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 July 31, 2000 or
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to
_________.
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1150732
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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
--------------
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 August
25, 2000 was 5,951,859.
<PAGE>
HURCO COMPANIES, INC.
July 2000 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
<TABLE>
<S> <C>
Item 1. Condensed Financial Statements
Condensed Consolidated Statement of Operations -
Three months and nine months ended July 31, 2000 and 1999.............3
Condensed Consolidated Balance Sheet -
As of July 31, 2000 and October 31, 1999..............................4
Condensed Consolidated Statement of Cash Flows -
Three months and nine months ended July 31, 2000 and 1999.............5
Condensed Consolidated Statement of Changes in Shareholders' Equity -
Nine months ended July 31, 2000 and 1999..............................6
Notes to Condensed Consolidated Financial Statements......................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...............11
Part II - Other Information
Item 1. Legal Proceedings........................................................13
Item 4. Submission of Matters to a Vote of Security Holders......................13
Item 6. Exhibits and Reports on Form 8-K.........................................14
Signatures.............................................................................15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
------ ------------------------------
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ---------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales and service fees...................... $ 22,676 $ 20,783 $ 71,398 $ 63,463
Cost of sales and service................... 16,561 14,868 51,831 45,686
---------- ---------- ---------- ----------
Gross profit............................. 6,115 5,915 19,567 17,777
Selling, general and
administrative expenses..................... 5,768 5,152 17,211 15,839
Restructuring credit........................ -- -- -- (103)
---------- ---------- ----------- ----------
Operating income ........................ 347 763 2,356 2,041
License fee income and litigation
settlement fees, net................... 201 73 355 242
Interest expense, net....................... 248 333 768 973
Other income (expense), net................. 110 (9) (259) (115)
----------- ----------- ---------- ----------
Income before taxes...................... 410 494 1,684 1,195
Provision for income taxes.................. 3 94 217 66
---------- ---------- ---------- ----------
Net income.................................. $ 407 $ 400 $ 1,467 $ 1,129
========== =========== ========== ==========
Earnings per common share
Basic.................................. $ .07 $ .07 $ .25 $ .19
========== ========== ========== ==========
Diluted................................ $ .07 $ .07 $ .24 $ .19
========== ========== ========== ==========
Weighted average common
shares outstanding
Basic.................................. 5,952 5,947 5,952 5,989
========== ========== ========== ==========
Diluted................................ 6,026 6,044 6,019 6,076
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
July 31, 2000 October 31, 1999
<S> <C> <C>
ASSETS (Unaudited) (Audited)
Current assets:
Cash and temporary investments...................................... $ 3,468 $ 3,495
Accounts receivable................................................. 17,463 17,154
Inventories......................................................... 26,234 30,767
Other............................................................... 1,418 1,440
---------- ---------
Total current assets............................................ 48,583 52,856
---------- ---------
Property and equipment:
Land ............................................................ 761 761
Building............................................................ 7,158 7,168
Machinery and equipment............................................. 11,068 11,182
Leasehold improvements.............................................. 1,002 1,005
Less accumulated depreciation and amortization.................. (11,096) (11,165)
---------- ---------
8,893 8,951
---------- ---------
Software development costs, less amortization............................ 3,508 3,951
Other assets ............................................................ 4,160 3,874
---------- ---------
$ 65,144 $ 69,632
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 11,309 $ 10,891
Accrued expenses.................................................... 7,013 6,903
Current portion of long-term debt.................................. 1,786 1,786
---------- ---------
Total current liabilities....................................... 20,108 19,580
---------- ---------
Non-current liabilities:
Long-term debt...................................................... 7,650 12,386
Deferred credits and other obligations.............................. 1,320 1,518
---------- ---------
Total non-current liabilities....................................... 8,970 13,904
---------- ---------
Shareholders' equity:
