SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30, 1999
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to
_________.
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1150732
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Technology Way
Indianapolis, Indiana 46268
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 293-5309
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for the past 90 days:
Yes X No
The number of shares of the Registrant's common stock outstanding as of June 7,
1999 was 5,945,359.
<PAGE>
HURCO COMPANIES, INC.
April 1999 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months and six months ended April 30, 1999 and 1998.....3
Condensed Consolidated Balance Sheet -
As of April 30, 1999 and October 31, 1998.....................4
Condensed Consolidated Statement of Cash Flows -
Three months and six months ended April 30, 1999 and 1998.....5
Condensed Consolidated Statement of Changes in Shareholders'
Equity - Six months ended April 30, 1999 and 1998.............6
Notes to Condensed Consolidated Financial Statements............7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....14
Part II - Other Information
Item 1. Legal Proceedings..............................................15
Item 6. Exhibits and Reports on Form 8-K...............................16
Signature....................................................................16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per-share data)
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ----------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------
(unaudited) (unaudited)
Sales and service fees............ $ 21,532 $ 21,542 $ 42,679 $ 43,662
Cost of sales and service......... 15,674 15,256 30,817 31,252
-------- -------- -------- --------
Gross profit................. 5,858 6,286 11,862 12,410
Selling, general and
administrative expenses........... 5,352 5,354 10,686 10,378
Restructuring credit.............. (103) -- (103) --
-------- -------- -------- --------
Operating income ............ 609 932 1,279 2,032
License fee income and litigation
settlement fees, net.............. 86 4,291 169 5,785
Interest expense.................. 340 210 640 484
Other expense, net................ 68 47 107 25
-------- -------- -------- --------
Income before taxes.......... 287 4,966 701 7,308
Income tax expense (benefit)...... (267) 696 (28) 852
-------- -------- -------- --------
Net income........................ $ 554 $ 4,270 $ 729 $ 6,456
======== ======== ======== ========
Earnings per common share
Basic........................ $ .09 $ .65 $ .12 $ .98
======== ======== ======== =======
Diluted...................... $ .09 $ .63 $ .12 $ .96
======== ======== ======== =======
Weighted average common
shares outstanding
Basic........................ 5,945 6,560 6,011 6,557
======== ======== ======== =======
Diluted...................... 6,031 6,764 6,100 6,751
======== ======== ======== =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
April 30, 1999 October 31, 1998
ASSETS (Unaudited) (Audited)
Current assets:
Cash and temporary investments............ $ 3,694 $ 3,276
Accounts receivable....................... 15,938 18,896
Inventories............................... 31,808 30,817
Other..................................... 1,364 2,154
-------- --------
Total current assets.................. 52,804 55,143
-------- --------
Long-term license fees receivable.............. 621 797
-------- --------
Property and equipment:
Land .................................. 761 761
Building.................................. 7,135 7,067
Machinery and equipment................... 11,250 11,184
Leasehold improvements.................... 1,007 1,107
Less accumulated depreciation and amortization (11,186) (11,037)
-------- --------
8,967 9,082
-------- --------
Software development costs, less amortization.. 4,310 4,231
Other assets .................................. 3,196 2,443
-------- --------
$ 69,898 $ 71,696
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 8,903 $ 15,791
Accrued expenses.......................... 6,678 8,217
Current portion of long-term debt......... 1,786 1,786
-------- --------
Total current liabilities............. 17,367 25,794
-------- --------
Non-current liabilities
Long-term debt............................ 16,040 6,572
Deferred credits and other obligations.... 1,503 1,590
-------- --------
Total non-current liabilities...... 17,543 8,162
-------- --------
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; and 5,945,359 and 6,340,111
shares issued and outstanding, respectively 595 634
Additional paid-in capital................. 46,324 48,662
Accumulated deficit........................ (6,421) (7,150)
Foreign currency translation adjustment.... (5,510) (4,406)
-------- --------
Total shareholders' equity ............... 34,988 37,740
-------- --------
$ 69,898 $ 71,696
======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ----------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income .............................. $ 554 $4,270 $ 729 $6,456
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization.......... 449 550 983 1,072
Change in assets and liabilities:
(Increase) decrease in accounts receivable (763) 2,550 2,206 1,100
(Increase) decrease in license fee
receivables......................... 125 495 451 (340)
(Increase) decrease in inventories..... 306 (2,763) (1,701) (861)
Increase (decrease) in accounts payable (2,731) 3,326 (6,802) 2,883
Increase (decrease) in accrued expenses (198) 863 (1,244) (430)
Other.................................. 52 (324) 162 (361)
------- ------- ------- -------
Net cash provided by (used for)
operating activities................. (2,206) 8,967 (5,216) 9,519
------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of equipment.......... 55 8 72 10
Purchase of property and equipment....... (394) (347) (644) (539)
Software development costs............... (306) (217) (532) (380)
Other investments........................ (49) (57) (211) (196)
------- ------- ------- -------
Net cash provided by (used for)
investing activities................... (694) (613) (1,315) (1,105)
------- ------- ------- -------
Cash flows from financing activities:
Advances on bank credit facilities....... 25,599 2,500 41,050 8,500
Repayment on bank credit facilities ..... (21,469) (5,108) (29,769)(10,400)
Repayment of term debt .................. -- -- (1,786) (1,786)
Proceeds from exercise of common stock options -- 48 2 82
Purchase of common stock................. -- (278) (2,379) (278)
------- ------- ------- -------
Net cash provided by (used for)
financing activities................... 4,130 (2,838) 7,118 (3,882)
------- ------- ------- -------
Effect of exchange rate changes on cash..... (150) (75) (169) 19
------- ------- ------- -------
Net increase (decrease) in cash and
temporary investments................... 1,080 5,441 418 4,551
Cash and temporary investments
at beginning of period.................. 2,614 2,481 3,276 3,371
------- ------- ------- -------
Cash and temporary investments
at end of period........................ $3,694 $7,922 $3,694 $7,922
======= ======= ======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months ended April 30, 1999 and 1998
Accumulated
Other
Comprehensive
