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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended October 31, 2000 or
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] 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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
No Par Value
-------------------
(Title of Class)
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 at least the past 90 days. Yes X No
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of January 2, 2001 was $20,693,873.
The number of shares of the Registrant's common stock outstanding as of January
2, 2001 was 5,693,758.
DOCUMENTS INCORPORATED BY REFERENCE: None
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
PART I
Item 1. BUSINESS
(a) General Development of Business
Hurco Companies, Inc. is an industrial automation systems company. We design and
produce interactive, personal computer (PC) based, computer control systems and
software and computerized machine systems for sale through a worldwide sales,
service and distribution network. Our proprietary computer control systems and
software products are sold primarily as an integral component of our own
computerized machine systems. We also sell computer control models to machine
system end-users and other machine system manufacturers who integrate them with
their own products.
We pioneered the application of microprocessor technology and conversational
programming software for application on machine system computer controls and,
since our founding in 1968, have been a leader in the introduction of
interactive computer control systems that automate manufacturing processes and
improve productivity in certain segments of the parts manufacturing industry. We
have concentrated on designing "user-friendly" computer control systems that can
be operated by both skilled and unskilled machine tool operators and yet are
capable of instructing a machine to perform complex tasks. The combination of
microprocessor technology and patented interactive, conversational programming
software in our computer control systems enables operators on the production
floor to quickly and easily create a program for machining or forming a
particular part from a blueprint or computer-aided design (CAD) and immediately
begin production of that part.
During fiscal 2000, we enhanced and expanded our product line with new software,
upgraded computer controls and higher performing computerized machine system
products. We increased manufacturing capacity with the establishment of Hurco
Manufacturing Ltd., a wholly owned subsidiary, in Taiwan, which will manufacture
a significant number of our computerized machine systems. We expanded our sales
and distribution network with the establishment of a sales and service
subsidiary in Milan, Italy for the Italian market, newly expanded facilities in
Singapore and Munich, Germany and a centralized distribution operation in the
Netherlands. Finally, during fiscal 2000, we settled a significant patent
infringement action, which we believe substantially completes the license
program we began in 1995.
Our executive offices and principal design, engineering, and manufacturing
management operations are headquartered in Indianapolis, Indiana. Sales,
application engineering and service offices are located in Indianapolis,
Indiana; Farmington Hills, Michigan; High Wycombe, England; Munich, Germany;
Paris, France; Milan, Italy and Singapore. A distribution facility is located in
Long Beach, California and a manufacturing facility is located in Taichung,
Taiwan.
(b) Financial Information About Industry Segments
We operate in one business segment, industrial automation systems, as discussed
further in Note 14 in the Consolidated Financial Statements.
(c) Narrative Description of Business
General
Our strategy is to design, develop, produce and market a comprehensive line of
interactive computer controls, software and computerized machine systems using
our proprietary technology designed to enhance the user's productivity through
ease of operation and higher levels of machine performance (speed and accuracy).
We market these systems to the worldwide parts manufacturing market. We have
adopted an open systems software architecture that permits our computer control
systems and software to be used with standard PC hardware and have emphasized
an operator friendly design that employs both interactive conversational and
graphical programming software. We have a well-established global contract
manufacturing network that supplies the computerized machine systems to our
selling divisions.
Products
Our principal products consist primarily of computerized machine systems
(milling machines, machining centers and metal forming systems) into which our
proprietary software and computer control systems have been fully integrated. We
also produce computer control systems and related software for both metal
cutting and metal forming machine applications that are sold primarily as
retrofit control systems. In addition, we produce and distribute software
options, control upgrades, hardware accessories and replacement parts and
provide operator training and support services to our customers.
The following table sets forth the contribution of each of these product groups
to our total sales and service fees during each of the past three fiscal years:
Year Ended October 31,
---------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
---- ---- ----
Computerized Machine Systems............ $71,708 (74.5%) $63,793 (72.3%) $64,770 (69.3%)
Computer Control
Systems and Software*................. 9,605 (10.0%) 10,623 (12.0%) 14,727 (15.8%)
Service Parts........................... 10,649 (11.1%) 9,574 (10.9%) 9,424 (10.1%)
Service Fees............................ 4,242 (4.4%) 4,248 (4.8%) 4,501 (4.8%)
------- ------ ------- -------- ------- --------
$96,204 (100.0%) $88,238 (100.0%) $93,422 (100.0%)
======= ====== ======= ======== ======= ========
* Amounts shown do not include Computer Control systems sold as an integrated
component of computerized machine systems.
Computerized Machine Systems
Computerized Machine Systems - Ultimax(R) - Metal Cutting Applications
We design and market computerized machine systems which are equipped with a
fully integrated interactive Ultimax(R) computer control system. Our patented
Ultimax(R) twin screen "conversational" computer control system is sold solely
as a fully integrated feature of a Hurco computerized machine system. This
computer control system enables a machine operator to create complex
two-dimensional part programs directly from blue prints or CAD. Machine
operators with little or no programming experience can successfully program
parts and begin machining operations in a short time with minimal special
training. Since the initial introduction of the Ultimax(R) computer control, we
have added enhancements related to operator programming productivity, CAD
compatibility, data processing throughput and motion control speed and accuracy.
Our current Ultimax(R) 4 programming stations use a Pentium* processor featuring
an operator console with liquid crystal display screens and incorporates
personal computer (PC) platform components. This upgradeable computer control
product offers improved performance while ensuring access to the most cost
effective computing hardware and software technology available.
In September 2000, we introduced a new feature set on the entire Ultimax(R)
based line of products which increases the machine system performance and
provides greater customer benefits and market differentiation.
Specifically, the cubic workspace area in the machines was increased, the
cutting speeds were increased and the control software and hardware were
upgraded with new unique productivity features. All of these improvements were
made without increasing the market price to the customer. In fiscal 2000, we
also expanded our product line to include a computerized machine system with
x-axis travel of 50-inches, which increases our available market.
Our current line of machine systems is a complete family of products including
milling machines with an x-axis travel of 30 and 40 inches and computerized
machining centers with an x-axis travel of 24, 30, 40, 50 and 64 inches. These
products provide different levels of performance features for different market
applications ranging in price from $25,000 to $165,000.
Computerized Machine Systems - Dynapath(TM) - Metal Cutting Applications
Our Dynapath(TM) product line includes two computerized milling machines and two
turning machines featuring our fully integrated Delta(TM) computer control
systems. These products are designed for and marketed to the lower-priced entry
level market segment.
Computerized Machine Systems - Autobend(R) - Metal Forming Applications
In fiscal 1998, we introduced a new computerized machine product line system for
metal bending applications that incorporates our Autobend(R) computer control
system. In addition, we introduced new European style precision-ground tooling
products which are sold either in conjunction with a computerized metal forming
system or directly to end-users of metal forming systems. In fiscal 2000, we
introduced a high performance computerized metal forming system line with
advanced technology features, for high-accuracy performance and improved
productivity. This new product line incorporates a third-party computer control
system. Additionally, in fiscal 2000, we expanded the precision-ground tooling
with the introduction of American style precision-ground tooling which is also
sold either in conjunction with a metal forming system or directly to end-users
of metal forming systems. These products are sold in the North American market
by independent distributors and, in certain territories, by our direct sales
- -------------
* Pentium is a registered trademark of the Intel Corporation
personnel. The products provide different levels of performance features for
different market applications ranging in price from $30,000 to $300,000.
Computer Control Systems and Software
The following computer control systems and software products are marketed
directly to end-users and or to original equipment manufacturers.
o Delta(TM) Series
Our Delta(TM) series computer control systems, which feature
microprocessor-based electronics incorporating industry standard computer
components, are designed for the lower-priced entry level segment of the
worldwide parts manufacturing industry, and are used on milling machines,
machining centers, turning centers and punching equipment. The Delta(TM)
computer control system is based on industry standard point-to-point programming
methodology but incorporates software features that group industry standard
commands into useful part features, such as circles and frames, to simplify
programming. The Delta(TM) computer control system is designed and configured as
a general-purpose product, which offer flexibility, reliability and ease of
integration with a wide variety of machine designs. The Delta(TM) computer
control system is sold either as an integrated component of our Dynapath(TM)
Machine System or thru retro-fitters to end-users of a wide range of entry level
machine systems
In fiscal 2000, the software on the Delta(TM) computer control system was
enhanced and the microprocessor was upgraded to Pentium
o Autobend(R)
Autobend(R) computer control systems are applied to metal forming machines that
form parts from sheet metal and steel plate and consist of a
microprocessor-based computer control and back gauge (an automated gauging
system that determines where the bend will be made). We have manufactured and
sold the Autobend(R) product line since 1968. We currently market two models of
our Autobend(R) computer control systems for metal forming machines, in
combination with six different back gauges, through distributors to end-users as
retrofit units for installation on existing or new metal forming systems, as
well as to original equipment manufacturers and importers of metal forming
systems. The Autobend(R) computer control system is also sold as a fully
integrated feature on our up-acting metal forming system.
o CAM and Software Products
In addition to our computer control product lines, we offer metal cutting and
forming software products for programming two and three-dimensional parts. These
products are marketed to users of Ultimax(R) computer control systems. The
primary products in this line are WinMax(R), a Windows** based off-line
programming system, released in fiscal 2000, and a data file transfer
(DXF) software option. The DXF software option eliminates manual data entry of
part features by transferring AutoCAD(TM) drawing files directly into an
Ultimax(R) computer control or the off-line programming system software,
substantially increasing operator productivity. We have augmented our
Autobend(R) product line with a computer-aided manufacturing (CAM) software
product, Autobend PC(R), that enables the user to create and manipulate computer
control compatible metal forming programs on a personal computer.
UltiPro(TM) is a high-speed machining software option for our Pentium*-based
Ultimax(R) computer control platform. The UltiPro(TM) software enables a
- --------
* Pentium is a registered trademark of the Intel Corporation
** Windows is a registered trademark of the Microsoft Corporation.
customer to increase machine throughput by upgrading computer control system
performance with a high speed Pentium* CPU and advanced motion control software.
UltiNet(TM) is a networking software option for the Ultimax computer control
used by our customers to transfer part design and manufacturing information to
computerized machine systems at high speeds and to network computerized machine
systems within a customer's manufacturing facility.
In fiscal 2000 we introduced a conversational part and tool dimension probing
option for Ultimax(R) based machines. This option permits the dimensional
measurement of machined parts and the associated cutting tools. This
"on-machine" technique significantly improves the throughput of the measurement
process when compared to traditional "off-machine" approaches.
Parts and Service
Our global service organization provides installation, warranty, operator
training and customer support for our products worldwide. In the United States,
our principal distributors have primary responsibility for machine installation
and warranty service and support for new product sales only. We also service and
support a substantial installed base of existing customers. Our service
organization also sells software options, computer controls upgrades,
accessories and replacement parts for our products. Our after-sale parts and
service business helps strengthen our customer relationships and provides
continuous information concerning the evolving requirements of end-users.
Marketing and Distribution
We sell our products through over 260 independent agents and distributors in 58
countries throughout North America, Europe and Asia. We also have our own direct
sales personnel 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. During fiscal 2000, no distributor accounted
for more than 5% of our sales and service fees. Approximately 80% of the
worldwide demand for computerized machine systems and computer control systems
comes from outside the U.S. In fiscal 2000, approximately 54% of our revenues
were from overseas customers.
The end-users of our products are precision tool, die and mold manufacturers,
independent metal parts manufacturers and specialized production groups within
large manufacturing corporations. Industries served include aerospace, defense,
medical equipment, energy, injection molding, transportation and computer
equipment.
Our computerized machine systems along with software options and accessories are
sold primarily to end-users. We sell certain computer control systems to
original equipment manufacturers of new machine tools who integrate them with
their own products prior to the sale of those products to their own customers,
to retrofitters of used machine tools who integrate them with those machine
tools as part of the retrofitting operation and to end-users who have an
installed base of machine tools, either with or without related computer control
systems. During fiscal 2000, no single end-user of our products accounted for
more than 5% of our total sales and service fees.
In fiscal 2000, we increased and strengthened our North American sales
organization and we established a direct sales subsidiary in Italy as well as a
European distribution center in the Netherlands. Also, in fiscal 2000 we
expanded our sales territories in Asia by establishing distributors in Malaysia,
Korea and Taiwan. We also opened a sales and service office in Shanghai that
supports mainland China.
