SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30,July 31, 2000 or
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to
_________.
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1150732
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Technology Way
Indianapolis, Indiana 46268
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 293-5309
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for the past 90 days:
Yes X No
--- ---
The number of shares of the Registrant's common stock outstanding as of June 4,August
25, 2000 was 5,951,859.
HURCO COMPANIES, INC.
AprilJuly 2000 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months and sixnine months ended April 30,July 31, 2000 and 1999............. 31999.............3
Condensed Consolidated Balance Sheet -
As of April 30,July 31, 2000 and October 31, 1999............................. 41999..............................4
Condensed Consolidated Statement of Cash Flows -
Three months and sixnine months ended April 30,July 31, 2000 and 1999............. 51999.............5
Condensed Consolidated Statement of Changes in Shareholders' Equity -
SixNine months ended April 30,July 31, 2000 and 1999.............................. 61999..............................6
Notes to Condensed Consolidated Financial Statements...................... 7Statements......................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 10Operations.......................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 13Risk...............11
Part II - Other Information
Item 1. Legal Proceedings......................................................... 14Proceedings........................................................13
Item 4. Submission of Matters to a Vote of Security Holders......................13
Item 6. Exhibits and Reports on Form 8-K.......................................... 14
Signatures.............................................................................. 158-K.........................................14
Signatures.............................................................................15
PART I - FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
- ------ ------------------------------
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended SixNine Months Ended
April 30, April 30,July 31, July 31,
------------------------ ---------------------------
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Sales and service fees...................... $ 24,19722,676 $ 21,53220,783 $ 48,72271,398 $ 42,67963,463
Cost of sales and service................... 17,465 15,674 35,270 30,81716,561 14,868 51,831 45,686
---------- ---------- ---------- ----------
Gross profit........................... 6,732 5,858 13,452 11,862profit............................. 6,115 5,915 19,567 17,777
Selling, general and
administrative expenses..................... 5,623 5,352 11,443 10,6865,768 5,152 17,211 15,839
Restructuring credit........................ -- (103)-- -- (103)
---------- ---------- ----------- ----------
Operating income ...................... 1,109 609 2,009 1,279........................ 347 763 2,356 2,041
License fee income and litigation
settlement fees, net................... 201 73 355 242
Interest expense............................ 228 340 520 640expense, net....................... 248 333 768 973
Other expense (income)income (expense), net................. 231 (18) 213 (62)110 (9) (259) (115)
----------- ----------- ---------- ----------
Income before taxes.................... 650 287 1,276 701
Income tax expense (benefit)................ 48 (267) 215 (28)taxes...................... 410 494 1,684 1,195
Provision for income taxes.................. 3 94 217 66
---------- ---------- ---------- ----------
Net income.................................. $ 602407 $ 554400 $ 1,0611,467 $ 7291,129
========== =========== ========== ==========
Earnings per common share
Basic.................................. $ .10.07 $ .09.07 $ .18.25 $ .12.19
========== ========== ========== ==========
Diluted................................ $ .10.07 $ .09.07 $ .18.24 $ .12.19
========== ========== ========== ==========
Weighted average common
shares outstanding
Basic.................................. 5,952 5,9455,947 5,952 6,0115,989
========== ========== ========== ==========
Diluted................................ 6,024 6,031 6,015 6,1006,026 6,044 6,019 6,076
========== ========== ========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
April 30,July 31, 2000 October 31, 2000 1999
(unaudited) (audited)
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents...........................................temporary investments...................................... $ 2,9803,468 $ 3,495
Accounts receivable................................................. 17,35217,463 17,154
