What changed in this filing

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Item 1. Financial Statements

2024-03-08 compared with 2023-09-08 · 95 added, 163 removed, 375 unchanged (41% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

Sales and service fees

1 unchanged sentence

Selling, general and administrative expenses

Operating income

Operating (loss) income

Interest expense

Interest income

Investment income (loss), net

Other income (expense), net

Income before income taxes

Provision for income taxes

Income per common share

Investment income, net

Other (expense) income, net

(Loss) income before income taxes

(Benefit) provision for income taxes

Net (loss) income

(Loss) income per common share

Weighted average common shares outstanding

2 unchanged sentences

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Three Months Ended

Nine Months Ended

Other comprehensive income (loss):

Translation gain (loss) of foreign currency financial statements

Net (loss) income

Other comprehensive income:

Translation gain of foreign currency financial statements

(Gain) / loss on derivative instruments reclassified into operations, net of tax of $ 64 and $( 25 ), respectively

Gain / (loss) on derivative instruments, net of tax of $ 5 and $( 48 ), respectively

Total other comprehensive income (loss)

Comprehensive income (loss)

Total other comprehensive income

Comprehensive income

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

19 unchanged sentences

Deferred income taxes

Investments and other assets, net

Investments and other assets

Total non–current assets

22 unchanged sentences

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

6,553,673 and 6,645,352 shares issued and 6,462,138 and 6,566,994 shares outstanding, as of July 31, 2023 and October 31, 2022, respectively

6,613,595 and 6,553,673 shares issued and 6,506,033 and 6,462,138 shares outstanding, as of January 31, 2024 and October 31, 2023, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Nine Months Ended

Cash flows from operating activities:

Net (loss) income

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

1 unchanged sentence

Deferred income taxes

Equity in (income) loss of affiliates

Equity in loss (income) of affiliates

Foreign currency (gain) loss

17 unchanged sentences

Software development costs

Other investments

Net cash provided by (used for) investing activities

6 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

(In thousands, except shares outstanding)

Three Months Ended July 31, 2023 and 2022

Comprehensive

Income (Loss)

Balances, April 30, 2022

Net income (loss)

Other comprehensive income (loss)

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

Dividends paid

Balances, July 31, 2022

Balances, April 30, 2023

Net income (loss)

Other comprehensive income (loss)

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

Dividends paid

Balances, July 31, 2023

Nine Months Ended July 31, 2023 and 2022

Three Months Ended January 31, 2024 and 2023

Comprehensive

7 unchanged sentences

Dividends paid

Balances, July 31, 2022

Balances, January 31, 2023

Balances, October 31, 2023

2 unchanged sentences

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

Exercise of common stock options

Stock repurchases

Dividends paid

Balances, July 31, 2023

Balances, January 31, 2024

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

5 unchanged sentences

We design, manufacture, and sell computerized (i.e., Computer Numeric Control (“CNC”)) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service, and distribution network.

Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Although most of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.

We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training, and applications support.

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

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

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

We will continue to evaluate and disclose any uncertainty associated with key assumptions underlying fair value estimates, trends, and uncertainties that have had, or are reasonably expected to have, a material effect on our consolidated financial position, results of operations, changes in shareholders' equity, and cash flows for and at the end of each interim period.

The condensed consolidated financial information as of July 31, 2023 and for the three and nine months ended July 31, 2023 and July 31, 2022 is unaudited.

The condensed consolidated financial information as of January 31, 2024 and for the first three months ended January 31, 2024 and January 31, 2023 is unaudited.

However, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, results of operations, changes in shareholders’ equity and cash flows for and at the end of the interim periods.

17 unchanged sentences

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

For our five-axis machines that we install, we estimate the fair value of the installation performance obligation and recognize that installation revenue on a prorata basis over the period of the installation process.

For our five-axis machines and automation systems that we install, we estimate the fair value of the installation performance obligation and recognize that installation revenue over the period of the installation process.

From time to time, and depending upon geographic location, we may provide training or freight services.

We consider these services to be immaterial within the context of the contract, as the value of these services typically does not rise to a material level as a component of the total contract value.

