HURCO COMPANIES INC 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Hurco Companies, Inc. 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 these 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 the U.S. 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, and whether effective internal control over financial reporting was maintained in all material respects. ​ 46 ​ 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 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. ​ Definition and Limitations of Internal Control over Financial Reporting ​ A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. ​ Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 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. ​ ​ 47 ​ 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. 48 ​ 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. 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 the U.S. 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. ​ 49 ​ ​ HURCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ ​ 2024 2023 2022 ​ ​ (In thousands, except per share amounts) Sales and service fees ​ $ 186,584 ​ $ 227,807 ​ $ 250,814 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales and service ​ 148,841 ​ 171,639 ​ 186,336 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ 37,743 ​ 56,168 ​ 64,478 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses ​ 46,029 ​ 49,552 ​ 51,731 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating (loss) income ​ ( 8,286 ) ​ 6,616 ​ 12,747 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ 578 ​ 282 ​ 27 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 621 ​ 369 ​ 79 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment income, net ​ 80 ​ 61 ​ 174 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from equity investments ​ 292 ​ 494 ​ 733 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other expense, net ​ 1,979 ​ 504 ​ 1,828 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Loss) income before income taxes ​ ( 9,850 ) ​ ​ 6,754 ​ ​ 11,878 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for income taxes ​ 6,758 ​ 2,365 ​ 3,652 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 16,608 ) ​ $ 4,389 ​ $ 8,226 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Loss) income per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ ( 2.56 ) ​ ​ 0.67 ​ ​ 1.24 Diluted ​ ​ ( 2.56 ) ​ ​ 0.66 ​ ​ 1.23 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 6,489 ​ ​ 6,499 ​ ​ 6,580 Diluted ​ ​ 6,489 ​ ​ 6,528 ​ ​ 6,632 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of the consolidated financial statements. 50 ​ HURCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ 2024 2023 2022 ​ ​ (In thousands) Net (loss) income ​ $ ( 16,608 ) ​ $ 4,389 ​ $ 8,226 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Translation (loss) gain of foreign currency financial statements ​ 3,474 ​ 3,274 ​ ( 19,591 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Gain) / loss on derivative instruments reclassified into operations, net of tax (expense) / benefit of $ 401 , $( 146 ), $ 59 , respectively ​ 1,339 ​ ( 488 ) ​ 191 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain / (loss) on derivative instruments, net of tax expense / (benefit) of $( 218 ), $( 439 ), $( 119 ) respectively ​ ( 727 ) ​ ( 1,465 ) ​ ( 384 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total other comprehensive (loss) income ​ 4,086 ​ 1,321 ​ ( 19,784 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive (loss) income ​ $ ( 12,522 ) ​ $ 5,710 ​ $ ( 11,558 ) ​ The accompanying notes are an integral part of the consolidated financial statements. ​ 51 ​ HURCO COMPANIES, INC. CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 31, ​ October 31, ​ ​ 2024 2023 ASSETS ​ ​ ​ ​ ​ Current assets: ​ ​ ​ Cash and cash equivalents ​ $ 33,330 ​ $ 41,784 ​ Accounts receivable, net ​ 36,678 ​ 39,965 ​ Inventories ​ 153,037 ​ 157,952 ​ Derivative assets ​ 323 ​ 740 ​ Prepaid and other assets ​ 5,209 ​ 7,789 ​ Total current assets ​ 228,577 ​ 248,230 ​ Property and equipment: ​ ​ ​ ​ ​ Land ​ 1,046 ​ 1,046 ​ Building ​ 7,381 ​ 7,387 ​ Machinery and equipment ​ 28,106 ​ 26,779 ​ Leasehold improvements ​ 4,667 ​ 4,473 ​ ​ ​ 41,200 ​ 39,685 ​ Less accumulated depreciation and amortization ​ ( 32,404 ) ​ ( 30,826 ) ​ Total property and equipment, net ​ 8,796 ​ 8,859 ​ Non–current assets: ​ ​ ​ ​ ​ Software development costs, less accumulated amortization ​ 7,044 ​ 7,030 ​ Intangible assets, net ​ 763 ​ 994 ​ Operating lease - right of use assets ​ ​ 11,313 ​ ​ 10,971 ​ Deferred income taxes ​ 1,349 ​ 4,749 ​ Investments and other assets ​ 10,801 ​ 9,756 ​ Total non–current assets ​ 31,270 ​ 33,500 ​ Total assets ​ $ 268,643 ​ $ 290,589 ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ Accounts payable ​ $ 24,951 ​ $ 29,661 ​ Customer deposits ​ ​ 4,308 ​ ​ 2,827 ​ Derivative liabilities ​ ​ 705 ​ ​ 1,821 ​ Operating lease liabilities ​ ​ 3,829 ​ ​ 3,712 ​ Accrued payroll and employee benefits ​ 7,786 ​ 9,853 ​ Accrued income taxes ​ 866 ​ 1,713 ​ Accrued expenses ​ 4,258 ​ 4,092 ​ Accrued warranty expenses ​ 1,086 ​ 1,294 ​ Total current liabilities ​ 47,789 ​ 54,973 ​ Non–current liabilities: ​ ​ ​ ​ ​ Deferred income taxes ​ 53 ​ 83 ​ Accrued tax liability ​ ​ 537 ​ ​ 1,293 ​ Operating lease liabilities ​ ​ 7,852 ​ ​ 7,606 ​ Deferred credits and other ​ 5,240 ​ 4,403 ​ Total non–current liabilities ​ 13,682 ​ 13,385 ​ Commitment and contingencies ​ — ​ ​ — ​ Shareholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock: no par value per share, 1,000,000 shares authorized; no shares issued ​ — ​ — ​ Common stock: no par value, $ .10 stated value per share, 12,500,000 shares authorized; 6,548,838 and 6,553,673 shares issued and 6,435,624 and 6,462,138 shares outstanding, as of October 31, 2024 and October 31, 2023, respectively ​ 644 ​ 646 ​ Additional paid-in capital ​ 61,500 ​ 61,665 ​ Retained earnings ​ 161,422 ​ 180,124 ​ Accumulated other comprehensive loss ​ ( 16,394 ) ​ ( 20,204 ) ​ Total shareholders’ equity ​ 207,172 ​ 222,231 ​ Total liabilities and shareholders’ equity ​ $ 268,643 ​ $ 290,589 ​ ​ The accompanying notes are an integral part of the consolidated financial statements. ​ ​ 52 ​ HURCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ 2024 2023 2022 ​ ​ (In thousands) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 16,608 ) ​ $ 4,389 ​ $ 8,226 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: ​ ​ ​ ​ ​ ​ ​ ​ Provision for doubtful accounts ​ ( 36 ) ​ ​ 32 ​ ​ ( 159 ) Deferred income taxes ​ ( 4,283 ) ​ ​ ( 120 ) ​ ​ ( 1,043 ) Deferred income tax valuation allowance ​ ​ 8,590 ​ ​ 141 ​ ​ 412 Equity in (income) loss of affiliates ​ ( 292 ) ​ ​ ( 494 ) ​ ​ ( 733 ) Foreign currency (gain) loss ​ ​ ( 426 ) ​ ​ ( 2,551 ) ​ ​ 1,393 Unrealized (gain) loss on derivatives ​ ( 96 ) ​ ​ ( 754 ) ​ ​ 727 Depreciation and amortization ​ 3,532 ​ ​ 4,093 ​ ​ 3,918 Stock–based compensation ​ 1,648 ​ ​ 2,699 ​ ​ 2,686 Change in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ (Increase) decrease in accounts receivable ​ 3,996 ​ ​ ( 84 ) ​ ​ 280 (Increase) decrease in inventories ​ 8,383 ​ ​ ( 648 ) ​ ​ ( 24,440 ) (Increase) decrease in prepaid and other assets ​ 1,236 ​ ​ ( 805 ) ​ ​ 7,022 Increase (decrease) in accounts payable ​ ( 5,266 ) ​ ​ ( 11,767 ) ​ ​ ( 2,278 ) Increase (decrease) in customer deposits ​ 1,392 ​ ​ ( 2,179 ) ​ ​ ( 3,056 ) Increase (decrease) in accrued expenses ​ ( 97 ) ​ ​ ( 1,978 ) ​ ​ 1,018 Increase (decrease) in accrued payroll and employee benefits ​ ​ ( 2,067 ) ​ ​ ( 901 ) ​ ​ 362 Increase (decrease) in accrued income tax ​ ​ ( 885 ) ​ ​ ( 985 ) ​ ​ 1,698 Increase (decrease) in accrued tax liability ​ ​ ( 756 ) ​ ​ 11 ​ ​ ( 467 ) Net change in deferred tax assets and liabilities ​ ​ 481 ​ ​ ( 1,277 ) ​ ​ ( 25 ) Net change in derivative assets and liabilities ​ ( 445 ) ​ ​ 885 ​ ​ 264 Other ​ ( 520 ) ​ ​ ( 528 ) ​ ​ 229 Net cash provided by (used for) operating activities ​ ( 2,519 ) ​ ​ ( 12,821 ) ​ ​ ( 3,966 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from sale of property and equipment ​ 18 ​ ​ 407 ​ ​ 101 Purchase of property and equipment ​ ( 1,241 ) ​ ​ ( 1,286 ) ​ ​ ( 1,107 ) Software development costs ​ ( 1,635 ) ​ ​ ( 1,291 ) ​ ​ ( 1,086 ) Other investments ​ ​ 119 ​ ​ 273 ​ ​ — Net cash provided by (used for) investing activities ​ ( 2,739 ) ​ ​ ( 1,897 ) ​ ​ ( 2,092 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from exercise of common stock options ​ ​ — ​ ​ 270 ​ ​ 117 Dividends paid ​ ( 2,094 ) ​ ​ ( 4,142 ) ​ ​ ( 3,923 ) Taxes paid related to net settlement of restricted shares ​ ( 315 ) ​ ​ ( 313 ) ​ ​ ( 207 ) Stock repurchases ​ ​ ( 1,500 ) ​ ​ ( 4,609 ) ​ ​ ( 2,890 ) Excise tax payable related to stock repurchases ​ ​ — ​ ​ ( 28 ) ​ ​ — Net cash provided by (used for) financing activities ​ ( 3,909 ) ​ ​ ( 8,822 ) ​ ​ ( 6,903 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash and cash equivalents ​ 713 ​ ​ 1,402 ​ ​ ( 7,180 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Net decrease in cash and cash equivalents ​ ( 8,454 ) ​ ​ ( 22,138 ) ​ ​ ( 20,141 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents at beginning of period ​ 41,784 ​ ​ 63,922 ​ ​ 84,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents at end of period ​ $ 33,330 ​ $ 41,784 ​ $ 63,922 ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures: ​ ​ ​ ​ ​ ​ ​ ​ Cash paid (received) for: ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ $ — ​ $ — ​ $ — Income taxes, net ​ $ 3,018 ​ $ 4,336 ​ $ ( 1,628 ) ​ The accompanying notes are an integral part of the consolidated financial statements. 53 ​ HURCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Stock ​ Common ​ Additional ​ ​ ​ ​ Other ​ ​ ​ (In thousands, ​ Shares ​ Stock ​ Paid–In ​ Retained ​ Comprehensive ​ ​ ​ except shares outstanding) Outstanding Amount Capital Earnings Loss Total Balances, October 31, 2021 ​ 6,617,717 ​ $ 662 ​ $ 63,924 ​ $ 175,574 ​ $ ( 1,741 ) ​ $ 238,419 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ — ​ ​ — ​ ​ — ​ ​ 8,226 ​ — ​ ​ 8,226 Other comprehensive income (loss) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ( 19,784 ) ​ ​ ( 19,784 ) Stock–based compensation expense, net of taxes withheld for vested restricted shares ​ 33,761 ​ ​ 3 ​ ​ 2,476 ​ ​ — ​ — ​ ​ 2,479 Exercise of common stock options ​ 5,437 ​ ​ 1 ​ ​ 116 ​ ​ — ​ ​ — ​ ​ 117 Stock repurchases ​ ( 89,921 ) ​ ​ ( 9 ) ​ ​ ( 2,881 ) ​ ​ — ​ ​ — ​ ​ ( 2,890 ) Dividends paid ($ 0.59 per share) ​ — ​ ​ — ​ ​ — ​ ​ ( 3,923 ) ​ — ​ ​ ( 3,923 ) Balances, October 31, 2022 ​ 6,566,994 ​ $ 657 ​ $ 63,635 ​ $ 179,877 ​ $ ( 21,525 ) ​ $ 222,644 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ — ​ ​ — ​ ​ — ​ ​ 4,389 ​ — ​ ​ 4,389 Other comprehensive income (loss) ​ — ​ ​ — ​ ​ — ​ ​ — ​ 1,321 ​ ​ 1,321 Stock–based compensation expense, net of taxes withheld for vested restricted shares ​ 49,874 ​ ​ 5 ​ ​ 2,381 ​ ​ — ​ — ​ ​ 2,386 Exercise of common stock options ​ 11,559 ​ ​ 1 ​ ​ 269 ​ ​ — ​ ​ — ​ ​ 270 Stock repurchases, net of excise tax payable ​ ( 166,289 ) ​ ​ ( 17 ) ​ ​ ( 4,620 ) ​ ​ — ​ ​ — ​ ​ ( 4,637 ) Dividends paid ($ 0.63 per share) ​ — ​ ​ — ​ ​ — ​ ​ ( 4,142 ) ​ — ​ ​ ( 4,142 ) Balances, October 31, 2023 ​ 6,462,138 ​ $ 646 ​ $ 61,665 ​ $ 180,124 ​ $ ( 20,204 ) ​ $ 222,231 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ — ​ ​ — ​ ​ — ​ ​ ( 16,608 ) ​ — ​ ​ ( 16,608 ) Other comprehensive income (loss) ​ — ​ ​ — ​ ​ — ​ ​ — ​ 4,086 ​ ​ 4,086 Deferred income tax valuation allowances ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 276 ) ​ ​ ( 276 ) Stock-based compensation expense, net of taxes withheld for vested restricted shares ​ 61,121 ​ ​ 6 ​ ​ 1,327 ​ ​ — ​ — ​ ​ 1,333 Stock repurchases ​ ( 87,635 ) ​ ​ ( 8 ) ​ ​ ( 1,492 ) ​ ​ — ​ ​ — ​ ​ ( 1,500 ) Dividends paid ($ 0.32 per share) ​ — ​ ​ — ​ ​ — ​ ​ ( 2,094 ) ​ — ​ ​ ( 2,094 ) Balances, October 31, 2024 ​ 6,435,624 ​ $ 644 ​ $ 61,500 ​ $ 161,422 ​ $ ( 16,394 ) ​ $ 207,172 ​ The accompanying notes are an integral part of the consolidated financial statements. ​ ​ 54 ​ ​ HURCO COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ​ Consolidation . The consolidated financial statements include the accounts of Hurco Companies, Inc. (an Indiana corporation) and its wholly–owned subsidiaries (“we”, “us”, “our”, “Hurco” or the “Company”). We have a 35 % ownership interest in a Taiwan affiliate that is accounted for using the equity method. Our investment in that affiliate was approximately $ 5.3 million and $ 5.1 million as of October 31, 2024 and 2023, respectively. That investment is included in Investments and other assets, net on the accompanying Consolidated Balance Sheets. Inter-company accounts and transactions have been eliminated. ​ Statements of Cash Flows . We consider all highly liquid investments with a stated maturity at the date of purchase of three months or less to be cash equivalents. Cash flows from hedges are classified consistent with the items being hedged. ​ Translation of Foreign Currencies . All balance sheet accounts of non–U.S. subsidiaries are translated at the exchange rate as of the end of the year and translation adjustments of foreign currency balance sheets are recorded as a component of Accumulated other comprehensive loss in shareholders’ equity. Income and expenses are translated at the average exchange rates during the year. Cumulative foreign currency translation adjustments, net of gains related to our net investment hedges, as of October 31, 2024, were a net loss of $14.5 million, net of tax, and are included in Accumulated other comprehensive loss. Foreign currency transaction gains and losses are recorded as income or expense as incurred and are recorded in Other expense, net. ​ Hedging. We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk. ​ We operate on a global basis and are exposed to the risk that our financial condition, results of operations, and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, and the gross profit and net earnings of certain of our foreign subsidiaries, we enter into derivative financial instruments in the form of foreign exchange forward contracts with a major financial institution. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Pounds Sterling, Indian Rupee, Singapore Dollars, Chinese Yuan, Polish Zloty, and New Taiwan Dollars. ​ We account for derivative instruments as either assets or liabilities and carry them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Accumulated other comprehensive loss in shareholders’ equity and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. ​ 55 ​ ​ For derivative instruments that are not designated as accounting hedges under the Derivatives and Hedging Topic of the Financial Accounting Standards Board (the “FASB”), changes in fair value are recognized in earnings in the period of change. We do not hold or issue derivative financial instruments for speculative trading purposes. We only enter into derivatives with one counterparty, which is among one of the largest U.S. banks (ranked by assets), in order to minimize credit risk and, to date, that counterparty has not failed to meet its financial obligations under such contracts. ​ Derivatives Designated as Hedging Instruments ​ We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter–company sales and purchases denominated in foreign currencies (the Pound Sterling, Euro, and New Taiwan Dollar). The purpose of these instruments is to mitigate the risk that the U.S. dollar net cash inflows and outflows resulting from sales and purchases denominated in foreign currencies will be adversely affected by changes in exchange rates. These forward contracts have been designated as cash flow hedge instruments, and are recorded in the Consolidated Balance Sheets at fair value in Derivative assets and Derivative liabilities. The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts is deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S. dollar value of the inter–company sale or purchase being hedged. The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is immediately reported in Other expense, net. We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining that forecasted transactions have not changed significantly. 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 October 31, 2024, in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from November 2024 through October 2025 . The contract amount at forward rates in U.S. 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 $ 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. The majority of these deferred losses will be recorded as an adjustment to Cost of sales and service in periods through October 2025, in which the corresponding inventory that is the subject of the related hedge contract is sold, as described above. ​ We are exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. 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 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 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. 56 ​ ​ Derivatives Not Designated as Hedging Instruments ​ We enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on inter-company receivables and payables 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 as Other expense, net in the Consolidated Statements of Operations consistent with the transaction gain or loss on the related inter-company receivables, payables and loans denominated in foreign currencies. ​ We had forward contracts outstanding as of October 31, 2024, in Euros, Pounds Sterling, and New Taiwan Dollars with set maturity dates ranging from November 2024 through March 2025 . The contract amounts at forward rates in U.S. 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 $ 42.7 million as of October 31, 2024. ​ Fair Value of Derivative Instruments ​ We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Consolidated Balance Sheets. As of October 31, 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 ​ Fair ​ Balance Sheet ​ Fair ​ Derivatives Location Value Location Value Designated as Hedging Instruments: ​ ​ ​ ​ ​ ​ ​ Foreign exchange forward contracts ​ Derivative assets ​ $ 165 ​ Derivative assets ​ $ 363 ​ Foreign exchange forward contracts ​ Derivative liabilities ​ $ 430 ​ Derivative liabilities ​ $ 1,232 ​ ​ ​ ​ ​ ​ ​ ​ ​ Not Designated as Hedging Instruments: ​ ​ ​ ​ ​ ​ ​ ​ Foreign exchange forward contracts ​ Derivative assets ​ $ 158 ​ Derivative assets ​ $ 377 ​ Foreign exchange forward contracts ​ Derivative liabilities ​ $ 275 ​ Derivative liabilities ​ $ 589 ​ ​ Effect of Derivative Instruments on the Consolidated Balance Sheets, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Operations Derivative instruments had the following effects on our Consolidated Balance Sheets, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Operations, net of tax, during the fiscal years ended October 31, 2024, 2023, and 2022 (in thousands): ​ 57 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Location of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of Gain (Loss) ​ Gain (Loss) ​ Amount of Gain (Loss) ​ ​ Recognized in ​ Reclassified ​ Reclassified from ​ ​ Other Comprehensive ​ From Other ​ Other Comprehensive ​ ​ Income (Loss) ​ Comprehensive ​ Income (Loss) Derivatives 2024 2023 2022 Income (Loss) 2024 2023 2022 Designated as Hedging Instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Effective Portion) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign exchange forward contracts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales ​ ​ ​ ​ ​ ​ ​ ​ ​ – Intercompany sales/purchases ​ ​ ( 727 ) ​ ​ ( 1,465 ) ​ ​ ( 384 ) ​ and service ​ ​ ( 1,339 ) ​ ​ 488 ​ ​ ( 191 ) Foreign exchange forward contract ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ – Net investment ​ ​ ( 29 ) ​ ​ ( 99 ) ​ ​ 401 ​ ​ ​ We did no t recognize any gains or losses as a result of hedges deemed ineffective during fiscal years ended October 31, 2024, 2023, and 2022. We recognized the following gains and losses in our Consolidated Statements of Operations during the fiscal years ended October 31, 2024, 2023, and 2022 on derivative instruments not designated as hedging instruments (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of Gain (Loss) ​ ​ Location of Gain (Loss) ​ Recognized in Operations Derivatives Recognized in Operations 2024 2023 2022 Not Designated as Hedging Instruments: ​ ​ ​ ​ Foreign exchange forward contracts Other expense, net ​ $ ( 1,751 ) $ ( 3,112 ) ​ $ 2,374 ​ The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for the fiscal years ended October 31, 2024 and 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign ​ Cash ​ ​ ​ ​ ​ Currency ​ Flow ​ ​ ​ ​ Translation Hedges Total Balance, October 31, 2022 ​ $ ( 21,259 ) $ ( 266 ) ​ $ ( 21,525 ) Other comprehensive income (loss) before reclassifications ​ 3,274 ​ ( 1,465 ) ​ 1,809 Reclassifications ​ — ​ ( 488 ) ​ ( 488 ) Balance, October 31, 2023 ​ $ ( 17,985 ) $ ( 2,219 ) ​ $ ( 20,204 ) Other comprehensive income (loss) before reclassifications ​ 3,474 ​ ( 727 ) ​ 2,747 Reclassifications ​ — ​ 1,339 ​ 1,339 Deferred income tax valuation allowances ​ — ​ ( 276 ) ​ ( 276 ) Balance, October 31, 2024 ​ $ ( 14,511 ) $ ( 1,883 ) ​ $ ( 16,394 ) ​ Inventories . Inventories are stated at the lower of cost or net realizable value, with cost determined using the first–in, first–out method. Provisions are made to reduce excess or obsolete inventories to their estimated realizable value. 