The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains information intended to help provide an understanding of our financial condition and other related matters, including our liquidity, capital resources and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited financial statements and the notes accompanying our unaudited financial statements appearing elsewhere in this report, as well as our audited financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2021.
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 the nine months of fiscal 2022, approximately 50% 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 12% 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 LLC ("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 in Italy, LCM, we produce high value machine tool components and accessories.
We principally sell our products through more than 180 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 and assembled 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.
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. Our operating results during fiscal years 2020, 2021 and the nine months of fiscal 2022 were affected by the international business disruption due to the outbreak of COVID-19 and lockdowns in certain markets, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, uncertainty surrounding the U.K. Brexit activities, and political friction in the U.S and many regions of the world. We cannot predict the duration or scope of impact of the COVID-19 pandemic, as well as other aforementioned factors, and the potential impact to our operations and financial results cannot be reasonably estimated. To date, we have experienced some delays 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 adjustments in discretionary spending, delayed capital expenditures, and monitored production activities closely 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. More recently, we have begun to see inflationary pressures and input cost increases imposed in our supply chains on components for our products. We have also seen capacity for transportation and freight services limited significantly by container or vessel availability and delays at departing and receiving ports, all of which have contributed to significantly increased costs and prices associated with the global shipment of our products.
Three Months Ended July 31, 2022 Compared to Three Months Ended July 31, 2021
Sales and Service Fees. Sales and service fees for the third quarter of fiscal 2022 were $57.6 million, an increase of $3.5 million, or 6%, compared to the corresponding prior year period, and included an unfavorable currency impact of $4.3 million, or 8%, when translating foreign sales to U.S. dollars for financial reporting purposes.
Sales and Service Fees by Geographic Region
The following table sets forth net sales and service fees by geographic region for the third quarter ended July 31, 2022 and 2021 (dollars in thousands):
Sales in the Americas for the third quarter of fiscal 2022 increased by 24%, compared to the corresponding period in fiscal 2021, primarily due to inflationary price increases and an increased volume of shipments of higher-performance Hurco and Takumi machines.
European sales for the third quarter of fiscal 2022 increased by 2%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 14%, when translating foreign sales to U.S. dollars for financial reporting purposes. This increase was primarily attributable to inflationary price increases, an increased volume of shipments of higher-performance Hurco, Takumi and Milltronics machines in Germany and France, and increased sales of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM, partially offset by a reduced volume of shipments of Hurco machines in Italy and the United Kingdom.
Asian Pacific sales for the third quarter of fiscal 2022 decreased by 25%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 5%, when translating foreign sales to U.S. dollars for financial reporting purposes. The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco and Takumi machines in China and Southeast Asia, partially offset by an increased volume of shipments of Hurco machines in India. The reduced volume of shipments of Hurco and Takumi machines in China was primarily due to recent COVID-19 lockdowns and similar restrictions in major Chinese markets pursuant to China's zero-tolerance COVID-19 policy.
Sales and Service Fees by Product Category
The following table sets forth net sales and service fees by product category for the third quarter ended July 31, 2022 and 2021 (dollars in thousands):
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.
Sales of computerized machine tools for the third quarter of fiscal 2022 increased by 7%, compared to the corresponding prior year period, primarily due to inflationary price increases and increased shipments of higher-performance Hurco machines in North America and Germany. Sales of computer control systems and software for the third quarter of fiscal 2022 increased by 7%, compared to the corresponding prior year period, primarily due to an increase in sales of Hurco software in Germany, North America and France. Sales of service parts for the third quarter of fiscal 2022 increased by 5%, compared to the corresponding prior year period, due mainly to increased aftermarket sales and service of Hurco products in North America and the United Kingdom. All product categories included an unfavorable currency impact of 8%, when translating foreign sales to U.S. Dollars for financial reporting purposes.
Orders. Orders for the third quarter of fiscal 2022 were $52.9 million, a decrease of $13.8 million, or 21%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of $4.1 million, or 6%, when translating foreign orders to U.S. dollars.