Inventories......................................................... 25,25426,234 30,767
Other............................................................... 1,2191,418 1,440
---------- ---------
Total current assets............................................ 46,80548,583 52,856
---------- ---------
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,1687,158 7,168
Machinery and equipment............................................. 11,39611,068 11,182
Leasehold improvements.............................................. 9821,002 1,005
Less accumulated depreciation and amortization.................. (11,474)(11,096) (11,165)
8,833---------- ---------
8,893 8,951
---------- ---------
Software development costs, less amortization............................ 3,6583,508 3,951
Other assets ............................................................ 4,1374,160 3,874
---------- ---------
$ 63,43365,144 $ 69,632
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 10,72911,309 $ 10,891
Accrued expenses.................................................... 6,0307,013 6,903
Current portion of long-term debt.................................. 1,786 1,786
---------- ---------
Total current liabilities....................................... 18,54520,108 19,580
---------- ---------
Non-current liabilities:
Long-term debt...................................................... 7,5007,650 12,386
Deferred credits and other obligations.............................. 1,3421,320 1,518
---------- ---------
Total non-current liabilities....................................... 8,8428,970 13,904
---------- ---------
Shareholders' equity:
Preferred stock: no par value per share; 1,000,000
shares authorized; no shares issued............................... -- --
Common stock: no par value; $.10 stated value per
share; 12,500,000 shares authorized; and 5,951,859
and 5,951,859 shares issued and outstanding, respectively ...... 595 595
Additional paid-in capital.......................................... 46,340 46,340
Accumulated deficit................................................. (4,287)(3,881) (5,348)
Foreign currency translation adjustment............................. (6,602)(6,988) (5,439)
---------- ---------
Total shareholders' equity...................................... 36,046equity............................................... 36,066 36,148
---------- ---------
$ 63,43365,144 $ 69,632
========== =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three Months Ended SixNine Months Ended
April 30, April 30,July 31, July 31,
------------------------ ---------------------
2000 1999 2000 1999
(unaudited) (unaudited)- ---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income ................................................ $ 602407 $ 554400 $ 1,0611,467 $ 7291,129
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization............................ 729 449 1,263 983573 522 1,836 1,505
Change in assets and liabilities:
(Increase) decrease in accounts receivable............... (2,626) (638) (958) 2,657(254) 1,286 (1,212) 3,492
(Increase) decrease in inventories....................... 1,624 306 4,497 (1,701)(1,089) (1,490) 3,408 (3,191)
Increase (decrease) in accounts payable.................. 893 (2,731) (87) (6,802)595 2,971 508 (3,831)
Increase (decrease) in accrued expenses.................. (1,074) (198) (699) (1,244)1,025 536 326 (708)
Other.................................................... 493 52 586 162(415) (542) 171 71
--------- ---------- -------- ----------
Net cash provided by (used for)
operating activities................................... 641 (2,206) 5,663 (5,216)842 3,683 6,504 (1,533)
--------- ---------- -------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment............................ (17) 55 11 7225 19 36 91
Purchase of property and equipment......................... (345) (394) (553) (644)(396) (269) (949) (913)
Software development costs................................. (303) (306) (479) (532)(22) (247) (501) (779)
Other investments.......................................... (35) (49) (35) (211)(56) (9) (91) (220)
--------- ---------- --------- ----------
Net cash provided by (used for)
investing activities..................................... (700) (694) (1,056) (1,315)(449) (506) (1,505) (1,821)
--------- ---------- --------- ----------
Cash flows from financing activities:
Advances on bank credit facilities......................... 6,650 25,599 13,100 41,0507,550 13,840 20,650 54,890
Repayment on bank credit facilities ....................... (7,650) (21,469) (16,200) (29,769)(7,400) (17,632) (23,600) (47,401)
Repayment of term debt .................................... -- -- (1,786) (1,786)
Proceeds from exercise of common stock options............. -- 13 -- -- 215
Purchase of common stock................................... -- -- -- (2,379)
