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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended April 30, 2021 or

   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________.

Commission File No. 0-9143

HURCO COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Indiana

    

35-1150732

(State or other jurisdiction of

 

(I.R.S. Employer Identification Number)

incorporation or organization)

 

 

 

 

 

One Technology Way

 

 

Indianapolis, Indiana

 

46268

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code    (317) 293-5309

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

HURC

Nasdaq Global Select Market

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes No .

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).           Yes No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  No

The number of shares of the Registrant’s common stock outstanding as of May 28, 2021 was 6,601,406.

Table of Contents

HURCO COMPANIES, INC.

Form 10-Q Quarterly Report for Fiscal Quarter Ended April 30, 2021

Table of Contents

Part I - Financial Information

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Statements of Operations Three and Six Months Ended April 30, 2021 and 2020

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) Three and Six Months Ended April 30, 2021 and 2020

4

 

 

 

Condensed Consolidated Balance Sheets as of April 30, 2021 and October 31, 2020

5

 

 

 

Condensed Consolidated Statements of Cash Flows Three and Six Months Ended April 30, 2021 and 2020

6

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity Three and Six Months Ended April 30, 2021 and 2020

7

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

Item 4.

Controls and Procedures

31

 

 

Part II - Other Information

 

 

Item 1.

Legal Proceedings

32

 

 

Item 1A.

Risk Factors

32

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

Item 5.

Other Information

32

 

 

Item 6.

Exhibits

33

 

 

Signatures

34

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.   FINANCIAL STATEMENTS

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended

Six Months Ended

April 30, 

April 30, 

2021

    

2020

    

2021

    

2020

Sales and service fees

$

57,920

$

37,126

$

112,035

$

80,786

Cost of sales and service

 

43,126

  

30,417

 

85,694

  

64,918

Gross profit

 

14,794

  

6,709

 

26,341

  

15,868

Selling, general and administrative expenses

 

11,273

  

10,599

 

21,841

  

21,445

Operating income (loss)

 

3,521

  

(3,890)

 

4,500

  

(5,577)

Interest expense

 

2

  

32

 

21

  

50

Interest income

 

  

20

 

16

  

90

Investment income

 

25

  

3

 

146

  

65

Other expense, net

 

(160)

  

(793)

 

(48)

  

(710)

Income (loss) before income taxes

 

3,384

(4,692)

 

4,593

(6,182)

Provision (benefit) for income taxes

 

947

  

(765)

 

1,493

  

(1,362)

Net income (loss)

$

2,437

$

(3,927)

$

3,100

$

(4,820)

Income (loss) per common share

Basic

$

0.37

$

(0.58)

$

0.47

$

(0.71)

Diluted

$

0.36

$

(0.58)

$

0.46

$

(0.71)

Weighted average common shares outstanding

Basic

6,596

6,739

6,585

6,760

Diluted

6,612

6,739

6,598

6,760

Dividends paid per share

$

0.14

$

0.13

$

0.27

$

0.25

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

3

Table of Contents

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Three Months Ended

Six Months Ended

April 30, 

April 30, 

    

2021

    

2020

    

2021

    

2020

    

Net income (loss)

$

2,437

$

(3,927)

$

3,100

$

(4,820)

Other comprehensive income (loss):

 

  

 

  

Translation gain (loss) of foreign currency financial statements

 

122

  

(135)

 

4,306

  

148

(Gain) / loss on derivative instruments reclassified into operations, net of tax of $(102), $(9), $(216) and $(33), respectively

 

(340)

  

(30)

 

(719)

  

(110)

Gain / (loss) on derivative instruments, net of tax of $(23), $165, $(189) and $164, respectively

 

(75)

  

551

 

(629)

  

547

Total other comprehensive income (loss)

 

(293)

  

386

 

2,958

  

585

Comprehensive income (loss)

$

2,144

$

(3,541)

$

6,058

$

(4,235)

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

4

Table of Contents

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

April 30, 

October 31, 

    

2021

    

2020

    

(unaudited)

ASSETS

 

 

Current assets:

 

  

  

 

Cash and cash equivalents

$

73,888

$

57,859

Accounts receivable, net

 

37,041

  

27,686

Inventories, net

 

145,308

  

149,864

Derivative assets

 

410

  

968

Prepaid assets

 

14,461

  

13,803

Other

 

248

  

1,231

Total current assets

 

