What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-01-05 compared with 2023-01-06 · 22 added, 273 removed, 362 unchanged (45% of the section changed)

11 unchanged sentences

Our executive offices and principal design and engineering operations are headquartered in Indianapolis, Indiana, U.S.

We have sales, application engineering, and service subsidiaries in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and the U.S.

We have sales, application engineering, and service subsidiaries in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and the U.S.

We have manufacturing and assembly operations in Taiwan, the U.S., Italy, and China, and distribution facilities in the U.S., the Netherlands, and Taiwan.

9 unchanged sentences

rather, we have enhanced this strategy through growth both organically and through acquisitions in an effort to attain long-term stability and profitability.

During fiscal year 2022, our sales and service fees were $250.8 million, an increase of $15.6 million, or 7%, compared to fiscal year 2021 and included an unfavorable currency impact of $13.9 million, or 6%, when translating foreign sales to U.S.

During fiscal year 2023, our sales and service fees were $227.8 million, a decrease of $23.0 million, or 9%, compared to fiscal year 2022 and included an unfavorable currency impact of $2.4 million, or 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales decreased year-over-year due primarily to a decreased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across Europe, Asia Pacific, and the Americas.

For fiscal year 2023, we reported net income of $4.4 million, or $0.66 per diluted share, compared to net income of $8.2 million, or $1.23 per diluted share, for fiscal year 2022.

During fiscal year 2022, sales increased year-over-year due primarily to inflationary price increases and an increased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across Europe and North America.

Machine tool products are considered capital goods, which makes them part of an industry that has historically been highly cyclical.

3 unchanged sentences

machine tool market include:

• The 2021 World Machine Tool Survey by Gardner Intelligence;

• Global Machine Tool Outlook – generated by Oxford Economics;

• United States Machine Tool Consumption – generated by the Association for Manufacturing Technology, this report includes metal cutting machines of all types and sizes, including segments in which we do not compete;

113 unchanged sentences

Since Hurco is the technology and innovation brand of our corporate portfolio, we have focused our attention on product enhancements of existing models in an effort to align the Hurco brand with the newest engineering innovations and components available to compete with other premium brands in the marketplace.

Examples of product enhancements completed in 2022 include new #50 taper versions of the BX50 and BX60 models, as well as expanded 60 station automatic tool changers for the VMX-SRT/SW product line.

HS models were upgraded from 18,000 rpm spindles to 20,000 rpm spindles, including both three and five-axis machines.

We also introduced the VM15Di in 2022, an entry-level machining center featuring an inline spindle for improved accuracy and surface finish.

Examples of product enhancements completed in fiscal year 2023 include new HSK spindles for our entry level high-speed VM10HSi 3-axis and VM10UHSi 5-axis machines.

We also made background enhancements to our WinMax® software, focusing on bolstering reliability and optimizing resource management.

These improvements are designed to ensure a smoother user experience without interrupting workflow.

These efforts collectively enhance software performance and efficiency, providing a more dependable and responsive experience while using WinMax®.

Milltronics CNC Machine Tools

7 unchanged sentences

TRQ/TRM Product Line

Products with the TRQ or TRM designation are part of the tool room bed mill category, which are machines that are available without an enclosure, also referred to as open bed machines, that provide easy access to the work table.

Products with the TRQ or TRM designation are part of the tool room bed mill category, which are machines that are available without an enclosure (also referred to as open bed machines), that provide easy access to the worktable.

Typical applications for these machines include general machining, job shops, prototype, or maintenance and repair.

25 unchanged sentences

Product Development

In fiscal year 2022, Milltronics hardware upgrades included expanded capacity automatic tool changers (30-tool ATC) for the XP Series and enhanced spindle speeds (12,000 rpm standard and a 15,000 rpm option) for the IL Series.

In fiscal year 2023, Milltronics introduced the new Inspire CNC control, leveraging patented Hurco intellectual property to enhance cutting precision and surface finish on Milltronics machine tools.

Features like rapid retract, leadscrew compensation, and squareness compensation enable customers to maximize their Milltronics machine tool's performance, while the Inspire control offers users a familiar user interface for seamless interaction with the machine.