We believe that advances in industrial technology and the related need for
process improvements and also capacity expansion drive the demand for
computerized machine systems and computer control systems.
Factors affecting demand include:
o the need to continuously improve productivity and shorten cycle time,
o an aging machine tool installed base that will require replacement with
more advanced and efficient technology created by shorter product life
cycles,
o the industrial development of emerging countries in Asia and Eastern
Europe, and
o the declining supply of skilled machinists,
However, the demand for computerized machine systems and related products is
highly dependent upon economic conditions and the general level of business
confidence, as well as such factors as production capacity utilization and
changes in governmental policies regarding tariffs, corporate taxation and other
investment incentives. By marketing and distributing our products on a worldwide
basis, we reduce the potential impact on our total sales and service fees by
adverse changes in economic conditions in any particular geographic region.
Competition
Many companies compete with our products in both the United States and
international markets. Several of these competitors are larger and have greater
financial resources than we do. We strive to compete effectively by
incorporating unique, patented software and other proprietary features into our
products that offer enhanced productivity, greater technological capabilities
and ease of use. We offer our products in a range of prices and capabilities to
target a broad potential market. We also believe that our competitiveness is
aided by our reputation for reliability and quality, our strong international
sales and distribution organization and our extensive customer service
organization.
In the United States and European metal cutting markets, major competitors
include Haas Automation, Inc., Cincinnati Machine, Deckel, Maho Gildemeister
Group (DMG), Bridgeport Machines, Inc. and Fadal Engineering along with a
large number of foreign manufacturers including Okuma Machinery Works Ltd.,
Mori Seiki Co., Ltd., Masak and Matsuura Machinery Corporation. The largest
competitors with respect to our computerized machine systems for metal forming
applications include Amada America, Inc. and Trumpf.
Manufacturing
Our manufacturing strategy is based on a global network of contract suppliers
who manufacture our products in accordance with our proprietary design, quality
standards and cost specifications. This has enabled us to lower product costs,
lower working capital per sales dollar and increase our worldwide manufacturing
capacity without significant incremental investment in capital equipment or
increased personnel.
Our computerized metal cutting machine systems are manufactured to our
specifications by manufacturing contractors in Taiwan and in Europe. During
fiscal 2000, we established a wholly owned subsidiary in Taiwan to manufacture
computerized machine systems. This subsidiary has increased our overall capacity
and reduced our dependence on other Taiwan contract manufacturers. We also have
a 24% ownership interest in another contract manufacturer. We have worked
closely with our contract manufacturers to increase their production capacity to
meet the rising demand for our machine tool products and believe that such
capacity is sufficient to meet our current and projected demand. We are
continuing to identify additional contract manufacturing resources that will
increase our capacity, however; any significant reduction in capacity or
performance capability of our principal manufacturing contractors would have a
material adverse effect on our operations.
We also have a contract manufacturing agreement for computer control systems
with a Taiwanese-based affiliate in which we have a 35% ownership interest. This
company is manufacturing most of our computer control systems to our
specifications and supplies certain proprietary and standard components for use
in our domestic production. Alternative sources for standard and proprietary
components are available.
Backlog
Backlog consists of firm orders received from customers and distributors but not
shipped. Backlog was $10.2 million, $8.5 million and $7.5 million as of October
31, 2000, 1999, and 1998, respectively.
Intellectual Property
We consider certain features of our products to be proprietary. We own, directly
or through a subsidiary, a number of patents that are significant to our
business. Our subsidiary, IMS Technology, Inc. (IMS), owns domestic and foreign
patents covering the machining method practiced when a machine tool is
integrated with an interactive computer control (these patents are collectively
referred to as the "Interactive Machining Patents"). We also hold a
non-exclusive license covering features of the automatic tool changer offered
with certain of our computer control machining centers. We also own a patent on
an object-oriented, open architecture methodology for computer control software.
In fiscal 2000, we were granted a patent (patent no. 6149562) for a manual tool
changing apparatus. This is a manually operated apparatus for removal and
insertion of a tool holder to and from a tool pocket of a magazine. Also in
fiscal 2000, we were granted a Registered Trademark for the software options
WinMax(R) and we were granted a Registered Service Mark for the phrase "We make
machines smarter(R)."
Beginning in October 1995, IMS initiated a number of legal actions against
enterprises that it believed were infringing on one of the Interactive Machining
Patents. These included end-users of interactive computer controls, machine tool
builders employing interactive computer controls within their products and
computer control manufacturers whose control designs permit use of interactive
methods when coupled to machine tools (computer control users). At the present
date, all legal actions have been settled through licensing arrangements or
litigation settlements. See Item 3. Legal Proceedings.
IMS has actively pursued a program to license the use of the Interactive
Machining Patents. During the past five fiscal years, IMS entered into
agreements with approximately 40 computer control Users under which IMS has
granted non-exclusive licenses of Interactive Machining Patents. We recorded
license fee income of $5.4 million, $.3 million and $6.3 million, net of legal
fees and expenses, in fiscal 2000, 1999, and 1998 and, respectively. Subject to
the continuing validity of the U.S. Interactive Machining Patent, we expect to
receive additional license fee income, net of legal fees and expenses, of
approximately $300,000 in fiscal 2001. In addition, IMS has received a
royalty-free non-exclusive license under six patents owned by two of the
licensees. There are a limited number of remaining computer control users that
IMS has identified as potential licensees.
Research and Development
Research and development expenditures for new products and significant product
improvements, included as period operating expenses, were $3.2 million, $2.5
million and $2.4 million in fiscal 2000, 1999, and 1998, respectively. In
addition, we recorded expenditures of $706,000 in 2000, $1.0 million in 1999 and
$1.3 million in 1998 related to software development projects that were
capitalized.
Employees
We had approximately 292 employees at the end of fiscal 2000, none of which are
covered by a collective-bargaining agreement or represented by a union. We have
experienced no employee-generated work stoppages or disruptions and we consider
our employee relations to be satisfactory.
(d) Financial Information About Geographic Areas
Financial information about geographic areas is set forth in Note 14 to the
Consolidated Financial Statements.
We are subject to the risks of doing business on a global basis, including
foreign currency fluctuation risks, changes in general economic and business
conditions in the countries and markets that we serve and government actions and
initiatives including import and export restrictions and tariffs.
Item 2. PROPERTIES
The following table sets forth the location, size and principal use of each of
our facilities:
Location Square Footage Principal Uses
Indianapolis, Indiana 165,000(1) Corporate headquarters, design and
engineering, product testing, computer control
assembly, sales, application engineering and customer service
Farmington Hills, Michigan 37,500(2) Design and engineering, product
testing, computer control assembly, sales, application
engineering and customer service
Long Beach, California 3,000 Warehouse and distribution
High Wycombe, England 45,000(3) Sales, application engineering and customer service
Paris, France 2,800 Sales, application engineering and customer service
Munich, Germany 17,100 Sales, application engineering and customer service
Milan, Italy 4,850 Sales, application engineering and customer service
Singapore 3,000 Sales, application engineering and customer service
Taichung, Taiwan 26,600 Manufacturing
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(1) Approximately 45,000 square feet is sublet through fiscal 2001.
(2) Approximately 24,000 square feet is under sublease through fiscal 2001.
(3) Approximately 24,000 square feet have been sublet to a subtenant since 1995.
We own the Indianapolis facility and lease all other facilities. The leases have
terms expiring at various dates ranging from March 2001 to February 2005. We
believe that all of our facilities are well maintained and are adequate for our
needs now and in the foreseeable future. We do not believe that we would
experience any difficulty in replacing any of the present facilities if any of
our leases were not renewed at expiration.
Item 3. LEGAL PROCEEDINGS
As previously reported, Hurco and its subsidiary IMS Technology, Inc. (IMS) have
been parties to a number of legal proceedings which involved alleged
infringement of a United States interactive machining patent (the Patent) owned
by IMS. All actions have been settled through licensing arrangements or
litigation settlements. On August 8, 2000, Hurco and IMS agreed to a settlement
with Haas Automation Inc. and Gene Haas (Haas). Under the settlement, IMS
licensed the Patent to Haas and Haas made a one-time payment to IMS. We reported
license fee income and litigation settlement fees, net of expenses, of
approximately $5.4 million in the fourth quarter of fiscal 2000 primarily
resulting from this settlement.
Item. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"HURC". The following table sets forth the high and low sales prices of the
shares of our common stock for the periods indicated, as reported by the Nasdaq
National Market.
2000 1999
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Fiscal Quarter Ended: High Low High Low
- -------------------- --------------------- ---------------------
January 31............ $4.125 $3.000 $6.375 $4.156
April 30.............. 5.875 3.188 5.000 3.875
July 31............... 4.750 3.625 6.625 4.250
October 31............ 4.813 3.375 4.500 3.375
We do not currently pay dividends on our common stock and intend to continue to
retain earnings for working capital, capital expenditures and debt reduction.
There were approximately 454 holders of record of our common stock as of January
2, 2001.
During the period covered by this report, we did not sell any equity securities
that were not registered under the Securities Act of 1933, as amended.
Item 6. SELECTED FINANCIAL DATA
The Selected Financial Data presented below have been derived from our
Consolidated Financial Statements for the years indicated and should be read in
conjunction with the Consolidated Financial Statements and related notes set
forth elsewhere herein.
Year Ended October 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------
Statement of Operations Data: (In thousands, except per share amounts)
Sales and service fees................ $ 96,204 $ 88,238 $ 93,422 $ 95,729 $ 99,351
Gross profit.......................... $ 25,377 $ 24,174 $ 27,939 $ 27,773 $ 28,421
Selling, general and adminis-
trative expenses.................... $ 23,538 $ 21,259 $ 21,786 $ 21,047 $ 21,343
Restructuring charge (credit)......... $ 300 $ (103) $ 1,162 $ -- $ --
Operating income...................... $ 1,539 $ 3,018 $ 4,991 $ 6,726 $ 7,078
Interest expense...................... $ 939 $ 1,293 $ 876 $ 1,938 $ 3,211
License fee income and litigation
settlement fees, net................ $ 5,365 $ 304 $ 6,974 $ 10,095 $ 590
Net income............................ $ 5,035 $ 1,802 $ 9,254 $ 13,804 $ 4,264
Earnings
per common share-diluted............ $ .84 $ .30 $ 1.39 $ 2.06 $ .72
Weighted average common
shares outstanding-diluted.......... 6,020 6,061 6,670 6,704 5,907
As of October 31,
2000 1999 1998 1997 1996
---------------------------------------------------------------------
Balance Sheet Data: (Dollars in thousands)
Current assets........................ $ 49,195 $ 52,856 $ 55,143 $ 42,222 $ 44,108
Current liabilities................... $ 23,124 $ 19,580 $ 25,794 $ 19,370 $ 23,336
Working capital ...................... $ 26,071 $ 33,276 $ 29,349 $ 22,852 $ 20,772
Current ratio......................... 2.1 2.7 2.1 2.2 1.9
Total assets.......................... $ 65,024 $ 69,632 $ 71,696 $ 58,748 $ 59,750
Long-term obligations................. $ 3,009 $ 13,904 $ 8,162 $ 9,602 $ 20,273
Total debt............................ $ 3,736 $ 14,172 $ 8,358 $ 10,043 $ 22,110
Shareholders' equity.................. $ 38,891 $ 36,148 $ 37,740 $ 29,776 $ 16,141
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------
The following discussion should be read in conjunction with the Selected
Financial Data and 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 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 demand for computer numeric
control (CNC) systems, machine tools and software products, changes in
manufacturing markets, 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
The following table presents, for the fiscal years indicated, selected items
from the Consolidated Statements of Operations expressed as a percentage of
worldwide sales and service fees and the year-to-year percentage changes in the
dollar amounts of those items.
