UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File
July 31, 1995 No. 0-9143
HURCO COMPANIES, INC.
State of Incorporation IRS Employer ID
Indiana No. 35-1150732
Address of Principal Office:
One Technology Way
Indianapolis, Indiana 46268
Telephone: (317) 293-5309
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days:
Yes X No
Shares of common stock outstanding as of August 28, 1995 5,418,842
<PAGE>
HURCO COMPANIES, INC.
July 1995 Form 10-Q Quarterly Report
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Statement of Operations -
three and nine months ended July 31, 1995 and 1994
Consolidated Balance Sheet
as of July 31, 1995 and October 31, 1994
Consolidated Statement of Cash Flows -
three and nine months ended July 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per-share data)
Three Months Ended Nine Months Ended
July 31, July 31,
-------- --------
1995 1994 1995 1994
---- ---- ---- ----
SALES AND SERVICE FEES ........... $ 22,764 $ 17,144 $ 62,323 $ 51,932
Cost of sales and service ........ 16,778 13,324 46,290 41,290
-------- -------- -------- --------
GROSS PROFIT ................ 5,986 3,820 16,033 10,642
Selling, general and
administrative expenses .......... 4,558 4,325 13,420 13,472
-------- -------- -------- --------
OPERATING INCOME (LOSS) ..... 1,428 (505) 2,613 (2,830)
Interest expense ................. 980 843 2,858 2,466
Other, net ....................... 20 (133) 39 (127)
-------- -------- -------- --------
Income (loss) before income taxes. 428 (1,215) (284) (5,169)
Income tax expense (benefit)...... -- -- -- --
-------- --------- -------- --------
NET INCOME (LOSS)................. $ 428 $ (1,215) $ (284) $ (5,169)
======== ========= ========= =========
EARNINGS (LOSS)
PER COMMON SHARE............. $ .08 $ (.22) $ (.05) $ (.96)
======== ========== ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING........... 5,518 5,413 5,417 5,405
===== ===== ===== =====
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HURCO COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
July 31, October 31,
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................. $ 1,155 $ 1,101
Accounts receivable ....................... 15,886 14,555
Inventories ............................... 26,007 26,341
Other ..................................... 1,044 1,099
------- -------
Total current assets .................. 44,092 43,096
------- -------
PROPERTY AND EQUIPMENT ............... 10,961 11,887
OTHER ASSETS ......................... 4,632 4,575
------- -------
$ 59,685 $ 59,558
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................. $ 8,965 $ 8,438
Accrued expenses .............................. 7,800 8,403
Current portion of long-term debt ............. 5,195 144
------- -------
Total current liabilities ................. 21,960 16,985
------- -------
NON-CURRENT LIABILITIES
Long-term debt ................................ 30,129 34,669
Other long-term obligations ................... 562 576
------- -------
30,691 35,245
------- -------
SHAREHOLDERS' EQUITY:
Preferred stock: $100 par value per share;
40,000 shares authorized; no shares issued.
Common stock: no par value; $.10 stated value per
share; 7,500,000 shares authorized; 5,418,642
and 5,413,682 shares issued, respectively...... 542 541
Additional paid-in capital....................... 45,556 45,546
Accumulated deficit.............................. (34,960) (34,676)
Foreign currency translation adjustment.......... (4,104) (4,083)
-------- -------
Total shareholders' equity................... 7,034 7,328
------- ------
$ 59,685 $ 59,558
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------- --------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 428 $ (1,215) $ (284) $ (5,169)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization............................ 586 808 1,900 2,389
(Increase) decrease in accounts receivable............... (326) 175 (1,129) 1,136
(Increase) decrease in inventories....................... 442 (1,342) 365 4,666
Increase (decrease) in accounts payable.................. 563 2,339 506 1,636
Increase (decrease) in accrued expenses.................. 273 277 (676) (1,454)
Other.................................................... 172 89 526 (391)
--- -- --- ----
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES................................... 2,138 1,131 1,208 2,813
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment............................ 35 44 35 348
Purchase of property and equipment......................... (210) (292) (442) (556)
Software development costs................................. (545) (116) (1,029) (427)
Other...................................................... 107 (250) (34) (250)
----- ----- ----- -----
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES..................................... (613) (614) (1,470) (885)
---- ----- ------ ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short term borrowings (repayment)...................... -- (39) (2) (108)
Proceeds from long-term borrowings ........................ 10,864 3,338 49,136 7,601
Repayment of long-term borrowings ......................... (12,133) (3,996) (48,681) (9,449)
Proceeds from issuance of common stock
under options.............................................. -- 11 11 29
----- ----- ----- -----
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES..................................... (1,269) (686) 464 (1,927)
------- ----- ----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH....................... (30) (165) (148) (215)
----- ----- ----- -----
NET INCREASE (DECREASE) IN CASH............................... 226 (334) 54 (214)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 929 1,606 1,101 1,486
----- ----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................... $ 1,155 $ 1,272 $ 1,155 $ 1,272
========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed financial information as of July 31, 1995 and 1994 is unaudited
but includes all adjustments which the Company considers necessary for a fair
presentation of its financial position at those dates and its results of
operations and cash flows for the three months and nine months then ended. It is
suggested that those condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended October 31, 1994.