Takumi CNC Machine Tools

13 unchanged sentences

The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for customers doing a variety of different parts, including die and mold, medical, automotive, and job shops.

The VC machines are available in three sizes with X-axis travels of 34, 42, and 50 inches.

The VC machines are available in four sizes with X-axis travels of 34, 42, 50, and 60 inches.

An extended Y-axis travel version of the 42-inch model is offered for mold shops making square mold bases.

The V Series vertical machining centers are heavy-duty, box-way machines built for tough applications such as roughing cast iron.

These three-axis, massive machines feature belt or geared spindles to provide maximum torque.

The V Series product line includes eight models with X-axis travels of 39, 43, 47, 60, 70, 78, 86, and 126 inches.

________________________

4 unchanged sentences

JOHANNES HEIDENHAIN GmbH.

The V Series vertical machining centers are heavy-duty, box-way machines built for tough applications such as roughing cast iron.

These three-axis, massive machines feature belt or geared spindles to provide maximum torque.

The V Series product line includes eight models with X-axis travels of 39, 43, 47, 60, 70, 78, 86, and 126 inches.

Designed to produce parts that require high precision and superior surface finishes, H Series machines offer an extremely rigid and thermally stable double-column design.

16 unchanged sentences

Available in 400, 500, and 630 mm pallet sizes, they can also be fitted with expandable automatic tool changers that hold up to 220 tools.

The HMX500 model is available in either #40 or #50 taper spindles.

SL slant-bed lathes are turning centers equipped with box ways and designed for heavy cutting to provide superior part finishes.

4 unchanged sentences

Product Development

In 2022, Takumi launched its largest lathe, the SL450, which has an 18-inch chuck.

To accommodate demand for increased tool capacity, Takumi developed an efficient magazine design that can be expanded to hold 90, 120, or 150 tools without requiring an inordinate amount of floor space.

Additionally, a new 60-station automatic tool changer was introduced for H-Series machines.

In fiscal year 2023, Takumi introduced a #50 taper version of the HMX500 horizontal machining center, for applications that require heavy cutting and more power.

Additionally, a new 60” X-travel VC1500 was introduced to the marketplace.

Other Computer Control Systems and Software Products

14 unchanged sentences

Solid Model Import with 3D DXF Technology automatically uses geometry from a 3D CAD model to easily create conversational programs for 2D and 3D parts or even 3+2 and 5-sided parts.

________________________

* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S.

and/or other countries.

Designed to take advantage of the Internet of Things, UltiMonitor is a web-based productivity, management, and service tool that enables customers to monitor, inspect, and receive notifications about their Hurco machines from any location where they can access the internet.

2 unchanged sentences

Islands can also be rotated, scaled, and repeated.

________________________

* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S.

and/or other countries.

Conversational Part and Tool Probing options permit the computerized dimensional measurement of machined parts and the associated cutting tools.

15 unchanged sentences

ProCobots provides automation solutions including collaborative robots (cobots), grippers, material handling, and Industry 4.0-capable software and controls.

Designed to be easy to use, safe, and flexible, ProCobots solutions are standardized systems aimed at customers who are in the high-mix, low- and medium-volume manufacturing environments.

Designed to be easy to use, safe, and flexible, ProCobots solutions are standardized systems aimed at customers who are in high-mix, low- and medium-volume manufacturing environments.

Products include portable models, such as the ProFeeder Flex and ProFeeder Table, as well as flexible cell solutions, including the ProFeeder and Easy Desk, and higher volume systems including the ProFeeder Compact, ProFeeder X, and ProFeeder XL models.

13 unchanged sentences

The two lines of swivel heads are differentiated by the type of transmission (either mechanical transmission or torque motor).

Product Development

In 2022, LCM developed a new high-performance Mill Turn rotary torque table with a 1200 mm diameter table capable of a speed of 800 rpm.

Non-Hurco Branded Products & Technologies

57 unchanged sentences

We have not experienced any employee-generated work stoppages or disruptions, and we consider our employee relations to be satisfactory.

COVID-19 and Employee Safety and Wellness

During the COVID-19 pandemic, the safety and well-being of our employees and their families has been a top priority as we continue to serve our customers – many of which are involved in the installation, production, and/or maintenance of critical infrastructure.

