UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended JulyJanuary 31, 20102011 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 ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer x |
| |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares of the Registrant's common stock outstanding as of SeptemberMarch 1, 20102011 was 6,440,851.
HURCO COMPANIES, INC.
July 2010January 2011 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
| Part I - Financial Information | |
| | |
Item 1. | Financial Statements | | | |
| | | | |
| Condensed Consolidated Statements of Operations Three and nine months ended JulyJanuary 31, 20102011 and 20092010 | | | 3 | |
| | | | | |
| Condensed Consolidated Balance Sheets As of JulyJanuary 31, 20102011 and October 31, 20092010 | | | 4 | |
| | | | | |
| Condensed Consolidated Statements of Cash Flows Three and nine months ended JulyJanuary 31, 20102011 and 20092010 | | | 5 | |
| | | | | |
| Condensed Consolidated Statements of Changes in Shareholders' Equity NineThree months ended JulyJanuary 31, 20102011 and 20092010
| | | 6 | |
| | | | | |
| Notes to Condensed Consolidated Financial Statements | | | 7 | |
| | | | | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 16 | | 15 | |
| | | | | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 | | 21 | |
| | | | | |
Item 4. | Controls and Procedures | 25 |
| | 23 | |
| |
Part II - Other Information
Item 1. | Legal Proceedings | | | 24 | |
| | |
Item 1. | Legal Proceedings | 26 |
| | |
Item 1A. | Risk Factors | 26 | | 24 | |
| | | | | |
Item 5. | Other Information | 26 | | 24 | |
| | | | | |
Item 6. | Exhibits | 27 | | 25 | |
| | | | | |
Signatures | | 28 | | 26 | |
PART I - FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS |
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | Three Months Ended | | | Nine Months Ended | | | Three Months Ended | |
| | July 31 | | | July 31 | | | January 31 | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | |
| | (Unaudited) | | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | | | | | | |
Sales and service fees | | $ | 26,474 | | | $ | 19,039 | | | $ | 71,178 | | | $ | 67,835 | | | $ | 39,680 | | | $ | 20,616 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales and service | | | 21,815 | | | | 13,788 | | | | 57,862 | | | | 48,822 | | | | 27,989 | | | | 16,636 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 4,659 | | | | 5,251 | | | | 13,316 | | | | 19,013 | | | | 11,691 | | | | 3,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 6,994 | | | | 7,200 | | | | 20,757 | | | | 22,747 | | | | 8,830 | | | | 6,533 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | | (2,335 | ) | | | (1,949 | ) | | | (7,441 | ) | | | (3,734 | ) | |
Operating income (loss) | | | | 2,861 | | | | (2,553 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | 21 | | | | 6 | | | | 43 | | | | 33 | | | | 5 | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 24 | | | | 36 | | | | 49 | | | | 185 | | | | 40 | | | | 20 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment income | | | 4 | | | | 3 | | | | 12 | | | | 32 | | | | 5 | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other (income) expense, net | | | 55 | | | | (133 | ) | | | 448 | | | | (1,828 | ) | | | 456 | | | | 277 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loss before taxes | | | (2,383 | ) | | | (1,783 | ) | | | (7,871 | ) | | | (1,722 | ) | |
Income (loss) before taxes | | | | 2,445 | | | | (2,819 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Benefit for income taxes | | | (1,210 | ) | | | (552 | ) | | | (3,289 | ) | | | (564 | ) | |
Provision (benefit) for income taxes | | | | 899 | | | | (983 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,173 | ) | | $ | (1,231 | ) | | $ | (4,582 | ) | | $ | (1,158 | ) | |
Net income (loss) | | | $ | 1,546 | | | $ | (1,836 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Losses per common share | | | | | | | | | | | | | | | | | |
Income (losses) per common share | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | (0.18 | ) | | $ | (0.19 | ) | | $ | (0.71 | ) | | $ | (0.18 | ) | | $ | .24 | | | $ | (0.29 | ) |
Diluted | | $ | (0.18 | ) | | $ | (0.19 | ) | | $ | (0.71 | ) | | $ | (0.18 | ) | | $ | .24 | | | $ | (0.29 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 6,441 | | | | 6,434 | | | | 6,441 | | | | 6,425 | | | | 6,441 | | | | 6,441 | |
Diluted | | | 6,441 | | | | 6,434 | | | | 6,441 | | | | 6,425 | | | | 6,463 | | | | 6,441 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
| | July 31 2010 | | | October 31 2009 | | | January 31 2011 | | | October 31 2010 | |
| | (Unaudited) | | | (Audited) | | | (Unaudited) | | | (Audited) | |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 45,189 | | | $ | 28,782 | | | $ | 50,289 | | | $ | 48,255 | |
Accounts receivable, net | | | 14,276 | | | | 13,988 | | | | 18,073 | | | | 20,114 | |
Refundable taxes | | | 796 | | | | 7,121 | | | | 4,731 | | | | 5,093 | |
Inventories, net | | | 51,027 | | | | 60,281 | | | | 59,668 | | | | 55,866 | |
Deferred income taxes, net | | | 2,532 | | | | 2,670 | | | | 2,087 | | | | 2,467 | |
Derivative assets | | | 1,287 | | | | 376 | | | | 1,429 | | | | 905 | |
Other | | | 8,221 | | | | 5,046 | | | | 3,847 | | | | 3,508 | |
Total current assets | | | 123,328 | | | | 118,264 | | | | 140,124 | | | | 136,208 | |
| | | | | | | | | | | | | | | | |
Non-current assets: | | | | | | | | | | | | | | | | |
Property and equipment: | | | | | | | | | | | | | | | | |
Land | | | 782 | | | | 782 | | | | 782 | | | | 782 | |
Building | | | 7,116 | | | | 7,116 | | | | 7,116 | | | | 7,116 | |
Machinery and equipment | | | 14,768 | | | | 14,995 | | | | 15,426 | | | | 15,095 | |
Leasehold improvements | | | 2,042 | | | | 2,021 | | | | 2,256 | | | | 2,183 | |
| | | 24,708 | | | | 24,914 | | | | 25,580 | | | | 25,176 | |
Less accumulated depreciation and amortization | | | (12,800 | ) | | | (11,802 | ) | | | (14,066 | ) | | | (13,424 | ) |
| | | 11,908 | | | | 13,112 | | | | 11,514 | | | | 11,752 | |
Software development costs, less accumulated amortization | | | 6,093 | | | | 6,503 | | | | 5,862 | | | | 6,042 | |
Investments and other assets, net | | | 6,284 | | | | 6,864 | | | | 6,347 | | | | 6,344 | |
| | $ | 147,613 | | | $ | 144,743 | | | $ | 163,847 | | | $ | 160,346 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 20,561 | | | $ | 8,262 | | | $ | 29,189 | | | $ | 30,394 | |
Accrued expenses and other | | | 6,786 | | | | 9,025 | | | | 10,053 | | | | 8,132 | |
Accrued warranty expenses | | | 1,183 | | | | 1,286 | | | | 1,669 | | | | 1,591 | |
Derivative liabilities | | | 1,516 | | | | 2,234 | | | | 1,759 | | | | 2,123 | |
Total current liabilities | | | 30,046 | | | | 20,807 | | | | 42,670 | | | | 42,240 | |
| | | | | | | | | | | | | | | | |
Non-current liabilities: | | | | | | | | | | | | | | | | |
Deferred income taxes, net | | | 2,592 | | | | 2,570 | | | | 2,295 | | | | 2,335 | |
Deferred credits and other | | | 929 | | | | 990 | | | | 1,074 | | | | 1,031 | |
Total liabilities | | | 33,567 | | | | 24,367 | | | | 46,039 | | | | 45,606 | |
| | | | | | | | | | | | | | | | |
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, 13,250,000 shares authorized, 6,440,851 shares issued and outstanding, respectively | | | 644 | | | | 644 | | |
Common stock: no par value, $.10 stated value per share, 13,250,000 shares authorized, 6,440,851 shares issued and outstanding | | | | 644 | | | | 644 | |
Additional paid-in capital | | | 52,098 | | | | 52,003 | | | | 52,215 | | | | 52,144 | |
Retained earnings | | | 64,986 | | | | 69,568 | | | | 65,370 | | | | 63,824 | |
Accumulated other comprehensive loss | | | (3,682 | ) | | | (1,839 | ) | | | (421 | ) | | | (1,872 | ) |
Total shareholders’ equity | | | 114,046 | | | | 120,376 | | | | 117,808 | | | | 114,740 | |
| | $ | 147,613 | | | $ | 144,743 | | | $ | 163,847 | | | $ | 160,346 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | Three Months Ended | | | Nine Months Ended | | | Three Months Ended | |
| | July 31 | | | July 31 | | | January 31 | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | |
| | (Unaudited) | | | (Unaudited) | | | (Unaudited) | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (1,173 | ) | | $ | (1,231 | ) | | $ | (4,582 | ) | | $ | (1,158 | ) | | $ | 1,546 | | | $ | (1,836 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for doubtful accounts | | | (74 | ) | | | 329 | | | | (263 | ) | | | 845 | | | | 54 | | | | (115 | ) |
Changes in deferred income taxes | | | 473 | | | | 217 | | | | (310 | ) | | | (1,029 | ) | |
Deferred income taxes | | | | 120 | | | | (540 | ) |
Equity in (income) loss of affiliates | | | (27 | ) | | | 125 | | | | 154 | | | | 213 | | | | 5 | | | | 112 | |
Depreciation and amortization | | | 978 | | | | 846 | | | | 2,811 | | | | 2,451 | | | | 1,067 | | | | 833 | |
Foreign currency (gain) loss | | | 1,030 | | | | (4,366 | ) | | | 4,614 | | | | (5,227 | ) | | | (14 | ) | | | 2,219 | |
Unrealized (gain) loss on derivatives | | | 1,457 | | | | 1,232 | | | | 622 | | | | 5,248 | | | | 134 | | | | (662 | ) |
Stock-based compensation | | | 46 | | | | 72 | | | | 95 | | | | 186 | | | | 71 | | | | 19 | |
Change in assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
(Increase) decrease in accounts receivable and refundable taxes | | | 4,078 | | | | 3,442 | | | | 3,675 | | | | 19,337 | | | | 2,280 | | | | 1,206 | |
(Increase) decrease in inventories | | | (1,034 | ) | | | 2,905 | | | | 6,379 | | | | 6,405 | | | | (2,968 | ) | | | 5,278 | |
Increase (decrease) in accounts payable | | | 7,805 | | | | (3,672 | ) | | | 12,454 | | | | (21,185 | ) | | | (1,754 | ) | | | (227 | ) |
Increase (decrease) in accrued expenses | | | (782 | ) | | | (1,925 | ) | | | (1,849 | ) | | | (11,231 | ) | | | 1,917 | | | | (731 | ) |
Net change in derivative assets and liabilities | | | (733 | ) | | | (153 | ) | | | (1,772 | ) | | | 3,502 | | | | (457 | ) | | | (1,038 | ) |
Other | | | (2,272 | ) | | | 874 | | | | (3,120 | ) | | | (2,065 | ) | | | 356 | | | | 193 | |
Net cash provided by (used for) operating activities | | | 9,772 | | | | (1,305 | ) | | | 18,908 | | | | (3,708 | ) | | | 2,357 | | | | 4,711 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from sale of property and equipment | | | 7 | | | | 24 | | | | 42 | | | | 245 | | |
Purchase of property and equipment | | | (188 | ) | | | (169 | ) | | | (437 | ) | | | (1,497 | ) | | | (168 | ) | | | (182 | ) |
Sale of investments | | | — | | | | — | | | | — | | | | 6,674 | | |
Software development costs | | | (310 | ) | | | (472 | ) | | | (805 | ) | | | (1,463 | ) | | | (373 | ) | | | (293 | ) |
Other investments | | | 73 | | | | (7 | ) | | | 56 | | | | (901 | ) | | | (12 | ) | | | (9 | ) |
