SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to section 13 or 15(d) of the Securities Exchange
--- Act of 1934 [FEE REQUIRED] for the fiscal year ended October 31, 1995 or
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED] for the transition period from
_________ to _________.
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-115073
(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: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
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 at least the past 90 days. Yes X No
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of January 12, 1996 was $25,773,890.
The number of shares of the Registrant's common stock outstanding as of January
12, 1996 was 5,426,082.
DOCUMENTS INCORPORATED BY REFERENCE: None
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
----
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Hurco Companies, Inc. (the Company) designs and produces computer numerical
control (CNC) systems and software and CNC-guided machine tools for sale through
its own distribution system to the worldwide machine tool industry. The
Company's proprietary CNC systems and related software products are either
integrated with machine tools marketed by the Company, sold to machine tool end
users or sold to other machine tool manufacturers who integrate them with their
own products.
The Company pioneered the application of microprocessor technology and
conversational programming software to machine tool controls and, since its
founding in 1968, has been a leader in the introduction of CNC systems that
automate manufacturing processes and improve productivity in certain segments of
the metalworking industry. The Company has concentrated on designing
"user-friendly" CNC systems that can be operated by both skilled and unskilled
machine tool operators and yet are capable of instructing a machine tool to
perform complex tasks. The combination of microprocessor technology and patented
interactive, conversational software in the Company's CNC systems enables
operators on the production floor to quickly and easily create a program for
machining or forming a particular part from a blueprint or electronic design and
immediately begin production of that part.
The Company's executive offices and principal design, engineering, assembly and
distribution facilities are located in Indianapolis, Indiana. Additional product
design, assembly and warehouse facilities are located in Farmington Hills,
Michigan; and sales, application engineering and service offices are located in
High Wycombe, England; Munich, Germany; Paris, France and Singapore.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one business segment, which consists of CNC systems and
software and CNC-guided machine tools for cutting and forming metals.
(C) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The manufacture of metal parts for industrial and consumer products primarily
involves two major processes: metal cutting and metal forming. These processes
are performed by machine tools. Metal cutting machine tools produce parts by
milling, drilling, turning and grinding of a solid block of metal. Metal forming
machine tools fabricate parts by shearing, punching, forming and bending flat
sheets of metal.
Approximately three-fourths of the world's machine tools are made for metal
cutting applications. The milling machine is one of the most common types of
metal cutting machines. Milling machines shape a part by moving a rotating
cutting tool, such as a drill, tap or mill, across a metal block. Although a
majority of the milling machines in current use are still manually operated, an
increasing number are now operated using CNC systems such as those produced by
the Company. CNC-guided milling machines automatically and precisely shape parts
by directing the movement of a cutting tool according to a program specifically
designed for the desired part. Some CNC-guided milling machines, referred to as
machining centers, are equipped with automatic tool changers that allow several
different drills, taps or mills to be used in a programmed sequence on the same
part without having to remove the part from the machine.
Metal forming machines include press brakes, presses, shears and punches. The
press brake is the basic machine tool used to perform simple bending operations
on a wide variety of sheet metal to create parts such as computer cabinets, door
frames, aircraft components and electrical enclosures. Each press brake uses one
or more manual or automated gauge systems that determine where the bend will be
made in the sheet metal part. Automated press brakes utilize CNC systems such as
those produced by the Company.
The Company has pursued a strategy that is focused on developing and
distributing to the worldwide machine tool market a comprehensive line of
leading-edge CNC products that incorporate proprietary technology designed to
enhance the user's productivity through ease of operation and adaptability to a
wide range of manufacturing applications. As part of this strategy, the Company
has adopted an open systems architecture that permits its CNC systems and
software to be used with a variety of hardware platforms and has emphasized an
"operator friendly" design that employs interactive "conversational" software.
To increase its margins and mitigate the potential adverse impact of the
recessionary cycles and other economic forces that impact the markets for
capital goods in general and machine tools in particular, the Company has
recently completed a comprehensive restructuring of its operations, as a result
of which it has outsourced almost all of its machine tool manufacturing
operations to independent contract manufacturers and is concentrating its
resources on product research, development, design, marketing, distribution and
service.
PRODUCTS
The Company's principal products consist of CNC systems and related software for
both metal cutting machine tools and metal forming press brakes as well as
complete CNC-guided milling machines and machining centers into which the
Company's own CNC systems have been fully-integrated. The Company also produces
and distributes control upgrades, accessories and replacement parts and provides
operator training and support services to its customers.
The following table sets forth the contribution of each of these product groups
to the Company's total revenues during each of the past three fiscal years:
YEAR ENDED OCTOBER 31
---------------------
(Dollars in thousands) 1995 1994 1993
---- ---- ----
CNC systems and software........ $19,027 (21.2%) $17,553 (24.2%) $15,869 (22.0%)
CNC-guided milling machines
and machining centers........ 55,711 (62.2%) 38,622 (53.2%) 39,857 (55.2%)
Service parts................... 9,073 (10.1%) 10,422 (14.3%) 10,465 (14.5%)
Service fees.................... 5,821 ( 6.5%) 6,031 ( 8.3%) 6,039 ( 8.3%)
------- ------- -------
$89,632 $72,628 $72,230
======= ======= =======
CNC SYSTEMS AND SOFTWARE
The Company's CNC systems and software are marketed under the tradenames ULTIMAX
(R), DELTA (TM) and AUTOBEND (R). The ULTIMAX (R) and DELTA (TM) product lines
are used to control metal cutting machine tools. AUTOBEND (R) CNC systems are
used to control metal forming press brakes.
o ULTIMAX
The Company's patented ULTIMAX "conversational" CNC system, which incorporates
an interactive and powerful "data block" programming methodology supported by
extensive geometric and process data calculation software tools, enables a
machine tool operator to create complex two-dimensional part programs directly
from blue print inspection. Machine operators with little or no programming
experience can successfully program parts and begin cutting operations in a
short time with minimum special training. Since the initial introduction of the
ULTIMAX CNC in 1984, the Company has added enhancements related to operator
programming productivity, CAD compatibility, data processing throughput and
motion control speed and accuracy. In 1994, the Company introduced the latest
generation of the ULTIMAX CNC, the ULTIMAX 3/486. By incorporating Industry
Standard Architecture (ISA) computer platform components, this CNC product
offers improved performance while ensuring access to the most effective
computing hardware and software technology. In 1995, the Company introduced a
software option that interprets part programs written for the worldwide
installed base of competitors' CNCs; this software option is intended to
increase the Company's access to the contract machining market. The Company also
developed a "Single Screen" version of its ULTIMAX CNC in 1995 to increase its
penetration of the CNC milling machine market. A conversational CNC system
similar to the ULTIMAX CNC system, which is offered as an integral component of
the Company's own line of milling machines and machining centers, also will be
marketed in 1996 to other machine tool manufacturers for integration with their
original equipment offerings and to retrofitters for integration with older
models of machine tools.
o DELTA SERIES
The Company's DELTA series CNCs, which feature microprocessor-based electronics
incorporating ISA computer platform components to provide enhanced performance
at lower cost, are designed for the worldwide metalworking industry and are used
on milling machines, machining centers, turning centers and punching equipment.
The DELTA CNC system is based on industry standard point-to-point programming
methodology but incorporates software features that group industry standard
commands into useful part features, such as circles and frames, to simplify
programming. The DELTA CNCs are designed and configured as general purpose
products, which offer flexibility, reliability and ease of integration with a
wide variety of machine designs, and are marketed to original equipment
manufacturers and retrofitters of a wide range of metal cutting machines.
Late in fiscal 1994, the Company expanded its DELTA product line with the
introduction of PRECISIONSCAN (TM), an advanced continuous trace digitizing
system that, together with other software peripherals, is intended to meet the
needs of mold makers in the metal cutting industry. The Company will further
supplement its DELTA product line with the introduction in fiscal 1996 of a new,
low-cost, two-axis lathe control with "conversational" graphics.
o AUTOBEND
AUTOBEND CNC systems are applied to press brakes that form parts from metal
sheet and consist of a microprocessor-based CNC and backgauge. The Company has
manufactured and sold the AUTOBEND product line since 1968 and currently markets
four models of its press brake CNC and gauging systems through distributors to
end-users as retrofit units for installation on existing or new press brakes as
well as to original equipment manufacturers and importers of press brakes. The
AUTOBEND product line was expanded in fiscal 1993 by the introduction of a
multi-axis CNC system that enhances the productivity of the press brake operator
by reducing set-up time. The AUTOBEND product line was further expanded in
October 1995 with the introduction of a low-cost CNC system for simple press
brake applications.
o CAM AND SOFTWARE PRODUCTS
In support of its CNC product lines, the Company offers metal cutting and
forming software products for programming two and three dimensional parts. Its
two primary products are the ULTIMAX PC and PC+, off-line programming systems,
which are sold to users of the large installed base of both ULTIMAX and
competitive CNC systems. In fiscal 1993, the Company released a computer-aided
design (CAD)-compatible data file translation software option to its ULTIMAX
off-line programming system. This unique product eliminates manual data entry of
part features by transferring AUTOCAD(TM) drawing files directly into the CNC or
the off-line programming system software, substantially increasing operator
productivity. And, in fiscal 1995, the Company augmented its Autobend product
line with the introduction of a computer-aided manufacturing (CAM) software
package that enables the user to create and manipulate metal forming programs on
a personal computer.
CNC MACHINE TOOL SYSTEMS
The Company designs and markets complete stand-alone milling machines and
machining centers, each of which is equipped with a fully-integrated ULTIMAX or
DELTA CNC system. All of these machines are built to the Company's
specifications by independent contract manufacturers. Its new ADVANTAGE(R) line
of machine tools, which was introduced in the United States in late fiscal 1994
and in Europe in the second half of fiscal 1995, is a complete family of
products offering different levels of performance features for different market
applications and ranging in price from $39,000 to $150,000. Two series of
products are currently offered within the Advantage(R) product line -- the VALUE
SERIES and the PERFORMANCE SERIES -- each of which is marketed within a distinct
price range and includes machines of differing sizes and power levels, ranging
from a five-horsepower milling machine with an X-axis travel of 24 inches to a
twenty-horsepower machining center with 50 inches of X-axis travel.
The VALUE SERIES products are equipped with the DELTA CNC or the "Single Screen"
version of the ULTIMAX CNC system and are intended for use by the independent
contract manufacturer requiring a low-cost product with basic capabilities. The
PERFORMANCE SERIES products employ the same machine tool frame as the VALUE
SERIES, but feature the more advanced ULTIMAX CNC system and software desired by
the precision tool, die and mold market, where fast programming of complex parts
is a key to competitiveness.
The Company's smaller machines -- those with an X-axis travel of 30 inches or
less -- embody the Company's proprietary machine tool design. The larger
machines -- those with an X-axis travel of 40, 45, or 50 inches -- incorporate a
machine tool platform developed by one of the Company's contract manufacturers.
During fiscal 1995, approximately 69% of the machine tools sold by the Company
embodied its proprietary design; these machines accounted for approximately 53%
of the Company's total machine tool sales revenues for fiscal 1995. The Company
expects that during fiscal 1996 approximately 85% of the machine tools it sells
will embody its proprietary design.
PARTS AND SYSTEM SERVICE
The Company's service organization provides installation, operator training and
customer support for the Company's products. The Company also provides CNC
upgrades, accessories, options and replacement parts for its products. Among the
options are software programs and additional CNC features that allow a customer
to upgrade the performance of its milling machines and machining centers. The
Company's after-sale parts and service business helps strengthen customer
relationships and provides continuous information concerning the evolving
requirements of end-users.
MARKETING AND DISTRIBUTION
The end-users of the Company's products are thousands of precision tool, die and
mold manufacturers, independent metal parts job shops and specialized production
groups within large manufacturing corporations. Industries served include
aerospace, defense, medical equipment, energy, injection molding, transportation
and computer equipment.
The Company sells its CNC systems and related products (i) to manufacturers of
new machine tools who integrate them with their own products prior to the sale
of those products to their own customers, (ii) to retrofitters of used machine
tools who integrate them with those machine tools as part of the retrofitting
operation and (iii) to end-users who have an installed base of machine tools,
either with or without related CNC systems. The Company's integrated CNC-guided
milling machines and machining centers are sold primarily to end-users. During
fiscal 1995, no single end-user of the Company's products accounted for more
than 5% of its total revenues.