Our global pandemic efforts include leveraging the advice and recommendations of infectious disease experts and organizations to establish appropriate safety standards and secure appropriate levels of personal protective equipment for our workforce.

Based upon this advice and recommendations, we have adopted and implemented the Hurco COVID-19 Exposure Prevention, Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to outline our policies and procedures designed to mitigate the potential for transmission of COVID-19 and prevent exposure to illness from certain other infectious diseases.

Among other things, the Hurco COVID Response Plan memorializes employee, manager, and company responsibilities related to house-keeping and sanitization, hygiene and respiratory etiquette, use of personal protective equipment, employee, and visitor screening procedures, leave policies and accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work and/or when to return to work upon potential and/or confirmed COVID-19 exposure or infection.

In addition to procuring personal protective equipment, automatic screening stations, and other preventative resources, we have also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco products and distributed the same to our personnel and customers around the world.

We have also implemented a wellness program aimed at engaging employees with healthcare providers to promote the proactive evaluation, tracking, and management of major health and wellness indicators, such as blood pressure, weight, and routine blood laboratory analysis.

Employee Engagement, Development, and Training

22 unchanged sentences

The information available on our website is not incorporated by reference in, or a part of, this or any other report we file with, or furnish to, the SEC.

RISK FACTORS

In this section, we describe what we believe to be the material risks related to our business.

The risks and uncertainties described below or elsewhere in this report are not the only ones to which we are exposed.

Additional risks and uncertainties not presently known and/or risks we currently deem immaterial may also adversely affect our business and operations.

If any of the developments included in the following risks were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected.

Risks Related to Our Industry and International Operations

The cyclical nature of our business causes fluctuations in our operating results.

The machine tool industry is highly cyclical and changes in demand can occur abruptly in the geographic markets we serve.

As a result of this cyclicality, we have experienced significant fluctuations in our sales, which, in periods of reduced demand, have adversely affected our results of operations and financial condition, which could re-occur in the future.

Uncertain global economic conditions have adversely affected, and may in the future adversely affect, overall demand.

We typically sell the majority of our larger, high-performance VMX machines in Europe, which makes us particularly sensitive to economic and market conditions in that region.

Economic uncertainty and business downturns in the U.S., European, and Asian Pacific markets have adversely affected, and may in the future adversely affect, our results of operations and financial condition.

Moreover, global economic uncertainty and business downturns may be exacerbated or exaggerated in markets that are subject to ongoing wars or conflicts or in markets that depend on resources, energy, or supply chains from jurisdictions participating in such wars or conflicts.

In particular, many markets in Europe and throughout the world are currently being negatively impacted by the war in Ukraine and resulting sanctions imposed on Russia.

Our international operations pose additional risks that may adversely impact sales and earnings.

During fiscal year 2022, approximately 62% of our revenues were derived from sales to customers located outside of the Americas .

In addition, our main manufacturing facilities are located outside of the U.S.

Our international operations are subject to a number of risks, including:

● trade barriers;

● regional economic uncertainty and nationalistic trade strategies;

● differing labor regulation;

● governmental expropriation;

● domestic and foreign customs and tariffs;

● current and changing regulatory environments affecting the importation and exportation of products and raw materials;

● difficulty in obtaining distribution support;

● difficulty in staffing and managing widespread operations;

● differences in the availability and terms of financing;

● political instability and unrest;

● negative or unforeseen consequences resulting from the introduction, termination, modification, or renegotiation of international trade agreements or treaties or the imposition of countervailing measures or anti-dumping duties or similar tariffs;

● foreign exchange controls that make it difficult to repatriate earnings and cash;

● changes in tax regulations and rates in foreign countries;

● changes in the geopolitical environment, wars, conflicts, or trade barriers or blockades in the European Union and Asia, which may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial and foreign exchange markets, as well as disrupt the free movement of goods, services, and people between countries.

Quotas, tariffs, taxes, or other trade barriers could require us to attempt to change manufacturing sources, reduce prices, increase spending on marketing or product development, withdraw from or not enter certain markets, or otherwise take actions that could be adverse to us and/or that we might not be able to accomplish in a timely manner or at all.

