EXECUTIVE OVERVIEW

Hurco Companies, Inc. is an international, industrial technology company
operating in a single segment.  We design, manufacture and sell computerized
(i.e., CNC) machine tools, consisting primarily of vertical machining centers
(mills) and turning centers (lathes), to companies in the metal cutting industry
through a worldwide sales, service and distribution network. Although the
majority of our computer control systems and software products are proprietary,
they predominantly use industry standard personal computer components. 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.

The following overview is intended to provide a brief explanation of the principal factors that have contributed to our recent financial performance.

This overview is intended to be read in conjunction with the more detailed information included in our financial statements that appear elsewhere in this report.





The market for machine tools is international in scope. We have both significant
foreign sales and significant foreign manufacturing operations.  During fiscal
2020, approximately 46% of our revenues were attributable to customers in
Europe, where we typically sell more of our higher-performance, higher-priced
VMX series machines.  Additionally, approximately 15% of our revenues were
attributable to customers in the Asia Pacific region, where we encounter greater
pricing pressures.



We have three brands of CNC machine tools in our product portfolio: Hurco is the
technology innovation brand for customers who want to increase productivity and
profitability by selecting a brand with the latest software and motion
technology.  Milltronics is the value-based brand for shops that want
easy-to-use machines at competitive prices.  The Takumi brand is for customers
that need very high speed, high efficiency performance, such as that required in
the production, die and mold, aerospace, and medical industries.  Takumi
machines are equipped with industry standard controls instead of the proprietary
controls found on Hurco and Milltronics machines.  These three brands of CNC
machine tools are responsible for the vast majority of our revenue.  However, we
have added other non-Hurco branded products to our product portfolio that have
contributed product diversity and market penetration opportunity.  These
non-Hurco branded products are sold by our wholly-owned distributors and are
comprised primarily of other general-purpose vertical milling centers and
lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact
horizontal machines, metal cutting saws and CNC swill lathes. ProCobots is our
wholly-owned subsidiary that provides automation solutions that can be
integrated with any machine tool. In addition, through our wholly-owned
subsidiary LCM, we produce high value machine tool components and accessories.



We principally sell our products through more than 200 independent agents and
distributors throughout the Americas, Europe, and Asia. Although some
distributors carry competitive products, we are the primary line for the
majority of our distributors globally. We also have our own direct sales and
service organizations in China, France, Germany, India, Italy, the Netherlands,
Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United
States, which are among the world's principal machine tool consuming markets.
 The vast majority of our machine tools are manufactured to our specifications
primarily by our wholly-owned subsidiary in Taiwan, HML.  Machine castings to
support HML's production are manufactured at our wholly-owned subsidiary in
Ningbo, China, NHML.  Components to support our SRT line of five-axis machining
centers, such as the direct drive spindle, swivel head, and rotary table, are
manufactured by our wholly-owned subsidiary in Italy, LCM.



                                       28

Our sales to foreign customers are denominated, and payments by those customers
are made, in the prevailing currencies in the countries in which those customers
are located (primarily the Euro, Pound Sterling, and Chinese Yuan). Our product
costs are incurred and paid primarily in the New Taiwan Dollar and the U.S.
Dollar.  Changes in currency exchange rates may have a material effect on our
operating results and consolidated financial statements as reported under U.S.
Generally Accepted Accounting Principles.  For example, when the U.S. Dollar
weakens in value relative to a foreign currency, sales made, and expenses
incurred, in that currency when translated to U.S. Dollars for reporting in our
financial statements, are higher than would be the case when the U.S. Dollar is
stronger.  In the comparison of our period-to-period results, we discuss the
effect of currency translation on those results, which reflect translation to
U.S. Dollars at exchange rates prevailing during the period covered by those
financial statements.



Our high levels of foreign manufacturing and sales also expose us to cash flow
risks due to fluctuating currency exchange rates.  We seek to mitigate those
risks through the use of derivative instruments - principally foreign currency
forward exchange contracts.




