What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-01-10 compared with 2024-01-05 · 226 added, 217 removed, 632 unchanged (41% of the section changed)

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of Hurco Companies, Inc.

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

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

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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2023 and 2022, and the results of their operations and their cash flows for each of the years in the three-year period ended October 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective 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.

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and its subsidiaries (the "Company") as of October 31, 2024, the related consolidated statements of operations, comprehensive income (loss), cash flows, and changes in shareholders' equity for the period ended October 31, 2024, and the related notes and schedule listed in Item 15(a) (collectively referred to as the "financial statements").

We also have audited the Company's internal control over financial reporting as of October 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2024, and the results of its operations and its cash flows for the period ended October 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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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.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Income Taxes – Deferred Tax Assets and Liabilities

As described in Notes 1 and 6 to the consolidated financial statements, the Company accounts for income taxes under the asset and liability method.

The Company operates in both the U.S.

and international tax jurisdictions and has recorded deferred tax assets relating to deductible temporary differences, net operating losses and credit carryforwards of $11.8 million as of October 31, 2023, with an offsetting valuation allowance of $1.8 million.

The deferred tax assets are further reduced by $5.3 million deferred tax liabilities in tax jurisdictions to record net deferred tax assets of $4.7 million and net deferred tax liabilities of $83 thousand.

The Company reduces its deferred tax assets by a valuation allowance, if based upon all the available evidence, it is more likely than not that some portion, or all of the deferred tax asset will not be realized.

Management evaluated the ability to realize the carrying value of deferred tax assets and liabilities, which involved applying complex tax regulations in federal, state, local and international tax jurisdictions.

Management applied significant judgement in assessing the value of and realizability of its deferred tax assets and liabilities.

In determining the amount of deferred tax assets that are more-likely-than-not to be realized, management considers by jurisdiction all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, ability to utilize future carrybacks, tax planning strategies and recent financial operations.

We identified management’s evaluation of deferred tax assets and liabilities as well as the evaluation of the realizability of deferred tax assets, as a critical audit matter.

The evaluation of gross deferred tax assets and liabilities involves complex tax regulations involving multiple tax jurisdictions.

Assessing the realizability of deferred tax assets involves complexities of identifying and adhering to tax regulations in multiple jurisdictions, as well as the subjectivity of evaluating the realizability of the deferred tax assets.

Auditing these elements required a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the valuation allowance.

Our audit procedures related to the Company’s deferred tax assets and liabilities included the following, among others:

● We obtained an understanding of the relevant controls related to the Company’s computation and evaluation of the gross deferred tax assets and liabilities as well as valuation allowance and tested such controls for design and operating effectiveness.

● We utilized tax specialists in both domestic and international tax to assist in:

o Evaluating the appropriateness and accuracy of the deferred tax assets and liabilities by considering applicable tax law and underlying financial records;

o Testing the projected future reversal of temporary differences by jurisdiction, including the underlying management assumptions;

o Analyzing management’s application of domestic and foreign tax laws to the Company’s tax provisions;

and evaluating i) the viability of contemplated tax planning strategies, and ii) the Company’s assessment of its ability to carryback net operating losses and/or credits.

● We tested the completeness and accuracy of the data and inputs used to calculate the effective tax rate, current tax provision and deferred tax assets and liabilities.

/s/ RSM US LLP

We have served as the Company's auditor since 2017.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes — Realizability of Deferred Tax Assets — Refer to Notes 1 and 6 to the Financial Statements

Critical Audit Matter Description

The Company recognizes deferred income taxes for tax attributes and for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the deferred tax liability or asset is expected to be settled or realized.

A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Judgments related to the existence of sufficient taxable income and the realization of deferred tax assets include consideration of future profitability and market conditions, changes in U.S.

or foreign tax laws and other factors.

Management has determined that it is not more likely than not that sufficient taxable income will be generated in the future to realize its U.S.

deferred tax assets;

therefore, a valuation allowance of $8.3 million was recorded during the year ended October 31, 2024.

Given the determination of whether it is more likely than not that sufficient U.S.

taxable income will be generated in the future to realize deferred tax assets requires management to make significant judgments and estimates related to taxable income, performing audit procedures to evaluate the reasonableness of management’s estimates of taxable income required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of whether it is more likely than not that sufficient taxable income will be generated in the future to realize deferred tax assets included the following, among others:

We tested the effectiveness of controls over deferred tax assets, including management’s controls over whether it is more likely than not that the deferred tax assets will be realized.

We evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether it is more likely than not that sufficient taxable income will be generated in the future to utilize the net deferred tax assets and therefore whether a valuation allowance was necessary.

We evaluated the reasonableness of management's assessment of the significance and weighting of negative evidence and positive evidence that is objectively verifiable.

With the assistance of our income tax specialists, we evaluated (1) the appropriateness of qualifying tax planning strategies, including whether they were prudent, feasible and would more likely than not result in the realization of U.S.

deferred tax assets and (2) management's assessment of whether sufficient U.S.

taxable income will be generated in the future to realize a portion of the deferred tax assets prior to expiration.

We tested the valuation allowances recorded by testing the mathematical accuracy and management’s conclusions on the realizability of the deferred tax assets.

We tested the income tax provision by selecting a sample of permanent and temporary differences in the U.S., testing the calculation of the effective tax rate and resulting deferred tax assets and liabilities, while considering compliance with tax laws and regulations for those samples.

/s/ Deloitte & Touche LLP

Indianapolis, Indiana

January 10, 2025

We have served as the Company's auditor since 2024.

Report of Independent Registered Public Accounting Firm

To the Shareholders

and the Board of Directors

of Hurco Companies, Inc.

Opinion on the Consolidated Financial Statements

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

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

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2023, and the results of their operations and their cash flows for each of the two years in the period ended October 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinions

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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.

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

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinions.

/s/ RSM US LLP

Indianapolis, IN

January 5, 2024

We served as the Company’s auditor from 2017 to 2024.

HURCO COMPANIES, INC.

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Selling, general and administrative expenses

Operating income

Operating (loss) income

Interest expense

Interest income

Investment income

Investment income, net

Income from equity investments

Other expense, net

Income before income taxes

(Loss) income before income taxes

Provision for income taxes

Income per common share

Net (loss) income

(Loss) income per common share

Weighted average common shares outstanding

Dividends paid per share

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

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(In thousands)

Other comprehensive income (loss):

Translation gain (loss) of foreign currency financial statements

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

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

Total other comprehensive income (loss)

Comprehensive income (loss)

Net (loss) income

Other comprehensive (loss) income:

Translation (loss) gain of foreign currency financial statements

(Gain) / loss on derivative instruments reclassified into operations, net of tax (expense) / benefit of $ 401 , $( 146 ), $ 59 , respectively

Gain / (loss) on derivative instruments, net of tax expense / (benefit) of $( 218 ), $( 439 ), $( 119 ) respectively

Total other comprehensive (loss) income

Comprehensive (loss) income

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

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CONSOLIDATED BALANCE SHEETS

As of October 31,

(In thousands, except share

and per share data)

Current assets:

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Accounts receivable, net

Inventories, net

Derivative assets

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Intangible assets, net

Operating lease - right of use assets, net

Operating lease - right of use assets

Deferred income taxes

Investments and other assets, net

Investments and other assets

Total non–current assets

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Accounts payable

Accounts payable - related party

Customer deposits

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Total non–current liabilities

Commitment and contingencies

Shareholders’ equity:

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Cash flows from operating activities:

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

Net (loss) income

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

Provision for doubtful accounts

Deferred income taxes

Deferred income tax valuation allowance

Equity in (income) loss of affiliates

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Stock–based compensation

Change in assets and liabilities, net of acquisitions:

Change in assets and liabilities:

(Increase) decrease in accounts receivable

(Increase) decrease in inventories

(Increase) decrease in prepaid and other current assets

(Increase) decrease in prepaid and other assets

Increase (decrease) in accounts payable

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Increase (decrease) in accrued income tax

Increase (decrease) in accrued tax liability

Net change in deferred tax assets and liabilities

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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

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Supplemental disclosures:

Cash paid for (provided by):

Cash paid (received) for:

Income taxes, net

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands,

Comprehensive

(In thousands, except shares outstanding)

Balances, October 31, 2020

Other comprehensive income

Exercise of common stock options

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

Dividends paid

except shares outstanding)

Balances, October 31, 2021

Net income (loss)

