SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended January 31, 2000 or Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________. Commission File No. 0-9143 HURCO COMPANIES, INC. (Exact name of registrant as specified in its charter) Indiana 35-1150732 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) One Technology Way Indianapolis, Indiana 46268 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (317) 293-5309 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for the past 90 days: Yes X No The number of shares of the Registrant's common stock outstanding as of March 6, 2000 was 5,951,859.
HURCO COMPANIES, INC. January 1999 Form 10-Q Quarterly Report Table of Contents Part I - Financial Information <TABLE> Page <S> <C> Item 1. Condensed Financial Statements Condensed Consolidated Statement of Operations - Three months ended January 31, 2000 and 1999.......................... 3 Condensed Consolidated Balance Sheet - As of January 31, 2000 and October 31, 1999........................... 4 Condensed Consolidated Statement of Cash Flows - Three months ended January 31, 2000 and 1999.......................... 5 Consolidated Statements of Changes in Shareholders' Equity Three months ended January 31, 2000 and 1999.......................... 6 Notes to Condensed Consolidated Financial Statements...................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 11 Part II - Other Information Item 1. Legal Proceedings......................................................... 12 Item 5. Other Matters............................................................. 12 Item 6. Exhibits and Reports on Form 8-K.......................................... 12 Signatures.............................................................................. 13 </TABLE>
PART I - FINANCIAL INFORMATION Item 1. CONDENSED FINANCIAL STATEMENTS HURCO COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) <TABLE> Three Months Ended January 31, 2000 1999 - -------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Sales and service fees..................................................... $24,524 $21,147 Cost of sales and service.................................................. 17,803 15,143 Gross profit.......................................................... 6,721 6,004 Selling, general and administrative expenses............................... 5,820 5,335 Operating income...................................................... 901 669 Interest expense........................................................... 292 300 Other income (expense), net................................................ 17 45 Income before income taxes............................................ 626 414 Provision for income taxes................................................. 167 239 Net income................................................................. $ 459 $175 Earnings per common share Basic................................................................. $.08 $.03 Diluted............................................................... $.08 $.03 Weighted average common shares outstanding Basic................................................................. 5,952 6,074 Diluted............................................................... 6,008 6,172 The accompanying notes are an integral part of the condensed consolidated financial statements. </TABLE>
HURCO COMPANIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in thousands) <TABLE> January 31, October 31, 2000 1999 ASSETS (Unaudited) (Audited) <S> <C> <C> Current assets: Cash and cash equivalents........................................... $ 4,172 $ 3,495 Accounts receivable................................................. 15,251 17,154 Inventories......................................................... 27,377 30,767 Other............................................................... 1,567 1,440 Total current assets............................................ 48,367 52,856 Property and equipment: Land ............................................................ 761 761 Building............................................................ 7,168 7,168 Machinery and equipment............................................. 11,247 11,182 Leasehold improvements.............................................. 1,002 1,005 Less accumulated depreciation and amortization.................. (11,346) (11,165) 8,832 8,951 Software development costs, less amortization............................ 3,778 3,951 Other assets ............................................................ 3,946 3,874 $ 64,923 $ 69,632 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................................... $ 9,897 $ 10,891 Accrued expenses.................................................... 7,237 6,903 Current portion of long-term debt.................................. 1,786 1,786 Total current liabilities....................................... 18,920 19,580 Non-current liabilities: Long-term debt...................................................... 8,500 12,386 Deferred credits and other obligations.............................. 1,406 1,518 Total non-current liabilities................................ 9,906 13,904 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; 5,951,859 and 5,951,859 shares issued and outstanding, respectively ...... 595 595 Additional paid-in capital.......................................... 46,340 46,340 Accumulated deficit................................................. (4,889) (5,348) Foreign currency translation adjustment............................. (5,949) (5,439) Total shareholders' equity...................................... 36,097 36,148 $ 64,923 $ 69,632 The accompanying notes are an integral part of the condensed consolidated financial statements. </TABLE>
HURCO COMPANIES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) <TABLE> Three Months Ended January 31, 2000 1999 (Unaudited) Cash flows from operating activities: <S> <C> <C> Net income.................................................................. $ 459 $ 175 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization............................................. 534 534 Change in assets and liabilities: (Increase) decrease in accounts receivable.............................. 1,668 2,969 (Increase) decrease in inventories...................................... 2,873 (2,007) Increase (decrease) in accounts payable................................. (980) (4,071) Increase (decrease) in accrued expenses................................. 375 (1,046) Other................................................................... 93 436 Net cash provided by (used for) operating activities.................... 5,022 (3,010) Cash flows from investing activities: Proceeds from sale of equipment............................................. 28 17 Purchases of property and equipment......................................... (208) (250) Software development costs.................................................. (176) (226) Other....................................................................... -- (162) Net cash provided by (used for) investing activities.................... (356) (621) Cash flows from financing activities: Advances on bank credit facilities.......................................... 6,450 15,451 Repayment on bank credit facilities......................................... (8,550) (8,300) Repayments of term debt..................................................... (1,786) (1,786) Purchase of common stock.................................................... -- (2,379) Proceeds from exercise of common stock options.............................. -- 2 Net cash provided by (used for) financing activities.................... (3,886) 2,988 Effect of exchange rate changes on cash.......................................... (105) (19) Net increase (decrease) in cash......................................... 675 (662) Cash and cash equivalents at beginning of period................................. 3,497 3,276 Cash and cash equivalents at end of period....................................... $ 4,172 $ 2,614 The accompanying notes are an integral part of the condensed consolidated financial statements. </TABLE>
HURCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended January 31, 2000 and 1999 <TABLE> Accumulated Other Comprehensive Common Stock Income: ------------------------- Foreign Shares Additional Currency Issued & Paid-In Accumulated Translation Outstanding Amount Capital Deficit Adjustment Total (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Balances, October 31, 1998 6,340,111 $634 $48,662 $(7,150) $(4,406) $37,740 Net income....................... -- -- -- 175 -- 175 Translation of foreign currency financial statements........... -- -- -- -- -- (390) Comprehensive income (loss)...... (215) Exercise of Common Stock Options. 1,000 -- 2 -- -- 2 Purchase of Common Stock......... (395,752) (39) (2,340) -- -- (2,379) Balances, January 31, 1999 5,945,359 $595 $46,324 $ (6,975) $(4,796) $35,148 Balances, October 31, 1999 5,951,859 $595 $46,340 $ (5,348) $(5,439) $36,148 Net income....................... -- -- -- 459 -- 459 Translation of foreign currency Comprehensive income (loss)...... (51) Exercise of Common Stock Options. -- -- -- -- -- -- Balances, January 31, 2000 5,951,859 $595 $46,340 $(4,889) $(5,949) $36,097 The accompanying notes are an integral part of the condensed consolidated financial statements. </TABLE>
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 January 31, 2000 and 1999 is unaudited but includes all adjustments which we consider necessary for a fair presentation of our financial position at those dates and our results of operations and cash flows for the three months then ended. 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, 1999. 2. HEDGING We hedge our exposure to fluctuations in foreign currency exchange rates by using foreign currency forward exchange contracts. The U.S. dollar equivalent notional amount of outstanding foreign currency forward exchange contracts was approximately $3.7 million as of January 31, 2000 ($2.2 million related to firm intercompany sales commitments) and $4.5 million as of October 31, 1999 ($2.1 million related to firm intercompany sales commitments). Deferred losses related to hedges of future sales transactions were approximately $100,000 and $48,000 as of January 31, 2000 and October 31, 1999, respectively. Contracts outstanding at January 31, 2000 mature at various times through February 2000. 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. Common stock equivalents totaled approximately 56,000 shares as of January 31, 2000. 4. ACCOUNTS RECEIVABLE The allowance for doubtful accounts was $702,000 as of January 31, 2000 and $687,000 as of October 31, 1999. 5. INVENTORIES Inventories, reflected at the lower of cost (first-in, first-out method) or market are summarized below (in thousands): <TABLE> January 31, 2000 October 31, 1999 <S> <C> <C> Purchased parts and sub-assemblies $ 9,352 $ 9,104 Work-in-process 952 1,070 Finished goods 17,073 20,593 $ 27,377 $ 30,767 </TABLE>
6. TAX CONTINGENCY A German tax examiner has contested the transfer of net operating losses between two of our German subsidiaries that merged in fiscal 1996. The contingent tax liability resulting from this issue is approximately $1.4 million. We have protested this matter and have not yet received a ruling from the German tax authorities on the tax examiner's finding and our protest. In the event an unfavorable ruling is received from the German tax authorities, we will consider whether to appeal to the German Federal Tax Court. No provision for the contingency has been recorded. 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. 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 In fiscal 1998, we recorded a reserve for anticipated costs associated with the restructuring of a subsidiary to convert its operations from manufacturing computer controls to sales and service of computerized machine systems. At January 31, 2000, the restructuring reserve balance was $357,326 and consisted of the following: <TABLE> Balance Charges to Balance Description 10/31/99 Accrual Adjustment 1/31/00 <S> <C> <C> <C> <C> Excess Building Capacity $285,899 -- -- $285,899 Equipment Leases 77,379 5,952 -- 71,427 $363,278 $ 5,952 $ -- $357,326 </TABLE>
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 or 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 Computer Numeric Control (CNC) systems, machine tools 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 Sales and service fees for the first quarter of fiscal 2000 were $24.5 million, approximately 16% higher than those recorded in the corresponding 1999 period, in spite of the unfavorable effects of a stronger U.S. dollar when translating sales made in foreign currencies. At constant exchange rates, net sales for the quarter would have been $25.9 million, an increase of approximately $4.8 million, or 23%. The increase was attributable primarily to shipments of computerized machine systems, which benefited from improved order rates in the U.S. and Southeast Asia and improved availability of new products for shipment in Europe. Computerized machine system shipments in the U.S., which included a higher percentage of larger model machines in the total sales mix, increased approximately $1.9 million, or 43%. Shipments in Southeast Asia increased approximately $900,000 or 360%, reflecting improved market conditions. In Europe, computerized machine system shipments increased approximately $1.7 million, or 16%, when measured at constant exchange rates, due to improved availability of our new models for shipment and a corresponding reduction in backlog. New order bookings for the first quarter of fiscal 2000 were $23.2 million, compared to $24.8 million for the corresponding 1999 period, a decrease of 6.5%. When measured at constant exchange rates, however, new orders were only slightly below the fiscal 1999 level. Orders for computerized machine systems in the U.S. increased approximately $1.1 million, or 21%. In Southeast Asia, orders for these products increased $1.4 million, almost seven times the amount booked in the first quarter of fiscal 1999. Orders for computerized machine systems in Europe decreased $2.8 million in constant dollars, primarily in Germany and France where demand had been unusually strong a year ago following our introduction of new products. Backlog was $6.8 million at January 31, 2000, compared to $8.5 million at October 31, 1999. Gross profit as a percentage of sales was 27.4% compared to 28.4% for the first quarter of fiscal 1999, due primarily to unfavorable foreign currency translation effects. Operating expenses in the first quarter of fiscal 2000 increased $485,000, or 9.1%. The latest fiscal quarter included planned expenditures for the establishment of direct sales operations in Italy and certain parts of the United States.