Common Stock Income (Loss):
------------------ Foreign
Shares Additional Currency
Issued & Paid-In Accumulated Translation
Outstanding Amount Capital Deficit Adjustment Total
(Dollars in thousands)
Balances,
October 31 1997 6,544,831 $654 $50,349 $(16,404) $(4,823) $29,776
- --------------- -------
(Unaudited)
Net income.............. -- -- -- 6,456 -- 6,456
Translation of foreign
currency financial
statements........... -- -- -- -- (239) (239)
-------
Comprehensive income: 6,217
-------
Exercise of Common Stock
Options.............. 25,180 29 53 -- -- 82
Purchase of Common Stock (25,000) (25) (253) -- -- (278)
--------- ---- ------- -------- -------- -------
Balances,
April 30, 1998 6,545,011 $658 $50,149 $(9,948) $(5,062) $35,797
- -------------- ========= ==== ======= ======== ======== =======
Balances,
October, 31 1998 6,340,111 $634 $48,662 $(7,150) $(4,406) $37,740
- ---------------- -------
(Unaudited)
Net income.............. -- -- -- 729 -- 729
Translation of foreign
currency financial
statements........... -- -- -- -- (1,104) (1,104)
-------
Comprehensive income (loss) --- (375)
-------
Exercise of Common Stock
Options.............. 1,000 -- 2 -- -- 2
Purchase of Common Stock (395,752) (39) (2,340) -- -- (2,379)
-------- ---- ------- -------- ------- -------
Balances,
April 30, 1999 5,945,359 $595 $46,324 $(6,421) $(5,510) $34,988
- -------------- ========= ==== ======= ======== ======== =======
The accompanying notes are an integral part of the Condensed
Consolidated Financial Statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The unaudited Condensed Consolidated Financial Statements include the accounts
of Hurco Companies, Inc. and its consolidated subsidiaries (collectively, "the
Company"). The Company is an industrial automation company that designs and
produces interactive computer controls, software and computerized machine
systems for the worldwide metal cutting and metal forming industries.
The condensed consolidated financial information as of April 30, 1999 and 1998
is unaudited but includes all adjustments which we consider necessary for a fair
presentation of the Company's financial position at those dates and results of
operations and cash flows for the three months and six months then ended. It is
suggested that those condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in our
Annual Report on Form 10-K for the year ended October 31, 1998.
2. LICENSE FEE INCOME AND LITIGATION SETTLEMENT FEES, NET
From time to time, our wholly owned subsidiary, IMS Technology, Inc. (IMS)
enters into agreements for the licensing of its interactive computer numerical
control (CNC) patents. License fees received or receivable under a fully paid-up
license, for which there are no future performance requirements or
contingencies, and payments received or receivable to settle litigation related
to the patents, are recognized in income, net of legal fees and expenses, if
any, at the time the license agreement is executed. License fees received in
periodic installments that are contingent upon the continuing validity of a
licensed patent are recognized in income, net of legal fees and expenses, if
any, over the life of the licensed patent.
3. INCOME TAX EXPENSE (BENEFIT)
The income tax benefit for the second quarter of fiscal 1999 is the result of
a $325,000 deferred tax asset recorded by a foreign subsidiary as a result of
a change in its tax status.
4. HEDGING
We seek to hedge our exposure to fluctuations in foreign currency exchange rates
through the use of foreign currency forward exchange contracts. The U.S. dollar
equivalent notional amount of outstanding foreign currency forward exchange
contracts was approximately $5.9 million as of April 30, 1999 ($4.5 million
related to firm intercompany sales commitments) and $13.5 million as of October
31, 1998 ($8.7 million related to firm intercompany sales commitments). Deferred
gains related to hedges of future sales transactions were approximately $94,000
as of April 30, 1999, compared to deferred losses of $434,000 as of October 31,
1998. Contracts outstanding at April 30, 1999 mature at various times through
May 26, 1999. All contracts are for the sale of currency. We do not enter into
these contracts for trading purposes.
<PAGE>
5. EARNINGS PER SHARE
Basic and diluted earnings per common share are based on the weighted average
number of common shares outstanding. Diluted earnings per common share give
effect to outstanding stock options using the treasury method. Common stock
equivalents totaled approximately 90,000 shares as of April 30, 1999.
6. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $707,000 as of April 30, 1999 and
$769,000 as of October 31, 1998.
7. INVENTORIES
Inventories, priced at the lower of cost (first-in, first-out method) or market
are summarized below (in thousands):
April 30, 1999 October 31, 1998
-------------- ----------------
Purchased parts and sub-assemblies $ 10,478 $ 11,749
Work-in-process 1,855 1,774
Finished goods 19,475 17,294
-------- --------
$ 31,808 $ 30,817
======== ========
8. RESTRUCTURING CREDIT
In fiscal 1998, we recorded a reserve for anticipated costs associated with the
restructuring of a subsidiary. The reserve included $500,000 for carrying costs
of estimated excess space in a leased building, net of estimated sublease rental
income. Approximately $74,000 of this reserve was used during the second quarter
to offset rent expense for the excess space. On April 30, 1999, the excess
building space was subleased, effective June 15, 1999 through July 31, 2001. The
reserve was adjusted to reflect the terms of the sublease resulting in a
restructuring credit of approximately $103,000. At April 30, 1999, the
restructuring reserve balance was approximately $443,000 and consisted of the
following:
Balance Charges to Balance
Description 10/31/98 Accrual Adjustment 4/30/99
----------- -------- -------- ---------- -------
Excess Building Capacity $500,000 $ 73,743 $103,486 $322,771
Equipment Leases 101,187 11,904 89,283
Severance Costs 89,574 58,540 31,034
-------- -------- -------- --------
$690,761 $144,187 $103,486 $443,088
======== ======== ======== ========
9. TAX CONTINGENCY
A German tax examiner has challenged a 1996 transfer of net operating losses
between two of our German subsidiaries that merged in fiscal 1996. The
contingent tax liability resulting from this issue is approximately $1.4
million. We are contesting the claim and no formal decision or assessment has
been rendered by the tax authority. As of April 30, 1999, no provision for the
contingency has been recorded.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
Certain statements made in this report relating to trends in our operations or
financial results, as well as other statements, including words such as
"anticipate", "believe", "plan", "estimate", "expect", "intend", and other
similar expressions, constitute forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to known and unknown risks, uncertainties and other factors which could
cause actual results to be materially different from those contemplated by the
forward-looking statements, including those risks, uncertainties and other
factors described in our annual report on Form 10-K for the year ended October
31, 1998.
