What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-09-08 compared with 2023-06-02 · 87 added, 79 removed, 163 unchanged (50% of the section changed)

13 unchanged sentences

We have both significant foreign sales and significant foreign manufacturing operations.

During the first six months of fiscal year 2023, approximately 54% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines.

During the nine months of fiscal year 2023, approximately 56% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance VMX series machines.

Additionally, approximately 8% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures.

8 unchanged sentences

ProCobots LLC is our wholly-owned subsidiary that provides automation solutions.

In addition, through our wholly-owned subsidiary in Italy, LCM, we produce high value machine tool components and accessories.

In addition, through our wholly-owned subsidiary in Italy, LCM Precision Technology S.r.l.

(“LCM”), we produce high value machine tool components and accessories.

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

17 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 through 2022 and the first six months of fiscal year 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.

Our operating results during fiscal years 2020 through 2022 and the nine months of fiscal year 2023 were affected by the international business disruption due to the outbreak of COVID-19, 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.

We cannot predict the duration or scope of impact of the COVID-19 pandemic, as well as other factors listed above, and the potential impact to our operations and financial results cannot be reasonably estimated.

2 unchanged sentences

We have also received stimulus in various countries to support operations and implemented tax deferrals and provisions that were available to us.

More recently, we have begun to see inflationary pressures and input cost increases imposed in our supply chains on components for our products.

We have seen inflationary pressures and input cost increases imposed in our supply chains on components for our products.

We have also seen capacity for transportation and freight services limited significantly by container or vessel availability and delays at departing and receiving ports, all of which have contributed to significantly increased costs and prices associated with the global shipment of our products.

RESULTS OF OPERATIONS

Three Months Ended April 30, 2023 Compared to Three Months Ended April 30, 2022

Three Months Ended July 31, 2023 Compared to Three Months Ended July 31, 2022

Sales and Service Fees.

Sales and service fees for the second quarter of fiscal year 2023 were $53.8 million, a decrease of $9.0 million, or 14%, compared to the corresponding prior year period, and included an unfavorable currency impact of $1.5 million, or 2%, when translating foreign sales to U.S.

Sales and service fees for the third quarter of fiscal year 2023 were $53.2 million, a decrease of $4.4 million, or 8%, compared to the corresponding prior year period, and included a favorable currency impact of $0.6 million, or 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region for the second quarter ended April 30, 2023 and 2022 (dollars in thousands):

The following table sets forth net sales and service fees by geographic region for the third quarter ended July 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

Sales in the Americas for the second quarter of fiscal year 2023 decreased by 18%, compared to the corresponding period in fiscal year 2022, primarily due to decreased shipments of Hurco and Milltronics machines and reduced sales of other original equipment manufacturer (“OEM”) machines by one of our wholly-owned domestic distributors.

These reductions were partially offset by increased shipments of Takumi machines.

European sales for the second quarter of fiscal year 2023 decreased by 3%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S.

Sales in the Americas for the third quarter of fiscal year 2023 decreased by 23%, compared to the corresponding period in fiscal year 2022, primarily due to decreased shipments of Hurco and Milltronics machines, particularly the higher-performance VMX machines.

European sales for the third quarter of fiscal year 2023 increased by 8%, compared to the corresponding period in fiscal year 2022, and included a favorable currency impact of 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The reduction in European sales was primarily attributable to a decreased volume of shipments of Hurco machines in Italy and France and the negative impact of foreign currency translation, partially offset by increased sales of Hurco machines in the United Kingdom and Germany, as well as increased European sales of Milltronics machines and electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM.

Asian Pacific sales for the second quarter of fiscal year 2023 decreased by 42%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S.

The increase in European sales was primarily attributable to an increased volume of shipments and improved mix of higher-performance Hurco VMX and five-axis machines in Italy and France, increased European sales of Milltronics machines, and increased sales of electro-mechanical components and accessories manufactured by our wholly owned subsidiary, LCM.

Additionally, while the volume of machine sales in the third quarter did not increase year-over-year in the United Kingdom, overall sales in dollars in the U.K.

increased due to an improved mix of higher-performance VMX machines.

