What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-01-05 compared with 2023-01-06 · 79 added, 134 removed, 770 unchanged (22% of the section changed)

6 unchanged sentences

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

and its subsidiaries

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

and its subsidiaries (the Company) as of October 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended October 31, 2023, and the related notes and schedule listed in Item 15(a) (collectively, the financial statements).

We also have audited the Company’s internal control over financial reporting as of October 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

7 unchanged sentences

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

Those standards require that we plan

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

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

maintained in all material respects.

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

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

47 unchanged sentences

Selling, general and administrative expenses

Goodwill impairment

Operating income (loss)

Operating income

Interest expense

3 unchanged sentences

Other 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

(In thousands)

Net income (loss)

Other comprehensive income (loss):

1 unchanged sentence

(Gain) / loss on derivative instruments reclassified into operations, net of tax of $( 146 ) , $ 59 , and $( 204 ) , respectively

Gain / (loss) on derivative instruments, net of tax of $( 119 ) , $( 143 ) , and $ 118 , respectively

Loss on derivative instruments, net of tax of $( 439 ) , $( 119 ) , and $( 143 ) , respectively

Total other comprehensive income (loss)

61 unchanged sentences

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

5 unchanged sentences

Stock–based compensation

Goodwill impairment charge

Change in assets and liabilities, net of acquisitions:

21 unchanged sentences

Stock repurchases

Excise tax payable related to stock repurchases

Net cash provided by (used for) financing activities

12 unchanged sentences

Balances, October 31, 2020

Net income (loss)

Other comprehensive income (loss)

Other comprehensive income

Exercise of common stock options

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

Stock repurchases

Dividends paid

Balances, October 31, 2021

Net income (loss)

Other comprehensive income (loss)

1 unchanged sentence

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

Stock repurchases

Dividends paid

Balances, October 31, 2022

Net income (loss)

Other comprehensive income (loss)

Other comprehensive income

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

Exercise of common stock options

Stock repurchases

Stock repurchases, net of excise tax payable

Dividends paid

43 unchanged sentences

These forward contracts have been designated as cash flow hedge instruments, and are recorded in the Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities.

The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts are deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S.

The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts is deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S.

dollar value of the inter–company sale or purchase being hedged.

The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is reported in Other expense, net immediately.

The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is immediately reported in Other expense, net.

We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining that forecasted transactions have not changed significantly.

7 unchanged sentences

Of this amount, $ 0.6 million represented unrealized loss, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk.

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

The majority of these deferred losses will be recorded as an adjustment to Cost of sales and service in periods through October 2024, in which the corresponding inventory that is the subject of the related hedge contract is sold, as described above.

We are exposed to foreign currency exchange risk related to our investment in net assets in foreign countries.

4 unchanged sentences

This forward contract matured in November 2023 , and we entered into a new forward contract for the same notional amount that is set to mature in November 2024 .

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

As of October 31, 2023, we had a realized gain of $ 1.3 million and an unrealized loss of $ 0.1 million, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts.

Derivatives Not Designated as Hedging Instruments

1 unchanged sentence

These derivative instruments are not designated as hedges under FASB guidance and, as a result, changes in their fair value are reported currently as Other expense, net in the Consolidated Statements of Operations consistent with the transaction gain or loss on the related inter-company receivables, payables and loans denominated in foreign currencies.

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

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

The contract amounts at forward rates in U.S.

4 unchanged sentences

We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Consolidated Balance Sheets.

