages, embargoes, or tariffs;

or a natural disaster, such as an earthquake, typhoon, or tsunami.

Any interruption with one of our other third-party key suppliers may also have an adverse effect on our operating results and our financial condition.

4 unchanged sentences

Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia was $ 10.9 million and $ 11.8 million as of October 31, 2022 and 2021, respectively.

ACQUISITION OF BUSINESS

On August 5, 2019, we (through a newly-formed subsidiary, 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 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.

These allocations reflected various provisional estimates that were available at the time and were subject to change during the purchase price allocation period as valuations were finalized.

All valuations are now final.

The following table summarizes the allocation of the opening balance sheet of ProCobots as of August 5, 2019 (in thousands):

Initial Allocation

Final Allocation

Current assets

Property plant and equipment

Current liabilities

Total liabilities

Total purchase price and cash expended

Intangible assets of $ 1.1 million were recorded as a result of the purchase.

The fair value of the intangible assets was based upon a discounted cash flow method that involves inputs that are not observable in the market (Level 3).

Intangible assets are amortized primarily using a straight-line methodology.

The intangible assets consisted of the following (in thousands):

Remaining Economic Useful Life

Trademark/name

The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as goodwill in the amount of $ 2.5 million.

Goodwill recognized in the acquisition relates primarily to expanding our current product offering.

The amount recorded as goodwill will be fully deductible for tax purposes.

As of October 31, 2020, we recognized an impairment loss for the full $ 2.5 million of goodwill relating to ProCobots.

See Note 1 of these Notes to Consolidated Financial Statements for further information.

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

CREDIT AGREEMENTS AND BORROWINGS

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

entered into a credit agreement with Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020 and December 17, 2021 (as amended, the “2018 Credit Agreement”).

entered into a credit agreement with Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020, December 17, 2021, and January 4, 2023 (as amended, the “2018 Credit Agreement”).

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

7 unchanged sentences

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);

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;

(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 $ 25.0 million;

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

29 unchanged sentences

Under this method, the provision (benefit) for income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes during the year.

The Inflation Reduction Act of 2022 (the “Inflation Reduction Act” or “IRA”) was signed into law on August 16, 2022.

The IRA provides investment in clean energy, promotes reductions in carbon emissions, and extends select Affordable Care Act premium reductions.

The IRA is paid for through the implementation of a 15 percent corporate minimum tax on corporations with over $1 billion of financial statement income, budget increases for the Internal Revenue Service, an excise tax on stock repurchases, and changes to Medicare rules.

The Company is currently evaluating the impact of the Inflation Reduction Act on future fiscal years.

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

After we filed the net operating loss carryback claims during the fourth quarter of fiscal 2021, we included the $ 5.4 million of tax refunds in current assets.

We filed the net operating loss carryback claims during the fourth quarter of fiscal 2021 and received $ 5.4 million in tax refunds during fiscal year 2022.

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 operating income of $ 2.9 million related to the employee retention credit during fiscal 2021.

We did not qualify for the employee retention credit in fiscal 2022.

In the fiscal years set forth below, the provision (benefit) for income taxes consisted of the following (in thousands):

12 unchanged sentences

Valuation allowance

Transition tax

US tax on distributed and undistributed earnings

US benefit of foreign intangible income

benefit of foreign intangible income

Impact of CARES act

4 unchanged sentences

As a result, cash repatriated to the U.S.

is generally no longer subject to U.S federal income tax.

is generally no longer subject to U.S.

federal income tax.

As of October 31, 2022, the undistributed earnings of our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations.

Accordingly, we did not accrue for any withholding taxes on the undistributed earnings of our foreign subsidiaries, consistent with the position adopted on January 1, 2018.

Accordingly, we did not accrue any withholding taxes on the undistributed earnings of our foreign subsidiaries, consistent with the position adopted on January 1, 2018.

Deferred income taxes are determined based on the difference between the amounts used for financial reporting purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

21 unchanged sentences

Deferred Tax Liabilities:

Net derivative loss

Unrealized exchange loss

3 unchanged sentences

As of October 31, 2022, we had net operating loss carryforwards for international and U.S.

income tax purposes of $ 6.3 million, of which $ 3.9 million will expire within 5 years beginning in fiscal 2022 and $ 0.4 million are state net operating losses which will expire between 5 and 20 years .

income tax purposes of $ 5.8 million, of which $ 3.8 million will expire within five years beginning in fiscal year 2023 and $ 0.2 million are state net operating losses which will expire between five and 20 years .