Percentage of Revenues Year-to-Year % Change
Increase (Decrease)
2000 1999 1998 00 vs. 99 99 vs. 98
----- ----- ----- --------- ---------
Sales and service fees................ 100.0% 100.0% 100.0% 9.0% (5.6%)
Gross profit.......................... 26.4% 27.4% 29.9% 5.0% (13.5%)
Selling, general and
administrative expenses............. 24.5% 24.1% 23.3% 10.7% (2.4%)
Operating income...................... 1.6% 3.4% 5.3% (49.0%) (39.5%)
License fee income and litigation
settlement fees, net............... 5.6% 0.3% 7.5% 1664.8% (95.6%)
Interest expense...................... 0.9% 1.5% 0.9% (27.4%) (47.6%)
Net income............................ 5.2% 2.0% 9.9% 179.4% (80.5%)
Fiscal 2000 Compared With Fiscal 1999
Net income for the fiscal year ended October 31, 2000 was $5.0 million, or $.84
per share, on a diluted basis, compared to $1.8 million, or $.30 per share, for
the preceding year. Fiscal 2000 net income was due almost entirely to the
receipt in the fourth quarter of proceeds from a settlement of a long-standing
patent infringement claim.
Operating results for fiscal 2000, however, compared unfavorably to those for
the prior year, due to the substantial adverse impact of converting foreign
sales and costs, particularly those denominated in Euros, to U.S. dollars for
financial reporting purposes. Had exchange rates in fiscal 2000 remained the
same as the average rate in effect during fiscal 1999, income before taxes for
fiscal 2000 would have increased by approximately $3.5 million.
Sales and service fees were $96.2 million for fiscal 2000, an increase of 9.0%
from the $88.2 million reported for fiscal 1999. When measured at constant
exchange rates, however, net sales and service fees would have been
approximately $102.2 million for the fiscal year, an increase of 15.6% compared
to the prior year.
The increase in sales and service fees was primarily driven by an increase in
sales of computerized machine systems. Sales of computerized machine systems
totaled $71.7 million in fiscal 2000 compared to $63.8 million in fiscal 1999, a
12.4% increase. Domestic sales of computerized machine systems in fiscal 2000
increased by $4.3 million, or 20.4%, due primarily to a 25% increase in units
shipped. Shipments of computerized machine systems in Europe also increased by
15.5%. Shipments of computerized machine systems in Southeast Asia also
benefited from significantly improved market conditions.
International sales, including export sales from the United States, approximated
57.5% of consolidated sales and service fees for fiscal 2000 compared to 58.4%
for fiscal 1999.
New order bookings for fiscal 2000 were $100.7 million compared to $89.9 million
for fiscal 1999, an increase of 12%. Orders for computerized machine systems
increased $11.2 million reflecting a 30% increase in unit orders. Unit orders
for machine systems in the U.S. increased 40% over fiscal 1999 as a result of a
very strong fourth quarter, which reflected favorable acceptance of our new
products introduced at the biennial International Manufacturing Technology Show
(IMTS) in September 2000, along with improved market conditions. Outside of the
United States, orders for machine systems increased 23% due principally to
increased market penetration in continental Europe and Southeast Asia. Orders in
Southeast Asia also benefited from significantly improved market conditions.
Backlog was $10.2 million at October 31, 2000, compared to $8.5 million at the
end of fiscal 1999.
Gross profit margin, as a percentage of sales, declined in fiscal 2000 to 26.4%
from 27.4% in fiscal 1999, due primarily to the unfavorable effects of the
stronger U.S. dollar particularly in relationship to the Euro. The unfavorable
effect was most pronounced in the fourth fiscal quarter.
Operating expenses increased to $23.5 million in fiscal 2000 from $21.3 million
in fiscal 1999, due primarily to product development costs associated with the
our new line of computerized machine systems as well as costs associated with
expanded sales and marketing activities. The increased operating expenses,
combined with the adverse margin impact of the strong U.S. dollar, resulted in a
decrease in operating profit from $3.0 million in fiscal 1999 to $1.5 million in
fiscal 2000.
In the fourth quarter of fiscal 2000, we recorded a restructuring charge of
$300,000 for severance costs related to the termination of employees at our
subsidiary, Autocon Technologies, Inc. in connection with the completion of the
consolidation of this operation into our North American sales and service
business.
Interest expense for fiscal 2000 declined by $354,000, or 27.4%, from the level
in fiscal 1999, primarily due to the significant reduction in our outstanding
borrowings.
Other expense was $359,000 in fiscal 2000 compared to other income of $25,000 in
fiscal 1999. The increase is primarily the result of realized and unrealized
currency losses associated with accounts receivable denominated in foreign
currencies, primarily those linked to the Euro, which for the most part, were
not hedged during fiscal 2000.
The provision for income taxes of $571,000 in fiscal 2000 is primarily related
to the earnings of a foreign subsidiary as well as to the settlement of a
previously disclosed German tax issue for approximately $275,000.
Domestic net operating loss carryforwards were substantially utilized in fiscal
2000. We would have recorded an additional tax provision of approximately $1.9
million in fiscal 2000 without the benefit of net operating loss carryforwards.
Note 6 to the Consolidated Financial Statements contains more information with
respect to our net operating loss carryforwards.
Fiscal 1999 Compared With Fiscal 1998
Net income for the fiscal year ending October 31, 1999 was $1.8 million, or $.30
per share, on a diluted basis, compared to $9.3 million, or $1.39 per share, for
the preceding year. Results for fiscal 1999 are not comparable to the preceding
period because fiscal 1998 results include a $1.2 million restructuring charge
and $6.3 million of license fees and litigation settlements net of expenses and
foreign withholding taxes. As discussed below, net license fee income and
litigation settlements fees for fiscal 1999 were $304,000.
Sales and service fees were $88.2 million for fiscal 1999, a decrease of 5.6%
from the $93.4 million reported in fiscal 1998. The decrease in sales was due in
part to the negative impact converting foreign sales to U.S. dollars for
financial reporting purposes. At constant exchange rates, net sales and service
fees for fiscal 1999 would have been $89.2 million.
Sales of computerized machine systems, before foreign currency translation
effects were substantially unchanged from the prior year and accounted for 72.3%
of our annual sales and service fees. Domestic sales of computerized machine
systems in fiscal 1999 decreased by $3.2 million, or 13.2%, reflecting very weak
market conditions that have existed since the third quarter of fiscal 1998.
Sales of computerized machine systems in Europe increased $1.7 million, or 4.3%,
in fiscal 1999 on a constant dollar basis, while sales in Southeast Asia
increased $1.3 million. The increase in international sales was offset in part
by approximately $1.0 million negative effect from foreign currency translation.
Sales of stand-alone CNC systems and software declined by $4.1 million, or
27.9%. The decline in stand-alone CNC systems was primarily the result of an
anticipated reduction in shipments to original equipment manufacturers and
retrofit dealers of stand-alone CNC systems, primarily related to our DeltaTM
Series CNC systems, as we have repositioned these products as components of
integrated machine systems.
International sales, including export sales from the United States, increased to
approximately 58.4% of consolidated sales and service fees for fiscal 1999
compared to 54.5% for fiscal 1998.
Orders for 1999 were $89.9 million compared to $92.4 million in the prior year,
a $2.5 million, or 2.7%, decrease. Computerized machine system orders increased
$1.5 million, or 2.3%, while stand-alone CNC system orders decreased $2.9
million, or 23.1%. Computerized machine system unit orders in Europe increased
7.2% while orders in the United States declined 10.5%. Offsetting the increase
in computerized machine system orders in Europe was a decline in stand-alone CNC
system unit orders of 32.3%. The decline in orders for stand-alone CNC systems
is the result of our repositioning these products for marketing as components of
integrated computerized machine systems.
Backlog was $8.5 million at October 31, 1999 and $7.5 million at October 31,
1998.
Gross profit margin as a percentage of sales decreased to 27.4% in fiscal 1999
compared to 29.9% in the prior year. The decrease was primarily the result of
lower service margin and the effects of a stronger dollar relative to foreign
currencies.
Interest expense for fiscal 1999 increased $417,000 or 47.6% from the amount
reported for the corresponding period in fiscal 1998, primarily due to increased
borrowing to support an increase in finished product inventory which began in
the second half of fiscal 1998.
License fee income and litigation settlement fees for fiscal 1999 were $304,000
compared to $7.0 million in the prior year. As previously reported, there are a
limited number of CNC users that are not already licensed. As a result, license
fee income and litigation settlement fees in fiscal 1999 were not expected to
equal that recorded in fiscal 1998. Note 10 to the Consolidated Financial
Statements contains more information on license fee income and litigation
settlement fees.
The provision for income taxes in fiscal 1999 is primarily related to the
earnings of a foreign subsidiary which no longer has the benefit of net
operating loss carryforwards to offset taxable income. The fiscal 1999 provision
was favorably impacted by a $377,000 tax asset recorded by a foreign subsidiary
due to a change in its tax status. The provision for foreign income taxes in
fiscal 1998 consisted of $640,000 of foreign withholding taxes resulting from
license fee income and litigation settlement fees and approximately $1.2 million
related to the earnings of foreign subsidiaries. Net operating loss
carryforwards available to offset pre-tax income in future periods are described
in Note 6 to the Consolidated Financial Statements.
EURO Currency
Many of the countries in which we sell our products and services are Member
States of the Economic and Monetary Union (EMU). Beginning January 1, 1999,
Member States of the EMU were permitted to begin trading in either their local
currencies or the Euro, the official currency of EMU participating Member
States. Parties are free to choose the unit they prefer in contractual
relationships during the transitional period, beginning January 1999 and ending
June 2002. Our computer system contains the functionality to process
transactions in either a country's national currency or the Euro. We have not
incurred and do not anticipate incurring any material adverse effects on our
operations related to the EMU's conversion to the Euro. However, there can be no
assurance that the conversion of EMU Member States to the Euro will not have a
material adverse effect on our operations.
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 risk of currency fluctuations on the costs
of purchased products. Note 1 to the Consolidated Financial Statements has more
information on this subject.
Liquidity and Capital Resources
At October 31, 2000, we had cash and cash equivalents of $3.4 million compared
to $3.5 million at October 31, 1999. Cash provided by operations totaled $12.9
million in fiscal 2000, compared to cash used by operations of $827,000 in
fiscal 1999. Cash flow from operations in fiscal 2000 was enhanced by litigation
settlement receipts of approximately $5.4 million, net of legal fees and taxes.
Working capital, excluding short-term debt was $28.1 million at October 31,
2000, compared to $33.3 million at October 31, 1999. The decline in working
capital is attributable to a decrease in inventory of $4.6 million and an
increase in accounts payable of $2.7 million. The decrease in inventory relates
primarily to an increase in sales combined with a planned reduction in inventory
of finished products available for shipment. The increase in accounts payable is
the result of increased machine purchases from our contract manufacturers in the
fourth fiscal quarter under terms that generally range from 60 to 120 days.
Capital investments for the fiscal 2000 consisted principally of expenditures
for software development projects and purchases of equipment.
We repurchased 395,752 shares of our common stock during fiscal 1999 under our
previously announced stock repurchase program. These shares are reflected as a
reduction of common stock outstanding in calculating basic and diluted earnings
per common share.
Total debt at October 31, 2000 was $3.7 million, representing 8.8% of total
capitalization, compared to $14.2 million, or 28.2%, of total capitalization at
October 31, 1999.
On December 29, 2000, we purchased 278,001 shares of our common stock for
approximately $1.2 million from a related party, Brynwood Partners II L.P. The
purchased shares will be reflected as a reduction in common stock.
We were in compliance with all loan covenants at October 31, 2000. We believe
that cash flow generated from our future operations and borrowings available to
us under our existing credit facilities will be sufficient to meet our
anticipated cash requirements in the foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
Our bank line of credit is affected by the general level of U.S. and European
interest rates and/or Libor. We had $950,000 outstanding under our bank line of
credit at October 31, 2000 and the effect of interest rate changes will likely
not be significant.
Foreign Currency Exchange Risk
A significant portion of our product content is sourced from foreign suppliers
or built to our specifications by contract manufacturers overseas. Our
contractual 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 foreign currency exchange rate risk
regarding product cost relates to the New Taiwan Dollar.
