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 January 31, 2002 or
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to
_________.
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1150732
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Technology Way
Indianapolis, Indiana 46268
- -------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 293-5309
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for the past 90 days:
Yes X No
--- ---
The number of shares of the Registrant's common stock outstanding as of February
28, 2002 was 5,583,158.
HURCO COMPANIES, INC.
January 2002 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Condensed Financial Statements
Condensed Consolidated Statements of Operations -
Three months ended January 31, 2002 and 2001.......................... 3
Condensed Consolidated Balance Sheets -
As of January 31, 2002 and October 31, 2001........................... 4
Condensed Consolidated Statements of Cash Flows -
Three months ended January 31, 2002 and 2001.......................... 5
Consolidated Statements of Changes in Shareholders' Equity
Three months ended January 31, 2002 and 2001.......................... 6
Notes to Condensed Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 12
Part II - Other Information
Item 1. Legal Proceedings......................................................... 14
Item 6. Exhibits and Reports on Form 8-K.......................................... 14
Signatures.............................................................................. 15
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 January 31,
2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Sales and service fees..................................................... $ 18,520 $ 25,933
Cost of sales and service.................................................. 14,517 19,318
---------- ----------
Gross profit.......................................................... 4,003 6,615
Selling, general and administrative expenses............................... 5,214 6,086
Severance expense.......................................................... 356 --
---------- ----------
Operating income (loss)............................................... (1,567) 529
License fee income, net.................................................... 169 334
Interest expense........................................................... 177 181
Other income, net.......................................................... 33 88
---------- ----------
Income (loss) before income taxes..................................... (1,542) 770
Provision for income taxes................................................. 99 203
---------- ----------
Net Income (loss).......................................................... $ (1,641) $ 567
=========== ==========
Earnings (loss) per common share
Basic................................................................. $ (.29) $ .10
========== ==========
Diluted............................................................... $ (.29) $ .10
========== ==========
Weighted average common shares outstanding
Basic................................................................. 5,582 5,867
========== ==========
Diluted............................................................... 5,582 5,905
========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
January 31, October 31,
2002 2001
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents........................................... $ 2,961 $ 3,523
Accounts receivable................................................. 12,701 14,436
Inventories......................................................... 26,992 30,319
Other............................................................... 1,651 1,232
---------- ---------
Total current assets............................................ 44,305 49,510
---------- ---------
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,193 7,187
Machinery and equipment............................................. 11,156 11,410
Leasehold improvements.............................................. 1,100 1,059
Less accumulated depreciation and amortization.................. (11,550) (11,653)
---------- ----------
8,660 8,764
---------- ---------
Software development costs, less amortization............................ 3,044 3,066
Investments and other assets............................................. 4,591 4,877
---------- ---------
$ 60,600 $ 66,217
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 7,379 $ 9,936
Accrued expenses.................................................... 8,212 8,081
Current portion of long-term debt.................................. 10,100 200
---------- ---------
Total current liabilities....................................... 25,691 18,217
---------- ---------
Non-current liabilities:
Long-term debt...................................................... 600 11,800
Deferred credits and other ......................................... 435 732
---------- ---------
1,035 12,532
Shareholders' equity:
Preferred stock: no par value per share; 1,000,000
shares authorized; no shares issued............................... -- --
Common stock: no par value; $.10 stated value per
share; 12,500,000 shares authorized; 5,583,158
and 5,580,658 shares issued, respectively ...................... 558 558
Additional paid-in capital.......................................... 44,717 44,714
Accumulated deficit................................................. (3,551) (1,910)
Accumulated other comprehensive income.............................. (7,850) (7,894)
---------- ---------
Total shareholders' equity...................................... 33,874 35,468
---------- ---------
$60,600 $66,217
========== =========
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended January 31,
2002 2001