-------- --------- --------- ----------
Net cash provided by (used for)
financing activities..................................... (1,000) 4,130 (4,886) 7,118150 (3,779) (4,736) 3,339
-------- --------- --------- ----------
Effect of exchange rate changes on cash....................... (133) (150) (236) (169)(55) 90 (290) (79)
--------- --------- --------- ----------
Net increase (decrease) in cash and
temporary investments.................................... (1,192) 1,080 (515) 418488 (512) (27) (94)
Cash and temporary investments
at beginning of period................................... 4,172 2,6142,980 3,694 3,495 3,276
--------- ---------- --------- ----------
Cash and temporary investments
at end of period......................................... $ 2,9803,468 $ 3,6943,182 $ 2,9803,468 $ 3,6943,182
========= ========= ======== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the SixNine Months Ended April 30,July 31, 2000 and 1999
Accumulated
Other
Comprehensive
Income:
Common Stock Income:Foreign
------------------------- Foreign
Shares Additional Currency
Issued & Paid-In Accumulated Translation
Outstanding Amount Capital Deficit Adjustment Total
----------- ------ ------- ------- ---------- -----
(Dollars in thousands)
Balances, October 31, 1998 6,340,111 $634 $48,662 $(7,150) $(4,406) $37,740
(unaudited)--------------------------- -------
(Unaudited)
Net income....................... -- -- -- 7291,129 -- 7291,129
Translation of foreign currency
financial statements.......... -- -- -- -- (1,141) (1,141)
-------
Comprehensive income (loss)...... (375)(12)
-------
Exercise of Common Stock Options. 1,0006,100 -- 215 -- -- 215
Purchase of Common Stock......... (395,752) (39) (2,340) -- -- (2,379)
--------- ---- ------- -------- -------- -------
Balances, April 30,July 31, 1999 5,945,3595,950,459 $595 $46,324 $(6,421) $(5,510) $34,988$46,337 $ (6,021) $(5,547) $35,364
----------------------- ========= ==== ======= ======== ======== =======
Balances, October 31, 1999 5,951,859 $595 $46,340 $(5,348)$ (5,348) $(5,439) $36,148
(unaudited)-------------------------- -------
(Unaudited)
Net income....................... -- -- -- 1,0611,467 -- 1,0611,467
Translation of foreign currency
financial statements.......... -- -- -- -- (1,549) (1,549)
-------
Comprehensive income (loss)...... (102)(82)
-------
Exercise of Common Stock Options. -- -- -- -- -- --
--------- ---- ------- -------- -------- -------
Balances, April 30,July 31, 2000 5,951,859 $595 $46,340 $(4,287) $(6,602) $36,046$(3,881) $(6,988) $36,066
----------------------- ========= ==== ======= ======== ======== =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The unaudited Condensed Consolidated Financial Statements include the accounts
of Hurco Companies, Inc. and its consolidated subsidiaries. We are an industrial
automation company that designs and produces interactive computer controls,
software and computerized machine systems for the worldwide metal cutting and
metal forming industries.
The condensed financial information as of April 30,July 31, 2000 and 1999 is unaudited
but includes all adjustments whichthat we consider necessary for a fair presentation
of our financial position at those dates and our results of operations and cash
flows for the sixnine months then ended. We suggest you read these condensed
financial statements in conjunction with the financial statements and the notes
thereto included in our Annual Report on Form 10-K for the year ended October
31, 1999.
2. HEDGING
We hedge our exposure to fluctuations in foreign currency exchange rates from
time to time by using foreign currency forward exchange contracts. The U.S.
dollar equivalent notional amount of outstanding foreign currency forward
exchange contracts was approximately $6.9$3.0 million as of April 30,July 31, 2000 ($3.91.2
million related to firm intercompany sales commitments) and $4.5 million as of
October 31, 1999 ($2.1 million related to firm intercompany sales commitments).
Deferred lossesgains related to hedges of future sales transactions were approximately
$7,000$51,000 and deferred losses were approximately $48,000 as of April 30,July 31, 2000 and
October 31, 1999, respectively. Contracts outstanding at April 30,July 31, 2000 mature at
various times through AugustSeptember 2000.
3. EARNINGS PER SHARE
Basic and diluted earnings per common share are based on the weighted average
number of shares of common stock outstanding. Diluted earnings per common share
give effect to outstanding stock options using the treasury stock method. Common
stock equivalents totaled approximately 72,00074,000 shares as of April 30,July 31, 2000.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $618,000$725,000 as of April 30,July 31, 2000 and
$687,000 as of October 31, 1999.