We operate in the industrial equipment industry and have a global footprint that
subjects us to various business risks in many different countries. The COVID-19
pandemic has had a significant impact on our business and industry during fiscal
2020. Beginning in early 2020, governmental authorities in many of the major
global machine tool markets implemented mandatory stay-at-home or shelter orders
requiring most businesses to close or to significantly limit operations,
resulting in a sudden decrease in demand for many goods and services. Although
the mandatory stay-at-home or shelter orders in many jurisdictions permitted our
local operations to continue as an essential business or a supplier to critical
infrastructure industries or otherwise with remote work capabilities, many of
our customers experienced, and continue to experience, significant disruptions
in their business operations and normal purchasing cycles. We cannot predict the
duration or scope of impact of the COVID-19 pandemic and the negative financial
impact to our results cannot be reasonably estimated, but we believe the impact
has been material thus far with regard to revenues, income from operations, and
cash flow from operations and could continue to be material in the near future.
To date, we have not experienced material disruptions in our supply chain and
have not completely ceased operations at any of our global facilities, but have
implemented remote working capabilities, as appropriate or otherwise required
under local law. We have also implemented reductions in headcount and
discretionary spending, delayed capital expenditures, and pulled back production
activities in an effort to weather the adverse business climate. We have also
received stimulus in various countries to support operations and implemented tax
deferrals and provisions that were available to us. We will continue to evaluate
and disclose any 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.

Results of Operations



The following table presents, for the fiscal years indicated, selected items
from the Consolidated Statements of Operations expressed as a percentage of our
worldwide sales and service fees and the year-to-year percentage changes in the
dollar amounts of those items.




                                                  Percentage of Revenues        Year-to-Year % Change
                                                 2020       2019      2018        Increase/Decrease
                                                                              '20 vs. '19    '19 vs. '18

Sales and service fees                             100 %      100 %    100 %         (35) %         (12) %
Gross profit                                        21 %       29 %     31 %         (53) %         (16) %
Selling, general and administrative expenses        24 %       21 %     19 %         (24) %          (6) %
Goodwill impairment                                  3 %        -        -            100 %            -
Operating income (loss)                            (6) %        9 %     11

%        (144) %         (33) %
Net income (loss)                                  (4) %        7 %      7 %        (136) %         (19) %

Fiscal 2020 Compared to Fiscal 2019

Sales and Service Fees. Sales and service fees for fiscal 2020 were $170.6 million, a decrease of $92.8 million, or 35%, compared to fiscal 2019, and included a favorable currency impact of $0.6 million, or less than 1%, when translating foreign sales to U.S. Dollars for financial reporting purposes.



                                       29

Net Sales and Service Fees by Geographic Region





The following table sets forth net sales and service fees by geographic region
for the fiscal years ended October 31, 2020 and 2019 (dollars in thousands):




                   Fiscal Year Ended October 31,           Increase/Decrease
                      2020                 2019             Amount         %
Americas       $    67,498     39 %  $  99,064     37 %  $    (31,566)    (32) %
Europe              77,936     46 %    133,675     51 %       (55,739)    (42) %
Asia Pacific        25,193     15 %     30,638     12 %        (5,445)    (18) %
Total          $   170,627    100 %  $ 263,377    100 %  $    (92,750)    (35) %





Sales in the Americas for fiscal 2020 decreased by 32%, compared to fiscal 2019,
primarily due to a reduced volume of shipments of Hurco, Milltronics, and Takumi
machines.  The reduction in shipment volume was mainly attributable to
government-mandated COVID-19 stay-at-home or shelter orders imposed across the
region during portions of fiscal 2020.  Additionally, sales in the Americas in
the first half of fiscal 2019 benefitted from strong demand and backlog
generated in the fourth quarter of fiscal 2018.



European sales for fiscal 2020 decreased by 42%, compared to fiscal 2019, and
included a favorable currency impact of less than 1%, when translating foreign
sales to U.S. Dollars for financial reporting purposes.  The decrease in
European sales for fiscal 2020 was primarily attributable to a reduced volume of
shipments of Hurco and Takumi machines and a decrease in sales of
electro-mechanical components and accessories manufactured by our wholly-owned
Italian subsidiary, LCM.  Like the Americas, the reduction in shipment volume
was mainly driven by government-mandated COVID-19 stay-at-home or shelter orders
or other similar operating restrictions imposed across the region during
portions of fiscal 2020.  Additionally, sales in Europe during the first half of
fiscal 2019 benefitted from higher demand and backlog coming off fiscal 2018,
the recent peak of the European market, particularly for Germany.



Asian Pacific sales for fiscal 2020 decreased by 18%, compared to fiscal 2019,
and included a favorable currency impact of less than 1%, when translating
foreign sales to U.S. Dollars for financial reporting purposes. The
year-over-year decrease in Asian Pacific sales resulted primarily from a
reduction in the volume of shipments of Hurco and Takumi machines in all Asian
Pacific regions, where our customers are located, as many customers were
negatively impacted by government-mandated COVID-19 stay-at-home orders or
similar operating restrictions during the first six months of fiscal 2020.