As of October 31, 2022 and October 31, 2021, all derivative instruments were recorded at fair value on the balance sheets as follows (in thousands):

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

Balance Sheet

14 unchanged sentences

Derivative liabilities

Effect of Derivative Instruments on the Consolidated Balance Sheets, Statements of Changes in Shareholders’ Equity, and Statements of Operations

Derivative instruments had the following effects on our Consolidated Balance Sheets, Statements of Changes in Shareholders’ Equity, and Statements of Operations, net of tax, during the fiscal years ended October 31, 2022, 2021, and 2020 (in thousands):

Effect of Derivative Instruments on the Consolidated Balance Sheets, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Operations

Derivative instruments had the following effects on our Consolidated Balance Sheets, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Operations, net of tax, during the fiscal years ended October 31, 2023, 2022, and 2021 (in thousands):

Amount of Gain (Loss)

49 unchanged sentences

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

For each contract, we identify our performance obligations, which is delivering goods or services, determine the transaction price, allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled.

For each contract, we identify our performance obligations, which are delivering goods or services, determine the transaction price, allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled.

A good or service is transferred when the customer obtains control of that good or service.

42 unchanged sentences

For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized for that excess, but only to the extent of the goodwill amount allocated to that reporting unit.

We had goodwill for our single reporting unit, arising from the acquisitions of ProCobots, LLC (“ProCobots”) ( $ 2.5 million) in 2019, LCM Precision Technology S.r.l.

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

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

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

We had no goodwill as of October 31, 2023.

For indefinite-lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss is recognized in an amount equal to that excess.

19 unchanged sentences

Based on that review, there was no impairment indications for our long-lived assets for the period ended October 31, 2023.

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

Therefore, there were no impairments recognized with respect to the carrying values of long-lived assets for the years ended October 31, 2023, 2022, or 2021.

Earnings Per Share.

4 unchanged sentences

(in thousands, except per share amounts)

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

Income Taxes – We account for income taxes and the related accounts under the asset and liability method.

34 unchanged sentences

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

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

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

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

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

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

During fiscal years 2021 through 2023, our operating results were adversely affected by the international business disruptions due to the economic slowdown in Europe, political friction in the U.S.

and many other regions of the world, geopolitical tensions, conflicts, wars in Europe and Asia, competitive labor markets, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, and the COVID-19 pandemic.

Because of the potential for extended vulnerability due to these and other factors, we have closely evaluated the estimates we have made in preparing the financial statements as of October 31, 2023, with the understanding that these estimates could change in the near term.

24 unchanged sentences

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, December 17, 2021, and January 4, 2023 (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, January 4, 2023, and December 19, 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.

13 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 October 31, 2022, our existing credit facilities consisted of the € 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.

In February and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits.

As a result, as of October 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 October 31, 2023, there were no borrowings under any of our credit facilities and there was $ 50.6 million of available borrowing capacity thereunder.

7 unchanged sentences

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.

The carrying amount of short-term debt approximates fair value due to the variable rate of 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 October 31, 2023 and 2022 (in thousands):

2 unchanged sentences

Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan.

We estimate the fair value of these investments on a recurring basis using market prices which are readily available.

We estimate the fair value of these investments on a recurring basis using market prices that are readily available.

Included as Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on foreign currency forward exchange contracts entered into with a third party.

1 unchanged sentence

Derivative instruments are reported in the accompanying consolidated financial statements at fair value.

We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes to Consolidated Financial Statements in which the U.S.

We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes to Consolidated Financial Statements.

dollar equivalent notional amount of these contracts was $ 97.8 million and $ 102.8 million at October 31, 2023 and 2022, respectively.

1 unchanged sentence

The counterparty to the forward exchange contract is a substantial and creditworthy financial institution.

We do not consider either the risk of counterparty non–performance or the economic consequences of counterparty non–performance as material risks.

We do not consider either the risk of counterparty non–performance or the economic consequences of counterparty non–performance to be material risks.

We utilize the asset and liability method of accounting for income taxes.

3 unchanged sentences

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

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

The Company does not currently expect that the Inflation Reduction Act will have a material impact on its income taxes.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020.

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

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

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

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”), which includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021, was signed into law and provided further COVID-19 economic relief with an expansion of the employee retention credit.

As a result, we recorded operating income of $ 2.9 million related to the employee retention credit during fiscal 2021.