271,356

  

251,411

Property and equipment:

 

  

Land

 

868

  

868

Building

 

7,352

  

7,352

Machinery and equipment

 

29,938

  

29,195

Leasehold improvements

 

5,093

  

4,754

 

43,251

  

42,169

Less accumulated depreciation and amortization

 

(31,866)

  

(30,248)

Total property and equipment, net

 

11,385

  

11,921

Non–current assets:

 

  

Software development costs, less accumulated amortization

 

7,788

  

7,840

Intangible assets, net

 

1,721

  

1,846

Operating lease - right of use assets, net

11,532

11,748

Deferred income taxes

 

2,869

  

2,479

Investments and other assets, net

 

9,175

  

8,410

Total non–current assets

 

33,085

  

32,323

Total assets

$

315,826

$

295,655

 

  

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

Current liabilities:

 

  

Accounts payable

$

37,808

$

27,643

Customer deposits

8,321

5,356

Derivative liabilities

928

872

Operating lease liabilities

4,282

4,132

Accrued payroll and employee benefits

 

7,766

  

6,931

Accrued income taxes

 

516

  

285

Accrued expenses

 

4,132

  

4,018

Accrued warranty expenses

 

1,417

  

1,200

Total current liabilities

 

65,170

  

50,437

Non–current liabilities:

 

  

Deferred income taxes

 

91

  

131

Accrued tax liability

1,761

1,918

Operating lease liabilities

7,646

7,989

Deferred credits and other

 

4,558

  

4,032

Total non–current liabilities

 

14,056

  

14,070

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; 6,674,741 and 6,636,906 shares issued and 6,601,406 and 6,565,163 shares outstanding, as of April 30, 2021 and October 31, 2020, respectively

 

660

  

657

Additional paid-in capital

 

62,177

  

60,997

Retained earnings

 

173,795

  

172,484

Accumulated other comprehensive loss

 

(32)

  

(2,990)

Total shareholders’ equity

 

236,600

  

231,148

Total liabilities and shareholders’ equity

$

315,826

$

295,655

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

5

Table of Contents

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

Six Months Ended

April 30, 

April 30, 

    

2021

    

2020

    

2021

    

2020

    

Cash flows from operating activities:

  

  

Net income (loss)

$

2,437

$

(3,927)

$

3,100

$

(4,820)

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

 

 

Provision for doubtful accounts

 

146

139

 

227

127

Deferred income taxes

 

379

(49)

 

511

59

Equity in loss (income) of affiliates

 

(93)

(23)

 

(36)

(66)

Foreign currency (gain) loss

296

1,460

(660)

1,567

Unrealized (gain) loss on derivatives

 

(372)

(647)

 

(143)

19

Depreciation and amortization

 

1,050

1,067

 

2,116

2,172

Stock–based compensation

 

721

643

 

1,380

779

Change in assets and liabilities, net of acquisitions:

 

 

(Increase) decrease in accounts receivable

 

(9,247)

3,852

 

(8,873)

15,004

(Increase) decrease in inventories

 

1,640

(3,462)

 

7,354

(4,758)

(Increase) decrease in prepaid expenses

 

426

(2,443)

 

(1,161)

(4,568)

Increase (decrease) in accounts payable

 

7,351

989

 

9,342

(4,317)

Increase (decrease) in customer deposits

 

3,048

(740)

 

2,797

26

Increase (decrease) in accrued expenses

 

655

89

 

869

(6,389)

Increase (decrease) in accrued income tax

(30)

(853)

216

(1,480)

Net change in derivative assets and liabilities

 

392

(103)

 

163

(205)

Other

 

101

1,919

 

732

2,014

Net cash provided by (used for) operating activities

 

8,900

(2,089)

 

17,934

(4,836)

 

Cash flows from investing activities:

 

Proceeds from sale of property and equipment

 

3

54

 

3

127

Purchase of property and equipment

 

(378)

(203)

 

(676)

(389)

Software development costs

 

(282)

(193)

 

(606)

(456)

Other investments

 

(42)

 

(182)

Net cash provided by (used for) investing activities

 

(699)

(342)

 

(1,461)

(718)

 

 

Cash flows from financing activities:

 

 

Dividends paid

 

(924)

(879)

 

(1,789)

(1,693)

Taxes paid related to net settlement of restricted shares

 

 

(197)

(498)

