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 July 31, 2001 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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 293-5309
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for the past 90 days:
Yes X No
--- ---
The number of shares of the Registrant's common stock outstanding as of August
31,2001, was 5,580,658.
HURCO COMPANIES, INC.
July 2001 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Item 1. Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months and nine months ended July 31, 2001 and 2000............. 3
Condensed Consolidated Balance Sheet -
As of July 31, 2001 and October 31, 2000.............................. 4
Condensed Consolidated Statement of Cash Flows -
Three months and nine months ended July 31, 2001 and 2000............. 5
Condensed Consolidated Statement of Changes in Shareholders' Equity
Nine months ended July 31, 2001 and 2000.............................. 6
Notes to Condensed Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 14
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.......................................... 16
Signatures............................................................................. 17
PART I - FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
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HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ---------------------------
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Sales and service fees...................... $ 21,678 $ 22,676 $ 71,043 $ 71,398
Cost of sales and service................... 16,391 16,561 53,169 51,831
---------- ---------- ---------- ----------
Gross profit............................. 5,287 6,115 17,874 19,567
Selling, general and
administrative expenses..................... 5,896 5,768 17,941 17,211
Restructuring expense, net.................. 395 -- 67 --
---------- ---------- ----------- -----------
Operating income (loss) ................. (1,004) 347 (134) 2,356
License fee income, net..................... 3 201 512 355
Interest expense............................ 233 248 612 768
Other income (expense), net................. 41 110 464 (259)
----------- ----------- ---------- ----------
Income (loss) before taxes............... (1,193) 410 230 1,684
Provision for income taxes.................. 136 3 669 217
---------- ---------- ---------- ----------
Net income (loss)........................... $ (1,329) $ 407 $ (439) $ 1,467
=========== =========== =========== ==========
Earnings (losses) per common share
Basic.................................. $ (.24) $ .07 $ (.08) $ .25
=========== ========== =========== ==========
Diluted................................ $ (.24) $ .07 $ (.08) $ .24
=========== ========== =========== ==========
Weighted average common
shares outstanding
Basic.................................. 5,581 5,952 5,700 5,952
========== ========== ========== ==========
Diluted................................ 5,624 6,026 5,736 6,019
========== ========== ========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
July 31,2001 October 31,2000
ASSETS (Unaudited) (Audited)
Current assets:
Cash and temporary investments...................................... $ 4,683 $ 3,384
Accounts receivable................................................. 17,258 17,842
Inventories......................................................... 33,007 26,176
Other............................................................... 1,246 1,793
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Total current assets............................................ 56,194 49,195
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,187 7,162
Machinery and equipment............................................. 11,343 11,000
Leasehold improvements.............................................. 1,009 992
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20,300 19,915
Less accumulated depreciation and amortization.................. (11,514) (11,122)
----------- ----------
8,786 8,793
----------- ---------
Software development costs, less amortization............................ 3,188 3,326
Investments and other assets............................................. 4,771 3,710
---------- ---------
$ 72,939 $ 65,024
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 12,626 $ 13,593
Accrued expenses and other.......................................... 8,835 7,545
Current portion of long-term debt.................................. 13,200 1,986
---------- ---------
Total current liabilities....................................... 34,661 23,124
Non-current liabilities:
Long-term debt...................................................... 800 1,750
Long-term obligations............................................... 795 1,259
---------- ---------
Total non-current liabilities....................................... 1,595 3,009
Shareholders' equity:
Preferred stock: no par value per share; 1,000,000
shares authorized; no shares issued............................... -- --
Common stock: no par value; $.10 stated value per
share; 12,500,000 shares authorized; and 5,580,658
and 5,951,859 shares issued and outstanding, respectively ...... 558 596
Additional paid-in capital.......................................... 44,714 46,347
Accumulated deficit................................................. (752) (313)
Other comprehensive income.......................................... (7,837) (7,739)
----------- ----------
Total shareholders' equity............................................... 36,683 38,891
----------- ----------
$ 72,939 $ 65,024
=========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- ---------------------
2001 2000 2001 2000
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss).......................................... $ (1,329) $ 407 $ (439) $ 1,467
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Restructuring charge..................................... 140 -- (188) --
Depreciation and amortization............................ 613 573 1,724 1,836
Change in assets and liabilities:
(Increase) decrease in accounts receivable............... 3,493 (254) 622 (1,212)
(Increase) decrease in inventories....................... (1,230) (1,089) (7,011) 3,408
Increase (decrease) in accounts payable.................. (3,776) 595 (761) 508
Increase (decrease) in accrued expenses.................. 203 1,025 1,425 326
Other.................................................... 210 (415) (382) 171
---------- ----------- -------- ----------
Net cash provided by (used for)........................
