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, 2001 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
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(State or other jurisdiction of I.R.S. Employer Identification Number)
incorporation or organization)
One Technology Way
Indianapolis, Indiana 46268
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 293-5309
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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
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(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 December 3, 2001 was $12,556,481.
The number of shares of the Registrant's common stock outstanding as of December
3, 2001 was 5,580,658.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy
Statement for its 2002 Annual Meeting of Shareholders (Part III).
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
General
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
computerized machine tool systems. We also sell certain 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 tool 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 the metal 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.
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, High Wycombe, England; Munich, Germany; Paris,
France; Milan, Italy and Singapore. Distribution facilities are located in Long
Beach, California and Venlo, the Netherlands; a manufacturing facility is
located in Taichung, Taiwan.
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, accuracy and
surface finish quality). We market these systems to the worldwide metal parts
manufacturing market. We use 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 tool systems
(milling machines, machining centers and metal bending machines) 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 bending 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,
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(Dollars in thousands) 2001 2000 1999
---- ---- ----
Computerized Machine Systems............ $73,286 (79.4%) $71,708 (74.5%) $63,793 (72.3%)
Computer Control
Systems and Software*................. 5,716 (6.2%) 9,605 (10.0%) 10,623 (12.0%)
Service Parts........................... 9,516 (10.3%) 10,649 (11.1%) 9,574 (10.9%)
Service Fees............................ 3,749 (4.1%) 4,242 (4.4%) 4,248 (4.8%)
---------- ----- --------- --------- -------------------
$92,267 (100.0%) $96,204 (100.0%) $88,238 (100.0%)
======= ======== ======= ======== ======= ========
* Amounts shown do not include computer control systems sold as an integrated
component of computerized machine systems.
Computerized Machine Systems
Ultimax(R) - Metal Cutting Applications
We design and market computerized machine tool 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 latest Ultimax(R) programming stations use a Pentium* processor featuring an
operator console with liquid crystal display screens and incorporate 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.
Our current line of Ultimax(R) metal cutting 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 and range in price from $25,000 to
$165,000.
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 entry level market
segment. They provide different levels of performance features for different
market applications and range in price from $20,000 to $40,000.
Autobend(R) - Metal Bending Applications
We offer a line of up-acting computerized press brake machines for metal bending
applications that incorporate our Autobend(R) computer control system as well as
high performance down-acting computerized press brake systems with
technologically advanced features, for high-accuracy performance and improved
productivity which incorporates a third-party computer control system. In
addition, we sell American and European style precision-ground tooling products
which are sold either in conjunction with a computerized press brake system or
directly to end-users of such equipment. These products are sold in the North
American market by independent distributors and, in certain territories, by our
direct sales personnel. The products provide different levels of performance
features for different market applications and range in price from $30,000 to
$300,000.
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* Pentium is a registered trademark of the Intel Corporation
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 Pentium*
microprocessor-based electronics incorporating industry standard computer
components, are designed for the 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 offers 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 through retro-fitters to end-users of a wide range of entry
level machine systems.
o Autobend(R)
Autobend(R) computer control systems are applied to metal bending press brake
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 press brake machines, in
combination with six different back gauges, through distributors to end-users as
retrofit units for installation on existing or new press brake machines, as well
as to original equipment manufacturers and importers of such equipment. The
Autobend(R) computer control system is also sold as a fully integrated feature
on our up-acting press brake machine systems.
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, 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
bending programs on a personal computer.
UltiPro(TM) is a high performance machining software option for our
Pentium*-based Ultimax(R) computer control platform. The UltiPro(TM) software
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* Pentium is a registered trademark of the Intel Corporation
** Windows is a registered trademark of the Microsoft Corporation.
enables a 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(R)
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.
We also offer conversational part and tool dimension probing options for
Ultimax(R) based machines. These options permit the computerized 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 approximately 258 independent agents and
distributors in 39 countries throughout North America, Europe and Asia. We also
have our own direct sales personnel in the United States, China, England,
France, Germany, Italy and Singapore, the world's principal computerized machine
tool system consuming countries. During fiscal 2001, no distributor accounted
for more than 5% of our sales and service fees. Approximately 80% of the
worldwide demand for computerized machine tool systems and computer control
systems comes from outside the U.S. In fiscal 2001, approximately 64% 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 tool systems, along with related 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
machines 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 2001, no single end-user of our products accounted for
more than 5% of our total sales and service fees.
We believe that advances in industrial technology and the related demand for
process improvements as well as 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 installed base of machine tools that will require replacement with
more advanced and efficient technology,
o the rate of industrial development in emerging countries in Asia and Eastern
Europe, and
o the declining supply of skilled machinists,
However, the demand for computerized machine tool 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, and therefore, can be volatile. By marketing and
distributing our products on a worldwide basis, we seek to reduce the potential
impact on our total sales and service fees of adverse changes in economic
conditions in any particular geographic region.
Competition
We compete with many other companies in 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, superior technological capabilities and greater ease of
use. We offer our products in a range of prices and capabilities in order to
reach a broader potential market. We 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 press brake systems for metal
bending applications include Amada America, Inc. and Trumpf.
Manufacturing
Our manufacturing strategy is based on the use of a global network of contract
suppliers who manufacture our products in accordance with our proprietary
designs, quality standards and cost specifications. This has enabled us to
achieve lower product costs and lower working capital per sales dollar and to
increase our worldwide manufacturing capacity without significant incremental
investment in capital equipment or personnel.
Our computerized metal cutting machine systems are manufactured to our
specifications by contractors in Taiwan, including our wholly owned subsidiary,
Hurco Manufacturing Limited, which we established in fiscal 2000. 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 primary contract manufacturer in Taiwan. 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
consider 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 company 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. We believe that alternative sources for standard and
proprietary components are available.
Backlog
Our backlog consists of firm orders received from customers and distributors but
not shipped. Backlog was $9.1 million, $10.2 million and $8.5 million as of
October 31, 2001, 2000, and 1999, 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,
as well as a patent for a manually operated apparatus for removal and insertion
of a machining tool from the machine.
Since 1995, IMS has actively pursued a program to stop infringement and license
the use of its interactive machining patents. During the past five fiscal years,
IMS has entered into agreements with approximately 40 computer control users
under which it has granted non-exclusive licenses of those patents. We recorded
license fee income of $700,000, $5.4 million and $300,000, net of legal fees and
expenses, in fiscal 2001, 2000, and 1999 respectively. In addition, IMS has
received a royalty-free non-exclusive license under six patents owned by two of
the licensees. There are only a limited number of remaining computer control
users that IMS has identified as potential licensees and we do not anticipate
that future license fee income will be significant.
Research and Development
Research and development expenditures for new products and significant product
improvements, included as period operating expenses, were $3.5 million, $3.2
million and $2.5 million in fiscal 2001, 2000, and 1999, respectively. In
addition, we recorded expenditures of $665,000 in 2001, $706,000 in 2000 and
$1.0 million in 1999 related to software development projects that were
capitalized.
Employees
We had approximately 250 employees at the end of fiscal 2001, none of whom 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.
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) 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 available for sublet.
(2) Approximately 24,000 square feet is under sublease through July 2002, the expiration date of the current lease.
(3) Approximately 24,000 square feet have been sublet to a subtenant since 1995. The current lease expires in
March 2002 at which time we expect to lease a new facility under acceptable
terms near the location of our current facility.
We own the Indianapolis facility and lease all other facilities. The leases have
terms expiring at various dates ranging from March 2002 to March 2006. 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
We are involved in various lawsuits arising in the normal course of business. We
believe that none of these suits is likely to have a material adverse effect on
our consolidated financial position or results of operations.