Also, in some foreign jurisdictions, we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met.

These factors may adversely affect our future operating results.

The vast majority of our products are shipped from our manufacturing facility in Taiwan from the Port of Taichung to four ports of destination:

Los Angeles, California;

Tacoma, Washington;

Venlo, the Netherlands;

and Shanghai, China.

Changes in customs requirements, as a result of national security or other constraints put upon these ports, may also have an adverse impact on our results of operations.

Similarly, significant delays at one or more of the ports where our products are shipped or received has impacted, and could continue to impact, the amount of time required to ship our products to customers, which could materially adversely impact our business, demand for our products, our ability to meet quoted delivery dates, our results of operations, future operations, and/or financial condition.

Additionally, we must comply with complex foreign and U.S.

laws and regulations in a multitude of jurisdictions, such as the U.S.

Foreign Corrupt Practices Act, the U.K.

Bribery Act, other foreign laws prohibiting corrupt payments to governmental officials, and anti-competition regulations.

Violations of these laws and regulations could result in fines and penalties, criminal sanctions, tariffs or duties, restrictions on our business conduct and on our ability to offer our products in one or more countries, and could also materially adversely affect our brand, our ability to attract and retain employees, our international operations, our business and our operating results.

Although we have implemented policies, procedures, and training designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.

Finally, a significant portion of our manufacturing, production, and assembly operations are located in certain limited geographic territories, including the People’s Republic of China (“China”) and the Republic of China (“Taiwan”).

An unplanned interruption in manufacturing or supply, or significant increase in price from third party suppliers, could have a material adverse effect on our business, results of operations, and financial condition.

Such an interruption or increase in price could result from various factors, including a change in the political environment, such as trade wars or tariffs, a natural disaster, such as an earthquake, typhoon, or tsunami, or vulnerabilities in our technology or cyber-attacks against our information systems, such as ransomware attacks.

Also, any interruption in service by one of our key component suppliers, if prolonged, could have a material adverse effect on our business, results of operations and financial condition.

Additionally, the geopolitical environment and ongoing sovereign relationship between China and Taiwan, including recent heightened tensions between them, could have a material impact on our business.

Specifically, if a trade war, tariff, physical or economic blockade, or war ensued and impacted access to or from the Taiwan or Chinese markets or workforce, we could have challenges maintaining production plans or output, accessing the skilled labor necessary to produce our products without interruption, accessing and/or shipping our finished goods, work in progress, or other inventories located in either of those territories, accessing or maintaining our supply base that is located in those territories or elsewhere, and/or otherwise experience significant disruptions in our business.

Such disruptions, if prolonged, could have a material adverse effect on our business, results of operations, and financial condition.

In such a case, we may be forced to relocate and/or shift production facilities to other geographic territories to mitigate the risks associated with consolidating our manufacturing operations in such territories, which would likely result in disruptions to our production plans and/or our ability to meet forecasted customer demand in the near and medium term, all of which could have a material adverse effect on our business, financial results, future operations, and/or financial position.

Fluctuations in the exchange rates between the U.S.

Dollar and any of several foreign currencies can increase our costs and decrease our revenues.

Our sales to customers located outside of the Americas, which generated approximately 62% of our revenues in fiscal year 2022, are invoiced and received in several foreign currencies, primarily the Euro, Pound Sterling and Chinese Yuan.

Therefore, our results of operations and financial condition are affected by fluctuations in exchange rates between these currencies and the U.S.

Dollar, both for purposes of actual conversion and for financial reporting purposes.

In addition, we are exposed to exchange risk associated with our purchases of materials and components for our Taiwan manufacturing operations, which are primarily made in the New Taiwan Dollar and the Euro.

We hedge a portion of our foreign currency exposure with the purchase of forward exchange contracts.

These hedge contracts only mitigate the impact of changes in foreign currency exchange rates that occur during the term of the related contract period and carry risks of counterparty failure.

There can be no assurance that our hedges will have their intended effects.

We compete with larger companies that have greater financial resources, and our business could be harmed by competitors’ actions.

The markets in which our products are sold are extremely competitive and highly fragmented.

In marketing our products, we compete with other manufacturers in terms of quality, reliability, price, value, delivery time, service, and technological characteristics.