Stock repurchases

(3,911)

(3,911)

Net cash provided by (used for) financing activities

 

(924)

(4,790)

 

(1,986)

(6,102)

Effect of exchange rate changes on cash and cash equivalents

 

58

(99)

 

1,542

(20)

 

Net increase (decrease) in cash and cash equivalents

 

7,335

(7,320)

 

16,029

(11,676)

 

 

Cash and cash equivalents at beginning of period

 

66,553

52,587

 

57,859

56,943

 

 

Cash and cash equivalents at end of period

$

73,888

$

45,267

$

73,888

$

45,267

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

6

Table of Contents

HURCO COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except shares outstanding)

Three Months Ended April 30, 2021 and 2020

Accumulated

Common Stock

Additional

Other

Shares

Paid–in

Retained

Comprehensive

    

Outstanding

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Total

Balances, January 31, 2020

6,803,163

$

680

$

65,985

$

180,444

$

(8,734)

$

238,375

Net income (loss)

(3,927)

 

(3,927)

Other comprehensive income (loss)

 

386

386

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

11,824

2

642

 

644

Stock repurchases

(148,761)

(15)

(3,896)

(3,911)

Dividends paid

(879)

 

(879)

Balances, April 30, 2020

6,666,226

$

667

$

62,731

$

175,638

$

(8,348)

$

230,688

Balances, January 31, 2021

6,583,626

$

658

$

61,458

$

172,282

$

261

$

234,659

Net income (loss)

2,437

 

2,437

Other comprehensive income (loss)

 

(293)

(293)

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

17,780

2

719

 

721

Dividends paid

(924)

 

(924)

Balances, April 30, 2021

6,601,406

$

660

$

62,177

$

173,795

$

(32)

$

236,600

Six Months Ended April 30, 2021 and 2020

Accumulated

Common Stock

Additional

Other

Shares

Paid–in

Retained

Comprehensive

    

Outstanding

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Total

Balances, October 31, 2019

6,767,237

$

677

$

66,350

$

182,151

$

(8,933)

$

240,245

Net income (loss)

(4,820)

 

(4,820)

Other comprehensive income (loss)

 

585

585

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

47,750

5

277

 

282

Stock repurchases

(148,761)

(15)

(3,896)

(3,911)

Dividends paid

(1,693)

 

(1,693)

Balances, April 30, 2020

6,666,226

$

667

$

62,731

$

175,638

$

(8,348)

$

230,688

Balances, October 31, 2020

6,565,163

$

657

$

60,997

$

172,484

$

(2,990)

$

231,148

Net income (loss)

3,100

 

3,100

Other comprehensive income (loss)

 

2,958

2,958

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

36,243

3

1,180

 

1,183

Dividends paid

(1,789)

 

(1,789)

Balances, April 30, 2021

6,601,406

$

660

$

62,177

$

173,795

$

(32)

$

236,600

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    GENERAL

The unaudited Condensed Consolidated Financial Statements include the accounts of Hurco Companies, Inc. and its consolidated subsidiaries.  As used in this report, the words “we”, “us”, “our”, “Hurco”, and the “Company” refer to Hurco Companies, Inc. and its consolidated subsidiaries.

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

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 2020, our operating results were adversely affected by the international business disruption due to the outbreak of COVID-19 and the economic slowdown in Europe, uncertainty surrounding the U.K. Brexit activities, and political friction in the U.S. Many of our customers deferred or eliminated investments in capital equipment last year, which we attributed largely to the uncertainty these events created.  During the first six months of fiscal 2021, our sales increased year-over-year in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions. Because of the potential for extended vulnerability, we have closely evaluated the estimates we have made in preparing the financial statements as of April 30, 2021 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.

The condensed financial information as of April 30, 2021 and for the three and six months ended April 30, 2021 and April 30, 2020 is unaudited.  However, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, results of operations, changes in shareholders’ equity, and cash flows for and at the end of the interim periods.  We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2020.

2.    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.

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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 Financial Accounting Standards Board (“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) each of the performance obligations 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 generally 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 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.

3.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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, for which we enter into derivative instruments in the form of foreign currency forward exchange contracts with a major financial institution.

We enter into these forward exchange contracts to reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries, to reduce the impact on gross profit and net earnings from sales and purchases denominated in foreign currencies, and to reduce the impact on our net earnings of foreign currency fluctuations on receivables and payables denominated in foreign currencies that are different than the subsidiaries’ functional currency.  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 record all derivative instruments as assets or liabilities at fair value.