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income (loss)........................................................... $ (1,641) $ 567
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Equity income of affiliates.............................................. 44 --
Severance expense....................................................... (300) --
Depreciation and amortization.......................................... 513 539
Change in assets and liabilities:
(Increase) decrease in accounts receivable.............................. 1,378 (3,056)
(Increase) decrease in inventories...................................... 2,820 (1,441)
Increase (decrease) in accounts payable................................. (2,471) 1,820
Increase (decrease) in accrued expenses................................. 670 1,060
Other................................................................... 275 (511)
----------- -----------
Net cash provided by (used for) operating activities.................... 1,288 (1,022)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment............................................. 45 --
Purchases of property and equipment......................................... (292) (207)
Software development costs.................................................. (157) (128)
Other....................................................................... (21) (78)
---------- -----------
Net cash used for investing activities.................................. (425) (413)
---------- ----------
Cash flows from financing activities:
Advances on bank credit facilities.......................................... 6,975 14,650
Repayment on bank credit facilities......................................... (8,275) (8,300)
Repayments of term debt..................................................... -- (1,786)
Repurchase of Common Stock.................................................. -- (1,221)
Proceeds from exercise of common stock options.............................. 4 35
---------- ----------
Net cash provided by (used for) financing activities.................... (1,296) 3,378
----------- ----------
Effect of exchange rate changes on cash.......................................... (129) (135)
----------- -----------
Net increase (decrease) in cash......................................... (562) 1,808
Cash and cash equivalents at beginning of period................................. 3,523 3,384
---------- ----------
Cash and cash equivalents at end of period....................................... $ 2,961 $ 5,192
========= ==========
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months ended January 31, 2002 and 2001
Common Stock
----------------------------
Accumulated
Shares Additional Retained Other
Issued & Paid-In Earnings Comprehensive
Outstanding Amount Capital (Deficit) Income Total
------------ ---------- ------------ ------------ -------------- ----------
(Dollars in thousands)
Balances, October 31, 2000 5,955,359 $596 $46,347 $ (313) $(7,739) $38,891
- ------------------------------------------ ============ ========== ============ ============ ============= =========
- ------------------------------------------ ============ ========== ============ ============ ============= =========
Net income....................... -- -- -- 567 -- 567
Translation of foreign currency
financial statements.......... -- -- -- -- 661 661
Unrealized loss on derivative instruments
-- -- -- -- (252) ( 252)
---------
Comprehensive income (loss)...... -- -- -- -- -- 976
Exercise of Common Stock Options. 16,400 1 34 -- -- 35
Repurchase of Common Stock....... (278,001) (28) (1,193) -- -- (1,221)
------------ ---------- ----------- ----------- ---------- ---------
------------ ---------- ----------- ----------- ---------- ---------
Balances, January 31, 2001 5,693,758 $569 $45,188 $ 254 $(7,330) $38,681
- ------------------------------------------ ============ ========== ============ =========== =========== ==========
- ------------------------------------------ ============ ========== ============ =========== =========== ==========
Balances, October, 31 2001 5,580,658 $558 $44,714 $(1,910) $(7,894) $35,468
- ------------------------------------------ ============ ========== ============ =========== =========== ==========
- ------------------------------------------ ============ ========== ============ =========== =========== ==========
Net income....................... -- -- -- (1,641) -- (1,641)
Translation of foreign currency
financial statements.......... -- -- -- -- (511) (511)
Unrealized (gain) on derivative
instruments...................... -- -- -- -- 555 555
----------
Comprehensive income (loss)...... -- -- -- -- -- (1,597)
Exercise of Common Stock Options. 2,500 -- 3 -- -- 3
------------ ---------- ------------ ---------- ----------- ----------
------------ ---------- ------------ ---------- ----------- ----------
Balances, January 31, 2002 5,583,158 $ 558 $44,717 $(3,551) $(7,850) $33,874
- ------------------------------------------ ============ ========== ============ ========== =========== ==========
The accompanying notes are an integral part of the Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The unaudited Condensed Consolidated Financial Statements include the accounts
of Hurco Companies, Inc. and its consolidated subsidiaries. We design and
produce interactive, personal computer (PC) based, computer control systems and
software and computerized machine systems for sale through a worldwide sales,
service and distribution network.
The condensed financial information as of January 31, 2002 and 2001 is unaudited
but includes all adjustments which we consider necessary for a fair presentation
of our financial position at those dates and our results of operations and cash
flows for the three months then ended. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in our Annual Report on Form 10-K for the year ended
October 31, 2001.
