What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-03-10 compared with 2022-09-02 · 90 added, 169 removed, 388 unchanged (40% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

Sales and service fees

1 unchanged sentence

Selling, general and administrative expenses

Operating income (loss)

Operating income

Interest expense

Interest income

Investment income (loss)

Investment income, net

Other income (expense), net

Income (loss) before income taxes

Provision (benefit) for income taxes

Net income (loss)

Income (loss) per common share

Income before income taxes

Provision for income taxes

Income per common share

Weighted average common shares outstanding

5 unchanged sentences

Three Months Ended

Nine Months Ended

Net income (loss)

Other comprehensive income (loss):

3 unchanged sentences

Total other comprehensive income (loss)

Comprehensive income (loss)

Comprehensive income

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

7 unchanged sentences

Derivative assets

Prepaid assets

Prepaid and other assets

Total current assets

34 unchanged sentences

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

6,645,352 and 6,691,052 shares issued and 6,566,994 and 6,617,717 shares outstanding, as of July 31, 2022 and October 31, 2021, respectively

6,675,917 and 6,645,352 shares issued and 6,587,694 and 6,566,994 shares outstanding, as of January 31, 2023 and October 31, 2022, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Nine Months Ended

Cash flows from operating activities:

Net income (loss)

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

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

Provision for doubtful accounts

Deferred income taxes

Equity in loss (income) of affiliates

Equity in (income) loss of affiliates

Foreign currency (gain) loss

2 unchanged sentences

Stock–based compensation

Change in assets and liabilities, net of acquisitions:

Change in assets and liabilities:

(Increase) decrease in accounts receivable

28 unchanged sentences

(In thousands, except shares outstanding)

Three Months Ended July 31, 2022 and 2021

Comprehensive

Income (Loss)

Balances, April 30, 2021

Net income (loss)

Other comprehensive income (loss)

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

Dividends paid

Balances, July 31, 2021

Balances, April 30, 2022

Net income (loss)

Other comprehensive income (loss)

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

Dividends paid

Balances, July 31, 2022

Nine Months Ended July 31, 2022 and 2021

Three Months Ended January 31, 2023 and 2022

Comprehensive

4 unchanged sentences

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

Exercise of common stock options

Stock repurchases

Dividends paid

Balances, July 31, 2021

Balances, January 31, 2022

Balances, October 31, 2022

5 unchanged sentences

Dividends paid

Balances, July 31, 2022

Balances, January 31, 2023

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.

Our operating results during fiscal years 2020, 2021 and the nine months of fiscal 2022 were affected by the international business disruption due to the outbreak of COVID-19 and lockdowns in certain markets, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, uncertainty surrounding the U.K.

Brexit activities, and political friction in the U.S and many regions of the world.

Because of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing the financial statements as of July 31, 2022, with the understanding that these estimates could change in the near term.

Our operating results during fiscal years 2020 through 2022, and the first three months of fiscal 2023, were affected by the international business disruption due to the outbreak of COVID-19 and lockdowns in certain markets, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, and political friction in the U.S, and many regions of the world.

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, 2023, 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 July 31, 2022 and for the three and nine months ended July 31, 2022 and July 31, 2021 is unaudited.

The condensed financial information as of January 31, 2023 and for the three months ended January 31, 2023 and January 31, 2022 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.

41 unchanged sentences

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

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

We had forward contracts outstanding as of January 31, 2023, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from February 2023 through January 2024.

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

Dollars at July 31, 2022, were $ 27.6 million for Euros, $ 7.0 million for Pounds Sterling and $ 33.1 million for New Taiwan Dollars.

At July 31, 2022, we had approximately $ 0.4 million of gains, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss).

Included in this amount was $ 15,000 of unrealized loss, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk.

The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through July 2023, when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above.

Dollars at January 31, 2023, were $ 15.9 million for Euros, $ 6.0 million for Pounds Sterling and $ 25.3 million for New Taiwan Dollars.

At January 31, 2023, we had approximately $ 0.2 million of loss, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss).

Included in this amount was $ 0.6 million 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 2024, 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.

4 unchanged sentences

This forward contract matures in November 2023.

As of July 31, 2022, we had a realized gain of $ 0.9 million and an unrealized gain of $ 0.3 million, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive income (loss) related to this forward contract.

As of January 31, 2023, we had a realized gain of $ 1.3 million and an unrealized loss of $ 0.2 million, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive income (loss) related to this forward contract.

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 in Other income (expense), net in the Condensed Consolidated Statements of Operations consistent with the transaction gain or loss on the related receivables and payables denominated in foreign currencies.

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

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

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

Dollars at July 31, 2022, totaled $ 55.6 million.

Dollars at January 31, 2023, totaled $ 58.5 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 July 31, 2022 and October 31, 2021, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

July 31, 2022

As of January 31, 2023 and October 31, 2022, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

January 31, 2023

October 31, 2022

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 July 31, 2022 and 2021 (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 July 31, 2022 or 2021.

We recognized the following gains in our Condensed Consolidated Statements of Operations during the three months ended July 31, 2022 and 2021 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 January 31, 2023 or 2022.