We compete with a number of U.S., European, and Asian competitors, many of which are larger and have substantially greater financial resources and some of which have been supported by governmental or financial institution subsidies and, therefore, may have competitive advantages over us.

Our financial resources are limited compared to those of many of our competitors, making it challenging to remain competitive.

The United Kingdom's withdrawal from the European Union could have an adverse impact on our business, financial condition, operating results, and cash flows.

On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly referred to as “Brexit.” On or around that time, the U.K.

agreed to participate in a transition period (the “Transition Period”), which expired on December 31, 2020, to negotiate a trade agreement and other aspects of their relationship after the Transition Period.

During the Transition Period, free trade continued between the U.K.

without checks or extra charges.

Following the Transition Period, the U.K.

is no longer a part of the single market and customs union of the E.U.

However, immediately prior to expiration of the Transition Period, the U.K.

announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues (the “December 2020 Brexit Deal”) – avoiding some of the anticipated disruption of a no-deal, “hard” Brexit.

We have operations in the U.K.

related to Hurco Europe Ltd.

(“HEL”), our sales and service business unit located there.

Changes resulting from Brexit, the December 2020 Brexit Deal, and/or subsequent transition agreements or arrangements could subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U.

and the U.K., inspections or barriers on goods sold between the U.K.

and the E.U., extra charges, and/or difficulty staffing.

We have evaluated the impact of Brexit on us, our subsidiaries, including HEL, our business, and our future operations, operating results, and cash flows, and it has not materially changed our business to date.

In addition, we do not know if the U.K.

will succeed in negotiating all material terms not otherwise addressed or covered by the December 2020 Brexit Deal or subsequent transition agreements or arrangements and/or if previously agreed upon items will be renegotiated in the future.

Changes in these or other terms resulting from Brexit could, similarly, subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U.

and the U.K., inspections or barriers on goods sold between the U.K.

and the E.U., extra charges, and/or difficulty staffing.

Brexit may also cause fluctuations in the value of the Pound Sterling and the Euro.

Fluctuations in exchange rates between the U.S.

Dollar and foreign currencies may adversely affect our expenses, earnings, cash flows, results of operations, and revenues.

Although we attempt to mitigate our exposure to some of our foreign currency exchange risks through hedging arrangements, our hedging arrangements may not target the potential impacts associated with fluctuations in currency resulting from Brexit or otherwise effectively offset the adverse financial impacts.

Risks Related to the COVID-19 Pandemic

Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and could continue to disrupt, our operations and materially and adversely affect our business, financial condition, and results of operations.

Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic, have had, and could continue to have, a material adverse effect on our business, financial condition, and results of operations.

As a result of the COVID-19 pandemic and related resurgences, governmental authorities in jurisdictions where our facilities, customers, and suppliers are located have imposed mandatory closures, stay-at-home orders, and social distancing protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business operations or consumption patterns.

The COVID-19 pandemic has disrupted our operations and will likely continue to affect our business.

Specifically, many of our sales and service organizations throughout the Americas, Europe, and Asia Pacific have, at one time or another, been subject to temporary closures or otherwise been required to adopt remote work strategies.

We may continue to experience additional temporary facility closures in response to government mandates and/or the incidence of additional spread.

Additionally, the COVID-19 outbreak has disrupted and could in the future disrupt our ability to deliver and/or install machines, our procurement of supplies for our operations, and our customers’ purchasing behavior or decisions.

The COVID-19 pandemic has resulted in significantly reduced demand for our products in certain markets from time to time, which could continue for an extended period of time.

Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or business partners are located have had and could continue to have a material adverse effect on our business, results of operations, cash flows, and financial condition.

In addition, fluctuations in demand and other implications associated with the COVID-19 pandemic have resulted in, and could continue resulting in, certain supply chain constraints and challenges.

Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both our company and our customers and suppliers.

In addition, resulting changes in our access to or cost of capital, expected cash flows, or other factors could cause our intangible assets to be impaired, resulting in a non-cash charge against results of operations to write down the intangible assets for the amount of the impairment.

The duration and scope of the COVID-19 pandemic and related effects remain uncertain and, therefore, we cannot reasonably estimate the potential impact on our business, financial condition, or results of operations, but such impact has been, and could continue to be, material.