2. LICENSE FEE INCOME, NET
From time to time, our wholly owned subsidiary, IMS Technology, Inc., enters
into agreements for the licensing of its interactive computer numerical control
patents. License fees received or receivable under a fully paid-up license, for
which there are no future performance requirements or contingencies, are
recognized in income, net of legal fees and expenses, at the time the license
agreement is executed. License fees receivable in periodic installments that are
contingent upon the continuing validity of a licensed patent are recognized in
income, net of legal fees and expenses, over the life of the licensed patent.
The licensed patent expired in October 2001 and, as a result, we have no
deferred license fee income at January 31, 2002.
3. HEDGING
We enter into foreign currency forward exchange contracts periodically to hedge
certain forecast inter-company sales and forecast inter-company and third-party
purchases denominated in foreign currencies (primarily Pound Sterling, Euro and
New Taiwan Dollar). The purpose of these instruments is to mitigate the risk
that the U.S. Dollar net cash inflows and outflows resulting from the sales and
purchases denominated in foreign currencies will be adversely affected by
changes in exchange rates. These forward contracts have been designated as cash
flow hedge instruments, and are recorded in the Condensed Consolidated Balance
Sheet at fair value in Other Current Assets and Accrued Liabilities. Gains and
losses resulting from changes in the fair value of these hedge contracts are
deferred in Accumulated Other Comprehensive Income and recognized as an
adjustment to the related sale or purchase transaction in the period that the
transaction occurs. Net losses on cash flow hedge contracts which we
reclassified from Accumulated Other Comprehensive Income to Cost of Sales in the
quarter ended January 31, 2002 were $450,000.
At January 31, 2002, we had $89,000 of unrealized gains related to cash flow
hedges deferred in Accumulated Other Comprehensive Income, which we expect to
recognize in Cost of Sales within the next twelve months. Cash flow hedge
contracts mature at various dates through October 2002.
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 the Statement of Financial Accounting Standards No.
133, "Accounting Standards for Derivative Instruments and Hedging Activities"
(SFAS 133), and as a result, changes in fair value are reported currently as
Other Income (Expense) in the Consolidated Statement of Operations consistent
with the transaction gain or loss on the related foreign denominated receivable
or payable. Such net transaction gains were $35,000 and $71,000 for the quarters
ended January 31, 2002 and 2001, respectively.
4. EARNINGS PER SHARE
Basic and diluted earnings per common share are based on the weighted average
number of our shares of common stock outstanding. Diluted earnings per common
share give effect to outstanding stock options using the treasury method. For
the quarter ended January 31, 2002, no effect was given to outstanding options
because of their anti-dilutive effect.
5. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $833,000 as of January 31, 2002 and
$907,000 as of October 31, 2001.
6. INVENTORIES
Inventories, priced at the lower of cost (first-in, first-out method) or market,
are summarized below (in thousands):
January 31, 2002 October 31, 2001
---------------- ----------------
Purchased parts and sub-assemblies $ 7,217 $ 7,853
Work-in-process 1,164 1,256
Finished goods 18,611 21,210
--------- --------
$ 26,992 $ 30,319
========= ========
7. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine tool systems for sale through our distribution network to the worldwide
metal working market. We also provide software options, computer control
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
8. RESTRUCTURING RESERVE
We previously recorded a reserve for anticipated costs associated with the
restructuring of a subsidiary to convert its operations from manufacturing
computer controls to sales and service of computerized machine systems.
During the first quarter of fiscal 2002, we recorded a severance provision of
$356,000 for separation costs related to the changes in senior management.
At January 31, 2002, the restructuring reserve balance was approximately
$358,000 and consisted of the following:
Charges to Balance
Description 10/31/01 Provision Accrual 1/31/02
- ----------- -------- ---------- ------- -------
Severance $133 $356 $(131) $358
-------- ---------- ------- -------
9. SOFTWARE DEVELOPMENT AND LOAN AGREEMENT
During the second quarter of fiscal 2001, we entered into agreements with a
private software company to fund development costs related to the integration of
patented, open architecture technology into our computer numerical control
products. We agreed to fund an aggregate of $405,000, over a fifteen-month
period ending in July 2002. We also agreed to fund a secured term loan available
in installments through February 2002 of $1.0 million which is due April 1,
2003. In addition, we have warrants to purchase an equity interest in the
company, which are exercisable on or before December 31, 2002, and 2003. As of
January 31, 2002, our combined investment in the secured loan and warrants was
$918,000 which is reflected in Investments and Other Assets.