Sales are made through over 200 independent agents and distributors in 37
countries throughout North America, Europe and Asia. The Company also has its
own direct sales forces in the United States, England, France, Germany and
Singapore, which are considered to be among the world's principal machine tool
consuming countries. During fiscal 1995, one distributor accounted for
approximately 6% of the Company's total revenues; no other distributor accounted
for more than 5% of total revenues. The Company has agreements with each of its
distributors, but may terminate those agreements upon prior notice ranging from
30 days to 180 days. Approximately 80% of the worldwide demand for CNC-guided
machine tools and CNC systems comes from outside the U.S. and accordingly, the
Company considers its international market presence to be critical to its
operations.
The Company believes the demand for CNC systems and CNC-guided machine tools is
driven by several factors: (i) the declining supply of skilled machinists, (ii)
the need to continuously improve productivity, (iii) an aging machine tool
installed base that will require replacement with more advanced and efficient
technology and (iv) the industrial development of emerging countries in Asia and
Eastern Europe. However, the demand for machine tools and related products is
highly dependent upon economic conditions and the general level of business
confidence, as well as such factors as production capacity utilization and
changes in governmental policies regarding tariffs, corporate taxation and other
investment incentives. By marketing and distributing its products on a worldwide
basis, the Company attempts to reduce the potential impact on its total revenues
of adverse changes in economic conditions in any particular geographic region.
COMPETITION
Numerous companies compete with the Company's product lines in the United States
and international markets. Many of these competitors are larger and have greater
financial resources than the Company. The Company strives to compete effectively
by designing into its products critical proprietary features that offer a
distinct value differential from comparably-priced competitive products in terms
of enhanced productivity, technological capabilities and ease of use. In
addition, by offering its products in a range of prices and capabilities, the
Company seeks to meet the needs of a broad potential market. The Company also
believes that its competitiveness is aided by its reputation for reliability and
quality, its strong international sales and distribution organization and its
extensive customer service organization.
In the CNC system market, the Company is a leader in providing user-friendly,
"conversational" programming systems for CNC machine tools. Many of its CNC
system competitors, such as Fanuc Ltd., Mitsubishi, Dr. Johannes Heidenhain
GmbH, Seimens, Southwest Industries, Bridgeport Machines., and Allen-Bradley,
also offer "user-friendly" programming features. Fanuc Ltd. is the world's
largest supplier of CNC systems.
The Company believes it is one of the largest manufacturers of CNC gauging
systems for press brakes in the United States. Automec Inc., a CNC gauge
manufacturer, and Cybelec SA, a control manufacturer, are the Company's major
competitors for these products in the United States. The Company also competes
with Cybelec in Europe.
In the U.S. market for CNC milling machines, competition comes primarily from
Bridgeport Machines, Inc., Tree Machine Tool Co., Inc., Miltronics Manufacturing
Co. and Republic-Lagun Machine Tool Co. Competition in the United States with
respect to CNC machining centers comes from Fadal Engineering Co., Inc., Haas
Automation, Inc. and Cincinnati Milacron, Inc. A large number of foreign
builders, including Okuma Machinery Works Ltd., Yamazaki Mazak Corporation, Mori
Seiki Co., Ltd., and Matsuura Machinery Corporation also compete with the
Company in the United States as well as in international markets.
MANUFACTURING
The Company assembles and tests its CNC systems at its own facilities in
Indianapolis, Indiana, and Farmington Hills, Michigan using readily available,
industry-standard personal computer components (such as hard disk drives, VGA
cards and motherboards) as well as proprietary system components that are
produced to the Company's specifications by several domestic suppliers. The
Company believes that alternative sources for the proprietary components are
readily available.
The Company's CNC-guided machine tools and milling machines are manufactured to
its specifications in Taiwan by several independent contractors, of whom two
accounted for approximately 95% of the machines sold by the Company in fiscal
1995. The Company has worked closely with its Taiwan-based contractors to
increase their production capacity to meet the rising demand for its machine
tool products and believes that such capacity is sufficient to meet the
Company's current and projected demand. Although the Company is exploring
additional manufacturing sources for certain of its machine tool products,
alternative sources are not readily obtainable and any significant reduction in
capacity on the part of its existing machine tool manufacturing contractors
could have a material adverse effect on its operations.
BACKLOG
Backlog consists of firm orders received from customers and distributors.
Backlog was $16.1 million, $7.0 million and $7.7 million as of October 31, 1995,
1994, and 1993, respectively. Fiscal 1995 orders were $98.8 million compared to
$71.9 million for fiscal 1994, and $74.1 million for fiscal 1993.
INTELLECTUAL PROPERTIES
The Company considers certain features of its products to be proprietary and
owns, directly or through a subsidiary, a number of patents that are significant
to its business. The Company holds a non-exclusive license covering features of
the automatic tool changer offered with certain of its CNC machining centers. In
addition, IMS Technology, Inc. (IMS), a wholly-owned subsidiary of the Company,
owns various domestic and foreign patents covering the machining method
practiced when a machine tool is integrated with an interactive CNC (the
Interactive Maching Patents). In September 1995, the Company was awarded a new
patent on an object-oriented methodology for CNC software.
In October 1995, IMS initiated infringement actions against a number of
enterprises that it believes are employing or practicing machining methods
covered by the Interactive Machining Patents. These enterprises include end
users of interactive CNCs, machine tool builders employing interactive CNCs
within their products and CNC manufacturers whose control designs permit use of
interactive methods when coupled to machine tools. See Item 3. LEGAL
PROCEEDINGS.
IMS is actively pursuing a program to license the use of the Interactive
Machining Patents. On January 2, 1996, IMS entered into an agreement with a CNC
manufacturer and various of its subsidiaries, none of whom is a defendant in the
IMS patent infringement actions, under which it has granted a non-exclusive
license to use the Interactive Machining Patents in exchange for certain fixed
payments beginning in fiscal 1996 and continuing through fiscal 2001 and
aggregating approximately $800,000, net of legal fees and expenses. In addition,
IMS has received a royalty-free non-exclusive license (with a right of
sublicense to the Company) under four of the licensee's patents. There can be no
assurance that IMS will enter into any other license agreements or that the
terms of any future license agreements will be similar to those of the initial
license.
RESEARCH AND DEVELOPMENT
The Company's total engineering, research and development expenditures,
including amounts funded by third parties, were $4.3 million in fiscal 1995,
$4.0 million in fiscal 1994 and $4.3 million in fiscal 1993. These activities
include development of new software and machine tool products, efforts to reduce
costs and improve quality for current products and routine product support.
Research and development expenditures for new products and significant product
improvements were $1.4 million, $1.0 million and $1.7 million in fiscal 1995,
1994, and 1993 respectively, and $1.0 million, $1.0 million, and $1.6 million
respectively, net of third-party reimbursements. In addition, the Company
capitalized $1.2 million in 1995, $.8 million in 1994 and $.7 million in 1993
related to software development projects.
EMPLOYEES
The Company and its subsidiaries had 352 employees at the end of fiscal 1995,
none of whom is covered by a collective-bargaining agreement or represented by a
union. The Company has experienced no employee-generated work stoppages or
disruptions and considers its employee relations to be satisfactory.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The following represents a breakdown of Company sales to the indicated
geographic regions for the past three fiscal years (in thousands):
1995 1994 1993
------- ------- -------
North America....................... $49,005 $46,430 $46,402
Europe ............................. 35,434 23,692 22,151
Asia and other...................... 5,193 2,506 3,677
------- ------- -------
Total ............................ $89,632 $72,628 $72,230
======= ======= =======
Export sales from the United States were $6.4 million in 1995, $5.7 million in
1994 and $6.2 million in 1993.
Information regarding Total Sales, Operating Income (Loss) and Identifiable
Assets by geographical area is shown in Note 14 to the Consolidated Financial
Statements.
ITEM 2. PROPERTIES
The following table sets forth the location, size and principal use of each of
the Company's facilities:
LOCATION SQUARE FOOTAGE PRINCIPAL USES
Indianapolis, Indiana 165,000<F1> Corporate headquarters, design and
engineering, product testing, CNC
assembly, sales, application
engineering and customer service.
Farmington Hills, Michigan 37,500 Design and engineering, product
testing, CNC assembly, sales,
application engineering and
customer service.
High Wycombe, England 45,000<F2> Sales, application engineering,
customer service.
Paris, France 2,800 Sales, application, engineering,
customer service.
Munich, Germany 10,700 Sales, application engineering,
customer service.
Singapore 1,200 Sales, application engineering
customer service
- ---------------------
<FN>
<F1> Approximately 65,000 square feet will be available for lease in fiscal
1996.
<F2> Approximately 24,000 square feet have been sublet to a subtenant since
November 1995.
</FN>
The Company owns the Indianapolis facility and leases the other facilities. The
leases have terms expiring at various dates ranging from February 1997 to
February 2004. The Company believes that all of the its facilities are well
maintained and are adequate for its needs now and in the foreseeable future. The
Company does not believe that it would experience any difficulty in replacing
any of the present facilities if any of its current leases were not renewed at
expiration.
ITEM 3. LEGAL PROCEEDINGS
On October 10, 1995, the Company's wholly-owned subsidiary, IMS, commenced an
action in the United States District Court for the Northern District of Illinois
against Yamazaki Mazak Corporation; Yamazaki Mazak Trading Corporation; Mazak
Corporation; Machinery Systems, Inc.; Fox Tool Co. Inc.; Okuma Machinery Works
Ltd.; Okuma America Corporation; Ellison Machinery Company of the Midwest, Inc.;
Apollo Machine & Manufacturing Company, Inc.; Arpac Corporation; American
Control Technology, Inc.; Nissan Motor Co. Ltd.; Nissan Motor Car Carrier Co.,
Ltd.; and Nissan Motor Corp. USA, Inc. (collectively the Defendants). The
Defendants include end-users of interactive CNCs, machine tool manufacturers who
incorporate interactive CNCs in their products and manufacturers of CNCs
designed to permit use of interactive methods when coupled to machine tools. IMS
has alleged that the Defendants have infringed IMS's Interactive Machining
Patents and is seeking monetary damages from, and an injunction against future
infringement by, each of the Defendants.
On January 10, 1996, IMS was served notice of an action commenced on November
30, 1995 against IMS in the United States District Court for the Central
District of Claifornia by Southwestern Industries, Inc. (Southwestern), a
manufacturer of CNCs and CNC-guided machine tools, seeking to have the
interactive machining patents declared invalid. IMS has until February 10, 1996
to respond to the complaint. On January 11, 1996, IMS commenced an action
against each of Southwestern and Bridgeport Machines, Inc., a manufacturer of
CNCs and CNC-guided machine tools, alleging infringement by each of these
companies of the Interactive Machining Patents and seeking monetary damages and
injunctive relief.
Although IMS believes that the Interactive Machining Patents are valid and its
claims of patent infringement have substantial merit, it is unable to predict
the outcome of any of these actions.
The Company is involved in various other claims and lawsuits arising in the
normal course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on its consolidated financial
position or results of operations.
ITEM. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the executive officers of
the Company:
NAME AGE POSITION(S) WITH THE COMPANY
Brian D. McLaughlin 53 President and Chief Executive Officer
Roger J. Wolf 55 Senior Vice-President, Secretary,
Treasurer and Chief Financial Officer
David E. Platts 43 Vice-President, Research and Development
James D. Fabris 44 Vice President and
President, Hurco Manufacturing Company
Richard Blake 37 Vice President, Hurco Europe
Thomas L. Brown 39 Corporate Controller and Assistant Secretary
Brian D. McLaughlin has been President and Chief Executive Officer of the
Company since December 1987. From 1982 to 1987, he was employed as President and
General Manager of various divisions of Ransburg Corporation, an international
manufacturer of factory automation equipment. Previously, he was employed in
general management and marketing management positions with Eaton Corporation.
Roger J. Wolf was elected Senior Vice-President, Secretary, Treasurer and Chief
Financial Officer in January 1993. Prior to joining the Company, Mr. Wolf was
Executive Vice-President of a privately-owned investment and service business
for over seven years. Previously, he served as Vice President, Corporate
Controller and Vice-President, Treasurer of Ransburg Corporation, an
international manufacturer of factory automation equipment.
David E. Platts has been employed by the Company since 1982, and was elected
Vice-President, Research and Development in 1989. Prior to joining the Company,
Mr. Platts was a Research Engineer at the Delco Remy Division of General Motors.
James D. Fabris was elected Vice President of the Company in February 1995 and
named President of Hurco Manufacturing Company, a division of the Company, in
November 1993. He served as President of Acroloc, Inc., a subsidiary of the
Company, from July 1991 to October 1993 and as Vice-President of Operations of
Hurco Manufacturing Company from 1988 to 1991. Prior to joining the Company, he
was employed in general management and manufacturing management positions at
various divisions of Ransburg Corporation.