Other comprehensive income (loss)

Exercise of common stock options

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

Exercise of common stock options

Stock repurchases

Dividends paid

Dividends paid ($ 0.59 per share)

Balances, October 31, 2022

Other comprehensive income

Net income (loss)

Other comprehensive income (loss)

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

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Stock repurchases, net of excise tax payable

Dividends paid

Dividends paid ($ 0.63 per share)

Balances, October 31, 2023

Net income (loss)

Other comprehensive income (loss)

Deferred income tax valuation allowances

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

Stock repurchases

Dividends paid ($ 0.32 per share)

Balances, October 31, 2024

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

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Inter-company accounts and transactions have been eliminated.

Reclassifications.

Certain prior year amounts have been reclassified to conform to the current year presentation.

This reclassification has no impact on previously reported net income or shareholders’ equity.

Statements of Cash Flows .

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The contract amount at forward rates in U.S.

dollars at October 31, 2023 for Euros and Pounds Sterling was $ 13.2 million and $ 5.0 million, respectively.

dollars as of October 31, 2024 for Euros and Pounds Sterling was $ 8.2 million and $ 4.4 million, respectively.

The contract amount at forward rates in U.S.

dollars for New Taiwan Dollars was $ 20.1 million at October 31, 2023.

At October 31, 2023, we had approximately $ 1.5 million of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

dollars for New Taiwan Dollars was $ 15.6 million as of October 31, 2024.

As of October 31, 2024, we had approximately $ 0.7 million of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss.

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

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This forward contract matured in November 2024 , and we entered into a new forward contract for the same notional amount that is set to mature in November 2025 .

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.

As of October 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

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The contract amounts at forward rates in U.S.

dollars at October 31, 2023 for Euros and Pounds Sterling totaled $ 17.9 million.

dollars as of October 31, 2024 for Euros and Pounds Sterling totaled $ 10.4 million.

The contract amount at forward rates in U.S.

dollars for New Taiwan Dollars was $ 35.7 million at October 31, 2023.

dollars for New Taiwan Dollars was $ 42.7 million as of October 31, 2024.

Fair Value of Derivative Instruments

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

October 31, 2024

October 31, 2023

Balance Sheet

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Foreign exchange forward contracts

Cost of sales

– Intercompany sales/purchases

Cost of sales and service

Foreign exchange forward contract

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Reclassifications

Deferred income tax valuation allowances

Balance, October 31, 2024

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If sales are direct or through sales agents, we will typically complete the machine installation, which consists of the reassembly of certain parts that were removed for shipping and the re-testing of the machine to ensure that it is performing within the standard specifications.

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 and automation systems 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.

We consider the machine installation process for our 3-axis machines to be inconsequential and immaterial within the context of the contract.

For our 5-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.

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

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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.

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.

We have reviewed the overall sales transactions for variable consideration and have determined that these amounts are not significant.

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

We have reviewed the overall sales transactions for variable consideration and have determined that these amounts are not material.

Allowance for Doubtful Accounts .

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Amortization expense for software development costs was $ 1.6 million, $ 1.6 million, and $ 1.3 million for the fiscal years ended October 31, 2024, 2023, and 2022, respectively.

Accumulated amortization at October 31, 2023 and 2022 was $ 25.3 million and $ 23.7 million, respectively.

Estimated amortization expense for the remaining unamortized software development costs for the fiscal years ending October 31, is as follows (in thousands):

The gross carrying amount as of October 31, 2024 and 2023 was $ 32.0 million and $ 32.3 million, respectively.

Accumulated amortization as of October 31, 2024 and 2023 was $ 24.9 million and $ 25.3 million, respectively.

Estimated amortization expense for the remaining unamortized software development costs, which includes projects still in progress, for the fiscal years ending October 31, is as follows (in thousands):

Amortization Expense

2029 and thereafter

Goodwill and Intangible Assets.

Goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time.

Instead, goodwill and indefinite-lived intangibles must be reviewed for impairment annually as of the last day of our third fiscal quarter, or more frequently, if circumstances arise indicating potential impairment.

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 no goodwill as of October 31, 2023.

Intangible Assets.

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.

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There were no impairments recognized with respect to the carrying value of intangible assets for the years ended October 31, 2024, 2023, or 2022.