5. INVENTORIES
Inventories, reflected at the lower of cost (first-in, first-out method) or
market are summarized below (in thousands):
April 30,July 31, 2000 October 31, 1999
------------- ----------------
Purchased parts and sub-assemblies $10,282$10,368 $ 9,104
Work-in-process 506567 1,070
Finished goods 14,46615,299 20,593
$25,254------- -------
$26,234 $30,767
======= =======
6. TAX CONTINGENCY
A German tax examiner has contested the transfer of net operating losses between
two of our German subsidiaries that merged in fiscal 1996. The contingent tax
liability resulting from this issue is approximately $1.4 million. We have
protested this matter and have not yet received a ruling from the German tax
authorities on the tax examiner's findings and our protest. In the event an
unfavorable ruling is received from the German tax authorities, we will consider
whether to appeal to the German Federal Tax Court. No provision for the
contingency has been recorded.
7. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, computer control
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
Substantially all of our machine systems and computer control systems are
manufactured to our specifications by contract manufacturing companies in Taiwan
and Europe. Our executive offices and principal design, engineering and
manufacturing management operations are headquartered in Indianapolis, Indiana.
We sell our products through over 240 independent agents and distributors in 45
countries throughout North America, Europe and Asia. We also have our own direct
sales and service organizations in the United States, England, France, Germany,
Italy and Singapore, which are considered to be among the world's principal
computerized machine system consuming countries.
8. RESTRUCTURING CHARGE
In fiscal 1998, we recorded a reserve for anticipated costs associated with the
restructuring of a subsidiary to convert its operations from manufacturing
computer controls to sales and service of computerized machine systems. At April
30,July
31, 2000, the restructuring reserve balance was $351,374$345,421 and consisted of the
following:
Balance Charges to Balance
Description 10/31/99 Accrual Adjustment 4/30/00
Excess Building Capacity $285,899 -- -- $285,899
Equipment Leases 77,379 11,904 -- 65,475
$363,278 $11,904 $ -- $351,374
Balance Charges to Balance
Description 10/31/99 Accrual Adjustment 7/31/00
- ----------- -------- ---------- ---------- --------
Excess Building Capacity $285,899 -- -- $285,899
Equipment Leases 77,379 17,857 -- 59,522
-------- ---------- ---------- --------
$363,278 $ 17,857 $ -- $345,421
======== ========== ========== ========
9. SUBSEQUENT EVENT
On August 8, 2000, Hurco and its subsidiary, IMS technology, Inc. (IMS) agreed
to a settlement with Haas Automation Inc. and Gene Haas (Haas) concerning
infringement of a United States interactive machining patent (the Patent) owned
by IMS. Under the settlement, IMS licensed the Patent to Haas and Haas made a
one-time payment to IMS. We expect to report license fee income and litigation
settlement fees, net of expenses, of approximately $5 million in the fourth
quarter of fiscal 2000 resulting from this settlement.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------- ----------------------------------------------------------------------
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements of the machine tool industry to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, (i) changes in
general economic and business conditions that affect demand for computerized
machine systems, computer numeric control (CNC) systems and software products,
(ii) changes in manufacturing markets, (iii) innovations by competitors, (iv)
quality and delivery performance by our contract manufacturers and (v)
governmental actions and initiatives including import and export restrictions
and tariffs.
RESULTS OF OPERATIONS
Three Months Ended April 30,July 31, 2000 Compared to Three Months Ended April 30,July 31, 1999
- -----------------------------------------------------------------------------
Net income for the secondthird quarter ended April 30,July 31, 2000 was $602,000,$407,000, or $.10$.07 per
share on a diluted basis, which compares to $554,000,$400,000, or $.09$.07 per share,
reported for the corresponding period a year ago. When comparing the results for
the two periods, it should be noted that netNet income for the 2000 period
was unfavorably impacted by approximately $600,000$700,000 due to the financial effects
of changes in foreign currencies, as compared to rates in effect during the
prior year, primarily the stronger U.S. dollar in relation to those linked to
the Euro.
