Hurco Companies Inc 10-K for FY2019

Hurco Companies Inc (HURC)

10-K 2020-01-03 For: 2019-10-31

Added on April 09, 2026

About this 10-K

Hurco Companies Inc filed this 10-K on January 3, 2020, covering the fiscal year ended October 31, 2019 (FY2019).

Headline figures

Fiscal year ended October 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $263.38M; down 12.4% from $300.67M a year earlier
Net income: $17.5M; down 18.6% from net income of $21.49M a year earlier
Diluted EPS: $2.55; down 19.0% from $3.15 a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →

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)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	HURC	Nasdaq Global Select Market

	·	United States Machine Tool Consumption – generated by the Association for Manufacturing Technology, this report includes metal cutting machines of all types and sizes, including segments in which we do not compete;
	·	Purchasing Manager’s Index – developed by the Institute for Supply Management, this report includes activity levels in U.S. manufacturing plants that purchase machine tools; and
	·	Capacity Utilization of Manufacturing Companies – issued by the Federal Reserve Board.

	Year Ended October 31,
	2019				2018				2017
Computerized Machine Tools	$	223,735	85	%	$	261,710	87	%	$	209,311	86	%
Computer Control Systems and Software ^†		2,818	1	%		2,870	1	%		2,324	1	%
Service Parts		27,854	11	%		27,501	9	%		24,255	10	%
Service Fees		8,970	3	%		8,590	3	%		7,777	3	%
Total	$	263,377	100	%	$	300,671	100	%	$	243,667	100	%

	•	maximize the efficiency of their human resources;
	•	make more advanced and complex parts from a wide range of materials using multiple processes;
	•	incorporate fast moving changes in technology into their operations to keep their competitive edge; and
	•	integrate their business into the global supply chain of their customers by supporting small to medium lot sizes for “just in time” initiatives.

	•	the need to continuously improve productivity and shorten cycle time;
	•	an aging machine tool installed base that will require replacement with more advanced technology;
	•	the industrial development of emerging markets in Latin America, Asia and Eastern Europe; and
	•	the declining supply of skilled machinists.

	•	Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy materials, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC;
	•	Press releases on quarterly earnings, product announcements, legal developments and other material news that we may post from time to time;
	•	Corporate governance information including our Corporate Governance Principles, Code of Business Conduct and Ethics, information concerning our Board of Directors and its committees, including the charters of the Audit Committee, Compensation Committee, Nominating and Governance Committee and other governance-related policies; and
	•	Opportunities to sign up for email alerts and RSS feeds to have information provided in real time.

	•	trade barriers;
	•	regional economic uncertainty;
	•	differing labor regulation;
	•	governmental expropriation;
	•	domestic and foreign customs and tariffs;
	•	current and changing regulatory environments affecting the importation and exportation of products and raw materials;
	•	difficulty in obtaining distribution support;
	•	difficulty in staffing and managing widespread operations;
	•	differences in the availability and terms of financing;
	•	political instability and unrest;
	•	negative or unforeseen consequences resulting from the introduction, termination, modification, or renegotiation of international trade agreements or treaties or the imposition of countervailing measures or anti-dumping duties or similar tariffs;
	•	foreign exchange controls that make it difficult to repatriate earnings and cash;
	•	changes in tax regulations and rates in foreign countries; and
	•	changes in the European Union and Asia may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial and foreign exchange markets, as well as disrupt the free movement of goods, services and people between countries.

	•	difficulties integrating the operations, technologies, products, and personnel of an acquired company or being subjected to liability for the target’s pre-acquisition activities or operations as a successor in interest;
	•	diversion of management’s attention from normal daily operations of the business;
	•	potential difficulties completing projects associated with in-process research and development;
	•	difficulties entering markets in which we have no or limited prior experience, especially when competitors in such markets have stronger market positions;
	•	initial dependence on unfamiliar supply chains or relatively small supply partners;
	•	insufficient revenues to offset increased expenses associated with acquisitions;
	•	the potential loss of key employees of the acquired companies; and
	•	the potential for recording goodwill and intangible assets that later can be subject to impairment.