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

As a result, we recorded operating income of $ 2.9 million related to the employee retention credit during fiscal year 2021.

We did not qualify for the employee retention credit in fiscal years 2022 or 2023.

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

14 unchanged sentences

Impact of CARES act

Stock-based compensation

Effective tax rate

1 Primarily due to discrete items for unearned stock awards

The Tax Reform Act enacted on December 22, 2017, made comprehensive changes to U.S.

1 unchanged sentence

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

is generally no longer subject to U.S.

federal income tax.

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

As of October 31, 2023, the undistributed earnings of our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations.

7 unchanged sentences

We established a valuation allowance against some of these carryforwards due to the uncertainty of their full realization.

As of October 31, 2022, and 2021, the balance of this valuation allowance was $ 1.8 million and $ 1.9 million, respectively.

As of each of October 31, 2023, and 2022, the balance of this valuation allowance was $ 1.8 million.

Significant components of our deferred tax assets and liabilities at October 31, 2023 and 2022 are as follows (in thousands):

18 unchanged sentences

As of October 31, 2023, we had net operating loss carryforwards for international and U.S.

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

income tax purposes of $ 14.3 million, of which $ 4.4 million will expire within 5 years beginning in fiscal 2024 and $ 7.6 million are U.S.

and state net operating losses which will expire between 5 and 20 years .

The remaining $ 2.3 million in net operating losses will be carried forward indefinitely based on current international tax laws.

11 unchanged sentences

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

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

Currently, our subsidiary in Taiwan is under income tax audit for fiscal years 2021 through 2022.

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

United States federal

Fiscal year 2014 through the current period

Fiscal year 2017 through the current period

Fiscal 2014 through the current period

United Kingdom

Fiscal year 2015 through the current period

Fiscal year 2017 through the current period

Fiscal 2017 through the current period

Fiscal 2018 through the current period

Fiscal 2022 through the current period

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

10 unchanged sentences

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

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

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

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

4 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 remained outstanding as of October 31, 2022.

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.

We have granted restricted shares and performance units under the 2016 Equity Plan that are currently outstanding.

We previously granted stock options under the 2008 Equity Plan;

none of which remained outstanding as of October 31, 2023.

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.

7 unchanged sentences

The total intrinsic value of stock options exercised during the twelve months ended October 31, 2023, 2022, and 2021, was approximately $ 0 , $ 9,000 , and $ 179,000 , respectively.

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

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

Weighted Average

Range of Exercise

Exercise Price Per

Remaining Contractual

Prices Per Share

Life in Years

Outstanding and Exercisable

As of October 31, 2023, no stock options remained outstanding.

On March 9, 2023, the Compensation Committee granted a total of 17,226 shares of time-based restricted stock to our non-employee directors.

7 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 years 2022-2024, relative to the total shareholder return of the companies in a specified peer group over that period.

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

The grant date fair value of the PSUs – TSR was $ 33.33 per PSU and was calculated using the Monte Carlo approach.

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

These PSUs were weighted as approximately 35 % of the overall 2022 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average return on invested capital over the three-year period of fiscal years 2022-2024.

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

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.

4 unchanged sentences

The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $ 34.49 per share.

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

On January 4, 2022, the Compensation Committee approved a long-term incentive compensation arrangement for our executive officers in the form of time-based restricted shares and 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 $ 30.39 per share.

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

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”.

9 unchanged sentences

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

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

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

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

On January 2, 2020, the Compensation Committee determined the degree to which the long-term incentive compensation arrangement approved for the fiscal years 2017-2019 performance period was attained, and the resulting payout level relative to the target amount for each of the metrics that were established by the Compensation Committee in 2017.

As a result, the Compensation Committee determined that a total of 28,979 PSUs were earned by our executive officers, which PSUs vested on January 2, 2020.

The vesting date fair value of the PSUs was based on the closing sales price of our common stock on the vesting date, which was $ 37.79 per share.