The remaining $ 1.8 million in net operating losses will be carried forward indefinitely based on current international tax laws.

11 unchanged sentences

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

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

Currently, our subsidiary in Germany is under tax audit for fiscal years 2017 through 2021.

A summary of open tax years by major jurisdiction is presented below:

United States federal

Fiscal 2014 through the current period

Fiscal 2017 through the current period

Fiscal 2016 through the current period

Fiscal year 2014 through the current period

Fiscal year 2017 through the current period

United Kingdom

Fiscal 2015 through the current period

Fiscal year 2015 through the current period

Fiscal year 2017 through the current period

Includes federal as well as state, provincial or similar local jurisdictions, as applicable.

3 unchanged sentences

The purpose of these plans is generally to provide additional financial security during retirement by providing employees with an incentive to save throughout their employment.

Our contributions and related expense totaled $ 1.2 million, $ 1.3 million, $ 1.4 million, for the fiscal years ended October 31, 2021, 2020, and 2019, respectively.

Our contributions and related expense totaled $ 1.3 million, $ 1.2 million, and $ 1.3 million, for the fiscal years ended October 31, 2022, 2021, and 2020, respectively.

STOCK–BASED COMPENSATION

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.

2016 Equity Incentive Plan (as amended, 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.

1 unchanged sentence

No further awards will be made under our 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.

The total number of shares of our common stock that may be issued pursuant to awards under the 2016 Equity Plan initially was 856,048 , which included 386,048 shares that remained available for future grants under the 2008 Equity Plan on the date our shareholders originally approved the 2016 Equity Plan.

On March 10, 2022, our shareholders approved the Amended and Restated Hurco Companies, Inc.

2016 Equity Incentive Plan, which, among other items, increased the aggregate number of shares that may be issued under the 2016 Equity Plan by 850,000 shares.

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;

2 unchanged sentences

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 Equity 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 the status of the options as of October 31, 2021, 2020 and 2019 and the related activity for the year is as follows:

A summary of the status of the stock options as of October 31, 2022, 2021, and 2020, and the related activity for the year is as follows:

Weighted Average Grant

5 unchanged sentences

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2022, 2021, and 2020, was approximately $ 9,000 , $ 179,000 , and $ 44,000 , respectively.

As of October 31, 2021, the total intrinsic value of stock options that were outstanding and exercisable was $ 166,000 .

As of October 31, 2022, the total intrinsic value of stock options that were outstanding and exercisable was zero , with the intrinsic value calculated as the excess, if any, between the stock price as of October 31, 2022 and the exercise price of each option.

Stock options outstanding and exercisable on October 31, 2022, were as follows:

7 unchanged sentences

Outstanding and Exercisable

21.45 - 23.30

On March 10, 2022, the Compensation Committee granted a total of 13,914 shares of time-based restricted stock to our non-employee directors.

1 unchanged sentence

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 $ 34.49 per share.

On January 5, 2021, the Compensation Committee determined that no performance stock units (“PSUs”) were earned pursuant to the long-term incentive compensation arrangement for the fiscal 2018-2020 performance period based on the results of the performance metrics that were established by the Compensation Committee in 2018.

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

On January 4, 2022, 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.

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

The three-year performance period for the PSUs is fiscal 2021 through fiscal 2023.

The three-year performance period for the PSUs is fiscal year 2022 through fiscal year 2024.

On that date, the Compensation Committee granted a total of 23,442 shares of time-based restricted stock to our executive officers.

1 unchanged sentence

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 $ 30.39 per share.

On January 5, 2021, the Compensation Committee granted a total target number of 39,199 PSUs to our executive officers designated as “PSU – TSR”.

These PSUs were weighted as approximately 40 % of the overall 2021 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 2021-2023, relative to the total shareholder return of the companies in a specified peer group over that period.

On January 4, 2022, the Compensation Committee also granted a total target number of 34,203 PSUs to our executive officers designated as “PSU – TSR”.