In fiscal 2000, approximately 58% of our sales and service fees, including
export sales, were derived from foreign markets. All computerized machine
systems, CNC systems and certain proprietary service parts are sourced by a
central engineering and manufacturing division of our U.S. company and
re-invoiced to our foreign sales and service subsidiaries, primarily in their
functional currencies. The U.S. company enters into forward foreign exchange
contracts from time to time to hedge the cash flow risk related to inter-company
sales, inter-company purchases, inter-company accounts receivable and accounts
payable 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 and purchase of foreign currencies as of October
31, 2000:
Notional Amount
in Foreign Weighted Avg. Notional Amount Fair Value
Forward Contracts Currency Forward Rate in U.S. $ October 31, 2000 Maturity Dates
- ----------------- --------------- ------------- --------------- ---------------- --------------
Sterling 1,000,000 1.4549 1,454,871 1,450,000 Nov '00-Dec `00
Euro 4,073,831 .8620 3,511,575 3,463,000 Nov '00-Dec `00
Singapore Dollar 1,989,000 1.7483 1,137,682 1,136,000 Nov '00-Dec `00
NT Dollar 498,000,000 32.04 15,543,027 15,414,000 Nov '00-Oct `01
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To the Shareholders and
Board of Directors of
Hurco Companies, Inc.:
We have audited the accompanying consolidated balance sheets of Hurco Companies,
Inc. (an Indiana corporation) and subsidiaries as of October 31, 2000 and 1999,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended October
31, 2000. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hurco Companies,
Inc. and subsidiaries as of October 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a) 2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
December 5, 2000.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended October 31,
----------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands, except per share amounts)
Sales and service fees........................................ $ 96,204 $ 88,238 $ 93,422
Cost of sales and service .................................... 70,827 64,064 65,483
-------- --------- --------
Gross profit............................................. 25,377 24,174 27,939
Selling, general and administrative expenses.................. 23,538 21,259 21,786
Restructuring charge (credit) (Note 15)....................... 300 (103) 1,162
--------- --------- --------
Operating income ........................................ 1,539 3,018 4,991
License fee income and litigation settlement fees, net
(Note 12)................................................ 5,365 304 6,974
Interest expense.............................................. 939 1,293 876
Other income (expense), net................................... (359) 25 99
--------- --------- --------
Income before income taxes............................... 5,606 2,054 11,188
Provision for income taxes (Note 6)........................... 571 252 1,934
--------- --------- --------
Net income ................................................... $ 5,035 $ 1,802 $ 9,254
========= ========= ========
Earnings per common share - basic............................. $ .85 $ .30 $ 1.42
========= ========== ========
Weighted average common shares outstanding - basic............ 5,952 5,980 6,498
========= ========== ========
Earnings per common share - diluted........................... $ .84 $ .30 $ 1.39
========= ========== ========
Weighted average common shares outstanding - diluted.......... 6,020 6,061 6,670
========= ========== ========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
As of October 31,
2000 1999
---- ----
(Dollars in thousands, except per share amounts)
Current assets:
Cash and cash equivalents..................................................... $ 3,384 $ 3,495
Accounts receivable, less allowance for doubtful accounts of $741 in 2000 and $687 in 1999 17,842 17,154
Inventories .................................................................. 26,176 30,767
Other......................................................................... 1,793 1,440
--------- ---------
Total current assets........................................................ 49,195 52,856
--------- ---------
Long-term license fee receivables (Note 12)...................................... -- 434
--------- ---------
Property and equipment:
Land.......................................................................... 761 761
Building...................................................................... 7,162 7,168
Machinery and equipment....................................................... 11,000 11,182
Leasehold improvements........................................................ 992 1,005
--------- ---------
19,915 20,116
Less accumulated depreciation and amortization................................ (11,122) (11,165)
--------- ---------
8,793 8,951
Software development costs, less accumulated amortization of $6,505 in 2000 and $5,174 in 1999 3,326 3,951
Other assets..................................................................... 3,710 3,440
--------- ---------
$ 65,024 $ 69,632
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 10,896 $ 8,519
Accounts payable-related parties.............................................. 2,697 2,372
Accrued expenses.............................................................. 6,714 5,935
Accrued warranty expenses..................................................... 831 968
Current portion of long-term debt............................................. 1,986 1,786
--------- ---------
Total current liabilities................................................... 23,124 19,580
--------- ---------
Non-current liabilities:
Long-term debt ............................................................... 1,750 12,386
Deferred credits and other ................................................... 1,259 1,518
--------- ---------
3,009 13,904
Commitments and contingencies (Notes 10 and 11)
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; 5,955,359
and 5,951,859 shares issued and outstanding in 2000 and 1999, respectively.. 596 595
Additional paid-in capital.................................................... 46,347 46,340
Accumulated deficit........................................................... (313) (5,348)
Foreign currency translation adjustment....................................... (7,739) (5,439)
--------- ---------
Total shareholders' equity.................................................. 38,891 36,148
--------- ---------
$ 65,024 $ 69,632
========= =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
October 31,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Cash flows from operating activities:
Net income ............................................................. $ 5,035 $ 1,802 $ 9,254
Adjustments to reconcile net income to
net cash provided by (used for) operating activities:
Depreciation and amortization......................................... 2,519 2,428 2,138
Restructuring charge (credit) ........................................ 300 (103) 1,162
Change in assets/liabilities
(Increase) decrease in accounts receivable........................... (2,101) 974 (2,808)
(Increase) decrease in inventories................................... 2,717 801 (8,775)
Increase (decrease) in accounts payable.............................. 2,917 (4,825) 6,864
Increase (decrease) in accrued expenses.............................. 1,023 (928) (994)
Other................................................................ 440 (976) (931)
--------- --------- --------
Net cash provided by (used for) operating activities.............. 12,850 (827) 5,910
--------- --------- --------
Cash flows from investing activities:
Proceeds from sale of equipment......................................... 36 69 93
Purchase of property and equipment...................................... (1,193) (1,176) (1,013)
Software development costs.............................................. (706) (981) (1,315)
Other .................................................................. (138) (288) (411)
--------- --------- --------
Net cash (used for) investing activities.......................... (2,001) (2,376) (2,646)
--------- --------- --------
Cash flows from financing activities:
Advances on bank credit facilities...................................... 28,500 61,920 15,053
Repayments of bank credit facilities.................................... (37,150) (54,320) (14,953)
Repayments of term debt................................................. (1,786) (1,786) (1,786)
Proceeds from exercise of common stock options.......................... 8 18 120
Purchase of common stock................................................ -- (2,379) (1,827)
-------- --------- --------
Net cash provided by (used for) financing activities.............. (10,428) 3,453 (3,393)
-------- --------- --------
Effect of exchange rate changes on cash.................................... (532) (31) 34
-------- --------- --------
Net increase (decrease) in cash................................... (111) 219 (95)
Cash and cash equivalents at beginning of year............................. 3,495 3,276 3,371
-------- --------- --------
Cash and cash equivalents at end of year................................... $ 3,384 $ 3,495 $ 3,276
======== ========= ========
Supplemental disclosures:
Cash paid for:
Interest............................................................. $ 834 $ 1,016 $ 702
Income taxes......................................................... $ 739 $ 1,003 $ 1,818
The accompanying notes are an integral part of the Consolidated
Financial Statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other
Comprehensive
Income (loss):
Foreign
Common Stock Additional Currency
Shares Issued Paid-In Accumulated Translation
& Outstanding Amount Capital Deficit Adjustment Total
(Dollars in thousands)
Balances, October 31, 1997................. 6,544,831 $ 654 $ 50,349 $(16,404) $(4,823) $29,776
Net income................................. -- -- -- 9,254 -- 9,254
Translation of foreign currency financial
statements.............................. -- -- -- -- 417 417
Comprehensive Income....................... 9,671
Exercise of common stock options........... 49,780 5 115 -- -- 120
Purchase of common stock................... (254,500) (25) (1,802) -- -- (1,827)
---------- ------ --------- --------- -------- --------
Balances, October 31, 1998................. 6,340,111 $ 634 $ 48,662 $ (7,150) $(4,406) $37,740
---------- ------ --------- --------- -------- --------
Net income................................. -- -- -- 1,802 -- 1,802
Translation of foreign currency financial
statements.............................. -- -- -- -- (1,033) (1,033)
Comprehensive Income....................... 769
Exercise of common stock options........... 7,500 1 17 -- -- 18
Purchase of common stock................... (395,752) (40) (2,339) -- -- (2,379)
---------- ------ --------- --------- -------- --------
Balances, October 31, 1999................. 5,951,859 $ 595 $ 46,340 $ (5,348) $(5,439) $36,148
---------- ------ --------- --------- -------- --------
Net income................................. -- -- -- 5,035 -- 5,035
Translation of foreign currency financial
statements.............................. -- -- -- -- (2,300) (2,300)
Comprehensive Income....................... 2,735
Exercise of common stock options........... 3,500 1 7 -- -- 8
---------- ------ --------- --------- -------- -------
Balances, October 31, 2000................. 5,955,359 $ 596 $ 46,347 $ (313) $(7,739) $38,891
========== ====== ========= ========= ======== =======
The accompanying notes are an integral part of the Consolidated
Financial Statements.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of
Hurco Companies, Inc. (an Indiana corporation) and our wholly owned and
controlled subsidiaries. We have a 35% and 24% ownership interest in two
affiliates accounted for using the equity method. These investments are included
in Other Assets on the accompanying Consolidated Balance Sheets. Intercompany
accounts and transactions have been eliminated.
Statements of Cash Flows. We consider all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. Cash flows from
hedges are classified consistent with the items being hedged.
Translation of Foreign Currencies. All balance sheet accounts of non-U.S.
subsidiaries are translated at the exchange rate as of the end of the year.
Income and expenses are translated at the average exchange rates during the
year. Foreign currency translation adjustments are recorded as a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are recorded as income or expense as incurred.
Hedging. We enter into foreign currency forward exchange contracts to hedge
certain inter-company sale and purchase commitments denominated in foreign
currencies (primarily pound sterling, Euro and New Taiwan Dollar). The purpose
of these instruments is to protect us from 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.
Gains and losses on these hedge contracts are deferred and recognized as an
adjustment to the related sale or purchase transactions.
We enter into foreign currency forward exchange contracts periodically to
provide a hedge against the effect of foreign currency fluctuations on
receivables and payables denominated in foreign currencies. Gains and losses
related to contracts designated as hedges of receivables and payables
denominated in foreign currencies are accrued as exchange rates change and are
recognized as "Other income (expense), net" in the Consolidated Statements of
Operations.
The U.S. dollar equivalent notional amount of outstanding foreign currency
forward exchange contracts was approximately $22.0 million as of October 31,
2000 ($15.5 million related to intercompany purchase 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 $155,300 and $48,000 as of October 31, 2000 and 1999,
respectively. Contracts outstanding at October 31, 2000 mature at various times
through October 2001. Contracts are for the sale and purchase of foreign
currency. We do not enter into these contracts for trading purposes.
On November 1, 2000, we adopted Statement of Financial Accounting
Standards (SFAS) No. 133 Accounting for Derivative Instruments and Hedging
Activities. Refer to Footnote 16 for more information on the impact of SFAS
No. 133.
Inventories. Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Property and Equipment. Property and equipment are carried at cost. Depreciation
and amortization of assets are provided primarily under the straight-line method
over the shorter of the estimated useful lives or the lease terms as follows:
Number of Years
Building 40
Machines 10
Shop and office equipment 5
Leasehold improvements 5
Revenue Recognition. Sales of products and services are recorded when products
are shipped or services are performed. Service fees from maintenance contracts
are deferred and recognized in earnings on a pro rata basis over the period of
the agreement. Sales related to software products are recognized when shipped in
conformity with American Institute of Certified Public Accountants' Statement of
Position 97-2 Software Revenue Recognition.
License Fee Income and Litigation Settlement Fees, Net. From time to time, our
wholly owned subsidiary, IMS Technology, Inc. (IMS) enters into agreements for
the licensing of its interactive computer numerical control (CNC) patents.
License fees received or receivable under a fully paid-up license, for which
there are no future performance requirements or contingencies and litigation
settlement fees, are recognized in income, net of legal fees and expenses, if
any, at the time the related agreement is executed. License fees received in
periodic installments that are contingent upon the continuing validity of a
licensed patent are recognized in income, net of legal fees and expenses, if
any, over the life of the licensed patent.
Product Warranty. Expected future product warranty expense is recorded when the
product is sold.
Research and Development Costs. The costs associated with research and
development programs for new products and significant product improvements are
expensed as incurred and included in selling, general and administrative
expenses. Research and development expenses totaled $3.2 million, $2.5 million
and $2.4 million in fiscal 2000, 1999, and 1998, respectively.
Costs incurred to develop computer software products and significant
enhancements to software features of existing products to be sold or otherwise
marketed are capitalized, after technological feasibility is established.