As of October 31, 2023, the balances of intangible assets, other than goodwill, were as follows (in thousands):

As of October 31, 2024, the balances of intangible assets were as follows (in thousands):

Net Intangible

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Intangible asset amortization expense was $ 237,000 , $ 271,000 , and $ 272,000 for fiscal years 2024, 2023, and 2022, respectively.

Annual intangible asset amortization expense for the next five years is estimated to be $ 235,000 for fiscal year 2024, $ 141,000 for fiscal year 2025, $ 109,000 for fiscal year 2026, $ 45,000 for fiscal year 2027, and $ 45,000 for fiscal year 2028.

Annual intangible asset amortization expense for the next five years is estimated to be $ 143,000 for fiscal year 2025, $ 118,000 for fiscal year 2026, and $ 45,000 for each of fiscal years 202 7 through 2029.

Impairment of Long–Lived Assets.

Annually, or when there are indicators of impairment, we evaluate the carrying value of long–lived assets to be held and used, including property and equipment, software development costs, and intangible assets, including goodwill, when events or circumstances warrant such a review.

Annually, or when there are indicators of impairment, we evaluate the carrying value of long–lived assets to be held and used, including property and equipment, software development costs, and intangible assets, when events or circumstances warrant such a review.

The carrying value of a long-lived asset (or group of assets) to be held and used is considered impaired when the anticipated separately identifiable undiscounted cash flows from such an asset (or group of assets) are less than the carrying value of the asset (or group of assets).

We determined that we have a single asset group due to the interdependent nature of our operations.

We estimated the cash flows during the remaining useful life of the primary asset, and our undiscounted cash flow was in excess of the book value of our single asset group.

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

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.

Basic earnings per share is calculated by dividing net income (loss) by the weighted–average number of common shares actually outstanding during the period.

Diluted earnings per share assumes the issuance of additional shares of common stock upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method discussed in FASB guidance on “Earnings Per Share.”

The following table presents a reconciliation of our basic and diluted earnings per share computation:

There was no impairment recognized with respect to the carrying values of long-lived assets for the years ended October 31, 2024, 2023, or 2022.

Earnings (Loss) Per Share.

Basic earnings (loss) per share is calculated under the two class method by dividing net income (loss) by the weighted–average number of common shares actually outstanding during the period.

Diluted earnings (loss) per share assumes the issuance of additional shares of common stock upon exercise of all outstanding stock options and contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method.

The following table presents a reconciliation of our basic and diluted earnings (loss) per share computation:

Fiscal Year Ended October 31,

(in thousands, except per share amounts)

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

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

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Generally Accepted Accounting Principles requires us to make estimates and assumptions that affect the reported amounts presented and disclosed in our consolidated financial statements.

Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill, intangible and long–lived asset impairment tests, inventory reserves, product warranties, income taxes and deferred tax valuation allowances, capitalized software development costs, derivative instruments, stock compensation, and contingencies.

Significant estimates and assumptions in these consolidated financial statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with intangible and long–lived asset impairment tests, if applicable, inventory reserves, product warranties, income taxes and deferred tax valuation allowances, capitalized software development costs, derivative instruments, stock compensation, and contingencies.

Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

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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 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.

During fiscal years 2022 through 2024, there was 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.

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(“Milltronics”) produce the vast majority of our machine tools for all three brands, Hurco, Milltronics, and Takumi.

In addition, we manufacture electro–mechanical components and accessories for machine tools through our wholly–owned subsidiary, LCM.

In addition, we manufacture electro–mechanical components and accessories for machine tools through our wholly–owned subsidiary, LCM Precision Technology S.r.l.

HML, NHML, Milltronics, and LCM manufacture their products in Taiwan, China, the U.S., and Italy, respectively.

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Any interruption with one of our other third-party key suppliers may also have an adverse effect on our operating results and our financial condition.

Inventories as of October 31, 2023 and 2022 are summarized below (in thousands):

Inventories are summarized below (in thousands):

Purchased parts and sub–assemblies

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

As of October 31, 2024, there were no borrowings under any of our credit facilities and there was approximately $ 50.9 million of available borrowing capacity thereunder.

At October 31, 2024, we believe we were in compliance with all covenants relating thereto.