Richard Blake was elected Vice President, Hurco Europe, effective January 1996,
and Managing Director, Hurco Europe, Ltd., a subsidiary of the Company, in
December 1993. He served as U.K. Marketing Manager for Hurco Europe, Ltd. from
January 1993 to November 1993 and as a Sales Manager for Hurco Manufacturing
Company from September 1989 to December 1992. Prior to joining Hurco Europe,
Ltd. as a sales engineer in October 1987, he worked for Hitachi Seiki as a
technical sales engineer for machine tool products.
Thomas L. Brown joined the Company in January 1995 and was elected an executive
officer in February 1995. Prior to joining the Company, he was Assistant Vice
President, Financial Reporting and Analysis for Anacomp, Inc., an information
management company providing micrographics and magnetics products and services.
Prior to March 1991, he was with Deloitte & Touche, an international public
accounting firm, for over 12 years.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the NASDAQ National Market System under
the symbol "HURC". The following table sets forth the high and low sales prices
of the shares of Common Stock for the periods indicated, as reported by NASDAQ.
1995 1994
---------------- ----------------
QUARTER ENDED:.......................... HIGH LOW HIGH LOW
- ------------- ---------------- ----------------
January 31.............................. $4-1/2 $3-3/4 $3-3/8 $2
April 30................................ 4-3/8 2-3/4 3-3/4 2-5/8
July 31................................. 4-1/4 3-3/8 2-7/8 2-1/4
October 31.............................. 7-1/8 3-1/2 4-3/4 2-1/4
The Company does not currently pay dividends on its Common Stock and intends to
retain earnings for working capital, capital expenditures and debt reduction. In
addition, the Company's agreements with its principal lenders restrict its
ability to pay cash dividends.
The Company had approximately 641 holders of record of its Common Stock as of
January 12, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data presented below have been derived from the
Consolidated Financial Statements of the Company for the years indicated and
should be read in conjunction with the Consolidated Financial Statements and
related notes set forth elsewhere herein.
YEAR ENDED OCTOBER 31,
----------------------
1995 1994 1993 1992 1991
------------------------------------------------
Statement of Operations Data: (Dollars in thousands, except per share amounts)
Sales and service fees $89,632 $72,628 $72,230 $87,828 $86,539
Selling, general and adminis-
tration expenses $19,002 $18,129 $22,001 $24,213 $20,623
Restructuring charge $ -- $ -- $ 6,750 $ 1,070 $ --
Operating income (loss) $ 4,468 $(2,564) $(18,323) $(3,633) $ 4,271
Net income (loss) $ 204 $(5,791) $(21,144) $(5,789) $ 2,337
Earnings (loss)
per common share $ .04 $ (1.07) $ (3.89) $ (1.05) $ .43
Common stock dividends
per share $ -- $ -- $ -- $ .14 $ .20
Weighted average common
shares outstanding 5,536 5,407 5,438 5,492 5,487
AS OF OCTOBER 31,
-----------------
1995 1994 1993 1992 1991
-----------------------------------------------
Balance Sheet Data: (Dollars in thousands)
Current assets $46,356 $43,096 $49,314 $61,532 $60,671
Current liabilities $26,479 $16,985 $16,312 $15,349 $16,160
Working capital $19,877 $26,111 $33,002 $46,183 $44,511
Current ratio 1.8 2.5 3.0 4.0 3.8
Total assets $61,421 $59,558 $67,287 $84,332 $82,369
Long-term obligations $27,459 $35,245 $37,888 $34,285 $23,451
Total debt $33,599 $34,813 $37,540 $35,515 $24,020
Shareholders' equity $ 7,483 $ 7,328 $13,087 $34,698 $42,758
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes thereto
appearing elsewhere herein.
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 worldwide
revenues and the year-to-year percentage changes in the dollar amounts of those
items.
PERCENTAGE OF REVENUES YEAR-TO-YEAR % CHANGE
---------------------- ---------------------
1995 1994 1993 95 VS. 94 94 VS. 93
Sales and service fees 100.0% 100.0% 100.0% 23.4% .6%
Gross profit 26.2 21.5 14.4 50.8 49.3
Selling, general and
administrative expenses 21.2 25.0 30.5 (4.8) 17.6
Restructuring charge -- -- 9.3 -- --
Operating income (loss) 5.0 (3.5) (25.4) 274.3 86.0
Interest expense 4.8 4.5 3.9 (28.8) (16.7)
Net income (loss) .2 (8.0) (29.3) 103.5 72.6
FISCAL 1995 COMPARED WITH FISCAL 1994
Total sales and service fees of $89.6 million in fiscal 1995 represented an
increase of $17.0 million over fiscal 1994, inclusive of $2.5 million
attributable to the effect of stronger European currencies when converting
foreign currency revenues into U.S. dollars for financial reporting purposes. On
a worldwide basis, sales of CNC-guided machine tools totaled $55.7 million, an
increase of $17.1 million (44%) over fiscal 1994, and sales of CNC systems and
software totaled $19.0 million, an increase of $1.5 million (8%) over fiscal
1994. While the increases in both product lines reflected improvements in the
world's principal machine tool markets, particularly Germany, the significantly
greater percentage increase associated with the sales of CNC-guided machine
tools was attributable to the strong demand for the Company's new ADVANTAGE
series of machine tools as well as the enhanced availability of products for
shipment as a result of capacity increases on the part of contract
manufacturers. Revenues attributable to sales of parts and service fees declined
$1.6 million (9%) from fiscal 1994 levels, primarily as a result of reduced
sales of parts for discontinued machine tool models.
In the United States, sales and service fees in fiscal 1995 increased $3.5
million (7%) over fiscal 1994, reflecting increases of $4.0 million (18%) in
sales of CNC-guided machine tools and $1.4 million (9%) in sales of CNC systems
and software, offset by a decrease of $1.9 million (14%) in revenue from service
parts and fees. The improved sales were primarily attributable to increases in
unit volume, rather than pricing, due to enhanced demand for and availability of
the Company's ADVANTAGE product line and general strengthening of the markets
for both fully-integrated machine tools and CNC systems.
In Europe, sales and service fees in fiscal 1995 increased $11.3 million (52%)
over fiscal 1994, inclusive of the effects of currency conversion for financial
reporting purposes. Net of currency-translation effects, the improvement was
primarily attributable to a 25% increase in unit volume and a 17% increase in
average unit prices realized for the Company's CNC-guided machine tools,
reflecting the introduction of the new ADVANTAGE series in the second half of
fiscal 1995 as well as a significant strengthening of the European machine tool
markets. In Asia, sales and service fees increased to $2.6 million in fiscal
1995 from $400,000 recorded for fiscal 1994, reflecting the Company's more
competitive pricing of the new ADVANTAGE series product line in that market. On
a combined basis, European and Asian sales and service fees in fiscal 1995,
exclusive of currency-translation effects, accounted for 38% of total worldwide
revenues, compared with 30% in fiscal 1994, due primarily to the more
significant year-to-year change in general market conditions in Europe than in
the United States, as well as improvements in the Company's foreign sales and
marketing operations.
Demand for the Company's products during fiscal 1995 was strong. Worldwide new
order bookings for fiscal 1995 increased $26.9 million (37%) over 1994,
primarily due to the introduction of the new ADVANTAGE series of machine tool
products and the increased production capacity of the Company's contract
manufacturers. Backlog as of October 31, 1995, was $16.1 million compared to
$7.0 million as of October 31, 1994. The Company is continuing to work with its
contract manufacturers to further increase their production capacity.
Gross profit margin as a percentage of revenues increased from 21.5% in fiscal
1994 to 26.2% in 1995. As reflected in Note 13 to the Consolidated Financial
Statements, gross profit margins have steadily increased from 18.5% in the first
quarter of fiscal 1994 to 27.2% in the fourth quarter of fiscal 1995, reflecting
cost reductions achieved through the Company's restructuring program as well as
the incremental phase-in of higher-margin products. Also contributing to the
enhancement of gross profit margins was an improved mix of higher-margin
European sales as a percentage of total worldwide sales, as well as the
favorable currency-translation effects associated with foreign sales.
Selling, general and administrative (SG&A) expenses in fiscal 1995 increased
$873,000 (5%) over fiscal 1994 primarily because of favorable currency
translation effects ($502,000) and increased selling expenses associated with
increased unit volume. SG&A expenses, as a percentage of sales and service fees,
was 21% in fiscal 1995 compared to 25% in fiscal 1994.
The Company generated $4.5 million of operating income in fiscal 1995 compared
to a $2.5 million operating loss in fiscal 1994, a $7.0 million improvement.
This return to operating profitability after three years of losses reflects the
benefits of the Company's restructuring program, the phase-in of new
higher-margin products and improved market conditions worldwide.
Interest expense in fiscal 1995 increased $949,000 (29%) over fiscal 1994.
Included in interest expense for fiscal 1995 is a $400,000 incremental fee
payable to the Company's lenders under its credit agreements, which provide for
additional fees when certain gross profit levels are achieved. As of October 31,
1995, the maximum fee became fully due. The remaining $240,000 incremental fee
payable to the lenders as of October 31, 1995, will be amortized to expense
during fiscal 1996. The remainder of the increase in interest expense reflects
the impact of higher interest rates on the Company's floating rate bank
borrowings, despite a $1.2 million reduction in total debt during the year.
No income tax expense has been provided for fiscal 1995. The income tax
liability incurred in certain tax jurisdictions was offset by the reversal of
valuation allowance reserves against the Company's net operating loss
carryforwards. Net operating loss carryforwards available to offset pre-tax
income in future periods are discussed in Note 6 to the Consolidated Financial
Statements.
The Company manages its foreign currency exposure through the use of foreign
currency forward exchange contracts as described in Note 1 to the Consolidated
Financial Statements. The Company does not speculate in the financial markets
and, therefore, does not enter into these contracts for trading purposes. The
Company also moderates its 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 management's objectives for 1995.
FISCAL 1994 COMPARED WITH FISCAL 1993
The results of operations for fiscal 1994 are not directly comparable with those
for fiscal 1993 due to the impact on fiscal 1993 results of non-recurring
charges that aggregated $10.2 million. In addition, sales in fiscal 1993
included approximately $4.8 million attributable to certain product lines that
were discontinued in fiscal 1994.
Although total sales and service fees in fiscal 1994 were relatively unchanged
from those for fiscal 1993, sales of continuing product lines increased $5.2
million (8%) substantially offsetting the negative impact on sales of the
discontinuance of certain product lines that had accounted for approximately
$4.8 million of sales in fiscal 1993. Sales of continuing product lines in
Europe increased $3.3 million (19%) over fiscal 1993, reflecting a 13% increase
in unit volume and a 5% increase in average unit prices. The increase in unit
volume resulted primarily from general improvement in economic conditions in the
United Kingdom and Germany. The improvement in average unit prices reflected a
reduction in price discounting within the machine tool market generally as well
as an upgrading in the Company's total product mix. Changes in currency exchange
rates were not a material factor in the year-to-year increase.
In the United States, sales and service fees in fiscal 1994 decreased $1.1
million (2%) from fiscal 1993. Sales of CNC systems and software increased $1.9
million (15%), reflecting improved conditions in those machine tool market
segments in which these products are sold. This increase was offset, however, by
a decrease in sales of CNC-guided machine tools, as well as associated parts and
service fees, reflecting the adverse effect of shortages in the availability of
certain of the Company's product lines for immediate shipment during the first
six months of fiscal 1994, the restructuring of the Company's domestic sales and
marketing organization throughout the year, the early phase-out of certain older
machine tool models and a decline in customer orders for certain continuing
product offerings in anticipation of the expected introduction of the ADVANTAGE
series of machine tools in the fourth fiscal quarter.
New orders in fiscal 1994 decreased $2.2 million (3%) from fiscal 1993. Backlog
as of October 31, 1994 was $7.0 million compared to $7.7 million at October 31,
1993. In September 1994, the Company introduced its new Advantage series of
machine tools and several new open architecture-based CNC systems and software
products, resulting in near record orders for that month. Although the new
machine tool products were not available for shipment until the first quarter of
fiscal 1995 in the United States, and later in Europe, new domestic machine tool
orders in September and October 1994 reflected an increase of 37% compared to
the same months in 1993.
Gross profit margin as a percentage of revenues increased from 19.2% in fiscal
1993 (exclusive of non-recurring charges) to 21.5% in fiscal 1994, the effect of
which is approximately $1.7 million. Gross profit margins increased from 18.5%
in the first quarter of fiscal 1994 to 23.8% in the fourth quarter. The
improvements in gross profit margins reflected the benefits of cost reductions
achieved through the implementation of the Company's restructuring program and
the incremental phase-in of higher-margin products.
Selling, general, and administrative expenses in fiscal 1994 decreased $3.9
million, or 18%, from fiscal 1993 primarily as a result of facilities and
personnel reductions under the restructuring program.