operating activities................................... (1,676) 842 (5,010) 6,504
---------- ----------- --------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment............................ 9 25 24 36
Purchase of property and equipment......................... (461) (396) (912) (949)
Software development costs................................. (223) (22) (485) (501)
Other investments.......................................... (296) (56) (600) (91)
--------- ---------- --------- ----------
Net cash (used for) investing activities................. (971) (449) (1,973) (1,505)
---------- ---------- --------- ----------
Cash flows from financing activities:
Advances on bank credit facilities......................... 11,950 7,550 36,600 20,650
Repayment on bank credit facilities ....................... (7,850) (7,400) (24,550) (23,600)
Repayment of term debt .................................... -- -- (1,786) (1,786)
Proceeds from exercise of common stock options............. -- -- 35 --
Purchase of common stock................................... -- -- (1,706) --
-------- ---------- --------- ----------
Net cash provided by (used for)
financing activities..................................... 4,100 150 8,593 (4,736)
-------- ---------- -------- ----------
Effect of exchange rate changes on cash....................... (25) (55) (311) (290)
--------- ---------- --------- ----------
Net increase (decrease) in cash and
temporary investments.................................... 1,428 488 1,299 (27)
Cash and temporary investments
at beginning of period................................... 3,255 2,980 3,384 3,495
--------- ---------- --------- ----------
Cash and temporary investments
at end of period......................................... $4,683 $ 3,468 $ 4,683 $ 3,468
========= ========== ========== ==========
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 Nine Months Ended July 31, 2001 and 2000
Common Stock
--------------------------
Shares Additional Retained Other
Issued & Paid-In Earnings Comprehensive
Outstanding Amount Capital (Deficit) Income Total
----------- ------ ------- --------- ------ -----
(Dollars in thousands)
Balances, October 31, 1999 5,951,859 $595 $46,340 $(5,348) $(5,439) $36,148
---------------------------
Net income....................... -- -- -- 1,467 -- 1,467
Translation of foreign currency
financial statements.......... -- -- -- -- (1,549) (1,549)
--------
Comprehensive income (loss)...... (82)
--------- ---- ------- ---------- -------- --------
Balances, July 31, 2000 5,951,859 $595 $46,340 $ (3,881) $(6,988) $36,066
----------------------- ========= ==== ======= ========== ======== ========
(Unaudited)
Balances, October 31, 2000 5,955,359 $596 $46,347 $ (313) $(7,739) $38,891
--------------------------
Net income (loss)................ -- -- -- (439) -- (439)
Translation of foreign currency
financial statements.......... -- -- -- -- 22 22
Unrealized loss on derivative
instruments ..................... -- -- -- -- (120) (120)
-------
Comprehensive income (loss)...... (98)
Exercise of Common Stock Options. 16,400 1 34 -- -- 35
Repurchase of Common Stock....... (391,101) (39) (1,667) -- -- (1,706)
----------- ---- ------- ------ ------ --------
Balances, July 31, 2001 5,580,658 $558 $44,714 $(752) $(7,837) $36,683
----------------------- ========= ==== ======= ====== ======== =======
(Unaudited)
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Hurco Companies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The unaudited Condensed Consolidated Financial Statements include the accounts
of Hurco Companies, Inc. and its consolidated subsidiaries. We are an industrial
automation company that designs and produces interactive computer controls,
software and computerized machine systems for the worldwide metal cutting and
metal forming industries.
The condensed financial information as of July 31, 2001 and 2000 is unaudited
but includes all adjustments that we consider necessary for a fair presentation
of our financial position at those dates and our results of operations and cash
flows for the nine months then ended. We suggest you read these condensed
financial statements in conjunction with the financial statements and the notes
thereto included in our Annual Report on Form 10-K for the year ended October
31, 2000.
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.
3. HEDGING
On November 1, 2000, we adopted Statement of Financial Accounting Standard
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
In accordance with the provisions of SFAS No. 133, we recorded a transition
adjustment upon the adoption of the standard to recognize the difference between
the fair value of the derivative instruments recorded on the balance sheet and
the previous carrying amount of those derivatives. The effect of this transition
adjustment was insignificant and is reflected in the Other Income (Expense) in
the Condensed Consolidated Statement of Operations. We also recorded a
transition adjustment of approximately $129,000 in Other Comprehensive Income to
recognize previously deferred net losses on derivatives designated as cash flow
hedges.