Net Sales and Service Fees by Product Category





The following table sets forth net sales and service fees by product group and
services for the fiscal years ended October 31, 2020 and 2019 (dollars in
thousands):




                                              Fiscal Year Ended October 31,           Increase/Decrease
                                                 2020                 2019             Amount         %
Computerized Machine Tools                $   139,577     82 %  $ 223,735     85 %  $    (84,158)    (38) %
Computer Control Systems and Software †         1,699      1 %      2,818      1 %        (1,119)    (40) %
Service Parts                                  22,484     13 %     27,854     11 %        (5,370)    (19) %
Service Fees                                    6,867      4 %      8,970      3 %        (2,103)    (23) %
Total                                     $   170,627    100 %  $ 263,377    100 %  $    (92,750)    (35) %

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



                                       30

Sales of computerized machine tools and computer control systems and software
for fiscal 2020 decreased by 38% and 40%, respectively, compared to fiscal 2019,
and each included a favorable currency impact of less than 1%.  Sales of service
parts and service fees decreased by 19% and 23%, respectively, during fiscal
2020, compared to fiscal 2019, and each included a favorable currency impact of
less than 1%.   The decreases in all product categories were primarily due to a
reduced volume of shipments of Hurco, Milltronics and Takumi machines, parts,
and services provided, as well as the impact of government- mandated COVID-19
restrictions across all regions.

Orders and Backlog. Orders for fiscal 2020 were $166.9 million, a decrease of $74.2 million, or 31%, compared to fiscal 2019, and included a favorable currency impact of $1.2 million, or less than 1%, when translating foreign orders to U.S. Dollars.

The following table sets forth new orders booked by geographic region for the fiscal years ended October 31, 2020 and 2019 (dollars in thousands):






                   Fiscal Year Ended October 31,           Increase/Decrease
                      2020                 2019             Amount         %
Americas       $    67,577     41 %  $  89,136     37 %  $    (21,559)    (24) %
Europe              77,079     46 %    120,191     50 %       (43,112)    (36) %
Asia Pacific        22,282     13 %     31,779     13 %        (9,497)    (30) %
Total          $   166,938    100 %  $ 241,106    100 %  $    (74,168)    (31) %





Orders in the Americas for fiscal 2020 decreased by 24%, compared to fiscal
2019, primarily due to decreased customer demand for Hurco, Milltronics and
Takumi machines during the COVID-19 pandemic.  Orders in the Americas of $17.2
million for the fourth quarter of fiscal 2020 reflected a slight improvement
over orders in the second and third quarters of fiscal 2020 of $15.9 million and
$16.3 million, respectively, but fell short of pre-pandemic order levels in the
first quarter of $18.2 million.



European orders for fiscal 2020 decreased by 36%, compared to fiscal 2019, and
included a favorable currency impact of less than 1%, when translating foreign
orders to U.S. Dollars.  The year-over-year decrease in orders was driven
primarily by decreased customer demand for Hurco and Takumi machines, and a
decrease in sales of electro-mechanical components and accessories manufactured
by LCM, during the COVID-19 pandemic.  European orders for the fourth quarter of
fiscal 2020 were the highest quarter of the fiscal year at $25.6 million,
rebounding from the fiscal year low third quarter orders of $14.2 million,
second quarter orders of $15.6 million, and first quarter pre-pandemic orders of
$21.7 million.



Asian Pacific orders for fiscal 2020 decreased by 30%, compared to fiscal 2019,
and included a favorable currency impact of less than 1%, when translating
foreign orders to U.S. Dollars.  The year-over-year decrease in Asian Pacific
orders was driven primarily by a reduction in customer demand for Hurco and
Takumi machines during the COVID-19 pandemic throughout the Asian Pacific region
where our customers are located. Asian Pacific orders for the fourth quarter of
fiscal 2020 reflected the same trend as the European orders, marking the highest
quarter of orders of fiscal 2020 at $5.9 million, outpacing the third quarter
orders of $5.6 million, second quarter orders of $5.1 million, and first quarter
orders of $5.7 million.