These PSUs were weighted as approximately 40 % of the overall 2022 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 years 2022-2024, 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 $ 33.33 per PSU and was calculated using the Monte Carlo approach.

On January 5, 2021, the Compensation Committee granted a total target number of 32,430 PSUs to our executive officers designated as “PSU – ROIC”.

These PSUs were weighted as approximately 35 % of the overall 2021 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 2021-2023.

On January 4, 2022, the Compensation Committee also granted a total target number of 32,821 PSUs to our executive officers designated as “PSU – ROIC”.

These PSUs were weighted as approximately 35 % of the overall 2022 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 years 2022-2024.

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.

6 unchanged sentences

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 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 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.

On January 5, 2021, the Compensation Committee determined that no PSUs were earned pursuant to the long-term incentive compensation arrangement for the fiscal years 2018-2020 performance period based on the results of the performance metrics that were established by the Compensation Committee in 2018.

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.

The three-year performance period for the PSUs is fiscal year 2021 through fiscal year 2023.

On that date, the Compensation Committee granted a total of 23,164 shares of time-based restricted stock to our executive officers.

1 unchanged sentence

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 $ 28.60 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.

On January 5, 2021, the Compensation Committee granted a total target number of 39,199 PSUs to our executive officers designated as “PSU – TSR”.

These PSUs were weighted as approximately 40 % of the overall 2021 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 years 2021-2023, relative to the total shareholder return of the companies in a specified peer group over that period.

1 unchanged sentence

On January 5, 2021, the Compensation Committee also granted a total target number of 32,430 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.

4 unchanged sentences

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 remained on the board of directors through that date.

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, 2019, the Compensation Committee determined the degree to which the long–term incentive compensation arrangement approved for the fiscal 2016–2018 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 2016.

As a result, the Compensation Committee determined that a total of 32,559 performance shares were earned by our executive officers, which performance shares vested on January 2, 2019.

The vesting date fair value of the performance shares was based on the closing sales price of our common stock on the vesting date, which was $ 36.08 per share.

On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive compensation arrangement approved for the fiscal years 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 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.

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

The three-year performance period for the PSUs is fiscal 2019 through fiscal 2021.

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

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

2 unchanged sentences

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 2019 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 2019–2021, relative to the total shareholder return of the companies in a specified peer group over that period.

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 years 2020-2022, relative to the total shareholder return of the companies in a specified peer group over that period.

1 unchanged sentence

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 2019 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 2019–2021.

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.

3 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 $ 35.75 per share.

A reconciliation of our restricted stock, performance share and PSU activity and related information is as follows:

A reconciliation of our restricted stock and PSU activity and related information is as follows:

Weighted Average Grant

7 unchanged sentences

Unvested at October 31, 2022

During fiscal 2021, 2020, and 2019, we recorded approximately $ 2.8 million, $ 2.1 million, and $ 2.7 million, respectively, of stock–based compensation expense related to grants under the 2016 Equity Plan.

As of October 31, 2021, there was an estimated $ 3.1 million of total unrecognized stock–based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2024.

During fiscal years 2022, 2021, and 2020, we recorded approximately $ 2.7 million, $ 2.8 million, and $ 2.1 million, respectively, of stock–based compensation expense related to grants under the 2016 Equity Plan.

As of October 31, 2022, there was an estimated $ 3.2 million of total unrecognized stock–based compensation cost that we expect to recognize by the end of the first quarter of fiscal year 2025.

RELATED PARTY TRANSACTIONS

3 unchanged sentences

The investment of $ 5.0 million and $ 4.8 million at October 31, 2022 and 2021, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.

Purchases of controls from HAL amounted to $ 4.8 million, $ 6.2 million, and $ 8.5 million in fiscal 2021, 2020 and 2019, respectively.

Purchases of controls from HAL amounted to $ 10.5 million, $ 8.7 million, and $ 6.2 million in fiscal years 2022, 2021, and 2020, respectively.

Sales of control component parts to HAL were $ 321,000 , $ 262,000 , and $ 265,000 for the fiscal years ended October 31, 2022, 2021, and 2020, respectively.