	•	issue common stock that would dilute our current shareholders’ percentage ownership;
	•	assume or otherwise be subject to liabilities of an acquired company;
	•	record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges;
	•	incur amortization expenses related to certain intangible assets;
	•	incur large acquisition and integration costs, immediate write-offs, and restructuring and other related expenses; and
	•	become subject to litigation.

Principal Uses	Locations	Square Footage
Corporate headquarters, design and engineering, product testing, sales and marketing, application engineering, customer service, manufacturing and assembly	Indianapolis, Indiana, U.S.		165,000

Manufacturing, assembly, sales, application engineering and customer service	Taichung, Taiwan Waconia, Minnesota, U.S. Castell’Alfero, Italy		452,100 59,500 32,300

Manufacturing	Ningbo, China		31,000

Sales, application engineering, customer service, and warehousing	High Wycombe, England Benoni, South Africa*		26,300 3,500
	Paris, France		12,800
	Munich and Verl, Germany		22,400
	Milan, Italy		12,900
	Venlo, the Netherlands		9,700
	Toh Guan, Singapore		3,900
	Shanghai, Dongguan, Kunshan, China		12,200
	Chennai, Delhi, and Pune India		10,200
	Liegnitz, Poland		1,000
	Grand Rapids, Michigan, U.S.		3,700
	Los Angeles, California, U.S.		11,400
	Pittsburg, Pennsylvania, U.S.		13,000

Name	Age	Position(s) with the Company
Michael Doar	64	Chairman of the Board and Chief Executive Officer
Gregory S. Volovic	55	Director, President and Chief Operating Officer
Sonja K. McClelland	48	Executive Vice President, Secretary, Treasurer and Chief Financial Officer

	As of October 31,
	2019		2018		2017		2016		2015
	(Dollars in thousands)
Balance Sheet Data:
Current assets	$	261,861	$	281,435	$	246,415	$	218,381	$	216,112
Current liabilities		54,632		86,803		70,889		57,968		65,086
Working capital		207,229		194,632		175,526		160,413		151,026
Current ratio		4.8		3.2		3.5		3.8		3.3
Total assets		301,065		315,407		277,808		251,949		248,577
Non-current liabilities		6,188		5,751		3,834		8,506		8,923
Total debt		--		1,434		1,507		1,476		1,583
Shareholders’ equity		240,245		222,853		203,085		185,475		174,568

	Percentage of Revenues									Year-to-Year % Change
	2019			2018			2017			Increase/Decrease
										’19 vs. ’18			’18 vs. ’17
Sales and service fees		100	%		100	%		100	%		-12	%		23	%
Gross profit		29	%		31	%		29	%		-16	%		30	%
Selling, general and administrative expenses		21	%		19	%		20	%		-6	%		17	%
Operating income		9	%		11	%		9	%		-33	%		62	%
Net income		7	%		7	%		6	%		-19	%		42	%

	Fiscal Year Ended October 31,								Increase/Decrease
	2019				2018				Amount			%
Americas	$	99,064	37	%	$	90,902	30	%	$	8,162			9	%
Europe		133,675	51	%		166,202	55	%		(32,527	)		-20	%
Asia Pacific		30,638	12	%		43,567	15	%		(12,929	)		-30	%
Total	$	263,377	100	%	$	300,671	100	%	$	(37,294	)		-12	%