Foreign Currency Risk Management We seek to 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 endeavor to 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. The results of these programs achieved our objectives for the first quarter of fiscal 2000. See Note 2 to the Condensed Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES At January 31, 2000, we had cash and cash equivalents of $4.2 million compared to $3.5 million at October 31, 1999. Cash provided by operations totaled $5.0 million in the first quarter of fiscal 2000, compared to $3.0 million used for operations in the same period of fiscal 1999. The cash flow provided by operations resulted in a $3.9 million reduction in long-term debt during the first quarter of fiscal 2000. Net working capital was $29.4 million at January 31, 2000, compared to $33.3 million at October 31, 1999. The decline is attributable to a decrease in inventory of $2.9 million and a decrease in accounts receivable of $1.7 million offset by a $1.0 million decrease in accounts payable. The decrease in inventories, which relates primarily to a reduction in finished products available for shipment, is attributable to a planned decrease in production by our contract manufacturers, combined with our increased shipments in the first quarter of fiscal 2000. The decrease in accounts receivable is attributable to the timing of shipments in the fourth quarter of fiscal 1999 combined with a reduction in the average age of our receivables from 55 days at October 31, 1999 to 53 days at January 31, 2000. Capital investments in the first quarter consisted principally of expenditures for software development projects and purchases of equipment. Cash used for investing activities during the quarter was derived from operations. The Company was in compliance with all loan covenants at January 31, 2000. We believe that anticipated cash flow from operations and available borrowings under credit facilities will be sufficient to meet our anticipated cash requirements in the foreseeable future.
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 January 31, 2000, outstanding borrowings under our bank credit facilities were $8.5 million and our total indebtedness was $10.3 million. The interest rate on the Libor portion of our bank debt was Libor plus 1.5%. Foreign Currency Exchange Risk A significant portion of our products is sourced from foreign suppliers or built to our specifications by contract manufacturers overseas. Our arrangements with those suppliers typically include foreign currency risk sharing agreements, which reduce the effects of currency fluctuations on product cost. The predominant portion of our exchange rate risk associated with product purchases relates to the New Taiwan Dollar. During the first quarter of fiscal 2000, approximately 58.0% 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. We enter into forward foreign exchange contracts from time to time to hedge the cash flow risk related to inter-company sales and inter-company accounts receivable 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 of foreign currencies as of January 31, 2000 were as follows: <TABLE> Weighted Notional Amount Avg. Notional Forward Contracts in Foreign Forward Amount in Market Value Currency Rate U.S. $ in US$ Maturity Dates <S> <C> <C> <C> <C> <C> Sterling 1,760,000 1.6063 2,827,088 2,843,280 February 2000 Euro 876,000 .9885 865,926 850,158 February 2000 </TABLE>
PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS There have been no material developments in the IMS infringement litigation except as described in our Annual Report on Form 10-K for the year ended October 31, 1999. We are involved in various other 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 5. OTHER MATTERS On March 14, 2000, the Board of Directors approved Amended and Restated By-laws, a copy of which is included as Exhibit 3.2 to this report. The only substantive changes in the By-laws were to delete a provision which had made two provisions of the Indiana Business Corporation Law inapplicable to the Company and to increase the number of shares which may call a special meeting of shareholders from 25% to a majority. The two provisions, Ind. Code Sections 23-1-42 (the "Control Share" chapter) and 23-1-43 (the "Business Combination" chapter), provide protections to Indiana corporations against certain unsolicited takeover offers. As a result of the Board's action, these statutory takeover protections will now apply to the Company. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.2 Amended and Restated By-Laws of the Registrant dated March 14, 2000 11 Statement re: Computation of Per Share Earnings 27 Financial Data Schedule (electronic filing only) (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 15, 2000