We enter into foreign currency forward exchange contracts periodically to hedge
certain forecast inter-company sales and forecast inter-company and third-party
purchases denominated in foreign currencies (primarily 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
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 Other Comprehensive Income and recognized as an adjustment to the
related sale or purchase transaction in the period that the transaction occurs.
Net gains and losses on cash flow hedge contracts which we reclassified from
Other Comprehensive Income to Cost of Sales in the fiscal quarter ended July 31,
2001 were $49,000.
At July 31, 2001 we had $120,000 of unrealized losses related to cash flow
hedges deferred in 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 January 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 SFAS 133 and as a result, changes in fair value are
reported currently as Other Income (Expense) in the Condensed Consolidated
Statement of Operations consistent with the transaction gain or (loss) on the
related foreign denominated receivable or payable. Such net transaction gains
and (losses) were $7,000 and $70,000 for the three month and nine month
periods ending July 31, 2001, respectively, compared to ($60,000) and ($440,000)
for the same period in fiscal 2000.
3. EARNINGS PER SHARE
Basic and diluted earnings per common share are based on the weighted average
number of shares of common stock outstanding. Diluted earnings per common share
give effect to outstanding stock options using the treasury stock method. Common
stock equivalents totaled approximately 43,000 shares as of July 31, 2001.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $619,000 as of July 31, 2001 and
$741,000 as of October 31, 2000.
5. INVENTORIES
Inventories, reflected at the lower of cost (first-in, first-out method) or
market are summarized below (in thousands):
July 31, 2001 October 31, 2000
------------------ ----------------
Purchased parts and sub-assemblies $10,947 $ 10,526
Work-in-process 711 1,339
Finished goods 21,349 14,311
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$33,007 $26,176
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6. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, computer control
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
Substantially all of our machine systems and computer control systems are
manufactured to our specifications by contract manufacturing companies in
Taiwan, one of which is a wholly owned subsidiary. Our executive offices and
principal design, engineering and manufacturing management operations are
headquartered in Indianapolis, Indiana. We sell our products through over 240
independent agents and distributors in 45 countries throughout North America,
Europe and Asia. We also have our own direct sales and service organizations in
the United States, England, France, Germany, Italy and Singapore, which are
considered to be among the world's principal computerized machine system
consuming countries.
7. RESTRUCTURING CHARGE
We initiated a restructuring plan for a subsidiary in fiscal 1998, which was
completed during the first half of fiscal 1999. At October 31, 2000, a reserve
of $340,000 for excess building capacity and an equipment lease remained from
the 1998 restructuring plan as well as a $300,000 severance reserve for fourteen
employees whose positions would be eliminated in fiscal 2001. Twelve of these
employees received severance payments in the first nine months of fiscal 2001
while the remaining two will be paid in the fourth quarter.
On April 23, 2001, the sub-lease of the excess space was renewed for the final
year of the lease and we identified certain alternative uses for previously
abandoned equipment. As a result, the remaining reserves, totaling $328,000 for
these items, were reversed in the second quarter of fiscal 2001.
In July 2001, an additional 42 positions were eliminated as a result of a
domestic cost reduction program. A restructuring provision of $395,000 was
recorded in the third fiscal quarter related to severance costs for these
employees. Twenty-two employees were paid severance during the third quarter and
the remaining employees will be paid severance in the fourth quarter.
At July 31, 2001, the restructuring reserve balance was approximately $282,000
and consisted of the following:
Amounts in (000's)
Balance Provision Charges to Balance
Description 10/31/2000 (Credit) Accrual 7/31/2001
------------
---------------- -------------- -------------- --------------
---------------- -------------- -------------- --------------
Excess Building Capacity $ 286 (286) -- --
Equipment Leases 54 (42) (12) --
Severance 300 395 (413) 282
---------------- -------------- -------------- --------------
---------------- -------------- -------------- --------------
$ 640 $ 67 $ (425) $ 282
================ ============== ============== ==============
8. STOCK REPURCHASE
In the second quarter of fiscal 2001, we repurchased 113,100 shares of our
common stock for approximately $486,000. We previously repurchased 278,001
shares of our common stock for approximately $1.2 million in the first fiscal
quarter of 2001. The repurchased shares are reflected as a reduction in common
stock.