In addition, results for the second quarter of 1999
were favorably impacted by a $103,000 adjustment to a restructuring reserve and
a $377,000 tax asset recorded by a foreign subsidiary, due to a change in tax
status, which resulted in a net tax benefit of $267,000, rather than tax
expense.
Sales and service fees for the secondthird quarter of fiscal 2000 were $24.2$22.7 million,
approximately $2.7$1.9 million, or 12%9%, higher than those recorded in the 1999
period, not
withstandingdespite the continuing unfavorable currency translation effects of the strengtheneda substantially stronger
dollar when translatingon sales made in foreign currencies. At comparable exchange rates, net
sales for the third quarter would have been $24.0 million, an increase of
approximately $3.3 million, or 16%, over the prior year period. This increase
was due almost entirely to increased shipments of computerized machine systems,
reflecting stronger order rates, primarily in continental Europe and Southeast
Asia. Machine system sales increased $3.1 million, or 21%, when measured at
exchange rates comparable to those prevailing in the second1999 period. International sales,
after currency effects, represented approximately 58% of sales, which was
similar to the 1999 period.
New order bookings during the third quarter of fiscal 2000 were $25.4 million
compared to $20.4 million for the corresponding 1999 period, an increase of 25%.
At constant exchange rates, however, new orders were approximately 31% higher
than in the 1999 period. Orders for computerized machine systems increased 34%
in units; however, in constant dollars the increase was 44%, reflecting the
benefits of a higher percentage of larger, higher value machines in the total
mix of new orders. The increase in new orders was attributable primarily to
increased market penetration in continental Europe and Southeast Asia. Orders in
Southeast Asia also benefited from significantly improved market conditions.
Gross profit as a percentage of sales was 27.0% compared to 28.5% for the
corresponding period in the prior year. The decrease is primarily attributable
to the stronger U.S. dollar.
Selling, general and administrative expenses, which include research and
development expenses, increased by $616,000, or 12%, due primarily to additional
direct sales forces in Italy and certain territories in the U.S. and increased
product development expense. These increases were partially offset by the
favorable effects of weaker foreign currencies on expenses incurred in foreign
currencies. Also, selling, general and administrative expenses during the same
quarter of the prior year were lower than normal due to cost reductions executed
during that period.
Non-operating income increased by $332,000 during the quarter and is the result
of the following items. License fee income and litigation settlement fees
increased by $128,000 as a result of five settlements that resulted in lump sum
payments. Interest expense decreased by $85,000, or 26%, as a result of a
decrease in borrowings compared to the third quarter of the prior year. Other
income increased by $119,000 as a result of rental income received from leasing
a portion of our Indianapolis warehouse and the recording of earnings of an
affiliate accounted for under the equity method.
The provision for income tax decreased by $91,000 as a result of reduced taxable
income of a foreign subsidiary.
Nine Months Ended July 31, 2000 Compared to Nine Months Ended July 31, 1999
- ---------------------------------------------------------------------------
Net income for the nine months ended July 31, 2000 was $1.5 million, or $.24 per
share on a diluted basis, which compares to $1.1 million, or $.19 per share,
reported for the corresponding period a year ago. Net income for the 2000 period
was unfavorably impacted by approximately $2.0 million due to the financial
effects of changes in foreign currencies, as compared to rates in effect during
the prior year, primarily the stronger U.S. dollar in relation to those linked
to the Euro.
Sales and service fees for the first nine months of fiscal 2000 were $71.4
million, approximately $7.9 million, or 13%, higher than those recorded in the
1999 period, in spite of the unfavorable effects of a substantially stronger
dollar on sales made in foreign currencies. At comparable exchange rates, net
sales for the first nine months of fiscal 2000 would have been $25.3$75.4 million, an
increase of approximately $3.8$11.9 million, or 18%19%, over the corresponding 1999
period. The increase was due almost entirely to increased shipments of
computerized machine systems, reflecting stronger order rates on a global basis.