Preferred stock: no par value per share; 1,000,000
shares authorized; no shares issued............................... -- --
Common stock: no par value; $.10 stated value per
share; 12,500,000 shares authorized; and 5,951,859
and 5,951,859 shares issued and outstanding, respectively ...... 595 595
Additional paid-in capital.......................................... 46,340 46,340
Accumulated deficit................................................. (3,881) (5,348)
Foreign currency translation adjustment............................. (6,988) (5,439)
---------- ---------
Total shareholders' equity............................................... 36,066 36,148
---------- ---------
$ 65,144 $ 69,632
========== =========
</TABLE>
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)
<TABLE>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ---------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 407 $ 400 $ 1,467 $ 1,129
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization............................ 573 522 1,836 1,505
Change in assets and liabilities:
(Increase) decrease in accounts receivable............... (254) 1,286 (1,212) 3,492
(Increase) decrease in inventories....................... (1,089) (1,490) 3,408 (3,191)
Increase (decrease) in accounts payable.................. 595 2,971 508 (3,831)
Increase (decrease) in accrued expenses.................. 1,025 536 326 (708)
Other.................................................... (415) (542) 171 71
--------- ---------- -------- ----------
Net cash provided by (used for)
operating activities................................... 842 3,683 6,504 (1,533)
--------- ---------- -------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment............................ 25 19 36 91
Purchase of property and equipment......................... (396) (269) (949) (913)
Software development costs................................. (22) (247) (501) (779)
Other investments.......................................... (56) (9) (91) (220)
--------- ---------- --------- ----------
Net cash provided by (used for)
investing activities..................................... (449) (506) (1,505) (1,821)
--------- ---------- --------- ----------
Cash flows from financing activities:
Advances on bank credit facilities......................... 7,550 13,840 20,650 54,890
Repayment on bank credit facilities ....................... (7,400) (17,632) (23,600) (47,401)
Repayment of term debt .................................... -- -- (1,786) (1,786)
Proceeds from exercise of common stock options............. -- 13 -- 15
Purchase of common stock................................... -- -- -- (2,379)
-------- --------- --------- ----------
Net cash provided by (used for)
financing activities..................................... 150 (3,779) (4,736) 3,339
-------- --------- --------- ----------
Effect of exchange rate changes on cash....................... (55) 90 (290) (79)
--------- --------- --------- ----------
Net increase (decrease) in cash and
temporary investments.................................... 488 (512) (27) (94)
Cash and temporary investments
at beginning of period................................... 2,980 3,694 3,495 3,276
--------- ---------- --------- ----------
Cash and temporary investments
at end of period......................................... $ 3,468 $ 3,182 $ 3,468 $ 3,182
========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
HURCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended July 31, 2000 and 1999
<TABLE>
Accumulated
Other
Comprehensive
Income:
Common Stock Foreign
-------------------------
Shares Additional Currency
Issued & Paid-In Accumulated Translation
Outstanding Amount Capital Deficit Adjustment Total
----------- ------ ------- ------- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances, October 31, 1998 6,340,111 $634 $48,662 $(7,150) $(4,406) $37,740
--------------------------- -------
(Unaudited)
Net income....................... -- -- -- 1,129 -- 1,129
Translation of foreign currency
financial statements.......... -- -- -- -- (1,141) (1,141)
-------
Comprehensive income (loss)...... (12)
-------
Exercise of Common Stock Options. 6,100 -- 15 -- -- 15
Purchase of Common Stock......... (395,752) (39) (2,340) -- -- (2,379)
--------- ---- ------- -------- -------- -------
Balances, July 31, 1999 5,950,459 $595 $46,337 $ (6,021) $(5,547) $35,364
----------------------- ========= ==== ======= ======== ======== =======
Balances, October 31, 1999 5,951,859 $595 $46,340 $ (5,348) $(5,439) $36,148
-------------------------- -------
(Unaudited)
Net income....................... -- -- -- 1,467 -- 1,467
Translation of foreign currency
financial statements.......... -- -- -- -- (1,549) (1,549)
-------
Comprehensive income (loss)...... (82)
-------
Exercise of Common Stock Options. -- -- -- -- -- --
--------- ---- ------- -------- -------- -------
Balances, July 31, 2000 5,951,859 $595 $46,340 $(3,881) $(6,988) $36,066
----------------------- ========= ==== ======= ======== ======== =======
</TABLE>
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. We are an industrial
automation company that designs and produces interactive computer controls,
software and computerized machine systems for the worldwide metal cutting and
metal forming industries.