RESULTS OF OPERATIONS
Three Months Ended April 30, 1999 Compared to Three Months Ended April 30, 1998
Net income for the second quarter ended April 30, 1999 was $554,000, or $.09 per
share, on a diluted basis, which compares to $4.3 million, or $.63 per share,
reported for the corresponding period a year ago. The decline in net income is
primarily the result of the substantial reduction in license fee income and
litigation settlement fees, which had been anticipated. Net income also was
unfavorably impacted by a lower gross profit as a percentage of sales and by
higher interest expense, although their effects were offset by special tax
credits of approximately $325,000 relating to a foreign subsidiary and by a
credit of $103,000 to a previously recorded restructuring reserve.
Sales and service fees for the second quarter of fiscal 1999 were substantially
unchanged from the prior year level. In spite of weak market conditions, sales
of computerized machine systems increased 13.4% to $15.5 million, reflecting the
introduction of new products in late fiscal 1998. It should be noted, however,
that shipments in the second quarter of fiscal 1998 were adversely affected by a
temporary delay in availability of certain finished products at that time. Sales
of stand-alone computer control systems continued to decline compared to the
prior year period due to the previously announced repositioning of the product
line. Revenues from service fees and parts declined approximately six percent,
reflecting the ongoing transition of service activities to full-service
distributors.
New order bookings during the second quarter of fiscal 1999 were $20.0 million,
a decrease of 23.7% from the $26.2 million reported for the second quarter of
fiscal 1998. Orders for computerized machine systems declined $4.1 million, or
22.6%. The decline in machine system orders was most pronounced in the United
States, where weak market conditions in the metal cutting and metal forming
industries have persisted since the third quarter of fiscal 1998. Orders for
computerized machine systems were also lower in Europe, which posted a 15%
decline in order value, reflecting an 8% reduction in unit orders and a decrease
in the percentage of large machine systems in the sales mix. Orders in the
United Kingdom were below the second quarter of fiscal 1998 as weak market
<PAGE>
conditions continue. Orders in continental Europe, primarily France and Germany,
were below the prior year second fiscal quarter as well, reflecting some
softening in those markets. Orders for stand-alone computer control systems
declined by $1.7 million, or 44%, reflecting the ongoing repositioning of these
products. Backlog was $9.1 million at April 30, 1999 as compared to $11.0
million at January 31, 1999, a decrease of $1.9 million, reflecting increased
availability of new products for shipment.
Gross profit as a percentage of sales was 27.2% compared to 29.2% for the
corresponding period in the prior year. The decline in the gross profit
percentage was primarily attributed to lower service revenues, decreased
absorption of certain fixed costs, along with a lower percentage of higher
margin stand-alone computer control sales in the total sales mix.
Selling, general and administrative expenses, which include research and
development expenses, were essentially unchanged from the prior year quarter, as
normal salary and wage increases and new spending projects were offset by cost
reductions in other areas.
In fiscal 1998, we recorded a reserve for anticipated costs associated with the
restructuring of a subsidiary. The reserve included $500,000 for carrying costs
of excess space in a leased building, net of estimated sublease rental income.
Approximately $74,000 of this reserve was used during the second quarter to
offset rent expense for the excess space. On April 30, 1999, the excess building
space was subleased, effective June 15, 1999 through July 31, 2001. The reserve
was adjusted to reflect the terms of the sublease resulting in a credit of
approximately $103,000.
License fee income and litigation settlement fees, net of expenses and foreign
withholding taxes, totaled $86,000 in the second quarter of fiscal 1999,
compared to $3.7 million in the second quarter of fiscal 1998. The decline,
which was anticipated, reflected the fact that most of the previously granted
licenses for the Company's patented interactive control technology involved
one-time lump-sum payments and the number of future potential licensees is
limited.
Interest expense was $340,000 during the second quarter of fiscal 1999 compared
to $210,000 in the corresponding period of fiscal 1998. The increase in interest
expense is the result of increased borrowings resulting from payables becoming
due in fiscal 1999 that supported an increase in inventory beginning in the
second half of fiscal 1998.
The income tax benefit of $267,000 is the result of a $325,000 deferred tax
asset recorded by a foreign subsidiary due to a change in its tax status. The
income tax expense in the prior year was primarily due to foreign withholding
taxes on license fee income and litigation settlement fees.
A German tax examiner has challenged a 1996 transfer of net operating losses
between two of our German subsidiaries that merged in fiscal 1996. The
contingent tax liability resulting from this issue is approximately $1.4
million. We are contesting the claim and no formal decision or assessment has
been rendered by the tax authority. As of April 30, 1999, no provision for the
contingency has been recorded.
<PAGE>
Six Months Ended April 30, 1999 Compared to Six Months Ended April 30, 1998
Sales and service fees for the first half of fiscal 1999 were approximately 2.3%
lower than those recorded in the 1998 period, notwithstanding a slight benefit
from a weaker U.S. dollar when converting foreign sales and service fees into
U.S. dollars for financial reporting purposes. The decrease in sales and service
fees was due primarily to a decline of $2.7 million, or 36.5%, in sales of
stand-alone computer control systems, consisting primarily of the Autobend(R)
and Delta(TM) series products. This continued decline reflects the repositioning
of these products. Offsetting the decline in stand-alone computer control
systems was an increase of $2.0 million, or 7.0%, in computerized machine
systems. A significant decline in market consumption in the United States and
United Kingdom resulted in an 11.2% decline in sales of computerized machine
systems in those markets. However, the effect of this decline was offset by a
26.7% increase in sales of computerized machine systems in continental Europe,
primarily Germany and France. Domestic sales and service fees, including
exports, were 43.8% of total sales during first half of fiscal 1999 compared to
45.5% in the prior fiscal year.