Item. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Executive Officers of the Registrant
The following information sets forth as of December 31,2001, the name of each
executive officer, his age, tenure as an officer, principal occupation and
business experience for the last five years:
Name Age Position(s) with the Company
Michael Doar 46 Chairman of the Board and Chief Executive Officer
James D. Fabris 50 President and Chief Operating Officer
Roger J. Wolf 61 Senior Vice President, Secretary, Treasurer and Chief Financial Officer
Bernard C. Faulkner 50 President - Hurco North America
David E. Platts 49 Vice President, Technology and Business Development
Stephen J. Alesia 35 Corporate Controller, Assistant Secretary
Michael Doar was elected Chairman of the Board and Chief Executive Officer
on November 14, 2001. Mr. Doar had held various management positions with
Ingersoll Milling Machine Company from 1989 until 2001. Mr. Doar has been a
director of Hurco since 2000.
James D. Fabris was elected President and Chief Operating Officer on November
14, 2001. Mr. Fabris served as Executive Vice President - Operations from
November 1997 until his current appointment and previously served as a Vice
President of Hurco since February 1995.
Roger J. Wolf has been Senior Vice President, Secretary, Treasurer and Chief
Financial Officer since January 1993.
David E. Platts has been employed by Hurco since 1982, and was elected Vice
President, Technology and Business Development in May 2000. Mr. Platts
previously served as Vice President of Research and Development since 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.
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:
2001 2000
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Fiscal Quarter Ended: High Low High Low
-------------------- ------------------- --------------------
January 31.............................. $3.875 $3.250 $4.125 $3.000
April 30................................ 4.188 3.150 5.875 3.188
July 31................................. 3.660 2.150 4.750 3.625
October 31.............................. 2.990 2.080 4.813 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 436 holders of record of our common stock as of December 3, 2001.
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,
2001 2000 1999 1998 1997
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Statement of Operations Data: (In thousands, except per share amounts)
Sales and service fees................ $ 92,267 $ 96,204 $ 88,238 $ 93,422 $ 95,729
Gross profit.......................... $ 23,262 $ 25,377 $ 24,174 $ 27,939 $ 27,773
Selling, general and adminis-
trative expenses.................... $ 24,040 $ 23,538 $ 21,259 $ 21,786 $ 21,047
Restructuring charge (credit)......... $ 143 $ 300 $ (103) $ 1,162 $ --
Operating income (loss)............... $ (921) $ 1,539 $ 3,018 $ 4,991 $ 6,726
Interest expense...................... $ 790 $ 939 $ 1,293 $ 876 $ 1,938
License fee income and litigation
settlement fees, net................ $ 723 $ 5,365 $ 304 $ 6,974 $ 10,095
Net income (loss)..................... $ (1,597) $ 5,035 $ 1,802 $ 9,254 $ 13,804
Earnings (loss)
per common share-diluted............ $ (.28) $ .84 $ .30 $ 1.39 $ 2.06
Weighted average common
shares outstanding-diluted.......... 5,670 6,020 6,061 6,670 6,704
As of October 31,
2001 2000 1999 1998 1997
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Balance Sheet Data: (Dollars in thousands)
Current assets........................ $ 49,510 $ 49,195 $ 52,856 $ 55,143 $ 42,222
Current liabilities................... $ 18,217 $ 23,124 $ 19,580 $ 25,794 $ 19,370
Working capital ...................... $ 31,293 $ 26,071 $ 33,276 $ 29,349 $ 22,852
Current ratio......................... 2.7 2.1 2.7 2.1 2.2
Total assets.......................... $ 66,217 $ 65,024 $ 69,632 $ 71,696 $ 58,748
Long-term obligations................. $ 12,532 $ 3,009 $ 13,904 $ 8,162 $ 9,602
Total debt............................ $ 12,000 $ 3,736 $ 14,172 $ 8,358 $ 10,043
Shareholders' equity.................. $ 35,468 $ 38,891 $ 36,148 $ 37,740 $ 29,776
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 market demand for computer
control systems, machine tools and software products, changes in manufacturing
markets, planned inventory reductions, 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)
2001 2000 1999 01 vs. 00 00 vs. 99
----- ----- ----- --------- ---------
Sales and service fees................ 100.0% 100.0% 100.0% (4.1%) 9.0%
Gross profit.......................... 25.2% 26.4% 27.4% (8.3%) 5.0%
Selling, general and
administrative expenses............. 26.1% 24.5% 24.1% 2.1% 10.7%
Operating income (loss)............... (1.0%) 1.6% 3.4% N.A (49%)
License fee income, net............... 0.8% 5.6% 0.3% (87%) 1665%
Interest expense...................... 0.9% 0.9% 1.5% (16%) (27%)
Net income (loss)..................... (1.7%) 5.2% 2.0% N.A. 179%
Fiscal 2001 Compared With Fiscal 2000
Net loss for the fiscal year ended October 31, 2001 was $1.6 million, or $.28
per share, on a diluted basis, compared to net income of $5.0 million, or $.84
per share, reported for the preceding year. The change in our year-to-year
results was due primarily to a significant decline in license fee income in
fiscal 2001 from that reported in fiscal 2000, and to a lesser extent, to a
decrease in sales.
Sales and service fees were $92.3 million, for fiscal 2001, a decrease of 4.1%
from the $96.2 million reported for fiscal 2000. The decline in sales was due in
major part to the adverse effects of a stronger U.S. dollar when translating
foreign sales for financial reporting purposes, and by a decrease in domestic
sales. When measured at constant exchange rates, sales for fiscal 2001 would
have been essentially the same as 2000. Domestic sales in fiscal 2001 declined
by $9.8 million, or 22.0%, as a result of a slowing economy in most industrial
sectors that began near the end of the first fiscal quarter, while sales in
Europe increased $8.8 million in spite of the strong dollar. Sales in Southeast
Asia declined by $3.0 million, or 54.1%, due to weak economic conditions in that
area during fiscal 2001.
Net sales of computerized machine tool systems increased in fiscal 2001 by $4.8
million compared to the prior year when measured in constant dollars but was
offset by a $3.5 million decline in sales of stand-alone control systems. Net
sales of computerized machine systems in the U.S. declined 17% for the full
fiscal year 2001. In contrast, sales of computerized machine systems in Europe,
measured in constant dollars, increased 30% for the full year. Parts and service
fee revenues declined by $1.6 million, or 10.9%. The decrease was exclusively in
the United States and further reflects the weakening economic environment.
International sales, including export sales from the United States, approximated
64.3% of consolidated sales and service fees for fiscal 2001 compared to 57.5%
for fiscal 2000.
New order bookings for fiscal 2001 were $89.4 million, compared to $100.7
million for the prior year period, a decrease of 11.3%. Orders were $28.1
million in the first quarter of fiscal 2001 but declined to $21.1 million, $19.2
and $21.0 million second, third and fourth quarter, respectively. The decline in
orders from the first quarter is the result of weak economic conditions in most
industrial market sectors in the U.S. along with a softening in the German
economy. The decline in orders was most pronounced in the United States where
computerized machine system orders declined 30.4% in dollars. This was partially
offset by a 19% increase in computerized machine system orders in Europe,
measured in constant dollars. We have experienced a further decline in orders in
the first quarter of fiscal 2002 reflecting the recessionary environment in our
primary markets. Backlog was $9.1 million at October 31, 2001, compared to
$10.2 million at October 31, 2000.
Gross profit margin declined in fiscal 2001 to 25.2% from 26.4% in fiscal 2000,
due primarily to the unfavorable effects of the stronger U.S. dollar.
Operating expenses increased 2.1% to $24.0 million in fiscal 2001 from $23.5
million in fiscal 2000, due primarily to increased costs for enhanced product
development activities associated with our next generation computer control
technology. The increased operating expense for the full fiscal year combined
with reduced sales and gross profit margins, resulted in an operating loss of
$921,000 for fiscal 2001 as compared to an operating profit of $1.5 million in
the prior year.
Restructuring expense of $143,000 in fiscal 2001 included a reversal of $328,000
primarily related to sub-letting space in a leased facility that was reserved as
part of a previous restructuring plan. In addition, a restructuring charge of
$471,000 was recorded for severance costs related reductions in our domestic
operations. In fiscal 2000, we recorded a restructuring charge of $300,000 for
severance costs related to the termination of employees at our Farmington Hills
facility in connection with the consolidation of this operation into our North
American sales and service business.