The following table sets forth new orders booked by geographic region for the third quarter ended July 31, 2022 and 2021 (dollars in thousands):
Orders in the Americas for the third quarter of fiscal 2022 decreased by 9%, compared to the corresponding period in fiscal 2021, primarily due to decreased customer demand for Hurco, Takumi and Milltronics machines, partially offset by inflationary price increases implemented during fiscal 2022.
European orders for the third quarter of fiscal 2022 decreased by 22%, compared to the corresponding prior year period, and included an unfavorable currency impact of 11%, when translating foreign orders to U.S. dollars. This decrease was driven primarily by decreased customer demand for Hurco machines across the European region, as well as decreased customer demand for electro-mechanical components and accessories manufactured by LCM, partially offset by inflationary price increases implemented during fiscal 2022 and increased demand for higher-performance Hurco and Takumi machines in Germany.
Asian Pacific orders for the third quarter of fiscal 2022 decreased by 46%, compared to the corresponding prior year period, and included an unfavorable currency impact of 5%, when translating foreign orders to U.S. dollars. The decrease in Asian Pacific orders year-over-year was driven primarily by decreased customer demand for Hurco and Takumi machines in China and Southeast Asia due to recent COVID-19 lockdowns and similar restrictions, slightly offset by increased demand for Hurco machines in India.
Gross Profit. Gross profit for the third quarter of fiscal 2022 was $14.4 million, or 25% of sales, compared to $13.0 million, or 24% of sales, for the corresponding prior year period. During the third quarter of fiscal 2021, we recorded approximately $0.4 million, or 1% of sales, for the employee retention credit extended to companies under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021 (the "employee retention credit"). While the employee retention credit did not recur in the third quarter of fiscal 2022, gross profit as a percentage of sales in the 2022 period benefited from increased sales of higher-performance machines, improved leverage of fixed overhead costs and inflationary price increases implemented during fiscal 2022.
Operating Expenses. Selling, general, and administrative expenses for the third quarter of fiscal 2022 were $12.6 million, or 22% of sales, compared to $10.3 million, or 19% of sales, in the corresponding fiscal 2021 period, and included a favorable currency impact of $0.7 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year increase in selling, general and administrative expenses in the third quarter of fiscal 2022 was driven primarily by increases in marketing and tradeshow expenses, sales commissions, and employee benefit costs, as well as increased one-time costs for administrative services. The increase in selling, general, and administrative expenses year-over-year also reflected the employee retention credit recorded in those expenses in the third quarter of fiscal 2021 of $0.6 million, or 1% of sales during that period.
Operating Income. Operating income for the third quarter of fiscal 2022 was $1.8 million compared to $2.6 million for the corresponding period in fiscal 2021.
The decrease in operating income was primarily due to the $1.0 million, or 2% of sales, of employee retention credit recorded during the third quarter of fiscal 2021.
Other Income (Expense), Net. Other income (expense), net for the third quarter of fiscal 2022 and fiscal 2021 were each less than $0.1 million.
Income Taxes. The effective tax rate for the third quarter of fiscal 2022 was 28%, compared to 41%, for the corresponding prior year period. The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, various discrete tax items, and changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.
Nine Months Ended July 31, 2022 Compared to Nine Months Ended July 31, 2021
Sales and Service Fees. Sales and service fees for the nine months of fiscal 2022 were $187.4 million, an increase of $21.1 million, or 13%, compared to the corresponding prior year period, and included an unfavorable currency impact of $7.9 million, or 5%, when translating foreign sales to U.S. dollars for financial reporting purposes.
Sales and Service Fees by Geographic Region
The following table sets forth net sales and service fees by geographic region for the nine months ended July 31, 2022 and 2021 (dollars in thousands):
Sales in the Americas for the nine months of fiscal 2022 increased by 13%, compared to the corresponding period in fiscal 2021, primarily due to inflationary price increases and an increased volume of shipments of higher-performance Hurco and Takumi machines.
European sales for the nine months of fiscal 2022 increased by 15%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 9%, when translating foreign sales to U.S. dollars for financial reporting purposes. This increase was primarily driven by inflationary price increases, an increased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across the European region, as well as increased sales of electro-mechanical components and accessories manufactured by LCM.