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, the company granted us warrants to purchase an equity
interest, which are exercisable on or before December 31, 2002, and 2003. As of
July 31, 2001, we have funded $427,000 with respect to the term loan which is
reflected in Investments and Other Assets and $87,000 with respect to software
development which is included in Software Development Costs in the accompanying
condensed consolidated balance sheet.
10. DEBT AGREEMENT
Our bank credit facility matures May 1, 2002. We were in compliance with all of
our loan covenants at July 31, 2001, however, we expect that we will not comply
with one of the covenants at October 31, 2001. We are currently in discussion
with our primary lender regarding an extension of our current credit facility
and modification of covenants, as well with other bankers regarding replacement
facilities. We believe that we will be able to obtain extended or replacement
credit facilities under acceptable terms.
11. NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition" effective the fourth
quarter of fiscal years beginning after December 15, 1999. This bulletin
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. 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" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements of the metal working industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include risks, and uncertainties that
affect all international businesses, some specific to us or the metal working
industry, including among others: changes in general economic and business
conditions that affect demand for computerized machine systems, computer
numerical control systems and software products; changes in manufacturing
markets; foreign currency exchange factors; innovations by competitors; quality
and delivery performance by our contract manufacturers: and governmental actions
and initiatives, including import and export restrictions and tariffs. We
undertake no obligation to update any forward-looking statements.
RESULTS OF OPERATIONS
Three Months Ended July 31, 2001 Compared to Three Months Ended July 31, 2000
The net loss for the third fiscal quarter of $1.3 million, or $.24 per share on
a diluted basis, compares to net income of $407,000, or $.07 per share, for the
same period in the prior year. The results reflect a restructuring charge of
$395,000 for severance expenses, lower domestic sales and margins, continuing
unfavorable effects of the stronger U.S. dollar and the expected reduction in
license fee income.
Sales and service fees for the third quarter were $21.7 million, approximately
$998,000, or 4.4% lower than those recorded in the 2000 period due to reduced
demand in North America and the continuing unfavorable effects of the stronger
U.S. dollar, particularly in relation to the Euro, when translating sales made
in foreign currencies. At comparable exchange rates, net sales for the third
fiscal quarter would have been slightly better than the prior year period. Net
sales of computerized machine systems increased 11.0 % in the third quarter when
measured at exchange rates comparable to those in the prior year. Increased
revenues from sales of computerized machine systems, due to a larger percentage
of higher value machines in the total sales mix were substantially offset by
reduced sales of retrofit computer controls and lower parts and service
revenues. International sales, after currency translation effects, increased to
66% of total sales and service fees for the third fiscal quarter, compared to
58% for the same period one year ago, as a result of stronger sales in Europe
and reduced domestic sales and service fees.
New order bookings for the third quarter of fiscal 2001 were $19.2 million,
compared to $25.3 million, for the corresponding 2000 period, a decrease of 24%.
Orders for computerized machine systems decreased $4.4 million, or 23.7%, due to
lower demand and the effects of currency translation. Computerized machine
system orders in the U.S. were 24% lower than the prior year period in dollars,
reflecting a 35% decline in unit orders as a result of the weak economic
conditions in most domestic industrial market sectors. Orders for computerized
machine systems in Europe, in current dollars, decreased 13% in the most recent
quarter on a 5% decline in unit orders as compared to the prior year period,
reflecting the softening in the German economy. Computerized machine system
orders in Southeast Asia declined approximately $1.0 million, compared to the
prior year period, due to reduced demand in the semi-conductor industry sector,
and represented approximately 4% of total computerized machine system orders.
Backlog was $9.1 million, at July 31, 2001 compared to $11.5 million at April
30, 2001 and $10.2 million at October 31, 2000.
Gross profit margin for the most recent fiscal quarter was 24.4%, 2.6 percentage
points lower than the prior year period due primarily to the unfavorable effects
of the stronger U.S. dollar as well as lower parts and service revenues.
Operating expenses, which include product development expense, were $5.9
million, an increase of $128,000, or 2.2% compared to the prior year period;
however, these amounts do not include any significant benefits from cost
reduction programs, which are expected to take effect in the beginning of the
fourth fiscal quarter.
In July 2001, 42 positions were eliminated as a result of a domestic cost
reduction program. A restructuring provision of $395,000 was recorded in the
third fiscal quarter related to severance costs for these employees. Twenty-two
employees were paid severance during the third quarter and the remaining
employees will be paid severance in the fourth quarter. The programs are
expected to reduce operating costs by approximately $3 million annually. See
Note 7.