Backlog at October 31, 2020 decreased to $29.9 million from $32.7 million at
October 31, 2019, primarily due to a reduction in customer demand during fiscal
2020. We do not believe backlog is a useful measure of past performance or
indicative of future performance. Backlog orders as of October 31, 2020 are
expected to be fulfilled in fiscal 2021.

Gross Profit. Gross profit for fiscal 2020 was $36.5 million, or 21% of sales,
compared to $77.2 million, or 29% of sales, for fiscal 2019.  The decrease in
gross profit as a percentage of sales was primarily due to lower sales across
all sales regions, particularly the European sales region where we typically
sell higher-priced, higher-performance machines, competitive pricing pressures
on a global basis, and the negative impact of fixed costs leveraged against
lower sales and production volumes.



                                       31

Operating Expenses. Selling, general, and administrative expenses for fiscal
2020 were $41.4 million, or 24% of sales, compared to $54.7 million, or 21% of
sales, for fiscal 2019, and included an unfavorable currency impact of $0.3
million, when translating foreign expenses to U.S. Dollars for financial
reporting purposes.  Selling, general, and administrative expenses for fiscal
2020 trended downward as a percentage of sales from the first half of fiscal
2020 to the second half of fiscal 2020 by approximately 5% due to the
implementation of cost reduction plans, including changes in employee headcount,
decreases in incentive and performance compensation, and reductions in other
discretionary spending, partially offset by increased operating expenses
associated with ProCobots, the U.S.-based automation integration business
acquired by Hurco in the fourth quarter of fiscal 2019, and the unfavorable
currency impact when translating foreign expenses to U.S Dollars for financial
reporting purposes.



Operating Income (Loss). The operating loss for fiscal 2020 was $9.9 million, or
(6%) of sales, compared to operating income of $22.5 million, or 9% of sales,
for fiscal 2019. The year-over-year decrease from operating income to operating
loss was primarily due to reduced sales volume that resulted from
government-mandated stay-at-home or shelter orders imposed across the globe
during 2020.  The operating loss for fiscal 2020 included a one-time $4.9
million non-cash goodwill impairment charge attributable primarily to the
prolonged ongoing uncertainty in the global markets due to the COVID-19
pandemic.



Other Expense, Net. Other expense, net for fiscal 2020 increased by $0.6 million
from fiscal 2019, due mainly to a reduction in foreign currency exchange losses
in fiscal 2020, compared to fiscal 2019.

Provision for Income Taxes. We recorded an income tax benefit of $4.6 million
for fiscal 2020, compared to income tax expense of $5.8 million for fiscal
2019.  During the third and fourth quarters of fiscal 2020, we assessed and
recorded the year-to-date impact of recent changes in income tax laws to address
the unfavorable impact of the COVID-19 pandemic. In response to the COVID-19
pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES
Act") was signed into law in the U.S. on March 27, 2020.  The CARES Act included
economic relief and modifications, most notably the net operating loss carryback
provisions. In addition, the year-over-year changes in our income tax benefits
and expenses reflected the shift in the geographic mix of income and loss among
international tax jurisdictions, which resulted in changes in foreign tax
credits, deductions for foreign derived intangible income, and recording of a
provision for global intangible low taxed income.



Net Income (Loss). Net loss for fiscal 2020 was $6.2 million, or $(0.93) per
diluted share, a decrease of $23.7 million, or 136%, from fiscal 2019 net income
of $17.5 million, or $2.55 per diluted share. The year-over-year decrease from
net income to net loss was primarily due to reduced sales volume that resulted
from government-mandated stay-at-home or shelter orders imposed across the globe
during 2020.  The net loss for fiscal 2020 included a one-time $4.9 million
non-cash goodwill impairment charge attributable primarily to the prolonged
ongoing uncertainty in the global markets due to the COVID-19 pandemic.

Fiscal 2019 Compared to Fiscal 2018

Sales and Service Fees. Sales and service fees for fiscal 2019 were $263.4 million, a decrease of $37.3 million, or 12%, compared to fiscal 2018, and included an unfavorable currency impact of $8.5 million, or 3%, when translating foreign sales to U.S. Dollars for financial reporting purposes.