Asian Pacific sales for the nine months of fiscal 2022 increased by 3%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The increase primarily resulted from inflationary price increases and an increased volume of shipments of Hurco and Takumi machines in Southeast Asia and India, partially offset by a reduced volume of shipments of Hurco and Takumi machines in China due to recent COVID-19 lockdowns and similar restrictions.
Sales and Service Fees by Product Category
The following table sets forth net sales and service fees by product category for the nine months ended July 31, 2022 and 2021 (dollars in thousands):
† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.
Sales of computerized machine tools for the nine months of fiscal 2022 increased by 14%, compared to the corresponding prior year period, primarily due to inflationary price increases and increased shipments of Hurco and Takumi machines across most regions and countries where our customers are located, other than China and the United Kingdom. Sales of computer control systems and software for the nine months of fiscal 2022 increased by 8%, compared to the corresponding prior year period, primarily due to an increase in software sales in Germany, North America and France. Sales of service parts for the nine months of fiscal 2022 increased by 6%, compared to the corresponding prior year period, due mainly to aftermarket sales of Hurco products in North America and the United Kingdom. Service fees for the nine months of fiscal 2022 increased by 5%, compared to the corresponding prior year period, due mainly to aftermarket service of Hurco and Takumi products in Germany, the United Kingdom and France.
All product categories included an unfavorable currency impact of 5%, when translating foreign sales to U.S. Dollars for financial reporting purposes.
Orders. Orders for the nine months of fiscal 2022 were $182.6 million, a decrease of $7.2 million, or 4%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of $7.2 million, or 4%, when translating foreign orders to U.S. dollars.
The following table sets forth new orders booked by geographic region for the nine months ended July 31, 2022 and 2021 (dollars in thousands):
Orders in the Americas for the nine months of fiscal 2022 increased by 2%, compared to the corresponding period in fiscal 2021, primarily due to inflationary price increases, partially offset by decreased customer demand for Hurco and Milltronics machines.
European orders for the nine months of fiscal 2022 increased by 1%, compared to the corresponding prior year period, and included an unfavorable currency impact of 7%, when translating foreign orders to U.S. dollars. This increase was primarily attributable to inflationary price increases and increased customer demand for Hurco, Takumi and Milltronics machines in Germany, partially offset by decreased customer demand for Hurco machines in France, the United Kingdom, and Italy, and for electro-mechanical components and accessories manufactured by LCM.
Asian Pacific orders for the nine months of fiscal 2022 decreased by 32%, compared to the corresponding prior year period, and included an unfavorable currency impact of 2%, when translating foreign orders to U.S. dollars. The decrease in Asian Pacific orders year-over-year was driven primarily by decreased customer demand for Hurco and Takumi machines in China and Southeast Asia due to recent COVID-19 lockdowns and similar restrictions, slightly offset by increased demand for Hurco machines in India.
Gross Profit. Gross profit for the nine months of fiscal 2022 was $46.9 million, or 25% of sales, compared to $39.3 million, or 24% of sales, for the corresponding prior year period. During the nine months of fiscal 2021, we recorded approximately $1.2 million, or 1% of sales, for the employee retention credit. While the employee retention credit did not recur in the nine months of fiscal 2022, gross profit as a percentage of sales in the 2022 period benefited from increased sales of higher-performance machines, improved leverage of fixed overhead costs and inflationary price increases implemented during fiscal 2022.
Operating Expenses. Selling, general, and administrative expenses for the nine months of fiscal 2022 were $36.9 million, or 20% of sales, compared to $32.2 million, or 19% of sales, in the corresponding fiscal 2021 period, and included a favorable currency impact of $1.3 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year increase in selling, general and administrative expenses in the nine months of 2022 was driven primarily by increases in marketing and tradeshow expenses, sales commissions, and employee benefit costs, as well as increased one-time costs for administrative services. The increase in selling, general, and administrative expenses year-over-year also reflected the employee retention credit recorded in those expenses in the nine months of fiscal 2021 of $1.7 million, or 1% of sales during that period.