License fee income and litigation settlement fees in fiscal 2001 consisted of
several licenses that were granted during the year, while the substantial
license fees reported in fiscal 2000 were primarily the result of the settlement
of a long-standing patent infringement claim. The licensing program that
resulted in the license and litigation settlement fees has effectively been
completed and we do not expect significant license fees in fiscal 2002.
Other expense in fiscal 2001 was $215,000 compared to $395,000 in fiscal 2000
and consisted primarily of typhoon-related flood damage at our manufacturing
facility in Taiwan of which our insurers have denied coverage. Fiscal 2000 other
expense consisted primarily 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. In fiscal 2001, these accounts receivable were fully hedged.
The provision for foreign income tax in both fiscal 2001 and fiscal 2000
consists mostly of income tax expense related to the earnings of our foreign
subsidiaries.
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. At constant exchange rates 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. Fourteen employees received notice that their position would be
eliminated in fiscal 2001.
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.
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. Effective January 1, 2002, the Euro replaced the national currencies of
the participating Member States. We have not incurred and do not anticipate
incurring any material adverse effects on our operations related to the Euro.
Foreign Currency Risk Management
We manage our foreign currency exposure through the use of foreign currency
forward exchange contracts. We enter into foreign currency forward exchange
contracts periodically to hedge certain forecasted inter-company sales and
forecasted inter-company and third-party purchases denominated in foreign
currencies (primarily the Pound Sterling, Euro and New Taiwan Dollar). We also
enter into foreign currency forward exchange contracts to protect against the
effects of foreign currency fluctuations on receivables and payables denominated
in foreign currencies. We do not speculate in the financial markets and,
therefore, do not enter into these contracts for trading purposes. 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, 2001, we had cash and cash equivalents of $3.5 million compared
to $3.4 million at October 31, 2000. Cash used for operations totaled $3.5
million in fiscal 2001, compared to cash provided by operations of $12.9 million
in fiscal 2000. Cash flow from operations in fiscal 2000 was enhanced by license
fee receipts of approximately $5.4 million, net of related legal fees and
expenses.
Working capital, excluding short-term debt, was $31.5 million at October 31,
2001, compared to $28.1 million at October 31, 2000. The increase in working
capital is attributable to an increase in inventory of $4.0 million and a
decrease in accounts payable of $3.5 million offset by a $3.1 million decrease
in accounts receivable. The increase in inventory related primarily to increased
units of finished product available for sale, because shipments during the year
to customers in the U.S. and Southeast Asia markets were below planned levels.
We have adjusted our production schedules, which began to take effect in the
fourth fiscal quarter of 2001. Accordingly, we expect a reduction in inventory
and operating working capital during fiscal 2002.
Capital investments during the year consisted of expenditures for software
development projects and purchases of equipment. Investments also included
$672,000 for a secured loan to a software company as more fully described in
Note 17. During fiscal 2001, we repurchased 391,101 shares of our common stock
for $1.7 million. We funded these expenditures and our other cash needs with
borrowings under our bank credit facility.
Effective October 31, 2001, we entered into an amended and restated credit
agreement, maturing December 31, 2002. The restated credit agreement provides
for increased interest rates during the second half of fiscal 2002 of one to one
and one half percentage points more than those called for by the prior credit
agreement, as well as a facility fee of up to $150,000 if we have not reduced
the commitment by $7.5 million at May 1, 2002 or replaced the facility by August
1, 2002. The restated credit agreement provides the bank lender with a security
interest in substantially all of our domestic assets and 67% of the common stock
of our U.S. holding companies which own our foreign subsidiaries. Also, as
discussed in Note 4, we are in discussion with other lenders for long-term
replacement credit facilities, and while we believe that we will be able to
obtain replacement facilities in fiscal 2002 under acceptable terms, no such
assurance can be given.
The financial covenants included in the restated credit agreement require us to
maintain a specified working capital base, meet quarterly net worth and EBITDA
(earnings before interest, taxes, depreciation, and amortization) requirements
and impose a maximum leverage ratio and restrict our capital expenditures.
Total debt at October 31, 2001 was $12.0 million, representing 25% of total
capitalization, compared to $3.7 million, or 9% of total capitalization, at
October 31, 2000. We were in compliance with all loan covenants, and had an
additional credit availability of $9.2 million at October 31, 2001.
Based on our business plan for fiscal 2002, which include planned reductions of
operating expenses and working capital, we believe that cash flow generated from
operations and borrowings available to us under our restated credit agreement
will be sufficient to meet our anticipated cash requirements in fiscal 2002.
Although, we believe that the assumptions underlying our 2002 business plan are
reasonable there are risks related to further declines in market demand and
reduced sales in the U.S. and Europe, adverse currency movements, realization of
anticipated cost reductions and cash realized from planned inventory reductions,
that could cause our actual results to differ from our business plan. During
the first quarter of fiscal 2002, order rates have deteriorated further, both
in the U.S. and Europe. Should these below plan order rates continue into our
second fiscal quarter, we are prepared to take additional cost cutting actions.
Although we anticipate continued operating losses in our first fiscal quarter,
we expect to reduce outstanding borrowings at January 31, 2002 compared to
October 31, 2001, due to planned working capital reductions.
On January 8, 2002, our German subsidiary obtained a 3.0 million Euro working
capital credit facility that is available through December 31, 2002. As a
result, our domestic credit facility was reduced by $2.7 million to $19.8
million.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. (SAB) 101, "Revenue Recognition." This bulletin
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. We adopted SAB 101 in Fiscal 2001 and the impact on our
financial statements was immaterial.
In June 2001, the Financial Accounting Standards Board issued statement No. 141,
Business Combinations (FAS 141) and statement No. 142, Goodwill and Other
Intangible Assets (FAS 142). FAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Under FAS 142, amortization of goodwill will cease and the goodwill
carrying values will be tested periodically for impairment. We are required to
adopt FAS 142 effective November 1, 2002 for goodwill and intangible assets
acquired prior to July 1, 2001. Goodwill and intangible assets acquired after
June 30, 2001 will be subject immediately to the goodwill non-amortization and
intangible provisions of this statement. The impact on our financial statements
will be immaterial.
In August 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
which is effective for the fiscal year beginning November 1, 2002. FAS 144
establishes a single model to account for impairment of assets to be held or
disposed, incorporating guidelines for accounting and disclosure of discontinued
operations. We believe the impact on our financial statements will be
immaterial.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
Our earnings are effected by changes in interest expense on our outstanding
debt, all of which is subject to floating rates, either LIBOR or prime. If
interest rates on our outstanding borrowings during each of the last two fiscal
years were to have increased by one percentage point (1%) (or 100 basis points)
over the actual rates that we paid in that year, our interest expense would have
increased by approximately $110,000 in fiscal 2001 and approximately $90,000 in
fiscal 2000. See Note 4 of the Consolidated Financial Statements for a
discussion of the interest rates under our restated credit agreement. At October
31, 2001, outstanding borrowings under our bank credit facilities were $11.2
million and our total indebtedness was $12.0 million.
Foreign Currency Exchange Risk
In fiscal 2001, approximately 64.3% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer control systems, as well as certain proprietary service
parts, are sourced by our U.S.-based engineering and manufacturing division and
re-invoiced to our foreign sales and service subsidiaries, primarily in their
functional currencies.
Our products are sourced from foreign suppliers or built to our specifications
by either our wholly owned subsidiary in Taiwan, or contract manufacturers
overseas. These purchases are predominantly in foreign currencies and in many
cases our arrangements with these suppliers include foreign currency risk
sharing agreements, which reduce (but do not eliminate) the effects of currency
fluctuations on product costs. The predominant portion of our exchange rate risk
associated with product purchases relates to the New Taiwan Dollar.
We enter into foreign currency forward exchange from time to time to hedge the
cash flow risk related to forecasted inter-company sales, and forecasted
inter-company and third party purchases denominated in, or based on, foreign
currencies. We also enter into foreign currency forward exchange contracts to
protect against the effects of foreign currency fluctuations on receivables and
payables denominated in foreign currencies. We do not speculate in the financial
markets and, therefore, do not enter into these contracts for trading purposes.