New order bookings for the first six months of fiscal 1999 were $44.7 million
compared to $48.2 million in the prior year, a 7.3% decrease. Orders for
computerized machine systems decreased by approximately $900,000, or 2.8%,
reflecting the reduced order rates in the second quarter of fiscal 1999 as
discussed above, which more than offset strong European orders recorded in the
first fiscal quarter of 1999. Orders for stand-alone computer controls declined
$2.3 million, or 31.5%, reflecting the repositioning of these products. Backlog
at April 30, 1999 was $9.1 million compared to $7.5 million at October 31, 1998.
Gross profit as a percentage of sales was 27.8% compared to 28.4% for the
corresponding period in the prior year. The decline in the gross profit
percentage was primarily attributed to lower service revenues, decreased
absorption of certain fixed costs, along with a lower percentage of higher
margin stand-alone computer control sales in the total sales mix.
Operating expenses in the first half of fiscal 1999 increased $308,000, or 3.0%,
over the comparable prior year period. The first half of fiscal 1999 included
planned incremental expenditures for development of new products and enhanced
information technology and management systems.
License fee income and litigation settlement fees, net of expenses and foreign
withholding taxes, totaled $169,000 and $5.1 million in the first half of fiscal
1999 and 1998 respectively. The decline, which was anticipated, reflected the
fact that most of the existing licenses for the patented interactive control
technology have involved one-time lump-sum payments and the number of remaining
potential licensees is limited.
Interest expense was $640,000, during the first half of fiscal 1999 compared to
$484,000 in the corresponding period of fiscal 1998. The increase in interest
expense is the result of increased borrowings resulting from payables becoming
due in fiscal 1999 that supported an increase in inventory beginning in the
second half of fiscal 1998.
The income tax benefit of $28,000 is the result of a deferred tax asset of
$325,000 recorded in the second fiscal quarter by a foreign subsidiary as a
result of a change in its tax status. The income tax expense in the prior year
of $852,000 included $648,000 of foreign withholding taxes on license fees and
litigation settlement fees.
<PAGE>
Year 2000 Compliance
The Year 2000 Problem. Many information technology ("IT") hardware and software
systems ("IT Systems") and Non-IT Systems containing embedded technology, such
as microcontrollers and micro processors ("Non-IT Systems"), can only process
dates with six digits (e.g., 06/26/98), instead of eight digits (e.g.,
06/26/1998). This limitation may cause IT Systems and Non-IT Systems to
experience problems processing information with dates after December 31, 1999
(e.g., 01/01/00 could be processed as 01/01/2000 or 01/01/1900) or with other
dates, such as September 9, 1999, which was a date traditionally used as a
default date by computer programmers. These problems may cause IT Systems and
Non-IT Systems to suffer miscalculations, malfunctions or disruptions. These
problems are commonly referred to as "Year 2000" or "Y2K" problems.
Our State of Readiness. We have begun to implement a plan to ensure that the IT
Systems and material Non-IT Systems that we control are Y2K compliant before
January 1, 2000. In the first phase of the plan, which has been completed, we
assessed the potential exposure of our IT Systems and material Non-IT Systems to
Y2K problems. In the second phase, which we have also completed, we designed a
procedure to remediate our exposure to Y2K problems in the IT Systems and
material Non-IT Systems that we control. We are currently in the third phase,
which involves the actual remediation and enhancements of the IT Systems and
material Non-IT Systems that we control. After we complete the third phase, we
will begin the fourth and final phase of testing the remediation and
enhancements to the IT Systems and material Non-IT Systems that we control to
ensure Y2K compliance.
We believe that we have identified all IT Systems and material Non-IT Systems
that we control that may require Y2K remediation. We have assigned nine people
(both employees and outside consultants) to complete the remediation and
enhancements to our IT Systems that we control. We plan to complete the
remediation, enhancements and testing by June 30, 1999.
We have assigned three employees to either remediate or cause the remediation of
material Non-IT Systems that we control and that we have identified as
possessing a Y2K problem. We plan to complete the remediation of these Non-IT
Systems by June 30, 1999. We have acquired some of these Non-IT Systems during
the past few years and we believe that a substantial number of these newer
systems do not possess a Y2K problem. In addition, the vendors of some of these
newer Non-IT Systems have warranted them to be Y2K compliant. We have contacted
the third parties who control our other material Non-IT Systems (including,
without limitation, communication systems, security systems, electrical systems
and HVAC systems) to assess whether any of these systems possess a Y2K problem
that could adversely affect our operations if a malfunction occurred. We have
also implemented procedures to help ensure that any new Non-IT Systems that we
acquire or utilize are Y2K compliant.
We have completed Year 2000 testing on our CNC products and have prepared
technical bulletins that describe the products tested and the impact Year 2000
will have on those products. These technical bulletins are available upon
request or can be obtained from our web site (Hurco.com). We believe that our
CNC products will continue to function in Year 2000 with only some models
experiencing a minor file dating issue. We are developing a policy for providing
software updates to those products that will have the dating issue.
The Costs to Address the Company's Year 2000 Issues. Our costs through April 30,
1999 to identify and remediate our Year 2000 problems have not been material.
Our costs to complete the Year 2000 project are not expected to be material
either.
<PAGE>
The Risks Associated With Our Year 2000 Issues. Our Year 2000 compliance effort
has not identified any worst case scenarios that we believe are reasonably
likely to occur. We do not expect Year 2000 issues to interrupt our business
unless disruption occurs as a result of year 2000 problems involving basic
infrastructure outside of our control.
Our computerized machine systems are manufactured primarily by three contract
manufacturers in Taiwan. An interruption in supply from the contract
manufacturer could have a material adverse effect on our operations. We have
received assurances from all contract manufacturers that Year 2000 will not
cause delays in production. Although we have not identified any specific Year
2000 issues that are reasonably likely to impact the production of the contract
manufacturers, because of the uncertainty of the year 2000 issue, some risk of
disruption in production does exist.
Contingency Plan. We will continue to evaluate the impact Year 2000 will have on
our contract manufacturers. If Year 2000 issues are identified that we believe
could reasonably disrupt production of the contract manufacturers, we will delay
our fiscal 1999 finished goods inventory reduction program and maintain finished
goods inventory at a level to protect against anticipated production delays. We
will continue monitoring the Year 2000 issue and will develop a contingency plan
if a reasonably likely risk is identified.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1999, we had cash and temporary investments of $3.7 million
compared to $3.3 million at October 31, 1998. Cash used for operations totaled
approximately $2.2 million in the second quarter of fiscal 1999, compared to
cash provided by operations of $9.0 million for the same period of fiscal 1998.