Net Sales and Service Fees by Geographic Region



The following table sets forth net sales and service fees by geographic region
for the fiscal years ended October 31, 2019 and 2018 (dollars in thousands):




                    Fiscal Year Ended October 31,           Increase/Decrease
                       2019                 2018             Amount         %
Americas        $    99,064     37 %  $  90,902     30 %  $       8,162       9 %
Europe              133,675     51 %    166,202     55 %       (32,527)    (20) %
Asia Pacific         30,638     12 %     43,567     15 %       (12,929)    (30) %
Total           $   263,377    100 %  $ 300,671    100 %  $    (37,294)    (12) %


                                       32



Sales in the Americas for fiscal 2019 increased by 9%, compared to fiscal 2018,
primarily attributable to sales of vertical milling machines from a U.S. machine
tool distributor in California acquired by Hurco in the fourth quarter of fiscal
2018. European sales for fiscal 2019 decreased by 20%, compared to fiscal 2018,
and included an unfavorable currency impact of 4%, when translating foreign
sales to U.S. Dollars for financial reporting purposes. The decrease in European
sales for fiscal 2019 was primarily attributable to a reduced volume of
shipments of Hurco machines in Germany and the United Kingdom, as well as a
decrease in sales of electro-mechanical components and accessories manufactured
by our wholly-owned subsidiary in Italy, LCM. Asian Pacific sales for fiscal
2019 decreased by 30%, compared to fiscal 2018, and included an unfavorable
currency impact of 2%, when translating foreign sales to U.S. Dollars for
financial reporting purposes. The decrease in Asian Pacific sales for fiscal
2019 was primarily attributable to decreased shipments of Hurco vertical milling
machines and Takumi bridge mill machines in China, partially offset by increased
shipments of Hurco vertical milling machines in India.

Net Sales and Service Fees by Product Category



The following table sets forth net sales and service fees by product group and
services for the fiscal years ended October 31, 2019 and 2018 (dollars in
thousands):




                                              Fiscal Year Ended October 31,           Increase/Decrease
                                                 2019                 2018             Amount         %
Computerized Machine Tools                $   223,735     85 %  $ 261,710     87 %  $    (37,975)    (15) %
Computer Control Systems and Software †         2,818      1 %      2,870      1 %           (52)     (2) %
Service Parts                                  27,854     11 %     27,501      9 %            353       1 %
Service Fees                                    8,970      3 %      8,590      3 %            380       4 %
Total                                     $   263,377    100 %  $ 300,671    100 %  $    (37,294)    (12) %

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



Sales of computerized machine tools and computer control systems and software
for fiscal 2019 decreased by 15% and 2%, respectively, and each included an
unfavorable currency impact of 3%, compared to fiscal 2018. The year-over-year
decrease in sales of computerized machine tools and computer control systems and
software were mainly due to decreased sales of Hurco and Takumi machines in
Germany, the United Kingdom, and China, as well as a decrease in sales of
electro-mechanical components and accessories manufactured by LCM, partially
offset by an increase in sales of vertical milling machines from the U.S.
machine tool distributor in California acquired by Hurco in the fourth quarter
of fiscal 2018. Sales of service parts and service fees for fiscal 2019
increased by 1% and 4%, respectively, compared to fiscal 2018, due primarily to
an increase in aftermarket sales and aftermarket service of Hurco products in
North America.

Orders and Backlog. Orders for fiscal 2019 were $241.1 million, a decrease of
$64.7 million, or 21%, compared to fiscal 2018, and included an unfavorable
currency impact of $8.5 million, or 3%, when translating foreign orders to U.S.
Dollars.

The following table sets forth new orders booked by geographic region for the fiscal years ended October 31, 2019 and 2018 (dollars in thousands):






                   Fiscal Year Ended October 31,           Increase/Decrease
                      2019                 2018             Amount         %
Americas       $    89,136     37 %  $  94,160     31 %  $     (5,024)     (5) %
Europe             120,191     50 %    170,366     56 %       (50,175)    (29) %
Asia Pacific        31,779     13 %     41,319     13 %        (9,540)    (23) %
Total          $   241,106    100 %  $ 305,845    100 %  $    (64,739)    (21) %