Forward contracts for the sale or purchase of foreign currencies as of October
31, 2001 which are designated as cash flow hedges under SFAS No. 133 were as
follows:
Weighted
Notional Amount Avg. Contract Amount at Forward Rates
Forward in Foreign Forward in
Contracts Currency Rate U.S. Dollars
--------- -------- ---- ------------
Contract Maturity
Date October 31, 2001 Dates
---- ---------------- -----
Sale Contracts:
Euro 3,500,000 $ .8924 $3,123,400 $3,144,023 Nov 2001-Jan 2002
Sterling 400,000 $1.4521 $580,840 $578,870 Nov 2001-Jan 2002
Purchase Contracts:
New Taiwan Dollar 45,000,000 34.25* $1,314,000 $1,304,310 Nov 2001-Jan 2002
* NT Dollars per U.S. dollars
Forward contracts for the sale of foreign currencies as of October 31, 2001
which were entered into to protect against the effects of foreign currency
fluctuations on receivables and payables denominated in foreign currencies were
as follows:
Weighted
Notional Amount Avg. Contract Amount at Forward Rates
Forward in Foreign Forward in
Contracts Currency Rate U.S. Dollars
--------- -------- ---- ------------
Contract Maturity
---------
Date October 31, 2001 Dates
---- ----------------- -----
Sale Contracts:
Euro 9,105,196 $ .9034 $8,225,634 $8,187,658 Nov - Dec 2001
Singapore Dollar 2,415,675 $ .5557 $1,342,391 $1,326,977 Nov 2001 -Jan 2002
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, 2001 and 2000,
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, 2001. 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, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2001, 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,
January 15, 2002.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended October 31,
----------------------
2001 2000 1999
---- ---- ----
(Dollars in thousands, except per share amounts)
Sales and service fees........................................ $ 92,267 $96,204 $ 88,238
Cost of sales and service .................................... 69,005 70,827 64,064
-------- ---------- --------
Gross profit............................................. 23,262 25,377 24,174
Selling, general and administrative expenses.................. 24,040 23,538 21,259
Restructuring charge (credit) (Note 15)....................... 143 300 (103)
--------- ---------- -------
Operating income (loss).................................. (921) 1,539 3,018
License fee income and litigation settlement fees, net
(Note 10 and 12)......................................... 723 5,365 304
Interest expense.............................................. 790 939 1,293
Earnings from equity investments.............................. 383 36 192
Other expense, net............................................ 215 395 167
--------- ---------- ---------
Income (loss) before income taxes........................ (820) 5,606 2,054
Provision for income taxes (Note 6)........................... 777 571 252
--------- ---------- ----------
Net income (loss) ............................................ $ (1,597) $ 5,035 $ 1,802
========= ========= ========
Earnings (loss) per common share - basic...................... $ (.28) $.85 $.30
========= ==== ====
Weighted average common shares outstanding - basic............ 5,670 5,952 5,980
======== ========= ========
Earnings (loss) per common share - diluted.................... $ (.28) $.84 $.30
========= ==== =====
Weighted average common shares outstanding - diluted.......... 5,670 6,020 6,061
======== ======= ======
The accompanying notes are an integral part of the
Consolidated Financial Statements.
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
As of October 31,
ASSETS 2001 2000
---- ----
(Dollars in thousands, except per share amounts)
Current assets:
Cash and cash equivalents..................................................... $ 3,523 $ 3,384
Accounts receivable, less allowance for doubtful accounts
of $907 in 2001 and $741 in 2000............................................. 14,436 17,842
Inventories .................................................................. 30,319 26,176
Other......................................................................... 1,232 1,793
--------- ---------
Total current assets........................................................ 49,510 49,195
Property and equipment:
Land.......................................................................... 761 761
Building...................................................................... 7,187 7,162
Machinery and equipment....................................................... 11,410 11,000
Leasehold improvements........................................................ 1,059 992
--------- -------
20,417 19,915
Less accumulated depreciation and amortization................................ (11,653) (11,122)
--------- --------
8,764 8,793
Software development costs, less accumulated amortization........................ 3,066 3,326
Investments and other assets..................................................... 4,877 3,710
--------- ---------
$ 66,217 $ 65,024
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 7,601 $ 10,896
Accounts payable-related parties.............................................. 2,335 2,697
Accrued expenses and other.................................................... 7,289 6,714
Accrued warranty expenses..................................................... 792 831
Current portion of long-term debt............................................. 200 1,986
--------- ---------
Total current liabilities................................................... 18,217 23,124
Non-current liabilities:
Long-term debt ............................................................... 11,800 1,750
Deferred credits and other ................................................... 732 1,259
--------- ---------
12,532 3,009
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; 5,580,658 and 5,955,359 shares issued and
outstanding in 2001 and 2000, respectively.................................. 558 596
Additional paid-in capital.................................................... 44,714 46,347
Accumulated deficit........................................................... (1,910) (313)
Accumulated other comprehensive income........................................ (7,894) (7,739)
---------- ---------
Total shareholders' equity.................................................. 35,468 38,891
--------- ---------
$ 66,217 $ 65,024
========= =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended October 31,
2001 2000 1999
(Dollars in thousands) ---- ---- ----
Cash flows from operating activities:
Net income ............................................................. $ (1,597) $ 5,035 $ 1,802
Adjustments to reconcile net income to
net cash provided by (used for) operating activities:
Provision for doubtful accounts....................................... 547 185 231
Equity in income of affiliates........................................ (383) (36) (192)
Depreciation and amortization......................................... 2,196 2,519 2,428
Restructuring charge (credit) ........................................ (195) 300 (103)
Change in assets/liabilities
(Increase) decrease in accounts receivable........................... 3,113 (2,286) 743
(Increase) decrease in inventories................................... (4,018) 2,717 801
Increase (decrease) in accounts payable.............................. (3,521) 2,917 (4,825)
Increase (decrease) in accrued expenses.............................. 558 1,023 (928)
Other................................................................ (182) 476 (784)
----------- ---------- ----------
Net cash provided by (used for) operating activities.............. (3,482) 12,850 (827)
----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment......................................... 38 36 69
Purchase of property and equipment...................................... (1,253) (1,193 (1,176)
Software development costs.............................................. (665) (706) (981)
Other investments....................................................... (829) (138) (288)
----------- ---------- ----------
Net cash (used for) investing activities.......................... (2,709) (2,001) (2,376)
----------- ---------- ----------
Cash flows from financing activities:
Advances on bank credit facilities...................................... 44,300 28,500 61,920
Repayments of bank credit facilities.................................... (34,050) (37,150) (54,320)
Repayments of term debt................................................. (1,986) (1,786) (1,786)
Proceeds from exercise of common stock options.......................... 35 8 18
Repurchase of common stock................................................ (1,706) -- (2,379)
-------- -------- ---------
Net cash provided by (used for) financing activities.............. 6,593 (10,428) 3,453
-------- --------- ---------
Effect of exchange rate changes on cash.................................... (263) (532) (31)
----------- ---------- --------
Net increase (decrease) in cash................................... 139 (111) 219
Cash and cash equivalents at beginning of year............................. 3,384 3,495 3,276
-------- -------- --------
Cash and cash equivalents at end of year................................... $3,523 $3,384 $3,495
====== ======== =======
Supplemental disclosures:
Cash paid for:
Interest............................................................. $ 682 $ 834 $ 1,016
Income taxes......................................................... $ 501 $ 739 $ 1,003
The accompanying notes are an integral part of the Consolidated Finacial Statements.