We recognized the following gains in our Condensed Consolidated Statements of Operations during the three months ended January 31, 2023 and 2022 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

6 unchanged sentences

Foreign exchange forward contracts

Other income (expense), net

The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the three months ended July 31, 2022 (in thousands):

Other expense (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, 2023 (in thousands):

Foreign Currency

Balance, April 30, 2022

Other comprehensive income (loss) before reclassifications

Reclassifications

Balance, July 31, 2022

Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations, net of tax, during the nine months ended July 31, 2022 and 2021 (in thousands):

Location of Gain

Amount of Gain

Amount of Gain (Loss)

(Loss) Reclassified

Recognized in Other

Comprehensive

Income (Loss)

Nine 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 nine months ended July 31, 2022 or 2021.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the nine months ended July 31, 2022 and 2021 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

(Loss) Recognized

Amount of Gain (Loss)

in Operations

Recognized in Operations

Nine Months Ended

Not Designated as Hedging Instruments:

Foreign exchange forward contracts

Other income (expense), net

The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the nine months ended July 31, 2022 (in thousands):

Balance, October 31, 2022

1 unchanged sentence

Reclassifications

Balance, July 31, 2022

Balance, January 31, 2023

EQUITY INCENTIVE PLAN

11 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.

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.

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

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

A summary of stock option activity for the nine-month period ended July 31, 2022, is as follows:

A summary of stock option activity for the three-month period ended January 31, 2023, is as follows:

Weighted Average

5 unchanged sentences

Options cancelled

Outstanding at July 31, 2022

Summarized information about outstanding stock options as of July 31, 2022, that have already vested and are currently exercisable, are as follows:

Options Already Vested and

Currently Exercisable

Number of outstanding options

Weighted average remaining contractual life (years)

Weighted average exercise price per share

Intrinsic value of outstanding options

The intrinsic value of an outstanding stock option is calculated as the difference between the stock price as of July 31, 2022 and the exercise price of the option.

On March 10, 2022, the Compensation Committee granted a total of 13,914 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 $ 34.49 per share.

Outstanding at January 31, 2023

As of January 31, 2023, no stock options were outstanding.

On January 3, 2023, 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.

4 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 $ 26.38 per share.

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 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 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 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.

The grant date fair value of the PSUs – ROIC was based on the closing sales price of our common stock on the grant date, which was $ 30.39 per share.

On January 3, 2023, the Compensation Committee also granted a total target number of 47,003 PSUs to our executive officers designated as “PSU – NI”.

These PSUs were weighted as approximately 40 % of the overall 2023 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average net income over the three-year period of fiscal 2023-2025.

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

The grant date fair value of the PSUs – NI was based on the closing sales price of our common stock on grant date, which was $ 26.38 per PSU.

On January 3, 2023, the Compensation Committee also granted a total target number of 41,126 PSUs to our executive officers designated as “PSU –FCF”.

These PSUs were weighted as approximately 35 % of the overall 2023 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average free cash flow over the three-year period of fiscal 2023-2025.

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

The grant date fair value of the PSUs – FCF was based on the closing sales price of our common stock on the grant date, which was $ 26.38 per PSU.

On November 9, 2022, the Compensation Committee granted a total of 12,223 shares of time-based restricted stock to our non-executive employees.

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 $ 24.53 per share.

A reconciliation of our restricted stock and PSU activity and related information for the nine-month period ended July 31, 2022 is as follows:

A reconciliation of our restricted stock and PSU activity and related information for the three-month period ended January 31, 2023 is as follows:

Weighted Average Grant

6 unchanged sentences

Shares withheld

Unvested at July 31, 2022

During the nine months of fiscal 2022 and 2021, we recorded approximately $ 2.4 million and $ 2.1 million, respectively, of stock-based compensation expense related to grants under the 2016 Equity Plan.

As of July 31, 2022, there was an estimated $ 4.5 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal 2025.

Unvested at January 31, 2023

During each of the first three months of fiscal 2023 and 2022, we recorded approximately $ 0.8 million of stock-based compensation expense, related to grants under the 2016 Equity Plan.

As of January 31, 2023, there was an estimated $ 5.8 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal year 2026.

EARNINGS PER SHARE

2 unchanged sentences

Three Months Ended

Nine Months Ended

Net income (loss)

Undistributed earnings (loss) allocated to participating shares

Net income (loss) applicable to common shareholders

Undistributed earnings allocated to participating shares

Net income applicable to common shareholders

Weighted average shares outstanding

Stock options and contingently issuable securities

Income (loss) per share

Income per share

ACCOUNTS RECEIVABLE

Accounts receivable are net of allowances for doubtful accounts of $ 1.5 million as of July 31, 2022 and $ 1.6 million as of October 31, 2021.

Accounts receivable are net of allowances for doubtful accounts of $ 1.6 million as of January 31, 2023 and $ 1.5 million as of October 31, 2022.

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

2 unchanged sentences

Finished goods

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

2016-02, “Leases” (“ASC 842”) on November 1, 2019.