6 unchanged sentences

Current Liabilities

Non-current Liabilities

CONTINGENCIES AND LITIGATION

7 unchanged sentences

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

As of October 31, 2021, we had eight outstanding third party payment guarantees totaling approximately $ 0.9 million.

As of October 31, 2022, we had nine outstanding third party payment guarantees totaling approximately $ 0.7 million.

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

8 unchanged sentences

A reconciliation of the changes in our warranty reserve for each of the last three fiscal years is as follows (in thousands):

Balance, beginning of year

Provision for warranties during the year

Charges to the accrual

Balance, beginning of period

Provision for warranties during the period

Charges to the reserve

Impact of foreign currency translation

Balance, end of year

The increase in our warranty reserve from fiscal 2020 to fiscal 2021 was primarily due to an increase in the number of machines under warranty from increased sales volume in fiscal 2021.

The decrease in our warranty reserve from fiscal 2019 to fiscal 2020 was primarily due to a decrease in the number of machines under warranty from decreased sales volume.

Balance, end of period

The decrease in our warranty reserve from fiscal year 2021 to fiscal year 2022 was primarily due to the impact of foreign currencies when translating foreign reserves to US.

dollars for financial reporting purposes.

Excluding the impact of foreign currencies, warranty reserve increased slightly as a result of increased shipments of higher-performance five-axis machines.

The increase in our warranty reserve from fiscal year 2020 to fiscal year 2021 was primarily due to an increase in the number of machines under warranty from increased sales volume in fiscal year 2021.

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

19 unchanged sentences

There has been no cost to obtain leases capitalized on the Consolidated Balance Sheets as of October 31, 2022.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for fiscal 2021 (in thousands):

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for fiscal year 2022 (in thousands):

Operating cash flow information:

3 unchanged sentences

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of October 31, 2022 (in thousands):

Remainder of 2022

2028 and thereafter

16 unchanged sentences

Selling, general and administrative expenses

Goodwill impairment

Operating income (loss)

Operating income

Provision (benefit) for income taxes

Net income (loss)

Income (loss) per common share – basic

Income (loss) per common share – diluted

Income per common share – basic

Income per common share – diluted

SEGMENT INFORMATION

5 unchanged sentences

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 principally sell our products through more than 180 independent agents and distributors throughout the Americas, Europe and Asia.

We principally sell our products through approximately 200 independent agents and distributors throughout the Americas, Europe, and Asia.

Our line is the primary line for the majority of our distributors globally, even though some may carry competitive products.

During fiscal 2021, no distributor accounted for more than 5% of our sales and service fees .

In fiscal 2021, approximately 63 % of our revenues were from customers located outside of the Americas, and no single end-user of our products accounted for more than 5% of our total sales and service fees.

During fiscal year 2022, no distributor accounted for more than 5% of our sales and service fees .

In fiscal year 2022, approximately 62 % of our revenues were from customers located outside of the Americas, and no single end-user of our products accounted for more than 5% of our total sales and service fees.

The following table sets forth the contribution of each of our product groups and services to our total sales and service fees during each of the past three fiscal years (in thousands):

22 unchanged sentences

Recently Adopted Accounting Pronouncements:

In June 2016, FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This standard modifies the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

This may result in the earlier recognition of allowances for losses.

This standard is effective for our fiscal 2021 and we adopted this standard on November 1, 2020.

This standard did not have a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.

New Accounting Pronouncements:

In December 2019, FASB issued ASU No.

1 unchanged sentence

Simplifying the Accounting for Income Taxes , which allows for companies to remove certain exceptions and clarifies certain requirements regarding franchise taxes, goodwill, consolidated tax expenses, and annual effective tax rate calculations.

This standard is effective for our fiscal year 2022, with early adoption permitted.

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

This standard was effective for our fiscal year 2022.

We adopted this standard on November 1, 2021.

This standard did not have a significant effect on our accounting policies or on our consolidated financial statements and related disclosures.

In March 2020, FASB issued ASU No.

2 unchanged sentences

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 as of 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.

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

We adopted this standard on November 1, 2021.

This standard did not have a significant effect on our accounting policies or 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 fiscal year ended October 31, 2022.

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 8. Financial Statements and Supplementary Data