As a result of the improvements in gross profit margins and the reduction of
selling, general and administrative expenses, the fiscal 1994 operating loss was
$5.6 million (69%) less than that reported for fiscal 1993 (exclusive of the
non-recurring charges).
Interest expense in fiscal 1994 increased $473,000 (17%) over the fiscal 1993
amount notwithstanding a $2.7 million reduction in outstanding debt, as a result
of higher interest rates and fees payable to the Company's lenders.
In fiscal 1994, the Company entered into foreign currency forward exchange
contracts to hedge against foreign currency fluctuations on receivables
denominated in foreign currencies and net investments in foreign subsidiaries,
principally working capital. These contracts were typical forward contracts and
were not entered into for trading purposes. Hedge gains and losses were
effectively matched with corresponding transaction gains and losses on foreign
currency receivables and corresponding translation gains and losses on net
investments. The net effect of this activity was not significant during 1994.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1995, the Company had cash and cash equivalents of $2.1 million
compared to $1.1 million at October 31, 1994. Cash provided by operations
totaled $3.7 million in fiscal 1995, compared to $4.0 million in fiscal 1994.
Accounts receivable increased by $3.1 million because of substantially higher
sales volume in the fourth quarter of fiscal 1995 than in the comparable quarter
of fiscal 1994. Inventories decreased by $1.0 million primarily due to focused
efforts to sell discontinued CNC machine tool products and related parts
inventories. This reduction offset increased inventory requirements related to
higher production capacity at the Company's contract manufacturers. Accounts
payable and accrued expenses increased by $3.0 million primarily because of the
increased inventory requirements and the higher sales volume.
Working capital was $19.9 million at October 31, 1995, compared to $26.1 million
at October 31, 1994. The decrease in working capital is primarily attributable
to the classification of term debt payable on or before September 30, 1996 as
current liabilities. During fiscal 1995, total debt was reduced by $1.2 million
through the application of cash provided by operations. This compares to
decreased borrowings of $2.7 million in fiscal 1994.
Capital expenditures for property and equipment were $551,000 in fiscal 1995 and
represented normal improvements and replacements. Capitalized software
development costs were $1.1 million in fiscal 1995 and represented continued
activity in developing new software features and options for both new and
existing CNC system products.
As discussed in Note 3 to the Consolidated Financial Statements, the Company has
approximately $3.2 million in inventories of discontinued products, inactive
parts and excess/slow-moving parts which it expects to liquidate in the normal
course of operations. Management expects the results of such liquidation in 1996
to be sufficient to offset any increases in inventory requirements related to
continuing products and to provide an additional source of cash from operations.
As of October 31, 1995, the Company had unutilized credit facilities of $5.9
million available for either direct borrowings or commercial letters of credit.
As noted under Item 1. BUSINESS -- INTELLECTUAL PROPERTIES, the Company's
subsidiary, IMS Technology, Inc., entered into a patent license agreement under
which it will receive payments, net of legal fees and expenses, aggregating
approximately $800,000 throughout January 2001, of which approximately $357,000
will be included in income during fiscal 1996.
Under the terms of the Company's agreements with its lenders, which were amended
and restated effective January 26, 1996, as described in Note 4 to the
Consolidated Financial Statements, $6.2 million of term loan payments are due
and payable in fiscal 1996, including approximately $3.2 million in installment
payments which were deferred from February 1, 1996 to July 31, 1996. Management
believes that anticipated cash flow from operations, together with available
borrowings under the Company's bank credit facilities, will be sufficient to
enable the Company to meet its anticipated cash requirements for fiscal 1996,
including scheduled debt amortization payments. However, should cash flow from
operations be less than currently anticipated, the Company may be required to
limit planned investments in new products, equipment and business development
opportunities. In order to provide additional liquidity and working capital, as
well as a basis for ultimately refinancing its outstanding indebtedness, the
Company is considering opportunities for raising approximately $5.0 million of
additional capital through the issuance and sale of equity or subordinated debt
securities. The Company has no present agreements or arrangements for obtaining
such additional capital and there can be no assurance that it will be obtainable
on acceptable terms. Although the Company has no obligation to seek or obtain
such additional capital, if it is not obtained, the Company may be subject to
increased fees to its lenders, as discussed in Note 4 to the Consolidated
Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Hurco Companies, Inc.
We have audited the accompanying consolidated balance sheets of Hurco Companies,
Inc. (an Indiana corporation) and subsidiaries as of October 31, 1995 and 1994,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years then ended. These financial statements and
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hurco Companies,
Inc. and subsidiaries as of October 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a) 2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana
December 1, 1995 except with
respect to the matters discussed
in Notes 4 and 12 as to which the
date is January 26, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors
Hurco Companies, Inc.
Indianapolis, Indiana
We have audited the consolidated statements of operations, changes in
shareholders' equity and cash flows of Hurco Companies, Inc. and subsidiaries
for the year ended October 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Company incurred significant losses from operations in 1993. The Company
entered into new loan agreements to cure certain violations of financial
covenants and implemented a plan for restructuring its operations as discussed
in Notes 2 and 4 to the consolidated financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of the operations and the cash
flows of Hurco Companies, Inc. and subsidiaries for the year ended October 31,
1993, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements described above taken as a whole. The schedule listed in Item 14(a) 2
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
COOPERS & LYBRAND
Indianapolis, Indiana
December 10, 1993
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31,
----------------------
(In thousands, except per share amounts) 1995 1994 1993
---- ---- ----
SALES AND SERVICE FEES $89,632 $ 72,628 $ 72,230
Cost of sales and service 66,162 57,063 61,802
-------- -------- -------
GROSS PROFIT 23,470 15,565 10,428
Selling, general and administrative expenses 19,002 18,129 22,001
Restructuring charge -- -- 6,750
-------- -------- -------
OPERATING INCOME (LOSS) 4,468 (2,564) (18,323)
Interest expense 4,250 3,301 2,828
Other (income) expense, net 14 (74) (7)
-------- -------- -------
Income (loss) before income taxes 204 (5,791) (21,144)
Income tax expense (benefit) -- -- --
-------- -------- -------
NET INCOME (LOSS) $ 204 $ (5,791) $(21,144)
======== ======== =======
EARNINGS (LOSS) PER COMMON SHARE $ .04 $ (1.07) $ (3.89)
======== ======== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,536 5,407 5,438
======== ======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
AS OF OCTOBER 31,
-----------------
(Dollars in thousands, except per share amounts) 1995 1994
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 2,072 $ 1,101
Accounts receivable, less allowance for
doubtful accounts of $1,070 in 1995
and $1,046 in 1994 17,809 14,555
Inventories 25,238 26,341
Other 1,237 1,099
-------- --------
Total current assets 46,356 43,096
-------- --------
PROPERTY AND EQUIPMENT:
Land 761 761
Building 7,122 6,979
Machinery and equipment 13,489 13,886
Leasehold improvements 996 1,060
-------- --------
22,368 22,686
Less accumulated depreciation and
amortization (11,739) (10,799)
-------- --------
10,629 11,887
Software development costs, less amortization 3,513 3,234
Other assets 923 1,341
-------- --------
$ 61,421 $ 59,558
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,570 $ 8,438
Accrued expenses 8,161 7,233
Accrued warranty expenses 1,391 1,170
Current portion of long-term debt 6,357 144
-------- --------
Total current liabilities 26,479 16,985
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt 27,242 34,669
Other long-term obligations 217 576
-------- --------
27,459 35,245
COMMITMENTS AND CONTINGENCIES (NOTES 4, 10 AND 11)
SHAREHOLDERS' EQUITY:
Preferred stock: $100 par value per share;
40,000 shares authorized; no shares issued -- --
Common stock: no par value; $.10 stated
value per share; 7,500,000 shares
authorized; 5,425,302 and 5,413,682
shares issued and outstanding in 1995 and
1994, respectively 543 541
Additional paid-in capital 45,573 45,546
Accumulated deficit (34,472) (34,676)
Foreign currency translation adjustment (4,161) (4,083)
-------- --------
Total shareholders' equity 7,483 7,328
-------- --------
$ 61,421 $ 59,558
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31,
----------------------
(Dollars in thousands) 1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................... $ 204 $ (5,791) $ (21,144)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization......................................... 2,861 3,019 3,556
Provision for restructuring costs..................................... -- -- 6,750
Unrealized gains on foreign currency transactions..................... (59) (361) --
Change in asset/liabilities net of provision for restructuring costs:
(Increase) decrease in accounts receivable........................... (3,148) 893 6,184
(Increase) decrease in inventories................................... 1,004 6,528 3,333
Increase (decrease) in accounts payable.............................. 2,118 2,095 14
Increase (decrease) in accrued expenses.............................. 902 (1,634) 57
Other................................................................ (156) (795) 93
------- ---- -------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES.............. 3,726 3,954 (1,157)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment......................................... 99 327 1,067
Purchase of property and equipment...................................... (551) (408) (915)
Software development costs.............................................. (1,066) (853) (748)
Other investments....................................................... 134 (152) --
Gain (loss) on foreign currency contracts............................... (48) (388) --
------- ---- -------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES.............. (1,432) (1,474) (596)
------ ----- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term (repayment) borrowings................................... (1) (141) 3,324
Proceeds from long-term borrowings...................................... 68,625 39,275 2,808
Repayment of long-term borrowings....................................... (69,996) (42,142) (3,882)
Proceeds from exercise of common stock options.......................... 29 41 152
Common stock dividends paid............................................. -- -- (107)
------- -------- -----
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.............. (1,343) (2,967) 2,295
------ ------ -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................... 20 102 94
------ ------- ------
NET INCREASE (DECREASE) IN CASH................................... 971 (385) 636
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................. 1,101 1,486 850
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 2,072 $ 1,101 $ 1,486
===== ===== =====
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest............................................................. $ 3,656 $ 3,814 $ 2,680
Income taxes......................................................... -- -- 4
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK
----------------------- ADDITIONAL CURRENCY FOREIGN
SHARES ISSUED PAID-IN ACCUMULATED TRANSLATION
(DOLLARS IN THOUSANDS) & OUTSTANDING AMOUNT CAPITAL DEFICIT ADJUSTMENT
BALANCES, OCTOBER 31, 1992........................... 5,372,366 $ 537 $ 45,408 $ (7,741) $(3,506)
Net loss............................................. (21,144)
Translation of foreign currency financial
statements and related hedging activities....... (579)
Exercise of common stock options..................... 27,033 3 109
----------- ------- -------- -------- -------
BALANCES, OCTOBER 31, 1993........................... 5,399,399 540 45,517 (28,885) (4,085)
Net loss............................................. (5,791)
Translation of foreign currency financial
statements and related hedging activities......... 2
Exercise of common stock options..................... 14,283 1 29
---------- ------ -------- -------- -------
BALANCES, OCTOBER 31, 1994........................... 5,413,682 541 45,546 (34,676) (4,083)
Net income........................................... 204
Translation of foreign currency financial
statements and related hedging activities......... (78)
Exercise of common stock options..................... 11,620 2 27
---------- ------ -------- -------- -------
BALANCES, OCTOBER 31, 1995........................... 5,425,302 $ 543 $45,573 $(34,472) $(4,161)
========= ==== ======= ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements include the accounts of
Hurco Companies, Inc. (an Indiana Corporation) and its wholly-owned and
controlled subsidiaries (the Company). A 15% ownership interest in an affiliate
is carried at cost and is included in Other Assets on the accompanying
Consolidated Balance Sheets. Intercompany accounts and transactions have been
eliminated.
STATEMENTS OF CASH FLOWS. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. Cash
flows from hedges are classified consistent with the items being hedged.
TRANSLATION OF FOREIGN CURRENCIES. All balance sheet accounts of non-U.S.
subsidiaries are translated at the exchange rate as of the end of the year.
Income and expenses are translated at the average exchange rates during the
year. Foreign currency translation adjustments are recorded as a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are recorded as income or expense as incurred.
HEDGING. The Company enters into foreign currency forward exchange contracts
periodically to provide a hedge against the effect of foreign currency
fluctuations on receivables denominated in foreign currencies and net
investments in foreign subsidiaries. Gains and losses related to contracts
designated as hedges of receivables denominated in foreign currencies are
accrued as exchange rates change and are recognized as "Other (income) expense,
net" in the Consolidated Statement of Operations. Gains and losses related to
contracts designated as hedges of net investments in foreign subsidiaries are
accrued as exchange rates change and are recognized in the "Foreign currency
translation adjustment" portion of Shareholders' equity on the Consolidated
Balance Sheet.
