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  JulyJanuary 31, 20002001 or
      Transition  report  pursuant  to  section  13 or 15(d)  of the  Securities
      Exchange  Act  of  1934  for  the  transition  period  from  _________  to
      _________.


Commission File No. 0-9143

                              HURCO COMPANIES, INC.
              (Exact name of registrant as specified in its charter)

               Indiana                               35-1150732
- ----------------------------------------------------------------------------------------------------------------------  --------------------------------------
       (State or other jurisdiction of   (I.R.S. Employer Identification Number)
       incorporation or organization)

       One Technology Way
       Indianapolis, Indiana                            46268
- ---------------------------------------------------------------------------------------------------------------------   --------------------------------------
(Address of principal executive offices)             (Zip code)

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

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

The number of shares of the Registrant's common stock outstanding as of August
25, 2000February
28, 2001 was 5,951,859.5,693,758.







                              HURCO COMPANIES, INC.
                     July 2000January 2001 Form 10-Q Quarterly Report


                                Table of Contents



                         Part I - Financial Information
Page
                                                                                                  
Item 1.       Condensed Financial Statements

              Condensed Consolidated StatementStatements of Operations -
                  Three months ended January 31, 2001 and nine months ended July 31, 2000 and 1999.............32000..........................                3

              Condensed Consolidated Balance SheetSheets -
                  As of JulyJanuary 31, 20002001 and October 31, 1999..............................42000...........................                4

              Condensed Consolidated StatementStatements of Cash Flows -
                  Three months ended January 31, 2001 and nine months ended July 31, 2000 and 1999.............5

              Condensed2000..........................                5

              Consolidated StatementStatements of Changes in Shareholders' Equity
                  -
                  NineThree months ended JulyJanuary 31, 20002001 and 1999..............................62000..........................                6

              Notes to Condensed Consolidated Financial Statements......................7Statements......................                7


Item 2.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations.......................................9

Item 3.       Quantitative and Qualitative Disclosures About Market Risk...............11Operations.......................................               10



                           Part II - Other Information



Item 1.       Legal Proceedings........................................................13

Item 4.       Submission of Matters to a Vote of Security Holders......................13Proceedings.........................................................               13

Item 6.       Exhibits and Reports on Form 8-K.........................................14


Signatures.............................................................................158-K..........................................               13


Signatures..............................................................................               14