The condensed financial information as of July 31, 2000 and 1999 is unaudited
but includes all adjustments that we consider necessary for a fair presentation
of our financial position at those dates and our results of operations and cash
flows for the nine months then ended. We suggest you read these condensed
financial statements in conjunction with the financial statements and the notes
thereto included in our Annual Report on Form 10-K for the year ended October
31, 1999.
2. HEDGING
We hedge our exposure to fluctuations in foreign currency exchange rates from
time to time by using foreign currency forward exchange contracts. The U.S.
dollar equivalent notional amount of outstanding foreign currency forward
exchange contracts was approximately $3.0 million as of July 31, 2000 ($1.2
million related to firm intercompany sales commitments) and $4.5 million as of
October 31, 1999 ($2.1 million related to firm intercompany sales commitments).
Deferred gains related to hedges of future sales transactions were approximately
$51,000 and deferred losses were approximately $48,000 as of July 31, 2000 and
October 31, 1999, respectively. Contracts outstanding at July 31, 2000 mature at
various times through September 2000.
3. EARNINGS PER SHARE
Basic and diluted earnings per common share are based on the weighted average
number of shares of common stock outstanding. Diluted earnings per common share
give effect to outstanding stock options using the treasury stock method. Common
stock equivalents totaled approximately 74,000 shares as of July 31, 2000.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $725,000 as of July 31, 2000 and
$687,000 as of October 31, 1999.
5. INVENTORIES
Inventories, reflected at the lower of cost (first-in, first-out method) or
market are summarized below (in thousands):
July 31, 2000 October 31, 1999
------------- ----------------
Purchased parts and sub-assemblies $10,368 $ 9,104
Work-in-process 567 1,070
Finished goods 15,299 20,593
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$26,234 $30,767
======= =======
<PAGE>
6. TAX CONTINGENCY
A German tax examiner has contested the transfer of net operating losses between
two of our German subsidiaries that merged in fiscal 1996. The contingent tax
liability resulting from this issue is approximately $1.4 million. We have
protested this matter and have not yet received a ruling from the German tax
authorities on the tax examiner's findings and our protest. No provision for the
contingency has been recorded.
7. SEGMENT INFORMATION
We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, computer control
upgrades, accessories and replacement parts for our products, as well as
customer service and training support.
Substantially all of our machine systems and computer control systems are
manufactured to our specifications by contract manufacturing companies in Taiwan
and Europe. Our executive offices and principal design, engineering and
manufacturing management operations are headquartered in Indianapolis, Indiana.
We sell our products through over 240 independent agents and distributors in 45
countries throughout North America, Europe and Asia. We also have our own direct
sales and service organizations in the United States, England, France, Germany,
Italy and Singapore, which are considered to be among the world's principal
computerized machine system consuming countries.
8. RESTRUCTURING CHARGE
In fiscal 1998, we recorded a reserve for anticipated costs associated with the
restructuring of a subsidiary to convert its operations from manufacturing
computer controls to sales and service of computerized machine systems. At July
31, 2000, the restructuring reserve balance was $345,421 and consisted of the
following:
Balance Charges to Balance
Description 10/31/99 Accrual Adjustment 7/31/00
----------- -------- ---------- ---------- --------
Excess Building Capacity $285,899 -- -- $285,899
Equipment Leases 77,379 17,857 -- 59,522
-------- ---------- ---------- --------
$363,278 $ 17,857 $ -- $345,421
======== ========== ========== ========
9. SUBSEQUENT EVENT
On August 8, 2000, Hurco and its subsidiary, IMS technology, Inc. (IMS) agreed
to a settlement with Haas Automation Inc. and Gene Haas (Haas) concerning
infringement of a United States interactive machining patent (the Patent) owned
by IMS. Under the settlement, IMS licensed the Patent to Haas and Haas made a
one-time payment to IMS. We expect to report license fee income and litigation
settlement fees, net of expenses, of approximately $5 million in the fourth
quarter of fiscal 2000 resulting from this settlement.