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Common Stock Other
----------------------- Additional Comprehensive
Shares Issued Paid-In Accumulated Income
(Dollars in thousands) & Outstanding Amount Capital Deficit (loss) Total
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
Repurchase 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
========= ======= ========= ====== ======= ========
Net income (loss).................................... -- -- -- (1,597) -- (1,597)
Translation of foreign currency financial
statements........................................ -- -- -- -- 315 315
Unrealized loss of derivative instruments............ -- -- -- -- (470) (470)
-------
Comprehensive Income................................. (1,752)
Exercise of common stock options..................... 16,400 1 34 -- -- 35
Repurchase of common stock........................... (391,101) (39) (1,667) -- -- (1,706)
--------- ---- ------- ----- ------ -------
Balances, October 31, 2001.............................. 5,580,658 $ 558 $ 44,714 $(1,910) $(7,894) $35,468
========= ====== ========= ======== ======== ========
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. Our combined investments are
approximately $1.6 million and 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 of $7.4 million are included in
Accumulated Other Comprehensive Income in shareholders' equity. Foreign currency
transaction gains and losses are recorded as income or expense as incurred.
Hedging. On November 1, 2000, we adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In accordance with the provisions of SFAS No. 133, we recorded a
transition adjustment upon the adoption of the standard to recognize the
difference between the fair value of the derivative instruments recorded on the
balance sheet and the previous carrying amount of those derivatives. The effect
of this transition adjustment was insignificant and is reflected in the Other
Income (Expense) in the Condensed Consolidated Statement of Operations. We also
recorded a transition adjustment of approximately $129,000 in Accumulated Other
Comprehensive Income to recognize previously deferred net losses on derivatives
designated as cash flow hedges.
We enter into foreign currency forward exchange contracts periodically to hedge
certain forecasted inter-company sales and forecasted inter-company and
third-party purchases denominated in foreign currencies (primarily the Pound
Sterling, Euro and New Taiwan Dollar). The purpose of these instruments is to
mitigate the risk that the U.S. Dollar net cash inflows and outflows resulting
from sales and purchases denominated in foreign currencies will be adversely
affected by changes in exchange rates. These forward contracts have been
designated as cash flow hedge instruments, and are recorded in the Consolidated
Balance Sheet at fair value in Other Current Assets and Accrued Liabilities and
Other. Gains and losses resulting from changes in the fair value of these hedge
contracts are deferred in Accumulated Other Comprehensive Income and recognized
as an adjustment to the related sale or purchase transaction in the period that
the transaction occurs. Net losses on cash flow hedge contracts which we
reclassified from Other Comprehensive Income to Cost of Sales in the fiscal year
ended October 31, 2001 were $261,000.
At October 31, 2001 we had $470,000 of unrealized losses related to cash flow
hedges deferred in Other Comprehensive Income, which we expect to recognize in
Cost of Sales within the next twelve months. Cash flow hedge contracts mature at
various dates through January 2002.
We also enter into foreign currency forward exchange contracts to protect
against the effects of foreign currency fluctuations on receivables and payables
denominated in foreign currencies. These derivative instruments are not
designated as hedges under SFAS 133 and as a result, changes in fair value are
reported currently as Other Income (Expense) in the Consolidated Statement of
Operations consistent with the transaction gain or (loss) on the related foreign
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
denominated receivable or payable. Such net transaction gains and (losses) were
($50,000), ($638,000) and ($48,000) for the years ended October 31, 2001, 2000,
and 1999, respectively.
Inventories. Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method.
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. We recognize revenue at the time of shipment because title
and risk of loss passes to the customer at that time and payment terms are
fixed. Our computerized machine systems are general-purpose computer control
machine tools that are typically used in stand-alone operations. We do not
utilize contractual customer acceptance arrangements in connection with any
sales transactions. Prior to shipment, we test each machine to ensure the
machine's compliance with standard operating specifications as listed in our
sales literature.
Depending upon geographic location, the machine installation at the end user may
be completed by a distributor, independent contractor or Hurco service
technician. In most instances where a machine is sold through a distributor, we
have no installation involvement. If sales are direct or through sales agents,
we will typically complete the machine installation. The machine installation
consists of the reassembly of certain parts that were removed for shipping and
the re-testing of the machine to ensure that it is performing with the standard
specifications. We consider the machine installation process inconsequential and
perfunctory.
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, Net. From time to time, our wholly owned subsidiary, IMS
Technology, Inc. (IMS) enters into agreements for the licensing of its
interactive computer control 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 were recognized in income, net
of legal fees and expenses, if any, over the life of the licensed patent, which
expired in October 2001. As a result, we have no deferred license fee income at
October 31, 2001.
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 $3.5 million, $3.2 million
and $2.5 million in fiscal 2001, 2000, and 1999, respectively.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 $665,000 in 2001, $706,000 in 2000 and $1.0
million in 1999 related to software development projects. Amortization expense
was $925,000, $1.3 million and $1.3 million for the years ended October 31,
2001, 2000, and 1999, 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. For the year ended October 31, 2001, no effect was given to outstanding
options because of their antidilutive effect.
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.
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 control 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.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Reliance on Contract Manufacturers. We contract with manufacturing contractors
located in Taiwan and Europe for the manufacture and assembly of computerized
machine tool systems, based on our designs and/or specifications. Any
interruption from these sources would restrict the availability of our
computerized machine tool systems and would affect operating results adversely.
3. INVENTORIES
Inventories as of October 31, 2001 and 2000 are summarized below (in thousands):
2001 2000
---------- ----------
Purchased parts and sub-assemblies................................... $ 7,853 $ 9,837
Work-in-process...................................................... 1,256 1,339
Finished goods....................................................... 21,210 15,000
--------- ------
$ 30,319 $ 26,176
========= ======
4. DEBT AGREEMENTS
Long-term debt as of October 31, 2001 and 2000, consisted of (in thousands):
2001 2000
-------- --------
Bank revolving credit facility............................................... $ 11,200 $ 950
Senior Notes................................................................. -- 1,786
Economic Development Revenue Bonds, Series 1990.............................. 800 1,000
-------- ---------
12,000 3,736
Less current portion......................................................... 200 1,986
--------- ---------
$ 11,800 $ 1,750
========= =========
As of October 31, 2001, long-term debt was payable as follows (in thousands):
Fiscal 2002.................................................................. $ 200
Fiscal 2003.................................................................. 11,400
Fiscal 2004.................................................................. 200
Fiscal 2005............................................................ 200
---------
$12,000
As of October 31, 2001 and 2000, we had $2.1 million and $8.5 million,
respectively, of outstanding letters of credit issued to non-U.S. suppliers for
inventory purchase commitments. As of October 31, 2001, we had unutilized credit
facilities of $9.2 million available for either direct borrowings or commercial
letters of credit.
Interest on the bank credit facility was payable at rates ranging from 3.5% to
5.5% at October 31, 2001 and 9.5% at October 21, 2000.
Effective October 31, 2001, our bank credit agreement was amended and restated.
The restated credit agreement provides for a secured, revolving credit facility
expiring December 31, 2002, and permits borrowings, at any one time outstanding,
of up to $22.5 million (inclusive of outstanding letters of credit of up to
$15.0 million) through May 1, 2002 and $20.0 million thereafter. Of such
borrowings, up to $5.0 million U.S. dollar equivalent may be drawn on designated
European currencies. Interest on all outstanding borrowings is payable at Libor,
plus an applicable Eurodollar rate margin, or at our option, prime rate plus a
specified margin, as follows:
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Libor margin Prime margin
---------------- ---------------
---------------- ---------------
November 1, 2001 - April 30, 2002 2.0% --
May 1, 2002 - July 31, 2002 3.0% 1.0%
August 1, 2002 - December 31, 2002 3.5% 1.5%
The restated credit agreement requires us to maintain a specified working
capital borrowing base and meet quarterly minimum net worth requirements,
minimum quarterly EBITDA (earnings before interest, taxes, depreciation, and
amortization) requirements and imposes a maximum leverage ratio and restricts
capital expenditures and investments, all in relation to our business plan. The
net worth covenant requires that tangible net worth, exclusive of Accumulated
Other Comprehensive Income, be not less than $35.9 million at October 31, 2001,
which decreases quarterly to $32.3 million at October 31, 2002. As of October
31, 2001, we were in compliance with all loan covenants. The restated credit
agreement provides the bank lender with a security interest in substantially all
domestic assets and 67% of the common stock of our U.S. holding companies which
own our foreign subsidiaries.
The restated credit agreement requires a $50,000 facility fee payable May 1,
2002, if the commitment is not reduced to $15.0 million and a $100,000 facility
fee payable August 1, 2002, if we have not obtained a new financing agreement.