Asian Pacific sales for the third quarter of fiscal year 2023 decreased by 24%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco machines in Southeast Asia and India and Takumi and Hurco machines in China.

The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco and Takumi machines in China, Southeast Asia, and India.

Sales and Service Fees by Product Category

The following table sets forth net sales and service fees by product category for the second fiscal quarter ended April 30, 2023 and 2022 (dollars in thousands):

The following table sets forth net sales and service fees by product category for the third fiscal quarter ended July 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

3 unchanged sentences

† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.

Sales of computerized machine tools for the second quarter of fiscal year 2023 decreased by 17%, compared to the corresponding prior year period, primarily due to decreased volume of shipments of Hurco machines in Asia Pacific, Hurco and Milltronics machines in the Americas, and Hurco machines in Italy and France.

Sales of service parts for the second quarter of fiscal year 2023 increased by 4%, compared to the corresponding prior year period, due mainly to increased aftermarket sales and service of Hurco products in Europe and China.

Service fees decreased by 4% due mainly to a decrease in aftermarket services provided for Hurco products in Germany.

Sales for all product categories included an aggregate unfavorable currency impact of 2%, when translating foreign sales to U.S.

Sales of computerized machine tools for the third quarter of fiscal year 2023 decreased by 11%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco and Milltronics machines in the Americas, Hurco and Takumi machines in Asia Pacific and Hurco machines in Germany.

Sales of computer control systems and software for the third quarter of fiscal year 2023 increased by 19%, compared to the corresponding prior year period, due mainly to increased aftermarket software sales in the Americas and France.

Sales of service parts and services fees for the third quarter of fiscal year 2023 increased by 9% and 4%, respectively, compared to the corresponding prior year period, primarily due to increased aftermarket sales and service of Hurco and ProCobots products in Europe.

Sales for all product categories included an aggregate favorable currency impact of 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the second quarter of fiscal year 2023 were $60.2 million, an increase of $1.4 million, or 2%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of $1.8 million, or 3%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the second fiscal quarter ended April 30, 2023 and 2022 (dollars in thousands):

Orders for the third quarter of fiscal year 2023 were $42.1 million, a decrease of $10.8 million, or 20%, compared to the corresponding period in fiscal year 2022, and included a favorable currency impact of $1.1 million, or 2%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the third fiscal quarter ended July 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

Orders in the Americas for the second quarter of fiscal year 2023 decreased by 9%, compared to the corresponding period in fiscal year 2022.

The decrease in orders was primarily due to decreased customer demand for Hurco and Milltronics machines, partially offset by increased orders for Takumi machines and for machines produced by other OEMs and that are sold by one of our wholly-owned domestic distributors.

European orders for the second quarter of fiscal year 2023 increased by 18%, compared to the corresponding prior year period, and included an unfavorable currency impact of 5%, when translating foreign orders to U.S.

The increase in orders was driven primarily by increased customer demand for Hurco machines across the European region and for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for the second quarter of fiscal year 2023 decreased by 24%, compared to the corresponding prior year period, and included an unfavorable currency impact of 5%, when translating foreign orders to U.S.

The reduction in Asian Pacific orders was driven primarily by a decrease in customer demand for Hurco and Takumi machines in China and India, partially offset by increased demand for Hurco machines in Southeast Asia.

Orders in the Americas for the third quarter of fiscal year 2023 decreased by 33%, compared to the corresponding period in fiscal year 2022.

The decrease in orders was primarily due to decreased customer demand for Hurco and Milltronics machines, particularly higher-performance VMX and five-axis machines.

European orders for the third quarter of fiscal year 2023 decreased by 6%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign orders to U.S.

The decrease in orders was driven primarily by decreased customer demand for Hurco machines in Germany and Italy, partially offset by increased customer demand for Hurco machines in France, Milltronics machines in Europe and electro-mechanical components and accessories manufactured by LCM.

Additionally, while the volume of machine orders in the third quarter of fiscal 2023 did not increase year-over-year in the United Kingdom, overall orders in dollars in the U.K.

increased due to an improved mix of higher-performance VMX and five-axis machines.