58 ​ ​ Property and Equipment . Property and equipment are carried at cost. Depreciation and amortization of assets are provided primarily under the straight–line method over the shorter of the estimated useful lives or the lease terms as follows: ​ ​ ​ ​ ​ Number of Years Land Indefinite Building 40 Machines 7 – 10 Shop and office equipment 3 – 7 Building & leasehold improvements 3 – 40 ​ Total depreciation and amortization expense recognized for property and equipment was $ 1.7 million for fiscal year 2024, $ 2.3 million for fiscal year 2023, and $ 2.3 million for fiscal year 2022. Revenue Recognition. We design, manufacture, and sell computerized machine tools. 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 recognize revenues from the sale of machine tools, components and accessories and services, and reflect the consideration to which we expect to be entitled. We record revenues based on a five-step model in accordance with FASB guidance codified in Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”). In accordance with ASC 606, we have defined contracts as agreements with our customers and distributors in the form of purchase orders, packing or shipping documents, invoices, and, periodically, verbal requests for components and accessories. For each contract, we identify our performance obligations, which are delivering goods or services, determine the transaction price, allocate the contract transaction price to each of the performance obligations (when applicable), and recognize the revenue when (or as) the performance obligation to the customer is fulfilled. A good or service is transferred when the customer obtains control of that good or service. Our computerized machine tools are general purpose computer-controlled machine tools that are typically used in stand–alone operations. Prior to shipment, we test each machine to ensure the machine’s compliance with standard operating specifications. We deem that the customer obtains control upon delivery of the product and that obtaining control is not contingent upon contractual customer acceptance. Therefore, we recognize revenue from sales of our machine tool systems upon delivery of the product to the customer or distributor, which is normally at the time of shipment. Depending upon geographic location, after shipment, a machine may be installed at the customer’s facility by a distributor, independent contractor, or by one of our service technicians. In most instances where a machine is sold through a distributor, we have no installation involvement. 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 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. ​ 59 ​ ​ 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. 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 . The allowance for doubtful accounts is based on our best estimate of probable credit issues and historical experience. We perform credit evaluations of the financial condition of our customers. No collateral is required for sales made on open account terms. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion across many geographic areas. We consider trade accounts receivable to be past due when payment is not made by the due date as specified on the customer invoice, and we charge off uncollectible balances when all reasonable collection efforts have been exhausted. Product Warranty . Expected future product warranty claims are recorded to expense when the product is sold. Product warranty estimates are established using historical information about the nature, frequency, and average cost of warranty claims. Warranty claims are influenced by factors such as new product introductions, technological developments, the competitive environment, and the costs of component parts. Actual payments for warranty claims could differ from the amounts estimated, requiring adjustments to the liabilities in future periods. See Note 11 of these Notes to Consolidated Financial Statements for further discussion of warranties. Research and Development Costs. The costs associated with research and development programs for new products and significant product improvements, other than software development costs, which are eligible for capitalization per FASB guidance, are expensed as incurred and are included in Selling, general, and administrative expenses. Research and development expenses totaled $ 3.9 million, $ 4.2 million, and $ 3.4 million, in fiscal years 2024, 2023, and 2022, respectively. Software Development Costs. We sell software products that are essential to our machine tools. Costs incurred to develop computer software products and significant enhancements to software features of existing products to be sold or otherwise marketed are capitalized, after technological feasibility is established. Software development costs are amortized on a straight–line basis over the estimated product life of the related software, which ranges from three to five years . We capitalized costs related to software development projects of $ 1.6 million in fiscal year 2024, $ 1.3 million in fiscal year 2023, and $ 1.1 million in fiscal year 2022. 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. 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. 60 ​ ​ 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): ​ ​ ​ ​ ​ Fiscal Year Amortization Expense 2025 $ 1,065 2026 ​ 931 2027 ​ 1,302 2028 ​ 1,151 2029 and thereafter ​ 2,594 ​ 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. Intangible assets that are determined to have a finite life are amortized over their estimated useful lives and are also subject to review for impairment if indicators of impairment are identified. 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, 2024, the balances of intangible assets were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Amortization ​ Intangible ​ Accumulated ​ Net Intangible ​ Period Assets Amortization Assets Tradenames and trademarks indefinite ​ $ 177 $ — ​ $ 177 Tradenames and trademarks 14 years ​ 749 ​ ( 381 ) ​ 368 Customer relationships 15 years ​ 371 ​ ( 286 ) ​ 85 Technology 13 years ​ 666 ​ ( 581 ) ​ 85 Noncompete ​ 5 years ​ ​ 580 ​ ​ ( 580 ) ​ ​ — Patents 6 years ​ 2,973 ​ ( 2,933 ) ​ 40 Other 8 years ​ 393 ​ ( 385 ) ​ 8 Total ​ ​ $ 5,909 $ ( 5,146 ) ​ $ 763 ​ As of October 31, 2023, the balances of intangible assets, other than goodwill, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Amortization ​ Intangible ​ Accumulated ​ Net Intangible ​ Period Assets Amortization Assets Tradenames and trademarks indefinite ​ $ 177 $ — ​ $ 177 Tradenames and trademarks 14 years ​ 742 ​ ( 324 ) ​ 418 Customer relationships 15 years ​ 369 ​ ( 270 ) ​ 99 Technology 13 years ​ 647 ​ ( 514 ) ​ 133 Noncompete ​ 5 years ​ ​ 580 ​ ​ ( 493 ) ​ ​ 87 Patents 6 years ​ 2,973 ​ ( 2,909 ) ​ 64 Other 8 years ​ 392 ​ ( 376 ) ​ 16 Total ​ ​ $ 5,880 $ ( 4,886 ) ​ $ 994 ​ ​ ​ 61 ​ ​ 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 $ 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, 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). 