Operational and Strategic Risks

Our competitive position and prospects for growth may be diminished if we are unable to develop and introduce new and enhanced products on a timely basis that are accepted in the market.

The machine tool industry is subject to technological change, evolving industry standards, changing customer requirements, and improvements in and expansion of product offerings.

Our ability to anticipate changes in technology, industry standards, customers’ requirements, and competitors’ product offerings, and to develop and introduce new and enhanced products on a timely basis that are accepted in the market, are significant factors in maintaining and improving our competitive position and growth prospects, and we may not be able to accomplish those actions on a timely basis or at all.

If the technologies or standards used in our products become obsolete or fail to gain widespread commercial acceptance, our business would be materially adversely affected.

Developments by others may render our products or technologies obsolete or noncompetitive.

Our continued success depends on our ability to protect our intellectual property.

Our future success depends, in part, upon our ability to protect our intellectual property.

We rely principally on nondisclosure agreements, other contractual arrangements, trade secret law, trademark registration, and patents to protect our intellectual property.

However, these measures may be inadequate to protect our intellectual property from infringement by others or prevent misappropriation of our proprietary rights.

In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do U.S.

Our inability to protect our proprietary information and enforce our intellectual property rights through infringement proceedings could have a material adverse effect on our business, financial condition, and results of operations.

We are also subject to claims that we may be infringing certain patent or other intellectual property rights of third parties.

While it is not possible to predict the outcome of patent and other intellectual property litigation, such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, reduce the market value of our products and services, lower our profits, and could otherwise have an adverse effect on our business, financial condition, and results of operations.

Finally, certain subcontractors, vendors, and third parties provide inputs, components, code, and/or similar items that are complimentary and compatible with our products, software, and controls.

If we are unable to secure access and/or rights to any such inputs, components, code, or similar items, our ability to continue to produce our products without interruption could be challenged, which could materially and adversely impact our business, financial condition, results of operation, and demand for our products.

Disruptions in our manufacturing operations or the supply of materials and components could adversely affect our business, results of operations and financial condition.

We depend on our wholly owned subsidiaries, HML, NHML, Milltronics, and LCM, to produce our machine tools and electro-mechanical components and accessories in Taiwan, China, the U.S., and Italy, respectively.

We also depend on our 35% owned affiliate, HAL, and other key third-party suppliers to produce our computer control systems and key components, such as motors and drives, for our machine tools.

An unplanned interruption in manufacturing or supply, or a significant increase in price from third party suppliers, would have a material adverse effect on our business, results of operations, and financial condition.

Also, any interruption in service by one of our key component suppliers, if prolonged, could have a material adverse effect on our business, results of operations and financial condition.

Fluctuations in the price of raw materials and other inputs, especially steel, iron, and energy, could adversely affect our sales, costs, and profitability.

We manufacture products with a high iron and steel content.

The availability and price for these and other raw materials, as well as for other inputs such as energy, are subject to volatility due to worldwide supply and demand forces, speculative actions, inventory levels, exchange rates, production costs, anticipated or perceived shortages, geopolitical relationships or conflicts, and tariffs or other trade restrictions.

In some cases, those cost increases can be passed on to customers in the form of price increases, in other cases, they cannot.

If the prices of raw materials and other inputs increase and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected.

Recent inflationary pressures and other factors have resulted in increases to the cost of the inputs or raw materials for our products.

Similarly, recently, costs associated with transportation and freight services have previously increased significantly due to limited capacity and/or availability of containers, shipping vessels, and/or receiving port services.

If prolonged, and if they cannot be passed on to customers in the form of price increases, these fluctuations in the price of raw materials, product components, other inputs, and/or transportation services could adversely affect our sales, costs, margin, and profitability.

The unanticipated loss of current members of our senior management team and other key personnel may adversely affect our operating results.

The unexpected loss of members of our senior management team or other key personnel could impair our ability to carry out our business plan.

We believe that our future success will depend, in part, on our ability to attract and retain highly skilled and qualified personnel.

The loss of senior management or other key personnel may adversely affect our operating results as we incur costs to replace the departed personnel and potentially lose opportunities in the transition of important job functions.