The Company also enters into foreign currency forward exchange contracts to
hedge certain firm intercompany sale commitments denominated in foreign
currencies (primarily pound sterling and German marks) for which the Company has
firm purchase commitments. The purpose of these instruments is to protect the
Company from the risk that the U.S. dollar net cash inflows resulting from the
sales denominated in foreign currencies will be adversely affected by changes in
exchange rates. Gains and losses on these hedge contracts are deferred and
recognized as an adjustment to the related sales transactions.
The U.S. dollar equivalent notional amount of outstanding foreign currency
forward exchange contracts was approximately $18,879,000 as of October 31, 1995
($16,833,000 related to firm intercompany sales commitments) and $8,489,000 as
of October 31, 1994. Deferred losses related to hedges of these future sales
transactions were approximately $265,000 as of October 31, 1995. Contracts
outstanding at October 31, 1995, mature at various times through June 26, 1996.
The Company does not enter into these contracts for trading purposes. All
contracts are for the sale of currency.
INVENTORIES. Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROPERTY AND EQUIPMENT. Property and equipment are carried at cost, which
includes capitalized interest incurred during the construction period of the
asset. No interest was capitalized during the three years ended October 31,
1995. Depreciation and amortization of assets are provided primarily under the
straight-line method over the shorter of the estimated useful lives or the lease
terms as follows:
NUMBER OF YEARS
Building 40
Machines 10
Shop and office equipment 5
Leasehold improvements 5
REVENUE RECOGNITION. Sales of products and services are recorded when products
are shipped or services are performed. Revenue from maintenance contracts is
deferred and recognized in earnings on a pro rata basis over the period of the
agreement.
PRODUCT WARRANTY. Expected future product warranty expense is recorded when the
product is sold.
RESEARCH AND DEVELOPMENT COSTS. The costs associated with research and
development programs for new products and significant product improvements are
expensed as incurred. Expenditures and related third-party reimbursements for
the last three years were (in thousands):
YEAR ENDED OCTOBER 31,
----------------------
1995 1994 1993
------ ------ ------
Research and development expenditures $1,362 $1,001 $1,667
Less: amounts reimbursed by third parties 354 14 33
------ ------ ------
Net research and development expenses $ 1,008 $ 987 $1,634
====== ====== ======
Costs incurred to develop computer software to be sold or otherwise marketed are
capitalized, after technological feasibility is established, and are amortized
on a straight-line basis over the estimated product life of the related software
which ranges from three to five years. Amortization expense was $864,000,
$749,000 and $648,000, respectively, for the three years ended October 31, 1995.
EARNINGS PER SHARE. Earnings per share of common stock are based on the weighted
average number of common shares outstanding, which includes the effects of
outstanding stock options computed using the treasury method. Such common stock
equivalents totaled 118,000 for the twelve month period ended October 31, 1995.
Fully diluted earnings per share are the same as primary earnings per share for
this period. No effect has been given to options outstanding for 1994 and 1993
as no dilution would result from their exercise.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES. Effective November 1, 1993, the Company adopted the provisions of
the Statement of Financial Accounting Standards (SFAS) No.109, "Accounting for
Income Taxes". The Company adopted this new statement as a cumulative effect of
a change in accounting principle with no restatement of prior periods. SFAS 109
utilizes the liability method for computing deferred income taxes and requires
that the benefit of certain loss carryforwards be recorded as an asset and that
a valuation allowance be established against the asset to the extent it is "more
likely than not" that the benefit will not be realized.
ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
2. BUSINESS OPERATIONS
NATURE OF BUSINESS. The Company designs and produces computer numerical control
(CNC) systems and software and CNC-guided machine tools for sale through its own
distribution system to the worldwide machine tool industry. The Company's
proprietary CNC systems and related software products are either integrated with
machine tools marketed by the Company, sold to machine tool end users or sold to
other machine tool manufacturers who integrate them with their own products.
The end market for the Company's products consists primarily of precision tool,
die and mold manufacturers, independent job shops and specialized production
applications within large corporations. Industries served include: aerospace,
defense, medical equipment, energy, transportation and computer industries. The
Company's products are sold through over 200 independent agents and distributors
in 37 countries throughout North America, Europe and Asia. The Company also
maintains direct sales forces in the United States, England, France, Germany and
Singapore.
CREDIT RISK. The Company sells products to customers located throughout the
world. The Company performs ongoing credit evaluations of customers and
generally does not require collateral. Allowances are maintained for potential
credit losses, and such losses have been within management's expectations.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers and their dispersion across many
geographic areas. Although a significant amount of trade receivables are with
distributors primarily located in the United States, no single distributor or
region represents a significant concentration of credit risk.
SIGNIFICANT VENDORS. The Company contracts principally with two machine tool
builders located in Taiwan for the manufacture and assembly of CNC machine tool
systems, based on the Company's designs and specifications, utilizing CNC
systems provided by the Company. Any interruption from these sources would
restrict the availability of the Company's machine tools, which would affect
operating results adversely. The Company has negotiations in process with other
manufacturing sources to increase its capacity and continuously evaluates
alternative sources of supply.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
RESTRUCTURING. In fiscal 1995, the Company completed a restructuring program
initiated in 1992. Completed actions associated with the restructuring included
consolidation of certain operations, increased contract manufacturing of
substantially all machine tools, including the related integration of CNC
systems, discontinuance of certain product lines, and the design, development
and introduction of a new line of machine tools and related CNC systems and
software products. These actions resulted in reduced operating expenses in 1994
compared to 1993, improved gross profit margins in 1995 and 1994 and an
operating profit in 1995 compared to prior operating losses. Unaudited quarterly
results for 1995 and 1994 are set forth in Note 12.
The Company recorded a restructuring charge of $6,750,000 ($1.24 per share) in
fiscal 1993 consisting of reserves of $1,482,000 for revaluation of inventories
of discontinued products; $2,465,000 for write-downs or loss on disposition of
certain assets; and $2,803,000 for accrued liabilities related principally to
employee severance costs and lease obligations related to redundant
manufacturing and office space. During fiscal 1994 and 1995, the reserves were
used for their intended purposes.
3. INVENTORIES
Inventories as of October 31, 1995 and 1994 are summarized below (in thousands):
1995 1994
------- -------
Purchased parts and sub-assemblies ............... $17,380 $15,252
Work-in-process .................................. 3,523 3,929
Finished goods ................................... 4,335 7,160
------- -------
$25,238 $26,341
======= =======
Inventories are recorded net of reserves of $2,831,000 and $3,061,000 for
obsolescence and market value adjustments as of October 31, 1995 and 1994,
respectively.
At October 31, 1995, approximately $3,200,000 of inventories represent the
expected net realizable value for discontinued products, inactive parts and
excess/slow-moving parts. Management has a program in place to liquidate these
inventories in the normal course of operations and believes no significant
losses will be incurred upon disposition. No estimate can be made of a range of
amounts of loss that are reasonably possible should the program not be
successful.
The loss reported for fiscal 1993 included the effect of a special inventory
charge of $3.4 million. $1.7 million of the special charge represented an
adjustment to inventory related to manufacturing operations of the Company's
Indianapolis operations based on physical inventories priced at established
standard costs. $0.5 million of the special charge represented a physical
inventory adjustment related to certain discontinued operations. The remaining
adjustment of $1.2 million represented an adjustment to reflect current lowered
manufacturing costs, as well as increases in reserves for excess and obsolete
inventories resulting primarily from various product rationalization programs.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. DEBT AGREEMENTS
Long-term debt as of October 31, 1995 and 1994, consisted of (in thousands):
1995 1994
------- -------
Bank revolving credit facilities .................... $16,078 $16,964
Bank term loan ...................................... 3,996 4,117
11.12% Senior Notes ................................. 12,402 12,448
Economic Development Revenue Bonds, Series 1990 ..... 1,000 1,000
Other ............................................... 123 284
------- -------
33,599 34,813
Less current portion and amount classified as current 6,357 144
------- -------
$27,242 $34,669
======= =======
As of October 31, 1995, long-term debt was payable as follows (in thousands):
Fiscal 1996 ........................................ $ 6,357
Fiscal 1997 ........................................ 3,036
Fiscal 1998 ........................................ 24,206
-------
$33,599
=======
As of October 31, 1995, the Company had unutilized credit facilities of $5.9
million available for either direct borrowings or commercial letters of credit.
As of October 31, 1995 and 1994, the Company had $6,648,000 and $4,696,000,
respectively, of outstanding letters of credit issued to non-U.S. suppliers for
inventory purchase commitments.
Interest was payable at 9.0% and 8.0% on the bank revolving credit facility and
term loan as of October 31, 1995 and 1994, respectively. Interest was payable on
the European credit authorization at rates ranging from 7.3% to 9.4% as of
October 31, 1995 and from 8.0% to 8.1% as of October 31, 1994.
The Company's obligations to its lending banks, as well as its obligations to
the holders of its outstanding 11.12% Senior Notes, are secured by substantially
all of the Company's assets.
Effective January 26, 1996, the agreements covering the Company's bank
indebtedness and 11.12% Senior Notes were amended. The principal terms of those
agreements, as so amended are set forth below.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(a) BANK INDEBTEDNESS.
The Company's bank agreements provide for a revolving credit facility
expiring May 1, 1997 (subject to extension in certain events to
November 1, 1997), permitting borrowings at any one time outstanding
of up to $27.0 million (inclusive of outstanding letters of credit of
up to $9.5 million). Of such borrowings, up to $5.0 million may be
drawn in designated European currencies. In addition, the agreements
permit the Company to obtain up to $2.0 million of additional letters
of credit without reduction of the borrowing limit. The agreements
also provide for a term loan of $4.0 million, of which approximately
$1.5 million is repayable on July 31, 1996 and the balance is due in
two equal installments on September 30, 1996 and 1997. Interest on all
outstanding borrowings is payable on a floating rate basis at prime
plus 1/4%.
The agreements condition the banks' lending obligations on the
Company's maintenance of a prescribed working capital borrowing base
and require the Company to maintain a specified minimum net worth,
establish maximum leverage and fixed charge coverage ratios, restrict
capital expenditures and investments and prohibit the payment of cash
dividends or the redemption of capital stock. The net worth covenant
requires that Consolidated Tangible Net Worth (as defined) be not less
than $6.75 million plus (i) 50% of cumulative net income subsequent to
November 1, 1995 and (ii) 85% of the net proceeds of any equity or
subordinated debt financings subsequent to November 1, 1995. The ratio
of total consolidated indebtedness (excluding subordinated debt) to
Consolidated Tangible Net Worth may not exceed 4.5-to-1 at July 31,
1996 or 4.0-to-1 from October 31, 1996 through the expiration of the
facility; provided, that if the Company receives net proceeds of at
least $3.0 million from any equity or subordinated debt financing
prior to July 31, 1996, the maximum ratio will be 3.55-to-1 from July
30, 1996 through January 30, 1997, 3.0-to-1 from January 31, 1997
through October 30, 1997 and 2.5-to-1 at October 31, 1997. The amended
agreements also provide for a contingent monthly fee of not less than
$60,000 nor more than $100,000 (but in no event more than $320,000 in
the aggregate) for each month, if any, on or after July 31, 1996 in
respect of which Consolidated Tangible Net Worth at month end is less
than $12.0 million.
(b) 11.12% SENIOR NOTES.
At October 31, 1995, the Company had outstanding approximately $12.4
million of its 11.12% Senior Notes, of which approximately $1.8
million was repaid on December 1, 1995. Of the remaining $10.6
million, approximately $1.7 million is due on July 31, 1996 and the
balance is due in equal annual installments through 2000. Interest is
payable monthly. Until October 31, 1997, the financial covenants with
respect to the Senior Notes are identical to those applicable to the
Company's bank indebtedness. The note holders participate, on a
pro-rata basis, in the contingent monthly fee described above (not to
exceed $89,000 in the aggregate).
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Commencing November 1, 1997, the covenants will become more
restrictive and the Company may be unable to comply with such
covenants. Accordingly, installment payments due in fiscal years
1998 through 2000 have been classified as payable in fiscal 1998,
pending future refinancing or negotiation of modified covenants for
periods beyond October 31, 1997. It will be an event of default if
the Company does not have a working capital commitment 45 days
prior to any termination date of the bank revolving credit
facility.
The agreements in effect at October 31, 1995 provided for a contingent fee (not
to exceed $500,000 to the banks and a pro-rata amount to the senior note
holders) based on the amount, by which the Company's actual gross profit
exceeded projected amounts in fiscal years 1995 through 1997. As of October 31,
1995, the maximum fee became fully due and payable in December 1995. Of this
fee, $400,000 has been included in interest expense for fiscal 1995 ($360,000 in
the fourth quarter) and the remainder of $240,000 will be amortized in fiscal
1996.