Net cash provided by (used for) investing activities | | | (418 | ) | | | (624 | ) | | | (1,144 | ) | | | 3,058 | | | | (553 | ) | | | (484 | ) |
| | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | |
Proceeds from exercise of common stock options | | | — | | | | 43 | | | | — | | | | 43 | | |
Net cash provided by financing activities | | | — | | | | 43 | | | | — | | | | 43 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | (183 | ) | | | 732 | | | | (1,357 | ) | | | 909 | | | | 230 | | | | (628 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 9,171 | | | | (1,154 | ) | | | 16,407 | | | | 302 | | | | 2,034 | | | | 3,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at beginning of period | | | 36,018 | | | | 27,850 | | | | 28,782 | | | | 26,394 | | | | 48,255 | | | | 28,782 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 45,189 | | | $ | 26,696 | | | $ | 45,189 | | | $ | 26,696 | | | $ | 50,289 | | | $ | 32,381 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the ninethree months ended JulyJanuary 31, 20102011 and 20092010
(In thousands, except shares issued and outstanding) | | Common stock | | | Additional | | | | | | Accumulated other comprehensive | | | | | | Common stock | | | Additional | | | | | | Accumulated other comprehensive | | | | |
| | Shares issued & outstanding | | | Amount | | | paid-in capital | | | Retained earnings | | | income (loss) | | | Total | | | Shares issued & outstanding | | | Amount | | | paid-in capital | | | Retained earnings | | | income (loss) | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, October 31, 2008 | | | 6,420,851 | | | $ | 642 | | | $ | 51,690 | | | $ | 71,889 | | | $ | (744 | ) | | $ | 123,477 | | |
Balances, October 31, 2009 | | | | 6,440,851 | | | $ | 644 | | | $ | 52,003 | | | $ | 69,568 | | | $ | (1,839 | ) | | $ | 120,376 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | (1,158 | ) | | | — | | | | (1,158 | ) | | | — | | | | — | | | | — | | | | (1,836 | ) | | | — | | | | (1,836 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Translation of foreign currency financial statements | | | — | | | | — | | | | — | | | | — | | | | 2,070 | | | | 2,070 | | | | — | | | | — | | | | — | | | | — | | | | (1,031 | ) | | | (1,031 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains on derivative instruments reclassified into operations, net of tax of $11 | | | — | | | | — | | | | — | | | | — | | | | 17 | | | | 17 | | | | — | | | | — | | | | — | | | | — | | | | 17 | | | | 17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized loss on derivative instruments, net of tax of ($2,184) | | | — | | | | — | | | | — | | | | — | | | | (3,546 | ) | | | (3,546 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Reversal of unrealized loss on investments, net of tax | | | — | | | | — | | | | — | | | | — | | | | 202 | | | | 202 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,415 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Exercise of common stock options | | | 20,000 | | | | 2 | | | | 41 | | | | — | | | | — | | | | 43 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | — | | | | — | | | | 186 | | | | — | | | | — | | | | 186 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, July 31, 2009 (Unaudited) | | | 6,440,851 | | | $ | 644 | | | $ | 51,917 | | | $ | 70,731 | | | $ | (2,001 | ) | | $ | 121,291 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, October 31, 2009 | | | 6,440,851 | | | $ | 644 | | | $ | 52,003 | | | $ | 69,568 | | | $ | (1,839 | ) | | $ | 120,376 | | |
| | | | | | | | | | | | | | | | |
Net loss | | | — | | | | — | | | | — | | | | (4,582 | ) | | | — | | | | (4,582 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Translation of foreign currency financial statements | | | — | | | | — | | | | — | | | | — | | | | (2,262 | ) | | | (2,262 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Realized losses on derivative instruments reclassified into operations, net of tax of $(61) | | | — | | | | — | | | | — | | | | — | | | | (99 | ) | | | (99 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gain on derivative instruments, net of tax of $319 | | | — | | | | — | | | | — | | | | — | | | | 518 | | | | 518 | | |
Unrealized gains on derivative instruments, net of tax of $295 | | | | — | | | | — | | | | — | | | | — | | | | 479 | | | | 479 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,425 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,371 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | — | | | | — | | | | 95 | | | | — | | | | — | | | | 95 | | | | — | | | | — | | | | 19 | | | | — | | | | — | | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, July 31, 2010 (Unaudited) | | | 6,440,851 | | | $ | 644 | | | $ | 52,098 | | | $ | 64,986 | | | $ | (3,682 | ) | | $ | 114,046 | | |
Balances, January 31, 2010 (Unaudited) | | | | 6,440,851 | | | $ | 644 | | | $ | 52,022 | | | $ | 67,732 | | | $ | (2,374 | ) | | $ | 118,024 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, October 31, 2010 | | | | 6,440,851 | | | $ | 644 | | | $ | 52,144 | | | $ | 63,824 | | | $ | (1,872 | ) | | $ | 114,740 | |
| | | | | | | | | | | | | | | | |
Net income | | | | — | | | | — | | | | — | | | | 1,546 | | | | — | | | | 1,546 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Translation of foreign currency financial statements | | | | — | | | | — | | | | — | | | | — | | | | 682 | | | | 682 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains on derivative instruments reclassified into operations, net of tax of $129 | | | | — | | | | — | | | | — | | | | — | | | | 220 | | | | 220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gains on derivative instruments, net of tax of $323 | | | | — | | | | — | | | | — | | | | — | | | | 549 | | | | 549 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,997 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | — | | | | — | | | | 71 | | | | — | | | | — | | | | 71 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balances, January 31, 2011 (Unaudited) | | | | 6,440,851 | | | $ | 644 | | | $ | 52,215 | | | $ | 65,370 | | | $ | (421 | ) | | $ | 117,808 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The unaudited Condensed Consolidated Financial Statements include the accounts of Hurco Companies, Inc. and its consolidated subsidiaries. As used in this report, and unless the context indicates otherwise, the terms “we”, “us”, “our” and similar language refer to Hurco Companies, Inc. and its consolidated subsidiaries. We design and produce computerized machine tools, interactive computer control systems and software for sale through our distribution network to the worldwide metal cutting market. We also provide software options, computer control upgrades, accessories and replacement parts for our products, as well as customer service and training support.
The condensed financial information as of JulyJanuary 31, 20102011 and for the three and nine months ended JulyJanuary 31, 20102011 and JulyJanuary 31, 20092010 is unaudited; however, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, results of operations, changes in shareholders’ equity and cash flows at the end of the interim periods. We suggest that you read these condensed consolidated 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, 2009.
Certain amounts in the 2009 condensed consolidated financial statements have been reclassified to conform to the July 31, 2010 presentation. These classifications had no effect on the previously reported net income (loss).2010.
2. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
On February 1, 2009, we adopted FASB guidance related to disclosures about derivative instruments and hedging activities. The adoption of this guidance has not had a material impact on our consolidated financial position or results of operations, but does require increased disclosure of our derivative and hedging activities, including how derivative and hedging activities affect our consolidated financial statements. These disclosures are provided below.
We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk.
We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign exchange rate movements on our net equity investment in one of our foreign subsidiaries,subsidiary’s gross profit and net earnings, we enter into derivative financial instruments in the form of foreign exchange forward contracts with a major financial institution. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Pounds Sterling, Canadian Dollars, South African Rand, Singapore Dollars and New Taiwan Dollars.
We record all derivative instruments as assets or liabilities at fair value.
Derivatives Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts periodically to hedge certain forecasted inter-company sales and purchases denominated in foreign currencies (the 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 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 Sheets at fair value in Derivative assets and Derivative liabilities. The effective portion of the gains and losses resulting from the changes in the fair value of these hedge contracts are deferred in Accumulated other comprehensive loss and recognized as an adjustment to Cost of sales and service in the period that the corresponding inventory sold that is the subject of the related hedge contract is recognized, thereby providing an offsetting economic impact against the corresponding change in the U.S. Dollar value of the inter-company sale or purchase being hedged. The ineffective portion of gains and losses resulting from the changes in the fair value of these hedge contracts is reported in Other (income) expense, net immediately. We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and determining that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default.
We had forward contracts outstanding as of JulyJanuary 31, 2010,2011, denominated in Euros, Pounds Sterling and New Taiwan Dollars with set maturity dates ranging from August 2010February 2011 through July 2011.January 2012. The contract amounts, expressed at forward rates in U.S. Dollars at JulyJanuary 31, 2010,2011, were $20.4$31.8 million for Euros, $5.2$8.9 million for Pounds Sterling and $22.1$30.6 million for New Taiwanese Dollars. At JulyJanuary 31, 2010,2011, we had approximately $42,000$330,000 of losses,gains, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive loss. Of this amount, $275,000$89,000 represents unrealized losses,gains, net of tax, related to cash flow hedge instruments that remain subject to currency fluctuation risk. The majority of these deferred lossesgains will be recorded as an adjustment to Cost of sales and service in periods through July 2011,January 2012, when the corresponding inventory that is the subject of the related hedge contract is sold, as described above.