The restated credit agreement also provides for an anticipated third party
European working capital facility not to exceed 3.0 million Euro and permits
refinancing of our corporate headquarters facility for up to $5.0 million,
accompanied by an equivalent reduction in the revolving credit facility. We are
involved in discussions with other lenders with respect to such refinancing, as
well as with respect to a total replacement of our bank credit agreement;
however, there can be no assurance that replacement facilities, with acceptable
terms, will be obtained.
Based on our business plan and financial projections for fiscal 2002, which
include planned reductions of operating expenses and working capital, we believe
that cash flow generated from operations and borrowings available to us under
our restated credit agreement will be sufficient to meet our anticipated cash
requirements in fiscal 2002. We believe that the assumptions underlying our 2002
business plan are reasonable; however, there are risks related to further
declines in market demand and reduced sales in the U.S. and Europe, adverse
currency movements, realization of anticipated cost reductions and cash realized
from planned inventory reductions, that could cause our actual results to differ
from our business plan.
At October 31, 2001, our ability to repurchase shares of our common stock and
pay cash dividends were restricted under the restated credit agreement.
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 was paid December 1, 2000.
The Economic Development Revenue Bonds are payable in four remaining equal
annual installments due on September 1, 2002 thru 2005 and are secured by a
letter of credit issued by a bank. Interest rates on the bonds adjust weekly
and, as of October 31, 2001 and 2000, interest was accruing at a rate of 2.40%
and 4.65%, respectively.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. FINANCIAL INSTRUMENTS
The carrying amounts for trade receivables and payables approximate their fair
values. At October 31, 2001, 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. The
fair value of long-term debt, including the current portion, is estimated based
on quoted market prices for similar issues or on current rates offered to us for
debt of the similar terms and maturities.
We also have 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 of these contracts was
$14.6 million and the contract amount at forward rates was $14.5 million at
October 31, 2001. 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,
2001 and 2000, consisted of the following (in thousands):
October 31,
----------------------------
2001 2000
---- ----
Tax effects of future tax deductible items related to:
Accrued inventory reserves................................................. $ 758 $ 890
Accrued warranty expenses.................................................. 211 226
Deferred compensation ..................................................... 359 365
Other accrued expenses..................................................... 669 830
--------- ------
Total deferred tax assets.............................................. 1,997 2,311
--------- -------
Tax effects of future taxable differences related to:
Accelerated tax deduction and other tax over book
deductions related to property, equipment and software................... ( 1,422) (1,552)
Other...................................................................... (669) (672)
-------- ---------
Total deferred tax liabilities........................................... (2,091) (2,224)
--------- -------
Net tax effects of temporary differences................................. (94) 87
--------- -----------
Tax effects of carryforward benefits:
U.S. federal net operating loss carryforwards, expiring 2021............... 1,182 --
Foreign tax benefit carryforwards, expiring 2002-2005...................... 296 --
Foreign tax benefit carryforwards, with no expiration...................... 852 1,561
U.S. federal general business tax credits,
expiring 2004-2012....................................................... 828 548
U.S. Alternative Minimum Tax Credit with no expiration..................... 426 508
--------- ---------
Tax effects of carryforwards .......................................... 3,584 2,617
--------- ---------
Tax effects of temporary differences and carryforwards................. 3,490 2,704
Less valuation allowance............................................... (3,064) (2,196)
------- ----------
Net deferred tax asset................................................. $ 426 $ 508
========= =========
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. 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,
----------------------
2001 2000 1999
---------- --------- ---------
Domestic............................................... $ (2,980) $ 5,459 $ 1,848
Foreign................................................ 2,160 147 206
------- --------- ---------
$ (820) $ 5,606 $ 2,054
========= ========= =======
Differences between the effective tax rate and
U.S. federal income tax rate were (in thousands):
Tax at U.S. statutory rate.................................... $ (287) $ 1,962 $ 719
Federal Tax................................................... 95 -- --
Foreign withholding taxes..................................... -- 19 4
German tax settlement (Note 10)............................... -- 275 --
Effect of tax rates of international jurisdictions
in excess of U.S. statutory rates........................... 155 39 209
State income taxes............................................ -- 46 41
Effect of losses without current year benefit................. 1,043 -- --
Utilization of net operating loss carryforwards............... (229) (1,770) (721)
-------- ------ ----
Provision for income taxes.................................... $ 777 $ 571 $ 252
======== ========= =========
Foreign withholding taxes are the result of foreign dividends received during
fiscal 2000 and 1999. Our provision for income taxes in fiscal 2001, 2000 and
1999 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 $344,811, $321,422, and $331,605 for the years ended
October 31, 2001, 2000 and 1999, 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, 2001, options to purchase 475,000 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, 2001, 2000 and 1999 and the related activity for the year is as
follows:
Shares under Weighted average exercise
option price per share
- ---------------------------------- -------------------- ------------------------
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
Granted 57,000 3.67
Cancelled (82,000) 5.23
Expired (20,000) 7.15
Exercised (16,400) 2.14
- -------------------------------- -------------------- --------------------------
Balance October 31, 2001 765,260 4.63
================================ ==================== ==========================
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock options outstanding and exercisable on October 31, 2001 are as follows:
Weighted average Weighted average remaining
Range of exercise prices Shares under exercise price per share contractual life in years
per share option
- --------------------------- ------------------ ------------------------- ------------------------------
Outstanding
$2.125-5.125 453,760 $3.58 5.4
5.813-8.250 311,500 6.16 6.2
- --------------------------- ------------------ ------------------------- ------------------------------
$2.125-8.250 765,260 $4.63 5.7
=========================== ================== ========================= ==============================
=========================== ================== ========================= ==============================
Exercisable
$2.125-5.125 272,947 $3.47 -
5.813-8.250 154,200 6.40 -
- --------------------------- ------------------ ------------------------- ------------------------------
$2.125-8.250 427,147 $4.53 -
=========================== ================== ========================= ==============================
=========================== ================== ========================= ==============================
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 2001, 2000, and 1999 was $2.07, $2.72, and $3.85 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:
2001 2000 1999
- ---------------------------------- ----------- ----------- -----------
Expected dividend yield 0.00% 0.00% 0.00%
Expected volatility 56.00% 56.33% 55.09%
Risk-free interest rate 5.18% 6.20% 4.69%
Expected term in years 10 10 10
- ---------------------------------- ----------- ----------- -----------
If we had adopted the provisions of SFAS No. 123, net income (loss) and earnings
(loss) per share would have been as follows:
2001 2000 1999
- ----------------------------------------- ------------- ------------ -----------
Net income (loss) (in thousands) ($1,928) $4,726 $1,484
Earnings (loss) per share:
Basic ($.34) $.79 $.25
Diluted ($.34) $.79 $.24
- ----------------------------------------- ------------- ------------ -----------
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
As of October 31, 2001, there were outstanding non-qualified options that had
been granted outside of the 1990 and 1997 plans to current and former 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, 2001. The options expire at various dates between 2002 and 2004.
9. RELATED PARTY TRANSACTIONS
We own approximately 24% of one of our Taiwanese-based contract manufacturers.
This investment of $538,000 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 $12.2 million, $8.6 million and $7.8 million for the years ended October
31, 2001, 2000 and 1999, respectively. Trade payables to this contract
manufacturer were $2.2 million at October 31, 2001 and 2000.
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 control systems and components manufactured under contract
for sale exclusively to us. We are accounting for this investment using the
equity method. The investment of $1.1 million at October 31, 2001 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 $1.5 million,
$4.2 million and $3.6 million in 2001, 2000 and 1999, respectively. Trade
payables to HAL were $200,000 and $542,000 at October 31, 2001 and 2000,
respectively. Trade receivables from HAL were $173,000 and $461,000 at October
31, 2001 and 2000, respectively.