Income tax expense in the third fiscal quarter of 2001 relates principally to
taxable income of a foreign subsidiary. No tax benefit has been recorded on
losses generated in the U.S. resulting in a net operating loss carry-forward.
Nine Months Ended July 31, 2001 Compared to Nine Months Ended July 31, 2000
The net loss for the nine months ended July 31, 2001 was $439,000, or $.08 per
share on a diluted basis, which compares to net income of $1.5 million, or $.24
per share, reported for the corresponding period a year ago. Results for the
2001 period were unfavorably impacted by the financial effects of changes in
foreign currencies, as compared to rates in effect during the prior year period,
primarily the stronger U.S. dollar in relation to those linked to the Euro,
which resulted in a reduction in gross profit margin, along with an increase in
operating expenses partially offset by an increase in other income.
Sales and service fees for the first nine months of fiscal 2001 were $71.0
million, substantially unchanged from sales and service fees recorded in the
2000 period, in spite of the unfavorable effects of a substantially stronger
dollar on sales made in foreign currencies. Domestic sales were $4.9 million, or
15%, below the prior year amount and sales in Southeast Asia also declined by
$2.3 million, or 56%, reflecting weak economic conditions in these regions.
Sales and service fees in Europe increased $6.9 million, or 20%, in spite of
unfavorable currency effects, primarily attributable to strong order rates
during the first quarter of fiscal 2001.
At comparable exchange rates, sales and service fees for the first nine months
of fiscal 2001 would have been $75.3 million, an increase of approximately $3.9
million, or 5.5%, over the corresponding 2000 period. The increase in constant
dollars was due almost entirely to increased shipments of computerized machine
systems partially offset by declines in retrofit control sales and parts and
service revenue. Computerized machine system sales increased $7.7 million, or
14%, when measured at exchange rates comparable to those in the 2000 period.
Partially offsetting this increase is a reduction in retrofit control sales of
$2.6 million and a $1.1 million decline in parts and service revenues.
New order bookings during the first nine months of fiscal 2001 were $68.4
million compared to $74.5 million for the corresponding 2000 period, a decrease
of 8%. Orders were $28.1 million in the first quarter of fiscal 2001 but
declined to $21.1 million and $19.2 million for the second and third quarters of
fiscal 2001, respectively, primarily the result of weak conditions in most
domestic industrial market sectors along with a softening in the German economy.
Orders for computerized machine systems decreased 12.5% in units as a result of
a 4% decline in domestic unit orders and a 57% decline in orders in South East
Asia, which more than offset a 21% increase in orders in Europe. The dollar
value of orders increased 3% due to a high percentage of larger value machines
in the overall mix of new orders. Orders for stand-alone computer controls
declined by 47% in dollars during this same period.
Gross profit margin was 25.2% for the first nine months of fiscal 2001, a
decrease of 2.2 percentage points as compared to the same period of fiscal 2000.
The decrease is primarily the result of unfavorable effects of the stronger U.S.
dollar as well as lower parts and service revenues.
Selling, general and administrative expenses, which include research and
development expenses, increased by $730,000 million, or 4.2%, due primarily to
increases in professional service fees.
Other income was $464,000 for the nine months ended July 31, 2001 compared to
other expense of $259,000 during the same period in the prior year. Other Income
in fiscal 2001 included increased earnings in investments in affiliates
accounted for using the equity method. The prior year period included
unrealized currency losses associated with accounts receivable denominated
in foreign currencies, primarily those linked to the Euro.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2001, we had cash and cash equivalents of $4.7 million compared to
$3.4 million at October 31, 2000. Cash used for operations totaled $5.0 million
in the first nine months of fiscal 2001, compared to $6.5 million provided by
operations in the same period of fiscal 2000. Net working capital, excluding
short-term debt, was $34.7 million at July 31, 2001, compared to $28.1 million
at October 31, 2000. The increase in working capital is primarily attributable
to an increase in inventory of $7.0 million related primarily to increased units
of finished product available for sale, because shipments during the period to
customers in the U.S. and Southeast Asia markets were below planned levels. We
have adjusted our production schedules, which will begin to take effect in the
fourth fiscal quarter of 2001. We do not expect a significant reduction in
operating working capital until the first half of fiscal 2002.