<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 may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements of the machine tool industry to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, (i) changes in
general economic and business conditions that affect demand for computerized
machine systems, computer numeric control (CNC) systems and software products,
(ii) changes in manufacturing markets, (iii) innovations by competitors, (iv)
quality and delivery performance by our contract manufacturers and (v)
governmental actions and initiatives including import and export restrictions
and tariffs.
RESULTS OF OPERATIONS
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999
-----------------------------------------------------------------------------
Net income for the third quarter ended July 31, 2000 was $407,000, or $.07 per
share on a diluted basis, which compares to $400,000, or $.07 per share,
reported for the corresponding period a year ago. Net income for the 2000 period
was unfavorably impacted by approximately $700,000 due to the financial effects
of changes in foreign currencies, as compared to rates in effect during the
prior year, primarily the stronger U.S. dollar in relation to those linked to
the Euro.
Sales and service fees for the third quarter of fiscal 2000 were $22.7 million,
approximately $1.9 million, or 9%, higher than those recorded in the 1999
period, despite the continuing unfavorable effects of a substantially stronger
dollar on sales made in foreign currencies. At comparable exchange rates, net
sales for the third quarter would have been $24.0 million, an increase of
approximately $3.3 million, or 16%, over the prior year period. This increase
was due almost entirely to increased shipments of computerized machine systems,
reflecting stronger order rates, primarily in continental Europe and Southeast
Asia. Machine system sales increased $3.1 million, or 21%, when measured at
exchange rates comparable to those in the 1999 period. International sales,
after currency effects, represented approximately 58% of sales, which was
similar to the 1999 period.
New order bookings during the third quarter of fiscal 2000 were $25.4 million
compared to $20.4 million for the corresponding 1999 period, an increase of 25%.
At constant exchange rates, however, new orders were approximately 31% higher
than in the 1999 period. Orders for computerized machine systems increased 34%
in units; however, in constant dollars the increase was 44%, reflecting the
benefits of a higher percentage of larger, higher value machines in the total
mix of new orders. The increase in new orders was attributable primarily to
increased market penetration in continental Europe and Southeast Asia. Orders in
Southeast Asia also benefited from significantly improved market conditions.
<PAGE>
Gross profit as a percentage of sales was 27.0% compared to 28.5% for the
corresponding period in the prior year. The decrease is primarily attributable
to the stronger U.S. dollar.
Selling, general and administrative expenses, which include research and
development expenses, increased by $616,000, or 12%, due primarily to additional
direct sales forces in Italy and certain territories in the U.S. and increased
product development expense. These increases were partially offset by the
favorable effects of weaker foreign currencies on expenses incurred in foreign
currencies. Also, selling, general and administrative expenses during the same
quarter of the prior year were lower than normal due to cost reductions executed
during that period.
Non-operating income increased by $332,000 during the quarter and is the result
of the following items. License fee income and litigation settlement fees
increased by $128,000 as a result of five settlements that resulted in lump sum
payments. Interest expense decreased by $85,000, or 26%, as a result of a
decrease in borrowings compared to the third quarter of the prior year. Other
income increased by $119,000 as a result of rental income received from leasing
a portion of our Indianapolis warehouse and the recording of earnings of an
affiliate accounted for under the equity method.
The provision for income tax decreased by $91,000 as a result of reduced taxable
income of a foreign subsidiary.
Nine Months Ended July 31, 2000 Compared to Nine Months Ended July 31, 1999
---------------------------------------------------------------------------
Net income for the nine months ended July 31, 2000 was $1.5 million, or $.24 per
share on a diluted basis, which compares to $1.1 million, or $.19 per share,
reported for the corresponding period a year ago. Net income for the 2000 period
was unfavorably impacted by approximately $2.0 million due to the financial
effects of changes in foreign currencies, as compared to rates in effect during
the prior year, primarily the stronger U.S. dollar in relation to those linked
to the Euro.