We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we have maintained a forward contract with a notional amount of €3.0 million. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under FASB guidance related to the accounting for derivatives instruments and hedging activities. The forward method requires all changes in the fair value of the contract to be reported as a cumulative translation adjustment in Accumulated other comprehensive loss, net of tax, in the same manner as the underlying hedged net assets. This forward contract matured on November 24, 2009 and we entered into a new forward contract for the same notional amount that is set to maturematures in November 2010.2011. At JulyJanuary 31, 2010,2011, we had $23,000$216,000 of realized lossesgains and $343,000$14,000 of unrealized gains,losses, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss related to this forward contract.
Derivatives Not Designated as Hedging Instruments
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 FASB guidance and, as a result, changes in their fair value are reported currently as Other (income) expense, net in the Condensed Consolidated Statements of Operations consistent with the transaction gain or loss on the related receivables and payables denominated in foreign currencies.
We had forward contracts outstanding as of JulyJanuary 31, 2010,2011, in Euros, Pounds Sterling, Canadian Dollars, South African Rand, Singapore Dollars and New Taiwan Dollars with set maturity dates ranging from August 2010February 2011 through MarchApril 2011. The amounts of these contracts at forward rates in U.S. Dollars at JulyJanuary 31, 20102011 for Euros, Pounds Sterling, Canadian Dollars, South African Rand, New Taiwan Dollars and Singapore Dollars totaled $18.9$20.8 million.
Fair Value of Derivative Instruments
We recognize the fair value of derivative instruments as assets and liabilities on a gross basis on our Condensed Consolidated Balance Sheets. As of JulyJanuary 31, 20102011 and October 31, 2009,2010, all derivative instruments were recorded at fair value on the balance sheets as follows (in thousands):
| | 2010 | | 2009 | | | 2011 | | 2010 | |
| | Balance sheet | | Fair | | Balance sheet | | Fair | | | Balance sheet | | Fair | | Balance sheet | | Fair | |
Derivatives | | location | | value | | location | | value | | | location | | value | | location | | value | |
| | | | | | | | | | | | | | | | | | |
Designated as hedging instruments: | | | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | | Derivative assets | | $ | 1,256 | | Derivative assets | | $ | 74 | | | Derivative assets | | $ | 1,410 | | Derivative assets | | $ | 872 | |
Foreign exchange forward contracts | | Derivative liabilities | | $ | 1,147 | | Derivative liabilities | | $ | 1,246 | | | Derivative liabilities | | $ | 1,292 | | Derivative liabilities | | $ | 1,778 | |
| | | | | | | | | | | | | | | | | | | | |
Not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | | Derivative assets | | $ | 31 | | Derivative assets | | $ | 302 | | | Derivative assets | | $ | 19 | | Derivative assets | | $ | 33 | |
Foreign exchange forward contracts | | Derivative liabilities | | $ | 369 | | Derivative liabilities | | $ | 988 | | | Derivative liabilities | | $ | 467 | | Derivative liabilities | | $ | 345 | |
Effect of Derivative Instruments on the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity and Operations
Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity and Operations during the three months ended JulyJanuary 31, 20102011 and 20092010 (in thousands):
Derivatives | | Amount of gain (loss) recognized in other comprehensive loss Three months ended July 31, | | Location of gain (loss) reclassified from other comprehensive loss | | Amount of gain (loss) reclassified from other comprehensive loss Three months ended July 31, | |
| | 2010 | | | 2009 | | | | 2010 | | | 2009 | |
Designated as hedging instruments: (Effective portion) | | | | | | | | | | | | | |
Foreign exchange forward contracts – Intercompany sales/purchases | | $ | (803 | ) | | $ | (3,135 | ) | Cost of sales and service | | $ | ( 39 | ) | | $ | 687 | |
| | | | | | | | | | | | | | | | | |
Foreign exchange forward contract – Net investment | | $ | 81 | | | $ | (300 | ) | | | | | | | | | |
Derivatives | | Amount of gain (loss) recognized in Other comprehensive loss Three months ended January 31, | | Location of gain (loss) reclassified from Other comprehensive loss | | Amount of gain (loss) reclassified from Other comprehensive loss Three months ended January 31, | |
| | 2011 | | | 2010 | | | | 2011 | | | 2010 | |
Designated as hedging instruments: | | | | | | | | | | | | | |
(Effective portion) | | | | | | | | | | | | | |
Foreign exchange forward contracts | | | | | | | | | | | | | |
– Intercompany sales/purchases | | $ | 872 | | | $ | 774 | | Cost of sales and service | | $ | 349 | | | $ | 28 | |
Foreign exchange forward contract | | | | | | | | | | | | | | | | | |
– Net investment | | $ | 56 | | | $ | 245 | | | | | | | | | | |
As a result of the global recession, we had to close hedge contracts before maturity due to forecasted reductions in production and sales. Those contracts closed early were deemed ineffective for financial reporting purposes and as a result we recognized a gainnumber of $27,000 for the three months ended July 31, 2010, and a gain of $225,000 for the three months ended July 31, 2009.
| | Location of gain (loss) | | Amount of gain (loss) | |
Derivatives | | recognized in operations Three months ended July 31, | | recognized in operations Three months ended July 31, | |
| | | | 2010 | | | 2009 | |
Not designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | Other (income) expense, net | | $ | (41 | ) | | $ | (2,484 | ) |
Derivative instruments had the following effects on our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Shareholders’ Equity and Operations during the nine months ended July 31, 2010 and 2009 (in thousands):
Derivatives | | Amount of gain (loss) recognized in other comprehensive loss Nine months ended July 31, | | Location of gain (loss) reclassified from other comprehensive loss | | Amount of gain (loss) reclassified from other comprehensive loss Nine months ended July 31, | |
| | 2010 | | | 2009 | | | | 2010 | | | 2009 | |
Designated as hedging instruments: (Effective portion) | | | | | | | | | | | | | |
Foreign exchange forward contracts – Intercompany sales/purchases | | $ | 837 | | | $ | (5,730 | ) | Cost of sales and service | | $ | (160 | ) | | $ | 28 | |
| | | | | | | | | | | | | | | | | |
Foreign exchange forward contract – Net investment | | $ | 482 | | | $ | (448 | ) | | | | | | | | | |
As a result of the global recession we had to close hedge contracts before maturity due to forecasted reductions in production and sales. Those contracts closed early were deemed ineffective for financial reporting purposes and, as a result, we recognized a loss of $38,000$7,000 for the ninethree months ended JulyJanuary 31, 2010,2011, and a gainloss of $2.7 million$27,000 for the ninethree months ended JulyJanuary 31, 2009.2010.
| | Location of gain (loss) | | Amount of gain (loss) | |
Derivatives | | recognized in operations Three months ended January 31,, | | recognized in operations Three months ended January 31, | |
| | | | 2011 | | | 2010 | |
Not designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | Other (income) expense, net | | $ | 492 | | | $ | 880 | |
| | Location of gain (loss) | | Amount of gain (loss) | |
Derivatives | | recognized in operations Nine months ended July 31, | | recognized in operations Nine months ended July 31, | |
| | | | 2010 | | | 2009 | |
Not designated as hedging instruments: | | | | | | | | |
Foreign exchange forward contracts | | Other (income) expense, net | | $ | 1,293 | | | $ | (3,592 | ) |
In March 2008, we adopted the Hurco Companies, Inc. 2008 Equity Incentive Plan (the “2008 Plan”), which allows us to grant awards of stock options, Stock Appreciation Rights settled in stock (SARs), restricted shares, performance shares and performance units. The 2008 Plan replaced the 1997 Stock Option and Incentive Plan (the “1997 Plan”) which expired in March 2007. The Compensation Committee of the Board of Directors has authority to determine the officers, directors and key employees who will be granted awards; designate the number of shares subject to each award; determine the terms and conditions upon which awards will be granted; and prescribe the form and terms of award agreements. We have granted stock options under both plans which are currently outstanding.outstanding and restricted shares under the 2008 Plan. No stock option may be exercised more than ten years after the date of grant or such shorter period as the Compensation Committee may determine at the date of grant. The total number of shares of our common stock that may be issued as awards under the 2008 Plan is 750,000. The market value of a share of our common stock, for purposes of the 2008 Plan, is the closing sale price as reported by the Nasdaq Global Select Market on the date in question or, if not a trading day, on the last preceding trading date.
On December 18, 2009, the Compensation Committee granted a total of 30,000 stock options under the 2008 Plan to four executive employees. The fair value of the options was estimated on the date of grant using a Black-Scholes valuation model with assumptions for expected volatility based on the historical volatility of our common stock of 65%, expected term of the options, dividend yield rate of 0% and a risk-free interest rate of 2.3% based upon the five-year U.S. Treasury yield as of the date of grant. The options vest over a three-year period beginning one year from the date of grant. Based upon the foregoing factors, the grant date fair value of the stock options was determined to be $8.29 per share.
On May 13, 2010, the Compensation Committee granted a total of 20,000 stock options under the 2008 Plan to four executive employees. The fair value of the options was estimated on the date of grant using a Black-Scholes valuation model with assumptions for expected volatility based on the historical volatility of our common stock of 63%, expected term of the options, dividend yield rate of 0% and a risk-free interest rate of 2.3% based upon the five-year U.S. Treasury yield as of the date of grant. The options vest over a three-year period beginning one year from the date of grant. Based upon the foregoing factors, the grant date fair value of the stock options was determined to be $9.90 per share.
During the first nine months of fiscal 2010 and 2009, we recorded approximately $95,000 and $186,000, respectively, of stock-based compensation expense related to grants under the plans. As of July 31, 2010, there was approximately $514,000 of total unrecognized stock-based compensation cost that we expect to recognize by the end of fiscal 2014.