Acquisitions could disrupt our operations and harm our operating results.

We actively seek additional opportunities to expand our product offerings or the markets we serve by acquiring other companies, product lines, technologies, and personnel.

Acquisitions involve numerous risks, including the following:

● difficulties integrating the operations, technologies, products, and personnel of an acquired company or being subjected to liability for the target’s pre-acquisition activities or operations as a successor in interest;

● diversion of management’s attention from normal daily operations of the business;

● potential difficulties completing projects associated with in-process research and development;

● difficulties entering markets in which we have no or limited prior experience, especially when competitors in such markets have stronger market positions;

● initial dependence on unfamiliar supply chains or relatively small supply partners;

● insufficient revenues to offset increased expenses associated with acquisitions;

● the potential loss of key employees of the acquired companies;

● the potential for recording goodwill and intangible assets that later can be subject to impairment.

Acquisitions may also cause us to:

● issue common stock that would dilute our current shareholders’ percentage ownership;

● borrow and subject us to increasing interest rates;

● assume or otherwise be subject to liabilities of an acquired company;

● record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges;

● incur amortization expenses related to certain intangible assets;

● incur large acquisition and integration costs, immediate write-offs, and restructuring and other related expenses;

● become subject to litigation.

For example, in the fourth quarter of fiscal year 2020, we recorded a one-time $4.9 million non-cash impairment charge on goodwill arising from prior acquisitions.

The goodwill impairment charge was attributable primarily to the prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

Mergers and acquisitions are inherently risky.

No assurance can be given that our acquisitions will be successful.

Further, no assurance can be given that an acquisition will not adversely affect our business, operating results, or financial condition.

Failure to manage and successfully integrate an acquisition could harm our business and operating results in a material way.

Even when an acquired company has already developed and marketed products, there can be no assurance that enhancements to those products will be made in a timely manner or that pre-acquisition due diligence will identify all possible issues that might arise with respect to such products or the acquired business.

Risks related to new product development also apply to acquisitions.

For additional information, please see the risk factor entitled, “Due to future changes in technology, changes in market demand, or changes in market expectations, portions of our inventory may become obsolete or excessive.”

Failure to comply with data privacy and security laws and regulations could adversely affect our operating results and business.

A number of U.S.

states have enacted data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of sensitive personal information, such as social security numbers, financial information, and other personal information.

For example, several U.S.

territories and all 50 states now have data breach laws that require timely notification to individual victims, and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive personal data.

Other state laws include the California Consumer Privacy Act (“CCPA”), which gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights.

Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) revised and significantly expanded the scope of the CCPA.

The CPRA also created a new California data protection agency authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security enforcement.

Other states have considered and/or enacted similar privacy laws.

We will continue to monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation, and carry significant potential liability for our business.

Outside of the U.S., data protection laws, including the U.K.

General Data Protection Regulation (the “GDPR”), also apply to some of our operations.

Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data continue to evolve.

The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze, and transfer U.K.

or EU personal data, as applicable, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue under the E.U.

GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K.

Other governmental authorities around the world are considering and, in some cases, have enacted, similar privacy and data security laws.

The interpretation and enforcement of the laws and regulations described above are uncertain and subject to change and may require substantial costs to monitor and implement compliance with any additional requirements.

Failure to comply with U.S.

and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity, and could negatively affect our operating results and business.

If our network and system security measures are breached and unauthorized access is obtained to our data, to our employees’, customers’, or vendors’ data, or to our critical information technology systems, we may incur legal and financial exposure and liabilities.

As part of our business, we store our data and certain data about our employees, customers, and vendors in our information technology systems.

If a third party gained unauthorized access to our data, including any data regarding our employees, customers, or vendors, the security breach could expose us to risks, including loss of business, litigation, and possible liability.

Our security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance, or otherwise.

Third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords, or other information to gain access to our customers' data or our data, including our intellectual property and other confidential business information, or our information technology systems.

In addition, given their size and complexity, our information systems could be vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors, and/or business partners, or from cyber-attacks by malicious third parties attempting to gain unauthorized access to our products, systems, or confidential information.