	Year Ended October 31,
	2019		2018			2017			2016			2015
	(In thousands, except per share amounts)
Statement of Operations Data:
Sales and service fees	$	263,377	$	300,671		$	243,667		$	227,289		$	219,383
Gross profit		77,208		91,806			70,564			70,440			69,091
Selling, general and administrative expenses		54,668		58,010			49,661			50,824			45,287
Operating income		22,540		33,796			20,903			19,616			23,804
Other income (expense)		784		(1,300	)		(187	)		(731	)		(251	)
Net income		17,495		21,490			15,115			13,292			16,214
Earnings per common share - diluted	$	2.55	$	3.15		$	2.25		$	1.99		$	2.44
Weighted average common shares outstanding-diluted		6,815		6,771			6,680			6,642			6,602
Dividends declared per common share	$	0.47	$	0.43		$	0.39		$	0.35		$	0.31

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating leases	$	13,401	$	4,015	$	5,373	$	2,213	$	1,800
Accrued and deferred taxes and credits		6,188		133		639		506		4,911
Total	$	19,589	$	4,148	$	6,012	$	2,719	$	6,711

						Contract Amount at
	Notional Amount		Weighted Avg.			Forward Rates in U.S. Dollars
Forward	in Foreign		Forward			Contract		October 31,
Contracts	Currency		Rate			Date		2019		Maturity Dates
Sale Contracts:
Euro		28,829		1.1308			32,599		32,457	Nov 2019 – Oct 2020
Sterling		2,309		1.2479			2,882		2,994	Nov 2019 – Jan 2020
South African Rand		12,222		0.0675			825		804	Jan 2020

Purchase Contracts:
New Taiwan Dollar		856,033		30.6473	*		27,932		28,247	Nov 2019 – Feb 2020

/s/ Michael Doar
Michael Doar
Chairman and Chief Executive Officer

/s/ Sonja K. McClelland
Sonja K. McClelland
Executive Vice President, Secretary, Treasurer and Chief Financial Officer

/s/ RSM US LLP

We have served as the Company's auditor since 2017.

Indianapolis, Indiana
January 3, 2020

	As of October 31,
ASSETS	2019			2018
	(In thousands, except share and per share data)
Current assets:
Cash and cash equivalents	$	56,943		$	77,170
Accounts receivable, less allowance for doubtful accounts of $891 in 2019 and $1,027 in 2018		43,279			54,414
Inventories, net		148,851			137,609
Derivative assets		1,391			3,085
Prepaid assets		9,414			7,332
Other		1,983			1,825
Total current assets		261,861			281,435
Property and equipment:
Land		868			868
Building		7,352			7,352
Machinery and equipment		28,846			26,840
Leasehold improvements		4,902			3,801
		41,968			38,861
Less accumulated depreciation and amortization		(28,055	)		(25,902	)
Total property and equipment, net		13,913			12,959
Non-current assets:
Software development costs, less accumulated amortization		8,318			7,452
Goodwill		5,847			2,377
Intangible assets, net		1,096			938
Deferred income taxes		1,846			2,234
Investments and other assets, net		8,184			8,012
Total non-current assets		25,291			21,013
Total assets	$	301,065		$	315,407

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,031		$	54,131
Accounts payable-related parties		938			3,387
Accrued payroll and employee benefits		11,564			14,032
Accrued income taxes		1,936			5,180
Accrued expenses and other		5,015			4,122
Accrued warranty expenses		1,760			2,497
Derivative liabilities		388			2,020
Short-term debt		--			1,434
Total current liabilities		54,632			86,803
Non-current liabilities:
Accrued tax liability		2,036			2,194
Deferred income taxes		160			--
Deferred credits and other		3,992			3,557
Total non-current liabilities		6,188			5,751
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, 6,967,719 and 6,891,508 shares issued; and 6,767,237 and 6,723,160 shares outstanding, as of October 31, 2019 and October 31, 2018, respectively		677			672
Additional paid-in capital		66,350			64,185
Retained earnings		182,151			167,859
Accumulated other comprehensive loss		(8,933	)		(9,863	)
Total shareholders’ equity		240,245			222,853
Total liabilities and shareholders’ equity	$	301,065		$	315,407