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, ​ 2024 ​ 2023 ​ 2022 ​ Basic Diluted Basic Diluted Basic Diluted Net (loss) income $ ( 16,608 ) ​ $ ( 16,608 ) ​ $ 4,389 ​ $ 4,389 ​ $ 8,226 ​ $ 8,226 Undistributed earnings allocated to participating shares — ​ — ​ ( 61 ) ​ ( 61 ) ​ ( 97 ) ​ ( 97 ) Net (loss) income applicable to common shareholders $ ( 16,608 ) ​ $ ( 16,608 ) ​ $ 4,328 ​ $ 4,328 ​ $ 8,129 ​ $ 8,129 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding 6,489 ​ 6,489 ​ 6,499 ​ 6,499 ​ 6,580 ​ 6,580 Stock options and contingently issuable securities — ​ — ​ — ​ ​ 29 ​ — ​ 52 ​ 6,489 ​ 6,489 ​ 6,499 ​ 6,528 ​ 6,580 ​ 6,632 (Loss) income per share $ ( 2.56 ) ​ $ ( 2.56 ) ​ $ 0.67 ​ $ 0.66 ​ $ 1.24 ​ $ 1.23 ​ Income Taxes – We account for income taxes and the related accounts under the asset and liability method. Deferred tax assets and liabilities are measured using enacted income tax rates in each jurisdiction in effect for the year in which the temporary differences are expected to be recovered or settled. These deferred tax assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements. Our judgment regarding the realization of deferred tax assets may change due to future profitability and market conditions, changes in U.S. or foreign tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income in the period when such determinations are made. 62 ​ ​ The determination of our provision for income taxes requires judgment, the use of estimates, and the interpretation and application of complex federal, state and foreign tax laws. Our provision for income taxes reflects a combination of income earned and taxed at the federal and state level in the U.S., as well as in various foreign jurisdictions. In addition to the risks to the effective tax rate described above, the future effective tax rate reflected in forward–looking statements is based on currently effective tax laws. Significant changes in those laws could materially affect these estimates. We operate in multiple jurisdictions through wholly-owned subsidiaries, and our global structure is complex. The estimates of our uncertain tax positions involve judgments and assessment of the potential tax implications. We recognize uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Our tax positions are subject to audit by taxing authorities across multiple global jurisdictions, and the resolution of such audits may span multiple years. Tax law is complex and often subject to varied interpretations. Accordingly, the ultimate outcome with respect to taxes we may owe may differ from the amounts recognized. Stock Compensation. We account for share–based compensation according to FASB guidance relating to share-based payments, which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors based on estimated fair values on the grant date. This guidance requires that we estimate the fair value of share-based awards on the date of grant and recognize as expense the value of the portion of the award that is ultimately expected to vest over the requisite service period. Estimates. The preparation of financial statements in conformity with U.S. 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 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. ​ 2. BUSINESS OPERATIONS Nature of Business . We design, manufacture, and sell computerized CNC machine tools, computer control systems and software products, 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, to companies in the metal cutting industry through a worldwide sales, service, and distribution network. The machine tool industry is highly cyclical and changes in demand can occur abruptly in the geographic markets we serve. As a result of this cyclicality, we have experienced significant fluctuations in our sales, which, in periods of reduced demand, have adversely affected our results of operations and financial condition. 63 ​ ​ The end market for our products consists primarily of precision tool, die and mold manufacturers, independent job shops, and specialized short–run production applications within large manufacturing operations. Industries served include: aerospace, defense, medical equipment, energy, automotive/transportation, electronics, and computer industries. Our products are sold principally through approximately 180 independent agents and distributors throughout the Americas, Europe and Asia. 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. 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 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. Because of the potential for extended vulnerability due to these and other factors, we have closely evaluated the estimates we have made in preparing the financial statements as of October 31, 2024, 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. ​ Credit Risk . We sell products to customers located throughout the world. We perform ongoing credit evaluations of customers and generally do not require collateral. Allowances are maintained for potential credit losses. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across many geographic areas. Although a significant amount of trade receivables are with distributors primarily located in the United States, no single distributor or region represents a significant concentration of credit risk. Manufacturing Risk. At present, our wholly–owned subsidiaries, Hurco Manufacturing Limited (“HML”), Ningbo Hurco Machine Tool Co., Ltd. (“NHML”), and Milltronics USA, Inc. (“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 Precision Technology S.r.l. (“LCM”). HML, NHML, Milltronics, and LCM manufacture their products in Taiwan, China, the U.S., and Italy, respectively. Any interruption in manufacturing at any of these locations would have an adverse effect on our financial operating results. Interruption in manufacturing at one of these locations could result from a change in the political environment, such as conflicts or wars; trade wars, blockages, embargoes, or tariffs; or a natural disaster, such as an earthquake, typhoon, or tsunami. 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. ​ 3. INVENTORIES Inventories are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ October 31, October 31, ​ ​ 2024 ​ 2023 ​ Purchased parts and sub–assemblies ​ $ 35,385 $ 37,161 ​ Work–in–process ​ 13,428 ​ 16,217 ​ Finished goods ​ 104,224 ​ 104,574 ​ Inventories ​ $ 153,037 $ 157,952 ​ ​ 64 ​ ​ Finished goods inventory consigned to our distributors and agents throughout the Americas, Europe, and Asia was $ 10.3 million and $ 9.6 million as of October 31, 2024 and 2023, respectively. ​ 4. CREDIT AGREEMENTS AND BORROWINGS ​ 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, 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. The 2018 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $ 10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V. at any one time may not exceed $ 20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $ 20.0 million. Under the 2018 Credit Agreement, we and Hurco B.V. are borrowers, and certain of our other subsidiaries are guarantors. The scheduled maturity date of the 2018 Credit Agreement is December 31, 2025 . ​ Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00 % per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50 % , (b) the prime rate or (c) the one month SOFR-based rate plus 1.00 % ), plus 0.00 % per annum. Outstanding letters of credit will carry an annual rate of 1.00 % . ​ The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $ 10.0 million); (2) restricting us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not less than $ 10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $ 25.0 million; (3) requiring that we maintain a minimum working capital of $ 125.0 million; and (4) requiring that we maintain a minimum tangible net worth of $ 176.5 million. We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes. ​ In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China, NHML, closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New Taiwan Dollars and 32.5 million Chinese Yuan, respectively. 