Capital investments during the first nine months consisted of expenditures for
software development projects and purchases of equipment. Capital investments
also included approximately $514,000 for an investment in a software development
and loan agreement (see Note 9). During the first six months of fiscal 2001, we
repurchased 391,101 shares of our common stock for $1.7 million. We funded
these expenditures and our other cash needs with borrowings under our bank
credit facility.
Total debt at July 31, 2001 was $14.0 million representing 28% of total
capitalization, compared to $3.7 million or 9% of total capitalization at
October 31, 2000. We had additional credit availability of $8 million at July
31, 2001.
Our bank credit facility matures May 1, 2002. We were in compliance with all of
our loan covenants at July 31, 2001, however, we expect that we will not comply
with one of the covenants at October 31, 2001. We are currently in discussion
with our primary lender regarding an extension of our current credit facility
and modification of covenants, as well with other bankers regarding replacement
facilities. We believe that we will be able to obtain extended or replacement
credit facilities under acceptable terms. We believe that available borrowings
under current and anticipated amended or replacement credit facilities will be
sufficient to meet our anticipated cash requirements in the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition" effective the fourth
quarter of fiscal years beginning after December 15, 1999. This bulletin
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. We believe the impact on our financial statements will
be immaterial.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Interest Rate Risk
Interest on our bank borrowings is affected by changes in prevailing U.S. and
European interest rates and/or Libor. The interest rates on the Libor portion of
our bank credit facilities are based upon a ratio of total indebtedness to cash
flow for the preceding twelve month period and are payable at Libor plus an
amount ranging from 1.0% to 2.0% based upon a prescribed formula. At July 31,
2001, outstanding borrowings under our bank credit facilities were $13.0 million
and our total indebtedness was $14.0 million. The interest rate on the Libor
portion of our bank debt was Libor plus 1.0%. We expect that in connection with
replacement credit facilities, future interest rates will increase to reflect
current market rate spreads.
Foreign Currency Exchange Risk
In fiscal 2001, approximately 63.4% 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
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 July 31,
2001 which are designated as cash flow hedges under SFAS No. 133 were as
follows:
Weighted Contract Amount at Forward
Notional Amount Avg.
in Foreign Forward Rates in Maturity
Forward Contracts Currency Rate U.S. Dollars Dates
--------- -------- ---- ------------ -----
Contract Date July 31, 2001
------------- -------------
Sale Contracts:
Euro 5,500,000 .8656 $4,760,800 $4,805,971 Aug - Nov 2001
Purchase Contracts:
New Taiwan Dollar 156,000,000 .0306 $4,777,629 $4,491,068 Aug - Jan 2002
Forward contracts for the sale of foreign currencies as of July 31, 2001 which
were entered into to protect against the effects of foreign currency
fluctuations on receivables and payables denominated in foreign currencies were
as follows:
Weighted
Notional Amount Avg. Contract Amount at Forward
Forward in Foreign Forward Rates in
Contracts Currency Rate U.S. Dollars Maturity Dates
--------- -------- ---- ------------ --------------
Contract Date July 31, 2001
------------- -------------
Sale Contracts:
Euro 10,416,926 .8605 $8,964,196 $9,103,535 Aug - Oct 2001
Singapore Dollar 2,527,764 .5492 $1,388,178 $1,403,819 Aug - Sept 2001
Purchase Contracts:
New Taiwan Dollar 15,000,000 .0312 $467,290 $431,627 October 2001
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement Re: computation of per share earnings
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURCO COMPANIES, INC.
By: /s/ Roger J. Wolf
----------------------------
Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /s/ Stephen J. Alesia
----------------------------
Stephen J. Alesia
Corporate Controller and
Principal Accounting Officer
September 14, 2001
Exhibit 11
Statement Re: Computation of Per Share Earnings
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------
(in thousands, except per share amount)
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
---------------------------------------------------------------------------------------
Net income (loss) $ (1,329) $ (1,329) $ 407 $ 407 $ (439) $ (439) $1,467 $1,467
Weighted average shares
outstanding 5,581 5,581 5,952 5,952 5,700 5,700 5,952 5,952
Assumed issuances under
stock options plans - 43 - 74 - 36 - 67
---------------------------------------------------------------------------------------
5,581 5,624 5,952 6,026 5,700 5,736 5,952 6,019
Earnings (loss) per common share $(0.24) $(0.24) $ 0.07 $ 0.07 $(0.08) $(0.08) $0.25 $0.24
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