Service fees from maintenance contracts are deferred and recognized in earnings on a prorata basis over the term of the contract and are generally sold on a stand-alone basis.

Service fees from maintenance contracts are deferred and recognized in earnings over the term of the contract and are generally sold on a stand-alone basis.

Customer discounts and estimated product returns are considered variable consideration and are recorded as a reduction of revenue in the same period that the related sales are recorded.

18 unchanged sentences

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

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

We had forward contracts outstanding as of January 31, 2024, denominated in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from February 2024 through January 2025.

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

dollars at July 31, 2023, were $ 11.6 million for Euros, $ 5.3 million for Pounds Sterling and $ 18.3 million for New Taiwan Dollars.

At July 31, 2023, we had approximately $ 1.4 million of loss, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss).

dollars at January 31, 2024, were $ 11.9 million for Euros, $ 5.7 million for Pounds Sterling, and $ 20.2 million for New Taiwan Dollars.

At January 31, 2024, we had an immaterial amount of gain, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss).

Included in this amount was $ 0.2 million of unrealized loss, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk.

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

The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through January 2025, when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above.

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

4 unchanged sentences

This forward contract matures in November 2024.

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

As of January 31, 2024, we had a realized gain of $ 1.2 million and an immaterial amount of unrealized loss, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss related to this forward contract.

Derivatives Not Designated as Hedging Instruments

We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on inter-company receivables, payables and loans denominated in foreign currencies.

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

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

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

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

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

dollars at July 31, 2023, totaled $ 53.6 million.

dollars at January 31, 2024, totaled $ 58.2 million.

Fair Value of Derivative Instruments

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

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

July 31, 2023

As of January 31, 2024 and October 31, 2023, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

January 31, 2024

October 31, 2023

16 unchanged sentences

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

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

Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity, and Condensed Consolidated Statements of Operations, net of tax, during the three months ended January 31, 2024 and 2023 (in thousands):

Location of Gain

19 unchanged sentences

– Net investment

We did no t recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended July 31, 2023 or 2022.

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

We did no t recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended January 31, 2024 or 2023.

We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the three months ended January 31, 2024 and 2023 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain

6 unchanged sentences

Foreign exchange forward contracts

Other income (expense), net

The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the three months ended July 31, 2023 (in thousands):

Other (expense) income, net

The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for the three months ended January 31, 2024 (in thousands):

Foreign Currency

Balance, April 30, 2023

Other comprehensive income (loss) before reclassifications

Reclassifications

Balance, July 31, 2023

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

Location of Gain

Amount of Gain

Amount of Gain (Loss)

(Loss) Reclassified

Recognized in Other

Comprehensive

Income (Loss)

Nine Months Ended

Designated as Hedging Instruments:

(Effective Portion)

Foreign exchange forward contracts

– Intercompany sales/purchases

Cost of sales and service

Foreign exchange forward contract

– Net investment

We did no t recognize any gains or losses as a result of hedges deemed ineffective for either of the nine months ended July 31, 2023 or 2022.

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

Location of Gain

(Loss) Recognized

Amount of Gain (Loss)

in Operations

Recognized in Operations

Nine Months Ended

Not Designated as Hedging Instruments:

Foreign exchange forward contracts

Other income (expense), net

The following table presents the changes in the components of Accumulated other comprehensive income (loss), net of tax, for the nine months ended July 31, 2023 (in thousands):

Balance, October 31, 2023

1 unchanged sentence

Reclassifications

Balance, July 31, 2023

Balance, January 31, 2024

EQUITY INCENTIVE PLAN

In March 2016, we adopted the Hurco Companies, Inc.

2016 Equity Incentive Plan (as amended as described below, the “2016 Equity Plan”), which allows us to grant awards of stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards.

2016 Equity Incentive Plan (as amended, the “2016 Equity Plan”), which allows us to grant awards of stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards.

The 2016 Equity Plan replaced the Hurco Companies, Inc.

1 unchanged sentence

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

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

The total number of shares of our common stock that may be issued pursuant to awards under the 2016 Equity Plan was initially 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.