The Economic Development Revenue Bonds are payable in five equal annual
installments beginning on September 1, 2001 and are secured by a letter of
credit issued in the amount of $1,060,000 by the bank. The letter of credit
renews annually and expires in September 1996. If the letter of credit is not
renewed, the bank agreements provide for deferral of the reimbursement
obligation under the letter of credit until the maturity date of the revolving
credit facility. Accordingly, the $1,000,000 has been classified payable in
fiscal 1998. The Bond's interest rates adjust weekly and, as of October 31,
1995, interest was accruing at a rate of 4.0% (3.55% as of October 31, 1994).
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. FINANCIAL INSTRUMENTS
The carrying amounts for trade receivables and payables are considered to be
their fair values. The carrying amounts and fair values of the Company's other
recorded financial instruments at October 31, 1995 are as follows (in
thousands):
October 31, 1995
----------------
Carrying Fair
(IN THOUSANDS) Amount Value<F1>
------ --------
Long-Term Debt:
Bank revolving credit facilities ................. $16,078 $16,078
Bank term loan ................................... 3,996 3,996
Senior Notes ..................................... 12,402 12,567
Economic Development Revenue Bonds ............... 1,000 1,000
<FN>
<F1> The estimated fair values of Long-Term Debt are based on discounted future
cash flows using current interest rates available to the Company with the same
remaining maturities.
</FN>
The Company also has off-balance sheet financial instruments in the form of
foreign currency forward exchange contracts as described in Note 1 to the
Consolidated Financial Statements. The U.S. dollar equivalent notional amount
and fair value of these contracts were $18,879,000 and $18,918,000,
respectively, at October 31, 1995. Current market prices were used to estimate
the fair value of the foreign currency forward exchange contracts.
The future value of the foreign currency forward exchange contracts and the
related currency positions are subject to offsetting market risk resulting from
foreign currency exchange rate volatility. The counterparties to these contracts
are substantial and creditworthy financial institutions. Neither the risks of
counterparty non-performance nor the economic consequences of counterparty
non-performance associated with these contracts are considered by the Company to
be material.
6. INCOME TAXES
Deferred income taxes reflect the effect of temporary differences between the
tax basis of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net operating losses and an off-setting valuation allowance. The
Company's total deferred tax assets and corresponding valuation allowance at
October 31, 1995 and October 31, 1994, consisted of the following (in
thousands):
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OCTOBER 31,
-----------
1995 1994
Tax effects of future tax deductible items related to:
Accrued restructuring costs .............................. $ -- $ 462
Accrued obsolescence reserves ............................ 671 487
Accrued warranty expenses ................................ 360 314
Other accrued expenses ................................... 1,024 1,097
-------- --------
Total deferred tax assets ............................ 2,055 2,360
-------- --------
Tax effects of future taxable differences related to:
Accelerated tax depreciation and other tax over book
deductions related to property and equipment ........... (257) (447)
Other .................................................... (577) (605)
-------- --------
Total deferred tax liabilities ....................... (834) (1,052)
-------- --------
Net tax effects of temporary differences ............. 1,221 1,308
-------- --------
Tax effects of carryforward benefits:
U.S. federal net operating loss carryforwards,
expiring 2001-2009 ..................................... 10,319 8,790
Foreign net tax benefit carryforwards
with no expiration ..................................... 2,612 3,403
U.S. federal general business tax credits,
expiring 2001-2009 ..................................... 1,555 1,505
-------- --------
Tax effects of carryforwards ......................... 14,486 13,698
-------- --------
Tax effects of temporary differences and carryforwards 15,707 15,006
Less valuation allowance ............................. (15,707) (15,006)
-------- --------
Net deferred tax asset ............................... $ -- $ --
======== ========
The Company's carryforwards expire at specific future dates and utilization of
certain carryforwards is limited to specific amounts each year. Realization is
entirely dependent upon generating sufficient future earnings in specific tax
jurisdictions prior to the expiration of the loss carryforwards. Due to the
uncertain nature of their ultimate realization based upon past performance and
expiration dates, the Company has established a full valuation allowance against
these carryforward benefits and is recognizing the benefits only as reassessment
demonstrates they are realizable. While the need for this valuation allowance is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense. During fiscal 1995, the valuation allowance was
reduced by $791 to offset foreign income tax expenses.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Income (loss) before income taxes were (in thousands):
YEAR ENDED OCTOBER 31,
----------------------
1995 1994 1993
Domestic ..................... $(1,786) $(3,240) $(13,407)
Foreign ...................... 1,990 (2,551) (7,737)
------- ------- --------
$ 204 $ (5,791) $(21,144)
======= ======== ========
Differences between the effective tax rate and
U.S. federal income tax rate were (in thousands):
Tax (benefit) at U.S. Statutory Rate..... $ 71 $ (2,027) $ (7,400)
Effect of losses without a current
year tax benefit....................... 625 2,027 7,400
Utilization of net operating loss
carryforwards.......................... (696) -- --
----- ----- -----
Income tax provision (benefit) $ -- $ -- $ --
====== ====== =======
7. EMPLOYEE RETIREMENT BENEFITS
The Company has defined contribution plans that include a majority of its
employees worldwide, under which Company contributions are discretionary. The
purpose of these defined contribution plans is generally to provide additional
financial security during retirement by providing employees with an incentive to
save throughout their employment. Company contributions to the plans are based
on employee contributions or compensation. These Company contributions totaled
$213,000, $214,000, and $323,000 for the years ended October 31, 1995, 1994, and
1993, respectively. The Company offers no other retirement or post-retirement
benefit plans.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. STOCK OPTIONS
Stock options may be granted to key employees to purchase shares of common stock
at a price not less than the fair market value at the date of grant. Vesting
periods are determined at the discretion of the Board of Directors and currently
range from 3-5 years. Stock option activity during 1995, 1994 and 1993 is
summarized below (number of shares):
YEAR ENDED OCTOBER 31,
----------------------
1995 1994 1993
Outstanding at beginning of year .............. 354,900 330,717 347,217
Granted .................................. 62,700 171,500 54,500
Canceled ................................. (19,080) (48,534) (41,167)
Expired .................................. (6,200) (84,500) (2,800)
Exercised ................................ (11,620) (14,283) (27,033)
-------- -------- --------
Outstanding at end of year .................... 380,700 354,900 330,717
======== ======== ========
Exercisable at end of year .................... 138,600 101,720 152,734
======== ======== ========
Available for future grants ................... 140,014 188,634 336,367
======== ======== ========
The option price per share ranges for the outstanding options and the price
ranges at which the options were exercised during 1995, 1994 and 1993 are
summarized below:
YEAR ENDED OCTOBER 31,
----------------------
1995 1994 1993
Option price ................. $2.13 - $7.50 $2.13-$7.50 $3.00-$10.50
Exercise price ............... $2.13 - $2.88 $2.13 $3.13- $3.38
As of October 31, 1995 and 1994, the Company had outstanding options for certain
members of the Board of Directors to purchase 25,000 and 35,000 shares of the
Company's common stock, respectively, at prices ranging from $6.75 to $7.00 per
share. All were exercisable as of October 31, 1995 and 1994. The options expire
at various dates between 1998 and 1999.
9. RELATED PARTY TRANSACTIONS
The Company and Air Express International (AEI) are related parties because a
common group of shareholders hold a substantial ownership interest in both
companies. AEI provides freight forwarding and shipping services for the
Company. The cost of these freight services are negotiated on an arms length
basis and amounted to $1,438,000, $323,000 and $97,000 for the years ended
October 31, 1995, 1994 and 1993, respectively. Trade payables to AEI were
$27,000 and $3,000 at October 31, 1995 and 1994, respectively.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During 1994, the Company acquired an approximate 15% ownership in one of its
Taiwanese-based suppliers. This investment is carried at cost and is included in
Other Assets. Purchases of product from this supplier are negotiated on an arms
length basis and totaled $4,369,000 and $1,178,000 for the years ended October
31, 1995 and 1994, respectively. Trade payables to this supplier at October 31,
1995, were $1,519,000 of which $1,161,000 was supported by letters of credit
that will be funded by the Company's bank through December 31, 1995. Trade
payables to this supplier at October 31, 1994 were $195,000.
10. LITIGATION AND CONTINGENCIES
On October 10, 1995, the Company's wholly-owned subsidiary, IMS Technology, Inc.
(IMS), commenced an action in the United States District Court for the Northern
District of Illinois against Yamazaki Mazak Corporation; Yamazaki Mazak Trading
Corporation; Mazak Corporation; Machinery Systems, Inc.; Fox Tool Co. Inc.;
Okuma Machinery Works Ltd.; Okuma America Corporation; Ellison Machinery Company
of the Midwest, Inc.; Apollo Machine & Manufacturing Company, Inc.; Arpac
Corporation; American Control Technology, Inc.; Nissan Motor Co. Ltd.; Nissan
Motor Car Carrier Co., Ltd.; and Nissan Motor Corp. USA, Inc. (collectively the
Defendants). The Defendants include end-users of interactive CNCs, machine tool
manufacturers who incorporate interactive CNCs in their products and
manufacturers of CNCs designed to permit use of interactive methods when coupled
to machine tools. IMS has alleged that the Defendants have infringed IMS's
Interactive Machining Patents and is seeking monetary damages from, and an
injunction against future infringement by, each of the Defendants.
On January 10, 1996, IMS was served notice of an action commenced on November
30, 1995 against IMS in the United States District Court for the Central
District of California by Southwestern Industries, Inc. (Southwestern), a
manufacturer of CNCs and CNC-guided machine tools, seeking to have the
interactive machining patents declared invalid. IMS has until February 10, 1996
to respond to the complaint. On January 11, 1996, IMS commenced an action
against each of Southwestern and Bridgeport Machines, Inc., a manufacturer of
CNCs and CNC-guided machine tools, alleging infringement by each of these
companies of the Interactive Machining Patents and seeking monetary damages and
injunctive relief.
Although IMS believes that the Interactive Machining Patents are valid and its
claims of patent infringement have substantial merit, it is unable to predict
the outcome of any of these actions.
On November 21, 1995, a civil action entitled CALDWELL TRUCKING PRP GROUP V. ADT
AUTOMOTIVE, INC., ET AL was filed in the United States District Court for the
District of New Jersey by a group of nine companies who have entered into a
Consent Decree with the United States Environmental Protection Agency to
remediate a site in Fairfield, New Jersey (the Site). The complaint names over
95 defendants, one of whom is the Company, as "successor-in-interest" to two
entities from whom the Company purchased certain assets in February 1990. The
complaint alleges that the defendants are responsible for contributing hazardous
substances to the Site as former customers of Caldwell Trucking or are otherwise
potentially responsible parties and seeks recovery of remediation and other
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
associated costs. Although the complaint estimates total cleanup costs at
approximately $30 million, no apportionment of alleged liability among the group
which filed the complaint (who are also potentially responsible parties) or the
group of defendants has been indicated at this time. The defendants have until
April 1, 1996 to respond to the complaint. Although the Company intends to
vigorously defend this claim, based upon the limited amount of information
available at this time, the Company is unable to determine the likelihood or the
possible amount of any losses related to this action. Accordingly, no provision
for any liability that may result has been recognized in the Consolidated
Financial Statements.
The Company is involved in various other claims and lawsuits arising in the
normal course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on its consolidated financial
position or results of operations.
11. OPERATING LEASES
The Company leases facilities and vehicles under operating leases that expire at
various dates through 2002. Future payments required under operating leases as
of October 31, 1995, are summarized as follows (in thousands):
1996 ............................................. $2,118
1997 ............................................. 1,649
1998 ............................................. 1,322
1999 ............................................. 1,094
2000 ............................................. 878
Later Years ...................................... 1,197
------
Total ............................................ $8,258
======
Rental expense for the years ended October 31, 1995, 1994, and 1993 was
$1,976,000, $1,820,000, and $2,260,000, respectively.
12. SUBSEQUENT EVENT
IMS is actively pursuing a program to license the use of interactive machining
patents. On January 2, 1996, IMS entered into an agreement with a CNC
manufacturer and various of its subsidiaries, none of whom is a defendant in the
IMS patent infringement actions discussed in Note 10 above. IMS has granted a
non-exclusive license to use the interactive machining patents in exchange for
certain fixed payments beginning in fiscal 1996 and continuing through 2001.