Cash flow from operations during the second quarter of fiscal 1998 benefited
from approximately $4.9 million of license fees and litigation settlements
received, net of expenses paid and foreign taxes withheld.
For the six months ended April 30, 1999, approximately $5.2 million of cash was
used for operations as compared to $9.5 million cash provided by operations in
the comparable prior year period, of which $5.5 million in the prior year period
was attributable to license fee income and litigation settlement fees received,
net of expenses paid and foreign taxes withheld.
Net working capital was $35.4 million at April 30, 1999, compared to $29.3
million at October 31, 1998. The increase was attributable to an increase in
inventory of $1.7 million, a decrease in accounts payable of $6.8 million and a
$1.2 million decrease in accrued expenses, offset by a $2.2 million decrease in
accounts receivable. The ratio of current assets to current liabilities was 3.0
to 1 at April 30, 1999 and 2.1 to 1 at October 31, 1999.
The increase in inventories relates primarily to finished products available for
shipment. The increase is attributable to planned increases in production by our
contract manufacturers during the latter half of fiscal 1998, combined with
lower than expected demand in the first half of fiscal 1999. The increased
finish product inventory is expected to be absorbed during the fourth quarter of
the fiscal year and the first half of fiscal 2000 as reduced supplier delivery
schedules take effect.
The decrease in accounts payable relates to payments made to our contract
manufacturers for inventory purchases that occurred in late fiscal 1998 under
terms that generally range from 60 to 120 days. Accounts payable at October 31,
1998 reflected a higher-than-average level of shipments from our contract
manufacturers in the fourth fiscal quarter.
The decrease in accrued expenses is primarily the result of seasonal payments
related to 1998 operations. The decrease in accounts receivable is primarily
attributed to decreased shipments in the first half of 1999 compared to the
higher level of shipments at the end of fiscal 1998 for which payments were
received in the first half of 1999.
Capital investments for the quarter and six months ended April 30, 1999
consisted principally of expenditures for software development projects and
purchases of equipment. Cash used for investing activities during the quarter
and year to date were funded by bank credit facilities.
We purchased 395,752 shares of our common stock during the first half of fiscal
1999 at a cost of approximately $2.4 million under our previously announced
stock repurchase program. These shares are reflected as a reduction of common
stock outstanding in calculating basic and diluted earnings per common share.
<PAGE>
Our bank credit agreement was amended on December 19, 1998 to permit borrowings
at any one time outstanding of up to $25.0 million (inclusive of letter of
credits of $15.0 million). All other terms under the agreement remained
unchanged. As of April 30, 1999, we had unutilized availability of $4.2 million
under our current credit facilities. We were in compliance with all loan
covenants at April 30, 1999. We believe that anticipated cash flow from
operations and available borrowings under the credit facilities will be
sufficient to meet our anticipated cash requirements in the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Interest on our bank line of credit is affected by the general level of U.S. and
European interest rates and/or Libor. The interest rates on the Libor portion of
our bank credit facilities are based upon a leverage ratio for the preceding
twelve month period and are payable at Libor plus an amount ranging from .75% to
2.0% based upon a prescribed formula. At April 30, 1999, outstanding borrowings
were $13.3 million on our bank credit facilities. Based upon this level of
borrowings, our interest rate on the Libor portion of the debt will increase
1.25% effective August 1, 1999. An increase of market interest rates of fifty
basis points (.5%) would increase annual interest expense approximately $67,000.
Foreign Currency Exchange Risk
A significant portion of our product content is sourced from foreign suppliers
or built to our specifications by contract manufacturers overseas. Our
contractual arrangements with those suppliers typically include foreign currency
risk sharing agreements which reduce the effects of currency fluctuations on
product cost. The predominant portion of foreign currency exchange rate risk
regarding product cost relates to the New Taiwan Dollar.
In Fiscal 1999, approximately 56.2% of our sales and service fees, including
export sales, were derived from overseas markets. All computerized machine
systems, computer numerical control systems and certain proprietary service
parts are sourced by a central engineering and manufacturing division of the
U.S. parent company and re-invoiced to our foreign sales and service
subsidiaries, primarily in their functional currencies. The parent company
enters into forward foreign exchange contracts from time to time to hedge the
cash flow risk related to inter-company sales and inter-company accounts
receivable in foreign currencies. We do not speculate in the financial markets
and, therefore, do not enter into these contracts for trading purposes.
<PAGE>
Forward contracts for the sale of foreign currencies as of April 30, 1999 were
as follows:
Weighted
Notional Amount Avg. Notional Market
Foreword Contracts in Foreign Forward Amount in Value Maturity
Currency Rate U.S. $ in US$ Dates
-------- ---- ------ ------ -----
Euro 3,430,000 1.0782 3,697,969 3,628,940 May 1999
Sterling 1,350,000 1.6091 2,172,225 2,172,150 May 1999
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There have been no material developments in the IMS infringement litigation.
We are involved in various other claims and lawsuits arising in the ordinary
course of business, none of which, in the opinion of management, is expected to
have a material adverse effect on our consolidated financial position or results
of operations.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 The sublease between Autocon Technologies, Inc. and Robert Bosch
Corporation dated April 30, 1999.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HURCO COMPANIES, INC.
By: /s/ Roger J. Wolf
Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /s/ Stephen J. Alesia
Stephen J. Alesia
Corporate Controller and
Principal Accounting Officer
June 9, 1999
Exhibit 10.1
The Sublease between Autocon Technologies and Robert Bosch Corporation
dated April 30, 1999
<PAGE>
SUBLEASE
This Sublease (the "Sublease") is entered into by AUTOCON
TECHNOLOGIES, INC., a Michigan corporation ("Sublessor"), and ROBERT BOSCH
CORPORATION, a(n) _____________ corporation ("Sublessee"), as of the 30 day of
April, 1999.
