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 January 31, 2000 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
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, and (2) has been subject to the filing
requirements for the past 90 days:
Yes X No
The number of shares of the Registrant's common stock outstanding as of March 6,
2000 was 5,951,859.
HURCO COMPANIES, INC.
January 1999 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months ended January 31, 2000 and 1999.......................... 3
Condensed Consolidated Balance Sheet -
As of January 31, 2000 and October 31, 1999........................... 4
Condensed Consolidated Statement of Cash Flows -
Three months ended January 31, 2000 and 1999.......................... 5
Consolidated Statements of Changes in Shareholders' Equity
Three months ended January 31, 2000 and 1999.......................... 6
Notes to Condensed Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 11
Part II - Other Information
Item 1. Legal Proceedings......................................................... 12
Item 5. Other Matters............................................................. 12
Item 6. Exhibits and Reports on Form 8-K.......................................... 12
Signatures.............................................................................. 13
PART I - FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended January 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
Sales and service fees..................................................... $24,524 $21,147
Cost of sales and service.................................................. 17,803 15,143
Gross profit.......................................................... 6,721 6,004
Selling, general and administrative expenses............................... 5,820 5,335
Operating income...................................................... 901 669
Interest expense........................................................... 292 300
Other income (expense), net................................................ 17 45
Income before income taxes............................................ 626 414
Provision for income taxes................................................. 167 239
Net income................................................................. $ 459 $175
Earnings per common share
Basic................................................................. $.08 $.03
Diluted............................................................... $.08 $.03
Weighted average common shares outstanding
Basic................................................................. 5,952 6,074
Diluted............................................................... 6,008 6,172
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
January 31, October 31,
2000 1999
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents........................................... $ 4,172 $ 3,495
Accounts receivable................................................. 15,251 17,154
Inventories......................................................... 27,377 30,767
Other............................................................... 1,567 1,440
Total current assets............................................ 48,367 52,856
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,168 7,168
Machinery and equipment............................................. 11,247 11,182
Leasehold improvements.............................................. 1,002 1,005
Less accumulated depreciation and amortization.................. (11,346) (11,165)
8,832 8,951
Software development costs, less amortization............................ 3,778 3,951
Other assets ............................................................ 3,946 3,874
$ 64,923 $ 69,632
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 9,897 $ 10,891
Accrued expenses.................................................... 7,237 6,903
Current portion of long-term debt.................................. 1,786 1,786
Total current liabilities....................................... 18,920 19,580
Non-current liabilities:
Long-term debt...................................................... 8,500 12,386
Deferred credits and other obligations.............................. 1,406 1,518
Total non-current liabilities................................ 9,906 13,904
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; 5,951,859
and 5,951,859 shares issued and outstanding, respectively ...... 595 595
Additional paid-in capital.......................................... 46,340 46,340
Accumulated deficit................................................. (4,889) (5,348)
Foreign currency translation adjustment............................. (5,949) (5,439)
Total shareholders' equity...................................... 36,097 36,148
$ 64,923 $ 69,632
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three Months Ended January 31,
2000 1999
(Unaudited)
Cash flows from operating activities:
Net income.................................................................. $ 459 $ 175
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization............................................. 534 534
Change in assets and liabilities:
(Increase) decrease in accounts receivable.............................. 1,668 2,969
(Increase) decrease in inventories...................................... 2,873 (2,007)
Increase (decrease) in accounts payable................................. (980) (4,071)
Increase (decrease) in accrued expenses................................. 375 (1,046)
Other................................................................... 93 436
Net cash provided by (used for) operating activities.................... 5,022 (3,010)