2. HEDGING
The Company enters into foreign currency forward exchange contracts periodically
to provide a hedge against the effect of foreign currency fluctuations on
receivables denominated in foreign currencies and net investments in foreign
subsidiaries. Gains and losses related to these contracts are recorded in the
same manner as the offsetting gains and losses related to the items being
hedged.
The Company also enters into foreign currency forward exchange contracts to
hedge certain firm intercompany sale commitments denominated in foreign
currencies (primarily pound sterling and German marks) for which the Company has
firm purchase commitments. The purpose of these instruments is to protect the
Company from the risk that the U.S. dollar net cash inflows resulting from the
sales denominated in foreign currencies will be adversely affected by changes in
exchange rates. Gains and losses on these hedge contracts are deferred and
recognized as an adjustment of the cost of the related sales transactions.
As of July 31, 1995, the U.S. dollar equivalent notional amount of outstanding
foreign currency forward exchange contracts was approximately $11.7 million of
which $11.0 million related to firm intercompany sales commitments. Deferred
losses related to hedges of these future sales transactions were approximately
$48,000. Contracts outstanding at July 31, 1995, mature at various times through
December 29, 1995. Counterparties to these agreements are major financial
institutions.
3. EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average number of
common shares outstanding, which includes the effects of outstanding stock
options computed using the treasury method. Such common stock equivalents
totaled 99,000 for the three months ended July 31, 1995. Fully diluted earnings
per share are the same as primary earnings per share for this period. No effect
has been given to options outstanding under the Company's Stock Option Plan for
the three months ended July 31, 1994 or the nine months ended July 31, 1995 and
1994 as no dilution would result from their exercise for the operating periods
presented.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $1,127,000 as of July 31, 1995 and
$1,046,000 as of October 31, 1994.
<PAGE>
5. INVENTORIES
Inventories, priced at the lower of cost (first-in, first-out method), or market
are summarized below (in thousands):
JULY 31, 1995 OCTOBER 31, 1994
------------- ----------------
Purchased parts and sub-assemblies ............... $16,803 $15,252
Work-in-Process .................................. 3,131 3,929
Finished Goods ................................... 6,073 7,160
------- -------
$26,007 $26,341
======= =======
6. DEBT AGREEMENTS
Under the terms of the senior notes and bank term notes, principal installment
payments of $5.1 million will become due and payable on or before February 1,
1996. These amounts are classified as current liabilities as of July 31, 1995 in
the accompanying balance sheet.
Effective as of July 31, 1995, the bank and senior note agreements were amended
to extend the maturity date of the bank credit facilities from May 1, 1996 to
November 1, 1996 and to modify the financial debt covenants applicable to both
the bank and senior note agreements during the period from May 1, 1996 to
October 31, 1996. Accordingly, the amounts payable under the bank credit
facilities and installment payments due subsequent to July 31, 1996, are
classified as long-term debt in the accompanying balance sheet. Under the
agreements, as amended, Adjusted Net Worth (tangible net worth, exclusive of
foreign currency translation adjustments) must be no less than $6.5 million at
July 31, 1996 and $7.0 million at October 31, 1996. Additionally, total
consolidated indebtedness may not exceed 4.5 times Adjusted Net Worth at July
31, 1996 and 4.0 times at October 31, 1996.
In June 1995, the Company obtained from its principal bank a discretionary,
supplemental $2 million letter of credit facility to support the Company's
increased machine tool sourcing needs in the third and fourth quarters of fiscal
1995. The supplemental facility is intended to facilitate purchases from
subcontractors through September 30, 1995 and will expire on January 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1995 COMPARED TO THREE MONTHS ENDED JULY 31, 1994
Consolidated sales for the third quarter of fiscal 1995 increased $5.6 million,
or 33%, over sales for the third quarter of fiscal 1994. The growth in sales
reflects the strong market demand for and increased availability for shipment of
machine tool products, as well as significant improvement in economic conditions
in Europe. Strong worldwide demand for the Company's products resulted in total
new orders booked of $24.5 million during the third fiscal quarter, an increase
of 41% compared with the corresponding 1994 period. As a result, the Company's
backlog at July 31, 1995 was $17.8 million, an increase of 11% from the $16.0
million backlog at April 30, 1995.