Summary financial information for the two affiliates accounted for using the
equity method of accounting are as follows:
($000) 2001 2000 1999
------------- ------------- -------------
Net Sales $42,691 $33,850 $22,732
Gross Profit 7,305 6,303 4,466
Operating Income 2,047 2,179 1,091
Net Income 1,609 1,005 542
Current Assets $14,345 $16,025 $11,977
Non-current Assets 1,535 1,490 1,778
Current Liabilities 11,335 14,249 9,043
10. LITIGATION AND CONTINGENCIES
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.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 and paid for
approximately $275,000
We are involved in various 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.
11. OPERATING LEASES
We lease facilities and vehicles under operating leases that expire at various
dates through 2006. Future payments, exclusive of amounts reflected in the
balance sheet, required under operating leases as of October 31, 2001, are
summarized as follows (in thousands):
2002.................................................... $1,431
2003.................................................... 814
2004.................................................... 432
2005.................................................... 200
2006.................................................... 38
--------
Total................................................ $ 2,915
========
Rent expense for the years ended October 31, 2001, 2000, and 1999 was $1.6
million, $1.7 million and $1.7 million, respectively.
12. LICENSE FEE INCOME AND LITIGATION SETTLEMENT FEES, NET
License fee income and litigation settlement fees, net for fiscal 2001, 2000 and
1999 were attributable to agreements entered into by IMS, pursuant to which IMS
granted fully paid-up licenses of its interactive patents in exchange for cash
and other consideration. License fee payments received that were contingent upon
the continued validity of the patent were deferred and recognized over the life
of the patent which expired in October 2001. As a result, we have no deferred
license fee income at October 31, 2001.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
13. QUARTERLY HIGHLIGHTS (Unaudited)
2001 (In thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales and service fees............................... $ 25,933 $ 23,432 $ 21,678 $ 21,224
Gross profit......................................... 6,615 5,972 5,287 5,388
Gross profit margin percentage....................... 25.5% 25.5% 24.4% 25.4%
Restructuring charge (credit) (Note 15).............. -- (328) 395 76
Selling, general and administrative expenses......... 6,086 5,959 5,896 6,099(a)
Operating income (loss).............................. 529 341 (1,004) (787)
Net income (loss).................................... 567 323 (1,329) (1,158)
Earnings (loss) per common share - basic............. $ .10 $ .06 $ (.24) $ (.21)
Earnings (loss) per common share - diluted........... $ .10 $ .06 $ (.24) $ (.21)
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%(b)
Restructuring charge (Note 15)....................... -- -- -- 300
Selling, general and administrative expenses......... 5,820 5,623 5,768 6,327(c)
Operating income (loss).............................. 901 1,109 347 (818)
Net income .......................................... 459 602 407 3,567(d)
Earnings per common share - basic....................$ .08 $ .10 $ .07 $ .60
Earnings per common share - diluted..................$ .08 $ .10 $ .07 $ .59
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(a) Includes $550,000 of fourth quarter adjustments related to write down of
product development assets no longer being used, increased provisions for
un-collectable accounts, reserves for termination of a European sales
agent, vacating a leased facility and a health insurance claim.
(b) Gross profit margin was negatively impacted in the fourth quarter of fiscal
2000 because of a decrease in the Euro exchange rate. The Euro averaged
$.978 for the first three quarters but declined to an average of $.873 in
the fourth quarter. The fourth quarter margin was also negatively impacted
by an accrual for $300,000 assessment received in November 2000 from the
United States Customs Department for duties due related to imports during
the period 1994-1997.
(c) Selling, general and administrative expenses increased in the fourth
quarter primarily due to expenses related to our participation in the
bi-annual International Machine and Technology Show (IMTS) that occurred in
September 2000.
(d) As disclosed in the MD&A and footnote 10, net income was favorably
impacted in the fourth quarter by license fee income.
14. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, control upgrades,
accessories and replacement parts for our products, as well as customer service
and training support.
Substantially all of our machine systems and control systems are manufactured to
our specifications by contract manufacturing companies in Taiwan and Europe. Our
executive offices and principal design, engineering, and manufacturing
management operations are headquartered in Indianapolis, Indiana. We sell our
products through approximately 258 independent agents and distributors in 39
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 2001, 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,
2001 2000 1999
------- ------- -------
Computerized Machine Systems......................... $ 73,286 $71,708 $63,793
Computer Control Systems and Software*............... 5,716 9,605 10,623
Service Parts........................................ 9,516 10,649 9,574
Services Fees........................................ 3,749 4,242 4,248
--------- --------- ---------
$92,267 $96,204 $88,238
======= ======= =======
*Amounts shown do not include CNC systems sold as an integrated component of computerized machine systems.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Revenues by geographic area, based on customer location, for each of the past three fiscal years were (in thousands):
Year Ended October 31,
-------------------------------
2001 2000 1999
------- ------- -------
United States......................................... $ 32,935 $40,920 $36,730
---------- ------- -------
Germany.............................................. 28,452 23,654 25,388
United Kingdom....................................... 8,814 10,128 9,567
Other Europe......................................... 17,847 12,932 12,087
------ ------- ------
Total Europe....................................... 55,113 46,714 47,042
Asia and Other....................................... 4,219 8,570 4,466
------- ------- -------
Total Foreign...................................... 59,332 55,284 51,508
------ ------ ------
$ 92,267 $96,204 $88,238
========== ======= =======
Long-lived assets by geographic area were (in thousands):
October 31,
-------------------------
2001 2000
---------- ----------
United States........................................................ $ 14,725 $ 14,257
Foreign Countries.................................................... 1,556 1,064
---------- ----------
$ 16,281 $15,321
======== =======
15. RESTRUCTURING CHARGE
At October 31, 1998, we had 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. The
components of the reserve were excess building capacity and an equipment lease
related to equipment that will no longer be utilized. In fiscal 1999, the excess
building space was sublet and the reserve was adjusted to reflect the terms of
the sublease. The remainder of the excess building capacity reserve was for the
final year of the lease, which had not been sublet.
In the fourth quarter of fiscal 2000, we recorded a charge of $300,000 for
severance costs related to the termination of employees at this subsidiary in
connection with the completion of the consolidation of this operation into our
North American sales and service business. Fourteen employees received notice on
October 31, 2000 that their positions were being eliminated in fiscal 2001. All
employee severance related to the October 31, 2000 reserve has been paid with
the exception of one employee who is being paid through May 2002.
Restructuring expense in fiscal 2001 included a reversal of a of $328,000
reserve for sub-letting the final year of the excess building space and finding
alternative uses for a previously reserved asset. Also, in fiscal 2001, a
provision of $471,000 was recorded for severance costs related to a domestic
cost reduction program in which 59 positions were eliminated. Forty-two of the
employees were paid severance in fiscal 2001 while the remaining 15 employees
will be paid in fiscal 2002.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Balance Provision Charges to Balance
Description 10/31/98 (Credit) Accrual 10/31/99
- ----------- -------- -------- ------- --------
Excess Building Capacity $ 500 ($ 103) ($ 111) $ 286
Equipment Leases 101 -- (24) 77
Severance Costs 90 -- (90) --
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
$ 691 ($ 103) ($ 225) $ 363
============= ============= ============== =============
============= ============= ============== =============
Balance Provision Charges to Balance
Description 10/31/99 (Credit) Accrual 10/31/00
- ----------- -------- -------- ------- --------
Excess Building Capacity $ 286 -- -- $ 286
Equipment Leases 77 -- (23) 54
Severance Costs -- 300 -- 300
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
$ 363 $ 300 ($ 23) $ 640
============= ============= ============== =============
============= ============= ============== =============
Balance Provision Charges to Balance
Description 10/31/00 (Credit) Accrual 10/31/01
- ----------- -------- -------- ------- --------
Excess Building Capacity $ 286 ($ 286) -- --
Equipment Leases 54 (42) (12) --
Severance Costs 300 471 (637) 133
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
$ 640 $143 ($ 649) $ 133
============= ============= ============== =============
16. STOCK REPURCHASE
In fiscal 2001, we repurchased 391,101 shares of our common stock for
approximately $1.7 million of which 278,001 were purchased from a related party
for $1.2 million. The repurchase of shares is reflected as a reduction in common
stock.