FINANCIAL INSTRUMENTS

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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, 2024 and 2023 (in thousands):

Deferred compensation

Recurring Fair Value Measurements

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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.

dollar equivalent notional amount of these contracts was $ 85.1 million and $ 97.8 million as of October 31, 2024 and 2023, respectively.

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

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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.

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 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 year 2021.

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

We currently do not expect that the Inflation Reduction Act will have a material impact on its income taxes.

The components of income (loss) before taxes are (in thousands):

Year Ended October 31,

Income (loss) before income taxes:

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

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Foreign taxes

The components of income (loss) before taxes are (in thousands):

Year Ended October 31,

Income (loss) before income taxes:

Valuation allowance

A comparison of income tax expense at the U.S.

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Valuation allowance

benefit of foreign intangible income

Impact of CARES act

US benefit of foreign intangible income

US tax on distributed and undistributed earnings

Stock-based compensation

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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, 2024, the undistributed earnings of our foreign subsidiaries are expected to be permanently reinvested and retained for continuing operations.

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Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements.

As of October 31, 2023, we had deferred tax assets established for accumulated net operating loss carryforwards of $ 2.2 million, primarily related to state and foreign jurisdictions.

Our effective tax rate for the fiscal year ended October 31, 2024 was ( 69 %) , compared to 35 % in the prior fiscal year.

Income tax expense for fiscal year 2024 was $ 6.8 million, compared to $ 2.4 million for fiscal year 2023.

The year-over-year increase in income tax expense for the fiscal year ended October 31, 2024 was primarily due to an $ 8.4 million non-cash valuation allowance on U.S.

and China deferred tax assets, changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, and discrete items related to unvested stock compensation.

As a result of a cumulative three-year loss in the U.S., we have an $ 8.3 million valuation allowance recorded against our U.S.

deferred tax assets, and we did not record a tax benefit for our U.S.

net losses for fiscal year ended October 31, 2024.

The valuation allowance recorded during fiscal year ended October 31, 2024 reflects a full valuation allowance of the U.S.

deferred tax assets and was recorded based on our conclusion that the deferred tax assets were not more likely than not going to be realized.

As of October 31, 2024, we had deferred tax assets established for accumulated net operating loss carryforwards of $ 6.1 million, primarily related to federal, state and foreign jurisdictions.

We also have deferred tax assets for tax credits of $ 0.9 million.

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

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):

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

As of October 31, 2024, and 2023, the balance of this valuation allowance was $ 9.2 million and $ 1.8 million, respectively.

Significant components of our deferred tax assets and liabilities as of October 31, 2024 and 2023 are as follows (in thousands):

Deferred Tax Assets:

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As of October 31, 2024, we had net operating loss carryforwards for international and U.S.

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.

We also had tax credits of $ 0.7 million which will expire between years 2024 and 2033 .

income tax purposes of $ 37.8 million.

federal net operating loss has an unlimited carryforward potential.

state net operating losses will either expire at various tax years from 2025 to 2044 or have unlimited carryforward potential.

Our foreign net operating losses will either expire at various tax years from 2025 to 2029 or have unlimited carryforward potential.

We also have tax credits of $ 0.9 million which will expire at various tax years from 2025 to 2044 .

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding the related accrual for interest or penalties, is as follows (in thousands):

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As of October 31, 2024, the amount of interest accrued, reported in other liabilities, was approximately $ 7,000 which did not include the federal tax benefit of interest deductions.

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

The statute of limitations with respect to unrecognized tax benefits will expire in August 2025 .

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

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 2014 through the current period

Fiscal year 2021 through the current period

Fiscal year 2022 through the current period

Fiscal year 2019 through the current period

United Kingdom

Fiscal 2017 through the current period

Fiscal 2018 through the current period

Fiscal 2022 through the current period

Fiscal year 2018 through the current period

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

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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.

Stock Options

A summary of the status of the stock options as of October 31, 2024, 2023, and 2022, and the related activity for the year is as follows:

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Balance October 31, 2024

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, 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.

The total intrinsic value of stock options exercised during the fiscal year ended October 31, 2024, 2023, and 2022, was approximately $ 0 , $ 0 , $ 9,000 , respectively.