Asian Pacific orders for the third quarter of fiscal year 2023 decreased by 43%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than 1%, when translating foreign orders to U.S.

The reduction in Asian Pacific orders was driven primarily by a decrease in customer demand for Hurco and Takumi machines in China, India, and Southeast Asia.

Gross Profit .

Gross profit for the second quarter of fiscal year 2023 was $12.6 million, or 23% of sales, compared to $15.6 million, or 25% of sales, for the corresponding prior year period.

The year-over-year decrease in gross profit as a percentage of sales was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Gross profit for the third quarter of fiscal year 2023 was $13.4 million, or 25% of sales, compared to $14.4 million, or 25% of sales, for the corresponding prior year period.

The year-over-year decrease in gross profit was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Gross profit as a percentage of sales for the third quarter of fiscal 2023 was relatively unchanged year-over year despite the reduced volume as sales reflected an increased mix of higher-performance VMX and five-axis machines sold in Europe.

Operating Expenses .

Selling, general, and administrative expenses for the second quarter of fiscal year 2023 were $11.6 million, or 22% of sales, compared to $12.5 million, or 20% of sales, in the corresponding fiscal year 2022 period, and included a favorable currency impact of $0.2 million, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the third quarter of fiscal year 2023 were $12.4 million, or 23% of sales, compared to $12.6 million, or 22% of sales, in the corresponding fiscal year 2022 period, and included an unfavorable currency impact of $0.1 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year decrease in selling, general and administrative expenses in absolute dollar terms was primarily attributable to lower costs related to sales commissions, marketing and tradeshow expenses, and employee support costs for the global operations.

The year-over-year decrease in selling, general and administrative expenses in absolute dollar terms was primarily attributable to lower costs related to marketing and tradeshow expenses, and employee support costs for the global operations.

Operating Income .

Operating income for the second quarter of fiscal year 2023 was $1.0 million compared to $3.1 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to lower volume of sales and negative impact of allocation of fixed costs on lower sales and production volume.

Operating income for the third quarter of fiscal year 2023 was $1.0 million, compared to $3.2 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes

Other Income (Expense), Net .

Other income (expense), net for the second quarter of fiscal year 2023 decreased by $0.2 million compared to the corresponding period in fiscal year 2022, due mainly to an increase in foreign currency exchange loss in the second fiscal quarter of fiscal year 2023 compared to the same period in fiscal year 2022.

Other income (expense), net for the third quarter of fiscal year 2023 decreased by $0.4 million compared to the corresponding period in fiscal year 2022, due mainly to an increase in foreign currency exchange loss in the third fiscal quarter of fiscal year 2023 compared to the same period in fiscal year 2022.

Income Taxes .

The effective tax rate for the second quarter of fiscal year 2023 was 44% compared to 31% 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 that includes jurisdictions with differing tax rates and the impact of valuation allowances on an overall lower level of income before taxes.

Six Months Ended April 30, 2023 Compared to Six Months Ended April 30, 2022

The effective tax rate for the third quarter of fiscal year 2023 was 60%, compared to 28% in the corresponding prior year period.

Nine Months Ended July 31, 2023 Compared to Nine Months Ended July 31, 2022

Sales and Service Fees.

Sales and service fees for the first six months of fiscal year 2023 were $108.5 million, a decrease of $21.2 million, or 16%, compared to the corresponding prior year period, and included an unfavorable currency impact of $4.7 million, or 4%, when translating foreign sales to U.S.

Sales and service fees for the nine months of fiscal year 2023 were $161.7 million, a decrease of $25.7 million, or 14%, compared to the corresponding prior year period, and included an unfavorable currency impact of $4.1 million, or 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region for the first six months ended April 30, 2023 and 2022 (dollars in thousands):

Six Months Ended

Sales in the Americas for the first six months of fiscal year 2023 decreased by 13%, compared to the corresponding period in fiscal year 2022, primarily due to decreased shipments of Hurco and Milltronics machines and reduced sales of OEM machines by one of our wholly-owned domestic distributors.