10. DEBT AGREEMENT
We are in active discussions with other lenders for a long-term credit facility
to replace our current credit facilities, which expire December 31, 2002. While
we believe that we will be able to obtain a replacement facility in fiscal 2002
under acceptable terms, no such assurance can be given.
During the first quarter of fiscal 2002, our German subsidiary obtained a 3.0
million Euro working capital credit facility that is available through December
31, 2002. As a result, our domestic credit facility was reduced by $2.7 million
to $19.8 million.
We were in compliance with all loan covenants at January 31, 2002, and had an
additional credit availability of $9.3 million.
11. LEASEHOLD REPAIRS CONTINGENCY
The lease for our facility located in England expires in April 2002 and requires
that we make certain repairs to the facility at the conclusion of the lease
resulting from dilapidation of the facility that occurred during the lease term.
At January 31, 2002, we accrued approximately $60,000 to repair the facility. In
February 2002, the landlord claimed payment of $1.0 million for his estimated
repairs. We have rejected the landlord's claim and intend to vigorously contest
the matter. As a result, our final cost for the dilapidation repairs cannot be
determined at this time.
12. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" (SFAS 141) and Statement No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Under SFAS 142, amortization of goodwill will cease and the goodwill
carrying values will be tested periodically for impairment. We are required to
adopt SFAS 142, effective November 1, 2002 for goodwill and intangible assets
acquired prior to July 1, 2001. Goodwill and intangible assets acquired after
June 30, 2001 will be subject immediately to the goodwill non-amortization and
intangible provisions of this statement. The impact on our financial statements
will be immaterial.
In August 2001, the Financial Accounting Standards Board issued Statement No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144), which is effective for the fiscal year beginning November 1, 2002. SFAS
144 establishes a single model to account for impairment of assets to be held or
disposed of, incorporating guidelines for accounting and disclosure of
discontinued operations. We believe the impact on our financial statements will
be immaterial.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------- ----------------------------------------------------------------
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
Certain statements made in this report may constitute "forward-looking
statements". For a description of risks and uncertainties related to
forward-looking statements, see our Annual Report on Form 10-K for the year
ended October 31, 2001.
RESULTS OF OPERATIONS
Three Months Ended January 31, 2002 Compared to Three Months Ended
January 31, 2001
- -------------------------------------------------------------------------------
The net loss was attributable primarily to substantially lower sales in the
U.S., along with a one-time severance expense of $356,000 related to a
previously announced change in senior management.
Sales and service fees for the first quarter of fiscal 2002 were $18.5 million,
approximately $7.4 million, or 29%, lower than those recorded in the 2001
period. First quarter sales and service fees in the U.S. market declined 52% to
$5.4 million and represented 30% of worldwide sales compared to 44% in the prior
year period. Sales in Europe declined 9% to $12.5 million and represented 67% of
total revenues, as compared to 53% a year ago.
Net sales of computerized machine tool systems in the U.S. fell 61% in the
quarter, as compared to the prior year period, coupled with a 35% decline in
sales of retrofit computer controls, spare parts and service fees. These results
reflect the continuation of the dramatic decline in machine tool consumption in
the U.S. which began in late 2000 and worsened in the aftermath of September 11.
This decline is the result of weak economic conditions in most industrial
market sectors in the U.S. and directly impacts sales of our products. In
Europe, sales of computerized machine tool systems were 9% below the prior year
level, reflecting weaker market conditions.
New order bookings for the first quarter of fiscal 2002 were $15.8 million, a
decline of 44% as compared to $28.1 million recorded in the prior year period.
New orders for computerized machine tool systems in the U.S. declined 50% in
units and 63% in dollars, and were particularly impacted by a marked decrease in
the number of large model machines in the total sales mix. New orders in Europe
declined 46% in units and 38% in current dollars from the record level achieved
in the first quarter of 2001.
Gross profit margin declined in the first quarter of fiscal 2002 to 21.6% from
25.5% in the same period a year ago, due in large part to the reduced sales of
spare parts and lower service revenues, as well as the effect of lower machine
sales.