A summary of stock option activity for the nine-monththree-month period ended JulyJanuary 31, 2010,2011, is as follows:
| | Stock options | | | Weighted average exercise price | | | Stock Options | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | |
Outstanding at October 31, 2009 | | 65,369 | | | $ | 24.11 | | |
Outstanding at October 31, 2010 | | | | 115,369 | | | $ | 20.66 | |
| | | | | | | | | | | | | | | | |
Options granted | | 50,000 | | | 16.14 | | | | — | | | | — | |
Options exercised | | | — | | | — | | | | — | | | | — | |
Options cancelled | | — | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Outstanding at July 31, 2010 | | | 115,369 | | | $ | 20.66 | | |
Outstanding at January 31, 2011 | | | | 115,369 | | | $ | 20.66 | |
Summarized information about outstanding stock options as of JulyJanuary 31, 2010,2011, those are already vested and those that are expected to vest, as well as stock options that are currently exercisable, are as follows:
| | Options already vested and expected to vest | | | Options currently exercisable | |
| | | | | | |
Number of outstanding options | | | 115,369 | | | | 61,369 | |
| | | | | | | | |
Weighted average remaining contractual life (years) | | | 7.76 | | | | 5.20 | |
Weighted average exercise price per share | | $ | 20.66 | | | $ | 24.70 | |
| | | | | | | | |
Intrinsic value of outstanding options | | $ | 692,000 | | | $ | 190,000 | |
| | Options already vested and expected to vest | | | Options currently exercisable | |
| | | | | | |
Number of outstanding options | | | 115,369 | | | | 51,369 | |
| | | | | | | | |
Weighted average remaining contractual life (years) | | | 8.10 | | | | 6.11 | |
Weighted average exercise price per share | | $ | 20.66 | | | $ | 26.62 | |
| | | | | | | | |
Intrinsic value | | $ | 111,000 | | | $ | 21,000 | |
The intrinsic value of aan outstanding stock option is calculated as the difference between the stock price as of JulyJanuary 31, 20102011 and the exercise price of the option.
On December 22, 2010, the Compensation Committee granted a total of 25,000 shares of restricted stock to our executive officers. The restricted stock vests in full three years from the date of grant provided the recipient remains employed by us through that date. The grant date fair value of the restricted stock is based on the closing sales price of our common stock on the grant date which was $23.10 per share.
A reconciliation of the Company’s restricted stock activity and related information is as follows:
| | Number of Shares | | | Weighted Average Grant Date Fair Value | |
Unvested at October 31, 2010 | | | — | | | $ | — | |
Shares granted | | | 25,000 | | | | 23.10 | |
Shares vested | | | — | | | | — | |
Shares cancelled | | | — | | | | — | |
| | | | | | | | |
Unvested at January 31, 2011 | | | 25,000 | | | $ | 23.10 | |
During the first three months of fiscal 2011 and 2010, we recorded approximately $71,000 and $19,000, respectively, of stock-based compensation expense related to grants of stock options and restricted stock under the plans. As of January 31, 2011, there was approximately $975,000 of total unrecognized stock-based compensation cost that we expect to recognize by the end of fiscal 2014.
4. | EARNINGS (LOSSES) PER SHARE |
Basic earnings (losses) per share is calculated by dividing net income (loss) associated with common share are based onshareholders by the weighted averageweighted-average number of shares of our common stockshares outstanding during the period. Diluted earnings (losses) per share assumes the issuance of additional shares of common share give effect to shares underlyingstock upon exercise of all outstanding stock options usingand contingently issuable securities if the effect is dilutive, in accordance with the treasury stock method when applied to our basic earnings (losses) per share.discussed in FASB issued guidance ASC 260-10, “Earnings Per Share”. The following table presents a reconciliation of our basic and diluted earnings (losses) per share computation:
| | Three months ended January 31, | |
(in thousands, | | 2011 | | | 2010 | |
except per share amount) | | Basic | | | Diluted | | | Basic | | | Diluted | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 1,546 | | | $ | 1,546 | | | $ | (1,836 | ) | | $ | (1,836 | ) |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding | | | 6,441 | | | | 6,441 | | | | 6,441 | | | | 6,441 | |
| | | | | | | | | | | | | | | | |
Assumed issuances under stock option plans | | | — | | | | 22 | | | | — | | | | — | |
| | | 6,441 | | | | 6,463 | | | | 6,441 | | | | 6,441 | |
| | | | | | | | | | | | | | | | |
Income (loss) per share | | $ | .24 | | | $ | .24 | | | $ | (0.29 | ) | | $ | (0.29 | ) |
| | Three months ended July 31, | | | Nine months ended July 31, | |
(in thousands, except per share amount) | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | Basic | | | Diluted | | | Basic | | | Diluted | | | Basic | | | Diluted | | | Basic | | | Diluted | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,173 | ) | | $ | (1,173 | ) | | $ | (1,231 | ) | | $ | (1,231 | ) | | $ | (4,582 | ) | | $ | (4,582 | ) | | $ | (1,158 | ) | | $ | (1,158 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding | | | 6,441 | | | | 6,441 | | | | 6,434 | | | | 6,434 | | | | 6,441 | | | | 6,441 | | | | 6,425 | | | | 6,425 | |
Assumed issuances under stock options plans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | 6,441 | | | | 6,441 | | | | 6,434 | | | | 6,434 | | | | 6,441 | | | | 6,441 | | | | 6,425 | | | | 6,425 | |
Loss per share | | $ | (0.18 | ) | | $ | (0.18 | ) | | $ | (0.19 | ) | | $ | (0.19 | ) | | $ | (0.71 | ) | | $ | (0.71 | ) | | $ | (0.18 | ) | | $ | (0.18 | ) |
Accounts receivable are net of allowances for doubtful accounts of $546,000$550,000 as of JulyJanuary 31, 20102011 and $809,000$497,000 as of October 31, 2009.2010.
Inventories, priced at the lower of cost (first-in, first-out method) or market, are summarized below (in thousands):
| | July 31, 2010 | | | October 31, 2009 | | | January 31, 2011 | | | October 31, 2010 | |
Purchased parts and sub-assemblies | | $ | 15,583 | | | $ | 14,961 | | | $ | 16,495 | | | $ | 16,137 | |
Work-in-process | | | 9,208 | | | | 3,559 | | | | 12,185 | | | | 13,157 | |
Finished goods | | | 26,236 | | | | 41,761 | | | | 30,988 | | | | 26,572 | |
| | $ | 51,027 | | | $ | 60,281 | | | $ | 59,668 | | | $ | 55,866 | |
We operate in a single segment: industrial automation systems. We design and produce interactive computer control systems and software and computerized machine tools for sale through our own distribution network to the worldwide metal-working market. We also provide software options, control upgrades, accessories and replacement parts for our products, as well as customer service and training support.
8. | GUARANTEES AND WARRANTIES |
From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for contingencies with respect to these guarantees. As of JulyJanuary 31, 2010,2011, we had 3430 outstanding third party payment guarantees totaling approximately $1.8$1.7 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer has the risk of ownership. The customer does not obtain title, however, until it has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue for potential liabilities under these guarantees when we believe a loss is probable and can be estimated.
We provide warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year for machines and shorter periods for service parts. We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve. The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience. The increased provision in the three months ended January 31, 2011 reflects the increased production and sales occurring in the period as compared to the three months ended January 31, 2010. A reconciliation of the changes in our warranty reserve is as follows (in thousands):
| | Three months ended | |
| | January 31, 2011 | | | January 31, 2010 | |
Balance, beginning of period | | $ | 1,591 | | | $ | 1,286 | |
Provision for warranties during the period | | | 535 | | | | 325 | |
Charges to the reserve | | | (485 | ) | | | (379 | ) |
Impact of foreign currency translation | | | 28 | | | | 2 | |
Balance, end of period | | $ | 1,669 | | | $ | 1,234 | |
| | Nine months ended | |
| | July 31, 2010 | | | July 31, 2009 | |
Balance, beginning of period | | $ | 1,286 | | | $ | 2,536 | |
Provision for warranties during the period | | | 1,285 | | | | 611 | |
Charges to the reserve | | | (1,329 | ) | | | (1,534 | ) |
Impact of foreign currency translation | | | (59 | ) | | | 22 | |
Balance, end of period | | $ | 1,183 | | | $ | 1,635 | |
9. | COMPREHENSIVE LOSSINCOME (LOSS) |
A reconciliation of our net income (loss) to comprehensive lossincome (loss) is as follows (in thousands):
| | Three months ended | |
| | July 31, 2010 | | | July 31, 2009 | |
Net loss | | $ | (1,173 | ) | | $ | (1,231 | ) |
Translation of foreign currency financial statements | | | (645 | ) | | | 2,005 | |
Realized (loss) gain on derivative instruments reclassified into operations, net of tax | | | (24 | ) | | | 425 | |
Unrealized loss on derivative instruments, net of tax | | | (497 | ) | | | (1,940 | ) |
Comprehensive loss | | $ | (2,339 | ) | | $ | (741 | ) |
| | Three months ended | |
| | January 31, 2011 | | | January 31, 2010 | |
Net income (loss) | | $ | 1,546 | | | $ | (1,836 | ) |
Translation of foreign currency financial statements | | | 682 | | | | (1,031 | ) |
Realized gains on derivative instruments reclassified into operations, net of tax | | | 220 | | | | 17 | |
Unrealized gains on derivative instruments, net of tax | | | 549 | | | | 479 | |
Comprehensive income (loss) | | $ | 2,997 | | | $ | (2,371 | ) |
10. | DEBT AGREEMENTS AND SUBSEQUENT EVENT |
We are party to an unsecured domestic credit agreement that provides us with a $15.0 million unsecured revolving credit facility and maximum outstanding letters of credit of $3.0 million. The domestic credit agreementWe also provides for a separatehave an uncommitted demand credit facility in Taiwan in the amount of 100.0 million New Taiwan Dollars. We also haveDollars (approximately $3.0 million) in addition to a £1.0 million revolving credit facility in the United Kingdom and a €1.5 million revolving credit facility in Germany. The domestic and United Kingdom facilities mature on December 7, 2012. The revolving credit facility in Germany does not have an expiration date.
On March 7, 2011 we entered into an uncommitted demand credit facility in China in the amount of 20 million Chinese Yuan (approximately $3.0 million) and amended our unsecured domestic credit agreement to accommodate the new facility. This facility expires on February 24, 2012.
Borrowings under the domestic facility may be used for general corporate purposes and bear interest at a floating rate, based either on LIBOR or the prime rate, plus an applicable margin. The domestic credit agreement restricts our ability to declare and pay dividends, incur additional indebtedness other than under this facility and make acquisitions whenever we have a cumulative net loss for the most recent four consecutive quarters and for so long thereafter as the cumulative loss continues. These restrictions are currently in effect as we have a cumulative net loss for the most recent four consecutive quarters. The domestic credit agreement contains a financial covenant that requires no less than a 1:00 to 1:00 ratio of excess cash (defined as cash minus debt) to an annualized net loss (defined as a net loss for the two most recent consecutive quarters multiplied by two). After achieving cumulative income for four consecutive quarters we are required to maintain a ratio of 0.5 to 1.0 of total indebtedness to the sum of total indebtedness and net worth.