Time-based Restricted Shares and Performance Stock Units

On March 14, 2024, March 9, 2023, and March 10, 2022, the Compensation Committee granted a total of 22,878 shares, 17,226 shares, and 13,914 shares of time-based restricted shares, respectively, to our non-employee directors, which 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 values of the restricted shares were based on the closing sales price of our common stock on the grant dates, which were $ 20.98 , $ 27.86 , and $ 34.49 per share, respectively.

On November 8, 2023, November 9, 2022, and November 10, 2021, the Compensation Committee granted a total of 16,673 shares, 12,223 shares, and 8,234 shares of time-based restricted shares, respectively, 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 grant date fair values of the restricted shares were based upon the closing sales price of our common stock on the dates of grant, which were $ 19.78 , $ 24.53 , and $$ 33.99 per shares, respectively.

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.

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The three-year performance period for the PSUs is fiscal year 2024 through fiscal year 2026.

On that date, the Compensation Committee granted a total of 29,376 shares of time-based restricted stock to our executive officers.

On that date, the Compensation Committee granted a total of 36,574 shares of time-based restricted shares to our executive officers.

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

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On January 4, 2024, the Compensation Committee also granted a total target number of 58,520 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.

These PSUs were weighted as approximately 40 % of the overall 2024 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 years 2024-2026.

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.

The grant date fair value of the PSUs – NI was based on the closing sales price of our common stock on the grant date, which was $ 21.53 per PSU.

On January 4, 2024, the Compensation Committee also granted a total target number of 51,205 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.

These PSUs were weighted as approximately 35 % of the overall 2024 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 years 2024-2026.

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 $ 21.53 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.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains 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 $ 24.53 per share.

On March 10, 2022, the Compensation Committee granted a total of 13,914 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 $ 34.49 per share.

On January 3, 2023, 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.

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The three-year performance period for the PSUs is fiscal year 2023 through fiscal year 2025.

On that date, the Compensation Committee granted a total of 23,442 shares of time-based restricted stock to our executive officers.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains 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 $ 30.39 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 November 10, 2021, the Compensation Committee granted a total of 8,234 shares of time-based restricted stock to our non-executive employees.

On that date, the Compensation Committee granted a total of 29,376 shares of time-based restricted shares to our executive officers.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains 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 $ 26.38 per share.

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 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 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 3, 2023, the Compensation Committee also granted a total target number of 47,003 PSUs to our executive officers designated as “PSU – NI”.

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”.

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 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.

1 unchanged sentence

The three-year performance period for the PSUs is fiscal year 2022 through fiscal year 2024.

On that date, the Compensation Committee granted a total of 23,164 shares of time-based restricted stock to our executive officers.

On that date, the Compensation Committee granted a total of 23,442 shares of time-based restricted shares to our executive officers.

The restricted shares vest in thirds over three years from the date of grant provided the recipient remains 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 $ 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”.

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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 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 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.

A reconciliation of our restricted stock and PSU activity and related information is as follows:

A reconciliation of our restricted shares and PSU activity and related information is as follows:

Number of Restricted

Weighted Average Grant

Number of Shares

Shares and PSUs

Date Fair Value

Unvested at October 31, 2022

Unvested as of October 31, 2023

Shares or units granted

2 unchanged sentences

Shares withheld

Unvested at October 31, 2023

Unvested as of October 31, 2024

During fiscal years 2024, 2023, and 2022, we recorded approximately $ 1.6 million, $ 2.7 million, and $ 2.7 million, respectively, of stock–based compensation expense related to grants under the 2016 Equity Plan.

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We are accounting for this investment using the equity method.

The investment of $ 5.1 million and $ 5.0 million at October 31, 2023 and 2022, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.

Purchases of controls from HAL amounted to $ 10.2 million, $ 10.5 million, and $ 8.7 million in fiscal years 2023, 2022, and 2021, respectively.

Sales of control component parts to HAL were $ 92,000 , $ 321,000 , and $ 262,000 for the fiscal years ended October 31, 2023, 2022, and 2021, respectively.

Trade payables to HAL were $ 1.1 million and $ 1.9 million at October 31, 2023 and 2022, respectively.

Trade receivables from HAL were $ 36,000 and $ 34,000 at October 31, 2023 and 2022, respectively.