Software development costs are amortized to Cost of Sales on a straight-line
basis over the estimated product life of the related software, which ranges from
three to five years. We capitalized $706,000 in 2000, $1.0 million in 1999 and
$1.3 million in 1998 related to software development projects. Amortization
expense was $1.3 million, $1.3 million and $1.1 million for the years ended
October 31, 2000, 1999, and 1998, respectively.
Earnings Per Share. Earnings per share of common stock are based on the weighted
average number of common shares outstanding, which, for diluted purposes,
includes the effects of outstanding stock options computed using the treasury
method.
Income Taxes. We record income taxes under SFAS 109 "Accounting for Income
Taxes". SFAS 109 utilizes the liability method for computing deferred income
taxes and requires that the benefit of certain loss carryforwards be recorded
as an asset and that a valuation allowance be established against the asset
to the extent it is "more likely than not" that the benefit will not be
realized.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
2. BUSINESS OPERATIONS
Nature of Business. We design and produce computer numerical control (CNC)
systems and software and computerized machine systems for sale through our own
distribution system to the worldwide machine tool industry.
The end market for our products consists primarily of precision tool, die and
mold manufacturers, independent job shops and specialized short-run production
applications within large manufacturing operations. Industries served include:
aerospace, defense, medical equipment, energy, transportation and computer
industries. Our products are sold through independent agents and distributors in
countries throughout North America, Europe and Asia. We also maintain direct
sales operations in the United States, England, France, Germany, Italy and
Singapore.
Credit Risk. We sell products to customers located throughout the world. We
perform ongoing credit evaluations of customers and generally do not require
collateral. Allowances are maintained for potential credit losses, and such
losses have been within our expectations.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers and their dispersion across many
geographic areas. Although a significant amount of trade receivables are with
distributors primarily located in the United States, no single distributor or
region represents a significant concentration of credit risk.
Reliance on Contract Manufacturers. We contract with manufacturing contractors
located in Taiwan and Europe for the manufacture and assembly of computerized
machine systems, based on our designs and specifications. Any interruption from
these sources would restrict the availability of our computerized machine
systems and would affect operating results adversely.
3. INVENTORIES
Inventories as of October 31, 2000 and 1999 are summarized below (in thousands):
2000 1999
-------- --------
Purchased parts and sub-assemblies........ $ 10,526 $ 9,104
Work-in-process........................... 1,339 1,070
Finished goods............................ 14,311 20,593
-------- --------
$ 26,176 $ 30,767
======== ========
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. DEBT AGREEMENTS
Long-term debt as of October 31, 2000 and 1999, consisted of (in thousands):
2000 1999
-------- --------
Bank revolving credit facilities................ $ 950 $ 9,600
Senior Notes.................................... 1,786 3,572
Economic Development Revenue Bonds, Series 1990. 1,000 1,000
-------- --------
3,736 14,172
Less current portion............................ 1,986 1,786
-------- --------
$ 1,750 $ 12,386
======== ========
As of October 31, 2000, long-term debt was payable as follows (in thousands):
Fiscal 2001............................. $ 1,986
Fiscal 2002............................. 1,150
Fiscal 2003............................. 200
Fiscal 2004............................. 200
Fiscal 2005 ............................ 200
--------
$ 3,736
========
As of October 31, 2000 and 1999, we had $8.5 million and $7.2 million,
respectively, of outstanding letters of credit issued to non-U.S. suppliers for
inventory purchase commitments. As of October 31, 2000, we had unutilized credit
facilities of $15.6 million available for either direct borrowings or commercial
letters of credit.
As of October 31, 2000 and 1999, the domestic bank revolving credit facility was
payable at an interest rate of 9.5% and 6.9-8.25%, respectively. Interest was
payable on the Senior Notes at 10.37% at October 31, 2000 and 1999.
The principal terms of the Bank Credit Agreement and Senior Notes Agreement are
set forth below:
a) Bank Credit Agreement
Our bank credit agreement provides for a revolving, unsecured credit
facility expiring May 1, 2002, which permits borrowings, at any one
time outstanding, of up to $25.0 million (inclusive of outstanding
letters of credit up to $15.0 million). Of such borrowings, up to $5.0
million may be drawn in designated European currencies. Interest on all
outstanding borrowings is payable at Libor plus an applicable Euro
dollar rate margin ranging from 1.0% to 2.0% based on a prescribed
formula, or at our option, the greater of the prime rate or 1.0% plus
the Federal Funds Rate. An additional margin of .25% may be charged if
our fixed charge coverage ratio falls below 1.25 to 1. The agreement
requires us to maintain a specified minimum net worth and establishes
maximum leverage and fixed charge coverage ratios. We are required to
maintain consolidated tangible net worth (as defined) of not less than
$30.0 million plus (i) 50% of cumulative net income subsequent to May
1, 1999 and (ii) 75% of proceeds from sales of capital stock after
April 30, 1999. Total consolidated debt may not exceed 50% of
consolidated capitalization (defined as total debt plus consolidated
tangible net worth). Our fixed charge coverage ratio requirement varies
within a range of 1.0-1.25 to 1 during the term of the agreement.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
b) Senior Notes
At October 31, 2000, we had outstanding approximately $1.8 million of
unsecured Senior Notes, bearing an interest rate of 10.37%. The final
installment of $1.8 million is due on December 1, 2000. The financial
covenants substantially conform to those contained in our bank credit
agreement.
The Economic Development Revenue Bonds are payable in five equal annual
installments beginning on September 1, 2001 and are secured by a letter of
credit issued in the amount of $1.1 million by a bank. The Bonds' interest rates
adjust weekly and, as of October 31, 2000 and 1999, interest was accruing at a
rate of 4.65% and 3.7%, respectively.
We were in compliance with all loan covenants at October 31, 2000.
5. FINANCIAL INSTRUMENTS
The carrying amounts for trade receivables and payables approximate their fair
values. At October 31, 2000 the carrying amounts and fair values of our
financial instruments, which includes bank revolving credit facilities, senior
notes and Economic Development Revenue Bonds are not materially different.
We also have off-balance sheet financial instruments in the form of foreign
currency forward exchange contracts as described in Note 1 to the Consolidated
Financial Statements. The U.S. dollar equivalent notional amount and fair value
of these contracts were $22.0 million and $21.5 million at October 31, 2000.
Current market prices were used to estimate the fair value of the foreign
currency forward exchange contracts.
The future value of the foreign currency forward exchange contracts and the
related currency positions are subject to offsetting market risk resulting from
foreign currency exchange rate volatility. The counterparties to these contracts
are substantial and creditworthy financial institutions. Neither the risk of
counterparty non-performance nor the economic consequences of counterparty
non-performance associated with these contracts are considered material.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. INCOME TAXES
Deferred income taxes reflect the effect of temporary differences between the
tax basis of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net operating losses and an offsetting valuation allowance. Our
total deferred tax assets and corresponding valuation allowance at October 31,
2000 and 1999, consisted of the following (in thousands):
October 31,
-----------------------------
2000 1999
--------- ---------
Tax effects of future tax deductible items related to:
Accrued inventory reserves................................................. $ 890 $ 824
Accrued warranty expenses.................................................. 226 249
Deferred compensation ..................................................... 365 310
Other accrued expenses..................................................... 830 745
--------- -------
Total deferred tax assets.............................................. 2,311 2,128
--------- -------
Tax effects of future taxable differences related to:
Accelerated tax deduction and other tax over book
deductions related to property, equipment and software................... (1,552) (1,774)
Other...................................................................... (672) (575)
--------- -------
Total deferred tax liabilities........................................... (2,224) (2,349)
--------- -------
Net tax effects of temporary differences................................. 87 (221)
--------- -------
Tax effects of carryforward benefits:
U.S. federal net operating loss carryforwards, ............................ -- 1,636
Foreign tax benefit carryforwards
with various expiration years............................................ 1,561 1,339
U.S. federal general business tax credits,
expiring 2008-2013....................................................... 548 1,001
U.S. Alternative Minimum Tax Credit with no expiration..................... 508 426
--------- ---------
Tax effects of carryforwards .......................................... 2,617 4,402
--------- ---------
Tax effects of temporary differences and carryforwards................. 2,704 4,181
Less valuation allowance............................................... (2,196) (3,755)
--------- ---------
Net deferred tax asset................................................. $ 508 $ 426
========= =========
Except as indicated above, our carryforwards expire at specific future dates and
utilization of certain carryforwards is limited to specific amounts each year
and further limitations may be imposed if an "ownership change" would occur.
Realization is entirely dependent upon generating sufficient future earnings in
specific tax jurisdictions prior to the expiration of the loss carryforwards.
Due to the uncertain nature of their ultimate realization based upon past
performance and expiration dates, we have established a full valuation allowance
against carryforward benefits with expiration dates. Alternative minimum tax
credits may be carried forward indefinitely and as a result, are not provided
with a valuation allowance. While the need for this valuation allowance is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of our income
tax expense.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Income (loss) before income taxes (in thousands):
Year Ended October 31,
----------------------
2000 1999 1998
---------- ----------- -----------
Domestic............................................... $ 5,459 $ 1,848 $ 8,809
Foreign................................................ 147 206 2,379
-------- --------- ---------
$ 5,606 $ 2,054 $ 11,188
======== ========= =========
Differences between the effective tax rate and
U.S. federal income tax rate were (in thousands):
Tax at U.S. statutory rate.................................... $ 1,962 $ 719 $ 3,915
Foreign withholding taxes..................................... 19 4 640
German tax settlement (Note 10)............................... 275 -- --
Effect of tax rates of international jurisdictions
in excess of U.S. statutory rates........................... 39 209 563
State income taxes............................................ 46 41 35
Utilization of net operating loss carryforwards............... (1,770) (721) (3,219)
-------- --------- ---------
Provision for income taxes.................................... $ 571 $ 252 $ 1,934
======== ========= =========
Foreign withholding taxes are the result of foreign dividends received during
fiscal 2000 and 1999 and certain license fee payments received during fiscal
1998. Our provision for income taxes in fiscal 2000, 1999 and 1998 represents
taxes currently payable.
We have not provided any U.S. income taxes on the undistributed earnings of our
foreign subsidiaries or equity method investments based upon our determination
that such earnings will be indefinitely reinvested.
7. EMPLOYEE BENEFITS
We have defined contribution plans that include a majority of our employees
worldwide, under which our contributions are discretionary. The purpose of these
plans is generally to provide additional financial security during retirement by
providing employees with an incentive to save throughout their employment. Our
contributions to the plans are based on employee contributions or compensation.
Our contributions totaled $321,422, $331,605 and $357,000 for the years ended
October 31, 2000, 1999 and 1998, respectively.
We also have Split-Dollar Life Insurance Agreements with our executive officers.
Under the terms of the agreements, we pay all of the premiums on behalf of the
officers. We will be repaid the premiums from the policies' cash surrender value
when the policies are terminated in accordance with the provisions of the
agreements.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. STOCK OPTIONS
In March 1997, we adopted the 1997 Stock Option and Incentive Plan (the 1997
Plan) which allows us to grant awards of options to purchase shares of our
common stock, stock appreciation rights, restricted shares and performance
shares. The 1997 Plan was amended in fiscal 2000 to increase the maximum number
of shares of common stock that may be issued from 500,000 to 750,000 and to
increase the maximum number of shares of common stock that may be granted to any
individual during the term of the 1997 Plan from 100,000 to 200,000 shares.
Options granted under the 1997 Plan are exercisable for a period up to ten years
after date of grant and vest in equal annual installments as specified by the
Compensation Committee of our Board of Directors at the time of grant. The
option price of options intended to qualify as incentive stock options may not
be less than 100% of the fair market value of a share of common stock on the
date of grant. As of October 31, 2000, options to purchase 305,500 shares had
been granted under the 1997 Plan.
In 1990, we adopted the 1990 Stock Option Plan (the 1990 Plan) which allowed us
to grant options to purchase shares of our common stock and related stock
appreciation rights and limited rights to officers and our key employees. Under
the provisions of the 1990 Plan, the maximum number of shares of common stock
which may be issued under options and related rights is 500,000. There is no
annual limit on the number of such shares with respect to which options and
rights may be granted. Options granted under the 1990 Plan are exercisable for a
period up to ten years after date of grant and vest in equal installments over a
period of three to five years from the date of grant. The option price may not
be less than 100% of the fair market value of a share of common stock on the
date of grant and no options or rights may be granted under the 1990 Plan after
April 30, 2000.
