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, 2003 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 is an accelerated filer
(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
February 28, 2003 was 5,583,158.
HURCO COMPANIES, INC
January 2003 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, 2003 and 2002.......................... 3
Condensed Consolidated Balance Sheets -
As of January 31, 2003 and October 31, 2002........................... 4
Condensed Consolidated Statements of Cash Flows -
Three months ended January 31, 2003 and 2002.......................... 5
Consolidated Statements of Changes in Shareholders' Equity
Three months ended January 31, 2003 and 2002.......................... 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............... 14
Item 4. Controls and Procedures................................................... 16
Part II - Other Information
Item 1. Legal Proceedings......................................................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
Signatures.............................................................................. 18
Certifications.......................................................................... 19
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,
2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Sales and service fees..................................................... $ 15,953 $ 18,520
Cost of sales and service.................................................. 11,959 14,517
----------- ----------
Gross profit.......................................................... 3,994 4,003
Selling, general and administrative expenses............................... 4,428 5,214
Restructuring expense and other expense, net............................... -- 356
---------- -----------
Operating loss........................................................ (434) (1,567)
Interest expense........................................................... 159 177
Other income, net.......................................................... 116 202
--------- ----------
Loss before income taxes.............................................. (477) (1,542)
Provision for income taxes................................................. 105 99
--------- ----------
Net loss................................................................... $ (582) $ (1,641)
=========== ===========
Loss per common share
Basic................................................................. $ (.10) $ (.29)
=========== ===========
Diluted............................................................... $ (.10) $ (.29)
=========== ===========
Weighted average common shares outstanding
Basic................................................................. 5,583 5,582
========== ==========
Diluted............................................................... 5,583 5,582
========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements.
HURCO COMPANIES, INC. January 31, October 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 2003 2002
(Dollars in thousands)
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents........................................... $ 3,232 $ 4,358
Cash - restricted................................................... 1,176 --
Accounts receivable................................................. 13,161 13,425
Inventories......................................................... 23,774 22,548
Other............................................................... 1,361 1,204
---------- --------
Total current assets............................................ 42,704 41,535
---------- --------
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,203 7,203
Machinery and equipment............................................. 10,305 10,144
Leasehold improvements.............................................. 436 396
Less accumulated depreciation and amortization.................. (10,001) (9,696)
---------- --------
8,704 8,808
---------- --------
Software development costs, less amortization............................ 1,580 1,604
Investments and other assets............................................. 5,392 5,205
---------- --------
$ 58,380 $ 57,152
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 10,770 $ 9,856
Accrued expenses.................................................... 10,048 10,016
Bank debt........................................................... 3,479 --
Current portion of long-term debt.................................. 1,653 1,313
--------- --------
Total current liabilities....................................... 25,950 21,185
--------- --------
Non-current liabilities:
Long-term debt...................................................... 4,735 7,572
Deferred credits and other ......................................... 380 378
--------- -------
5,115 7,950
--------- -------
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 5,583,158 shares issued, respectively ...................... 558 558
Additional paid-in capital.......................................... 44,717 44,717
Accumulated deficit................................................. (10,755) (10,173)
Accumulated other comprehensive income.............................. (7,205) (7,085)
--------- ---------
Total shareholders' equity...................................... 27,315 28,017
--------- ---------
The accompanying notes are an integral part of the condensed consolidated $ 58,380 $ 57,152
financial statements. ========== ========
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended January 31,
2003 2002
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net loss.................................................................... $ (582) $ (1,641)
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Equity (income) loss of affiliates...................................... (96) 44
Restructuring expense and other expense, net............................ -- 225
Depreciation and amortization.......................................... 349 513