Cash flows from investing activities:
Proceeds from sale of equipment............................................. 28 17
Purchases of property and equipment......................................... (208) (250)
Software development costs.................................................. (176) (226)
Other....................................................................... -- (162)
Net cash provided by (used for) investing activities.................... (356) (621)
Cash flows from financing activities:
Advances on bank credit facilities.......................................... 6,450 15,451
Repayment on bank credit facilities......................................... (8,550) (8,300)
Repayments of term debt..................................................... (1,786) (1,786)
Purchase of common stock.................................................... -- (2,379)
Proceeds from exercise of common stock options.............................. -- 2
Net cash provided by (used for) financing activities.................... (3,886) 2,988
Effect of exchange rate changes on cash.......................................... (105) (19)
Net increase (decrease) in cash......................................... 675 (662)
Cash and cash equivalents at beginning of period................................. 3,497 3,276
Cash and cash equivalents at end of period....................................... $ 4,172 $ 2,614
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended January 31, 2000 and 1999
Accumulated
Other
Comprehensive
Common Stock Income:
------------------------- Foreign
Shares Additional Currency
Issued & Paid-In Accumulated Translation
Outstanding Amount Capital Deficit Adjustment Total
(Dollars in thousands)
Balances, October 31, 1998 6,340,111 $634 $48,662 $(7,150) $(4,406) $37,740
Net income....................... -- -- -- 175 -- 175
Translation of foreign currency
financial statements........... -- -- -- -- -- (390)
Comprehensive income (loss)...... (215)
Exercise of Common Stock Options. 1,000 -- 2 -- -- 2
Purchase of Common Stock......... (395,752) (39) (2,340) -- -- (2,379)
Balances, January 31, 1999 5,945,359 $595 $46,324 $ (6,975) $(4,796) $35,148
Balances, October 31, 1999 5,951,859 $595 $46,340 $ (5,348) $(5,439) $36,148
Net income....................... -- -- -- 459 -- 459
Translation of foreign currency
Comprehensive income (loss)...... (51)
Exercise of Common Stock Options. -- -- -- -- -- --
Balances, January 31, 2000 5,951,859 $595 $46,340 $(4,889) $(5,949) $36,097
The accompanying notes are an integral part of the condensed consolidated financial statements.
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. We are an industrial
automation company that designs and produces interactive computer controls,
software and computerized machine systems for the worldwide metal cutting and
metal forming industries.
The condensed financial information as of January 31, 2000 and 1999 is unaudited
but includes all adjustments which we consider necessary for a fair presentation
of our financial position at those dates and our results of operations and cash
flows for the three months then ended. We suggest you read these condensed
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, 1999.
2. HEDGING
We hedge our exposure to fluctuations in foreign currency exchange rates by
using foreign currency forward exchange contracts. The U.S. dollar equivalent
notional amount of outstanding foreign currency forward exchange contracts was
approximately $3.7 million as of January 31, 2000 ($2.2 million related to firm
intercompany sales commitments) and $4.5 million as of October 31, 1999 ($2.1
million related to firm intercompany sales commitments). Deferred losses related
to hedges of future sales transactions were approximately $100,000 and $48,000
as of January 31, 2000 and October 31, 1999, respectively. Contracts outstanding
at January 31, 2000 mature at various times through February 2000.
3. EARNINGS PER SHARE
Basic and diluted earnings per common share are based on the weighted average
number of our shares of common stock outstanding. Diluted earnings per common
share give effect to outstanding stock options using the treasury method. Common
stock equivalents totaled approximately 56,000 shares as of January 31, 2000.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $702,000 as of January 31, 2000 and
$687,000 as of October 31, 1999.
5. INVENTORIES
Inventories, reflected at the lower of cost (first-in, first-out method) or
market are summarized below (in thousands):
January 31, 2000 October 31, 1999
Purchased parts and sub-assemblies $ 9,352 $ 9,104
Work-in-process 952 1,070
Finished goods 17,073 20,593
$ 27,377 $ 30,767
6. TAX CONTINGENCY
A German tax examiner has contested the transfer of net operating losses between
two of our German subsidiaries that merged in fiscal 1996. The contingent tax
liability resulting from this issue is approximately $1.4 million. We have
protested this matter and have not yet received a ruling from the German tax
authorities on the tax examiner's finding and our protest. In the event an
unfavorable ruling is received from the German tax authorities, we will consider
whether to appeal to the German Federal Tax Court. No provision for the
contingency has been recorded.
7. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, computer control
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
Substantially all of our machine systems and computer control systems are
manufactured to our specifications by contract manufacturing companies in Taiwan
and Europe. Our executive offices and principal design, engineering and
manufacturing management operations are headquartered in Indianapolis, Indiana.