As of JulyJanuary 31, 20102011 and October 31, 2009,2010, we had no debt or borrowings outstanding under any of our credit facilities and no outstanding letters of credit. As of JulyJanuary 31, 2010,2011, we had unutilized credit facilities of $21.6$22.1 million available for either direct borrowings or commercial letters of credit.
Our unrecognized tax benefits were $195,000$207,000 as of JulyJanuary 31, 20102011 and $670,000$196,000 as of October 31, 2009,2010, and in each case included accrued interest. During the third quarter of fiscal 2010, we recorded a benefit for income taxes of $495,000 due to the expiration of statutes of limitations on uncertain tax benefits which resulted in an increase in our effective tax rate for the three and nine months ended July 31, 2010 compared to same periods in prior year.
We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. We believe our unrecognized tax positions meet the minimum statutory threshold to avoid payment of penalties and, therefore, no tax penalties have been estimated. As of JulyJanuary 31, 2010,2011, the gross amount of interest accrued, reported in Accrued expenses and other, was approximately $16,000,$20,000, which did not include the federal tax benefit of interest deductions.
We file U.S. federal and state income tax returns, as well as tax returns in several foreign jurisdictions. The statutes of limitations with respect to unrecognized tax benefits will expire between July 20112012 and August 2013.2014.
The carrying amounts for our trade receivables and payables approximate their fair values. We also have financial instruments in the form of foreign currency forward exchange contracts.contracts as described in Note 2. The U.S. Dollar equivalent notional amount of these contracts was $71.2$93.5 million and $50.8$89.1 million at JulyJanuary 31, 20102011 and October 31, 2009,2010, respectively. The fair value of Derivative assets recorded on our Condensed Consolidated Balance Sheets at JulyJanuary 31, 20102011 and October 31, 20092010 was $1.3$1.4 million and $376,000,$905,000, respectively. The fair value of Derivative liabilities recorded on our Condensed Consolidated Balance Sheets at JulyJanuary 31, 20102011 and October 31, 20092010 was $1.5$1.8 million and $2.2$2.1 million, respectively.
The future value of our 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. We do not consider either the risksrisk of counterparty non-performance to be material.or the economic consequences of counterparty non-performance as material risks.
On November 1, 2008, we adopted FASB guidance related to fair value measurements as it relates to financial assets and liabilities recorded on a recurring basis.
This guidance established a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exist, therefore requiring an entity to develop its own assumptions.
In accordance with this guidance, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value as of JulyJanuary 31, 20102011 and October 31, 20092010 (in thousands):
| | Assets | | | Liabilities | |
| | January 31, 2011 | | | October 31, 2010 | | | January 31, 2011 | | | October 31, 2010 | |
| | | | | | | | | | | | |
Level 1 | | | | | | | | | | | | |
Deferred Compensation | | $ | 723 | | | $ | 674 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | |
Level 2 | | | | | | | | | | | | | | | | |
Derivatives | | $ | 1,429 | | | $ | 905 | | | $ | 1,759 | | | $ | 2,123 | |
| | Assets | | | Liabilities | |
| | July 31, 2010 | | | October 31, 2009 | | | July 31, 2010 | | | October 31, 2009 | |
| | | | | | | | | | | | |
Level 1 | | | | | | | | | | | | |
Deferred Compensation | | $ | 621 | | | $ | 642 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | |
Level 2 | | | | | | | | | | | | | | | | |
Derivatives | | $ | 1,287 | | | $ | 376 | | | $ | 1,516 | | | $ | 2,234 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,908 | | | $ | 1,018 | | | $ | 1,516 | | | $ | 2,234 | |
Included in Level 1 assets are mutual fund investments under a nonqualified deferred compensation plan. We estimate the fair value of these investments on a recurring basis using market prices which are readily available. Included as Level 2 fair value measurements are derivative assets and liabilities related to hedged and unhedged gains and losses on foreign currency forward exchange contracts entered into with a third party. We estimate the fair value of these derivatives on a recurring basis using foreign currency exchange rates obtained from active markets.
During fiscal 2011, we did not have any significant non-recurring measurements of nonfinancial assets and nonfinancial liabilities.
13. EMPLOYEE BENEFITS
We have defined contribution plans that include a majority of our employees, under which our matching contributions are primarily discretionary. The purpose of these plans is generally to provide additional financial security during retirement by providing employees with an incentive to save throughout their employment. Our matching contributions to the plans are based on employee contributions or compensation. From April 1, 2009 to December 31, 2010 we suspended our discretionary contributions to the U.S. plan as a cost reduction measure, however effective January 1, 2011 we reinstated our matching contributions to that plan in an amount equal to 25% of the first 6% of a participant’s annual earnings contributed, up to the maximum permitted by law.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
Hurco Companies, Inc. is an industrial technology company operating in a single segment. We design and produce computerized machine tools, featuring our proprietary computer control systems and software, for sale through our own distribution network to the worldwide metal cutting market. We also provide software options, control upgrades, accessories and replacement parts for our products, as well as customer service and training support.
The following overview is intended to provide a brief explanation of the principal factors that have contributed to our recent financial performance. This overview is intended to be read in conjunction with the more detailed information included in our unaudited financial statements that appear elsewhere in this report.
Until the recent global recession, we had experienced a period of sustained growth in sales and earnings due to the strong worldwide demand for machine tools, the expansion of our product line to include higher-priced and higher-margin products, increased customer acceptance of our products, and the strength of our selling and manufacturing operations outside the United States. Since the end of fiscal 2008,The recession adversely affected our operational performance has been adversely affected by the global economic recession and its lingering effects on the marketsubstantially reduced global demand for machine tools.tools in fiscal 2009 and 2010.
The market for machine tools is international in scope. We have both significant foreign sales and foreign manufacturing operations. DuringIn fiscal 2010, we derived more than 70% of our revenues from foreign markets. Prior to the first nine monthsstart of the recent recession in fiscal 2009, approximately 68%2008, 67% of our revenues were attributable to customers located outside of North America. During the first nine months of fiscal 2010, 73% of our revenues were attributable to foreign customers. This increase in foreign revenues is driven by increased market demand in the Asia Pacific region where we sell more of our entry level, lower-priced VM series machines and where competitive price pressures exist. Due to the continued economic conditions in Europe we have seen a reduction in our sales to that region where we typically sell the majority of our higher performance VMX series machines at higher pricesmachines. The percentage of revenues attributable to European sales declined to 58% for the first quarter of fiscal 2010 and margins.further declined to 54% for the first quarter of fiscal 2011, primarily due to the greater increase in North American sales. We sell our products through more than 100 independent agents and distributors in countries throughout North America, Europe and Asia. We also have our own direct sales and service organizations in Canada, China, France, Germany, India, Italy, Poland, Spain, Singapore, South Africa, South Korea, the United Kingdom and certain parts of the United States. The vast majority of our machine tools are manufactured to our specifications primarily by our wholly owned subsidiary in Taiwan, Hurco Manufacturing Limited (HML). Machine castings and components to support HML’s production are manufactured at our facility in Ningbo, China. We also manufacture machine tools for the Chinese market at the Ningbo plant.
Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies—primarily the Euro and Pound Sterling—in the countries in which those customers are located. Our product costs are incurred and paid primarily in the New Taiwan Dollar and the U.S. Dollar. Changes in currency exchange rates may have a material effect on our operating results and consolidated balance sheets as reported under U.S. Generally Accepted Accounting Principles. For example, when the U.S. Dollar weakensstrengthens in value relative to a foreign currency, sales made, and expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements, are higherlower than would be the case when the U.S. Dollar is stronger.weaker. In ourthe comparison of our period-to-period results, we discuss the effect of currency translation on those results including the increases or decreases in those results as reported in our financial statements (which reflect translation to U.S. Dollars at exchange rates prevailing during the period covered by those financial statements) and also the effect that changes in exchange rates had on those results.
Our high levels of foreign manufacturing and sales also subject us to cash flow risks due to fluctuating currency exchange rates. We seek to mitigate those risks through the use of various derivative instruments – principally foreign currency forward exchange contracts.
In the first quarter of fiscal 2011, we experienced a significant upturn in our business as orders were 115% higher than in the first quarter of fiscal 2010. Sales for the first quarter of fiscal 2011 were 92% above those in the first quarter of fiscal 2010. The significant improvement in sales increased our gross margin for the first quarter of fiscal 2011 to 29%, compared to a gross margin rate of 19% for the first quarter of fiscal 2010. The increase in gross profit as a percentage of sales was partially offset by the negative impact of a strengthened Taiwanese Dollar in relation to the U.S. Dollar and an increase in the cost of raw materials, particularly metals. We expect that this cost impact will continue and we will adjust sales prices accordingly.
In response to the global recession, beginning in the fourth quarter of fiscal 2008, we implemented various cost saving initiatives to reduce expenses while staying committed to our strategic plan of product innovation and penetration of developing markets.
During the third quarter of fiscal 2010, sales were 39% above those in the third quarter of fiscal 2009. Orders for the third quarter of fiscal 2010 were 56% higher than the third quarter of fiscal 2009. Based upon our current inventory position and order level, we have started increasing our production levels to be in line with the current trend of increasing order demand.
RESULTS OF OPERATIONS
Three Months Ended JulyJanuary 31, 20102011 Compared to Three Months Ended JulyJanuary 31, 20092010
Sales and Service Fees. Sales and service fees for the thirdfirst quarter of fiscal 2010 totaled $26.52011 were $39.7 million, an increase of $7.4$19.1 million, or 39%92%, from the thirdfirst quarter of fiscal 2009.2010. The increase in first quarter revenues was primarily the result of the recent rebound in industrial manufacturing activity following the significant declines in fiscal 2009 and 2010. The effect of a stronger U.S. Dollar when translating foreign sales to U.S. Dollars for financial reporting purposes had an unfavorablea negative impact of approximately 7%5%, or $1.1 million, on the period-to-period comparison.