Sales and service fees for the first nine months of fiscal 2000 were $71.4
million, approximately $7.9 million, or 13%, higher than those recorded in the
1999 period, in spite of the unfavorable effects of a substantially stronger
dollar on sales made in foreign currencies. At comparable exchange rates, net
sales for the first nine months of fiscal 2000 would have been $75.4 million, an
increase of approximately $11.9 million, or 19%, over the corresponding 1999
period. The increase was due almost entirely to increased shipments of
computerized machine systems, reflecting stronger order rates on a global basis.
Machine system sales increased $11.3 million, or 25%, when measured at exchange
rates comparable to those in the 1999 period.
New order bookings during the first nine months of fiscal 2000 were $74.5
million compared to $65.2 million for the corresponding 1999 period, an increase
of 14%. At exchange rates comparable to those in the 1999 period, however, new
orders in the first nine months of fiscal 2000 were approximately 20% higher
than in the first nine months of 1999. Orders for computerized machine systems
increased 28% in both units and in constant dollars, while orders for
stand-alone computer controls declined by 19% in constant dollars. Orders for
computerized machine systems in the U.S. increased approximately $4.3 million,
or 29%, and in Southeast Asia increased $3.3 million, over 200% above the fiscal
1999 level.
<PAGE>
Selling, general and administrative expenses, which include research and
development expenses, increased by $1.4 million, or 9%, due primarily to
additional direct sales forces in Italy and certain territories in the U.S. and
increased product development expenses. These increases were partially offset by
the favorable effects of weaker foreign currencies.
Interest expense decreased by $205,000, or 21%, from the amount recorded in the
corresponding period of 1999, due primarily to a $3.7 million reduction in
average debt outstanding for the nine months ended July 31, 2000 compared to the
prior year period, as a result of enhanced cash flow from operations. The effect
on interest expense of increased interest rates was not significant.
Other expense (net) increased to $259,000 compared to $115,000 reported for the
corresponding period of fiscal 1999, due primarily to 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 covered by forward hedge contracts during the 2000 period.
The provision for income taxes increased to $217,000 compared to $66,000 for the
corresponding period of fiscal 1999, due primarily to a $377,000 tax asset
recorded by a foreign subsidiary in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, we had cash and cash equivalents of $3.5 million,
substantially the same as at October 31, 1999. Cash provided by operations
totaled $6.5 million in the first nine months of fiscal 2000, compared to $1.5
million used for operations in the same period of fiscal 1999. The cash flow
provided by operations resulted in a $4.7 million reduction in long-term debt
during the first nine months of fiscal 2000.
Net working capital was $28.5 million at July 31, 2000, compared to $33.3
million at October 31, 1999. The decline is attributable principally to a
decrease in inventory of $3.4 million.
The decrease in inventory, consisting primarily of finished products available
for shipment, is attributable to increased shipments in the first nine months of
fiscal 2000.
Capital investments in the first nine months of fiscal 2000 consisted
principally of expenditures for software development projects and purchases of
equipment. Cash used for investing activities during the first half was derived
from operations.
On August 8, 2000, Hurco and its subsidiary, IMS technology, Inc. (IMS) agreed
to a settlement with Haas Automation Inc. and Gene Haas (Haas) concerning
infringement of a United States interactive machining patent (the Patent) owned
by IMS. Under the settlement, IMS licensed the Patent to Haas and Haas made a
one-time payment to IMS. We expect to report license fee income and litigation
settlement fees, net of expenses, of approximately $5 million in the fourth
quarter of fiscal 2000 resulting from this settlement. There are a limited
number of remaining CNC users that IMS has identified as potential licensees.
Accordingly, we believe that it is unlikely that future license fee income and
litigation settlement fees will equal that recorded in fiscal 2000.