We sell our products through over 240 independent agents and distributors in 45
countries throughout North America, Europe and Asia. We also have our own direct
sales and service organizations in the United States, England, France, Germany,
Italy and Singapore, which are considered to be among the world's principal
computerized machine system consuming countries.
8. RESTRUCTURING CHARGE
In fiscal 1998, we recorded a reserve for anticipated costs associated with the
restructuring of a subsidiary to convert its operations from manufacturing
computer controls to sales and service of computerized machine systems. At
January 31, 2000, the restructuring reserve balance was $357,326 and consisted
of the following:
Balance Charges to Balance
Description 10/31/99 Accrual Adjustment 1/31/00
Excess Building Capacity $285,899 -- -- $285,899
Equipment Leases 77,379 5,952 -- 71,427
$363,278 $ 5,952 $ -- $357,326
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements or the machine tool industry to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, (i) changes in
general economic and business conditions that affect demand for Computer Numeric
Control (CNC) systems, machine tools and software products, (ii) changes in
manufacturing markets, (iii) innovations by competitors, (iv) quality and
delivery performance by our contract manufacturers and (v) governmental actions
and initiatives including import and export restrictions and tariffs.
RESULTS OF OPERATIONS
Sales and service fees for the first quarter of fiscal 2000 were $24.5 million,
approximately 16% higher than those recorded in the corresponding 1999 period,
in spite of the unfavorable effects of a stronger U.S. dollar when translating
sales made in foreign currencies. At constant exchange rates, net sales for the
quarter would have been $25.9 million, an increase of approximately $4.8
million, or 23%. The increase was attributable primarily to shipments of
computerized machine systems, which benefited from improved order rates in the
U.S. and Southeast Asia and improved availability of new products for shipment
in Europe. Computerized machine system shipments in the U.S., which included a
higher percentage of larger model machines in the total sales mix, increased
approximately $1.9 million, or 43%. Shipments in Southeast Asia increased
approximately $900,000 or 360%, reflecting improved market conditions. In
Europe, computerized machine system shipments increased approximately $1.7
million, or 16%, when measured at constant exchange rates, due to improved
availability of our new models for shipment and a corresponding reduction in
backlog.
New order bookings for the first quarter of fiscal 2000 were $23.2 million,
compared to $24.8 million for the corresponding 1999 period, a decrease of 6.5%.
When measured at constant exchange rates, however, new orders were only slightly
below the fiscal 1999 level. Orders for computerized machine systems in the U.S.
increased approximately $1.1 million, or 21%. In Southeast Asia, orders for
these products increased $1.4 million, almost seven times the amount booked in
the first quarter of fiscal 1999. Orders for computerized machine systems in
Europe decreased $2.8 million in constant dollars, primarily in Germany and
France where demand had been unusually strong a year ago following our
introduction of new products. Backlog was $6.8 million at January 31, 2000,
compared to $8.5 million at October 31, 1999.
Gross profit as a percentage of sales was 27.4% compared to 28.4% for the first
quarter of fiscal 1999, due primarily to unfavorable foreign currency
translation effects.
Operating expenses in the first quarter of fiscal 2000
increased $485,000, or 9.1%. The latest fiscal quarter included planned
expenditures for the establishment of direct sales operations in Italy and
certain parts of the United States.
Foreign Currency Risk Management
We seek to manage our foreign currency exposure through the use of foreign
currency forward exchange contracts. We do not speculate in the financial
markets and, therefore, do not enter into these contracts for trading
purposes. We also endeavor to moderate our currency risk related to
significant purchase commitments with certain foreign vendors through price
adjustment agreements that provide for a sharing of, or otherwise limit,
the potential adverse effect of currency fluctuations on the costs of
purchased products. The results of these programs achieved our objectives for
the first quarter of fiscal 2000. See Note 2 to the Condensed Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, we had cash and cash equivalents of $4.2 million compared
to $3.5 million at October 31, 1999. Cash provided by operations totaled $5.0
million in the first quarter of fiscal 2000, compared to $3.0 million used for
operations in the same period of fiscal 1999. The cash flow provided by
operations resulted in a $3.9 million reduction in long-term debt during the
first quarter of fiscal 2000.