These reductions were partially offset by increased shipments of Takumi machines.

European sales for the first six months of fiscal year 2023 decreased by 10%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 6%, when translating foreign sales to U.S.

The following table sets forth net sales and service fees by geographic region for the nine months ended July 31, 2023 and 2022 (dollars in thousands):

Nine Months Ended

Sales in the Americas for the nine months of fiscal year 2023 decreased by 16%, compared to the corresponding period in fiscal year 2022, primarily due to decreased shipments of Hurco and Milltronics machines, particularly the higher-performance VMX machines.

European sales for the nine months of fiscal year 2023 decreased by 4%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco machines in Italy, Germany and France, partially offset by increased sales of Hurco machines in the United Kingdom, as well as increased European sales of Milltronics machines and electro-mechanical components and accessories manufactured by LCM.

Asian Pacific sales for the first six months of fiscal year 2023 decreased by 48%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S.

The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco machines in Germany, France, and Italy, partially offset by increased sales of higher-performance Hurco VMX machines in the United Kingdom, increased European sales of Milltronics machines, and increased sales of electro-mechanical components and accessories manufactured by LCM.

Asian Pacific sales for the nine months of fiscal year 2023 decreased by 43%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco machines in Southeast Asia and India and Takumi and Hurco machines in China.

The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco and Takumi machines in China, Southeast Asia, and India.

Sales and Service Fees by Product Category

The following table sets forth net sales and service fees by product category for the first six months ended April 30, 2023 and 2022 (dollars in thousands):

Six Months Ended

The following table sets forth net sales and service fees by product category for the nine months ended July 31, 2023 and 2022 (dollars in thousands):

Nine Months Ended

Computerized Machine Tools

2 unchanged sentences

† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.

Sales of computerized machine tools for the first six months of fiscal year 2023 decreased by 19%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco machines across all the regions where our customers are located, as well as a decreased volume of shipments of Milltronics machines in the Americas and of Takumi machines in China.

Sales of computer control systems and software for the first six months of fiscal year 2023 decreased by 17%, compared to the corresponding prior year period, primarily due to decreased sales of Hurco software in Europe and Southeast Asia, partially offset by increased Hurco software sales in the Americas.

Sales of service parts and service fees for the first six months of fiscal year 2023 remained consistent with the corresponding prior year period.

Sales of computerized machine tools for the nine months of fiscal year 2023 decreased by 17%, compared to the corresponding prior year period, primarily due to decreased volume of shipments of Hurco and Milltronics machines in the Americas, Hurco and Takumi machines in Asia Pacific and Hurco machines in Germany, France and Italy.

Sales of computer control systems and software for the nine months of fiscal year 2023 decreased by 5%, compared to the corresponding prior year period, due mainly to decreased aftermarket software sales in Europe and Southeast Asia.

Sales of service parts for the nine months of fiscal year 2023 increased by 3%, compared to the corresponding prior year period, primarily due to increased aftermarket sales of Hurco and ProCobots products in the United Kingdom and Milltronics and ProCobots products in the Americas.

Sales for all product categories included an aggregate unfavorable currency impact of 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the first six months of fiscal year 2023 were $113.5 million, a decrease of $16.3 million, or 13%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of $5.1 million, or 4%, when translating foreign orders to U.S.

Six Months Ended

Orders in the Americas for the first six months of fiscal year 2023 decreased by 10%, compared to the corresponding period in fiscal year 2022.

The decrease in orders was primarily due to decreased customer demand for Hurco and Milltronics machines, partially offset by increased orders for Takumi machines and for machines produced by other OEMs that are sold by one of our wholly-owned domestic distributors.

European orders for the first six months of fiscal year 2023 decreased by 8%, compared to the corresponding prior year period, and included an unfavorable currency impact of 7%, when translating foreign orders to U.S.

This decrease was primarily attributable to decreased customer demand for Hurco and Takumi machines in Germany and France, partially offset by increased customer demand for Hurco machines in the United Kingdom and Italy, and for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for the first six months of fiscal year 2023 decreased by 41%, compared to the corresponding prior year period, and included an unfavorable currency impact of 4%, when translating foreign orders to U.S.