The following tables set forth net sales (in thousands) by geographic region and product category for the first quarter of fiscal 2011 and 2010, respectively:
Net Sales and Service Fees by Geographic Region | |
| | Three months ended January 31, | | | Change | |
| | 2011 | | | 2010 | | | Amount | | | % | |
North America | | $ | 13,462 | | | | 34 | % | | $ | 6,101 | | | | 30 | % | | $ | 7,361 | | | | 121 | % |
Europe | | | 21,279 | | | | 54 | % | | | 12,015 | | | | 58 | % | | | 9,264 | | | | 77 | % |
Asia Pacific | | | 4,939 | | | | 12 | % | | | 2,500 | | | | 12 | % | | | 2,439 | | | | 98 | % |
Total | | $ | 39,680 | | | | 100 | % | | $ | 20,616 | | | | 100 | % | | $ | 19,064 | | | | 92 | % |
The increase in sales was primarily driven by higher customer demand in all sales regions. Unit shipments for the first quarter of fiscal 2011 increased in the North America by 139%, in Europe by 68%, and in the Asia Pacific region by 55% compared to the same period in fiscal 2010.
Net Sales and Service Fees by Product Category | |
| | Three months ended January 31, | | | Change | |
| | 2011 | | | 2010 | | | Amount | | | % | |
Computerized Machine Tools | | $ | 33,994 | | | | 86 | % | | $ | 16,890 | | | | 82 | % | | $ | 17,104 | | | | 101 | % |
Service Fees, Parts and Other | | | 5,686 | | | | 14 | % | | | 3,726 | | | | 18 | % | | | 1,960 | | | | 53 | % |
Total | | $ | 39,680 | | | | 100 | % | | $ | 20,616 | | | | 100 | % | | $ | 19,064 | | | | 92 | % |
Unit shipments of computerized machine tools during the first quarter of fiscal 2011 increased by 85% from the corresponding period in fiscal 2010.
Orders. New orders for the first quarter of fiscal 2011 totaled $44.3 million, an increase of $23.7 million, or 115%, from the corresponding period in fiscal 2010. New orders increased in North America by $7.8 million, or 134%, in Europe by $13.7 million, or 117%, and in the Asia Pacific region by $2.2 million, or 71%. The impact of currency translation on new orders was consistent with the impact on sales. New orders, measured in units, increased in North America by 166%, in Europe by 110%, and in the Asia Pacific sales region by 45%.
Gross Profit. Our gross profit for the first quarter of fiscal 2011 was 29%, compared to 19% for the same period in fiscal 2010. The increase in gross profit as a percentage of sales was due to the significant increase in production and sales volume and was partially offset by the negative impact of a strengthened Taiwanese Dollar in relation to the U.S. Dollar and an increase in the cost of raw materials, particularly metals.
Operating Expenses. Selling, general and administrative expenses were $8.8 million for the first quarter of fiscal 2011, an increase of $2.3 million, or 35%, from the first quarter of fiscal 2010. The increase included $594,000 of increased compensation paid to employees who took wage reductions during the economic downturn. The remainder of the increase primarily related to higher sales commissions and increased sales and marketing expenses. Despite the dollar increase, selling, general and administrative expenses were 22% of sales and service fees during the first quarter of fiscal 2011 compared to 32% for the first quarter of fiscal 2010.
Operating Income (Loss). Operating income for the first quarter of fiscal 2011 was $2.9 million compared to an operating loss of $2.6 million for the prior year period. The substantial improvement in operating income year-over-year was primarily due to the significant increase in sales and production volume.
Other (Income) Expense, Net. The increase in other expense of $179,000 was primarily due to net realized and unrealized losses from foreign currency fluctuations on payables and receivables, net of foreign currency forward exchange contracts.
Income Taxes. Our effective tax rate for the first quarter of fiscal 2011 was 37% in comparison to 35% for the same period in fiscal 2010. We recorded an income tax provision during the first quarter of fiscal 2011 of approximately $899,000 compared to an income tax benefit of $983,000 for the same period in fiscal 2010, as a result of the increase in operating income quarter over quarter.
Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009
Sales and Service Fees. Sales and service fees for the first quarter of fiscal 2010 were $20.6 million, a decrease of $7.7 million, or 27%, from the first quarter of fiscal 2009. The sharp decline in revenues for the fiscal 2010 quarter was primarily the result of the adverse impact of the global economic recession on demand for machine tools. The effect of a weaker U.S. Dollar when translating foreign sales to U.S. Dollars for financial reporting purposes had a favorable impact of approximately 5%, or $1.3 million, on the period-to-period comparison.
The following tables set forth net sales (in thousands) by geographic region and product category for the thirdfirst quarter of fiscal 2010 and 2009, respectively:
Net Sales and Service Fees by Geographic Region | Net Sales and Service Fees by Geographic Region | | Net Sales and Service Fees by Geographic Region | |
| | Three months ended July 31, | | | Change | | | Three months ended January 31, | | | Change | |
| | 2010 | | | 2009 | | | Amount | | | % | | | 2010 | | | 2009 | | | Amount | | | % | |
North America | | $ | 7,208 | | | | 27.2 | % | | $ | 5,809 | | | | 30.5 | % | | $ | 1,399 | | | | 24.1 | % | | $ | 6,101 | | | | 30 | % | | $ | 9,636 | | | | 34 | % | | $ | (3,535 | ) | | | (37 | )% |
Europe | | | 15,896 | | | | 60.1 | % | | | 11,777 | | | | 61.9 | % | | | 4,119 | | | | 35.0 | % | | | 12,015 | | | | 58 | % | | | 18,060 | | | | 64 | % | | | (6,045 | ) | | | (33 | )% |
Asia Pacific | | | 3,370 | | | | 12.7 | % | | | 1,453 | | | | 7.6 | % | | | 1,917 | | | | 131.9 | % | | | 2,500 | | | | 12 | % | | | 611 | | | | 2 | % | | | 1,889 | | | | 309 | % |
Total | | $ | 26,474 | | | | 100.0 | % | | $ | 19,039 | | | | 100.0 | % | | $ | 7,435 | | | | 39.1 | % | | $ | 20,616 | | | | 100 | % | | $ | 28,307 | | | | 100 | % | | $ | (7,691 | ) | | | (27 | )% |
The third quarter increasedecrease in sales was primarily driven by increasedlower demand, particularly for higher-priced, high performance vertical machining centers in all sales regions, with the largest percentage increase(which are principally marketed in the Asia Pacific region. Compared to the third quarter of fiscal 2009, unit shipments for the third quarter of fiscal 2010 increased in North America by 25%, in Europe by 38%European sales region), and in the Asia Pacific sales region by 123%. The increase in the Asia Pacific region during the third quarter of fiscal 2010 was primarily the result of increased shipments in China and India of our entry-level, lower-priced VM series machines and increased market demand in the other Asia Pacific territories.
Net Sales and Service Fees by Product Category | |
| | Three months ended July 31, | | | Change | |
| | 2010 | | | 2009 | | | Amount | | | % | |
Computerized Machine Tools | | $ | 22,020 | | | | 83.2 | % | | $ | 15,552 | | | | 81.7 | % | | $ | 6,468 | | | | 41.6 | % |
Service Fees, Parts and Other | | | 4,454 | | | | 16.8 | % | | | 3,487 | | | | 18.3 | % | | | 967 | | | | 27.7 | % |
Total | | $ | 26,474 | | | | 100.0 | % | | $ | 19,039 | | | | 100.0 | % | | $ | 7,435 | | | | 39.1 | % |
Unit shipments of computerized machine tools during the third quarter of fiscal 2010 increased by 46% from the corresponding period in fiscal 2009.
Orders. New order bookings in the third quarter of fiscal 2010 were $28.0 million, an increase of $10.1 million, or 56%, from the same period in fiscal 2009. Orders increased in North America by $2.5 million, or 45%, in Europe by $4.3 million, or 38%, and in Asia Pacific by $3.3 million, or 285%, in each case as compared to the third quarter of fiscal 2009. The increase in orders reflected higher demand in China and India for our entry-level, lower-priced VM series machines and increased demand in the other Asia Pacific territories. The impact of currency translation on new orders booked in fiscal 2010 was consistent with its impact on sales.
Gross Profit. Hurco’s gross profit for the third quarter of fiscal 2010 was 18%, compared to 28% for the same period in fiscal 2009. The decrease in profit as a percentage of sales was the result of machines sold during the period which were produced at a time of lower production levels that resulted in higher production costs per machine which increased this period’s cost of sales. Also contributing to the decrease was a product mix that included a greater amount of our entry-level, lower margin machines that were in high demand in the Asia Pacific region where competitivecontinued pricing pressure also exists.
Operating Expenses. Selling, general and administrative expenses were $7.0 million for the third quarter of fiscal 2010, a decrease of $206,000, or 3%, from the same period of fiscal 2009. The decrease reflected the benefit of cost reduction initiatives and the favorable effect of a stronger U.S. dollar in the third quarter of fiscal 2010 when translating foreign operating expenses to U.S. dollars for financial reporting purposes, partially offset by an increase in sales commissions.
Operating Income (Loss). The operating loss for the third quarter of fiscal 2010 was $2.3 million compared to an operating loss of $1.9 million for the same period in fiscal 2009. The increase in the operating loss year-over-year was primarily the result of machines sold during the period which were produced at a time of lower production levels that resulted in higher production costs per machine which increased this period’s cost of sales. Also contributing to the decrease was a product mix that included a greater amount of our entry-level, lower margin machines that were in high demand in the Asia Pacific region where competitive pricing pressure also exists.
Other (Income) Expense, Net. The decrease in other income of $188,000 for the third quarter of fiscal 2010 compared to the same period in fiscal 2009 was primarily due to a reduction of $225,000 in net realized gains on hedge contracts closed before maturity during the third quarter of fiscal 2009 as a result of forecasted reductions in production and sales.
Income Taxes. Our effective tax rate for the third quarter of fiscal 2010 was 51% in comparison to 31% for the same period in fiscal 2009. We recorded a benefit for income taxes during the third quarter of fiscal 2010 of approximately $1.2 million compared to a benefit of $552,000 for the same period in fiscal 2009. The increase in the effective tax rate relates primarily to the recognition of tax benefits of $495,000 for uncertain tax positions due to expiration of statutes of limitations.
Nine Months Ended July 31, 2010 Compared to Nine Months Ended July 31, 2009
Sales and Service Fees. Sales and service fees for the nine months ended July 31, 2010, totaled $71.2 million, an increase of $3.3 million, or 5%, from the corresponding period in 2009. Currency translation had a favorable impact on sales for the first nine months of fiscal 2010 of approximately 2%, or $1.1 million compared to the same period of fiscal 2009.