(In thousands, except shares outstanding)	Common									Accumulated
	Stock		Common		Additional					Other
	Shares		Stock		Paid-In		Retained			Comprehensive
	Outstanding		Amount		Capital		Earnings			Loss			Total
Balances, October 31, 2016		6,573,103	$	657	$	59,119	$	136,742		$	(11,043	)	$	185,475

Net income		--		--		--		15,115			--			15,115
Other comprehensive income (loss)		--		--		--		--			2,853			2,853
Exercise of common stock options		29,164		3		531		--			--			534
Stock-based compensation expense		38,930		4		1,694		--			--			1,698
Dividends paid		--		--		--		(2,590	)		--			(2,590	)

Balances, October 31, 2017		6,641,197	$	664	$	61,344	$	149,267		$	(8,190	)	$	203,085

Net income		--		--		--		21,490			--			21,490
Other comprehensive income (loss)		--		--		--		--			(1,673	)		(1,673	)
Exercise of common stock options		41,680		4		843		--			--			847
Stock-based compensation expense, net of taxes withheld for vested restricted shares		40,283		4		1,998		--			--			2,002
Dividends paid		--		--		--		(2,898	)		--			(2,898	)

Balances, October 31, 2018		6,723,160	$	672	$	64,185	$	167,859		$	(9,863	)	$	222,853

Net income		--		--		--		17,495			--			17,495
Other comprehensive income (loss)		--		--		--		--			930			930
Stock-based compensation expense, net of taxes withheld for vested restricted shares		44,077		5		2,165		--			--			2,170
Dividends paid		--		--		--		(3,203	)		--			(3,203	)

Balances, October 31, 2019		6,767,237	$	677	$	66,350	$	182,151		$	(8,933	)	$	240,245

	2019			2018
	Balance Sheet	Fair		Balance Sheet	Fair
Derivatives	Location	Value		Location	Value
Designated as Hedging Instruments:
Foreign exchange forward contracts	Derivative assets	$	751	Derivative assets	$	2,654
Foreign exchange forward contracts	Derivative liabilities	$	99	Derivative liabilities	$	1,616

Not Designated as Hedging Instruments:
Foreign exchange forward contracts	Derivative assets	$	640	Derivative assets	$	431
Foreign exchange forward contracts	Derivative liabilities	$	289	Derivative liabilities	$	404

								Location of
	Amount of Gain (Loss)							Gain (Loss)	Amount of Gain (Loss)
	Recognized in							Reclassified	Reclassified from
	Other Comprehensive							From Other	Other Comprehensive
	Income (Loss)							Comprehensive	Income (Loss)
Derivatives	2019		2018		2017			Income (Loss)	2019		2018			2017
Designated as Hedging Instruments:
(Effective Portion)
Foreign exchange forward contracts
– Intercompany sales/purchases	$	615	$	155	$	(709	)	Cost of sales and service	$	235	$	(1,355	)	$	1,354
– Net Investment	$	128	$	136	$	(96	)

		Amount of Gain (Loss)
	Location of Gain (Loss)	Recognized in Operations
Derivatives	Recognized in Operations	2019		2018			2017
Not Designated as Hedging Instruments:
Foreign exchange forward contracts	Other expense, net	$	514	$	(963	)	$	(1,001	)

	Foreign			Cash
	Currency			Flow
	Translation			Hedges			Total
Balance, October 31, 2017	$	(7,409	)	$	(781	)	$	(8,190	)
Other comprehensive income (loss) before reclassifications		(3,183	)		155			(3,028	)
Reclassifications		--			1,355			1,355
Balance, October 31, 2018	$	(10,592	)	$	729		$	(9,863	)
Other comprehensive income (loss) before reclassifications		550			615			1,165
Reclassifications		--			(235	)		(235	)
Balance, October 31, 2019	$	(10,042	)	$	1,109		$	(8,933	)

		Number of Years
Land		Indefinite
Building		40
Machines		7 – 10
Shop and office equipment		3 – 7
Building & leasehold improvements		3 – 40