The year-over-year reduction in Asian Pacific orders was driven primarily by a decrease in customer demand for Hurco and Takumi machines in China, Southeast Asia and India.

Orders for the nine months of fiscal year 2023 were $155.5 million, a decrease of $27.1 million, or 15%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of $4.0 million, or 2%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the nine months ended July 31, 2023 and 2022 (dollars in thousands):

Nine Months Ended

Orders in the Americas for the nine months of fiscal year 2023 decreased by 17%, compared to the corresponding period in fiscal year 2022.

The decrease in orders was primarily due to decreased customer demand for Hurco and Milltronics machines, particularly higher-performance VMX and five-axis machines.

European orders for the nine months of fiscal year 2023 decreased by 8%, compared to the corresponding prior year period, and included an unfavorable currency impact of 4%, when translating foreign orders to U.S.

The decrease in orders was driven primarily by decreased customer demand for Hurco machines in Germany and France, partially offset by increased customer demand for higher-performance Hurco VMX machines in the United Kingdom and Italy, and for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for the nine months of fiscal year 2023 decreased by 42%, compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, when translating foreign orders to U.S.

The reduction in Asian Pacific orders was driven primarily by a decrease in customer demand for Hurco and Takumi machines in China, India, and Southeast Asia.

Gross Profit .

Gross profit for the first six months of fiscal year 2023 was $25.3 million, or 23% of sales, compared to $32.5 million, or 25% of sales, for the corresponding prior year period.

Gross profit for the nine months of fiscal year 2023 was $38.7 million, or 24% of sales, compared to $46.9 million, or 25% of sales, for the corresponding prior year period.

The year-over-year decrease in gross profit was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Gross profit as a percentage of sales for the nine months of fiscal 2023 was relatively unchanged year-over year despite the reduced volume as sales reflected an increased mix of higher-performance VMX and five-axis machines sold in Europe.

Operating Expenses .

Selling, general, and administrative expenses for the first six months of fiscal year 2023 were $23.1 million, or 21% of sales, compared to $24.2 million, or 19% of sales, in the corresponding fiscal year 2022 period, and included a favorable currency impact of $0.8 million, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the nine months of fiscal year 2023 were $35.5 million, or 22% of sales, compared to $36.9 million, or 20% of sales, in the corresponding fiscal year 2022 period, and included a favorable currency impact of $0.7 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

1 unchanged sentence

Operating Income .

Operating income for the first six months of fiscal year 2023 was $2.2 million, compared to $8.3 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to lower volume of sales and negative impact of allocation of fixed costs on lower sales and production volume.

Operating income for the nine months of fiscal year 2023 was $3.2 million, compared to $10.0 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Other Income (Expense), Net .

Other income (expense), net for the first six months of fiscal year 2023 increased by $0.7 million compared to the corresponding period in fiscal year 2022, due mainly to an increase in foreign currency exchange gains in the first six months of fiscal year 2023 compared to the same period in fiscal year 2022.

Other income (expense), net for the nine months of fiscal year 2023 increased by $0.3 million compared to the corresponding period in fiscal year 2022, due mainly to a reduction in foreign currency exchange loss in the nine months of fiscal year 2023 compared to the same period in fiscal year 2022.

Income Taxes .

The effective tax rate for the first six months of fiscal year 2023 was 35%, compared to 31% 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.

The effective tax rate for the nine months of fiscal year 2023 was 40%, compared to 31% 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 that includes jurisdictions with differing tax rates, discrete items related to stock compensation and the impact of valuation allowances for our China operations combined with lower levels of consolidated income before taxes.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2023, we had cash and cash equivalents of $52.2 million, compared to $63.9 million at October 31, 2022.

At July 31, 2023, we had cash and cash equivalents of $41.0 million, compared to $63.9 million at October 31, 2022.

Approximately 21% of the $41.0 million of cash and cash equivalents was denominated in U.S.