PART I - FINANCIAL INFORMATION Item 1. CONDENSED FINANCIAL STATEMENTS - ------ ------------------------------Financial Statements HURCO COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS (In thousands, except per shareper-share data) Three Months Ended Nine Months Ended JulyJanuary 31, July 31, ------------------------ ---------------------------2001 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------- (unaudited) (unaudited)----------------------------------------------------------------------------------------------------------------------------------- (Unaudited) Sales and service fees......................fees..................................................... $ 22,67625,933 $ 20,783 $ 71,398 $ 63,46324,524 Cost of sales and service................... 16,561 14,868 51,831 45,686 ---------- ----------service.................................................. 19,318 17,803 ---------- ---------- Gross profit............................. 6,115 5,915 19,567 17,777profit.......................................................... 6,615 6,721 Selling, general and administrative expenses..................... 5,768 5,152 17,211 15,839 Restructuring credit........................ -- -- -- (103)expenses............................... 6,086 5,820 ---------- ---------- ----------- ---------- Operating income ........................ 347 763 2,356 2,041income...................................................... 529 901 License fee income, and litigation settlement fees, net................... 201 73 355 242net.................................................... 334 71 Interest expense, net....................... 248 333 768 973expense........................................................... 181 292 Other income (expense), net................. 110 (9) (259) (115)net................................................ 88 ( 54) ---------- ----------- ----------- ---------- ---------- Income before taxes...................... 410 494 1,684 1,195income taxes............................................ 770 626 Provision for income taxes.................. 3 94 217 66 ---------- ----------taxes................................................. 203 167 ---------- ---------- Net income..................................Income................................................................. $ 407 $ 400 $ 1,467 $ 1,129 ========== ===========567 $459 ========== ========== Earnings per common share Basic..................................Basic................................................................. $ .07.10 $ .07.08 ========= ========== Diluted............................................................... $ .25.10 $ .19 ========== ========== ========== ========== Diluted................................ $ .07 $ .07 $ .24 $ .19 ========== ========== ==========.08 ========= ========== Weighted average common shares outstanding Basic..................................Basic................................................................. 5,867 5,952 5,947 5,952 5,989 ========== ========== Diluted............................................................... 5,905 6,008 ========== ========== Diluted................................ 6,026 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 SHEETSHEETS (Dollars in thousands) JulyJanuary 31, 2000 October 31, 19992001 2000 ASSETS (Unaudited) (Audited) Current assets: Cash and temporary investments......................................cash equivalents........................................... $ 3,4685,192 $ 3,4953,384 Accounts receivable................................................. 17,463 17,15421,583 17,842 Inventories......................................................... 26,234 30,76728,056 26,176 Other............................................................... 1,418 1,4401,794 1,793 ---------- --------- Total current assets............................................ 48,583 52,856 ---------- ---------56,625 49,195 Property and equipment: Land ............................................................ 761 761 Building............................................................ 7,158 7,1687,162 7,162 Machinery and equipment............................................. 11,068 11,18211,033 11,000 Leasehold improvements.............................................. 1,002 1,0051,031 992 Less accumulated depreciation and amortization.................. (11,096) (11,165)(11,240) (11,122) ---------- --------- 8,893 8,951---------- 8,747 8,793 ---------- --------- Software development costs, less amortization............................ 3,508 3,951 Other assets ............................................................ 4,160 3,8743,223 3,326 Investments and other assets............................................. 4,119 3,710 ---------- --------- $ 65,14472,714 $ 69,63265,024 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................................... $ 11,30915,502 $ 10,89113,593 Accrued expenses.................................................... 7,013 6,9038,947 7,545 Current portion of long-term debt.................................. 1,786 1,786200 1,986 ---------- --------- Total current liabilities....................................... 20,108 19,580 ---------- ---------24,649 23,124 Non-current liabilities: Long-term debt...................................................... 7,650 12,3868,100 1,750 Deferred credits and other obligations.............................. 1,320 1,518......................................... 1,284 1,259 ---------- --------- Total non-current liabilities....................................... 