Sales in the United States and export sales to Asia for the third quarter of
1995 increased $2.0 million, or 16%, over the comparable 1994 period. Of this
increase, $1.6 million was attributable to increased sales of machine tools into
Asia as well as availability of, and demand for, the Company's new "Advantage"
series product line. Sales of control products increased approximately $400,000,
or 13%, primarily due to greater demand for Autocon Technology's "Delta" series
of CNC control products. New domestic orders for machine tool products in the
third quarter of 1995 were 77% higher than in the same period one year ago.
Machine tool orders from Asia approximated $1 million in the third quarter of
fiscal 1995 compared to none in the prior year period.
European sales, which accounted for 37% of total sales in the 1995 third quarter
compared to 28% for the corresponding quarter in 1994, increased $3.6 million,
or 74%, over those in the 1994 period. Approximately $885,000 of the increase
represents the favorable foreign exchange effect when translating sales made in
European currencies to U.S. dollars. Sales measured in local currencies
increased 56% over the 1994 third quarter due primarily to continued
strengthening of European economies as well as enhanced product availability. In
addition, the Company's new "Advantage" Series product line was introduced in
Europe during the third quarter of 1995. European machine tool orders for the
third quarter of 1995 were 28% higher than the same 1994 period.
Cost of sales and services for the third quarter of 1995 were $3.5 million above
those for the third quarter of 1994, resulting in a gross profit margin of 26.3%
in the 1995 period compared to 22.3% for the 1994 period. The improved gross
profit margin reflects cost reductions previously achieved as well as the
transition to higher margin products and the benefits of favorable foreign
exchange rates.
Selling, general and administrative expenses for the third quarter of 1995
increased 5% from those for the comparable 1994 period. Over 75% of the increase
resulted from the foreign exchange effect of translating European currencies.
Selling, general and administrative expenses, as a percentage of sales, were 20%
in the 1995 fiscal third quarter compared to 25% in the prior year quarter.
Because of higher sales and improvement in the gross profit margin, the Company
had operating income of $1.4 million for the third quarter of 1995 compared to
an operating loss of $505,000 in the same quarter of 1994.
<PAGE>
Interest expense for the third quarter increased 16% over the amount reported in
1994 due to increases in interest rates and amortization of the fees paid under
the Company's amended credit agreements. The credit agreements also provide for
a contingent fee (not to exceed approximately $650,000 in the aggregate) payable
to the Company's lenders based on the amount, if any, by which the Company's
actual gross profit exceeds defined amounts in fiscal years 1995 through 1997. A
small portion of this fee was earned and accrued in the third quarter of 1995.
It is likely that a substantial portion, if not all, of the balance of the fee
will be earned and accrued over the fourth quarter of 1995 and the first quarter
of fiscal 1996.
The Company manages its foreign currency exposure through the use of foreign
currency forward exchange contracts as described in Note 2 to the Consolidated
Financial Statements. The Company also limits its currency risk related to
significant purchase commitments with certain foreign vendors through price
adjustment agreements which share or limit the effect of currency fluctuations
on the cost of purchased product. The results of the program achieved
management's objectives for the three months ended July 31, 1995 and 1994.
NINE MONTHS ENDED JULY 31, 1995 COMPARED TO NINE MONTHS ENDED JULY 31, 1994
Sales for the first nine months of fiscal 1995 were $10.4 million, or 20%, above
the sales level for the same period of fiscal 1994. A substantial portion of
that increase was the result of strengthening economic conditions in Europe and
improved machine tool product availability in Europe. Approximately $2.0 million
of the increase represents the favorable foreign exchange effects of translating
sales made in European currencies to U.S. dollars. Sales in the United States
and export sales to Asia increased approximately 5% for the fiscal year-to-date
primarily on the strength of the third quarter performance.
Strong demand for the Company's new family of machine tools, controls and
related software products resulted in $73.1 million of worldwide new order
bookings in the first nine months of fiscal 1995, a 45% increase compared to the
corresponding period of 1994.
Cost of sales and services for the first nine months of 1995 were $5.0 million
above the same period of 1994, resulting in a gross profit margin of 25.7% for
the period compared to 20.5% for the 1994 period. The improvement in the gross
profit margin reflects cost reductions previously achieved as well as the
transition to higher margin products and the benefits of favorable foreign
exchange rates.
Selling, general and administrative expenses for the first nine months of 1995
decreased slightly from the comparable 1994 period. The total improvement of
approximately $470,000 resulting from previously implemented reductions in
operating expenses was offset by approximately $420,000 of unfavorable foreign
exchange effects of translating expenses dominated in foreign currencies to U.S.
dollars.
The Company had operating income of $2.6 million for the first nine months of
1995 compared to a $2.8 million operating loss for the 1994 period because of
the improvements in its sales and gross profit margin.
