HURCO COMPANIES INC 10-K

Item 7A. 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. As of October 31, 2024, we had no borrowings outstanding under any of our credit facilities. ​ Foreign Currency Exchange Risk In fiscal year 2024, we derived approximately 61% 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. ​ 43 ​ 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 October 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 October 31, ​ ​ Contracts Currency Rate Date 2024 Maturity Dates Sale Contracts: ​ ​ Euro 7,500 ​ 1.1037 ​ 8,278 ​ 8,201 ​ Nov 2024 - Oct 2025 Sterling 3,400 ​ 1.2830 ​ 4,362 ​ 4,374 ​ Nov 2024 - Oct 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ New Taiwan Dollar 490,000 ​ 30.7269 * 15,947 ​ 15,628 ​ Nov 2024 - Oct 2025 * New Taiwan Dollars per U.S. dollar ​ Forward contracts for the sale or purchase of foreign currencies as of October 31, 2024, which were entered into to protect against the effects of foreign currency fluctuations on inter-company receivables, payables, and loans and are not designated as hedges under this guidance denominated in foreign currencies, 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 October 31, ​ ​ Contracts Currency Rate Date 2024 Maturity Dates Sale Contracts: Euro 9,061 ​ 1.0913 ​ 9,888 ​ 9,859 ​ Nov 2024 - Feb 2025 Sterling 400 ​ 1.2916 ​ 517 ​ 515 ​ Nov 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase Contracts: ​ ​ ​ ​ ​ ​ ​ ​ ​ New Taiwan Dollar 1,352,500 ​ 31.5496 * 42,869 ​ 42,721 ​ Nov 2024 - Mar 2025 * New Taiwan Dollars per U.S. dollar ​ 44 ​ We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2023. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under the 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, net of tax, in Accumulated other comprehensive loss in the same manner as the underlying hedged net assets. 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, 2024, we had $1.2 million of realized gain and an immaterial amount of unrealized loss, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss, related to these forward contracts. ​ Forward contracts designated as net investment hedges under this guidance as of October 31, 2024, 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 ​ October 31, ​ Maturity ​ Contracts Currency Rate Date 2024 Date Sale Contracts: Euro 3,000 1.0823 3,247 3,258 Nov 2024 ​ ​ ​ ​ 45 ​