1 unchanged sentence

We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital was $199.5 million at April 30, 2023, compared to $194.7 million at October 31, 2022.

The increase in working capital was primarily driven by increases in inventories, net and prepaid and other assets and decreases in accrued payroll and employee benefits, partially offset by decreases in cash and cash equivalents, accounts receivable, net and an increase in accounts payable.

Capital expenditures of $1.4 million during the first six months of fiscal year 2023 were primarily for capital improvements in existing facilities and software development costs.

Working capital was $198.1 million at July 31, 2023, compared to $194.7 million at October 31, 2022.

The increase in working capital was primarily driven by increases in inventories, net and prepaid and other assets and decreases in accounts payable and accrued payroll and employee benefits, partially offset by decreases in cash and cash equivalents and accounts receivable, net.

Capital expenditures of $1.8 million during the nine months of fiscal year 2023 were primarily for capital improvements in existing facilities and software development costs.

We funded these expenditures with cash on hand.

2 unchanged sentences

The program may be amended, suspended, or discontinued at any time and does not commit us to repurchase any shares of our common stock.

During the first six months of fiscal year 2023, approximately 19,236 shares were repurchased at an aggregate value of approximately $0.5 million under that program, resulting in $24.5 million remaining available under the program as of April 30, 2023.

Our prior $7.0 million share repurchase program also remained in effect until its scheduled expiration on March 10, 2023 During the first six months of fiscal year 2023, approximately 147,053 shares were repurchased at an aggregate value of approximately $4.1 million under that program, and aggregate repurchases under all programs during the first six months of fiscal year 2023 equal to $4.6 million.

In addition, during the six months ended April 30, 2023, we paid cash dividends to our shareholders of $2.0 million.

During the nine months of fiscal year 2023, approximately 67,513 shares were repurchased at an aggregate value of approximately $1.8 million under that program, resulting in $23.2 million remaining available under the program as of July 31, 2023.

Our prior $7.0 million share repurchase program also remained in effect until its scheduled expiration on March 10, 2023 During the nine months of fiscal year 2023, approximately 98,776 shares were repurchased at an aggregate value of approximately $2.8 million under that program.

Aggregate repurchases under all programs during the nine months of fiscal year 2023 were approximately $4.6 million.

In addition, during the nine months ended July 31, 2023, we paid cash dividends to our shareholders of $3.1 million.

Future dividends are subject to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed relevant by our Board of Directors from time to time.

17 unchanged sentences

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

As of April 30, 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.

We had no debt or borrowings under any of our credit facilities at April 30, 2023.

At April 30, 2023, we had an aggregate of approximately $51.2 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

As of July 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.

We had no debt or borrowings under any of our credit facilities at July 31, 2023.

At July 31, 2023, we had an aggregate of approximately $51.0 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities when needed in the U.S., Europe or Asia Pacific.

8 unchanged sentences

Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

During the first six months of fiscal year 2023, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2022.

During the nine months of fiscal year 2023, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2022.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

3 unchanged sentences

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

As of April 30, 2023, we had nine outstanding third party payment guarantees totaling approximately $0.9 million.

As of July 31, 2023, we had nine outstanding third party payment guarantees totaling approximately $0.9 million.

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

7 unchanged sentences

These risks, uncertainties and other factors include, but are not limited to:

The impact of the COVID 19 pandemic and other public health epidemics and pandemics on the global economy, our business and operations, our employees and the business, operations and economies of our customers and suppliers;

The cyclical nature of the machine tool industry;

17 unchanged sentences

• Uncertainty concerning our ability to use tax loss carryforwards;

• Changes in the SOFR rate;

The impact of the COVID -19 pandemic and other public health epidemics and pandemics on the global economy, our business and operations, our employees and the business, operations and economies of our customers and suppliers.

We discuss these and other important risks and uncertainties that may affect our future operations in Part I, Item 1A – Risk Factors in our most recent Annual Report on Form 10-K and may update that discussion in Part II, Item 1A – Risk Factors in this report or in a Quarterly Report on Form 10-Q we file hereafter.

4 unchanged sentences

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 2. Management’s Discussion and Analysis