On January 2, 2020, the Compensation Committee also approved a long-term incentive compensation arrangement for our executive officers in the form of restricted shares and PSUs under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested.

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

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

3 unchanged sentences

The grant date fair value of the restricted shares was based upon the closing sales price of our common stock on the date of grant, which was $ 28.60 per share.

On January 2, 2020, the Compensation Committee also granted a total target number of 26,918 PSUs to our executive officers designated as “PSU – TSR”.

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

These PSUs were weighted as approximately 40 % of the overall 2021 executive long-term incentive compensation arrangement and will vest and be paid based upon the total shareholder return of our common stock over the three-year period of fiscal years 2021-2023, relative to the total shareholder return of the companies in a specified peer group over that period.

6 unchanged sentences

On November 12, 2020, the Compensation Committee granted a total of 11,531 shares of time-based restricted stock to our non-executive employees.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains employed through that date.

The restricted shares vested in thirds over three years from the date of grant provided the recipient remained employed through that date.

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

51 unchanged sentences

Balance, end of period

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

The decrease in our warranty reserve from October 31, 2022 to October 31, 2023 was primarily due to a decrease in the number of machines under warranty from decreased sales volume in fiscal year 2023.

The decrease in our warranty reserve from October 31, 2021 to October 31, 2022 was primarily due to the impact of foreign currencies when translating foreign reserves to US.

dollars for financial reporting purposes.

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

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

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

2016-02, “Leases” (“ASC 842”) on November 1, 2019, the start of our 2020 fiscal year, and utilized the transition method allowed.

Accordingly, comparative period financial information was not adjusted for the effects of adopting ASC 842 and no cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date.

Upon adoption of ASC 842, we utilized the following elections and practical expedients:

● We elected to combine non-lease components with lease components.

● If at the lease commencement date, a lease has a lease term of 12 months or less and does not include a purchase option that is reasonably certain to be exercised, we have elected not to apply ASC 842 recognition requirements.

Nonetheless, we intend to include leases of less than 12 months within the updated footnote disclosures, if material.

● We elected not to use the portfolio method if we enter into a large number of leases in the same month with the same terms and conditions.

● As we have applied the new transition method allowed per ASU 2018-11, we have elected not to reassess arrangements entered into prior to November 1, 2019, for whether an arrangement is or contains a lease, the lease classification applied or to separate initial direct costs.

● We elected not to use hindsight in determining the lease term for lease contracts that have historically been renewed or amended.

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.

We record a right-of-use asset and lease liability on our Consolidated Balance Sheets for all leases for which we are a lessee, in accordance with ASC 842.

All our leases for which we are a lessee are classified as operating leases under the guidance in Topic 840.

We record a right-of-use asset and lease liability on our 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 for the fiscal years ended October 31, 2023, 2022, and 2021 of $ 5.2 million, $ 5.1 million, and $ 5.2 million, respectively, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Consolidated Statements of Operations.

1 unchanged sentence

There has been no cost to obtain leases capitalized on the Consolidated Balance Sheets as of October 31, 2023.

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

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for fiscal years 2023 and 2022 (in thousands):

Operating cash flow information:

12 unchanged sentences

Selling, general and administrative expenses

Operating income (loss)

Provision (benefit) for income taxes

Net income (loss)

Income (loss) per common share – basic

Income (loss) per common share – diluted

Operating income

Provision for income taxes

Income per common share – basic

Income per common share – diluted

2022 (In thousands, except per share data)

3 unchanged sentences

Operating income

Provision (benefit) for income taxes

Provision for income taxes

Income per common share – basic

35 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 was effective for our fiscal year 2022.

We adopted this standard on November 1, 2021.

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

In March 2020, FASB issued ASU No.

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 fiscal year ended October 31, 2022.

There have been no significant changes in the Company’s critical accounting policies and estimates during the fiscal year ended October 31, 2023.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data