We have previously granted stock options under the 2008 Equity Plan.

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

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

We previously granted stock options under the 2008 Equity Plan.

No stock options remained outstanding as of January 31, 2024.

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

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

Weighted Average

Stock Options

Exercise Price

Outstanding at October 31, 2022

Options granted

Options exercised

Options cancelled

Outstanding at July 31, 2023

As of July 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.

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

The grant date fair value of the restricted shares was based on the closing sales price of our common stock on the grant date, which was $ 27.86 per share.

On January 4, 2024, the Compensation Committee approved a long-term incentive compensation arrangement for our executive officers in the form of time-based restricted shares and performance stock units (“PSUs”) under the 2016 Equity Plan, which will be payable in shares of our common stock if earned and vested.

15 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 $ 19.78 per share.

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

A reconciliation of our restricted stock and PSU activity and related information for the three-month period ended January 31, 2024 is as follows:

Weighted Average Grant

6 unchanged sentences

Shares withheld

Unvested at July 31, 2023

During the nine months of fiscal 2023 and 2022, we recorded approximately $ 2.3 million and $ 2.4 million, respectively, of stock-based compensation expense, related to grants under the 2016 Equity Plan.

As of July 31, 2023, there was an estimated $ 4.5 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal year 2026.

Unvested at January 31, 2024

During the first three months of fiscal 2024 and 2023, we recorded approximately $ 0.6 million and $ 0.8 million, respectively, of stock-based compensation expense, related to grants under the 2016 Equity Plan.

As of January 31, 2024, there was an estimated $ 5.8 million of total unrecognized stock-based compensation cost that we expect to recognize by the end of the first quarter of fiscal year 2027.

EARNINGS PER SHARE

Per share results have been computed based on the average number of common shares outstanding over the period in question.

The computation of basic and diluted net income per share is determined using net income applicable to common shareholders as the numerator and the number of shares outstanding as the denominator as follows (in thousands, except per share amounts):

The computation of basic and diluted net income (loss) per share is determined using net income (loss) applicable to common shareholders as the numerator and the number of shares outstanding as the denominator as follows (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

Net (loss) income

Undistributed earnings allocated to participating shares

Net income applicable to common shareholders

Net (loss) income applicable to common shareholders

Weighted average shares outstanding

Stock options and contingently issuable securities

Income per share

(Loss) income per share

ACCOUNTS RECEIVABLE

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

Accounts receivable are net of provision for credit losses of $ 1.4 million and $ 1.5 million as of January 31, 2024 and October 31, 2023, respectively.

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

Purchased parts and sub–assemblies

Purchased parts and sub–assemblies, net

Work–in–process

Finished goods

Inventories, gross

Reserve for purchased parts and sub-assemblies

Inventories, net

6 unchanged sentences

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

We recorded total operating lease expense of $ 3.9 million and $ 3.8 million for the nine months ended July 31, 2023 and 2022, respectively, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

We recorded total operating lease expense of $ 1.3 million for each of the three months ended January 31, 2024 and 2023, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations.

Operating lease expense includes short-term leases and variable lease payments which are immaterial.

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

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the nine months ended July 31, 2023 and 2022 (in thousands):

Nine Months Ended

July 31, 2023

July 31, 2022

There have been no lease costs capitalized on the Condensed Consolidated Balance Sheets as of January 31, 2024.

The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for the three months ended January 31, 2024 and 2023 (in thousands):

Three Months Ended

January 31, 2024

January 31, 2023

Operating cash flow information:

2 unchanged sentences

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

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

The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of January 31, 2024 (in thousands):

Remainder of 2024

2 unchanged sentences

Present value of operating lease liabilities

As of July 31, 2023, the weighted-average remaining term of our lease portfolio was approximately 4.2 years and the weighted-average discount rate was approximately 2.9 %.

As of January 31, 2024, the weighted-average remaining term of our lease portfolio was approximately 4.2 years and the weighted-average discount rate was approximately 3.3 %.

SEGMENT INFORMATION

2 unchanged sentences

We design, manufacture, and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network.

Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Although most of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.