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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 the following 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 Condensed 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 April 30, 2021, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from May 2021 through April 2022. The contract amounts, expressed at forward rates in U.S. Dollars at April 30, 2021, were $14.9 million for Euros, $7.3 million for Pounds Sterling and $23.0 million for New Taiwan Dollars. At April 30, 2021, we had approximately $629,000 of losses, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss. Included in this amount was $254,000 of unrealized loss, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The majority of these deferred gains will be recorded as an adjustment to Cost of sales and service in periods through April 2022, when the corresponding inventory that is the subject of the related hedge contracts is sold, as described above.

We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered into a forward contract with a notional amount of €3.0 million in November 2020. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under FASB guidance related to the accounting for derivative instruments and hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment in Accumulated other comprehensive loss, net of tax, in the same manner as the underlying hedged net assets. This forward contract matures in November 2021. As of April 30, 2021, we had a realized gain of $813,000 and an unrealized loss of $42,000, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss related to this forward contract.

Derivatives Not Designated as Hedging Instruments

We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on inter-company receivables, payables and loans denominated in foreign currencies. 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 Condensed Consolidated Statements of Operations consistent with the transaction gain or loss on the related receivables and payables denominated in foreign currencies.  

We had forward contracts outstanding not designated as hedges under FASB guidance as of April 30, 2021, denominated in Euros, Pounds Sterling, and New Taiwan Dollar with set maturity dates ranging from May 2021 through April 2022.  The contract amounts, expressed at forward rates in U.S. Dollars at April 30, 2021, totaled $30.8 million.

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Fair Value of Derivative Instruments

We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Condensed Consolidated Balance Sheets. As of April 30, 2021 and October 31, 2020, all derivative instruments were recorded at fair value on our Condensed Consolidated Balance Sheets as follows (in thousands):

April 30, 2021

October 31, 2020

Balance Sheet

Fair

Balance Sheet

Fair

Derivatives

    

Location

    

Value

    

Location

    

Value

    

Designated as Hedging Instruments:

  

  

  

  

Foreign exchange forward contracts

Derivative assets

$

192

Derivative assets

$

495

Foreign exchange forward contracts

Derivative liabilities

$

576

Derivative liabilities

$

279

  

 

 

  

Not Designated as Hedging Instruments:

  

 

  

Foreign exchange forward contracts

Derivative assets

$

218

Derivative assets

$

473

Foreign exchange forward contracts

Derivative liabilities

$

352

Derivative liabilities

$

593

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Operations

Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Shareholders’ Equity, and Condensed Consolidated Statements of Operations, net of tax, during the three months ended April 30, 2021 and 2020 (in thousands):

Location of Gain

Amount of Gain

Amount of Gain (Loss)

 (Loss) Reclassified

 (Loss) Reclassified

Recognized in Other

from Other

from Other

 Comprehensive

Comprehensive

Comprehensive

Derivatives

Income (Loss)

Income (Loss)

Income (Loss)

Three Months Ended

Three Months Ended

April 30, 

April 30, 

    

2021

    

2020

    

    

2021

    

2020

Designated as Hedging Instruments:

(Effective portion)

 

  

  

  

 

Foreign exchange forward contracts
– Intercompany sales/purchases

$

(75)

$

551

Cost of sales and service

$

340

 

$

30

Foreign exchange forward contract
– Net investment

$

30

$

64

  

 

  

  

 

  

We did not recognize any gains or losses as a result of hedges deemed ineffective for either of the three months ended April 30, 2021 or 2020. We recognized the following gains and losses in our Condensed Consolidated Statements of Operations during the three months ended April 30, 2021 and 2020 on derivative instruments not designated as hedging instruments (in thousands):

Location of Gain 

(Loss) Recognized

Amount of Gain (Loss)

Derivatives

    

 in Operations

Recognized in Operations

Three Months Ended

April 30, 

    

2021

    

2020

Not Designated as Hedging Instruments:

 

  

 

  

 

Foreign exchange forward contracts

 

Other expense, net

$

(590)

 

$

970

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The following table presents the changes in the components of Accumulated other comprehensive loss, net of tax, for the three months ended April 30, 2021 (in thousands):

Foreign Currency

Cash Flow