8,970 13,904 ---------- ---------9,384 3,009 Shareholders' equity: Preferred stock: no par value per share; 1,000,000 shares authorized; no shares issued............................... -- -- Common stock: no par value; $.10 stated value per share; 12,500,000 shares authorized; 5,693,758 and 5,951,859 and 5,951,8595,955,359 shares issued, and outstanding, respectively ...... 595 595...................... 569 596 Additional paid-in capital.......................................... 46,340 46,340 Accumulated deficit................................................. (3,881) (5,348) Foreign currency translation adjustment............................. (6,988) (5,439)45,188 46,347 Retained earnings (deficit)......................................... 254 (313) Other comprehensive income.......................................... (7,330) (7,739) ---------- --------- Total shareholders' equity............................................... 36,066 36,148equity...................................... 38,681 38,891 ---------- --------- $ 65,144 $ 69,632$72,714 $65,024 ========== =========
The accompanying notes are an integral part of the condensed consolidated financial statements. HURCO COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS (Dollars in thousands) Three Months Ended Nine Months Ended JulyJanuary 31, July 31, ------------------------ ---------------------2001 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------- (Unaudited)---------------------------------------------------------------------------------------------------------------------- (Unaudited) Cash flows from operating activities: Net income ................................................income.................................................................. $ 407567 $ 400 $ 1,467 $ 1,129459 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization............................ 573 522 1,836 1,505amortization............................................. 539 534 Change in assets and liabilities: (Increase) decrease in accounts receivable............... (254) 1,286 (1,212) 3,492receivable.............................. (3,056) 1,668 (Increase) decrease in inventories....................... (1,089) (1,490) 3,408 (3,191)inventories...................................... (1,441) 2,873 Increase (decrease) in accounts payable.................. 595 2,971 508 (3,831)payable................................. 1,820 (980) Increase (decrease) in accrued expenses.................. 1,025 536 326 (708) Other.................................................... (415) (542) 171 71 --------- ---------- --------expenses................................. 1,060 375 Other................................................................... (511) 93 ----------- ---------- Net cash provided by (used for) operating activities................................... 842 3,683 6,504 (1,533) ---------activities.................... (1,022) 5,022 ---------- -------- ---------- Cash flows from investing activities: Proceeds from sale of equipment............................ 25 19 36 91 Purchaseequipment............................................. -- 28 Purchases of property and equipment......................... (396) (269) (949) (913)equipment......................................... (207) (208) Software development costs................................. (22) (247) (501) (779) Other investments.......................................... (56) (9) (91) (220) ---------costs.................................................. (128) (176) Other....................................................................... (78) -- ---------- --------- ---------- Net cash provided by (used for) investing activities..................................... (449) (506) (1,505) (1,821) ---------activities.................... (413) (356) ---------- --------- ---------- Cash flows from financing activities: Advances on bank credit facilities......................... 7,550 13,840 20,650 54,890facilities.......................................... 14,650 6,450 Repayment on bank credit facilities ....................... (7,400) (17,632) (23,600) (47,401) Repaymentfacilities......................................... (8,300) (8,550) Repayments of term debt .................................... -- --debt..................................................... (1,786) (1,786) Repurchase of Common Stock.................................................. (1,221) -- Proceeds from exercise of common stock options.............options.............................. 35 -- 13 -- 15 Purchase of common stock................................... -- -- -- (2,379) -------- --------- ------------------- ---------- Net cash provided by (used for) financing activities..................................... 150 (3,779) (4,736) 3,339 --------activities.................... 3,378 (3,886) ---------- --------- --------- ---------- Effect of exchange rate changes on cash....................... (55) 90 (290) (79) --------- --------- --------- ----------cash.......................................... (135) (105) ----------- ----------- Net increase (decrease) in cash and temporary investments.................................... 488 (512) (27) (94)cash......................................... 1,808 675 Cash and temporary investmentscash equivalents at beginning of period................................... 2,980 3,694 3,495 3,276 ---------period................................. 3,384 3,497 ---------- --------- ---------- Cash and temporary investmentscash equivalents at end of period.........................................period....................................... $ 3,4685,192 $ 3,182 $ 3,468 $ 3,1824,172 ========= ========= ======== =========