Change in assets and liabilities:
(Increase) decrease in accounts receivable.............................. 896 1,378
(Increase) decrease in inventories...................................... (288) 2,820
Increase (decrease) in accounts payable.................... 788 (2,471)
Increase (decrease) in accrued expenses................................. (1,535) 145
Other................................................................... (307) 275
-------- --------
Net cash provided by (used for) operating activities.................... (775) 1,288
-------- --------
Cash flows from investing activities:
Proceeds from sale of equipment............................................. -- 45
Purchases of property and equipment......................................... (102) (292)
Software development costs.................................................. (66) (157)
Change in restricted cash................................................... (1,176) --
Other....................................................................... (8) (21)
-------- --------
Net cash used for investing activities.................................. (1,352) (425)
-------- --------
Cash flows from financing activities:
Advances on bank credit facilities.......................................... 6,200 6,975
Repayment on bank credit facilities......................................... (5,366) (8,275)
Repayment of first mortgage................................................. (25) --
Proceeds from exercise of common stock options.............................. -- 4
-------- --------
Net cash provided by (used for) financing activities.................... 809 (1,296)
-------- --------
Effect of exchange rate changes on cash and cash equivalents..................... 192 (129)
-------- --------
Net decrease in cash and cash equivalents............................... (1,126) (562)
Cash and cash equivalents at beginning of period................................. 4,358 3,523
-------- --------
Cash and cash equivalents at end of period....................................... $ 3,232 $ 2,961
======== ========
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, 2003 and 2002
Common Stock
---------------------------
Accumulated
Shares Additional Other
Issued & Paid-In Accumulated Comprehensive
Outstanding Amount Capital Deficit Income Total
------------- ------- ----------- --------------- -------------- ------
(Dollars in thousands)
Balances, October 31, 2001 5,580,658 $558 $44,714 $ (1,910) $(7,894) $35,468
- ------------------------------------- ========== ====== ======== ========= =========== =======
Net loss......................... -- -- -- (1,641) -- (1,641)
Translation of foreign currency
financial statements.......... -- -- -- -- (511) (511)
Unrealized gain on derivative
instruments..................... -- -- -- -- 555 555
------
Comprehensive loss............... -- -- -- -- -- (1,597)
Exercise of Common Stock Options. 2,500 -- 3 --
---------- ------ -------- --------- ----------- -------
Balances, January 31, 2002 5,583,158 $558 $44,717 $ (3,551) $(7,850) $33,874
- ------------------------------------- =========== ====== ======== ========= =========== =======
Balances, October, 31 2002 5,583,158 $558 $44,717 $(10,173) $(7,085) $28,017
- ------------------------------------- =========== ====== ======== ========= =========== =======
Net Loss......................... -- -- -- (582) -- (582)
Translation of foreign currency
financial statements.......... -- -- -- -- 648 648
Unrealized loss on derivative
instruments...................... -- -- -- -- (768) (768)
-------
Comprehensive loss............... -- -- -- -- -- (702)
------------- -------- -------- ---------- ----------- -------
Balances, January 31, 2003 5,583,158 $558 $44,717 $(10,755) $(7,205) $27,315
- ------------------------------------- ============= ====== ======== ========== =========== ========
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 computer control systems and software and
computerized machine tools 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.
The condensed financial information as of January 31, 2003 and for the three
months ended January 31, 2003 and January 31, 2002 is unaudited, however, in
our opinion, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for the interim periods. We suggest that 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, 2002.
2. 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 expenses. 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 gains (losses) on
cash flow hedge contracts which we reclassified from Accumulated other
comprehensive income to Cost of sales in the first quarter ended January 31,
2003 and 2002 were ($158,000) and $435,000, respectively.
At January 31, 2003, we had $1,413,000 of unrealized losses 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 2003.
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 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, net 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 $37,000
and $35,000 for the quarters ended January 31, 2003 and 2002, respectively.
3. 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. The impact of all stock options for the three months ended
January 31, 2003 were excluded from the computation of diluted earnings per
share because their effect would be anti-dilutive.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $744,000 as of January 31, 2003 and
$689,000 as of October 31, 2002.
5. INVENTORIES
Inventories, priced at the lower of cost (first-in, first-out method) or market, are summarized below (in thousands):
January 31, 2003 October 31, 2002
---------------- ----------------
Purchased parts and sub-assemblies $ 6,093 $ 6,677
Work-in-process 1,614 2,251
Finished goods 16,067 13,620
----------- ----------
$ 23,774 $ 22,548
=========== ==========
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 tools 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.