A summary of the status of the options under the 1990 and 1997 Plans as of
October 31, 2000, 1999 and 1998 and the related activity for the year is as
follows:
Shares under Weighted average exercise
option price per share
- ----------------------------------------------- -------------------- ----------------------------
Balance October 31, 1997 421,860 $4.07
Granted 26,000 8.25
Cancelled (4,000) 5.13
Expired - -
Exercised (49,780) 2.43
- ----------------------------------------------- -------------------- ----------------------------
Balance October 31, 1998 394,080 4.54
Granted 305,500 5.68
Cancelled (20,400) 4.91
Expired - -
Exercised (7,500) 2.42
- ----------------------------------------------- -------------------- ----------------------------
Balance October 31, 1999 671,680 5.07
Granted 180,600 3.76
Cancelled (22,120) 6.15
Expired - -
Exercised (3,500) 2.13
- ----------------------------------------------- -------------------- ----------------------------
Balance October 31, 2000 826,660 $4.77
=============================================== ==================== ============================
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock options outstanding and exercisable on October 31, 2000 are as follows:
Weighted average Weighted average remaining
Range of exercise prices Shares under option exercise price per share contractual life in years
per share
- --------------------------- --------------------- ------------------------- -------------------------------
Outstanding
$2.125-5.125 465,160 $3.60 6.2
5.813-8.250 361,500 6.28 6.8
- --------------------------- --------------------- ------------------------- -------------------------------
$2.125-8.250 826,660 $4.77 6.5
=========================== ===================== ========================= ===============================
Exercisable
$2.125-5.125 300,419 $3.44 -
5.813-8.250 187,400 6.55 -
- --------------------------- --------------------- ------------------------- -------------------------------
$2.125-8.250 487,819 $4.63 -
=========================== ===================== ========================= ===============================
We apply Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" (APB25), and related interpretations in accounting for the plans,
and, therefore, no compensation expense has been recognized for stock options
issued under the plans. For companies electing to continue the use of APB25,
SFAS No. 123 "Accounting for Stock-Based Compensation", requires pro forma
disclosures determined through the use of an option-pricing model as if the
provisions of SFAS No. 123 had been adopted.
The weighted average fair value at date of grant for options granted during
fiscal 2000, 1999, and 1998 was $2.72, $3.85, and $6.10 per share, respectively.
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
- ---------------------------------- ----------- ----------- -----------
- ---------------------------------- ----------- ----------- -----------
Expected dividend yield 0.00% 0.00% 0.00%
Expected volatility 56.33% 55.09% 57.50%
Risk-free interest rate 6.20% 4.69% 5.83%
Expected term in years 10 10 10
- ---------------------------------- ----------- ----------- -----------
If we had adopted the provisions of SFAS No. 123, net income and earnings per
share would have been as follows:
2000 1999 1998
- ---------------------------- ---------------- ----------------- ----------------
- ---------------------------- ---------------- ----------------- ----------------
Net income (in thousands) $4,726 $1,484 $9,181
Earnings per share:
Basic $.79 $.25 $1.41
Diluted $.79 $.24 $1.38
- ---------------------------- ---------------- ----------------- ----------------
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
As of October 31, 2000, there were outstanding non-qualified options that had
been granted outside of the 1990 and 1997 plans to outside members of the Board
of Directors to purchase 50,000 and 75,000 shares at $5.13 and $5.81 per share,
respectively. These shares are exercisable as of October 31, 2000. The options
expire at various dates between 2001 and 2004. During fiscal 2000, 30,000
non-qualified options were granted to two new directors at $3.75 per share and
are exercisable in May 2001.
9. RELATED PARTY TRANSACTIONS
We own approximately 24% of one of our Taiwanese-based contract manufacturers.
This investment of $361,000 is accounted for using the equity method and is
included in Other Assets on the Consolidated Balance Sheet. Purchases of product
from this contract manufacturer are negotiated on an arms length basis and
totaled $8.6 million, $7.8 million and $7.4 million for the years ended October
31, 2000, 1999 and 1998, respectively. Trade payables to this contract
manufacturer were $2.2 million and $1.5 million at October 31, 2000 and 1999,
respectively.
As of October 31, 2000, we own 35% of Hurco Automation, Ltd. (HAL), a Taiwan
based company. HAL's scope of activities includes the design, manufacture, sales
and distribution of industrial automation products, software systems and related
components, including CNC systems and components manufactured under contract for
sale exclusively to us. We are accounting for the investment using the equity
method. The investment of $932,000 at October 31, 2000 is included in Other
Assets on the Consolidated Balance Sheet. Purchases of product from this
supplier are negotiated on an arms length basis and amounted to $4.2, $3.6
million and $3.1 million in 2000, 1999 and 1998, respectively. Trade payables to
HAL were $542,000 and $672,000 at October 31, 2000 and 1999, respectively. Trade
receivables from HAL were $461,000 and $0 at October 31, 2000 and 1999,
respectively.
10. LITIGATION AND CONTINGENCIES
As previously reported, Hurco and its subsidiary IMS Technology, Inc. (IMS) have
been parties to a number of legal proceedings which involved alleged
infringement of a United States interactive machining patent (the Patent) owned
by IMS. All actions have been settled through licensing arrangements or
litigation settlements. On August 8, 2000, Hurco and IMS agreed to a settlement
with Haas Automation Inc. and Gene Haas (Haas). Under the settlement, IMS
licensed the Patent to Haas and Haas made a one-time payment to IMS. We reported
license fee income and litigation settlement fees, net of expenses, of
approximately $5.4 million in the fourth quarter of fiscal 2000 primarily
resulting from this settlement.
A German tax examiner had contested our transfer of net operating losses between
two of our German subsidiaries that merged in fiscal 1996. The contingent tax
liability resulting from this issue was approximately $1.4 million. In the
fourth quarter of fiscal 2000, this matter was settled for approximately
$275,000. The contingency was not previously accrued and as a result, the
settlement was recorded in the fourth quarter and is included in the provision
for income taxes.
In addition, we are involved in various other claims and lawsuits arising in the
normal course of business. We believe that none of these claims are likely to
have a material adverse effect on our consolidated financial position or results
of operations.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
11. OPERATING LEASES
We lease facilities and vehicles under operating leases that expire at various
dates through 2005. Future payments, exclusive of amounts reflected in the
balance sheet, required under operating leases as of October 31, 2000, are
summarized as follows (in thousands):
2001............................................ $ 1,592
2002............................................ 948
2003............................................ 402
2004............................................ 308
2005............................................ 158
--------
Total........................................... $ 3,408
========
Rent expense for the years ended October 31, 2000, 1999, and 1998 was $1.7
million, $1.7 million and $1.8 million, respectively.
12. LICENSE FEE INCOME AND LITIGATION SETTLEMENT FEES, NET
License fee income and litigation settlement fees, net for fiscal 2000, 1999 and
1998 were attributable to agreements entered into by IMS, pursuant to which IMS
granted fully paid-up licenses of its interactive CNC patents in exchange for
cash and other consideration. As of October 31, 2000, additional license fees of
approximately $300,000, net of legal fees and expenses, related to future
payments under completed license agreements have been deferred and are expected
to be recognized in income over the one-year remaining life of the licensed
patent.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
13. QUARTERLY HIGHLIGHTS (Unaudited)
2000 (In thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales and service fees............................... $ 24,524 $ 24,197 $ 22,676 $ 24,807
Gross profit......................................... 6,721 6,732 6,115 5,809
Gross profit margin percentage....................... 27.4% 27.8% 27.0% 23.4%
Selling, general and administrative expenses......... 5,820 5,623 5,768 6,627
Operating income (loss).............................. 901 1,109 347 (818)
Net income .......................................... 459 602 407 3,567
Earnings per common share - basic.................... $ .08 $ .10 $ .07 $ .60
Earnings per common share - diluted.................. $ .08 $ .10 $ .07 $ .59
1999 (In thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales and service fees............................... $ 21,147 $21,532 $20,783 $24,776
Gross profit......................................... 6,004 5,858 5,915 6,397
Gross profit margin percentage....................... 28.4% 27.2% 28.5% 25.8%
Selling, general and administrative expenses......... 5,335 5,352 5,152 5,420
Restructuring charge (credit)........................ -- (103) -- --
Operating income..................................... 669 609 763 977
Net income .......................................... 175 554 400 673
Earnings per common share - basic.................... $ .03 $ .09 $ .07 $ .11
Earnings per common share - diluted.................. $ .03 $ .09 $ .07 $ .11
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
14. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer numerical control (CNC) 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, CNC
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
Substantially all of our machine systems and CNC 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. During fiscal 2000, no customer accounted
for more than 5% of our sales and service fees.
The following table sets forth the contribution of each of our product groups to
our total sales and service fees during each of the past three fiscal years (in
thousands):
Year Ended October 31,
2000 1999 1998
------- ------- -------
Computerized Machine Systems... $71,708 $63,793 $64,770
CNC Systems and Software*...... 9,605 10,623 14,727
Service Parts.................. 10,649 9,574 9,424
Services Fees.................. 4,242 4,248 4,501
------- ------- -------
$96,204 $88,238 $93,422
======= ======= =======
- --------------
*Amounts shown do not include CNC systems sold as an integrated component of
computerized machine systems.
Revenues by geographic area, based on customer location, for each of the past
three fiscal years were (in thousands):
Year Ended October 31,
------------------------------------------
2000 1999 1998
------- ------- -------
United States......... $40,920 $36,730 $42,486
------- ------- -------
Germany............... 23,654 25,388 24,949
United Kingdom........ 10,128 9,567 9,454
Other Europe.......... 12,932 12,087 12,112
------- ------- -------
Total Europe........ 46,714 47,042 46,515
Asia and Other........ 8,570 4,466 4,421
------- ------- -------
Total Foreign....... 55,284 51,508 50,936
------- ------- -------
$96,204 $88,238 $93,422
======= ======= =======
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Long-lived assets by geographic area were (in thousands):
October 31,
-------------------------
2000 1999
---------- ----------
United States................. $ 14,257 $ 15,105
Foreign Countries............. 1,064 1,671
---------- ----------
$ 15,321 $ 16,776
========== ==========
15. 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. This
restructuring program, which was completed during the first half of fiscal 1999,
resulted in a special charge to operations of $1.2 million consisting of the
following components:
Excess building capacity $ 500
Discontinued capitalized software projects 301
Fixed asset impairments 170
Equipment leases 101
Severance costs 90
--------
$ 1,162
Of the $1.2 million provision, $691,000 was charged to the restructuring reserve
while the remainder was used for asset impairments. On April 30, 1999, the
excess building space was subleased, effective June 15, 1999 through July 31,
2001. The reserve was adjusted to reflect the terms of the sublease resulting in
a restructuring credit of approximately $103,000. The excess building capacity
reserve represents the final year of the building lease which has not been
sublet. In the fourth quarter of fiscal 2000, we recorded a restructuring charge
of $300,000 for severance costs related to the termination of employees at our
subsidiary, Autocon Technologies, Inc. in connection with the completion of the
consolidation of this operation into our North American sales and service
business. At October 31, 2000, the restructuring reserve balance was
approximately $640,000 and consisted of the following:
Balance Charges to Balance
Description 10/31/99 Provision Accrual 10/31/00
----------- -------- ---------- ------- --------
Excess Building Capacity $ 286 $ -- $ -- $ 286
Equipment Leases 77 -- (23) 54
Severance -- 300 -- 300
-------- ---------- ------- --------
$ 363 $ 300 $ (23) $ 640
======== ========== ======= ========
16. NEW ACCOUNTING PROUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement which is effective for
the Company on November 1, 2000, establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts. This statement requires that every
derivative instrument be recorded in the balance sheet as either an asset
or a liability measured at its fair value. Changes in the fair value of
derivatives are to be recorded each period in earnings or comprehensive
income, depending on whether the derivative is designated and effective as part
of a hedged transaction, and on the type of hedge transaction. Gains or losses
on derivative instruments reported in other comprehensive income must be
reclassified as earnings in the period in which earnings are affected by the
underlying hedged item, and the ineffective portion of all hedges must be
recognized in earnings in the current period. This new standard could results
in additional volatility in reported earnings and other comprehensive income.