Machine system sales increased $3.5$11.3 million, or 23%25%, when measured at exchange
rates comparable to those in the 1999 period.
International sales, net of currency effects,
represented approximately 51% of net sales and service fees, compared to
approximately 49% in the 1999 period.
New order bookings during the second quarterfirst nine months of fiscal 2000 were $26.0$74.5
million compared to $20.0$65.2 million for the corresponding 1999 period, an increase
of 30%14%. When measured atAt exchange rates comparable to those in the 1999 period, however, new
orders in the latest periodfirst nine months of fiscal 2000 were approximately 36%20% higher
than in the 1999
period.first nine months of 1999. Orders for computerized machine systems
increased 52%28% in both units and 47% in constant dollars, while orders for
stand-alone computer controls approximated
the prior year level.declined by 19% in constant dollars. Orders for
computerized machine systems in the U.S. increased approximately $2.8$4.3 million,
or 57%29%, and in Southeast Asia increased $1.0$3.3 million, over 300% of200% above the fiscal
1999 level.
In Europe, machine system
orders increased $2.6 million, or 29%, measured in constant dollars, primarily
in Germany and the United Kingdom.
Selling, general and administrative expenses, which include research and
development expenses, increased by $271,000,$1.4 million, or 5%9%, over those recorded in the
1999 period, due primarily to
the incremental expense associated withadditional direct sales forces in Italy and certain territories in the U.S., which was and
increased product development expenses. These increases were partially offset by
the favorable effects of the strengthened U.S. dollar when translating expenses
incurred inweaker foreign currencies.
Interest expense decreased by $112,000,$205,000, or 33%21%, from the amount recorded in the
corresponding period of 1999, due primarily to a $6.6$3.7 million reduction in
average debt outstanding for the threenine months ended April 30,July 31, 2000 compared to the
prior year period, as a result of enhanced cash flow from operations. The effect
on interest expense of increased interest rates was not significant.
Other expense (net) increased to $231,000$259,000 compared to other income of $18,000$115,000 reported for the
corresponding period of fiscal 1999, due primarily to realized and unrealized
currency losses associated with accounts receivable denominated in foreign
currencies, primarily those linked to the Euro, which for the most part, were
not covered by forward hedge contracts during the 2000 period.
Six Months Ended April 30, 2000 ComparedThe provision for income taxes increased to Six Months Ended April 30, 1999
Net income for the six months ended April 30, 2000 was $1.1 million, or $.18 per
share on a diluted basis, which compares to $729,000, or $.12 per share,
reported for the corresponding period a year ago. The comparability of 2000
results to those for the first half of 1999 was subject to the same factors as
those noted in the discussion of quarterly results.
Sales and service fees for the first half of fiscal 2000 were $48.7 million,
approximately $6.0 million, or 14%, higher than those recorded in the 1999
period, in spite of the unfavorable effects of a substantially stronger dollar
when translating sales made in foreign currencies. At comparable exchange rates,
net sales for the first half of 2000 would have been $51.2 million, an increase
of approximately $8.6 million, or 20%, over the corresponding 1999 period. The
increase was due almost entirely to increased shipments of computerized machine
systems, reflecting stronger order rates on a global basis. Machine system sales
increased $8.1 million, or 26%, when measured at exchange rates comparable to
those in the 1999 period.
New order bookings during the first half of 2000 were $49.1 million$217,000 compared to $44.7 million for the corresponding 1999 period, an increase of 10%. When
measured at exchange rates comparable to those in the 1999 period, however, new
orders in the 2000 first half were approximately 15% higher than in the first
half of 1999. Orders for computerized machine systems increased 26% in units and
20% in constant dollars, while orders for stand-alone computer controls declined
by 16% in constant dollars. Orders for computerized machine systems in the U.S.
increased approximately $3.9 million, or 39%, and in Southeast Asia increased
$2.4 million, over 400% above the fiscal 1999 level.