The following tables set forth net sales (in thousands) by geographic region and product category for the first nine months of 2010 and 2009, respectively:
Net Sales and Service Fees by Geographic Region | |
| | Nine months ended July 31, | | | Change | |
| | 2010 | | | 2009 | | | Amount | | | % | |
North America | | $ | 19,114 | | | | 26.8 | % | | $ | 21,618 | | | | 31.9 | % | | $ | (2,504 | ) | | | (11.6 | )% |
Europe | | | 43,254 | | | | 60.8 | % | | | 42,879 | | | | 63.2 | % | | | 375 | | | | 0.9 | % |
Asia Pacific | | | 8,810 | | | | 12.4 | % | | | 3,338 | | | | 4.9 | % | | | 5,472 | | | | 164.0 | % |
Total | | $ | 71,178 | | | | 100.0 | % | | $ | 67,835 | | | | 100.0 | % | | $ | 3,343 | | | | 4.9 | % |
The increase in sales was primarily driven by higher demand for vertical machining centers in the Asia Pacific region.pressures globally. Unit shipments for the first nine monthsquarter of fiscal 2010 decreased in the North America by 27%, increased54% and decreased in Europe by 1% and31%, while unit shipments increased in the Asia Pacific sales region by 212%571% compared to the same period in fiscal 2009. The increased sales in the Asia Pacific region during the first nine monthsquarter of fiscal 2010 were primarily the result of increased shipments in China and India of our entry-level, lower-priced VM series machines and increased demand in the other Asia Pacific territories.
Singapore, South Korea and China.
Net Sales and Service Fees by Product Category | Net Sales and Service Fees by Product Category | | Net Sales and Service Fees by Product Category | |
| | Nine months ended July 31, | | | Change | | | Three months ended January 31, | | | Change | |
| | 2010 | | | 2009 | | | Amount | | | % | | | 2010 | | | 2009 | | | Amount | | | % | |
Computerized Machine Tools | | $ | 58,793 | | | | 82.6 | % | | $ | 56,019 | | | | 82.6 | % | | $ | 2,774 | | | | 5.0 | % | | $ | 16,890 | | | | 82 | % | | $ | 23,948 | | | | 85 | % | | $ | (7,058 | ) | | | (29 | )% |
Service Fees, Parts and Other | | | 12,385 | | | | 17.4 | % | | | 11,816 | | | | 17.4 | % | | | 569 | | | | 4.8 | % | | | 3,726 | | | | 18 | % | | | 4,359 | | | | 15 | % | | | (633 | ) | | | (15 | )% |
Total | | $ | 71,178 | | | | 100.0 | % | | $ | 67,835 | | | | 100.0 | % | | $ | 3,343 | | | | 4.9 | % | | $ | 20,616 | | | | 100 | % | | $ | 28,307 | | | | 100 | % | | $ | (7,691 | ) | | | (27 | )% |
Unit shipments of computerized machine tools during the first nine monthsquarter of fiscal 2010 increaseddecreased by 6%26% from the corresponding period in fiscal 2009.
Orders. New order bookings in the first nine monthsquarter of fiscal 2010 were $79.2$20.6 million, an increasea decrease of $18.6$3.9 million, or 31%16%, from the same period in fiscal 2009. Orders increaseddecreased in North America by $2.9of $2.8 million, or 16%33%, and decreased in Europe by $7.0$3.6 million, or 18%23%, andwhile orders in the Asia Pacific sales region by $8.7increased $2.5 million, or 316%413%, compared to the first quarter of fiscal 2009. During the first quarter of fiscal 2010, large government contracts in Europe were cancelled due to budgetary restraints, reducing our orders and backlog in Europe by approximately $2.0 million, or 11%. Excluding these order cancellations in Europe, the decrease in total new order bookings for the first quarter of fiscal 2010 was $1.9 million, or 8% on a worldwide basis and $1.6 million, or 10%, in Europe compared to the same period ofin fiscal 2009. The increase in orders reflected higher demand in China and India for our entry-level, lower-priced VM series machines and increased demand in the other Asia Pacific territories. The impact of currency translation on new orders booked in fiscal 2010 was consistent with its impact on sales.
Gross Profit. Hurco’sOur gross profit for the first nine monthsquarter of fiscal 2010 was 19%, compared to 28%30% for the same period in fiscal 2009. The decrease in gross profit as a percentage of sales was the result of machines sold during the period which were produced at a time ofdue to lower production levels that resultedsales in higher production costs per machine which increased this period’s cost of sales. Also contributing to the decrease was a product mix that included a greater amountEurope of our entry-level,higher margin, high performance vertical machining centers, as well as the impact of fixed costs on lower margin machines that were in high demand in the Asia Pacific region wheresales and production volume, and competitive pricing pressure also exists.pressures on a global basis.
Operating Expenses. Selling, general and administrative expenses were $20.8$6.5 million for the first nine monthsquarter of fiscal 2010, a decrease of $2.0$1.5 million, or 9%19%, from the same periodfirst quarter of fiscal 2009. The decrease reflected lower sales commissions and the benefit of cost reduction initiatives, partially offset by the unfavorable effect of a weaker U.S. Dollardollar in fiscal 2010 when translating foreign operating expenses to U.S. Dollarsdollars for financial reporting purposes.
Operating Income (Loss). The operating loss for the first nine monthsquarter of fiscal 2010 was $7.4$2.6 million compared to an operating lossincome of $3.7 million$513,000 for the same periodprior year period. The reduction in fiscal 2009. The increase in the operating lossincome year-over-year was primarily the result of machines sold during the period which were produced at a time of lower production levels that resulted in higher production costs per machine which increased this period’s cost of sales. Also contributingdue to the decrease was a product mix that included a greater amount of our entry-level, lowerreduction in sales, primarily those for the higher margin, machines that were in high demandperformance vertical machining centers in the Asia PacificEuropean sales region, wherethe impact of fixed costs on lower sales volume, and competitive pricing pressure also exists.pressures on a global basis.
Other (Income) Expense, Net. The decreaseincrease in other incomeexpense of $2.3 million for the first nine months of fiscal 2010 compared to the same period in fiscal 2009$204,000 was primarily due to a reduction of $2.7 million in net realized gainsand unrealized losses from foreign currency fluctuations on hedgepayables and receivables, net of foreign currency forward exchange contracts closed before maturity during fiscal 2009 asand our allocated share of the loss incurred by a result of forecasted reductionsTaiwan contract manufacturer in production and sales.which we have an equity investment.
Income Taxes. Our effective tax rate for the first nine monthsquarter of fiscal 2010 was 42%35% in comparison to 33%36% for the same period in fiscal 2009. We recorded a benefit for income taxes during the first nine monthsquarter of fiscal 2010 of approximately $3.3 million$983,000 compared to a benefitprovision of $564,000$195,000 for the same period in fiscal 2009. The increase in2009, as a result of the effective tax rate relates primarily to the recognition of tax benefits of $495,000 for uncertain tax positions due to the expiration of statutes of limitations.decreased operating income year over year.
LIQUIDITY AND CAPITAL RESOURCES
At JulyJanuary 31, 2010, our2011, we had cash balance was $45.2of $50.3 million, compared to $28.8$48.3 million at October 31, 2009.2010. Approximately 76%53% of the $45.2$50.3 million of cash is denominated in U.S. Dollars. The balance is held outside the U.S. in the local currencies of our various foreign entities and is subject to fluctuations in currency exchange rates.
Working capital, excluding cash, and cash equivalents, was $48.1$47.2 million at JulyJanuary 31, 2010,2011, compared to $68.7$45.7 million at October 31, 2009.
Inventories were $51.0 million at July 31, 2010, compared to $60.3 million at October 31, 2009.2010. The $9.3 million decreaseincrease in working capital, excluding cash, was primarily due to a combination of lower production levels and an increase in market demand which decreased finished goods inventory by $15.5 million or 37%. As a result of the recent increase in orders, we have started increasing production to meet current order levels and reduce our backlog. This increase in production has increased work-in-process inventory by $5.6 million, or 159%. We continue to evaluate changes in production levels due to changes inthe higher level of customer demand.
We believe our cash resources will permit us to stay committed to our strategic plan of product innovation and targeted penetration of developing markets despite the lingering effects of the recent global recession. During the current recessiondemand we significantly reduced our production levels and implemented cost saving initiatives. We are increasing our production as demand for machine tools increases. However, we may face challenges due to the continuing economic uncertainties in Europe and the U.S., our largest markets and the longer term effect of a stronger U.S. Dollar against the Euro.currently experiencing.
Capital expenditures during the first nine monthsquarter of fiscal 20102011 were primarily for implementation of operating systems and software development costs. We funded these expenditures with cash flow from operations.
At January 31, 2011, we had no debt or borrowings outstanding under any of our bank credit facilities.
Although we have not made any significant acquisitions in the recent past, and we have no present plans for acquisitions, we continue to receive and review information on businesses and assets, including intellectual property assets, which are available for purchase. Because we have had a cumulative net loss for four consecutive quarters, of net losses, our domestic credit agreement has restrictions on us making acquisitions, declaring and paying dividends, and incurring additional indebtedness. These restrictions will remain in effect as long as this cumulative loss position exists.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. Reporting entities will have to provide information about movements of assets among Levels 1 and 2; and a reconciliation of purchases, sales, issuance, and settlements of activity valued with a Level 3 method, of the three-tier fair value hierarchy established by previous FASB guidance. The guidance also clarifies the existing requirements for fair value measurement disclosures as it relates to each class of assets and liabilities. The guidance was effective for interim and annual reporting periods beginning after December 15, 2009 for Level 1 and 2 disclosure requirements and after December 15, 2010 for Level 3 disclosure requirements. We adopted this guidance in the third quarter of fiscal 2010 and it did not have a material impact on our consolidated financial statements.
In February 2010, the FASB issued various non-substantive amendments to the FASB Codification that do not fundamentally change existing GAAP; however, certain amendments altered the application of GAAP as it relates to derivatives and income taxes. The amended guidance was effective beginning in the first interim or annual period beginning after the release date, except for certain amendments. We adopted this guidance in the third quarter of fiscal 2010 and it did not have a material impact on our consolidated financial statements.
On February 2010, the FASB issued amendments to certain recognition and disclosure requirements. This guidance removes the requirement that SEC filers disclose the date through which subsequent events have been evaluated. This amendment alleviates potential conflicts between previous guidance and the SEC’s requirements. The guidance became effective upon issuance and we adopted this guidance during the first quarter of fiscal 2010.
NEW ACCOUNTING PRONOUNCEMENTS
We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of its operations.