SFAS No. 133 requires that as of the date of initial adoption, the difference
between the fair value of the derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in net
income or other comprehensive income, as appropriate, as the cumulative
effect of a change in accounting principle in accordance with APB 20
"Accounting Changes".
On November 1, 2000, we recorded the effect of the transition to SFAS
No. 133 as a cumulative effect of a change in accounting principle, the
result of which was not material to the Company's consolidated financial
position or results of operations.
17. SUBSEQUENT EVENTS (unaudited)
On December 29, 2000, we purchased 278,001 shares of our common stock for
approximately $1.2 million from a related party, Brynwood Partners II L.P. The
purchased shares will be reflected as a reduction in common stock.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
- --------------------------------------------------------------------------------
Not applicable.
PART III
Item 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following information sets forth the name of each executive officer and
director, his age, tenure as a director, principal occupation and business
experience for the last five years:
Name Age Position(s) with the Company
Brian D. McLaughlin 58 President, Chief Executive Officer and Director
Roger J. Wolf 60 Senior Vice President, Secretary,
Treasurer and Chief Financial Officer
James D. Fabris 49 Executive Vice President - Operations
Bernard C. Faulkner 49 President - Hurco North America
David E. Platts 48 Vice President, Technology and Business Development
Stephen J. Alesia 34 Corporate Controller, Assistant Secretary
Robert W. Cruickshank 55 Director
Michael Doar 45 Director
Hendrik J. Hartong, Jr. 61 Director
Richard T. Niner 61 Director
O. Curtis Noel 65 Director
Charles E. Mitchell Rentschler 61 Director
Brian D. McLaughlin has been President and Chief Executive Officer of Hurco
since December 1987. Mr. McLaughlin has also been a director since 1987.
Roger J. Wolf has been Senior Vice President, Secretary, Treasurer and Chief
Financial Officer since January 1993.
James D. Fabris was elected Executive Vice President - Operations in November
1997 and Vice President of Hurco in February 1995. Mr. Fabris was President of
Hurco Machine Tool Products Division from November 1993 to December 1997.
David E. Platts has been employed by Hurco since 1982, and was elected Vice
President, Technology and Business Development in 1989.
Bernard C. Faulkner joined Hurco in March 2000 and was elected an Executive
Officer in May 2000. Prior to joining Hurco, Mr. Faulkner was Vice President
and General Manager for the Industrial Products division of Flair Corporation.
Mr. Faulkner was employed by the Flair Corporation for four years.
Stephen J. Alesia has been the Corporate Controller since joining Hurco in June
1996 and was elected an executive officer in September 1996. Prior to joining
Hurco, Mr. Alesia was employed for seven years by Arthur Andersen LLP, an
international public accounting firm.
Robert W. Cruickshank has been owner of R. W. Cruickshank Company, a financial
services firm since 1981. Mr. Cruickshank is also a director of Calgon Carbon
Corporation and Friedman's Jewelers, Inc. Mr. Cruickshank has been a director
since 2000.
Michael Doar has been President of Ingersoll Contract Manufacturing Company, a
subsidiary of Ingersoll International, since 1999. From 1989 until 1998, he held
various management positions with Ingersoll Milling Machine Company. Mr. Doar
has been a director since 2000.
Hendrik J. Hartong, Jr. is a general partner of Brynwood Management III and
Brynwood Management IV, L.P., the general partner of Brynwood Partners III
and Brynwood Partners IV, L.P. Mr. Hartong is also a general partner of
Brynwood Management II, L.P., the general partner of Brynwood Partners II,
L.P., and until December 31, 1998, was a general partner of Brynwood Management,
the general partner of Brynwood Partners Limited Partnership. Mr. Hartong
has served as a director of Lincoln Snacks since June 1998. Mr. Hartong has
been a director since 1986.
Richard T. Niner was elected Chairman of the Board of Directors on March 9,
1999. Mr. Niner is a general partner of Wind River Associates. Mr. Niner is
also a general partner of Brynwood Management II, L.P., the general partner of
Brynwood Partners II, L.P., and until December 31, 1998, was a general
partner of Brynwood Management, the general partner of Brynwood Partners
Limited Partnership. Mr. Niner is a director of Arrow International, Inc.
and Case, Pomeroy & Company, Inc. Mr. Niner has been a director since 1986.
O. Curtis Noel has been an independent business consultant for more than ten
years specializing in market and industry studies, competitive analysis and
corporate development programs with clients in the U.S. and abroad. Mr. Noel
has been a director since 1993.
Charles E. Mitchell Rentschler has served as President and Chief Executive
Officer of The Hamilton Foundry & Machine Co. since 1985. The Hamilton Foundry
& Machine Co. filed a petition for relief under Chapter 11 of the Bankruptcy
Code on October 10, 2000. Mr. Rentschler has been a director since 1986.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more than 10% of our common stock, to
file reports of ownership with the Securities and Exchange Commission and
Nasdaq. Such persons are also required to furnish us with copies of all Section
16(a) forms they file.
Based solely on our review of the copies of such forms received or written
representations from certain reporting persons that they were not required to
file a Form 5 to report previously unreported ownership or changes in ownership,
we believe that, during our fiscal year ending October 31, 2000, our officers,
directors and greater than 10% beneficial owners complied with all filing
requirements under Section 16(a).
Item 11. EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth all compensation paid or accrued during each of
the last three fiscal years to the Chief Executive Officer and each of the other
four executive officers of Hurco (the Named Executive Officers) whose salary and
bonus exceeded $100,000 during fiscal 2000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation All Other
------------------------------------------ ------------ Compen-
Name and Fiscal Salary Bonus Other Annual Securities Underlying sation
Principal Position Year ($) ($)(1) Compensation ($)(2) Options(3) ($)(4)
- ------------------ ------ ------ ------ ------------------- ------------ --------
Brian D. McLaughlin 2000 $278,076 90,000 -- 40,000 $52,506
President and CEO 1999 268,077 -- -- 50,000 52,206
1998 258,077 75,000 -- -- 52,206
Roger J. Wolf 2000 $173,462 50,000 -- 30,000 $46,933
Sr. VP, Secretary 1999 165,946 -- -- 25,000 47,566
Treasurer and CFO 1998 160,039 50,000 -- -- 48,064
James D. Fabris 2000 $185,576 65,000 -- 20,000 $24,284
Executive Vice 1999 165,904 -- -- 35,000 23,984
President - Operations 1998 156,154 65,000 -- -- 24,054
Bernard C Faulkner 2000 $108,596 25,000 36,939 25,000 $17,151
President - Hurco
North America
David E. Platts 2000 $105,182 20,000 -- 10,000 $14,577
Vice President of 1999 105,000 -- -- 10,000 14,802
Technology & 1998 104,038 10,000 -- -- 15,436
Business Development
- ---------------------------
(1) Represents cash bonuses earned and paid in the subsequent year.
(2) Represents compensation related to relocation costs.
(3) Represents shares of common stock underlying grants of options
made during the year. We have not granted any Stock Appreciation
Rights (SARs).
(4) Represents contributions to defined contribution plans and split dollar
life insurance premiums.
Defined Contribution Plan Company Paid Split-Dollar
Name Company Match Life Insurance Premiums
Brian D. McLaughlin $5,100 $47,406
Roger J. Wolf 4,167 42,766
James D. Fabris 5,100 19,184
Bernard C. Faulkner 2,776 14,375
David E. Platts 2,362 12,215
Stock Options
The following table sets forth information related to options granted and
exercised during fiscal 2000 and options held at fiscal year-end by the Named
Executive Officers. We do not have any outstanding SARs.
Option Grants During Fiscal 2000
% of Total Potential Realizable
Number of Options Value at Assumed Annual
Securities Granted to Rates of Stock Price
Underlying Employees Exercise Appreciation for Option
Options in Fiscal Price Expiration Term(1)
Name Granted(2) Year ($/SH) Date 5%($) 10%($)
- ---- -------- ---- ------ ---- ----- ------
Brian D. McLaughlin 40,000 22.1% $3.75 12/07/09 $94,334 $239,061
Roger J. Wolf 30,000 16.6% $3.75 12/07/09 70,751 179,296
James D. Fabris 20,000 11.1% $3.75 12/07/09 47,167 119,531
Bernard C. Faulkner 25,000 13.8% $3.63 02/09/10 58,959 149,143
David E. Platts 10,000 5.5% $3.75 12/07/09 23,584 59,765
(1) The potential realizable value illustrates value that might be realized
upon the exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of Hurco's
common stock from the date of grant through the term of the options.
(2) Options may be exercised in three annual installments commencing on the
first anniversary of the date of grant except for Bernard C. Faulkner's options
which may be exercised in five annual installments.
Aggregated Option Exercises in Fiscal 2000 and Year-End Option Values
Value of
Number of Unexercised
Securities Underlying In-the-Money
Shares Unexercised Options Options
Acquired at FY-End (#) at FY-End ($)(1)
on Value ------------------------ ---------------------
Exercise Realized Exer- Unexer- Exer- Unexer-
Name (#) ($) cisable cisable cisable cisable
- ---- --------- --------- ------- ------- ------- -------
Brian D. McLaughlin -- -- 145,000 70,000 $61,250 --
Roger J. Wolf -- -- 60,000 45,000 6,125 --
James D. Fabris 3,000 $6,375 49,000 43,000 26,375 --
Bernard C. Faulkner -- -- -- 25,000 --
David E. Platts -- -- 33,000 17,000 18,750 --
- -----------------------------------------
(1) Value is calculated based on the closing market price of the common stock
on October 31, 2000 ($ 3.75) less the option exercise price.
Compensation of Directors
During 2000, each director who is not a full-time employee of Hurco received a
fee of $1,500 for each meeting of the Board of Directors attended and each such
director also received $5,000 per quarter. Directors are also entitled to
receive reimbursement for travel and other expenses incurred in attending such
meetings. Mr. Niner received annual compensation of $72,000 for his services as
Chairman of the Executive Committee of the Board of Directors.
Employment Contracts
Brian D. McLaughlin entered into an employment contract on December 14, 1987.
The contract term is month-to-month. Mr. McLaughlin's salary and bonus
arrangements are set annually by the Board of Directors. Other compensation,
such as stock option grants, is awarded periodically at the discretion of the
Board of Directors. As part of that contract, Mr. McLaughlin is entitled to 12
months' salary if we terminate his employment for any reason other than gross
misconduct.
Roger J. Wolf entered into an employment contract on January 8, 1993. The
contract term is unspecified. Mr. Wolf's salary and bonus arrangements are set
annually by the Board of Directors. Other compensation, such as stock option
grants, is awarded periodically at the discretion of the Board of Directors.
Mr. Wolf is entitled to 12 months' salary if we terminate employment without
just cause.
James D. Fabris entered into an employment contract on November 18, 1997. The
contract term is unspecified. Mr. Fabris' salary and bonus arrangement are set
annually by the Board of Directors. Other compensation, such as stock option
grants, is awarded periodically at the discretion of the Board of Directors. As
part of the contract, Mr. Fabris is entitled to 12 months' salary if we
terminate employment for any reason other than gross misconduct.
Bernard C. Faulkner entered into an employment contract on February 4, 2000.
The contract term is unspecified. Mr. Faulkner's salary and bonus arrangements
are set annually by the Compensation Committee of the Board of Directors. Other
compensation, such as stock option grants, is awarded periodically at the
discretion of the Compensation Committee. Mr. Faulkner is entitled to 12 months'
salary if we terminate his employment for any reason.
Compensation Committee Interlocks and Insider Participation
During fiscal 2000, the members of the Compensation Committee were O. Curtis
Noel, Michael Doar and Robert W. Cruickshank. None of the Committee members is
a current or former officer or employee of Hurco or any of its subsidiaries.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of January 2, 2001, regarding
beneficial ownership of the Company's common stock by each director and Named
Executive Officer, by all directors and executive officers as a group, and by
certain other beneficial owners of more than 5% of the common stock. Each such
person has sole voting and investment power with respect to such securities,
except as otherwise noted.