17. SOFTWARE DEVELOPMENT AGREEMENTS AND LOAN AGREEMENT
During fiscal 2001, we entered into agreements with a private software company
to fund development costs related to the integration of patented, open
architecture technology into our computer control products. We agreed to fund an
aggregate of $405,000, over a fifteen-month period ending in July 2002 of which
$180,000 was paid and recorded as a research and development expense in fiscal
2001. We also agreed to fund a secured term loan payable in installments through
February 2002, of $1.0 million which is due April 1, 2003. In addition, the
company granted us warrants to purchase an equity interest, which are
exercisable on or before December 31, 2002, and 2003. As of October 31, 2001,
our combined investment in the secured loan and warrants is $672,000, and is
reflected in Investments and Other Assets in the accompanying consolidated
balance sheet.
HURCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
We have an agreement with another private software company to fund software
development costs related to an advanced computer control technology. The
agreement term is February 1, 2001 through March 31, 2002 and requires us to
fund $400,000 of development costs, of which $300,000 was paid and recorded as a
research and development expense in fiscal 2001. At the completion of this
agreement, we have the option to enter into a new development agreement, buy
core technology owned by the software company for $1.9 million or pay twelve
installments of $16,666 for furture services.
18. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. (SAB) 101, "Revenue Recognition." This bulletin
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. We adopted SAB 101 in Fiscal 2001 and the impact on our
financial statements was immaterial.
In June 2001, the Financial Accounting Standards Board issued statement No. 141,
Business Combinations (FAS 141) and statement No. 142, Goodwill and Other
Intangible Assets (FAS 142). FAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Under FAS 142, amortization of goodwill will cease and the goodwill
carrying values will be tested periodically for impairment. We are required to
adopt FAS 142 effective November 1, 2002 for goodwill and intangible assets
acquired prior to July 1, 2001. Good will and intangible assets acquired after
June 30, 2001 will be subject immediately to the goodwill non-amortization and
intangible provisions of this statement. The impact on our financial statements
will be immaterial.
In August 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
which is effective for the fiscal year beginning November 1, 2002. FAS 144
establishes a single model to account for impairment of assets to be held or
disposed, incorporating guidelines for accounting and disclosure of discontinued
operations. We believe the impact on our financial statements will be
immaterial.
19. SUBSEQUENT EVENTS
On November 14, 2001, Brian McLaughlin resigned as President and Chief Executive
Officer. We will record a provision for separation costs of approximately
$325,000 in the first quarter of Fiscal 2002 related to his resignation.
On January 8, 2002, our German subsidiary obtained a 3.0 million Euro unsecured
working capital credit facility that is available through December 31, 2002. As
a result, our credit facility was reduced by $2.7 million to $19.8 million.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The information required this item is hereby incorporated by reference from our
definitive proxy statement for our 2002 annual meeting of shareholders except
that the information required by Item 10 regarding Executive Officers is
included herein under a separate caption at the end of Part I.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2002 annual meeting of shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2002 annual meeting of shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2002 annual meeting of shareholders.
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, 2001, 2000, and 1999 ...................................... 21
Consolidated Balance Sheets - as of October 31, 2001 and 2000.................. 22
Consolidated Statements of Cash Flows - years
ended October 31, 2001, 2000, and 1999....................................... 23
Consolidated Statements of Changes in Shareholders' Equity -
years ended October 31, 2001, 2000, and 1999................................. 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........................................................ 43
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,
2001.
(c) Exhibits
Exhibits are filed with this Form 10-K or incorporated herein by reference
as listed on pages 44 and 45.
Schedule II - Valuation and Qualifying Accounts and Reserves
for the years ended October 31, 2001, 2000, and 1999
(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, 2001 $ 741 $ 547 $ -- $ 3811 $ 907
======== ======== ====== ====== ======
October 31, 2000 $ 687 $ 185 $ -- $ 1312 $ 741
======== ======== ====== ====== ======
October 31, 1999 $ 769 $ 231 $ -- $ 3133 $ 687
======== ======== ====== ====== ======
Accrued warranty expenses for the year ended:
October 31, 2001 $ 831 $ 661 $ -- $ 700 $ 792
======== ========= ======= ======= ======
October 31, 2000 $ 968 $ 430 $ -- $ 567 $ 831
======== ========= ======= ======= ======
October 31, 1999 $ 1,060 $ 533 $ -- $ 625 $ 968
======== ========= ======= ======= ======
1 Receivable write-offs of $384,000, net of cash recoveries on accounts
previously written off of $4,000.
2 Receivable write-offs of $140,000, net of cash recoveries on accounts
previously written off of $9,000.
3 Receivable write-offs of $337,000, net of cash recoveries on accounts
previously written off of $24,000.
EXHIBITS INDEX
Exhibits Filed. The following exhibits are filed with this report:
- --------------
10.1 The Second Amended and Restated Credit Agreement and Amendment to
Reimbursement Agreement dated October 31, 2001 between the
Registrant and Bank One, Indiana, N.A.
10.2 Fourth Amendment to European Facility dated October 31, 2001 between
the Registrant and Bank One, N.A.
3.2 Amended and Restated By-Laws of the Registrant dated November 14, 2001.
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.
10.3 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.
10.4* 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.
10.5* 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.
10.6* Form of Director Non-qualified Stock Option Agreement between the
Registrant and 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.
10.7* 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.
10.8* 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.
10.9* 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.
10.10* 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.
10.11 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.
10.12 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.
10.13* 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.
10.14 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 28th day of January,
2002.
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/ Michael Doar January 28, 2002
- ---------------------------------------
Michael Doar, Director,
Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)
/s/ ROGER J. WOLF January 28, 2002
- -------------------------------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)
/s/ STEPHEN J. ALESIA January 28, 2002
- ------------------------------------
Stephen J. Alesia
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)
/s/ ROBERT W. CRUICKSHANK January 28, 2002
- ---------------------------
Robert W. Cruickshank, Director
/s/ MICHAEL DOAR January 28, 2002
- ------------------------------------
Michael Doar, Director
/s/ RICHARD T. NINER January 28, 2002
- ------------------------------------
Richard T. Niner, Director
/s/ O. CURTIS NOEL January 28, 2002
- --------------------------------------------
O. Curtis Noel, Director
/s/ CHARLES E. M. RENTSCHLER January 28, 2002
- ------------------------------------
Charles E. M. Rentschler, Director
/s/ GERALD V. ROCH January 28, 2002
- ------------------------------------
Gerald V. Roch, Director
Exhibit 11
COMPUTATION OF PER SHARE EARNINGS
Exhibit 11
Statement Re: Computation of Per Share Earnings
Three Months Ended Twelve Months Ended
October 31, October 31,
----------------------------------------------------------------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------
(in thousands, except per share amount)
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
----------------------------------------------------------------------------------
Net income (loss) ($1,158) ($1,158) $ 3,567 $ 3,567 ($ 1,597) ($ 1,597) $ 5,035 $ 5,035
Weighted average shares
outstanding 5,581 5,581 5,954 5,954 5,670 5,670 5,952 5,952
Assumed issuances under
stock options plans -- -- -- 62 -- -- -- 67
----------------------------------------------------------------------------------
5,581 5,581 5,954 6,016 5,670 5,670 5,952 6,020
Earnings (loss) per common share ($ .21) ($ .21) $ 0.60 $ 0.59 ($ .28) ($ .28) $ 0.85 $ 0.84
==================================================================================
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
SUBSIDIARIES OF HURCO COMPANIES, INC.
Jurisdiction
Name of Incorporation
Autocon Technologies, Inc. Indiana
Hurco B.V. the Netherlands
Hurco Europe Limited United Kingdom
Hurco GmbH Federal Republic of Germany
Hurco Manufacturing Ltd. Taiwan R.O.C.
Hurco S.a.r.l. France
Hurco S.r.l. Italy
Hurco (S.E. Asia) Pte Ltd. Singapore
IMS Technologies, Inc. Virginia
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-48204. It should be noted that we have not
audited any financial statements of the Company subsequent to October 31, 2001
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
January 28, 2002.