                                       33


Orders in the Americas for fiscal 2019 decreased by 5%, compared to fiscal 2018,
primarily due to the fact that fiscal 2018 reflected orders resulting from
year-end promotional activities following the September 2018 International
Manufacturing Technology Show ("IMTS"), which is held every two years. The
decrease in orders for fiscal 2019, compared to fiscal 2018, was partially
offset by increased customer demand for vertical milling machines from the
distributor in California acquired in the fourth quarter of fiscal 2018 and
increased customer demand for automation and integration systems from ProCobots,
a U.S.-based automation integration company acquired by Hurco in the fourth
quarter of fiscal 2019. European orders for fiscal 2019 decreased by 29%,
compared to fiscal 2018, and included an unfavorable currency impact of 4%, when
translating foreign orders to U.S. Dollars. The year-over-year decrease in
orders was driven primarily by decreased customer demand for Hurco and Takumi
machines in Germany and Italy, as well as a decrease in customer demand for
electro-mechanical components and accessories manufactured by LCM. Asian Pacific
orders for fiscal 2019 decreased by 23%, compared to fiscal 2018, and included
an unfavorable currency impact of 3%, when translating foreign orders to U.S.
Dollars, due mainly to decreased customer demand for Hurco and Takumi machines
in China and India.

Backlog at October 31, 2019 decreased to $32.7 million from $55.0 million at
October 31, 2018, primarily due to a reduction in customer demand during fiscal
2019. We do not believe backlog is a useful measure of past performance or
indicative of future performance.

Gross Profit. Gross profit for fiscal 2019 was $77.2 million, or 29% of sales,
compared to $91.8 million, or 31% of sales, for fiscal 2018. The year-over-year
decrease in gross profit as a percentage of sales was primarily due to lower
sales of more complex, higher-performance machines in the European sales region,
the impact of fixed costs on lower sales and production volume, and competitive
pricing pressures on a global basis.

Operating Expenses. Selling, general, and administrative expenses for fiscal
2019 were $54.7 million, or 21% of sales, compared to $58.0 million, or 19% of
sales, in fiscal 2018, and included a favorable currency impact of $1.5 million,
when translating foreign expenses to U.S. Dollars for financial reporting
purposes. The year-over-year reduction in selling, general, and administrative
expenses were primarily due to a decrease in tradeshow expenses associated with
the September 2018 IMTS, decreased variable employee compensation, and other
operating expense reductions implemented during fiscal 2019, partially offset by
increased operating expenses associated with the U.S. companies we acquired in
the fourth quarter of fiscal 2018 and the fourth quarter of fiscal 2019.

Operating Income. Operating income for fiscal 2019 was $22.5 million, or 9% of
sales, compared to $33.8 million, or 11% of sales, in fiscal 2018. The
year-over-year decrease in operating income was due to an overall reduction in
sales volume year-over-year, particularly in Europe where our more complex,
higher performance machines are primarily sold, as well as increased operating
expenses associated with the U.S. companies we acquired in the fourth quarter of
fiscal 2018 and the fourth quarter of fiscal 2019, partially offset by a
reduction in other selling, general, and administrative expenses.

Other Income (Expense). Other expense, net for fiscal 2019 decreased by $1.8
million from fiscal 2018, due mainly to a reduction in foreign currency exchange
losses in fiscal 2019, compared to fiscal 2018.

Provision for Income Taxes. Our effective tax rate for fiscal 2019 was 25%,
compared to 34% in fiscal 2018. The year-over-year decrease in the effective tax
rate for fiscal 2019 principally resulted from the favorable impact of certain
U.S. tax reform provisions available in that fiscal year, including the full
year impact of a lower U.S. corporate tax rate from 35% to 21%, a new deduction
attributable to Foreign-Derived Intangible Income ("FDII"), and the benefit of
foreign tax credits included in these tax reform provisions. In addition, the
year-over year changes in the effective tax rates included a shift in geographic
mix of income and loss among tax jurisdictions. The effective tax rate for
fiscal 2018 included one-time charges of $2.9 million related to the U.S. Tax
Cuts and Jobs Act that was enacted in December 2017.

Net Income. Net income for fiscal 2019 was $17.5 million, or $2.55 per diluted
share, a decrease of $4.0 million, or 19%, from fiscal 2018 net income of $21.5
million, or $3.15 per diluted share.

                                       34

Liquidity and Capital Resources



At October 31, 2020, we had cash and cash equivalents of $57.9 million, compared
to $56.9 million at October 31, 2019. The increase in cash and cash equivalents
was primarily a result of a decrease in accounts receivable, partially offset by
the repurchase of common stock during the second and third quarters of fiscal
2020, as well as a decrease in accrued payroll and employee benefits.
Approximately 15% of our $57.9 million of cash and cash equivalents is held in
the U.S. The balance is attributable to our foreign operations and is held in
the local currencies of our various foreign entities, subject to fluctuations in
currency exchange rates. We do not believe that the indefinite reinvestment of
these funds offshore impairs our ability to meet our domestic working capital
needs.