Selling, general and administrative expenses, which include research and
development expenses, increased by $757,000, or 7%, due primarily to additional
direct sales forces in Italy and certain territories in the U.S., which was
partially offset by the effects of weaker foreign currencies when translating
expenses incurred in foreign currencies.
Interest expense decreased by $120,000, or 19%, from the amount recorded in the
corresponding period of 1999, due primarily to a $3.0 million reduction in
average debt outstanding for the six months ended April 30, 2000 compared to the
prior year period, as a result of enhanced cash flow from operations. The effect
on interest expense of increased interest rates was not significant.
Other expense (net) increased to $213,000 compared to other income of $62,000
reported$66,000 for the
corresponding period of fiscal 1999, due primarily to realized
and unrealized currency losses associated with accounts receivable denominateda $377,000 tax asset
recorded by a foreign subsidiary in foreign currencies, primarily those linked to the Euro, which for the most
part, were not covered by forward hedge contracts during the 2000 period.prior year.
LIQUIDITY AND CAPITAL RESOURCES
At April 30,July 31, 2000, we had cash and cash equivalents of $3.0$3.5 million,
compared to
$3.5 millionsubstantially the same as at October 31, 1999. Cash provided by operations
totaled $5.7$6.5 million in the first halfnine months of fiscal 2000, compared to $5.2$1.5
million used for operations in the same period of fiscal 1999. The cash flow
provided by operations resulted in a $4.9$4.7 million reduction in long-term debt
during the first halfnine months of fiscal 2000.
Net working capital was $28.3$28.5 million at April 30,July 31, 2000, compared to $33.3
million at October 31, 1999. The decline is attributable principally to a
decrease in inventory of $4.5$3.4 million.
The decrease in inventory, consisting primarily of finished products available
for shipment, is attributable to a planned decrease in production by our
contract manufacturers, combined with increased shipments in the first halfnine months of
fiscal 2000.
Capital investments in the first halfnine months of fiscal 2000 consisted
principally of expenditures for software development projects and purchases of
equipment. Cash used for investing activities during the first half was derived
from operations.
On August 8, 2000, Hurco and its subsidiary, IMS technology, Inc. (IMS) agreed
to a settlement with Haas Automation Inc. and Gene Haas (Haas) concerning
infringement of a United States interactive machining patent (the Patent) owned
by IMS. Under the settlement, IMS licensed the Patent to Haas and Haas made a
one-time payment to IMS. We expect to report license fee income and litigation
settlement fees, net of expenses, of approximately $5 million in the fourth
quarter of fiscal 2000 resulting from this settlement. There are a limited
number of remaining CNC users that IMS has identified as potential licensees.
Accordingly, we believe that it is unlikely that future license fee income and
litigation settlement fees will equal that recorded in fiscal 2000.
We were in compliance with all of our loan covenants at April 30,July 31, 2000. We
believe that anticipated cash flow from operations and available borrowings
under credit facilities will be sufficient to meet our anticipated cash
requirements in the foreseeable future.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Interest Rate Risk
Interest on our bank borrowings is affected by changes in prevailing U.S. and
European interest rates and/or Libor. The interest rates on the Libor portion of
our bank credit facilities are based upon a ratio of total indebtedness to cash
flow for the preceding twelve month period and are payable at Libor plus an
amount ranging from 1.0% to 2.0% based upon a prescribed formula. At April 30,July 31,
2000, outstanding borrowings under our bank credit facilities were $7.5$7.7 million
and our total indebtedness was $9.3$9.4 million. The interest rate on the Libor
portion of our bank debt was Libor plus 1.5%.
Foreign Currency Exchange Risk
A significant portion of our products is sourced from foreign suppliers or built
to our specifications by contract manufacturers overseas. Our arrangements with
these suppliers typically include foreign currency risk sharing agreements,
which reduce (but do not eliminate) the effects of currency fluctuations on
product costs. The predominant portion of our exchange rate risk associated with
product purchases relates to the New Taiwan Dollar.
In fiscal 2000, approximately 57.6%58.6% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer numerical control systems, as well as certain proprietary
service parts, are sourced by our U.S.-based engineering and manufacturing
division and re-invoiced to our foreign sales and service subsidiaries,
primarily in their functional currencies. We enter into forward foreign exchange
contracts from time to time to hedge the cash flow risk related to inter-company
sales and inter-company accounts receivable denominated in foreign currencies.
We do not speculate in the financial markets and, therefore, do not enter into
these contracts for trading purposes.
Forward contracts for the sale of foreign currencies as of April 30,July 31, 2000 were as
follows:
Weighted
Notional Amount Avg. Notional
Forward Contracts in Foreign Forward Amount in Market Value
Currency Rate U.S. $US$ in US$ Maturity Dates
- ----------------- -------- ---- --- ------ --------------
Sterling 975,000 1.5962 1,556,314 1,514,565 May800,000 1.5445 1,235,603 1,199,200 Aug. - Aug.Sept. 2000
Euro 5,876,000 .9176 5,391,868 5,356,562 May - June1,876,000 .9355 1,754,998 1,739,615 August 2000
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As reported in our Annual Report on Form 10-K for the year ended October 31,
1999, our subsidiary, IMS Technology, Inc. (IMS) iswas a party to an ongoing legal
proceeding involving Haas Automation Inc. and its owner (collectively, Haas).
IMS hashad alleged that Haas infringed one of its Interactive Computer Numerical
Control patents. In October 1998, the trial court granted summary
judgment in favor of Haas, dismissing the action.On August 8, 2000, IMS filed an appeal and Haas filedagreed to a cross-appeal. In Marchsettlement. Under
the settlement, IMS licensed the patents to Haas and Haas made a one-time
payment to IMS. All claims and counter-claims of IMS and Haas were dismissed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Shareholders held on May 23, 2000, the Courtfollowing
individuals were elected to the Board of Appeals reversedDirectors by the trial court's grant of summary judgment of non-infringement in favor of
Haas on twofollowing votes cast
at the meeting:
For Abstain
Robert W. Cruickshank 4,571,891 452,141
Michael Doar 4,571,891 452,141
Hendrik J. Hartong, Jr. 4,572,504 451,528
Brian D. McLaughlin 4,572,449 451,583
Richard T. Niner 4,572,504 451,528
O. Curtis Noel 4,571,891 452,141
Charles E. M. Rentschler 4,572,593 451,439
Shareholders also approved an amendment of the claims IMS has asserted against Haas.Company's 1997 Stock Option and
Incentive Plan which (i) increases from 500,000 to 750,000 the number of shares
of common stock subject to issuance under the plan, (ii) increases from 100,000
to 200,000 the number of shares of common stock which may be granted to any
individual participant pursuant to awards made under the plan, and (iii) adds as
eligible participants in the plan members of the Company's Board of Directors
who are not employees of the Company. The Court also
ruled thatresults of the trial court erred in its construction of a key term and vacated
a separate ruling of non-infringement. Finally, the Court of Appeals affirmed
the trial court's findings on claim construction issues, which Haas had
raised in its cross-appeal. The action has now been remandedvoting with respect to
the trial
court for further proceedingsamendment were as follows:
Abstentions and
the trial is expected to commence in July
or August. Although we continue to believe that IMS claims of patent
infringement have substantial merit, we are unable to predict the outcome of
this matter at this time.For Against Broker Non-Votes
2,607,090 2,074,027 342,915
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Letter Between the RegistrantAmended 1997 Stock Option and Bernard C.
Faulkner, dated February 4, 2000Incentive Plan
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURCO COMPANIES, INC.
By: /s/ Roger J. Wolf
-------------------------
Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /s/ Stephen J. Alesia
-------------------------
Stephen J. Alesia
Corporate Controller and
Principal Accounting Officer
June 13,August 29, 2000