<PAGE>
Interest expense for the first nine months of fiscal 1995 was approximately
$390,000 higher than the same 1994 period, despite a decrease of approximately
$840,000 in average borrowings, due to increases in the interest rates and fees
under the Company's amended credit agreement. The credit agreements also provide
for a contingent fee (not to exceed approximately $650,000 in the aggregate)
payable to the Company's lenders based on the amount, if any, by which its
actual gross profit exceeds defined amounts in fiscal years 1995 through 1997. A
small portion of this fee was earned and accrued in the third quarter of 1995.
It is likely that a substantial portion, if not all, of the balance of the fee
will be earned and accrued over the fourth quarter of fiscal 1995 and the first
quarter of fiscal 1996.
The Company manages its foreign currency exposure through the use of foreign
currency forward exchange contracts as described in Note 2 to the Consolidated
Financial Statements. The Company also limits its currency risk related to
significant purchase commitments with certain foreign vendors through price
adjustment agreements which share or limit the effect of currency fluctuations
on the cost of purchased product. The results of the program achieved
management's objectives for the nine months ended July 31, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
Total debt was reduced $1.3 million during the quarter ended July 31, 1995
through the application of cash provided by operations.
Working capital was $22.0 million at July 31, 1995 compared to $26.1 million at
October 31, 1994. The decrease is primarily attributable to the classification
as current liabilities of $5.1 million of term debt payable on or before
February 1, 1996. Effective as of July 31, 1995, the bank and senior note
agreements were amended to extend the maturity date of the bank credit
facilities from May 1, 1996 to November 1, 1996 and to modify the financial
covenants applicable to both the bank and senior note agreements from May 1,
1996 to October 31, 1996. Under the agreements, as amended, Adjusted Net Worth
(tangible net worth, exclusive of foreign currency translation adjustments) must
be no less than $6.5 million at July 31, 1996 and $7.0 million at October 31,
1996. Additionally, total consolidated indebtedness may not exceed 4.5 times
Adjusted Net Worth at July 31, 1996 and 4.0 times at October 31, 1996. Adjusted
Net Worth was $6.9 million as of July 31, 1995.
As of July 31, 1995, the Company had unutilized credit facilities of $5.8
million available for either direct borrowings or commercial letters of credit.
In June 1995, the Company obtained from its principal bank a discretionary,
supplemental $2 million letter of credit facility to support the Company's
increased machine tool sourcing needs in the third and fourth quarters of fiscal
1995.
Management believes that net cash provided by future operations, along with
available borrowings under the credit facilities will be sufficient to maintain
liquidity for the next twelve months. However, the Company will need to
refinance its outstanding bank debt or obtain additional letter of credit
facilities during the first half of fiscal 1996 to provide for additional
working capital requirements, if any, that may be necessary to fund increased
levels of shipments. It is management's goal to refinance its outstanding bank
debt during the first half of fiscal 1996. Although preliminary discussions have
been held with the Company's lenders, there is no assurance that such a
refinancing can be accomplished on terms acceptable to the Company. Failure to
either refinance the bank debt prior to maturity or to negotiate a further
extension of maturity would result in the Company being in default under its
credit agreements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the matter of Stamatio et. al. vs. Hurco Companies, Inc. et. al, on July 18,
1995, Chief Judge Sarah Evans Barker denied plaintiff's motion to reconsider the
Court's earlier dismissal of the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 23, 1995, the
following individuals were elected to the Board of Directors:
AFFIRMATIVE NEGATIVE ABSTAINED
VOTES VOTES VOTES
Hendrik J. Hartong, Jr ............ 4,914,895 555 69,048
Andrew L. Lewis IV ................ 4,913,940 1,510 69,048
Brian D. McLaughlin ............... 4,910,676 4,774 69,048
E. Keith Moore .................... 4,912,050 3,400 69,048
Richard T. Niner .................. 4,914,626 824 69,048
O. Curtis Noel .................... 4,914,450 1,000 69,048
Charles E. M. Rentschler .......... 4,914,950 500 69,048
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURCO COMPANIES, INC.
By: /S/ ROGER J. WOLF
Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /S/ THOMAS L. BROWN
Thomas L. Brown
Corporate Controller and
Principal Accounting Officer
September 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT FORM 10-Q FOR THE PERIOD ENDED JULY 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000315374
<NAME> DAWN HIATT
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-1-1994
<PERIOD-END> JUL-31-1995
<CASH> 1,155
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<RECEIVABLES> 17,013
<ALLOWANCES> 1,127
<INVENTORY> 26,007
<CURRENT-ASSETS> 44,092
<PP&E> 22,672
<DEPRECIATION> 11,711
<TOTAL-ASSETS> 59,685
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<COMMON> 542
0
0
<OTHER-SE> 6,492
<TOTAL-LIABILITY-AND-EQUITY> 59,685
<SALES> 62,323
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</TABLE>