Net working capital was $29.4 million at January 31, 2000, compared to $33.3
million at October 31, 1999. The decline is attributable to a decrease in
inventory of $2.9 million and a decrease in accounts receivable of $1.7 million
offset by a $1.0 million decrease in accounts payable.
The decrease in inventories, which relates primarily to a reduction in finished
products available for shipment, is attributable to a planned decrease in
production by our contract manufacturers, combined with our increased shipments
in the first quarter of fiscal 2000.
The decrease in accounts receivable is attributable to the timing of shipments
in the fourth quarter of fiscal 1999 combined with a reduction in the average
age of our receivables from 55 days at October 31, 1999 to 53 days at January
31, 2000.
Capital investments in the first quarter consisted principally of expenditures
for software development projects and purchases of equipment. Cash used for
investing activities during the quarter was derived from operations.
The Company was in compliance with all loan covenants at January 31, 2000. We
believe that anticipated cash flow from operations and available borrowings
under credit facilities will be sufficient to meet our anticipated cash
requirements in the foreseeable future.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Interest on our bank borrowings is affected by changes in prevailing U.S. and
European interest rates and/or Libor. The interest rates on the Libor portion of
our bank credit facilities are based upon a ratio of total indebtedness to cash
flow for the preceding twelve month period and are payable at Libor plus an
amount ranging from 1.0% to 2.0% based upon a prescribed formula. At January 31,
2000, outstanding borrowings under our bank credit facilities were $8.5 million
and our total indebtedness was $10.3 million. The interest rate on the Libor
portion of our bank debt was Libor plus 1.5%.
Foreign Currency Exchange Risk
A significant portion of our products is sourced from foreign suppliers or built
to our specifications by contract manufacturers overseas. Our arrangements with
those suppliers typically include foreign currency risk sharing agreements,
which reduce the effects of currency fluctuations on product cost. The
predominant portion of our exchange rate risk associated with product purchases
relates to the New Taiwan Dollar.
During the first quarter of fiscal 2000, approximately 58.0% of our sales and
service fees, including export sales, were derived from foreign markets. All of
our computerized machine systems and computer numerical control systems, as well
as certain proprietary service parts, are sourced by our U.S.-based engineering
and manufacturing division and re-invoiced to our foreign sales and service
subsidiaries, primarily in their functional currencies. We enter into forward
foreign exchange contracts from time to time to hedge the cash flow risk related
to inter-company sales and inter-company accounts receivable in foreign
currencies. We do not speculate in the financial markets and, therefore, do not
enter into these contracts for trading purposes.
Forward contracts for the sale of foreign currencies as of January 31, 2000 were
as follows:
Weighted
Notional Amount Avg. Notional
Forward Contracts in Foreign Forward Amount in Market Value
Currency Rate U.S. $ in US$ Maturity Dates
Sterling 1,760,000 1.6063 2,827,088 2,843,280 February 2000
Euro 876,000 .9885 865,926 850,158 February 2000
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There have been no material developments in the IMS infringement litigation
except as described in our Annual Report on Form 10-K for the year ended October
31, 1999.
We are involved in various other claims and lawsuits arising in the ordinary
course of business, none of which, in the opinion of management, is expected to
have a material adverse effect on our consolidated financial position or results
of operations.
Item 5. OTHER MATTERS
On March 14, 2000, the Board of Directors approved Amended and Restated By-laws,
a copy of which is included as Exhibit 3.2 to this report. The only substantive
changes in the By-laws were to delete a provision which had made two provisions
of the Indiana Business Corporation Law inapplicable to the Company and to
increase the number of shares which may call a special meeting of shareholders
from 25% to a majority. The two provisions, Ind. Code Sections 23-1-42 (the
"Control Share" chapter) and 23-1-43 (the "Business Combination" chapter),
provide protections to Indiana corporations against certain unsolicited
takeover offers. As a result of the Board's action, these statutory
takeover protections will now apply to the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.2 Amended and Restated By-Laws of the Registrant dated March 14, 2000
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURCO COMPANIES, INC.
By: /s/ Roger J. Wolf
Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /s/ Stephen J. Alesia
Stephen J. Alesia
Corporate Controller and
Principal Accounting Officer
March 15, 2000