Shares Beneficially Owned
Name and Address Number Percent
Other Beneficial Owners
Wellington Management Co. 645,000 (1) 11.3%
75 State Street
Boston, Massachusetts 02109
The Prudential Insurance Company of America 489,364 (2) 8.6%
4 Gateway Center
Newark, New Jersey 07102
The TCW Group, Inc. 324,800 (3) 5.7%
865 South Figueroa Street
Los Angeles, California 90017
Dimensional Fund Advisors 398,900 (4) 7.0%
1299 Ocean Avenue
Santa Monica, CA 90401
FMR Corporation 379,028 (5) 6.7%
82 Devonshire Street
Boston, Massachusetts 02109
Richard T. Niner 452,448 (6) 7.4%
1055 Washington Blvd.
Box 9-5th Floor
Stamford, CT 06901
Directors and Executive Officers
Robert W. Cruickshank 10,100 0.2%
Michael Doar -- --
James D. Fabris 52,500 (11) 1.0%
Hendrik J. Hartong, Jr. 67,912 (6) 1.1%
Brian D. McLaughlin 193,576 (7,8) 3.4%
Richard T. Niner 452,448 (6) 7.4%
O. Curtis Noel 25,000 (6) 0.4%
David E. Platts 44,700 (12) 0.8%
Charles E. Mitchell Rentschler 35,100 (6,9) 0.6%
Roger J. Wolf 73,492 (10) 1.4%
Executive officers and directors 999,494 (13) 16.3%
as a group (12 persons)
(1) According to a Schedule 13G, dated December 31, 1999, Wellington
Management Co. has shared voting power for all shares.
(2) According to a Schedule 13G, dated December 31, 1999, the Prudential
Insurance Company of America has sole voting power for
all shares.
(3) According to a Schedule 13G, dated December 31, 1999, the TCW Group,
Inc. has shared voting power for all shares.
(4) According to a Schedule 13G, dated December 31, 1999, Dimensional
Fund Advisors has sole voting power for all shares.
(5) According to a Schedule 13G, dated December 31, 1999, FMR Corporation
has no voting power for any of the shares.
(6) Includes 25,000 shares subject to options that are exercisable within
60 days.
(7) Includes 158,333 shares subject to options held by Mr. McLaughlin that
are exercisable within 60 days.
(8) Includes 10,986 shares owned by Mr. McLaughlin's wife and children,
as to which he may be deemed to have beneficial ownership.
(9) Includes 10,100 shares owned by Mr. Rentschler's wife, as to which he
may be deemed to have beneficial ownership.
(10) Includes 70,000 shares subject to options that are exercisable within
60 days.
(11) Includes 55,667 shares subject to options that are exercisable within
60 days.
(12) Includes 36,333 shares subject to options that are exercisable within
60 days.
(13) Includes 431,666 shares subject to options that are exercisable within
60 days.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements. The following consolidated financial
statements of Registrant are included herein under Item 8 of
---------------------
Part II:
Page
Reports of Independent Accountants........................... 20
Consolidated Statements of Operations - years
ended October 31, 2000, 1999, and 1998 .................... 21
Consolidated Balance Sheets - as of October 31, 2000 and 1999 22
Consolidated Statements of Cash Flows - years
ended October 31, 2000, 1999, and 1998..................... 23
Consolidated Statements of Changes in Shareholders' Equity -
years ended October 31, 2000, 1999, and 1998............... 24
Notes to Consolidated Financial Statements................... 25
2. Financial Statement Schedules. The following financial statement
schedule is included in this Item.
-----------------------------
Page
Schedule II - Valuation and Qualifying
Accounts and Reserves....................................... 48
All other financial statement schedules are omitted because they are not
applicable or the required information is included in the consolidated
financial statements or notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended October 31,
2000.
(c) Exhibits
Exhibits are filed with this Form 10-K or incorporated herein by reference
as listed on pages 49 and 50.
Schedule II - Valuation and Qualifying Accounts and Reserves
for the years ended October 31, 2000, 1999, and 1998
(Dollars in thousands)
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ---------- ----------- -------- ---------- ---------
Allowance for doubtful accounts for the year ended:
October 31, 2000 $ 687 $ 185 $ -- $ 131 (1) $ 741
======== ======= ======= ======== ========
October 31, 1999 $ 769 $ 231 $ -- $ 313 (2) $ 687
======== ======= ======= ======== ========
October 31, 1998 $ 757 $ 280 $ -- $ 268 (3) $ 769
======== ======= ======= ======== ========
Accrued warranty expenses for the year ended:
October 31, 2000 $ 968 $ 430 $ -- $ 567 $ 831
======== ======= ======= ======== ========
October 31, 1999 $ 1,060 $ 533 $ -- $ 625 $ 968
======== ======= ======= ======== ========
October 31, 1998 $ 1,452 $ 503 $ -- $ 895 $ 1,060
======== ======= ======= ======== ========
Accrued restructuring expenses for the year ended:
October 31, 2000 $ 363 $ 300 $ -- $ 23 $ 640
======== ======= ======== ======== ========
October 31, 1999 $ 690 $ (103) $ -- $ 224 $ 363
======== ======= ======== ======== ========
October 31, 1998 $ -- $ 1,162 $ -- $ 472 $ 690
======== ======= ======== ======== ========
(1) Receivable write-offs of $140,000, net of cash recoveries on accounts
previously written off of $9,000.
(2) Receivable write-offs of $337,000, net of cash recoveries on accounts
previously written off of $24,000.
(3) Receivable write-offs of $280,000, net of cash recoveries on accounts
previously written off of $12,000.
EXHIBITS INDEX
Exhibits Filed. The following exhibits are filed with this report:
- --------------
11 Statement re: computation of per share earnings
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP.
Exhibits Incorporated by Reference. The following exhibits are incorporated
- ---------------------------------- into this report:
3.1 Amended and Restated Articles of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.2 to the Registrant's Report
on Form 10-Q for the quarter ended January 31, 2000.
3.2 Amended and Restated By-Laws of the Registrant dated September 12,
1995, incorporated by reference to Exhibit 3.3 to the Registrant's
Report on Form 10-Q for the quarter ended January 31, 1996.
10.1 The Underlease between Dikappa (Number 220) Limited and Northern &
London Investment Trust Limited dated December 2, 1982, incorporated
by reference to Exhibit 10.13 to the Registrant's Registration
Statement on Form S-1, No.2-82804 dated April 1, 1983.
10.2* Non-qualified Stock Option Agreement between the Registrant and O.
Curtis Noel effective, March 3, 1993, incorporated by reference to
Exhibit 10.44 to the Registrant's Report on Form 10-K for the year
ended October 31, 1993.
10.3* Employment Agreement between the Registrant and Roger J. Wolf
dated January 8, 1993, incorporated by reference to Exhibit 10.45
to the Registrant's Report on Form 10-K for the year ended October
31, 1993.
10.4* Non-qualified Stock Option Agreement between the Registrant and
Hendrik J. Hartong, Jr., effective July 8, 1996 incorporated by
reference to Exhibit 10.47 to the Registrant's Report on Form 10-K
for the year ended October 31, 1996.
10.5* Form of Director Non-qualified Stock Option Agreement between the
Registrant and Hendrik J. Hartong, Jr., Andrew L. Lewis IV,
Richard T. Niner, O. Curtis Noel and Charles E. Mitchell Rentschler,
incorporated by reference as Exhibit 10.2 to the Registrant's Form 10-K
for the year ended October 31, 1999.
10.6* Non-qualified Stock Option Agreement between the Registrant and
Richard T. Niner, effective July 8, 1996 incorporated by reference
to Exhibit 10.49 to the Registrant's Report on Form 10-K for the
year ended October 31, 1996.
10.7* Non-qualified Stock Option Agreement between the Registrant and O.
Curtis Noel, effective July 8, 1996 incorporated by reference to
Exhibit 10.50 to the Registrant's Report on Form 10-K for the year
ended October 31, 1996.
10.8* Non-qualified Stock Option Agreement between the Registrant and
Charles E. Mitchell Rentschler, effective July 8, 1996
incorporated by reference to Exhibit 10.51 to the Registrant's
Report on Form 10-K for the year ended October 31, 1996.
10.9* Amended 1997 Stock Option and Incentive Plan, incorporated by
reference as Exhibit 10.1 to the Registrant's Report on
Form 10-Q for the quarter ended July 31, 2000.
10.10 Amended and Restated Credit Agreement and Amendment to
Reimbursement Agreement, effective September 8, 1997 between the
Registrant and NBD Bank, N.A. and NBD Bank incorporated by
reference to Exhibit 10.10 to the Registrant's Report on Form 10-K
for the year ended October 31, 1997.
10.11 Second Amended and Restated Senior Note Agreement between the
Registrant and Principal Mutual Life Insurance Company effective
September 8, 1997 incorporated by reference to Exhibit 10.11 to
the Registrant's Report on Form 10-K for the year ended October
31, 1997.
10.12 Letter Agreement (European Facility) dated September 8, 1997,
between Registrant's subsidiaries and The First National Bank of
Chicago incorporated by reference to Exhibit 10.12 to the
Registrant's Report on Form 10-K for the year ended October 31,
1997.
10.13 Guaranty Agreement dated September 8, 1997, between the Registrant
and The First National Bank of Chicago incorporated by reference
to Exhibit 10.13 to the Registrant's Report on Form 10-K for the
year ended October 31, 1997.
10.14 Guaranty Agreement dated September 8, 1997, between Autocon
Technologies, Inc. and The First National Bank of Chicago
incorporated by reference to Exhibit 10.14 to the Registrant's
Report on Form 10-K for the year ended October 31, 1997.
10.15 Employment agreement between the Registrant and James D. Fabris
dated November 18, 1997, incorporated by reference as Exhibit
10.15 to the Registrant's Report on Form 10-Q for the quarter
ended January 31, 1998.
10.16 The First Amendment to The Amended and Restated Credit Agreement
and Amendment to Reimbursement Agreement between the Registrant
and NBD Bank N.A. dated September 29, 1998, incorporated by
reference as Exhibit 10.1 to the Registrant's Report on Form 10-K
For the year ended October 31, 1998.
10.17 The Second Amendment to the Amended and Restated Credit Agreement
and Amendment to Reimbursement Agreement between the Registrant and
NBD Bank N.A. dated December 19, 1998, incorporated by reference
as Exhibit 10.1 to the Registrant's Report of Form 10-Q for the
quarter ended January 31, 1999.
10.18 Sublease between Autocon Technologies, Inc. and Robert Bosch
Corporation dated April 30, 1999, incorporated by reference
as Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
ended April 30, 1999.
10.19* Employment agreement between the Registrant and Bernard C.
Faulkner dated February 4, 2000, incorporated by reference as
Exhibit 10.1 to the Registrant's Report of Form 10-Q for the
quarter ended April 30, 2000.
10.20 The Third Amendment to The Amended and Restated Credit Agreement
and Amendment to Reimbursement Agreement between the Registrant
and Bank One, Indiana National Association and Bank One, Michigan
(formerly known as NBD Bank) dated August 17, 1999, incorporated
by reference as Exhibit 10.1 to the Registrant's Report on Form
10-K for the year ended October 31, 1999.
10.21 Third amendment to European facility between the Registrant and
The First National Bank of Chicago dated August 17, 1999,
incorporated by reference as Exhibit 10.2 to the Registrant's
Report on Form 10-K for the year ended October 31, 1999.
- -------------------------------
* The indicated exhibit is a management contract, compensatory plan,
or arrangement required to be listed by Item 601 of Regulation S-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 27th day of January,
2001.
HURCO COMPANIES, INC.
By: /s/ ROGER J. WOLF
---------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature and Title(s) Date
/s/ BRIAN D. McLAUGHLIN January 26, 2001
- -----------------------------------
Brian D. McLaughlin, Director,
President and Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)
/s/ ROGER J. WOLF January 26, 2001
- ------------------------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)
/s/ STEPHEN J. ALESIA January 26, 2001
- ------------------------------------
Stephen J. Alesia
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)
/s/ HENDRIK J. HARTONG, JR. January 26, 2001
- --------------------------------------------
Hendrik J. Hartong, Jr., Director
/s/ ROBERT W. CRUICKSHANK January 26, 2001
- --------------------------------------------
Robert W. Cruickshank, Director
/s/ MICHAEL DOAR January 26, 2001
- --------------------------------------------
Michael Doar, Director
/s/ RICHARD T. NINER January 26, 2001
- --------------------------------------------
Richard T. Niner, Director
/s/ O. CURTIS NOEL January 26, 2001
- --------------------------------------------
O. Curtis Noel, Director
/s/ CHARLES E. M. RENTSCHLER January 26, 2001
- --------------------------------------------
Charles E. M. Rentschler, Director