Working capital (including cash and cash equivalents) was $201.0 million at
October 31, 2020, compared to $207.2 million at October 31, 2019. The decrease
in working capital was mostly driven by a decrease in accounts receivable and an
increase in operating lease liabilities, partially offset by an increase in
prepaid expenses and a decrease in accrued payroll and employee benefits.
Inventories, net were $149.9 million at October 31, 2020, compared to $148.9
million at October 31, 2019. Inventory turns at October 31, 2020 were 0.9,
compared to 1.3 turns at October 31, 2019.

Capital expenditures were $1.7 million in fiscal 2020, compared to $4.9 million
in fiscal 2019. Capital expenditures for fiscal 2020 were primarily for software
development costs, purchases of factory equipment for production facilities, and
purchases of general software and equipment for sales and service divisions. We
funded these expenditures with cash flows from operations.

On March 13, 2020, we announced that our Board of Directors approved a share
repurchase program in an aggregate amount of up to $7.0 million. Repurchases
under the program could be made in the open market or through
privately-negotiated transactions from time to time through March 11, 2022,
subject to applicable laws, regulations, and contractual provisions. The program
could have been amended, suspended, or discontinued at any time and did not
commit us to repurchase any shares of our common stock. During fiscal 2020, we
repurchased all $7.0 million in shares of our common stock.  As a result of our
repurchase of the maximum aggregate amount under the program, this share
repurchase program has concluded.



In addition, during fiscal 2020, we paid cash dividends to our shareholders of
$3.4 million. Future dividends are subject to approval of our Board of Directors
and will depend upon many factors, including our results of operations,
financial condition, capital requirements, regulatory and contractual
restrictions, our business strategy and other factors deemed relevant by our
Board of Directors from time to time.



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 and December 23, 2020 (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, 2021.



Borrowings under the 2018 Credit Agreement bear interest at floating rates based
on, at our option, either (i) a LIBOR-based rate, or other alternative
currency-based rate approved by the lender, plus 1.25% 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 LIBOR-based rate plus 1.00%), plus 0.00% per
annum. Outstanding letters of credit will carry an annual rate of 1.25%.



                                       35

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 $10.0 million; (3) requiring that we maintain a minimum working capital
of $125.0 million; (4) requiring that we maintain a minimum tangible net worth
of $170.0 million; and (5) providing that if the total amount of indebtedness
outstanding owed by the Company and its Taiwanese and Chinese subsidiaries to
the lender or its affiliates (the "Specified Outstanding Amount") exceeds $25.0
million, then the Company will not permit the amount of unrestricted
cash-on-hand of the Company and its subsidiaries to be less than the Specified
Outstanding Amount.  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.





As of October 31, 2020, our existing credit facilities consisted of our €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.  We
had no debt or borrowings under any of our credit facilities at October 31,
2020.

At October 31, 2020, we had an aggregate of $51.8 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.





We have an international cash pooling strategy that generally provides access to
available cash deposits and credit facilities when needed in the U.S., Europe or
Asia Pacific.  We believe our access to cash pooling and our borrowing capacity
under our credit facilities provide adequate liquidity to fund our global
operations over the next twelve months and allow us to remain committed to our
strategic plan of product innovation, acquisitions, targeted penetration of
developing markets, and payment of dividends.

We continue to receive and review information on businesses and assets for potential acquisition, including intellectual property assets that are available for purchase.

Contractual Obligations and Commitments

The following is a table of contractual obligations and commitments as of October 31, 2020 (in thousands):






                                                        Payments Due by Period
                                                                                               More
                                                Less than                                      than
                                   Total        1 Year        1-3 Years      3-5 Years      5 Years
Operating leases                  $ 12,481    $     4,286    $     5,037    $     1,579    $   1,579
Accrued and deferred taxes and
credits                              6,081            266            551            724        4,540
Total                             $ 18,562    $     4,552    $     5,588    $     2,303    $   6,119




                                       36


In addition to the contractual obligations and commitments disclosed above, we
also have a variety of other obligations for the procurement of materials and
services, none of which subject us to any material non-cancelable commitments.
While some of these obligations arise under long-term supply agreements, we are
not committed under these agreements to accept or pay for requirements that are
not needed to meet our production needs. We have no material minimum purchase
commitments or "take-or-pay" type agreements or arrangements. Unrecognized tax
benefits in the amount of approximately $0.2 million, excluding any interest and
penalties, have been excluded from the table above because we are unable to
determine a reasonably reliable estimate of the timing of future payment.