Operating expenses for the first quarter of fiscal 2002 of $5.2 million were
$872,000, or 14% below those of the corresponding 2001 period, due to previously
announced cost reduction programs.
License fee income included a favorable adjustment of $130,000 due to the
reversal of a reserve for a potential refund related to a license. We have
determined that the liability no longer exists.
Foreign Currency Risk Management
We manage our foreign currency exposure through the use of foreign currency
forward exchange contracts. We do not speculate in the financial markets and,
therefore, do not enter into these contracts for trading purposes. We also
moderate our currency risk related to significant purchase commitments with
certain foreign vendors through price adjustment agreements that provide for a
sharing of, or otherwise limit, the potential adverse effect of currency
fluctuations on the costs of purchased products. See Item 3 below and Note 3 to
the Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2002, we had cash and cash equivalents of $3.0 million compared
to $3.5 million at October 31, 2001. Cash provided by operations totaled $1.3
million in the first quarter of fiscal 2002 compared to cash used for operations
of $1.0 million in the prior year.
Net working capital, excluding short-term debt of $10.1 million, was $28.7
million at January 31, 2002 compared to $31.5 million at October 31, 2001. The
decrease in working capital was the result of a $1.4 million reduction in
accounts receivable due to lower sales, and a $2.8 million planned reduction in
inventory offset by a $2.5 million reduction in accounts payable due to reduced
levels of production.
Capital investments for the first quarter ended January 31, 2002 consisted
principally of expenditures for software development projects and purchases of
equipment. Cash used for investing activities during the quarter was funded by
cash flow from operations and our bank credit facilities.
At January 31, 2002, outstanding borrowings of $9.9 million under our domestic
bank credit facility were classified as Current Portion of Long Term Debt
because the facility matures December 31, 2002. We are in active discussions
with other lenders for a new domestic credit facility. While we believe that we
will be able to obtain a replacement facility in fiscal 2002 under reasonable
terms, no such assurance can be given.
During the first quarter, our German subsidiary obtained a 3.0 million Euro
unsecured working capital credit facility that is available through December 31,
2002. As a result, our domestic credit facility commitment was reduced by $2.7
million to $19.8 million. We were in compliance with all loan covenants at
January 31, 2002, and had an additional credit availability of $9.3 million,
including the European facility.
Our cash flow from operations for the first quarter of fiscal 2002 was
consistent with our fiscal 2002 business plan. Our business plan for fiscal 2002
includes planned reductions of operating expenses and working capital. If market
demand and sales in the U.S. and Europe continue to decline, or if there are
adverse currency movements, or if we do not realize anticipated cost reductions
and cash from planned inventory reductions, our actual results may differ from
our business plan. During the first quarter of fiscal 2002, order rates
deteriorated from fourth quarter order rates, both in the U.S. and Europe and
weakened further in the month of February 2002. We anticipate a continued
operating loss in our second fiscal quarter based on these reduced order rates.
We have initiated additional cost reduction actions in March 2002, which will
involve a 20% reduction in our domestic workforce and generate an annual cost
savings of approximately $2.2 million. We will record approximately $150,000 of
severance cost in our second fiscal quarter related to these actions. We are
also examining additional steps to further reduce operating costs and improve
cash flow from operations over the remainder of fiscal 2002. We believe that
cash flow generated from operations and borrowings available to us under our
credit facilities will be sufficient to meet our anticipated cash requirements
in fiscal 2002.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Interest Rate Risk
Interest on our bank borrowings is affected by changes in prevailing U.S. and
European interest rates and/or Libor. At January 31, 2002, outstanding
borrowings under our bank credit facilities were $9.9 million and our total
indebtedness was $10.7 million. The interest rate on the Libor portion of our
bank debt was Libor plus 2%.
Foreign Currency Exchange Risk
In fiscal 2002, approximately 72% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer numerical control systems, as well as certain proprietary
service parts, are sourced by our U.S.-based engineering and manufacturing
division and re-invoiced to our foreign sales and service subsidiaries,
primarily in their functional currencies.