1. Property Subleased. Sublessor hereby subleases to
Sublessee, and Sublessee hereby subleases from Sublessor, upon the terms and
conditions set forth herein, approximately twenty-three thousand two hundred
seventy-six (23,276) rentable square feet (the "Subleased Premises") in the
building located at 38455 Hills Tech Drive, Farmington Hills, Michigan 48331
(the "Building"). Said Subleased Premises are more particularly described in
Exhibit A, attached hereto and incorporated by this reference.
2. Master Lease and Master Lessor. The Subleased Premises are
a portion of the space in the Building presently being leased by Sublessor (the
"Premises"), assignee of Hurco Companies, Inc., from Hillmont Properties,
assignee of UNUM Life Insurance Company of America ("Master Lessor"), pursuant
to a Net Lease executed May 11, 1992 (the "Master Lease"). A copy of the Master
Lease is attached as Exhibit B and incorporated by this reference, except to the
extent the terms and provisions of the Master Lease conflict with the terms and
provisions of this Sublease, in which case the terms and provisions of this
Sublease shall control.
3. Use. The Subleased Premises shall be used only for general
office, warehouse purposes, small equipment/parts testing and administrative
activities and for no other purpose whatsoever without the prior written consent
of Sublessor and Master Lessor; provided, however, such use shall not be
inconsistent with or in contravention of the use provisions of the Master Lease.
Sublessee shall comply with all laws, ordinances, rules, and regulations,
whether the same are issued by a governmental or quasi-governmental authority or
by Master Lessor, relating to Sublessee's use or occupancy of the Subleased
Premises.
4. Provisions Regarding Main Lease. Except as otherwise
provided for herein, this Sublease and the rights of parties hereunder are
subject and subordinate to the Main Lease and the rights of Master Lessor
thereunder. Sublessee shall be bound with respect to the Subleased Premises by
all of the terms, covenants and conditions of the Master Lease governing use and
occupancy of the Subleased Premises and any common areas as if Sublessee were
the Lessee and Sublessor were the Lessor under the Master Lease. In particular,
Sublessee shall perform all affirmative covenants and shall refrain from
performing any act which is prohibited by the negative covenants of the Main
Lease, where the obligation to perform or refrain from performing is by its
nature imposed upon the party in possession of the Premises. Sublessor shall
have the right to enter the Subleased Premises to inspect the same and to cure
any default by Sublessee under this paragraph, provided Sublessor notifies
Sublessee of the default in writing, and Sublessee fails to cure the default
within thirty (30) days of receipt of the notice. Sublessor shall, as to the
Subleased Premises, perform or cause to be performed the obligations of Master
Lessor under the Main Lease. Sublessor shall have no responsibility for or be
liable to Sublessee for any default, failure or delay on the part of Master
Lessor in the performance or observance by Master Lessor of any of its other
obligations under the Main Lease or for any act or omission of Master Lessor,
<PAGE>
its agents, employees or contractors, nor shall such default, act or omission by
Master Lessor affect this Sublease or waive or defer the performance of any of
Sublessee's obligations hereunder, except to the extent that the same excuses
performance by Sublessor under the Master Lease. Sublessor shall indemnify,
defend and hold Sublessee harmless from any claim, action, damage or expense
incurred by Sublessee as a result of Sublessor's default or breach of any term
or obligation of Sublessor under the Master Lease to the extent such default or
breach is caused by Sublessor. Sublessee shall indemnify, defend and hold
Sublessor harmless from any claim, action, damage or expense incurred by
Sublessor as a result of Sublessor's default or breach of any term or obligation
of Sublessor under the Master Lease caused by Sublessee. Sublessor shall use
reasonable efforts to require Master Lessor to comply with its obligations under
the Master Lease.
5. Term. The term of this Sublease (the "Sublease Term") shall
commence on June 15, 1999 and expire on July 31, 2001, unless earlier terminated
as provided for herein. Sublessee shall have the right to renew this Sublease
for an additional one (1) year term upon the terms and conditions, including the
rental provisions, then in effect; provided, however, that Sublessee must
provide Sublessor written notice of its intention to exercise its right to an
extension no fewer than sixty (60) days prior to the expiration of the Sublease
Term. The existence of this Sublease is dependent and conditioned upon the
continued existence of the Master Lease, and in the event of the expiration,
cancellation, or termination of the Master Lease, this Sublease automatically
shall be terminated, provided, however, that (a) this provision shall not be
deemed to release Sublessor of liability if the Master Lease is canceled or
terminated due to a default by Sublessor which default did not arise from acts
or omissions of Sublessee, (b) this provision shall not be deemed to release
Sublessee of liability if the Master Lease is cancelled due to a default by
Sublessor which default arises from acts or omissions of Sublessee, and (c) if
the Master Lease terminates as a result of a default or breach by the Sublessor
or Sublessee, the defaulting party will be liable to the non-defaulting party
for the damages suffered as a result of the termination.
6. Rent. In addition to the other obligations of Sublessee set
forth herein, Sublessee shall pay Sublessor as annual rent ("Basic Rent") for
the Sublease Term the sum of Two Hundred Twenty-One Thousand One Hundred
Twenty-Two and No/100 Dollars ($221,122.00) per annum. An amount equal to
one-twelfth (1/12) of such annual rent (Eighteen Thousand Four Hundred
Twenty-Six and 83/100 Dollars ($18,426.83)) shall be payable in advance on the
first day of each month of the Sublease Term, without deduction or offset and
without prior notice or demand; provided, however, that all such rentals shall
be prorated to account for partial months during the first and/or last months
during the Sublease Term. In addition, Sublessee shall pay sixty-two and one
tenth percent (62.1%) of all taxes, assessments, utilities, insurance, common
area costs and other expenses or costs which Sublessor is hereafter required to
pay as Lessee under the Master Lease ("Additional Rent"). Installments of
Additional Rent shall be payable to Sublessor at the same times Sublessor is
required to pay such expenses under the Main Lease. For non-monthly installments
of Additional Rent, Sublessor shall provide notice of such amounts due within
three (3) business days of Sublessor's receipt of notice thereof from Master
Landlord. Sublessor shall provide Sublessee with copies of all supporting
information for Additional Rent which Sublessor receives from Master Lessor.