Summary unaudited financial information for HAL’s operations and financial condition is as follows (in thousands):

The investment of $ 5.3 million and $ 5.1 million as of October 31, 2024 and 2023, respectively, is included in Investments and other assets, net on the Consolidated Balance Sheets.

Purchases of control systems and components from HAL amounted to $ 6.6 million, $ 10.2 million, and $ 10.5 million in fiscal years 2024, 2023, and 2022, respectively.

Sales of control component parts to HAL were less than $ 0.1 million, $ 0.1 million, and $ 0.3 million for the fiscal years ended October 31, 2024, 2023, and 2022, respectively.

Trade payables to HAL were $ 0.7 million and $ 1.1 million as of October 31, 2024 and 2023, respectively.

Trade receivables from HAL each were immaterial as of October 31, 2024 and 2023.

Summary financial information for HAL’s operations and financial condition is as follows (in thousands):

Operating Income

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A retention of title clause allows us to recover the machine if the customer defaults on the financing.

We accrue liabilities under these guarantees at fair value, which amounts are insignificant.

We accrue liabilities under these guarantees at fair value, which amounts are not material.

We provide warranties on our products with respect to defects in material and workmanship.

The terms of these warranties are generally one year for machines and shorter periods for service parts.

We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve.

The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience.

A reconciliation of the changes in our warranty reserve for each of the last three fiscal years is as follows (in thousands):

We recognize an estimated liability with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the estimated liability.

The amount of the warranty estimated liability is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience.

A reconciliation of the changes in our warranty estimated liability for each of the last three fiscal years is as follows (in thousands):

Balance, beginning of period

Provision for warranties during the period

Charges to the reserve

Charges to the estimated liability

Impact of foreign currency translation

Balance, end of period

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.

The decreases in our warranty estimated liability from October 31, 2023 to October 31, 2024 and from October 31, 2022 to October 31, 2023 were primarily due to decreases in the number of machines under warranty from decreased sales volume in fiscal years 2024 and 2023.

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 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, 2024, 2023, and 2022 of $ 5.4 million, $ 5.2 million, and $ 5.1 million, respectively, which is classified within Cost of sales and service and Selling, general and administrative expenses within the Consolidated Statements of Operations.

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Imputed interest

Present value of operating lease liabilities

Operating lease liabilities

As of October 31, 2024, the weighted-average remaining term of our lease portfolio was approximately 3.8 years, and the weighted-average discount rate was approximately 3.5 %.

QUARTERLY FINANCIAL INFORMATION (Unaudited)

2023 (In thousands, except per share data)

Sales and service fees

Gross profit margin

Selling, general and administrative expenses

Operating income

Provision for income taxes

Income per common share – basic

Income per common share – diluted

2022 (In thousands, except per share data)

Sales and service fees

Gross profit margin

Selling, general and administrative expenses

Operating income

Provision for income taxes

Income per common share – basic

Income per common share – diluted

SEGMENT INFORMATION

We operate in a single segment:

We operate in a single operating and reportable segment:

industrial automation equipment.

We design, manufacture, and sell computerized (i.e., Computer Numeric Control) 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.

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We also have our own direct sales and service organizations in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain areas of the United States, which are among the world's principal machine tool consuming countries.

During fiscal year 2023, no distributor accounted for more than 5% of our sales and service fees .

In fiscal year 2023, approximately 61 % of our revenues were from customers located outside of the Americas, and no single end-user of our products accounted for more than 5% of our total sales and service fees.

In fiscal year 2024, approximately 61 % of our revenues were from customers located outside of the Americas, and no single distributor or end-user of our products accounted for more than 5% of our total sales and service fees.

The following table sets forth the contribution of each of our product groups and services to our total sales and service fees during each of the past three fiscal years (in thousands):

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NEW ACCOUNTING PRONOUNCEMENTS

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

New Accounting Pronouncements:

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance.

This update will be effective for our fiscal year 2025 annual reporting and subsequent interim periods.

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

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.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires companies to disclose disaggregated information about any relevant expense caption presented on the face of the income statement within continuing operations into the following required natural expense categories, as applicable:

(1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion, and amortization (“DD&A”) recognized as part of oil- and gas-producing activities or other depletion expenses.

This update will be effective for our fiscal year 2028 annual reporting.

Early adoption is permitted.

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

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