Our products are sourced from foreign suppliers or built to our specifications
by either our wholly owned subsidiary in Taiwan, or contract manufacturers
overseas. These purchases are predominantly in foreign currencies and in many
cases our arrangements with these suppliers include foreign currency risk
sharing agreements, which reduce (but do not eliminate) the effects of currency
fluctuations on product costs. The predominant portion of our exchange rate risk
associated with product purchases relates to the New Taiwan Dollar.
We enter into forward foreign exchange contracts from time to time to hedge the
cash flow risk related to forecast inter-company sales, and forecast
inter-company and third-party purchases denominated in, or based on, foreign
currencies. We also enter into foreign currency forward exchange contracts to
provide a natural hedge against the effects of foreign currency fluctuations on
receivables and payables denominated in foreign currencies. We do not speculate
in the financial markets and, therefore, do not enter into these contracts for
trading purposes.
Forward contracts for the sale or purchase of foreign currencies as of January
31, 2002 which are designated as cash flow hedges under SFAS No. 133 were as
follows:
Contract Amount at Forward
Weighted Rates in
Notional Amount Avg. U.S. Dollars
Forward in Foreign Forward -------------------------------
Contracts Currency Rate Contract Date January 31, 2002 Maturity Dates
--------- --------------- ---------- ------------- ---------------- -----------------
Sale Contracts:
Euro 2,000,000 .9007 $1,801,400 $1,715,607 Feb - March 2002
Purchase Contracts:
New Taiwan Dollar 70,000,000 35.06 $1,996,375 $1,998,826 March - April 2002
Forward contracts for the sale of foreign currencies as of January 31, 2002,
which were entered into to protect against the effects of foreign currency
fluctuations on receivables and payables denominated in foreign currencies were
as follows:
Contract Amount at Forward
Weighted Rates in
Notional Amount Avg. U.S. Dollars
Forward in Foreign Forward --------------------------------
Contracts Currency Rate Contract Date January 31, 2002 Maturity Dates
--------- --------------- --------- ------------- ---------------- ----------------
Sale Contracts:
Euro 6,276,264 .8828 $5,540,686 $5,378,733 Feb - April 2002
Singapore Dollar 2,092,806 1.8351 $1,140,432 $1,140,920 Feb - April 2002
Purchase Contracts:
New Taiwan Dollar 20,000,000 35.01 $571,322 $571,692 Feb 2002
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in the ordinary course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on our consolidated financial position or results of
operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits:
10.1 Working Capital Credit Facility dated January 8, 2002 between the
Registrant and Dresdner Bank AG
10.2 Employment Agreement between the Registrant and Michael Doar dated
November 13, 2002
11 Statement re: Computation of Per Share Earnings
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURCO COMPANIES, INC.
By: /s/ Roger J. Wolf
------------------
Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /s/ Stephen J. Alesia
----------------------
Stephen J. Alesia
Corporate Controller and
Principal Accounting Officer
March 14, 2002
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
Three Months Ended
January 31,
---------------------------------------------------
------------------------ -- -----------------------
(in thousands, except per share amounts) 2002 2001
------------------------ -----------------------
Basic Diluted Basic Diluted
----------- ------------ ----------- ------------
Net income (loss) $(1,641) $(1,641) $567 $567
Weighted average shares outstanding 5,582 5,582 5,867 5,867
Dilutive effect of stock options -- -- -- 38
---------- ---------- ----------- ------------
5,582 5,582 5,867 5,905
Earnings (loss) per common share $ (.29) $ (.29) $ .10 $ .10
========== ========== ========== ===========
Translation of Letter
Dresdner Bank AG
Promenadeplatz 7
Munich Germany
October 12, 2001
Hurco GmbH
Werkzeugmaschinen CIM-Bausteine
Vertrieb und Service
- -Geschaftsleitung-
Herrn Gerhard Kohlbacher
Gewerbestra(beta)e 5a
85652 Landsham/Munchen
Dear Mr. Kohlbacher:
We would like to thank you again for the recent conversation, and confirm our
commitment to provide your company with a shorth term operating credit facility
in the amount of:
EUR 3,000,000 -- (Euro three million).
For the time being, the credit facility will expire January 2, 2003. In
October 2002, a review or your credit requirements will be
made to determine the possiblility of extending the facility.
An interest rate of 7.16% p.a. will be charged, until furhter notice. An
accumulated interest will be charged each month end to the account
#5 652 996 00. The interest rate will rise or lower, appropriately, according
to the terms and circumstances of the money and capital markets.