7. RESTRUCTURING EXPENSE AND OTHER EXPENSE, NET
During fiscal 2002, we discontinued several under-performing product lines,
sold the related assets and discontinued a software development project, to
enable us to focus our resources and technology development on our core
products, which consist primarily of general purpose computerized machine
tools for the metal cutting industry (vertical machining centers) into which
our proprietary Ultimax software and computer control systems have been
fully integrated. At January 31, 2003, we had $85,000 accrued for costs
related to seven employees that are being paid severance in future periods and
$1.1 million for potential expenditures related to a disputed claim in the
United Kingdom regarding a terminated facility lease (Note 9) (In thousands).
Balance Charges to Balance
Description 10/31/02 Provision Accrual 1/31/03
- ----------- -------- ---------- ---------- ---------
Severance $ 264 $ -- $ (179) $ 85
Foreign lease termination liability 1,113 -- -- 1,113
-------- ---------- ---------- ---------
Total $ 1,377 -- $ (179) $ 1,198
8. DEBT AGREEMENTS
We are currently in discussions with lenders to replace our existing domestic
credit facility with a long-term credit facility in conjunction with
assessing our liquidity needs for fiscal 2004 and beyond. We expect the
European bank credit facility to be renewed for twelve-months on or before its
maturity date. We believe, but cannot assure you, that we will be able to
obtain a replacement domestic facility and a renewed European facility under
acceptable terms. Failure to obtain replacement facilities would have a
material adverse effect on our business and financial condition.
We were in compliance with all loan covenants at January 31, 2003, and had an
unused credit availability of $6.0 million.
9. LEASEHOLD REPAIRS CONTINGENCY
We previously occupied a facility located in England under a lease that expired
in April 2002. The lease required that, following expiration of the lease,
we make certain repairs to the facility resulting from deterioration of the
facility during the lease term. We are vigorously contesting the amount of the
claim made by the lessor and have recently entered into settlement discussions.
As of October 31, 2002, we established a reserve of $1.1 million for this claim,
which we continue to believe is appropriate.
10. GUARANTEES
For the quarter ending January 31, 2003, we adopted Financial Accounting
Standards Board Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107
and Rescission of FASB Interpretation No. 34." FIN 45 clarifies the
requirements of FASB Statement No. 5, Accounting for Contingencies, relating to
the guarantor's accounting for, and disclosure of, the issuance of certain types
of guarantees.
From time to time, our German subsidiary guarantees third party lease
financing residuals in connection with the sale of certain machines in Europe.
At January 31, 2003 there were 23 third party guarantees totaling approximately
$1.1 million, all of which were entered into prior to January 1, 2003. A
retention of title clause allows us to obtain the machine should the customer
default on the payment terms to the financing company. If default occurs,
the proceeds obtained from liquidation of the machine would, we believe,
cover any payments required under the guarantee.
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. A reconciliation of the changes in our warranty reserve is
as follows (in thousands):
Warranty Reserve
-----------------------
Balance at October 31, 2002 $ 1,003
Provision for warranties during the period 330
Charges to the accrual (357)
Impact of translation 59
-----------
Balance at January 31, 2003 $ 1,035
===========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the 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.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that that may cause our actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among others, changes in
general economic and business conditions that affect market demand for
machines tools and related computer control systems, software products, and
replacement parts, changes in manufacturing markets, adverse currency
movements, innovations by competitors, quality and delivery performance by our
contract manufacturers and governmental actions and initiatives including import
and export restrictions and tariffs.