We were in compliance with all of our loan covenants at July 31, 2000. We
believe that anticipated cash flow from operations and available borrowings
under credit facilities will be sufficient to meet our anticipated cash
requirements in the foreseeable future.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
Interest Rate Risk
Interest on our bank borrowings is affected by changes in prevailing U.S. and
European interest rates and/or Libor. The interest rates on the Libor portion of
our bank credit facilities are based upon a ratio of total indebtedness to cash
flow for the preceding twelve month period and are payable at Libor plus an
amount ranging from 1.0% to 2.0% based upon a prescribed formula. At July 31,
2000, outstanding borrowings under our bank credit facilities were $7.7 million
and our total indebtedness was $9.4 million. The interest rate on the Libor
portion of our bank debt was Libor plus 1.5%.
Foreign Currency Exchange Risk
A significant portion of our products is sourced from foreign suppliers or built
to our specifications by contract manufacturers overseas. Our arrangements with
these suppliers typically include foreign currency risk sharing agreements,
which reduce (but do not eliminate) the effects of currency fluctuations on
product costs. The predominant portion of our exchange rate risk associated with
product purchases relates to the New Taiwan Dollar.
In fiscal 2000, approximately 58.6% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer numerical control systems, as well as certain proprietary
service parts, are sourced by our U.S.-based engineering and manufacturing
division and re-invoiced to our foreign sales and service subsidiaries,
primarily in their functional currencies. We enter into forward foreign exchange
contracts from time to time to hedge the cash flow risk related to inter-company
sales and inter-company accounts receivable denominated in foreign currencies.
We do not speculate in the financial markets and, therefore, do not enter into
these contracts for trading purposes.
Forward contracts for the sale of foreign currencies as of July 31, 2000 were as
follows:
<TABLE>
Weighted
Notional Amount Avg. Notional
Forward Contracts in Foreign Forward Amount in Market Value
Currency Rate US$ in US$ Maturity Dates
----------------- -------- ---- --- ------ --------------
<S> <C> <C> <C> <C> <C>
Sterling 800,000 1.5445 1,235,603 1,199,200 Aug. - Sept. 2000
Euro 1,876,000 .9355 1,754,998 1,739,615 August 2000
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As reported in our Annual Report on Form 10-K for the year ended October 31,
1999, our subsidiary, IMS Technology, Inc. (IMS) was a party to an ongoing legal
proceeding involving Haas Automation Inc. and its owner (collectively, Haas).
IMS had alleged that Haas infringed one of its Interactive Computer Numerical
Control patents. On August 8, 2000, IMS and Haas agreed to a settlement. Under
the settlement, IMS licensed the patents to Haas and Haas made a one-time
payment to IMS. All claims and counter-claims of IMS and Haas were dismissed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Shareholders held on May 23, 2000, the following
individuals were elected to the Board of Directors by the following votes cast
at the meeting:
For Abstain
Robert W. Cruickshank 4,571,891 452,141
Michael Doar 4,571,891 452,141
Hendrik J. Hartong, Jr. 4,572,504 451,528
Brian D. McLaughlin 4,572,449 451,583
Richard T. Niner 4,572,504 451,528
O. Curtis Noel 4,571,891 452,141
Charles E. M. Rentschler 4,572,593 451,439
Shareholders also approved an amendment of the Company's 1997 Stock Option and
Incentive Plan which (i) increases from 500,000 to 750,000 the number of shares
of common stock subject to issuance under the plan, (ii) increases from 100,000
to 200,000 the number of shares of common stock which may be granted to any
individual participant pursuant to awards made under the plan, and (iii) adds as
eligible participants in the plan members of the Company's Board of Directors
who are not employees of the Company. The results of the voting with respect to
the amendment were as follows:
Abstentions and
For Against Broker Non-Votes
2,607,090 2,074,027 342,915
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended 1997 Stock Option and Incentive Plan
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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
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Roger J. Wolf
Senior Vice President and
Chief Financial Officer
By: /s/ Stephen J. Alesia
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Stephen J. Alesia
Corporate Controller and
Principal Accounting Officer
August 29, 2000