If the formentioned credit line is used on a Euro-basis, presupposing the
availability of funds. The interest rate to be charged has been negotiated
seperately and is 1.75% p.a. above the respective EURO LIBOR rate.
In addition, we negotiated that during the duration of this loan or as long as
you are assuming other obligations with us,
- - The net funds of your company, consisting of share capital, reserves,
net income shown in the balance sheet are not allowed
to fall below the amount of 4,500,000,-- EUR. as well as
- - In total, the group (ICO) AR are not allowed to exceed the total group
(ICO) payables, as long as our credit resources are used and you
are informing us about essential changes about this subject in time.
As security for this credit facility we reserve the right of lien and a list
of collateral securites as being agreed to in our Standard Terms and Conditions.
In the case of a higher risk assessment, we have the ability to ask for
increased securities or for provisions of additional securities.
In view of the terms of the German Banking Llaw (ss.18), we ask that you keep us
informed about the economic situation of your company and provide us with the
annual reports and with the consolidated financial statements of your company
and group as soon as the reports are available no later than 9 months after the
end of the business year.
In addition, our Standard Terms and Conditions are valid, which can be read in
our offices and will be sent to you upon request.
We are happy to be able to assist you with a line of credit. As an agreement
to the terms and conditions of this letter, please return a signed copy of
this letter, legally binding with the company seal.
Our letter of comittment as of October, 25th, 2001 is therefore invalid.
Please be sure of my best wishes.
Regards,
Dresdner Bank AG in Munich
/s/ Goldl /s/ Steinacker
Goldl Steinacker
Approving above agreement fully.
Landsham, January 8, 2002
Hurco GmbH Werkeugmaschineen CIM-Bausteine Vertrieb und Service
/s/ G. Kohlbacher
Gerhard Kohlbacher
November 13, 2001
Michael Doar
2907 Spring Meadow Court
Indianapolis, IN 46268
Dear Michael:
This letter agreement will confirm the terms of employment associated with your
appointment as Chairman and Chief Executive Officer of Hurco Companies, Inc.
Position and Responsibilities
o Chairman and Chief Executive Officer
o Effective November 13, 2001
o You will continue as a member of Hurco's Board of Directors
Compensation
o Base salary $245,000 annually subject to annual review by the
Compensation Committee of the Board of Directors.
o Annual bonus to be determined by the Compensation Committee of the
Board of Directors.
o You will be eligible to participate in the Deferred Compensation
Program as approved by the Compensation Committee.
Vacation
o Vacation consistent with the vacation plan in effect for corporate
officers.
Life Insurance
o You are eligible to participate in the Split Dollar Life Insurance
Plan available to corporate officers.
Other Expenses to be paid by Hurco
o Hurco will provide you with a suitable automobile as it does other
senior officers. Appropriate arrangements will be made
for reimbursement of social / country club expenses intended primarily
for Hurco business purposes.
Relocation Expenses
o Hurco will continue to pay for the apartment you are using until the
earlier of when you acquire permanent housing or you and your family
or September 2, 2002.
o The company will reimburse all reasonable moving expenses including
packing and shipping of household furnishings and personal property.
Reimbursement or direct payment of these expenses will be subject to
submission of appropriate invoices and other supporting documentation.
The reimbursement will be "grossed up" for Federal and State Income
Taxes in accordance with established Company practices for
executive officers.
Employment Termination Agreement
o In the event you are removed as Chairman and Chief Executive Officer
by action of the Board of Directors, your salary and status as an
employee would continue for thirty (30) days following written notice
of termination, at which time you will be paid twelve (12) months
severance, at your then base salary.
o Health, life and disability insurance benefits will be maintained
at the expense of the Company during the twelve months (12) severance
period or until you have obtained alternate employment, if earlier.
o In the event you resign of your own volition prior to the
termination of your employment, Hurco will make no further
payments (salary and benefits) after your last day of employment.
We wish your every success with your new responsibilities.
Sincerely, Acknowledged and accepted
/s/ O. Curtis Noel /s/ Michael Doar
O. Curtis Noel Michael Doar
Chairman,
Compensation Committee 11-13-02
of the Board of Directors Date