CRITICAL ACCOUNTING POLICIES
Our accounting policies, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2009,2010, require management to make significant estimates and assumptions using information available at the time the estimates are made. These estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenues, and expenses. If our future experience differs materially from these estimates and assumptions, our results of operations and financial condition would be affected. There were no material changes to our critical accounting policies during the first ninethree months of fiscal 2010.2011.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
There have been no material changes related to contractual obligations and commitments from the information provided in our Annual Report on Form 10-K for the fiscal year ended October 31, 2009.2010.
OFF BALANCE SHEET ARRANGEMENTS
From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for contingencies with respect to these guarantees. As of JulyJanuary 31, 2010,2011, we had 3430 outstanding third party payment guarantees totaling approximately $1.8$1.7 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer has the risk of ownership. The customer does not obtain title, however, until it has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue for potential liabilities under these guarantees when we believe a loss is probable and can be estimated.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the statements. These risks, uncertainties and other factors include:
| · | The impact of continuing economic uncertainty onA recurrent global recession which could reduce overall demand forand our customers’ ability to purchase our products particularly in Europe and the U.S.;services; |
| · | The cyclical nature of the machine tool industry; |
| · | The risks of our international operations; |
| · | The limited number of our manufacturing sources; |
| · | The effects of changes in currency exchange rates; |
| · | Our dependence on new product development; |
| · | The need to make technological advances; |
| · | Competition with larger companies that have greater financial resources; |
| · | Changes in the prices of raw materials, especially steel and iron products; |
| · | Possible obsolescence of our technology; |
| · | Acquisitions that could disrupt our operations and affect operating results; |
| · | Impairment of our assets; |
| · | The need to protect our intellectual property assets;Negative or unforeseen tax consequences; |
| · | The impact of the continuing downturn in the global economy; |
| · | The impact of ongoing disruptions in the credit markets onneed to protect our investment securities;intellectual property assets; and |
| · | The effect of the loss of members of senior management and key personnel. |
We discuss these and other important risks and uncertainties that may affect our future operation in Part I, Item 1A – Risk Factors in our most recent Annual Report on Form 10-K and may update that discussion in Part II, Item 1A – Risk Factors in this report or a Quarterly Report on Form 10-Q we file hereafter.
Readers are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest on borrowings on our bank credit agreements are tied to prevailing U.S.domestic and Europeanforeign interest rates. At JulyJanuary 31, 2010,2011, there were no outstanding borrowings under our bank credit agreements.
Foreign Currency Exchange Risk
In fiscal 2009,2010, we derived more than 70% of our revenues from foreign markets. All of our computerized machine tools and computer 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.
Our products are sourced from foreign suppliers or built to our specifications by either our wholly owned subsidiarysubsidies in Taiwan and China or an affiliated contract manufacturer. Our purchases are predominantly in foreign currencies and in some 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 the exchange rate risk associated with our product purchases relates to the New Taiwan Dollar.
We enter into foreign currency forward exchange contracts from time to time to hedge the cash flow risk related to forecasted inter-company sales and purchases denominated in, or based on, foreign currencies (primarily the Euro, Pound Sterling, and New Taiwan Dollar). 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. 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 JulyJanuary 31, 2010,2011, which are designated as cash flow hedges under FASB guidance related to accounting for derivative instruments and hedging activities were as follows:
| | Notional Amount | | | Weighted Avg. | | | Contract Amount at Forward Rates in U.S. Dollars | | | | Notional Amount | | | Weighted Avg. | | | Contract Amount at Forward Rates in U.S. Dollars | | |
Forward Contracts | | in Foreign Currency | | | Forward Rate | | | Contract Date | | | July 31, 2010 | | Maturity Dates | | in Foreign Currency | | | Forward Rate | | | Contract Date | | | January 31, 2011 | | Maturity Dates |
Sale Contracts: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Euro | | | 15,650,000 | | | | 1.3124 | | | | 20,538,687 | | | | 20,416,813 | | August 2010 – July 2011 | | | 23,295,000 | | | | 1.3300 | | | | 30,983,089 | | | | 31,823,599 | | February 2011 – January 2012 |
Pound Sterling | | | 3,330,000 | | | | 1.5312 | | | | 5,098,803 | | | | 5,222,178 | | August 2010 – July 2011 | | | 5,540,000 | | | | 1.5534 | | | | 8,605,996 | | | | 8,862,625 | | February 2011 – January 2012 |
Purchase Contracts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
New Taiwan Dollar | | | 700,000,000 | | | | 31.06 | * | | | 22,534,733 | | | | 22,091,397 | | August 2010 – July 2011 | | | 875,000,000 | | | | 29.83 | * | | | 29,333,811 | | | | 30,572,134 | | February 2011 – January 2012 |
*NT Dollars per U.S. Dollar
Forward contracts for the sale or purchase of foreign currencies as of JulyJanuary 31, 2010,2011, which were entered into to protect against the effects of foreign currency fluctuations on receivables and payables and are not designated as hedges under this guidance denominated in foreign currencies, were as follows:
| | | | | | | | Contract Amount at Forward Rates in U.S. Dollars | | | | Notional Amount in | | | Weighted Avg. | | | Contract Amount at Forward Rates in U.S. Dollars | | |
Forward Contracts | | Notional Amount in Foreign Currency | | | Weighted Avg. Forward Rate | | | Contract Date | | | July 31, 2010 | | Maturity Dates | | Foreign Currency | | | Rate | | | Contract Date | | | January 31, 2011 | | Maturity Dates |
Sale Contracts: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Euro | | | 6,391,071 | | | | 1.2636 | | | | 8,075,757 | | | | 8,341,141 | | August 2010 – October 2010 | | | 7,449,077 | | | | 1.3318 | | | | 9,920,902 | | | | 10,188,430 | | February 2011 – April 2011 |
Pound Sterling | | | 420,162 | | | | 1.5611 | | | | 655,913 | | | | 659,444 | | August 2010 | | | 884,610 | | | | 1.5887 | | | | 1,405,350 | | | | 1,417,034 | | February 2011 |
Canadian Dollar | | | 564,005 | | | | .9792 | | | | 552,274 | | | | 547,864 | | September 2010 | | | 594,275 | | | | .9778 | | | | 581,085 | | | | 592,232 | | April 2011 |
Singapore Dollar | | | 2,047,912 | | | | .7132 | | | | 1,460,510 | | | | 1,506,835 | | March 2011 | | | 1,138,952 | | | | .7132 | | | | 812,261 | | | | 889,985 | | March 2011 |
South African Rand | | | 2,452,988 | | | | .1346 | | | | 330,172 | | | | 331,642 | | October 2010 | | | 5,985,008 | | | | .1394 | | | | 834,542 | | | | 822,560 | | April 2011 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchase Contracts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
New Taiwan Dollar | | | 239,342,513 | | | | 31.85 | * | | | 7,514,896 | | | | 7,492,023 | | August 2010 – September 2010 | | | 199,934,377 | | | | 28.81 | * | | | 6,939,285 | | | | 6,902,879 | | February 2011 – March 2011 |
* NT Dollars per U.S. Dollar
We are also exposed to foreign currency exchange risk related to our investment in net assets in foreign countries. To manage this risk, we entered intohave maintained a forward contract with a notional amount of €3.0 million. We designated this forward contract as a hedge of our net investment in Euro denominated assets. We selected the forward method under FASB guidance related to the accounting for derivatives instruments and hedging activities. The forward method requires all changes in the fair value of the forwardcontract to be reported as a cumulative translation adjustment in Accumulated other comprehensive loss, net of tax, in the same manner as the underlying hedged net assets. This forward contract matured on November 24, 2009 and we entered into a new forward contract for the same notional amount that is set to maturematures in November 2010.2011. At JulyJanuary 31, 2010,2011, we had $23,000$216,000 of realized lossesgains and $343,000$14,000 of unrealized gains,losses, net of tax, recorded as cumulative translation adjustments in Accumulated other comprehensive loss related to this forward contract.
Forward contracts for the sale or purchase of foreign currencies as of JulyJanuary 31, 2010,2011, which are designated as net investment hedges under this guidance were as follows:
| | Notional Amount | | | Weighted Avg. | | | Contract Amount at Forward Rates in U.S. Dollars | | |
Forward Contracts | | in Foreign Currency | | | Forward Rate | | | Contract Date | | | January 31, 2011 | | Maturity Date |
Sale Contracts: | | | | | | | | | | | | | |
Euro | | | 3,000,000 | | | | 1.3549 | | | | 4,064,700 | | | | 4,087,530 | | November 2011 |
| | Notional Amount | | | Weighted Avg. | | | Contract Amount at Forward Rates in U.S. Dollars | | |
Forward Contracts | | in Foreign Currency | | | Forward Rate | | | Contract Date | | | July 31, 2010 | | Maturity Date |
Sale Contracts: | | | | | | | | | | | | | |
Euro | | | 3,000,000 | | | | 1.4896 | | | | 4,468,800 | | | | 3,914,670 | | November 2010 |
Item 4. CONTROLS AND PROCEDURES
We carried out an evaluation under the supervision and with participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of JulyJanuary 31, 2010,2011, pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the evaluation date.
There were no changes in our internal controls over financial reporting during the quarter ended JulyJanuary 31, 20102011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in the normal course of our business. We believe it is remote that any of these claims will have a material adverse effect on our consolidated financial position or results of operations.
Item 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended October 31, 2009.2010.
Item 5. OTHER INFORMATION
During the period covered by this report, the Audit Committee of our Board of Directors engaged our independent registered public accounting firm to perform non-audit, tax planning services. This disclosure is made pursuant to Section 10A9(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002.
| 10.1* | | Form of Restricted Stock Award Agreement – Employee. |
| | | |
| 10.2 | | Form of Restricted Stock Award Agreement – Director. |
| | | |
| 31.1 | | Certification by the Chief Executive Officer, pursuant to Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended. |
| | | |
| 31.2 | | Certification by the Chief Financial Officer, pursuant to Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended. |
| | | |
| 32.1 | | Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2 | | Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| * | | The indicated exhibit is a management contract, compensatory plan or arrangement required to be listed by item 601 of Regulation S-K. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HURCO COMPANIES, INC. |
| | |
| By: | /s/ John G. Oblazney |
| | John G. Oblazney |
| | Vice President and |
| | Chief Financial Officer |
| | |
| By: | /s/ Sonja K. McClelland |
| | Sonja K. McClelland |
| | Corporate Controller and |
| | Principal Accounting Officer |
September 3, 2010March 10, 2011