x
|
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 31, 2011 or
|
¨
|
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________.
|
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)
|
Large accelerated filer ¨
|
Accelerated filer x
|
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
|
Smaller reporting company ¨
|
Part I - Financial Information
|
||||
Item 1.
|
Financial Statements
|
|||
Condensed Consolidated Statements of Operations
|
|
|||
Three and nine months ended July 31, 2011 and 2010
|
3 | |||
Condensed Consolidated Balance Sheets
|
|
|||
As of July 31, 2011 and October 31, 2010
|
4 | |||
Condensed Consolidated Statements of Cash Flows
|
|
|||
Three and nine months ended July 31, 2011 and 2010
|
5 | |||
Condensed Consolidated Statements of Changes in Shareholders' Equity
|
|
|||
Nine months ended July 31, 2011 and 2010
|
6 | |||
Notes to Condensed Consolidated Financial Statements
|
7
|
|||
Item 2.
|
Management's Discussion and Analysis of Financial
|
|||
Condition and Results of Operations
|
17
|
|||
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
23
|
||
Item 4.
|
Controls and Procedures
|
25
|
||
Part II - Other Information
|
||||
Item 1.
|
Legal Proceedings
|
26
|
||
Item 1A.
|
Risk Factors
|
26
|
||
Item 5.
|
Other Information
|
26
|
||
Item 6.
|
Exhibits
|
27
|
||
Signatures
|
28
|
Item 1.
|
FINANCIAL STATEMENTS
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
July 31
|
July 31
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Sales and service fees
|
$ | 50,573 | $ | 26,474 | $ | 131,829 | $ | 71,178 | ||||||||
Cost of sales and service
|
34,723 | 21,815 | 91,637 | 57,862 | ||||||||||||
Gross profit
|
15,850 | 4,659 | 40,192 | 13,316 | ||||||||||||
Selling, general and administrative expenses
|
9,317 | 6,994 | 27,401 | 20,757 | ||||||||||||
Operating income (loss)
|
6,533 | (2,335 | ) | 12,791 | (7,441 | ) | ||||||||||
Interest expense
|
47 | 21 | 61 | 43 | ||||||||||||
Interest income
|
35 | 24 | 107 | 49 | ||||||||||||
Investment income
|
2 | 4 | 9 | 12 | ||||||||||||
Other (income) expense, net
|
242 | 55 | 721 | 448 | ||||||||||||
Income (loss) before taxes
|
6,281 | (2,383 | ) | 12,125 | (7,871 | ) | ||||||||||
Provision (benefit) for income taxes
|
1,706 | (1,210 | ) | 3,655 | (3,289 | ) | ||||||||||
Net income (loss)
|
$ | 4,575 | $ | (1,173 | ) | $ | 8,470 | $ | (4,582 | ) | ||||||
Income (loss) per common share
|
||||||||||||||||
Basic
|
$ | .71 | $ | (0.18 | ) | $ | 1.31 | $ | (0.71 | ) | ||||||
Diluted
|
$ | .70 | $ | (0.18 | ) | $ | 1.30 | $ | (0.71 | ) | ||||||
Weighted average common shares outstanding
|
||||||||||||||||
Basic
|
6,441 | 6,441 | 6,441 | 6,441 | ||||||||||||
Diluted
|
6,480 | 6,441 | 6,474 | 6,441 |
July 31
2011
|
October 31
2010
|
|||||||
|
(Unaudited)
|
(Audited)
|
||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 49,139 | $ | 48,255 | ||||
Accounts receivable, net
|
30,407 | 20,114 | ||||||
Refundable taxes
|
4,383 | 5,093 | ||||||
Inventories, net
|
75,105 | 55,866 | ||||||
Deferred income taxes
|
2,804 | 2,467 | ||||||
Derivative assets
|
381 | 905 | ||||||
Other
|
5,763 | 3,508 | ||||||
Total current assets
|
167,982 | 136,208 | ||||||
Non-current assets:
|
||||||||
Property and equipment:
|
||||||||
Land
|
782 | 782 | ||||||
Building
|
7,116 | 7,116 | ||||||
Machinery and equipment
|
16,198 | 15,095 | ||||||
Leasehold improvements
|
2,366 | 2,183 | ||||||
26,462 | 25,176 | |||||||
Less accumulated depreciation and amortization
|
(15,192 | ) | (13,424 | ) | ||||
11,270 | 11,752 | |||||||
Software development costs, less accumulated amortization
|
5,274 | 6,042 | ||||||
Investments and other assets, net
|
6,209 | 6,344 | ||||||
$ | 190,735 | $ | 160,346 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 44,332 | $ | 30,394 | ||||
Accrued expenses and other
|
13,447 | 8,132 | ||||||
Accrued warranty expenses
|
1,781 | 1,591 | ||||||
Derivative liabilities
|
2,017 | 2,123 | ||||||
Short-term debt
|
854 | — | ||||||
Total current liabilities
|
62,431 | 42,240 | ||||||
Non-current liabilities:
|
||||||||
Deferred income taxes
|
2,465 | 2,335 | ||||||
Deferred credits and other
|
1,124 | 1,031 | ||||||
Total liabilities
|
66,020 | 45,606 | ||||||