Sublessee's obligation for installments of Additional Rent for any period prior
to expiration or termination of this Sublease shall survive such expiration or
termination. In the event any amount included in the Additional Rent is subject
to year-end adjustment under the Master Lease, Sublessee shall be entitled to or
responsible for sixty-two and one tenth percent (62.1%) of the amount it has
<PAGE>
overpaid or underpaid as to that component of Additional Rent. Rents shall be
paid to Sublessor at the address set forth below. The terms and provisions of
Section 4.01 and Section 4.02 of the Master Lease shall apply to Sublessee in
the event of delinquent payment of Basic Rent or Additional Rent.
7. No Enlargement of Rights. To the extent Sublessor is
granted any rights to extend or renew the term of the Master Lease or to expand
the Premises to include additional space, Sublessee shall have no right to
exercise such rights.
8. Improvement. Prior to the commencement date of this
Sublease, and subject to the provisions of the Master Lease and to the Master
Lessor's consent, if required, Sublessor shall construct a wall separating the
Subleased Premises from the remainder of the Premises. This wall shall be
located as shown on Exhibit A. In addition to construction of the wall,
Sublessor shall remove, relocate, or make such adjustments as necessary to
separate Sublessor's electrical, mechanical, telecommunications and security
systems from Sublessee's systems. Sublessor shall also install a door within an
existing window opening on the north side of the Subleased Premises if required
by code following the construction of the new demising wall. Notwithstanding any
provision in the Master Lease to the contrary, Sublessor shall not be obligated
to provide, nor shall Sublessee be entitled to the benefit of, any additional
alterations or improvements to the Subleased Premises, except as provided in
this paragraph.
9. Condition of the Subleased Premises. Sublessee has
inspected the Subleased Premises prior to executing this Sublease. Sublessee
acknowledges and agrees that, as of the date hereof:
(a) Sublessor makes no warranties concerning the
Subleased Premises;
(b) The Subleased Premises are in good condition; and
(c) The Subleased Premises are accepted "as is."
10. Warranties by Sublessor. Sublessor warrants as follows:
(a) the Improvements set forth in Paragraph 8
above shall be completed on or before the
Commencement Date, and shall be constructed
in accordance with all applicable laws,
regulations and building codes.
(b) the Master Lease has not been amended or
modified except as set forth in this
Sublease, and that any amendments or
modifications thereto shall require the
prior written consent of the Sublessee to
the extent the same shall affect the terms
and conditions of this Sublease.
(c) Sublessor is not now, and as of the
Commencement Date will not be, in default or
breach of any provisions of the Master
lease, and Sublessor has no knowledge of any
claim (alleged or otherwise) by Master
Lessor that Sublessor is in default or
breach of the Master Lease.
<PAGE>
11. Signage. Subject to the provisions of the Master Lease and
to the Master Lessor's consent, if required, the following changes and
alterations to signage at the Building shall be made:
(a) Sublessee may, at its sole cost and expense, erect
such signage on the Subleased Premises as it desires;
(b) Sublessor shall relocate the existing building sign
facing Hills Tech Drive Road to an area of the
Building exterior corresponding to the part of the
Premises not included in the Subleased Premises; and
(c) Sublessor shall place a directional sign in the lawn
of the Building next to the flagpole facing Highway
696.
The existing Autocon sign facing Highway 696 shall be retained.
12. Parking. Sublessor shall have exclusive use of the
twenty-seven (27) parking spaces directly adjacent to the entrance to that part
of the Premises retained by Sublessor hereunder as more particularly shown on
Exhibit C, attached hereto and incorporated by this reference. Sublessee shall
be entitled to use the remainder of the parking spaces available to Sublessor
under the Master Lease.
13. Office Furniture. Sublessee may, at its option, lease the
existing steelcase furniture in the Subleased Premises, excluding file cabinets
and stand-alone work tables, for Five Thousand and No/100 Dollars ($5,000.00)
per month, payable to Sublessor at the same time as the Basic Rent hereunder. In
the event Sublessee desires to exercise this option, it must provide written
notice to Sublessor no later than thirty (30) days after the date hereof, and
the parties agree to execute a mutually acceptable office furniture lease
agreement, which shall include a mutually agreeable inventory list of such
leased items. Furniture rental shall include the 120-volt power wiring, voice
and data lines and integrated lamp fixtures currently in the steelcase office
and workstation furniture.
14. Insurance. Sublessee shall procure and maintain all
insurance policies required of the Lessee under the provisions of the Master
Lease with respect to the Subleased Premises. All such policies shall name
Master Lessor and Sublessor as additional insureds. Certificates of insurance
evidencing such policies shall be delivered to Master Lessor and Sublessor at
the commencement of the Sublease Term and, if any policy requires renewal,
Sublessee shall notify Master Lessor and Sublessor not less than ten (10) days
prior to the expiration of such policy. Sublessee's personal property in the
Subleased Premises shall be kept at Sublessee's sole risk, and neither Sublessor
nor Master Lessor shall be liable to Sublessee for any loss or damage thereto.
Sublessee hereby waives all claims and rights of recovery which it might have
against Sublessor or Master Lessor for any loss or damage to Sublessee's
personal property in the Subleased Premises.
15. Personal Property. Sublessee waives any and all of its
rights against Sublessor and Master Lessor for any damage caused by Sublessor or
Master Lessor to Sublessee's property located on the Subleased Premises, except
to the extent, as to the Sublessor, that the same arises from the negligence or
willful misconduct of Sublessor and except to the extent, as to the Master
Lessor, the same arises from the negligence or willful misconduct of Master
Lessor.
<PAGE>
16. Notices. Any notice given under this Sublease shall be in
writing and shall be hand-delivered or mailed (by certified or registered mail,
return receipt requested, postage prepaid), addressed as follows:
Sublessee: 38000 Hills Tech Drive
Farmington Hills, Michigan 48331-3417
Attention: Mr. Wolfgang Knapp
Sublessor: 38455 Hills Tech Drive
Farmington Hills, Michigan 48331-5751
Attention: Mr. Nick Pitsillos
Any notice shall be deemed to have been given when hand-delivered or, if mailed,
seventy-two (72) hours after the time that such notice is deposited in the
United States mail.