Fiscal Year	Amortization Expense
2020	$	1,500
2021		1,950
2022		1,900
2023		1,550
2024		1,000

Balance as of October 31, 2018	$	2,377
Goodwill acquired		3,500
Impact of foreign currency translation		(30	)
Balance as of October 31, 2019	$	5,847

	Weighted Average Amortization Period	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets
Tradenames and trademarks	indefinite	$	60	$	--		$	60
Tradenames and trademarks	13 years		408		(114	)		294
Customer relationships	15 years		372		(173	)		199
Technology	13 years		683		(333	)		350
Patents	6 years		2,972		(2,813	)		159
Other	8 years		375		(341	)		34
Total		$	4,870	$	(3,774	)	$	1,096

	2019		2018
Purchased parts and sub-assemblies	$	32,074	$	38,303
Work-in-process		20,901		22,786
Finished goods		95,876		76,520
	$	148,851	$	137,609

Current assets	$	349
Property plant and equipment		452
Intangibles		148
Goodwill		3,500
Total assets		4,449

Current liabilities		96
Total liabilities		96

Total purchase price and cash expended	$	4,353

	Assets				Liabilities
	October 31,		October 31,		October 31,		October 31,
	2019		2018		2019		2018
Level 1
Deferred compensation	$	1,991	$	1,723	$	--	$	--
Level 2
Derivatives	$	1,391	$	3,085	$	388	$	2,020

A comparison of income tax expense at the U.S. statutory rate to the Company’s effective tax rate is as follows (dollars in thousands):

	Year Ended October 31,
	2019			2018			2017
Income before income taxes:
Domestic	$	9,793		$	14,101		$	5,477
Foreign		13,531			18,395			15,239
	$	23,324		$	32,496		$	20,716
Tax rates:
U.S. statutory rate		21	%		23	%		34	%
Effect of tax rate of international jurisdictions different than U.S. statutory rates		4	%		2	%		(5	)%
Valuation allowance		1	%		0	%		1	%
State taxes		1	%		0	%		0	%
Tax Credits		(2	)%		(1	)%		(3	)%
Effect of Tax Rate Changes		0	%		4	%		0	%
Transition Tax		(1	)%		7	%		0	%
US tax on distributed and undistributed earnings		3	%		0	%		0	%
US benefit of foreign intangible income		(3	)%		0	%		0	%
Other		1	%		(1	)%		0	%
Effective tax rate		25	%		34	%		27	%

United States federal	Fiscal 2016 through the current period
Germany¹	Fiscal 2017 through the current period
Taiwan	Fiscal 2017 through the current period

¹ Includes federal as well as state, provincial or similar local jurisdictions, as applicable.

	Shares Under			Weighted Average Grant
	Option			Date Fair Value
Balance October 31, 2016		107,889		$	20.25
Granted		--			--
Cancelled		--			--
Expired		--			--
Exercised		(29,164	)	$	18.31
Balance October 31, 2017		78,725		$	20.97
Granted		--			--
Cancelled		--			--
Expired		--			--
Exercised		(41,680	)	$	20.33
Balance October 31, 2018		37,045		$	21.69
Granted		--			--
Cancelled		--			--
Expired		--			--
Exercised		--			--
Balance October 31, 2019		37,045		$	21.69

Range of Exercise Prices Per Share	Shares Under Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life in Years
Outstanding and Exercisable
18.13		3,738		18.13		0.5
21.45		21,748		21.45		2.1
23.30		11,559		23.30		3.1
$ 18.13 – 23.30		37,045	$	21.69		2.3

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at October 31, 2018		168,348		$	37.24
Shares or units granted		102,349			38.28
Shares or units vested		(44,077	)		33.29
Shares or units cancelled		(12,462	)		29.82
Shares withheld		(13,676	)		29.67
Unvested at October 31, 2019		200,482		$	39.62