Inventories, gross

Reserve for purchased parts and sub-assemblies

Inventories, net

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

4 unchanged sentences

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

In accordance with ASC 842, we record a right-of-use asset and lease liability on our Condensed Consolidated Balance Sheets for all leases that, at the commencement date, have a lease term of more than 12 months and are classified as operating leases.

We recorded total operating lease expense of $ 3.8 million and $ 3.9 million for the nine months ended July 31, 2022 and 2021, respectively, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

We record a right-of-use asset and lease liability on our Condensed Consolidated Balance Sheets for all leases that, at the commencement date, have a lease term of more than 12 months and are classified as operating leases.

We recorded total operating lease expense of $ 1.3 million for each of the three months ended January 31, 2023 and 2022, 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 July 31, 2022.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the nine months ended July 31, 2022 (in thousands):

Nine Months Ended

July 31, 2022

July 31, 2021

There have been no lease costs capitalized on the Condensed Consolidated Balance Sheets as of January 31, 2023.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the three months ended January 31, 2023 (in thousands):

Three Months Ended

January 31, 2023

January 31, 2022

Operating cash flow information:

2 unchanged sentences

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

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

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of January 31, 2023 (in thousands):

Remainder of 2023

2 unchanged sentences

Present value of operating lease liabilities

As of July 31, 2022, the weighted-average remaining term of our lease portfolio was approximately 3.3 years and the weighted-average discount rate was approximately 1.9 %.

As of January 31, 2023, the weighted-average remaining term of our lease portfolio was approximately 3.2 years and the weighted-average discount rate was approximately 2.4 %.

SEGMENT INFORMATION

8 unchanged sentences

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

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

As of January 31, 2023, 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 is as follows (in thousands):

Nine Months Ended

Three Months Ended

Balance, beginning of period

3 unchanged sentences

Balance, end of period

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

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

DEBT AGREEMENTS

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.

14 unchanged sentences

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

As a result, as of July 31, 2022, our existing credit facilities consisted of a € 1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $ 40.0 million revolving credit facility under the 2018 Credit Agreement.

As of July 31, 2022, there were no borrowings under any of our credit facilities and there was approximately $ 51.4 million of available borrowing capacity thereunder.

In February 2023, NHML renewed the above-referenced credit facility on substantially similar terms and an identical maximum aggregate limit.

As a result, as of January 31, 2023, our existing credit facilities consisted of a € 1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $ 40.0 million revolving credit facility under the 2018 Credit Agreement.

As of January 31, 2023, there were no borrowings under any of our credit facilities and there was approximately $ 51.4 million of available borrowing capacity thereunder.

There were also no borrowings under any of our credit facilities as of October 31, 2022.

Our provision for income taxes and effective tax rate is 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.

2 unchanged sentences

The IRA is paid for through the implementation of a 15% 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.

We are currently evaluating the expected impact of the IRA on its consolidated financial statements and related disclosures.

We recorded income tax expense during the nine months of fiscal 2022 of $ 3.0 million compared to $ 2.6 million for the same period in 2021.

Our effective tax rate for the nine months of fiscal 2022 was 31 %, compared to 36 % in the corresponding prior year period.

The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, various discrete tax items, and changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.

Our unrecognized tax benefits were $ 204,000 as of July 31, 2022, and $ 198,000 as of October 31, 2021, and in each case included accrued interest.

We do not currently expect that the Inflation Reduction Act will have a material impact on our income taxes.

We recorded income tax expense during the first three months of fiscal 2023 of $ 0.6 million compared to $ 1.6 million for the same period in fiscal 2022.

Our effective tax rate for the first three months of fiscal 2023 was 31 %, compared to 32 % in the corresponding prior year period.

The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates and a discrete item related to stock compensation.

Our unrecognized tax benefits were $ 173,000 as of January 31, 2023, and $ 171,000 as of October 31, 2022, and in each case included accrued interest.

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

As of July 31, 2022, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 36,000 , which did not include the federal tax benefit of interest deductions.

As of January 31, 2023, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 35,000 , 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 2024 and September 2024.

Currently, our subsidiaries in Taiwan and Germany are under tax audit for fiscal year 2018 and fiscal years 2017 through 2020, respectively.

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

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 July 31, 2022 and October 31, 2021 (in thousands):

July 31, 2022

The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of these instruments, and such instruments meet the Level 1 criteria of the three–tier fair value hierarchy discussed above.

The carrying amount of short-term debt approximates fair value due to the variable rate of the interest and the short-term nature of the instrument.

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, 2023 and October 31, 2022 (in thousands):

January 31, 2023

October 31, 2022

July 31, 2022

January 31, 2023

October 31, 2022

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 $ 131.1 million and $ 94.6 million at July 31, 2022 and October 31, 2021, respectively.

Dollar equivalent notional amounts of these contracts was $ 107.0 million and $ 102.8 million at January 31, 2023 and October 31, 2022, 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.

8 unchanged sentences

NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements:

In December 2019, FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

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.

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.

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 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 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 nine months ended July 31, 2022.

We reviewed all recently issued accounting pronouncements and concluded they are either not applicable or not expected to have a significant impact on our consolidated financial statements as of January 31, 2023.

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