HURCO COMPANIES INC 10-Q

Item 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Interest on borrowings under our bank credit agreements are tied to prevailing domestic and foreign interest rates. At January 31, 2024, we had no borrowings outstanding under any of our credit facilities. Foreign Currency Exchange Risk In the first three months of fiscal year 2024, we derived approximately 63% of our revenues from customers located outside of the Americas, where we invoiced and received payments in several foreign currencies. All of our computerized machine tools and computer control systems, as well as certain proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies. Our products are sourced from foreign suppliers or built to our specifications by either our wholly-owned subsidiaries in Taiwan, the U.S., Italy and China or an affiliated contract manufacturer in Taiwan. Our purchases are predominantly in foreign currencies and in some cases our arrangements with these suppliers include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency fluctuations on product costs. The predominant portion of the exchange rate risk associated with our product purchases relates to the New Taiwan Dollar and the Euro. We enter into foreign currency forward exchange contracts from time to time to hedge the cash flow risk related to forecasted inter-company sales and purchases denominated in, or based on, foreign currencies (primarily the Euro, Pound Sterling, and New Taiwan Dollar). 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. We do not speculate in the financial markets and, therefore, do not enter into these contracts for trading purposes. Forward contracts for the sale or purchase of foreign currencies as of January 31, 2024, which are designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging activities, were as follows (in thousands, except weighted average forward rates): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ Notional ​ Weighted ​ Forward Rates in ​ ​ ​ ​ Amount ​ Avg. ​ U.S. Dollars ​ ​ Forward in Foreign Forward Contract January 31, ​ ​ Contracts Currency Rate Date 2024 Maturity Dates Sale Contracts: ​ ​ Euro 10,900 ​ 1.0900 ​ 11,881 ​ 11,900 ​ Feb 2024 - Jan 2025 Sterling 4,450 ​ 1.2464 ​ 5,546 ​ 5,660 ​ Feb 2024 - Jan 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ New Taiwan Dollar 620,000 ​ 30.3653 * 20,418 ​ 20,250 ​ Feb 2024 - Jan 2025 * New Taiwan Dollars per U.S. dollar 24 Table of Contents Forward contracts for the sale or purchase of foreign currencies as of January 31, 2024, which were entered into to protect against the effects of foreign currency fluctuations on receivables and payables denominated in foreign currencies and are not designated as hedges under FASB guidance, were as follows (in thousands, except weighted average forward rates): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Amount at ​ ​ ​ ​ Notional ​ Weighted ​ Forward Rates in ​ ​ ​ ​ Amount ​ Avg. ​ U.S. Dollars ​ ​ Forward in Foreign Forward Contract January 31, ​ ​ Contracts Currency Rate Date 2024 Maturity Dates Sale Contracts: Euro 15,944 ​ 1.0965 ​ 17,482 ​ 17,335 ​ Feb 2024 - Oct 2024 Sterling 289 ​ 1.2645 ​ 365 ​ 367 ​ Feb 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ ​ ​ ​ ​ New Taiwan Dollar 1,256,226 ​ 31.1269 * 40,358 ​ 40,456 ​ Feb 2024 - Jun 2024 * New Taiwan Dollars per U.S. dollar We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we have maintained a forward contract with a notional amount of €3.0 million. We designated this forward contract as a hedge of our net investment in Euro-denominated assets. We selected the forward method under FASB guidance related to the accounting for derivative instruments and hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment in Accumulated other comprehensive income (loss), net of tax, in the same manner as the underlying hedged net assets. This forward contract matures in November 2024. 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 the hedging of our net investment in Euro-denominated assets. Forward contracts for the sale or purchase of foreign currencies as of January 31, 2024, which are designated as net investment hedges under this guidance were as follows (in thousands, except weighted average forward rates): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Notional ​ Weighted Contract Amount at Forward Rates in ​ ​ ​ ​ ​ Amount ​ Avg. ​ U.S. Dollars ​ ​ ​ Forward ​ in Foreign ​ Forward ​ Contract ​ January 31, ​ Maturity ​ Contracts Currency Rate Date 2024 Date Sale Contracts: Euro 3,000 1.0823 3,247 3,292 Nov 2024 ​ ​ ​