Over the term of the license, IMS will receive approximately $800,000, net of
legal fees and expenses, of which $357,000 is expected to be reflected in income
for fiscal 1996. IMS has also received a royalty-free, non-exclusive license
(with a right of sublicense to the Company) under four of the licensee's
patents. There can be no assurance that IMS will enter into any other license
agreements or that the terms of any future license agreements will be similar to
those of the initial license.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. QUARTERLY HIGHLIGHTS (UNAUDITED)
1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
Sales and service fees............................... $18,872 $20,687 $22,764 $27,309
Gross profit......................................... 4,658 5,389 5,986 7,437
Gross profit margin percentage....................... 24.7% 26.1% 26.3% 27.2%
Selling, general and administrative expenses........ 4,246 4,616 4,558 5,582
Operating income (loss).............................. 412 773 1,428 1,855
Net income (loss).................................... (473) (239) 428<F1> 488<F1>
Earnings (loss) per common share..................... $ (.09) $ (.04) $ .08 $ .09
1994 (IN THOUSANDS, EXCEPT PER SHARE DATA)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
Sales and service fees............................... $18,579 $16,209 $17,144 $20,696
Gross profit......................................... 3,444 3,378 3,820 4,923
Gross profit margin percentage....................... 18.5% 20.8% 22.3% 23.8%
Selling, general and administrative expenses........ 4,745 4,402 4,325 4,657
Operating income (loss).............................. (1,301) (1,024) (505) 266
Net income (loss).................................... (2,168) (1,786) (1,215) (622)
Earnings (loss) per common share..................... $ (.40) $ (.33) $ (.22) $ (.11)
<FN>
<F1> Net income in the third and fourth quarters of fiscal 1995 includes higher
interest expense due to $40 and $360 of fees, respectively, payable under
the terms of the debt agreements for exceeding certain gross profit goals.
An additional $240 fee payable to the lenders as of October 31, 1995, will
be expensed ratably during fiscal 1996.
</FN>
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS
The Company operates in one business segment which consists of computer
numerical control (CNC) systems and software and CNC-guided machine tools for
cutting and forming metals. Summarized information about activities in different
geographical areas from which sales are made follows (in thousands):
UNITED STATES EUROPE ASIA ELIMINATIONS CONSOLIDATED
1995
Sales to unaffiliated customers............. $54,172 $32,881 $2,579 $ -- $89,632
Transfers between geographic areas.......... 18,374 880 -- (19,254) --
-------- ---------- ---------- ------- --------
Total sales................................. $72,546 $33,761 $2,579 $(19,254) $89,632
======== ========= ======== ======= ========
Operating income (loss)..................... $ 2,570 $ 1,607 $ 291 $ 4,468
======== ========= ======== =======
Identifiable assets as of
October 31, 1995....................... $45,255 $15,404 $ 762 $ 61,421
======== ========= ======== ========
1994
Sales to unaffiliated customers............. $50,682 $21,584 $ 362 $ -- $ 72,628
Transfers between geographic areas.......... 10,013 1,744 -- (11,757) --
-------- --------- --------- ------- -------
Total sales................................. $60,695 $23,328 $ 362 $(11,757) $ 72,628
======== ========= ======== ======= ========
Operating loss.............................. $ (346) $(2,057) $ (161) $ (2,564)
======== ========= ======== =========
Identifiable assets as of
October 31, 1994....................... $44,490 $14,641 $ 427 $59,558
======== ========= ======== ========
1993
Sales to unaffiliated customers............. $51,426 $20,099 $ 705 $ -- $72,230
Transfers between geographic areas.......... 4,681 6,449 -- (11,130) --
--------- --------- ---------- --------- --------
Total sales................................. $56,107 $26,548 $ 705 $(11,130) $72,230
======== ========= ======== ========== =======
Operating loss.............................. $(11,110) $(7,036) $ (177) $(18,323)
======== ========= ======== ========
Identifiable assets as of
October 31, 1993....................... $50,355 $16,044 $ 888 $67,287
======== ========= ======== =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
The following information sets forth the name of each director, his age, tenure
as a director, principal occupation and business experience for the last five
years:
SERVED AS A
NAME AGE DIRECTOR SINCE
Hendrik J. Hartong, Jr 56 1986
Andrew L. Lewis IV 39 1988
Brian D. McLaughlin 53 1987
E. Keith Moore 73 1990
Richard T. Niner 56 1986
O. Curtis Noel 60 1993
Charles E. Mitchell Rentschler 56 1986
Hendrik J. Hartong, Jr. has been a general partner of Brynwood Management, the
general partner of Brynwood Partners Limited Partnership, since 1984. Mr.
Hartong has also served as Chairman of the Board of Air Express International
Corporation since 1985.
Andrew L. Lewis IV has served as Chief Executive Officer of KRR Partners, L.P.
since July 1993. Beginning in 1990, Mr. Lewis has also been a consultant for
USPCI of Pennsylvania, Inc. Mr. Lewis is also a director of Air Express
International Corporation.
Brian D. McLaughlin has been President and Chief Executive Officer of the
Company since December, 1987.
E. Keith Moore has served as President of Hurco International, Inc., a
subsidiary of the Company, since April 1988. Mr. Moore is also a director of
Met-Coil Systems Corporation.
Richard T. Niner has been a general partner of Brynwood Management, the general
partner of Brynwood Partners Limited Partnership, since 1984. Mr. Niner is also
a director of Air Express International Corporation and Arrow International,
Inc.
O. Curtis Noel has been an independent business consultant for more than ten
years specializing in market and industry studies, competitive analysis and
corporate development programs with clients in the U.S. and abroad.
Charles E. Mitchell Rentschler has served as President and Chief Executive
Officer of The Hamilton Foundry & Machine Co. since 1985.
For a description of transactions between the Company and Air Express
International Corporation, see Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
Each director of the Company serves for a term of one year, which expires at the
next annual meeting of shareholders of the Company when his successor has been
elected. There are no family relationships between any of the directors or
executive officers of the Company.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers of the Company appears in Part I
under the caption, "Executive Officers of the Registrant".
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of the Company's common stock, to file initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company with the Securities and Exchange Commission.
To the Company's knowledge, based solely upon a review of copies of such reports
furnished to the Company during and pertaining to its most recent fiscal year,
and certain written representations, all Section 16(a) filings applicable to the
Company's executive officers, directors and greater than ten percent (10%)
beneficial owners were made on a timely basis during the most recent fiscal
year.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth all compensation paid or accrued during each of
the last three fiscal years to the Chief Executive Officer and each of the other
most highly compensated executive officers of the Company based on salaries and
bonuses earned during fiscal 1995 (the Named Executive Officers). No other
executive officer earned more than $100,000 in salary and bonuses during fiscal
1995.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------------------- ------------ All Other
Compen-
Name and Fiscal Salary Bonus Other Annual Securities Underlying sation
Principal Position Year ($) ($)<F1> Compensation ($) Option<F2> ($) <F3>
- ------------------ ------ ------ --------- ---------------- ---------- ---------
Brian D. McLaughlin 1995 $226,936 $75,000 -- 10,000 $3,234
President and CEO 1994 220,000 -- -- 70,000<F4> 2,302
1993 220,000 -- -- -- 3,036
Roger J. Wolf 1995 139,731 45,000 -- 15,000 3,063
Sr. VP, Secretary 1994 135,000 7,000 $16,308<F5> 7,000 1,934
Treasurer and CFO 1993 98,654<F6> 5,000<F7> -- 25,000<F7> 872
James D. Fabris 1995 107,885 45,000 -- 5,000 2,210
Vice President and 1994 98,335 -- -- 13,000 1,295
Pres. Hurco Mfg. Co. 1993 85,150 -- 8,935<F8> 7,500 1,864
- ---------------------------
<FN>
<F1> Represents cash bonuses earned and paid in the subsequent year, other than
specified below.
<F2> Represents options granted under the stock option plan related to the prior
year's performance, other than specified below. The Company has not granted any
Stock Appreciation Rights (SARs).
<F3> Represents the Company's contribution to the 401-K Retirement Plan under
the Company matching program.
<F4> Represents options granted under the stock option plan to replace options
that had expired during the fiscal year.
<F5> Represents amounts reimbursed
during the fiscal year for the payment of taxes related to relocation expenses.
<F6> Represents compensation for January 25, 1993 through October 31, 1993.
<F7> Represents guaranteed bonus and options granted under the stock option plan
in connection with initial employment.
<F8> Represents amounts reimbursed during the fiscal year related to relocation
expenses.
</FN>
STOCK OPTIONS
The following table sets forth information related to options granted to the
Named Executive Officers during the 1995 fiscal year. The Company has not
granted any Stock Appreciation Rights (SARs).
OPTION GRANTS DURING 1995 FISCAL YEAR
Individual Grants
------------------------------------------------------------ Potential
Realizable Value at
% of Total Assumed Annual
Number of Options Rates of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term <F1>
Options in Fiscal Price Expiration --------------------
Name Granted Year ($/SH) Date 5% ($) 10%($)
- ---- ------- ---- ------ ---- ------ ------
Brian D. McLaughlin 10,000<F2> 16% $3.875 12/11/04 63,120 100,508
Roger J. Wolf 15,000<F2> 24% $3.875 12/11/04 94,680 150,762
James D. Fabris 5,000<F3> 8% $3.875 12/11/04 31,560 50,254
- ----------------------------
<FN>
<F1> The potential realizable value illustrates value that might be realized
upon the exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation on the Company's
common stock from the date of grant through the term of the options. These
numbers do not take into account provisions that may result in termination of
the options following termination of employment or the vesting periods of three
years.
<F2> Options may be exercised in three equal annual installments, or parts
thereof, commencing on the first anniversary date of the grant.
<F3> Options may be exercised in five equal annual installments, or parts
thereof, commencing on the first anniversary date of the grant.
</FN>
The following table sets forth information related to options exercised during
the 1995 fiscal year and options held at fiscal year-end by the Named Executive
Officers. The Company does not have any outstanding SARs.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND YEAR-END OPTION VALUES
Value of
Number of Unexercised
Securities Underlying In-the-Money
Shares Unexercised Options Options
Acquired at FY-End (#) at FY-End ($)<F1>
on Value ------------------------- --------------------
Exercise Realized Exer- Unexer- Exer- Unexer-
NAME (#) ($) cisable cisable cisable cisable
- ---- --------- --------- ------- ------- ------- -------
Brian D. McLaughlin -- -- 52,100 62,900 72,188 164,063
Roger J. Wolf -- -- 12,310 34,690 7,219 40,906
James D. Fabris -- -- 9,500 20,500 33,025 62,100
- -----------------------------------------
<FN>
<F1> Value is calculated based on the closing market price of the common stock
on October 31, 1995 ($5.625) less the option exercise price.
</FN>
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives a fee of $1,000 for
each meeting of the Board of Directors attended, and each such director also
receives $3,000 per quarter. Directors are also entitled to receive
reimbursement for travel and other expenses incurred in attending such meetings.
Employee directors receive no fees. Mr. Niner received annual compensation of
$72,000 for his services as Chairman of the Executive Committee of the Board of
Directors. Directors are also eligible to receive stock options in amounts
specified in the Plan.
EMPLOYMENT CONTRACTS
Brian D. McLaughlin entered into an employment contract on December 14, 1987.
The contract term is month-to-month. Mr. McLaughlin's salary and bonus
arrangements are set annually by the Board of Directors. Other compensation,
such as stock option grants, is awarded periodically at the discretion of the
Board of Directors. As part of that contract, Mr. McLaughlin is entitled to 12
months' salary if his employment is terminated for any reason other than gross
misconduct.
Roger J. Wolf entered into an employment contract on January 8, 1993. The
contract term is unspecified. Mr. Wolf's salary and bonus arrangements are set
annually by the Board of Directors. Other compensation, such as stock option
grants, is awarded periodically at the discretion of the Board of Directors. As
part of that contract, Mr. Wolf is entitled to 12 months' salary if his
employment is terminated without just cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the members of the Compensation Committee were Hendrik J.
Hartong, Jr., O. Curtis Noel and Charles E. Mitchell Rentschler. None of the
Committee members is a current or former officer or employee of the Company or
any of its subsidiaries. Mr. Hartong is a director of Air Express International
(AEI). Mr. Hartong is also a general partner of Brynwood Management, which is
the general partner of Brynwood Partners Limited Partnership, which has
substantial ownership interest in AEI. AEI provides freight forwarding and
shipping services for the Company. The cost of these freight services are
negotiated on an arms-length basis and amounted to $1,438,000 for the fiscal
year ended October 31, 1995. None of the Committee members are involved in any
other relationships requiring disclosure as an interlocking officer / director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of January 10, 1996, regarding
beneficial ownership of the Company's common stock by each director and named
executive officer, by all directors and executive officers as a group, and by
certain other beneficial owners of more than 5% of the common stock. Each such
person has sole voting and investment power with respect to such securities,
except as otherwise noted.