Operating Income. Operating income for the nine months of fiscal 2022 was $10.0 million compared to $7.1 million for the corresponding period in fiscal 2021.
The increase in operating income was primarily driven by the increased sales volume.
Other Income (Expense), Net. Other income (expense), net for the nine months of fiscal 2022 decreased by $0.4 million from the corresponding period in fiscal 2021, due mainly to an increase in foreign currency exchange losses in the nine months of fiscal 2022 compared to the same period in fiscal 2021.
Income Taxes. The effective tax rate for the nine months of fiscal 2022 was 31%, compared to 36% for the corresponding prior year period. The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, various discrete tax items, and changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.
At July 31, 2022, we had cash and cash equivalents of $73.5 million, compared to $84.1 million at October 31, 2021. Approximately 14% of the $73.5 million of cash and cash equivalents was denominated in U.S. Dollars. The balance was 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 was $202.3 million at July 31, 2022, compared to $208.7 million at October 31, 2021. The decrease in working capital was primarily driven by decreases in cash and cash equivalents, accounts receivable and prepaid assets, partially offset by an increase in inventories, net.
Capital expenditures of $1.6 million during the nine months of fiscal 2022 were primarily for capital improvements in existing facilities and software development costs. We funded these expenditures with cash on hand.
On March 10, 2021, 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 may be made in the open market or through privately-negotiated transactions from time to time through March 10, 2023, subject to applicable laws, regulations and contractual provisions. The program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. During the nine months of fiscal 2022, we repurchased $2.9 million in shares of our common stock, and $4.1 million remained available under the program as of July 31, 2022.
In addition, during the nine months ended July 31, 2022, we paid cash dividends to our shareholders of $2.9 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 the 2018 Credit Agreement with Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020 and December 17, 2021. 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, 2023.
Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a rate based upon the 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 $10.0 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.
As of July 31, 2022, 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. We had no debt or borrowings under any of our credit facilities at July 31, 2022.
At July 31, 2022, we had an aggregate of approximately $51.4 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 beyond, and allow us to remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets, payment of dividends and our stock repurchase program.
We continue to receive and review information on businesses and assets for potential acquisition, including intellectual property assets that are available for purchase.
Our MD&A is based upon our condensed 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 condensed 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, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, 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. During the nine months of fiscal 2022, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2021.
There have been no material changes related to our contractual obligations and commitments from the information provided in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
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 July 31, 2022, we had eight outstanding third party payment guarantees totaling approximately $0.7 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.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the statements.
These risks, uncertainties and other factors include, but are not limited to:
The impact of the COVID 19 pandemic and other public health epidemics and
• pandemics on the global economy, our business and operations, our employees and
the business, operations and economies of our customers and suppliers;
•The cyclical nature of the machine tool industry;
•Uncertain economic conditions, which may adversely affect overall demand, in the Americas, Europe and Asia Pacific markets;
•The risks of our international operations;
• Governmental actions, initiatives and regulations, including import and export
restrictions, duties and tariffs and changes to tax laws;
•The effects of changes in currency exchange rates;
•Competition with larger companies that have greater financial resources;
•Our dependence on new product development;
•The need and/or ability to protect our intellectual property assets;
•The limited number of our manufacturing and supply chain sources;
•Increases in the prices of raw materials, especially steel and iron products;
•The effect of the loss of members of senior management and key personnel;
•Our ability to integrate acquisitions;
•Acquisitions that could disrupt our operations and affect operating results;
•Failure to comply with data privacy and security regulations;
•Breaches of our network and system security measures;
•Possible obsolescence of our technology and the need to make technological advances;
•Impairment of our assets;
•Negative or unforeseen tax consequences; and
•Uncertainty concerning our ability to use tax loss carryforwards.
We discuss these and other important risks and uncertainties that may affect our future operations in Part I, Item 1A - Risk Factors in our most recent Annual Report on Form 10-K and may update that discussion in Part II, Item 1A - Risk Factors in this report or in a Quarterly Report on Form 10-Q we file hereafter.
Readers are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This cautionary statement is applicable to all forward-looking statements contained in this report.
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