17. Remedies Upon Default. Sublessor shall, if Sublessee
breaches any provision of this Sublease, be entitled to the same remedies as
those granted to the Master Lessor for Lessee's default under the Master Lease,
in addition to any remedies at law or in equity which apply to subleases.
Sublessee shall, if Sublessor breaches any provision of this Sublease, be
entitled to the same remedies as those granted to Sublessor for Lessor's default
under the Master Lease, in addition to any remedies at law or in equity which
apply to subleases.
18. Non-Assignment. Notwithstanding any provision in the
Master Lease to the contrary, Sublessee's interest in this Sublease is not
assignable, whether by operation of law or otherwise. Sublessee shall have no
right to sublet the Subleased Premises or to transfer any interest of Sublessee
therein.
19. Surrender of the Subleased Premises. Upon the expiration
of the Sublease Term, the extended term, if applicable, or the earlier
termination of the Master Lease or this Sublease, Sublessee shall surrender the
Subleased Premises in the same condition as received on the date hereof,
reasonable and normal wear and tear and damages or destruction resulting from
causes which are covered by insurance obtained in accordance with Section 11 of
the Master Lease excepted.
20. Attorneys' Fees. Should either party commence any legal
action or proceeding against the other based on this Sublease or Sublessee's
occupancy of the Subleased Premises, the prevailing party shall be entitled to
an award of reasonable attorneys' fees, in addition to any other relief to which
such party would be entitled.
21. Brokers. Each party hereby agrees that it shall pay any
commission owed to any broker with which it has entered an agreement requiring
the same. Each party shall indemnify and defend the other from and against any
claim of any broker alleging a right to a broker's commission or other
compensation through the Indemnitor or by reason of such broker having dealt
with or alleging to have dealt with the Indemnitor.
22. Master Lessor's Consent. It shall be a condition precedent
to Sublessor's and Sublessee's obligations hereunder that Master Lessor shall
execute the attached consent to this Sublease. In the event Master Lessor fails
to execute such consent by the commencement date, this Sublease shall
automatically terminate.
<PAGE>
23. Y2000. To the knowledge of Sublessor, the Building
structure, structural components and fire protection and HVAC systems are Year
2000 ready. In the event the Building structure or structural components shall
fail as a result of the century date change or leap year, Sublessee shall
provide Sublessor with written notice of such failure. Within thirty (30) days
of its receipt of such notice, Sublessor shall correct or require the Master
Lessor to correct such failure. Sublessee shall be responsible for century date
change or leap year compliance for any business system Sublessee installs or
uses, including, but not limited to, any security system, phone system, and
utilities. Sublessee shall be entitled to an abatement in rent in the event the
Y2000 failure related to building structure, structural components or fire
protection or HVAC systems prevent Sublessee from occupying the Subleased
Premises to conduct business. Except as specifically provided in this paragraph
or otherwise stated in this Sublease, all applicable terms and conditions of the
Master Lease are incorporated and made a part of this Sublease. Sublessor will
exercise due diligence in attempting to cause Master Lessor to perform its
obligations under the Master Lease for the benefit of Sublessee.
24. Entire Agreement and Definitions. This Sublease contains
the entire agreement of the parties with respect to the subject matter hereof.
No representations, inducements, promises or agreements, oral or otherwise, not
embodied herein shall be of any force or effect; provided that, notwithstanding
the foregoing, any capitalized term or phrase not expressly defined herein shall
have the meaning set forth in the Master Lease.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease as
of the date first written above.
SUBLESSOR:
AUTOCON TECHNOLOGIES, INC.,
a Michigan corporation
By: /s/ James D. Fabris
Printed: James D. Fabris
Title: President
SUBLESSEE:
ROBERT BOSCH CORPORATION, a(n)
___________________ corporation
By: /s/ John Moulton
Printed: John Moulton
Title: President
The undersigned, as Lessor under the Master Lease, hereby
consents to Sublessor's sublease of the Subleased Premises to Sublessee upon the
terms and conditions set forth above. Sublessor shall continue to remain
primarily liable to Master Lessor under the terms of the Master Lease; and no
provision of the Sublease shall have any effect upon any of Sublessor's
obligations to Master Lessor under the terms of the Master Lease.
HILLMONT PROPERTIES,
a Michigan co-partnership
By: WALDMAN INVESTMENT ASSOCIATES
LIMITED PARTNERSHIP, its
partner
By: /s/ Saul Waldman
Saul Waldman, Trustee of the
Saul Waldman Revocable Trust,
dated August 21, 1978,
Its General Partner
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<PAGE>
Exhibit 11
Statement Re: Computation of Per Share Earnings
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ------------------------
1999 1998 1999 1998
-------------- ------------- ------------- -------------
(in thousands, except per
share amount)
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
-------------- ------------- ------------- -------------
Net income $554 $554 $4,270 $4,270 $729 $729 $6,456 $6,456
Weighted average shares
outstanding 5,945 5,945 6,560 6,560 6,011 6,011 6,557 6,557
Assumed issuances under
stock options plans - 86 - 204 - 89 - 194
-------------- ------------ ------------- -------------
5,945 6,031 6,560 6,764 6,011 6,100 6,557 6,751
Earnings per common
share $0.09 $0.09 $0.65 $0.63 $0.12 $0.12 $0.98 $0.96
============== ============ ============= =============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT 10-Q FOR THE PERIOD ENDED APRIL 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000315374
<NAME> SONJA BUCKLES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> FEB-1-1999
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,694
<SECURITIES> 0
<RECEIVABLES> 16,645
<ALLOWANCES> 707
<INVENTORY> 31,808
<CURRENT-ASSETS> 52,804
<PP&E> 20,153
<DEPRECIATION> 11,186
<TOTAL-ASSETS> 69,898
<CURRENT-LIABILITIES> 17,367
<BONDS> 0
0
0
<COMMON> 595
<OTHER-SE> 34,393
<TOTAL-LIABILITY-AND-EQUITY> 69,898
<SALES> 21,532
<TOTAL-REVENUES> 21,532
<CGS> 15,674
<TOTAL-COSTS> 15,674
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340
<INCOME-PRETAX> 287
<INCOME-TAX> (267)
<INCOME-CONTINUING> 554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