The following table sets forth sales and service fees by product group and services for the first fiscal quarter ended January 31, 2024 and 2023 (dollars in thousands):

Three months ended January 31,

Computerized Machine Tools

Computer Control Systems and Software †

Service Parts

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

GUARANTEES AND PRODUCT WARRANTIES

1 unchanged sentence

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

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

As of January 31, 2024, we had nine outstanding third party payment guarantees totaling approximately $ 1.0 million.

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

8 unchanged sentences

A reconciliation of the changes in our warranty reserve is as follows (in thousands):

Nine Months Ended

Three Months Ended

Balance, beginning of period

6 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.

14 unchanged sentences

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

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

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

As of July 31, 2023, there were no borrowings under any of our credit facilities and there was approximately $ 51.0 million of available borrowing capacity thereunder.

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 of January 31, 2024, our existing credit facilities consisted of a € 1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility, and the $ 40.0 million revolving credit facility under the 2018 Credit Agreement.

As of January 31, 2024, there were no borrowings under any of our credit facilities and there was approximately $ 51.0 million of available borrowing capacity thereunder.

There were also no borrowings under any of our credit facilities as of October 31, 2023.

Our provision for income taxes and effective tax rate is affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates, and other events that are not consistent from period to period, such as changes in income tax laws.

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

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

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

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

We recorded an income tax expense during the nine months of fiscal year 2023 of $ 1.3 million compared to an income tax expense of $ 3.0 million for the same period in 2022.

Our effective tax rate for the nine months of fiscal year 2023 was 40 %, compared to 31 % in the corresponding prior year period.

The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, discrete items related to stock compensation and the impact of valuation allowances for our China operations combined with lower levels of consolidated income before taxes.

Our unrecognized tax benefits were $ 179,000 as of July 31, 2023, and $ 171,000 as of October 31, 2022, and in each case included accrued interest.

We recorded an income tax benefit during the first three months of fiscal 2024 of $ 0.6 million compared to income tax expense of $ 0.6 million for the same period in 2023.

Our effective tax rate for the first three months of fiscal 2024 was 27 %, compared to 31 % in the corresponding prior year period.

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

Our unrecognized tax benefits were $ 0.2 million as of each of January 31, 2024 and October 31, 2023, and in each case included accrued interest.

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

As of July 31, 2023, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 41,000 , which did not include the federal tax benefit of interest deductions.

As of January 31, 2024, the gross amount of interest accrued, reported in Accrued expenses, was approximately $ 47,000 , which did not include the federal tax benefit of interest deductions.

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

The statutes of limitations with respect to unrecognized tax benefits will expire between August 2023 and September 2024.

The statutes of limitations with respect to unrecognized tax benefits will expire between August 2024 and August 2025.

FINANCIAL INSTRUMENTS

6 unchanged sentences

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

In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of July 31, 2023 and October 31, 2022 (in thousands):

July 31, 2023

In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of January 31, 2024 and October 31, 2023 (in thousands):

January 31, 2024

October 31, 2023

July 31, 2023

January 31, 2024

October 31, 2023

Deferred compensation

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

4 unchanged sentences

We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note 3 of Notes to the Condensed Consolidated Financial Statements.

dollar equivalent notional amounts of these contracts were $ 93.0 million and $ 102.8 million at July 31, 2023 and October 31, 2022, respectively.

dollar equivalent notional amounts of these contracts were $ 99.3 million and $ 97.8 million at January 31, 2024 and October 31, 2023, respectively.

The fair value of our foreign currency forward exchange contracts and the related currency positions are subject to offsetting market risk resulting from foreign currency exchange rate volatility.

8 unchanged sentences

NEW ACCOUNTING PRONOUNCEMENTS

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

New Accounting Pronouncements:

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to income tax disclosures, which aims to improve disclosures and presentation requirements to the transparency of the income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.

The amendments will be effective for our fiscal year 2026, with the option to early adopt at any time prior to the effective date.

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

There have been no other significant changes in the Company’s critical accounting policies and estimates during the three months ended January 31, 2024.

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

What changed 10-Q

Item 1. Financial Statements