RESULTS OF OPERATIONS
Three Months Ended January 31, 2003 Compared to Three Months Ended
January 31, 2002
- ------------------------------------------------------------------
The following tables set forth net sales by geographic region and product
category for the quarters ended January 31, 2003 and 2002 (in thousands):
Net Sales and Service Fees by Geographic Region
January 31,
----------------------------------------------------
2003 2002
-------------------------- ----------------------
Americas $ 5,989 37.5% $ 5,458 29.5%
Europe 9,720 60.9% 12,483 67.4%
Asia Pacific 244 1.6% 579 3.1%
------------ ---------- ------------ -------
Total $15,953 100.0% $ 18,520 100.0%
============ ========== ============ =======
Net Sales and Service Fees by Product Category
January 31,
------------------------------------------------
2003 2002
------------------- ---------------------
Continuing Products and Services
Computerized Machine Tools $ 12,689 79.6% $ 14,022 75.7%
Computer Control Systems
and Software 703 4.4% 937 5.1%
Service Parts 1,533 9.6% 1,566 8.4%
Service Fees 819 5.1% 755 4.1%
---------- ------- ---------- -------
Total $ 15,744 98.7% $ 17,280 93.3%
Discontinued Product 209 1.3% 1,240 6.7%
------------ ------- ---------- --------
Total $ 15,953 100.0% $ 18,520 100.0%
============ ======= ========== ========
* Discontinued product sales were made solely in the United States.
Total sales and service fees were $16.0 million in the first quarter of fiscal
2003, a $2.6 million, or 14%, decline compared to the prior year period.
The decline was primarily attributable to decreased sales in Europe,
reflecting the continuing weakness in industrial equipment spending and
reduced consumption of machine tools by many manufacturing companies,
particularly in Germany. The decline in European sales and service fees was
offset partially by $1.3 million favorable effect of stronger European
currencies when translating foreign sales to U.S. dollars for financial
reporting purposes. Sales of computerized machine tools in Europe declined
30% in units and 25% in current dollars. Sales of computerized machine
tools in the United States (exclusive of discontinued products) increased
$1.9 million, or 92%, aided by the successful introduction of a new low cost
vertical machining center model along with an increase in orders for our other
vertical machining center models. Sales of discontinued products declined $1.0
million as that liquidation is substantially complete.
The following table sets forth unit volume and average net selling price for
computerized machine tools during the periods indicated:
January 31,
------------------------
Computerized Machine Tools - Units Sold
2003 2002
----------- -----------
Continuing Products 180 184
Discontinued Products 7 18
----------- -----------
Total 187 202
Average Net Selling Price - Per Unit (in thousands)
2003 2002
----------- -----------
Continuing Products $ 70.5 $ 76.2
Discontinued Products $ 26.0 $ 48.5
----------- -----------
Total $ 68.8 $ 73.7
The decrease in average net selling price per unit for continuing products
from fiscal 2002 to 2003 was due to the introduction in 2003 of a new low cost
entry level vertical machining center model, but was partially offset by
the effect of stronger European currencies when translating foreign sales for
financial reporting purposes.
New order bookings for the first quarter of fiscal 2003 were $14.3 million, a
decline of 7% as compared to $15.5 million recorded in the prior year period.
New orders for computerized machine tools in the U.S. increased 31% in units
and 24% in dollars, whereas new orders in Europe declined 23% in units and
17% in current dollars. Backlog was $3.9 million at January 31, 2003
compared to $5.3 million at October 31, 2002 and $5.1 million at January 31,
2002.
Gross profit margin increased in the first quarter of fiscal 2003 to 25.0%
from 21.6% in the same period a year ago, due in large part to strengthening
European currencies, particularly the Euro, as well as previously reported
employee cost reductions.
Selling, general and administrative expenses for the first quarter of fiscal
2003 of $4.4 million were $786,000, or 15% below those of the corresponding
2002 period, due to previously reported cost reduction programs.
Other income, net in the first quarter of fiscal 2003 consisted primarily of
earnings from two affiliates accounted for using the equity method. Other
income in the prior year period consisted primarily of license fee income from
the patent licensing program that was completed in fiscal 2002.
The provision for income taxes is related to the earnings of two foreign
subsidiaries. In the United States and certain other foreign jurisdictions,
we have net operating carryforwards for which we have a 100% valuation reserve
at January 31, 2003.