We expect capital spending in fiscal 2021 to be approximately $9.7 million,
which includes investments for real estate development, software development,
factory equipment and production facilities, as well as general software and
equipment for selling facilities. We expect to fund these commitments with cash
on hand and cash generated from operations.

Off Balance Sheet Arrangements



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
Financial Accounting Standards Board ("FASB") guidance for accounting for
guarantees (codified in Accounting Standards Codification ("ASC") 460). As of
October 31, 2020, we had 14 outstanding third party payment guarantees totaling
approximately $0.4 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 the customer 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 insignificant.

Critical Accounting Policies and Estimates



Our discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. Generally Accepted Accounting Principles. The preparation
of financial statements in conformity with those accounting principles requires
us to make judgments and estimates that affect the amounts reported in the
consolidated financial statements and accompanying notes. Those judgments and
estimates have a significant effect on the financial statements because they
result primarily from the need to make estimates about the effects of matters
that are inherently uncertain. Actual results could differ from those estimates.
Our accounting policies, including those described below, are frequently
evaluated as our judgment and estimates are based upon historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances.

Revenue Recognition - 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 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 is 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.

                                       37

Depending upon geographic location, after shipment, a machine may be installed
at the customer's facilities 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
three-axis machines to be inconsequential and perfunctory. For our five-axis
machines that we install, we estimate the fair value of the installation
performance obligation and recognize that installation revenue on a prorata
basis over the period of the installation process.

From time to time, and depending upon geographic location, we may provide
training or freight services. We consider these services to be perfunctory
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
considered variable consideration and are recorded as a reduction of revenue in
the same period that the related sales are recorded. We have reviewed the
overall sales transactions for variable consideration and have determined that
these amounts are not significant.

Inventories - We determine at each balance sheet date how much, if any, of our
inventory may ultimately prove to be either unsalable or unsalable at its
carrying cost. Reserves are established to effectively adjust the carrying value
of such inventory to lower of cost (first-in, first-out method) or net
realizable value. To determine the appropriate level of valuation reserves, we
evaluate current stock levels in relation to historical and expected patterns of
demand for all of our products. We evaluate the need for changes to valuation
reserves based on market conditions, competitive offerings, and other factors on
a regular basis.

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.

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.

                                       38

Impairment of Goodwill and Intangible Assets. Goodwill and indefinite-lived
intangibles arising from a business combination are not amortized and charged to
expense over time. Instead, goodwill and indefinite-lived intangibles must be
reviewed for impairment annually as of the last day of our third fiscal quarter,
or more frequently, if circumstances arise indicating potential impairment. For
goodwill, if the carrying amount of the reporting unit containing the goodwill
exceeds the fair value of that reporting unit, an impairment loss is recognized
for that excess, but only to the extent of the goodwill amount allocated to that
reporting unit.  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.

Impairment of Long-Lived Assets - We are required periodically to review the
recoverability of certain assets, including property, plant, and equipment,
intangible assets, and goodwill, based on projections of anticipated future cash
flows, including future profitability assessments of various product lines. We
estimate cash flows using internal budgets based on recent sales data.

Capitalized Software Development Costs - Costs incurred to develop computer
software products and significant enhancements to software features of existing
products are capitalized as required by FASB guidance relating to accounting for
the costs of computer software to be sold, leased, or otherwise marketed, and
such capitalized costs are amortized over the estimated product life of the
related software. The determination as to when in the product development cycle
technological feasibility has been established, and the expected product life,
require judgments and estimates by management and can be affected by
technological developments, innovations by competitors, and changes in market
conditions affecting demand. We periodically review the carrying values of these
assets and make judgments as to ultimate realization considering the
above-mentioned risk factors.

Derivative Financial Instruments - Critical aspects of our accounting policy for
derivative financial instruments that we designate as hedging instruments
include conditions that require that critical terms of a hedging instrument are
essentially the same as a hedged forecasted transaction. Another important
element of our policy demands that formal documentation be maintained as
required by FASB guidance relating to accounting for derivative instruments and
hedging activities. Failure to comply with these conditions would result in a
requirement to recognize changes in market value of hedge instruments in
earnings. We routinely monitor significant estimates, assumptions, and judgments
associated with derivative instruments, and compliance with formal documentation
requirements.

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.

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