Like other public, multi-national corporations, we have and will continue to be subject to, instances of phishing attacks on our email systems, other cyber-attacks, including state-sponsored cyber-attacks, industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware, and other malware, wire fraud, or other cyber incidents.

The techniques used to obtain unauthorized access, or to sabotage systems, are becoming more sophisticated, frequent, and adaptive, and therefore, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Any security breach could result in:

the unauthorized publication of our confidential business or proprietary information;

the unauthorized release of employee, customer, or vendor data and payment information;

a loss of confidence by our customers;

damage to our reputation;

a disruption to our business;

litigation and legal liability;

and a negative impact on our future sales.

In addition, the cost and operational consequences of implementing further data protection or data restoration measures could be significant.

Financial, Credit, and Liquidity Risks

Due to future changes in technology, changes in market demand, or changes in market expectations, portions of our inventory may become obsolete or excessive.

The technology within our products evolves, and we periodically bring new versions of our machines to market.

The phasing out of an old product involves estimating the amount of inventory required to satisfy the final demand for those machines and to satisfy future repair part needs.

Based on changing customer demand and expectations of delivery times for repair parts, we may find that we have either obsolete or excess inventory on hand.

Because of unforeseen future changes in technology, market demand or competition, we might have to write off unusable inventory, which would adversely affect our results of operations.

Assets have become, and may become further, impaired, requiring us to record a significant charge to earnings.

We review our assets, including intangible assets, for indications of impairment annually and when events or changes in circumstances indicate the carrying value may not be recoverable.

We could be required to record a significant charge to earnings in our financial statements for the period in which any impairment of these assets is determined, which would adversely affect our results of operations for that period.

In the fourth quarter of fiscal year 2020, we recorded a one-time $4.9 million non-cash goodwill impairment charge arising from prior acquisitions, and we may be required to record impairment charges on other assets in the future.

We may experience negative or unforeseen tax consequences.

We may experience negative or unforeseen tax consequences, which could materially adversely affect our results of operations.

We review the probability of the realization of our net deferred tax assets each period based on forecasts of taxable income in both the U.S.

and foreign jurisdictions.

This review uses historical results, projected future operating results based upon approved business plans, eligible carryforward periods, tax-planning opportunities, and other relevant considerations.

Adverse changes in our profitability and financial outlook in the U.S.

or foreign jurisdictions may require the creation of a valuation allowance to reduce our net deferred tax assets.

Such changes could result in material non-cash expenses in the period in which the changes are made and could have a material adverse impact on our results of operations and financial condition.

We also earn a significant amount of our operating income from outside the U.S., and any repatriation of funds representing earnings of foreign subsidiaries may significantly impact our effective tax rates.

We are subject to taxes in the U.S.

and numerous foreign jurisdictions.

Due to economic and political conditions, tax rates in various jurisdictions, including the U.S., may be subject to significant change.

Our effective tax rates could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including tax laws in the U.S.

Similarly, changes in tax laws or regulations, including those in the U.S., could negatively impact our effective tax rate and results of operations.

A change in a statutory tax rate may result in the revaluation of our deferred tax assets and liabilities related to the relevant jurisdiction in which the new tax law is enacted, potentially resulting in a material expense or benefit recorded in our Consolidated Statements of Income for that period.

In December 2017, the U.S.

passed the Tax Cuts and Jobs Act.

The Company has evaluated and recorded the aggregate impact of this passed legislation on our financial condition, cash flows, and results of operations.

Any benefits associated with lower U.S.

corporate tax rates could be reduced or outweighed by other tax changes adverse to our business or operations, such as new or additional taxes imposed on earnings and/or reinvested earnings of our foreign subsidiaries.

The aggregate impact of such legislation, including adverse future regulatory guidance, could have a material adverse impact on our cash flows and results of operations.

Other changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increase in our tax expense.

For example, changes in the tax laws of foreign jurisdictions could arise as a result of the “base erosion and profit shifting” project undertaken by the Organisation for Economic Co-operation and Development (“OECD”).

The OECD, which represents a coalition of member countries, has recommended changes to numerous long-standing tax principles.

These changes, as adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

UNRESOLVED STAFF COMMENTS

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 1. Business