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 2
to the Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
We had unrestricted cash and cash equivalents of $3.2 and $4.4 million at
January 31, 2003 and October 31, 2002, respectively. We had $1.2 million of
restricted cash at January 31, 2003 resulting from hedging arrangements that
require cash collateral based on open positions. Cash used by operations
totaled $775,000 in the first quarter of fiscal 2003 compared to cash provided
by operations of $1.3 million in the prior year.
Net working capital, excluding short-term debt of $5.1 million, was $21.9
million at January 31, 2003 compared to $21.7 million at October 31, 2002.
Capital investments for the first quarter ended January 31, 2003 consisted
principally of expenditures for software development projects and purchases
of equipment. Cash used for investing activities during the quarter was
funded by borrowings under our bank credit facilities.
At January 31, 2003, outstanding borrowings of $3.5 million under our domestic
and European bank credit facilities were classified as a current liability
because the facilities mature on December 15, 2003 and November 30, 2003,
respectively. Total debt at January 31, 2003 was $9.9 million representing
27% of total capitalization compared to $8.9 million, or 24% of total
capitalization at October 31, 2002. We were in compliance with all loan
covenants at January 31, 2003 and had unused credit availability of $6.0
million.
Based on our business plan and financial projections for fiscal 2003,
we believe that cash flow from operations and borrowings available to us
under our credit facilities will be sufficient to meet our anticipated cash
requirements for the balance of fiscal 2003. Although we believe that the
assumptions underlying our 2003 business plan are reasonable and achievable,
there are risks related to further declines in market demand and reduced sales
in the U.S. and Europe and adverse currency movements that could cause our
actual results to differ from our business plan. We are also currently in
discussions with lenders to replace our existing domestic credit facility
with a long-term credit facility in conjunction with assessing our
liquidity needs for fiscal 2004 and beyond. We expect the European bank credit
facility to be renewed for twelve-months on or before its maturity date.
We believe, but cannot assure you, that we will be able to obtain a replacement
domestic facility and a renewed European facility under acceptable terms.
Failure to obtain replacement facilities would have a material adverse effect on
our business and financial condition.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement No.
142, "Goodwill and Other Intangible Assets"(SFAS 142). Under SFAS 142,
amortization of goodwill will cease and the goodwill carrying values will be
tested periodically for impairment. We adopted 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 were subject
immediately to the goodwill non-amortization and intangible provisions of
this statement. The adoption of this standard did not have a material effect on
the Condensed Consolidated Financial Statements.
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. The adoption of this standard
did not have a material effect on the Condensed Consolidated Financial
Statements.
In July 2002, the Financial Accounting Standards Board issued Statement No.
146, "Accounting for Costs Associated with Exit or Disposal Activities".
This Standard, which is effective for disposal activities initiated after
December 31, 2002, addresses significant issues regarding the recognition,
measurement and reporting of costs associated with exit and disposal activities.
We will comply with the provisions of the Standard with respect to exit and
disposal activities initiated after the effective date.
In December 2002, the Financial Accounting Standards Board issued Statement
No.148, "Accounting for Stock-Based Compensation Transition and Disclosure
an amendment of SFAS No.123, Accounting for Stock-Based Compensation"(SFAS 148).
The Standard provides for (1) alternative methods of transition for an
entity that voluntarily changes to the fair-value method of accounting for
stock-based compensation; (2) requires more prominent disclosure of the
effects of an entity's accounting policy decisions with respect to stock-based
compensation on reported income; and (3) amends APB Opinion No.28, "Interim
Financial Reporting", to require disclosure of those effects in interim
financial information. SFAS No.148 is effective for fiscal years ending after
December 15, 2002, and for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. We
are currently reviewing alternatives related to the adoption of the fair-value
method of accounting for stock-based compensation and will finalize our
decision in fiscal 2003. We do not expect the adoption of SFAS 148 to have a
material impact on our Condensed Consolidated Financial Statements.