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 and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits. ​ As a result, as of October 31, 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. 65 ​ ​ 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. ​ 5. FINANCIAL INSTRUMENTS Estimated Fair Value of Financial Instruments FASB fair value guidance establishes a three–tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The carrying amounts for cash and cash equivalents approximate their fair values due to the short maturity of these instruments, and such instruments meet the Level 1 criteria of the three–tier fair value hierarchy discussed above. The carrying amount of short-term debt approximates fair value due to the variable rate of interest and the short-term nature of the instrument. In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of October 31, 2024 and 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets ​ Liabilities ​ ​ October 31, ​ October 31, ​ October 31, ​ October 31, ​ 2024 2023 2024 2023 Level 1 ​ ​ ​ ​ ​ ​ ​ Mutual Funds ​ $ 2,942 $ 2,217 $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 2 ​ ​ Derivatives ​ $ 323 $ 740 $ 705 ​ $ 1,821 ​ Recurring Fair Value Measurements Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan. We estimate the fair value of these investments on a recurring basis using market prices that are readily available. Included as Level 2 fair value measurements are derivative assets and liabilities related to gains and losses on foreign currency forward exchange contracts entered into with a third party. We estimate the fair value of these derivatives on a recurring basis using foreign currency exchange rates obtained from active markets. Derivative instruments are reported in the accompanying consolidated financial statements at fair value. We have derivative financial instruments in the form of foreign currency forward exchange contracts as described in Note 1 of Notes to Consolidated Financial Statements. The U.S. dollar equivalent notional amount of these contracts was $ 85.1 million and $ 97.8 million as of October 31, 2024 and 2023, respectively. ​ 66 ​ ​ 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. The counterparty to the forward exchange contract is a substantial and creditworthy financial institution. We do not consider either the risk of counterparty non–performance or the economic consequences of counterparty non–performance to be material risks. ​ 6 . INCOME TAXES We utilize the asset and liability method of accounting for income taxes. Under this method, the provision (benefit) for income taxes represents income taxes payable or refundable for the current year plus the change in deferred taxes during the year. ​ 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. 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, ​ 2024 2023 2022 Income (loss) before income taxes: ​ ​ ​ Domestic ​ $ ( 15,024 ) $ ( 3,259 ) $ ( 232 ) Foreign ​ 5,174 10,013 12,110 ​ ​ $ ( 9,850 ) $ 6,754 $ 11,878 ​ In the fiscal years set forth below, the provision (benefit) for income taxes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ 2024 2023 2022 Current: ​ ​ ​ ​ U.S. taxes ​ $ 647 $ ( 431 ) $ 1,092 Foreign taxes ​ 1,804 ​ 2,775 ​ 3,191 ​ ​ 2,451 ​ 2,344 ​ 4,283 Deferred: ​ ​ ​ ​ ​ ​ U.S. taxes ​ ( 3,765 ) ​ 167 ​ ( 839 ) Foreign taxes ​ ( 518 ) ​ ( 287 ) ​ ( 204 ) ​ ​ ( 4,283 ) ​ ( 120 ) ​ ( 1,043 ) Valuation allowance ​ ​ 8,590 ​ ​ 141 ​ ​ 412 ​ ​ $ 6,758 $ 2,365 $ 3,652 ​ ​ ​ ​ 67 ​ ​ A comparison of income tax expense at the U.S. statutory rate to our effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ 2024 ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ U.S. statutory rate ​ 21 % ​ 21 % 21 % Effect of tax rate of international jurisdictions different than U.S. statutory rates ​ ( 4 ) % ​ 6 % 4 % Valuation allowance ​ ( 87 ) % ​ 2 % 3 % State taxes ​ 4 % ​ ( 1 ) % 1 % Tax credits ​ — % ​ — % 1 % US benefit of foreign intangible income ​ ​ — % ​ ​ — % ​ ( 3 ) % US tax on distributed and undistributed earnings ​ ​ ( 2 ) % ​ ​ — % ​ — % Stock-based compensation ​ ​ ( 3 ) % ​ ​ 6 % ​ 4 % Other ​ 2 % ​ 1 % — % Effective tax rate ​ ( 69 ) % ​ 35 % 31 % ​ The Tax Reform Act enacted on December 22, 2017, made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. As a result, cash repatriated to the U.S. 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. Accordingly, we did not accrue any withholding taxes on the undistributed earnings of our foreign subsidiaries, consistent with the position adopted on January 1, 2018. ​ Deferred income taxes are determined based on the difference between the amounts used for financial reporting purposes and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Net deferred tax assets and liabilities are classified as non-current in the consolidated financial statements. ​ 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 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. ​ 68 ​ ​ Significant components of our deferred tax assets and liabilities as of October 31, 2024 and 2023 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ October 31, ​ 2024 2023 Deferred Tax Assets: ​ ​ Accrued inventory reserves ​ $ 1,605 $ 1,580 Accrued warranty expenses ​ 191 ​ 241 Compensation related expenses ​ 1,800 ​ 2,222 Net derivative gain ​ ​ 500 ​ ​ 683 Unrealized exchange gain ​ 58 ​ — Other accrued expenses ​ 351 ​ 344 Net operating loss carryforwards ​ 6,115 ​ 2,249 Other credit carryforwards ​ 948 ​ 712 Operating lease liabilities ​ ​ 2,924 ​ ​ 2,818 Goodwill and intangibles ​ ​ 750 ​ ​ 798 Other ​ 118 ​ 131 ​ ​ 15,360 ​ 11,778 Less: Valuation allowance – net operating loss and other credit carryforwards ​ ( 9,203 ) ​ ( 1,810 ) Deferred tax assets ​ 6,157 ​ 9,968 ​ ​ ​ ​ ​ Deferred Tax Liabilities: ​ ​ ​ ​ Unrealized exchange loss ​ — ​ ( 159 ) Property and equipment and capitalized software development costs ​ ( 1,525 ) ​ ( 1,915 ) Operating lease - right of use assets ​ ​ ( 2,837 ) ​ ​ ( 2,731 ) Other ​ ( 499 ) ​ ( 497 ) Net deferred tax assets ​ $ 1,296 $ 4,666 ​ As of October 31, 2024, we had net operating loss carryforwards for international and U.S. income tax purposes of $ 37.8 million. Our U.S. federal net operating loss has an unlimited carryforward potential. Our U.S. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 2022 Balance, beginning of year ​ $ 138 $ 138 $ 167 Additions based on tax positions related to the current year ​ — ​ — ​ 21 Additions (reductions) related to prior year tax positions ​ — ​ — ​ — Reductions due to statute expiration ​ ( 117 ) ​ — ​ ( 50 ) Balance, end of year ​ $ 21 $ 138 $ 138 ​ The entire balance of the unrecognized tax benefits and related interest on October 31, 2024, if recognized, could affect the effective tax rate in future periods. ​ 69 ​ ​ We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. 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 in August 2025 . ​ We file U.S. federal and state income tax returns, as well as tax returns in applicable foreign jurisdictions. ​ A summary of open tax years by major jurisdiction is presented below: ​ ​ ​ ​ United States federal ​ Fiscal year 2021 through the current period Germany¹ ​ Fiscal year 2022 through the current period Taiwan ​ Fiscal year 2019 through the current period United Kingdom ​ Fiscal year 2018 through the current period ¹ Includes federal as well as state, provincial or similar local jurisdictions, as applicable. ​ 7. EMPLOYEE BENEFITS We have defined contribution plans that include a majority of our U.S. employees, under which our matching contributions are primarily discretionary. The purpose of these plans is generally to provide additional financial security during retirement by providing employees with an incentive to save throughout their employment. Our contributions and related expense totaled $ 1.2 million, $ 1.4 million, and $ 1.3 million, for the fiscal years ended October 31, 2024, 2023, and 2022, respectively. ​ 8 . STOCK–BASED COMPENSATION ​ In March 2016, we adopted the Hurco Companies, Inc. 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. 2008 Equity Incentive Plan (the “2008 Equity Plan”) and is the only active plan under which equity awards may be made by us to our employees and non–employee directors. No further awards will be made under our 2008 Equity Plan. The total number of shares of our common stock that may be issued pursuant to awards under the 2016 Equity Plan initially was 856,048 , which included 386,048 shares that remained available for future grants under the 2008 Equity Plan 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. 2016 Equity Incentive Plan, which, among other items, increased the aggregate number of shares that may be issued under the 2016 Equity Plan by 850,000 shares. ​ The Compensation Committee of our Board of Directors has the authority to determine the officers, directors and key employees who will be granted awards under the 2016 Equity Plan; designate the number of shares subject to each award; determine the terms and conditions upon which awards will be granted; 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 previously granted stock options under the 2008 Equity Plan; none of which remained outstanding as of October 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. 70 ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares Under ​ Weighted Average Grant ​ Option Date Fair Value Balance October 31, 2021 16,996 ​ $ 22.71 Granted — ​ — Cancelled — ​ — Expired — ​ — Exercised ( 5,437 ) ​ $ 21.45 Balance October 31, 2022 11,559 ​ $ 23.30 Granted — ​ — Cancelled — ​ — Expired — ​ — Exercised ( 11,559 ) ​ ​ 23.30 Balance October 31, 2023 — ​ $ — Granted — ​ — Cancelled — ​ — Expired — ​ — Exercised — ​ ​ — Balance October 31, 2024 — ​ $ — ​ 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. The awards were approximately 25 % time-based vesting and approximately 75 % performance-based vesting. The three-year performance period for the PSUs is fiscal year 2024 through fiscal year 2026. 71 ​ ​ 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. 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 $ 21.53 per share. 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 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 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 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 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. The awards were approximately 25 % time-based vesting and approximately 75 % performance-based vesting. 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 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 January 3, 2023, the Compensation Committee also granted a total target number of 47,003 PSUs to our executive officers designated as “PSU – NI”. These PSUs were weighted as approximately 40 % of the overall 2023 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average net income over the three-year period of fiscal years 2023-2025. Participants will have the ability to earn between 50 % of the target number of the PSUs – NI for achieving threshold performance and 200 % of the target number of the PSUs – NI for achieving maximum performance. The grant date fair value of the PSUs – NI was based on the closing sales price of our common stock on grant date, which was $ 26.38 per PSU. 72 ​ ​ On January 3, 2023, the Compensation Committee also granted a total target number of 41,126 PSUs to our executive officers designated as “PSU –FCF”. These PSUs were weighted as approximately 35 % of the overall 2023 executive long-term incentive compensation arrangement and will vest and be paid based upon the achievement of pre-established goals related to our average free cash flow over the three-year period of fiscal years 2023-2025. Participants will have the ability to earn between 50 % of the target number of the PSUs – FCF for achieving threshold performance and 200 % of the target number of the PSUs – FCF for achieving maximum performance. The grant date fair value of the PSUs – FCF was based on the closing sales price of our common stock on the grant date, which was $ 26.38 per PSU. On 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. The awards were approximately 25 % time-based vesting and approximately 75 % performance-based vesting. 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 23,442 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 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. A reconciliation of our restricted shares and PSU activity and related information is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Restricted ​ Weighted Average Grant ​ Shares and PSUs Date Fair Value Unvested as of October 31, 2023 318,317 ​ $ 28.27 Shares or units granted 185,850 ​ ​ 21.31 Shares or units vested ( 61,121 ) ​ ​ 27.90 Shares or units cancelled ( 50,375 ) ​ ​ 27.97 Shares withheld ( 14,579 ) ​ ​ 27.77 Unvested as of October 31, 2024 378,092 ​ $ 24.97 ​ 73 ​ ​ 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. As of October 31, 2024, there was an estimated $ 2.2 million of total unrecognized stock–based compensation cost that we expect to recognize by the end of the first quarter of fiscal year 2027. ​ 9. RELATED PARTY TRANSACTIONS ​ As of October 31, 2024, we owned approximately 35 % of the outstanding shares of a Taiwanese–based contract manufacturer, Hurco Automation, Ltd. (“HAL”). HAL’s scope of activities includes the design, manufacture, sales, and distribution of industrial automation products, software systems, and related components, including control systems and components produced under contract for sale exclusively to us. We are accounting for this investment using the equity method. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 2022 Net Sales ​ $ 10,065 $ 13,025 $ 14,171 Gross Profit ​ 1,915 ​ 2,224 ​ 2,397 Operating Income ​ 749 ​ 1,025 ​ 1,053 Net Income ​ 1,060 ​ 2,007 ​ 2,528 ​ ​ ​ ​ Current Assets ​ $ 13,101 $ 13,669 $ 15,018 Non–current Assets ​ 8,389 ​ 7,115 ​ 6,430 Current Liabilities ​ 3,000 ​ 3,385 ​ 4,998 Non-current Liabilities ​ ​ 2,509 ​ ​ 2,027 ​ ​ 1,619 ​ ​ 10. CONTINGENCIES AND LITIGATION From time to time, we are involved in various claims and lawsuits arising in the normal course of business. Pursuant to applicable accounting rules, we accrue the minimum liability for each known claim when the estimated outcome is a range of possible loss and no one amount within that range is more likely than another. We maintain insurance policies for such matters, and we record insurance recoveries when we determine such recovery to be probable. We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations. We believe that the ultimate resolution of claims for any losses will not exceed our insurance policy coverages. ​ 74 ​ ​ 11. GUARANTEES AND PRODUCT WARRANTIES ​ From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in ASC 460). As of October 31, 2024, we had nine outstanding third party payment guarantees totaling approximately $ 0.9 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer assumes the risk of ownership. The customer does not obtain title, however, until it has paid for the machine. 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 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 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ 2022 Balance, beginning of period ​ $ 1,294 $ 1,426 $ 1,516 Provision for warranties during the period ​ 2,296 ​ 2,629 ​ 2,915 Charges to the estimated liability ​ ( 2,527 ) ​ ( 2,792 ) ​ ( 2,877 ) Impact of foreign currency translation ​ 23 ​ 31 ​ ( 128 ) Balance, end of period ​ $ 1,086 $ 1,294 $ 1,426 ​ 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. ​ 12. LEASES ​ 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. Most of the leased production and assembly facilities have lease terms ranging from two to five years , although the terms and conditions of our leases can vary significantly from lease to lease. We have assessed the specific terms and conditions of each lease to determine the amount of the lease payments and the length of the lease term, which includes the minimum period over which lease payments are required plus any renewal options that are both within our control to exercise and reasonably certain of being exercised upon lease commencement. In determining whether or not a renewal option is reasonably certain of being exercised, we assessed all relevant factors to determine if sufficient incentives exist as of lease commencement to conclude renewal is reasonably certain. There are no material residual value guarantees provided by us, nor any restrictions or covenants imposed by the leases to which we are a party. In determining the lease liability, we utilize our incremental borrowing rate to discount the future lease payments over the lease term to present value. ​ 75 ​ ​ 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 leases under ASC 842. ​ 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. Operating lease expense includes short-term leases and variable lease payments, which are immaterial. There has been no cost to obtain leases capitalized on the Consolidated Balance Sheets as of October 31, 2024. ​ The following table summarizes supplemental cash flow information and non-cash activity related to operating leases for fiscal years 2024 and 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ ​ 2023 ​ ​ 2022 Operating cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ $ 4,950 ​ $ 4,770 ​ $ 4,457 Noncash information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Right-of-use assets obtained in exchange for new operating lease liabilities ​ $ 4,929 ​ $ 7,485 ​ $ 3,577 ​ The following table summarizes the maturities of undiscounted cash flows of lease commitments reconciled to the total lease liability as of October 31, 2024 (in thousands): ​ ​ ​ ​ ​ 2025 $ 4,219 2026 3,113 2027 2,362 2028 1,788 2029 ​ ​ 531 2030 and thereafter 573 Total 12,586 Less: Imputed interest ​ ​ ( 905 ) Operating lease liabilities ​ $ 11,681 ​ 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 %. ​ ​ 13. SEGMENT INFORMATION 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 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. 76 ​ ​ We principally sell our products through approximately 180 independent agents and distributors throughout the Americas, Europe, and Asia. Our line is the primary line for the majority of our distributors globally, even though some may carry competitive products. 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. 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): Net Sales and Service Fees by Product Category ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ ​ 2024 2023 2022 Computerized Machine Tools $ 147,561 $ 188,335 $ 211,804 Computer Control Systems and Software † ​ 2,447 2,805 2,634 Service Parts ​ 27,628 28,439 28,219 Service Fees ​ 8,948 8,228 8,157 Total ​ $ 186,584 $ 227,807 $ 250,814 † Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine systems. ​ The following table sets forth revenues by geographic area, based on customer location, for each of the past three fiscal years (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended October 31, ​ 2024 2023 2022 United States of America ​ $ 70,342 $ 83,747 $ 92,050 Canada ​ 1,701 ​ 3,827 ​ 3,996 Central & South Americas ​ 1,255 ​ 1,839 ​ 1,279 Total Americas ​ 73,298 ​ 89,413 ​ 97,325 ​ ​ ​ ​ ​ ​ ​ Germany ​ 28,139 ​ 30,468 ​ 42,026 United Kingdom ​ 26,668 ​ 29,704 ​ 26,629 Italy ​ 9,894 ​ 15,554 ​ 16,499 France ​ 12,917 ​ 11,851 ​ 14,291 Other Europe ​ 13,299 ​ 28,204 ​ 24,437 Total Europe ​ 90,917 ​ 115,781 ​ 123,882 ​ ​ ​ ​ ​ ​ ​ China ​ 6,545 ​ 7,529 ​ 10,293 India ​ 9,077 ​ 6,016 ​ 6,578 Other Asia Pacific ​ 5,704 ​ 7,858 ​ 11,975 Total Asia Pacific ​ 21,326 ​ 21,403 ​ 28,846 ​ ​ ​ ​ ​ ​ ​ Other Foreign ​ 1,043 ​ 1,210 ​ 761 Grand Total ​ $ 186,584 $ 227,807 $ 250,814 ​ 77 ​ ​ Long–lived tangible assets, net by geographic area, were (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of October 31, ​ 2024 2023 2022 United States of America ​ $ 9,510 $ 7,072 $ 5,628 Foreign countries ​ 13,025 ​ 4,034 ​ 4,941 ​ ​ $ 22,535 $ 11,106 $ 10,569 ​ Net assets by geographic area were (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of October 31, ​ 2024 2023 2022 Americas ​ $ 45,798 $ 70,649 $ 87,476 Europe ​ 88,810 ​ 81,730 ​ 67,797 Asia Pacific ​ 72,564 ​ 69,852 ​ 67,371 ​ ​ $ 207,172 $ 222,231 $ 222,644 ​ ​ 14. NEW ACCOUNTING PRONOUNCEMENTS 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. ​ 78 ​ ​ Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ​