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 April 30, 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 June 4,
2001 was 5,580,658.
HURCO COMPANIES, INC.
April 2001 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months and six months ended April 30, 2001 and 2000............. 3
Condensed Consolidated Balance Sheet -
As of April 30, 2001 and October 31, 2000............................. 4
Condensed Consolidated Statement of Cash Flows -
Three months and six months ended April 30, 2001 and 2000............. 5
Condensed Consolidated Statement of Changes in Shareholders' Equity -
Six months ended April 30, 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 1. Legal Proceedings......................................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................................... 16
Signatures.............................................................................. 17
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Six Months Ended
April 30, April 30,
----------------------- --------------------
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
Sales and service fees...................... $ 23,432 $ 24,197 $ 49,365 $ 48,722
Cost of sales and service................... 17,460 17,465 36,778 35,270
---------- ---------- ----------- ---------
Gross profit........................... 5,972 6,732 12,587 13,452
Selling, general and
administrative expenses..................... 5,959 5,623 12,045 11,443
Restructuring credit........................ (328) -- (328) --
----------- ----------- ----------- ----------
Operating income ...................... 341 1,109 870 2,009
License fee income, net..................... 175 83 509 154
Interest expense............................ 198 228 379 520
Other income (expense), net................. 335 (314) 423 (367)
----------- ---------- ----------- ----------
Income before taxes.................... 653 650 1,423 1,276
Provision for income taxes.................. 330 48 533 215
----------- ----------- ----------- ----------
Net income.................................. $ 323 $ 602 $ 890 $ 1,061
=========== ========== =========== ===========
Earnings per common share
Basic.................................. $ .06 $ .10 $ .15 $ .18
========== =========== ========== ==========
Diluted................................ $ .06 $ .10 $ .15 $ .18
========== =========== ========== ==========
Weighted average common
shares outstanding
Basic.................................. 5,651 5,952 5,761 5,952
========== =========== ========== =========-
Diluted................................ 5,693 6,024 5,801 6,015
========== =========== ========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
April 30, October 31,
2001 2000
ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents........................................... $ 3,255 $ 3,384
Accounts receivable................................................. 20,812 17,842
Inventories......................................................... 31,951 26,176
Other............................................................... 1,717 1,793
---------- ---------
Total current assets............................................ 57,735 49,195
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,187 7,162
Machinery and equipment............................................. 10,995 11,000
Leasehold improvements.............................................. 1,021 992
Less accumulated depreciation and amortization.................. (11,308) (11,122)
---------- ----------
8,656 8,793
---------- ---------
Software development costs, less amortization............................ 3,127 3,326
Investments and other assets............................................. 4,574 3,710
---------- ---------
$ 74,092 $ 65,024
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 16,570 $ 13,593
Accrued expenses.................................................... 8,583 7,545
Current portion of long-term debt.................................. 200 1,986
---------- ---------
Total current liabilities....................................... 25,353 23,124
Non-current liabilities:
Long-term debt...................................................... 9,700 1,750
Deferred credits and other obligations.............................. 835 1,259
---------- ---------
Total non-current liabilities................................... 10,535 3,009
---------- ---------
Shareholders' equity:
Preferred stock: no par value per share; 1,000,000
shares authorized; no shares issued............................... -- --
Common stock: no par value; $.10 stated value per share;
12,500,000 shares authorized; 5,580,658 and
5,955,359 shares issued and outstanding, respectively .......... 558 596
Additional paid-in capital.......................................... 44,714 46,347
Retained earnings (deficit)......................................... 577 (313)
Other comprehensive income.......................................... (7,645) (7,739)
---------- ---------
Total shareholders' equity...................................... 38,204 38,891
---------- ---------
$74,092 $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 Six Months Ended
April 30, April 30,
------------------------ ---------------------
2001 2000 2001 2000
(unaudited) (unaudited)
Cash flows from operating activities:
Net income ................................................ $ 323 $ 602 $ 890 $ 1,061
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Restructuring charge..................................... (328) -- (328) --
Depreciation and amortization............................ 572 729 1,111 1,263
Change in assets and liabilities:
(Increase) decrease in accounts receivable............... 185 (2,626) (2,871) (958)
(Increase) decrease in inventories....................... (4,340) 1,624 (5,781) 4,497
Increase (decrease) in accounts payable.................. 1,195 893 3,015 (87)
Increase (decrease) in accrued expenses.................. 162 (1,074) 1,222 (699)
Other.................................................... (81) 493 (592) 586
--------- --------- -------- ----------
Net cash provided by (used for)
operating activities................................... (2,312) 641 (3,334) 5,663
-------- ---------- --------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment............................ 15 (17) 15 11
Purchase of property and equipment......................... (244) (345) (451) (553)
Software development costs................................. (134) (303) (262) (479)
Other investments.......................................... (226) (35) (304) (35)
--------- --------- --------- ----------
Net cash provided by (used for)
investing activities..................................... (589) (700) (1,002) (1,056)
--------- ---------- --------- ----------
Cash flows from financing activities:
Advances on bank credit facilities......................... 10,000 6,650 24,650 13,100
Repayment on bank credit facilities ....................... (8,400) (7,650) (16,700) (16,200)
Repayment of term debt .................................... -- -- (1,786) (1,786)
Proceeds from exercise of common stock options............. -- -- 35 --
Purchase of common stock................................... (485) -- (1,706) --
----------- ---------- --------- ----------
Net cash provided by (used for)
financing activities..................................... 1,115 (1,000) 4,493 (4,886)
--------- ---------- --------- ----------
Effect of exchange rate changes on cash....................... (151) (133) (286) (236)
-------- ---------- --------- ----------
Net increase (decrease) in cash and
Cash equivalents......................................... (1,937) (1,192) (129) (515)
Cash and cash equivalents
at beginning of period................................... 5,192 4,172 3,384 3,495
----------- ---------- --------- ----------
Cash and cash equivalents
at end of period......................................... $ 3,255 $ 2,980 $ 3,255 $ 2,980
========== ========== ========= ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended April 30, 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....................... -- -- -- 1,061 -- 1,061
Translation of foreign currency
financial statements.......... -- -- -- -- (1,163) (1,163)
-------
Comprehensive income (loss). -- -- -- -- -- (102)
------------ ----------- ------------- ------------ ------------- ------------
Balances, April 30, 2000 5,951,859 $595 $46,340 $(4,287) $(6,602) $36,046
------------------------ ========= ==== ======= ======== ======== =======
(unaudited)
Balances, October 31, 2000 5,955,359 $596 $46,347 $ (313) $(7,739) $38,891
--------------------------
Net income....................... -- -- -- 890 -- 890
Translation of foreign currency
financial statements.......... -- -- -- -- 150 150
Unrealized loss on derivative
instruments...................... -- -- -- -- (56) (56)
----
Comprehensive income (loss). -- -- -- -- -- 984
----
Exercise of Common Stock Options. 16,400 1 34 -- -- 35
Repurchase of common stock ...... (391,101) (39) (1,667) -- -- (1,706)
----------- ---- ------- -------- ----------- -------
Balances, April 30, 2001 5,580,658 $558 $44,714 $577 $(7,645) $38,204
------------------------ ========= ==== ======= ==== ======== ========
(unaudited)
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The unaudited Condensed Consolidated Financial Statements include the accounts
of Hurco Companies, Inc. and its consolidated subsidiaries. We are an industrial
automation company that designs and produces interactive computer controls,
software and computerized machine systems for the worldwide metal cutting and
metal forming industries.
The condensed financial information as of April 30, 2001 and 2000 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 six 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.
During the fiscal quarter ended April 30, 2001, net gains and losses on cash
flow hedge contracts which were reclassified from Other Comprehensive Income to
Cost of Sales were not significant.
At April 30, 2001 we had $56,000 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 October 2001.
We also enter into foreign currency forward exchange contracts to protect
against the effects of foreign currency fluctuations on receivables and payables
denominated in foreign currencies. These derivative instruments are not
designated as hedges under SFAS 133 and as a result, changes in fair value are
reported currently as Other Income (Expense) in the 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 $3,000 and $63,000 for the three month and six month periods
ending April 30, 2001, respectively compared to ($249,000) and ($390,000) for
the same period in fiscal 2000.
4. 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 42,000 shares for the second quarter of fiscal 2001.
5. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $727,000 as of April 30, 2001 and
$741,000 as of October 31, 2000.
6. INVENTORIES
Inventories, reflected at the lower of cost (first-in, first-out method) or
market, are summarized below (in thousands):
April 30, 2001 October 31, 2000
------------------ ----------------
Purchased parts and sub-assemblies $11,482 $ 10,526
Work-in-process 2,044 1,339
Finished goods 18,425 14,311
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$31,951 $26,176
======= =======
7. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, computer control
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
Substantially all of our machine systems and computer control systems are
manufactured to our specifications by contract manufacturing companies in Taiwan
and Europe, including our wholly owned manufacturing subsidiary in Taiwan. Our
executive offices and principal design, engineering and manufacturing management
operations are headquartered in Indianapolis, Indiana. We sell our products
through over 240 independent agents and distributors in 45 countries throughout
North America, Europe and Asia. We also have our own direct sales and service
organizations in the United States, England, France, Germany, Italy and
Singapore, which are considered to be among the world's principal computerized
machine system consuming countries.
8. RESTRUCTURING CHARGE
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. In the fourth quarter of fiscal 2000, we decided to
consolidate the remaining operation into our Indianapolis facility and gave
notice to fourteen employees that their positions would be eliminated in fiscal
2001, resulting in a provision for severance costs of $300,000. Nine of the
employees received severance payments in the second quarter of fiscal 2001 while
three employees will receive severance in May 2001 and the remaining two will be
paid in October 2001.
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.
At April 30, 2001, the restructuring reserve balance was approximately $215,000
and consisted of the following:
(000) Balance Provision Charges to Balance
Description 10/31/2000 (Credit) Accrual 4/30/2001
----------- ---------------- -------------- -------------- --------------
Excess Building Capacity $ 286 (286) -- --
Equipment Leases 54 (42) (12) --
Severance 300 -- (85) 215
---------------- -------------- -------------- --------------
---------------- -------------- -------------- --------------
$ 640 $ (328) $ (97) $ 215
================ ============== ============== ==============
9. STOCK REPURCHASE
In March 2001, we repurchased an additional 113,100 shares of our common stock
for approximately $486,000 from an unrelated party. 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.
10. SOFTWARE DEVELOPMENT AND LOAN AGREEMENT
During the second quarter of fiscal 2001, we entered into agreements with a
private software company whereby we agreed to fund development costs related to
the integration of patented, open architecture technology into our
computer numerical control product, aggregating $405,000, over a fifteen month
period ending in July, 2002. Under these agreements, we agreed to fund a secured
term loan of $1.0 million through the period ended February 28, 2002. This loan
is due April 1, 2003 unless accelerated under the terms of the agreement. In
addition, we have received warrants to purchase an equity interest in the
Company, which are exercisable on or before December 31, 2002, and 2003. As of
April 30, 2001, we have funded $175,000 with respect to these obligations which
are reflected in Investments and Other Assets in the accompanying condensed
consolidated balance sheet.
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 machine tool industry to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, (i) changes in
general economic and business conditions that affect demand for computerized
machine systems, computer numeric control (CNC) systems and software products,
(ii) changes in manufacturing markets, (iii) innovations by competitors, (iv)
quality and delivery performance by our contract manufacturers and (v)
governmental actions and initiatives including import and export restrictions
and tariffs.
RESULTS OF OPERATIONS
Three Months Ended April 30, 2001 Compared to Three Months Ended April 30, 2000.
Sales and service fees for the second quarter were $23.4 million, which was
approximately $765,000, or 3.2%, lower than the amount recorded in the 2000
period due to the continuing unfavorable effects of the strong U.S. dollar,
particularly in relation to the Euro and Pound Sterling, when translating sales
made in foreign currencies. At comparable exchange rates, net sales for the
second fiscal quarter would have been $24.6 million, slightly better than the
prior year period. Net sales of computerized machine systems increased 9.3% in
the second quarter when measured at exchange rates comparable to those in the
prior year. The increase was due entirely to a larger percentage of higher value
machines in the total sales mix, and was partly offset by reduced sales of
stand-alone computer controls and lower parts and service revenues.
Domestic sales decreased $2.9 million, or 24.6%, and sales in Southeast Asia
decreased $1.0 million, or 75.8%, as a result of softness in these markets
during the quarter. Sales in Europe increased $3.2 million, or 28.7%, despite
the continued weakness of the Euro and Sterling as strong demand continued in
these markets. International sales, net of currency translation effects,
increased to 62% of total sales and service fees for the 2001 quarter, compared
to 51% for the same period one year ago.
New order bookings for the second
quarter of fiscal 2001 were $21.1 million compared to $26.0 million for the
corresponding 2000 period, a decrease of 19%. Orders for computerized machine
systems decreased $3.6 million, or 18%, due in part to the effects of currency
translation. Machine system orders in the U.S. were 40% lower than in the prior
year period in dollars, reflecting a 54% decline in unit orders as a result of
weak economic conditions in most domestic industrial market sectors. The decline
in unit orders was most pronounced on lower priced entry-level products,
although all machine models were affected. 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 less
than 3% of total machine system orders. Orders for machine systems in Europe,
expressed at exchange rates prevailing in the period recorded, increased 4.4% in
the most recent quarter on a 6% increase in unit orders as compared to the prior
year period, reflecting continued strong orders in Germany. Backlog was $11.7
million at April 30, 2001 compared to $13.8 million at January 31, 2001.
Operating income in the second quarter was $341,000, or 1.5% of sales and
service fees, a decrease of $768,000 compared to the prior year period,
reflecting the effects of lower sales and margin. Gross profit margin for the
most recent fiscal quarter was 25.5%, or 2.3 percentage points lower than in the
prior year period. Although selling, general and administrative expenses
increased $336,000, or 6%, compared to the prior year period, the effect on
operating income was substantially offset by a restructuring credit recorded in
the second quarter of fiscal 2001, which resulted primarily from sub-letting
excess space in a leased facility.
Other non-operating income increased by
$649,000 because of reduced foreign currency transaction losses and increased
equity in earnings of affiliates in fiscal 2001. Net license fee income,
increased by $92,000 due to several small settlement agreements entered into
during the quarter. We do not expect significant license fee income in future
periods.
The substantially higher provision for income taxes in the fiscal 2001
period relates principally to taxable income of a foreign subsidiary, whereas
the second quarter of fiscal 2000 included a non-recurring tax benefit of
$325,000.
Six Months Ended April 30, 2001 Compared to Six Months Ended April 30, 2000.
Sales and service fees for the first half of fiscal 2001 were $49.4 million,
which was approximately $643,000, or 1.3%, higher than the amount recorded in
the 2000 period in spite of the continuing unfavorable effects of the stronger
U.S. dollar, particularly in relation to the Euro and Pound Sterling, when
translating sales made in foreign currencies. At comparable exchange rates, net
sales for the second fiscal quarter would have been $52.4 million an increase of
7.5%. Net sales of computerized machine systems increased 16.0% in the first
half and when measured at exchange rates comparable to those in the prior year.
Domestic sales in the first half of fiscal 2001 decreased $2.6 million, or
11.2%, and sales in Southeast Asia decreased $1.3 million, or 52.9%, as a result
of weak conditions in both of these markets. Sales in Europe increased $4.5
million, or 19.4%, despite to weakening of the Euro and Sterling, as strong
demand continued in these markets. International sales, net of currency
translation effects, increased to 59% of total sales and service fees for first
half of fiscal 2001, compared to 53% for the same period one year ago.
New order bookings for the first half of fiscal 2001 were $49.2 million compared
to $49.1 million for the corresponding 2000 period. Orders for computerized
machine systems increased $2.2 million, or 6%, but the increase offset by a
decline in orders for stand-alone control systems. Machine system orders in the
U.S. were 18% lower than in the prior year period in dollars, reflecting a 37%
decline in units. Machine system orders in Southeast Asia declined approximately
$1.7 million compared to the prior year period. Orders for machine systems in
Europe, expressed at exchange rates prevailing in the period recorded, increased
32% in the first half on a 40% increase in unit orders as compared to the prior
year period, reflecting continued strong orders in Germany. Backlog was $11.7
million at April 30, 2001 compared to $10.2 million at October 31, 2000.
Orders in the second quarter of fiscal 2001 were $21.1 million, a significant
decrease when compared to orders of $28.1 million recorded in the immediately
preceding fiscal quarter. The decrease is the result of weak economic conditions
in most domestic industrial market sectors in the United States and Southeast
Asia during the second quarter of fiscal 2001 and unusually strong orders booked
in Europe in the first fiscal quarter.
Operating income in the first half was $870,000, or 1.8% of sales and service
fees, a decrease of $1.1 million compared to the prior year period, reflecting
the effects of lower sales and margin. Gross profit margin for the first half
was 25.5%, or 2.1 percentage points lower than in the prior year period.
Although selling, general and administrative expenses increased $602,000, or 5%,
compared to the prior year period, the effect on operating income was partially
offset by a restructuring credit recorded in the second quarter of fiscal 2001,
which resulted primarily from sub-letting excess space in a leased facility.
Other non-operating income increased by $790,000 because of reduced foreign
currency transaction losses and increased equity in earnings of affiliates in
fiscal 2001. License fee income, net increased by $355,000 due to several small
settlement agreements entered into during the quarter. We do not expect
significant license fee income in future periods.
The substantially higher provision for income taxes in the fiscal 2001 period
relates principally to taxable income of a foreign subsidiary, whereas the first
half of fiscal 2000 included a non-recurring tax benefit of $325,000.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2001, we had cash and cash equivalents of $3.3 million compared to
$3.4 million at October 31, 2000. Cash used for operations totaled $3.3 million
in the first half of fiscal 2001, compared to $5.7 million provided by
operations in the same period of fiscal 2000. This difference is attributable to
the significantly lower net income in the fiscal 2001 periods, capital
investments of approximately $1.0 million in the first half of fiscal 2001
consisting principally of expenditures for software development projects and
purchases of equipment, and the $4.7 million we spent to repurchase 391,101
shares of our common stock during the first six months of fiscal 2001. We funded
these expenditures with borrowings under our bank credit facility. We anticipate
additional borrowings will be needed to fund operations during the second half
of fiscal 2001.
Net working capital, excluding short-term debt, was $32.6 million at April 30,
2001, compared to $28.1 million at October 31, 2000. The increase in working
capital is attributable to an increase in accounts receivable of $3.0 million
and an increase in inventory of $5.8 million, partially offset by a related
increase in accounts payable of $3.0 million, along with an increase in accrued
expenses of $1.0 million. The increase in inventory relates 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.
Total debt at April 30, 2001 was $9.9 million representing 21% of total
capitalization, compared to $3.7 million or 9% of total capitalization at
October 31, 2000.
We were in compliance with all of our loan covenants at April 30, 2001. Our bank
credit facility matures May 31, 2002. We believe that we will be able to obtain
replacement credit facilities under acceptable terms. We believe that available
borrowings under current and 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% to 2% based upon a prescribed formula. At April 30, 2001,
outstanding borrowings under our bank credit facilities were $8.9 million, our
total indebtedness was $9.9 million, and the interest rate on the Libor portion
of our bank debt was Libor plus 1.00%, or 6%.
Foreign Currency Exchange Risk
In fiscal 2001, approximately 61% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer numerical control systems, as well as certain proprietary
service parts, are sourced by our U.S.-based engineering and manufacturing
division and re-invoiced to our foreign sales and service subsidiaries,
primarily in their functional currencies.
A significant portion of our products is sourced from foreign suppliers or built
to our specifications by either our wholly-owned subsidiary in Taiwan, or
contract manufacturers overseas. These purchases are predominantly in foreign
currencies and in many cases our arrangements with these suppliers include
foreign currency risk sharing agreements, which reduce (but do not eliminate)
the effects of currency fluctuations on product costs. The predominant portion
of our exchange rate risk associated with product purchases relates to the New
Taiwan Dollar.
We enter into forward foreign exchange contracts from time to time to hedge the
cash flow risk related to forecast inter-company sales, and forecast
inter-company 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 April 30,
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
Forward Contracts Currency Rate U.S. Dollars Maturity Dates
--------- -------- ---- ------------ --------------
Contract Date April 30, 2001
------------- --------------
Sale Contracts:
Sterling 250,000 1.4460 $ 361,500 $ 357,123 July 2001
Euro 6,500,000 .9097 $5,913,150 $5,771,251 May - July 2001
Purchase Contracts:
New Taiwan Dollar 252,000,000 32.05 $7,863,116 $7,661,313 May - Oct. 2001
Forward contracts for the sale of foreign currencies as of April 30, 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
in Foreign Forward Rates in
Forward Contracts Currency Rate U.S. Dollars Maturity Dates
--------- -------- ---- ------------ --------------
Contract Date April 30, 2001
------------- --------------
Sale Contracts:
Euro 6,546,194 .8954 $5,861,369 $5,812,812 May - June 2001
Singapore Dollar 2,745,516 1.7875 $1,535,987 $1,509,036 May - June 2001
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:
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
June 13, 2001
Exhibit 11
Statement Re: Computation of Per Share Earnings
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------------------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------------
(in thousands, except per share amount)
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
---------------------------------------------------------------------------------------------------
Net income $ 323 $ 323 $ 602 $ 602 $ 890 $ 890 $ 1,061 $ 1,061
Weighted average shares
outstanding 5,651 5,651 5,952 5,952 5,761 5,761 5,952 5,952
Dilutive effect of stock options - 42 - 72 - 40 - 63
---------------------------------------------------------------------------------------------------
5,651 5,693 5,952 6,024 5,761 5,801 5,952 6,015
Earnings per common share $ 0.06 $ 0.06 $ 0.10 $ 0.10 $ 0.15 $ 0.15 $ 0.18 $ 0.18
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