========== 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 NineThree Months Ended Julyended January 31, 2001 and 2000 and 1999 Accumulated Other Comprehensive Income: Common Stock Foreign ------------------------- Shares Additional CurrencyRetained Other Issued & Paid-In Accumulated TranslationEarnings Comprehensive Outstanding Amount Capital Deficit Adjustment(Deficit) Income: Total ----------- ------ ------- ------- ---------- ----- (Dollars in thousands) Balances, October 31, 1998 6,340,111 $634 $48,662 $(7,150) $(4,406) $37,740 ---------------------------1999 5,951,859 $595 $46,340 $(5,348) $(5,439) $36,148 - -------------------------- ------- (Unaudited) Net income....................... -- -- -- 1,129459 -- 1,129459 Translation of foreign currency financial statements.......... -- -- -- -- (1,141) (1,141) -------(510) (510) --------- Comprehensive income (loss)...... (12) ------- Exercise of Common Stock Options. 6,100 -- 15 -- -- 15 Purchase of Common Stock......... (395,752) (39) (2,340) -- -- (2,379) --------- ---- ------- -------- -------- -------( 51) Balances, JulyJanuary 31, 1999 5,950,459 $595 $46,3372000 5,951,859 $ (6,021) $(5,547) $35,364 -----------------------595 $ 46,340 $ (4,889) $ (5,949) $ 36,097 - -------------------------- ========= ==== ======= ======== ======== ============= ========= ========== ========= ========= Balances, October, 31 1999 5,951,859 $595 $46,340 $ (5,348) $(5,439) $36,1482000 5,955,359 $596 $46,347 $(313) $(7,739) $38,891 - -------------------------- ------- (Unaudited) Net income....................... -- -- -- 1,467567 -- 1,467567 Translation of foreign currency financial statements.......... -- -- -- -- (1,549) (1,549) -------661 661 Unrealized loss on derivative instruments...................... -- -- -- -- (252) (252) ------ Comprehensive income (loss)...... (82) --------- -- -- -- -- 409 Exercise of Common Stock Options. 16,400 1 34 -- -- 35 Repurchase of Common Stock....... (278,001) (28) (1,193) -- -- -- --(1,221) --------- --------- ------- -------- ------------- ----- ------- Balances, JulyJanuary 31, 2000 5,951,859 $595 $46,340 $(3,881) $(6,988) $36,066 -----------------------2001 5,693,758 $569 $ 45,188 $ 254 $ (7,330) $ 38,681 - -------------------------- ========= ==== ============= ========= ====== ========= ======== ======== =======The accompanying notes are an integral part of the Consolidated Financial Statements.
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 JulyJanuary 31, 20002001 and 19992000 is unaudited but includes all adjustments thatwhich we consider necessary for a fair presentation of our financial position at those dates and our results of operations and cash flows for the ninethree months then ended. We suggest you readIt is suggested that these condensed financial statements be read 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, 1999.2000. 2. HEDGING We hedge our exposure to fluctuations in foreign currency exchange rates fromLICENSE FEE INCOME, NET From time to time, by using foreign currency forward exchange contracts. The U.S. dollar equivalent notionalour wholly owned subsidiary, IMS Technology, Inc., enters into agreements for the licensing of its interactive computer numerical control patents. License fees received or receivable under a fully paid-up license, for which there are no future performance requirements or contingencies, are recognized in income, net of legal fees and expenses, at the time the license agreement is executed. License fees receivable in periodic installments that are contingent upon the continuing validity of a licensed patent are recognized in income, net of legal fees and expenses, over the life of the licensed patent. 3. HEDGING On November 1, 2000, we adopted Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." In accordance with the provisions of SFAS No. 133, we recorded a transition adjustment upon the adoption of the standard to recognize the difference between the fair value of the derivative instruments recorded on the balance sheet and the previous carrying amount of outstandingthose derivatives. The effect of this transition adjustment was insignificant and is reflected in the Other Income (Expense) in the Consolidated Statement of Operations. We also recorded a transition adjustment of approximately $129,000 in Other Comprehensive Income to recognize previously deferred net losses on derivatives designated as cash flow hedges. We enter into foreign currency forward exchange contracts was approximately $3.0 millionperiodically to hedge certain forecast inter-company sales and forecast inter-company and third-party purchases denominated in foreign currencies (primarily Pound Sterling, Euro and New Taiwan Dollar). The purpose of these instruments is to mitigate the risk that the U.S. Dollar net cash inflows and outflows resulting from the sales and purchases denominated in foreign currencies will be adversely affected by changes in exchange rates. These forward contracts have been designated as cash flow hedge instruments, and are recorded in the Condensed Consolidated Balance Sheet at fair value in Other Current Assets and Accrued Liabilities. Gains and losses resulting from changes in the fair value of Julythese hedge contracts are deferred in Other Comprehensive Income and recognized as an adjustment to the related sale or purchase transaction in the period that the transaction occurs. During the fiscal quarter ended January 31, 2000 ($1.2 million2001, $40,000 of net losses on cash flow hedge contracts were reclassified from Other Comprehensive Income to Cost of Sales. At January 31, 2001 we had $252,000 of unrealized losses related to firm intercompany sales commitments) and $4.5 million ascash flow hedges deferred in Other Comprehensive Income, which we expect to recognize in Cost of October 31, 1999 ($2.1 million related to firm intercompany sales commitments). Deferred gains related to hedges of future sales transactions were approximately $51,000 and deferred losses were approximately $48,000 as of July 31, 2000 and October 31, 1999, respectively. Contracts outstanding at July 31, 2000Sales within the next twelve months. Cash flow hedge contracts mature at various timesdates through September 2000. 3.October 2001. We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on receivables and payables denominated in foreign currencies. These derivative instruments are not designated as hedges under SFAS 133 and as a result, changes in fair value are reported currently as Other Income (Expense) in the Consolidated Statement of Operations consistent with the transaction gain or loss on the related foreign denominated receivable or payable. 4. EARNINGS PER SHARE Basic and diluted earnings per common share are based on the weighted average number of our shares of common stock outstanding. Diluted earnings per common share give effect to outstanding stock options using the treasury stock method. Common stock equivalents totaled approximately 74,00038,000 shares asfor the first quarter of July 31, 2000. 4.fiscal 2001. 5. ACCOUNTS RECEIVABLE The allowance for doubtful accounts was $725,000$731,000 as of JulyJanuary 31, 20002001 and $687,000$741,000 as of October 31, 1999. 5.2000. 6. INVENTORIES Inventories, reflectedpriced at the lower of cost (first-in, first-out method) or market, are summarized below (in thousands): July 31, 2000 October 31, 1999 ------------- ---------------- Purchased parts and sub-assemblies $10,368 $ 9,104 Work-in-process 567 1,070 Finished goods 15,299 20,593 ------- ------- $26,234 $30,767 ======= ======= January 31, 2001 October 31, 2000 ---------------- ---------------- Purchased parts and sub-assemblies $10,908 $ 10,526 Work-in-process 1,643 1,339 Finished goods 15,505 14,311 --------- -------- $ 28,056 $ 26,176 ========= ========
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. 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, weWe have previously 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 JulyJanuary 31, 2000,2001, the restructuring reserve balance was $345,421approximately $634,000 and consisted of the following: 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 ======== ========== ========== ======== Balance Charges to Balance Description 10/31/00 Provision Accrual 1/31/01 ----------- -------- ---------- ------- ------- Excess Building Capacity $ 286 $ -- $ -- $ 286 Equipment Leases 54 -- (6) 48 Severance 300 -- 300 ----------- ------------- ------------- ----------- $ 640 $ -- $ (6) $ 634 =========== ============= ============= ===========
9. SUBSEQUENT EVENT On August 8,STOCK REPURCHASE In December 2000, Hurco and its subsidiary, IMS technology, Inc. (IMS) agreed towe repurchased 278,001 shares of our common stock for approximately $1,200,000 from a settlement with Haas Automation Inc. and Gene Haas (Haas) concerning infringement ofrelated party, Brynwood Partners II L.P. The repurchased shares are reflected as 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 millionreduction in the fourth quarter of fiscal 2000 resulting from this settlement.common stock. 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. For a description of the Private Securities Litigation Reform Act of 1995. Suchrisks and uncertainties related to forward-looking statements, involve known and unknown risks, uncertainties and other factors which may causesee our actual results, performance or achievements ofAnnual Report on Form 10-K for 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.year ended October 31, 2000. RESULTS OF OPERATIONS Three Months Ended JulyJanuary 31, 20002001 Compared to Three Months Ended JulyJanuary 31, 1999 - ----------------------------------------------------------------------------- Net income for the third quarter ended July 31, 2000 was $407,000, or $.07 per share on a diluted basis, which compares to $400,000, or $.07 per share, reported for the corresponding period a year ago. Net income for the 2000 period was unfavorably impacted by approximately $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. Sales and service fees for the third quarter of fiscal 2000 were $22.7 million, approximately $1.9 million, or 9%, higher than those recorded in the 1999 period, despite the continuing unfavorable effects of a substantially stronger dollar on 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 in the 1999 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 monthsquarter of fiscal 20002001 were $71.4 million,$25,933,000, approximately $7.9 million, or 13%,6% higher than those recorded in the 19992000 period, in spite of thecontinuing unfavorable effects of a substantiallythe stronger U.S. dollar, onparticularly in relation to the Euro and Sterling, when translating sales made in foreign currencies.countries. At comparable exchange rates, net sales for the first nine months of fiscal 2000quarter would have been $75.4 million,$27,185,000, an increase of approximately $11.9 million, or 19%11%, overas compared to the corresponding 1999prior year period. The increase in sales and service fees was due almost entirely tothe result of an increase in shipments of computerized machine systems. Sales and service fees in North America and Southeast Asia were substantially unchanged from the prior year while sales and service fees in continental Europe increased 11% in current dollars, despite the weaker Euro. Unit shipments of computerized machine systems reflecting stronger order rates on a global basis. Machine system salesin Europe increased $11.3 million, or 25%, when measured at exchange rates comparable22% compared to those in the 1999 period.first quarter of fiscal 2000. New order bookings duringfor the first nine monthsquarter of fiscal 20002001 were $74.5 million$28,110,000, compared to $65.2 million$23,187,000 for the corresponding 19992000 period, an increase of 14%21%. At exchange rates comparable to those in the 1999 period, however, new orders in the first nine months of fiscal 2000 were approximately 20% higher than in the first nine months of 1999. Orders for computerized machine systems increased 28%$5,731,000 or 33%, on a 22% increase in bothunit orders, despite the weaker foreign currency effect. Machine system orders in the U.S. were 17% lower than the prior year period in units, andprimarily on lower priced entry-level products due to weaker market conditions, but increased 8% in constant dollars whiledue to a larger percentage of higher value machines in the total sales mix. Machine systems orders for stand-alone computer controls declinedoutside the United States increased 48% in current dollars on a 56% increase in units, fueled by 19%record level orders in constant dollars.Germany. Orders for computerized machine systems constituted 82% of total new order bookings in the U.S. increased approximately $4.3 million, or 29%, and in Southeast Asia increased $3.3 million, over 200% above thefirst quarter of fiscal 1999 level. Selling, general and administrative expenses, which include research and development expenses, increased by $1.4 million, or 9%, due primarily2001, compared to additional direct sales forces in Italy and certain territories75% in the U.S.2000 period. Backlog was $13,800,000 at January 31, 2001, compared to $10,200,000 at the end of fiscal 2000 and increased product development expenses. These increases were partially offset by the favorable effects of weaker foreign currencies. Interest expense decreased by $205,000, or 21%, from the amount recorded in the corresponding period of 1999, due primarily to a $3.7 million reduction in average debt outstanding$6,800,000 one year ago. Gross profit margin for the nine months ended July 31, 2000 compared tomost recent fiscal quarter was 25.5%, or 1.9 percentage points lower than the prior year period, due primarily to the unfavorable effects of the stronger U.S. dollar on sales made in European countries, whereas a substantial portion of Cost of Sales is sourced in U.S. dollars or currencies, primarily the New Taiwan Dollar, that are relatively stronger against the U.S. dollar than those in Europe. The unfavorable currency effect on gross profit, combined with a 5% increase in operating expenses, resulted in a $372,000 decline in operating income. License fee income increased $263,000 as a result of enhanced cash flow from operations.fully paid up license agreements entered into during the first quarter of fiscal 2001. Approximately $71,000 of license fee income in the first quarter of fiscal 2001 and 2000 relates to license agreements previously entered into that are recognized in income over the remaining life of the patent, which expires at the end of fiscal 2001. The effect onincrease in license fees along with reduced interest expense, as a result of increased interest rates was not significant. Other expense (net) increasedlower borrowings, contributed to $259,000 compared to $115,000 reported for the corresponding periodan increase in net income after tax 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.$108,000, or 24%. The provision for income taxes increased to $217,000 compared to $66,000 foris primarily the corresponding periodresult of fiscal 1999, due primarily to a $377,000 tax asset recorded byearnings of a foreign subsidiarysubsidiary. Foreign Currency Risk Management We manage our foreign currency exposure through the use of foreign currency forward exchange contracts. We do not speculate in the prior year.financial markets and, therefore, do not enter into these contracts for trading purposes. We also moderate our currency risk related to significant purchase commitments with certain foreign vendors through price adjustment agreements that provide for a sharing of, or otherwise limit, the potential adverse effect of currency fluctuations on the costs of purchased products. See Item 3 below and Note 3 to the Condensed Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES At JulyJanuary 31, 2000,2001, we had cash and cash equivalents of $3.5 million, substantially the same as$5,192,000 compared to $3,384,000 at October 31, 1999.2000. Cash provided byused for operations totaled $6.5 million$1,022,000 in the first nine monthsquarter of fiscal 2000,2001, compared to $1.5 million used for$5,022,000 provided by operations in the same period of fiscal 1999. The cash flow provided by operations resulted in a $4.7 million reduction in long-term debt during the first nine months of fiscal 2000. Net working capital was $28.5 million$31,976,000 at JulyJanuary 31, 2000,2001, compared to $33.3 million$26,071,000 at October 31, 1999.2000. The decline is attributable principally to a decrease in inventory of $3.4 million. The decrease in inventory, consisting primarily of finished products available for shipment,increase is attributable to increased shipmentsincreases in inventory and receivables that were partially offset by increases in payables and accruals. Capital investments for the first nine months of fiscal 2000. Capital investments in the first nine months of fiscal 2000quarter ended January 31, 2001 consisted principally of expenditures for software development projects and purchases of equipment. Cash used for investing activities during the quarter were funded by cash flow from operations and bank credit facilities. We paid the final installment of $1,786,000 on our term debt during the first half was derived from operations. On August 8, 2000, Hurcofiscal quarter. We also repurchased 278,001 shares of our common stock during the quarter for $1,221,000. These shares are reflected as a reduction of common stock outstanding in calculating basic 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.diluted earnings per common share. We were in compliance with all of our loan covenants at JulyJanuary 31, 2000.2001. 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%1% to 2.0%2% based upon a prescribed formula. At JulyJanuary 31, 2000,2001, outstanding borrowings under our bank credit facilities were $7.7 million$7,300,000 and our total indebtedness was $9.4 million.$8,300,000. The interest rate on the Libor portion of our bank debt was Libor plus 1.5%1.125%. 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 2000,2001, approximately 58.6%59% 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. A significant portion of our products is sourced from foreign suppliers or built to our specifications by either our wholly-owned subsidiary in Taiwan, or contract manufacturers overseas. These purchases are predominantly in foreign currencies and in many cases our arrangements with these suppliers 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. We enter into forward foreign exchange contracts from time to time to hedge the cash flow risk related to forecast inter-company sales, and forecast inter-company accounts receivableand third-party purchases denominated in, or pegged to, foreign currencies. We also enter into foreign currency forward exchange contracts to provide a natural hedge against the effects of foreign currency fluctuations on receivables and payables 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 or purchase of foreign currencies as of January 31, 2001 which are designated as cash flow hedges under SFAS No. 133 were as follows: Contract Amount at Forward Rates in Weighted U.S. Dollars Notional Amount Avg. -------------------------- in Foreign Forward January 31, Forward Contracts Currency Rate Contract Date 2001 Maturity Dates ----------------- --------------- --------- ------------- ------------ --------------- Sale Contracts: Sterling 350,000 1.4736 $ 515,765 $ 511,600 Feb - April 2001 Euro 3,900,000 .9164 $ 3,573,810 $3,644,650 Feb - April 2001 Purchase Contracts: New Taiwan Dollar 378,000,000 32.05 $11,795,492 $11,695,726 Feb - Oct. 2001
Forward contracts for the sale of foreign currencies as of JulyJanuary 31, 20002001 which were designated as natural hedges of foreign currencies receivables and payables were as follows: Contract Amount at Forward Rates in Weighted U.S. Dollars Notional Amount Avg. Notional Forward Contracts-------------------------- in Foreign Forward Amount in Market ValueJanuary 31, Forward Contracts Currency Rate US$ in US$Contract Date 2001 Maturity Dates - ----------------- -------- ---- --- ------ ----------------------------- --------- ------------- ------------ --------------- Sale Contracts: Sterling 800,000 1.5445 1,235,603 1,199,200 Aug.135,406 1.4672 $ 198,664 $ 197,938 March 2001 Euro 5,377,978 .9277 $4,989,003 $5,024,435 Feb - Sept. 2000 Euro 1,876,000 .9355 1,754,998 1,739,615 August 2000March 2001 Singapore Dollar 4,406,260 1.7310 $2,545,000 $2,535,594 Feb - March 2001
PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS As reportedWe are involved in our Annual Report on Form 10-K for the year ended October 31, 1999, our subsidiary, IMS Technology, Inc. (IMS) was a party to an ongoing legal proceeding involving Haas Automation Inc. and its owner (collectively, Haas). IMS had alleged that Haas infringed one of its Interactive Computer Numerical Control patents. On August 8, 2000, IMS and Haas agreed to a settlement. Under the settlement, IMS licensed the patents to Haas and Haas made a one-time payment to IMS. Allvarious 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 following individuals were elected to the Board of Directors by the following 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 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 participantslawsuits arising in the plan membersordinary course of business, none of which, in the Company's Boardopinion of Directors who are not employees of the Company. Themanagement, is expected to have a material adverse effect on our consolidated financial position or results of the voting with respect to the amendment were as follows: Abstentions and For Against Broker Non-Votes 2,607,090 2,074,027 342,915 operations. Item 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- (a) Exhibits 10.1 Amended 1997 Stock Option and Incentive PlanExhibits: 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 August 29, 2000March 16, 2001