Critical Accounting Policies
Our accounting policies require our management to make significant estimates
and assumptions using information available at the time the estimates are made.
Such 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 could be affected. There have
been no material changes to our critical accounting policies, which are
described in our Annual Report on Form 10-K for the fiscal year ended October 31
, 2002.
Contractual Obligations and Contingent Liabilities and Commitments
There have been no material changes from the information provided in our Annual
Report on Form 10-K for the fiscal year ended October 31, 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. At January 31, 2003, outstanding borrowings
under our bank credit facilities were $3.5 million and our total indebtedness
was $9.9 million.
Foreign Currency Exchange Risk
In the first quarter of fiscal 2003, approximately 64% 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, 2003 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
in Foreign Forward At Date of January 31,
Forward Contracts Currency Rate Contract 2003 Maturity Dates
---------------- --------------- ---------- ----------- ---------- --------------
Sale Contracts:
Euro 12,100,000 .9948 $12,037,080 $12,951,870 February - October 2003
Sterling 1,150,000 1.5526 $1,785,490 $1,878,646 February - October 2003
Purchase Contracts:
New Taiwan Dollar 150,000,000 34.36* $4,365,541 $4,324,409 February - July 2003
Forward contracts for the sale of foreign currencies as of January 31, 2003, 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
in Foreign Forward At Date of January 31,
Forward Contracts Currency Rate Contract 2003 Maturity Dates
----------------- --------------- -------- ------------ ----------- --------------
Sale Contracts:
Euro 3,374,129 1.0406 $3,511,119 $3,625,277 February - March 2003
Singapore Dollar 1,814,753 .5743 $1,042,213 $1,044,122 February - May 2003
Sterling 840,202 1.6038 $1,347,516 $1,380,651 February - April 2003
Purchase Contracts:
New Taiwan Dollar 130,700,000 34.48* $3,790,603 $3,765,949 February - April 2003
* NT Dollars per U.S. dollars
Item 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, 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 pursuant to Exchange Act Rule 13a-15. 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 significant changes in the internal
controls or in other factors that could significantly affect these controls
subsequent to the evaluation date.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in the normal course
of 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement re: Computation of Per Share Earnings
99.1 Certification pursuant to 18 U.S.C. Section 1350 by the Chief
Executive Officer, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350 by the Chief
Financial Officer, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(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, 2003
CERTIFICATIONS
I, Michael Doar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hurco Companies,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report(the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a. All significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Michael Doar
Michael Doar
Chairman & Chief Executive Officer
March 13, 2003
I, Roger J. Wolf, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hurco Companies,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report(the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operations of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Roger J. Wolf
Roger J. Wolf
Senior Vice President & Chief Financial Officer
March 13, 2003
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
Three Months Ended
January 31,
-----------------------------------------------------
(in thousands, except per share amounts) 2003 2002
------------------------ ------------------------
Basic Diluted Basic Diluted
Net loss $ (582) $ (582) $(1,641) $(1,641)
Weighted average shares outstanding 5,583 5,583 5,582 5,582
Dilutive effect of stock options -- -- -- -
------- ------- ------- -------
5,583 5,583 5,582 5,582
Loss per common share $(.10) $ (.10) $ (.29) $ (.29)
======= ======= ======= =======
Exhibit 99.2
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Hurco Companies, Inc.,
(the "Company") on Form 10-Q for the Quarter ending January 31, 2003 as filed
with the Securities and Exchange Commission on March , 2003 (the "Report"),
I, Michael Doar, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss 1350, as adopted pursuant to ss 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Michael Doar
Michael Doar
Chairman & Chief Executive Officer
March 13, 2003
exhibit 99.2
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Hurco Companies, Inc.,
(the "Company") on Form 10-Q for the quarter ending January 31,
2003 as filed with the Securities and Exchange Commission on March , 2003
(the "Report"), I, Roger J. Wolf, Senior Vice President and Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. ss 1350, as adopted
pursuant to ss 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Roger J. Wolf
Roger J. Wolf
Senior Vice President & Chief Financial Officer
March 13, 2003