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS NUMBER PERCENT
- ---------------- ------ -------
OTHER BENEFICIAL OWNERS
Brynwood Partners Limited Partnership 1,390,001 25.6%
Two Soundview Avenue
Greenwich, Connecticut 06830
Wellington Management Co. 527,700<F1> 9.7%
75 State Street
Boston, Massachusetts 02109
The TCW Group, Inc. 448,000 8.3%
865 South Figueroa Street
Los Angeles, California 90017
DIRECTORS AND EXECUTIVE OFFICERS
Hendrik J. Hartong, Jr 1,408,915<F2><F3><F4> 26.0%
Andrew L. Lewis IV 12,500<F3> 0.2%
Brian D. McLaughlin 86,633<F5><F6> 1.6%
E. Keith Moore 48,790<F7><F8> 0.9%
Richard T. Niner 1,415,301<F2><F3> 26.0%
O. Curtis Noel 5,000<F3> 0.1%
Charles E. Mitchell Rentschler 17,500<F3><F9> 0.3%
Roger J. Wolf 25,260<F10> 0.5%
James D. Fabris 14,800<F11> 0.3%
Executive officers and directors 1,664,598<F2><F12> 30.7%
as a group (12 persons)
<FN>
<F1> Wellington Management Co. (WMC), a registered investment advisor, is deemed
to have beneficial ownership of 527,700 shares of the Company's common stock,
which is owned by various advisory clients of WMC. WMC has no voting power for
105,000 shares and shared voting power for 422,700 shares. WMC has shared
investment power for all shares.
<F2> Includes the shares owned by Brynwood Partners Limited Partnership, of
which the sole general partner is Brynwood Management, a general partnership.
Mr. Hartong and Mr. Niner are general partners of Brynwood Management and
accordingly may be deemed to have beneficial ownership of these shares. These
shares have shared voting and investment power.
<F3> Includes 5,000 shares subject to options that are exercisable within 60
days.
<F4> Includes 100 shares owned by Mr. Hartong's wife, as to which shares he may
be deemed to have beneficial ownership; also includes 3,000 shares which have
shared voting and investment power.
<F5> Includes 58,433 shares subject to options held by Mr. McLaughlin that are
exercisable within 60 days; excludes 56,567 shares subject to options that are
not exercisable within the next 60 days.
<F6> Includes 2,100 shares owned by Mr. McLaughlin's wife and children, as to
which shares he may be deemed to have beneficial ownership.
<F7> Includes 10,800 shares subject to options held by Mr. Moore that are
exercisable within 60 days; excludes 200 shares subject to options that are not
exercisable within the next 60 days.
<F8> Includes 1,320 shares owned by Mr. Moore's wife and children, as to which
shares he may be deemed to have beneficial ownership.
<F9> Includes 5,000 shares owned by Mr. Rentschler's wife, as to which he may be
deemed to have beneficial ownership.
<F10> Includes 22,260 shares subject to options that are exercisable within 60
days; excludes 24,740 shares subject to options that are not exercisable within
the next 60 days.
<F11> Includes 14,300 shares subject to options that are exercisable within 60
days; excludes 15,700 shares subject to options that are not exercisable within
the next 60 days.
<F12> Includes 148,993 shares subject to options that are exercisable within 60
days.
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Air Express International (AEI) are related parties because
Brynwood Partners Limited Partnership holds a substantial ownership interest in
both companies. Two of the Company's directors, Hendrik J. Hartong, Jr. and
Richard T. Niner, are general partners of Brynwood Management, which is the
general partner of Brynwood Partners Limited Partnership. AEI provides freight
forwarding and shipping services for the Company. The cost of these freight
services are negotiated on an arms length basis and amounted to $1,438,000 the
year ended October 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS. The following consolidated financial statements of
Registrant are included herein under Item 8 of Part II:
Reports of Independent Accountants
Consolidated Statements of Operations - years
ended October 31, 1995, 1994 and 1993
Consolidated Balance Sheets - as of October 31, 1995 and 1994
Consolidated Statements of Cash Flows - years
ended October 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity -
years ended October 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule is included in this Item.
Schedule II - Valuation and Qualifying
Accounts and Reserves
All other financial statement schedules are omitted because they are not
applicable or the required information is included in the consolidated
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended October 31,
1995.
(c) EXHIBITS
Exhibits are filed with this Form 10-K or incorporated herein by reference.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
(Dollars in thousands)
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- -------- -------- ---------- ---------
Allowance for doubtful accounts for the year ended:
October 31, 1995 $ 1,046 $ 31 $ -- $ 7<F1> $ 1,070
======= ======== ========= ========= =========
October 31, 1994 $ 979 $ 78 $ -- $ 11<F2> $ 1,046
======== ======== ========= ========= =========
October 31, 1993 $ 892 $ 216 $ -- $ 129<F3> $ 979
======== ======== ========= ========= =========
Accrued warranty expenses for the year ended:
October 31, 1995 $ 1,170 $ 1,541 $ -- $ 1,320 $ 1,391
======= ======== ======== ========= =========
October 31, 1994 $ 1,084 $ 1,539 $ -- $ 1,453 $ 1,170
======= ======== ======== ========== =========
October 31, 1993 $ 1,074 $ 1,054 $ -- $ 1,044 $ 1,084
======= ======== ========= ========== =========
- ----------
<FN>
<F1> Receivable write-offs of $42,000, net of cash recoveries on accounts
previously written off of $35,000.
<F2>Receivable write-offs of $20,000, net of cash recoveries on accounts
previously written off of $9,000.
<F3>Receivable write-offs of $129,000. There were no cash recoveries on accounts
previously written off.
</FN>
EXHIBITS INDEX
EXHIBITS FILED. The following exhibits are filed with this Report:
10.20.15 First Amendment to the Credit Agreement, dated January 31, 1995,
between the Registrant and NBD Bank (formerly known as NBD Bank,
N.A.)
10.20.16 Second Amendment to Letter Agreement (European Facility), dated
January 31, 1995, among the Registrant's foreign subsidiaries and
NBD Bank.
10.20.17 Amendment to Intercreditor, Agency and Sharing Agreement, dated
January 31, 1995, among the Registrant, NBD Bank, Principal Mutual
Life Insurance Company and NBD Bank as Agent.
10.20.18 Second Amendment to the Credit Agreement, dated May 31, 1995,
between the Registrant and NBD Bank.
10.20.19 Third Amendment to Letter Agreement (European Facility), dated May
31, 1995, among the Registrant's foreign subsidiaries and NBD
Bank.
10.20.20 Second Amendment to Intercreditor, Agency and Sharing Agreement,
dated May 31, 1995, among the Registrant, NBD Bank, Principal
Mutual Life Insurance Company and NBD Bank as Agent.
10.20.21 Third Amendment to the Credit Agreement, dated July 31, 1995,
between the Registrant and NBD Bank.
10.20.22 Fourth Amendment to Letter Agreement (European Facility), dated
August 1, 1995, among the Registrant's foreign subsidiaries and
NBD Bank.
10.20.23 Third Amendment to Intercreditor, Agency and Sharing Agreement,
dated July 31, 1995, among the Registrant, NBD Bank, Principal
Mutual Life Insurance Company and NBD Bank as Agent.
10.20.24 Fourth Amendment to the Credit Agreement, dated December 22, 1995,
between the Registrant and NBD Bank.
10.20.25 Fourth Amendment to Intercreditor, Agency and Sharing Agreement,
dated December 22, 1995, among the Registrant, NBD Bank, Principal
Mutual Life Insurance Company and NBD Bank as Agent.
10.42.4 Amendment and Notes Modification Agreement, dated January 31,
1995, between the Registrant and Principal Mutual Life Insurance
Company.
10.42.5 Amendment to Amended and Restated Note Agreement, dated May 31,
1995, between the Registrant and Principal Mutual Life Insurance
Company.
10.42.6 Third Amendment to Amended and Restated Note Agreement, dated July
31, 1995, between the Registrant and Principal Mutual Life
Insurance Company.
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants - Arthur Andersen LLP.
23.1 Consent of Independent Public Accountants - Coopers & Lybrand LLP.
27 Financial Data Schedule (electronic filing only).
EXHIBITS INCORPORATED BY REFERENCE. The following exhibits are incorporated into
this Report:
3.1 Amended and Restated Articles of Incorporation of the Registrant,
incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1989.
3.2 Amended and Restated By-Laws of the Registrant, incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
year ended October 31, 1990.
4.1 Stock Purchase Agreement dated June 16, 1986, between the
Registrant and Brynwood Partners Limited Partnership, incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 4, 1986.
4.3 Stock Purchase Agreement between the Registrant and Brynwood
Partners Limited Partnership, dated April 30, 1987, incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1987.
10.13 The Underlease between Dikappa (Number 220) Limited and Northern &
London Investment Trust limited dated December 2, 1982,
incorporated by reference to its Registration Statement on Form
S-1, No.2-82804 dated April 1, 1983.
10.14 Amended and Restated 1983 Stock Option Plan of the Registrant,
effective January 1, 1987, incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1987.
10.20.1 Term Loan Agreement dated September 9, 1991, between the
Registrant and NBD Bank, N.A., incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended October
31, 1991.
10.20.5 Letter Agreement (European Facility) dated June 17, 1993, between
the Registrant's subsidiaries and NBD Bank, N.A., incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
year ended October 31, 1993.
10.20.8 Credit Agreement and Amendment to the Term Loan Agreement and
Reimbursement Agreement dated March 24, 1994, between the
Registrant and NBD Bank, N.A., incorporated by reference to the
Registrant's Current Report on Form 8-K dated August 1, 1994.
10.20.9 Amendment to Letter Agreement (European Facility) dated March 24,
1994, between the Registrant's foreign subsidiaries and NBD Bank,
N.A., incorporated by reference to the Registrant's Current Report
on Form 8-K dated August 1, 1994.
10.20.10 Intercreditor, Agency and Sharing Agreement dated March 24, 1994,
between the Registrant, NBD Bank, N.A., Principal Mutual Life
Insurance Company and NBD Bank, N.A. as collateral agent,
incorporated by reference to the Registrant's Current Report of
Form 8-K dated August 1, 1994.
10.20.11 Security Agreement dated March 24, 1994, between the Registrant
and NBD Bank, N.A. as collateral agent, incorporated by reference
to the Registrant's Current Report on Form 8-K dated August 1,
1994.
10.20.13 Guaranty Agreement dated March 24, 1994, between Autocon
Technologies, Inc. and NBD Bank, N.A., incorporated bY reference
to the Registrant's Current Report on Form 8-K dated August 1,
1994.
10.20.14 Pledge Agreement dated March 24, 1994, between the Registrant and
NBD Bank, N.A. as collateral agent, incorporated by reference to
the Registrant's Current Report on Form 8-K dated August 1, 1994.
10.34 Employment Agreement between the Registrant and Brian D.
McLaughlin, dated December 14, 1987, incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 31, 1987.
10.39 Non-qualified Stock Option Agreement between the Registrant and
Andrew L. Lewis IV, effective November 17, 1988, incorporated by
reference to its Registration Statement on Form S-8 dated February
16, 1989.
10.42.2 Amended and Restated Note Agreement dated March 24, 1994, between
the Registrant and Principal Mutual Life Insurance Company,
incorporated by reference to the Registrant's Current Report on
Form 8-K dated August 1, 1994.
10.42.3 Guaranty Agreement dated March 24, 1994, between Autocon
Technologies, Inc. and Principal Mutual Life Insurance Company,
incorporated by reference to the Registrant's Current Report on
Form 8-K dated August 1, 1994.
10.44 Non-Qualified Stock Option Agreement between the Registrant and O.
Curtis Noel effective, March 3, 1993, incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 31, 1993.
10.45 Employment Agreement between the Registrant and Roger J. Wolf
dated January 8, 1993, incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended October
31, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 29 day of January,
1996.
HURCO COMPANIES, INC.
By:/S/ROGER J. WOLF
-------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
SIGNATURE AND TITLE(S) DATE
/S/BRIAN D. MCLAUGHLIN January 29, 1996
- ----------------------
Brian D. McLaughlin, Director,
President and Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)
/S/ROGER J. WOLF January 29, 1996
- ----------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)
/S/THOMAS L. BROWN January 29, 1996
- ------------------
Thomas L. Brown
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)
/S/HENDRIK J. HARTONG January 29, 1996
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Hendrik J. Hartong, Jr., Director
/S/ANDREW L. LEWIS January 29, 1996
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Andrew L. Lewis, IV, Director
/S/KEITH MOORE January 29, 1996
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E. Keith Moore, Director
/S/RICHARD T. NINER January 29, 1996
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Richard T. Niner, Director
/S/O. CURTIS NOEL January 29, 1996
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O. Curtis Noel, Director
/S/CHARLES E.M. RENTSCHLER January 29, 1996
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Charles E.M. Rentschler, Director