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, 13,250,000 shares authorized, 6,471,710 and 6,440,851 shares issued; and 6,440,851 and 6,440,851 shares outstanding, as of July 31, 2011 and October 31, 2010, respectively
|
644 | 644 | ||||||
Additional paid-in capital
|
52,476 | 52,144 | ||||||
Retained earnings
|
72,294 | 63,824 | ||||||
Accumulated other comprehensive loss
|
(699 | ) | (1,872 | ) | ||||
Total shareholders’ equity
|
124,715 | 114,740 | ||||||
$ | 190,735 | $ | 160,346 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
July 31
|
July 31
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Cash flows from operating activities:
|
||||||||||||||||
Net income (loss)
|
$ | 4,575 | $ | (1,173 | ) | $ | 8,470 | $ | (4,582 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
|
||||||||||||||||
Provision for doubtful accounts
|
39 | (74 | ) | (163 | ) | (263 | ) | |||||||||
Deferred income taxes
|
447 | 473 | 677 | (310 | ) | |||||||||||
Equity in (income) loss of affiliates
|
(21 | ) | (27 | ) | (38 | ) | 154 | |||||||||
Depreciation and amortization
|
1,081 | 978 | 3,227 | 2,811 | ||||||||||||
Foreign currency (gain) loss
|
844 | 1,030 | (2,476 | ) | 4,614 | |||||||||||
Unrealized (gain) loss on derivatives
|
150 | 1,457 | (138 | ) | 622 | |||||||||||
Stock-based compensation
|
138 | 46 | 332 | 95 | ||||||||||||
Change in assets and liabilities:
|
||||||||||||||||
(Increase) decrease in accounts receivable and refundable taxes
|
(6,532 | ) | 4,078 | (8,616 | ) | 3,675 | ||||||||||
(Increase) decrease in inventories
|
(6,584 | ) | (1,034 | ) | (17,415 | ) | 6,379 | |||||||||
Increase (decrease) in accounts payable
|
5,389 | 7,805 | 12,011 | 12,454 | ||||||||||||
Increase (decrease) in accrued expenses
|
3,354 | (782 | ) | 5,119 | (1,849 | ) | ||||||||||
Net change in derivative assets and liabilities
|
(472 | ) | (733 | ) | 115 | (1,772 | ) | |||||||||
Other
|
(1,226 | ) | (2,272 | ) | (25 | ) | (3,120 | ) | ||||||||
Net cash provided by (used for) operating activities
|
1,182 | 9,772 | 1,080 | 18,908 | ||||||||||||
Cash flows from investing activities:
|
||||||||||||||||
Proceeds from sale of property and equipment
|
— | 7 | — | 42 | ||||||||||||
Purchase of property and equipment
|
(480 | ) | (188 | ) | (855 | ) | (437 | ) | ||||||||
Software development costs
|
(238 | ) | (310 | ) | (890 | ) | (805 | ) | ||||||||
Other investments
|
(41 | ) | 73 | (25 | ) | 56 | ||||||||||
Net cash provided by (used for) investing activities
|
(759 | ) | (418 | ) | (1,770 | ) | (1,144 | ) | ||||||||
Cash flows from financing activities:
|
||||||||||||||||
Advances on short-term debt
|
202 | — | 839 | — | ||||||||||||
Effect of exchange rate changes on cash
|
(164 | ) | (183 | ) | 735 | (1,357 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents
|
461 | 9,171 | 884 | 16,407 | ||||||||||||
Cash and cash equivalents at beginning of period
|
48,678 | 36,018 | 48,255 | 28,782 | ||||||||||||
Cash and cash equivalents at end of period
|
$ | 49,139 | $ | 45,189 | $ | 49,139 | $ | 45,189 |
(In thousands, except
shares outstanding)
|
Common stock
|
Additional
|
Accumulated
other
comprehensive
|
|||||||||||||||||||||
Shares
outstanding
|
Amount
|
paid-in
capital
|
Retained
earnings
|
income
(loss)
|
Total
|
|||||||||||||||||||
Balances, October 31, 2009
|
6,440,851 | $ | 644 | $ | 52,003 | $ | 69,568 | $ | (1,839 | ) | $ | 120,376 | ||||||||||||
Net loss
|
— | — | — | (4,582 | ) | — | (4,582 | ) | ||||||||||||||||
Translation of foreign currency financial statements
|
— | — | — | — | (2,262 | ) | (2,262 | ) | ||||||||||||||||
Realized losses on derivative instruments reclassified into operations, net of tax of $61
|
— | — | — | — | 99 | 99 | ||||||||||||||||||
Unrealized gain on derivative instruments, net of tax of $197
|
— | — | — | — | 320 | 320 | ||||||||||||||||||
Comprehensive loss
|
— | — | — | — | — | (6,425 | ) | |||||||||||||||||
Stock-based compensation expense
|
— | — | 95 | — | — | 95 | ||||||||||||||||||
Balances, July 31, 2010 (Unaudited)
|
6,440,851 | $ | 644 | $ | 52,098 | $ | 64,986 | $ | (3,682 | ) | $ | 114,046 | ||||||||||||
Balances, October 31, 2010
|
6,440,851 | $ | 644 | $ | 52,144 | $ | 63,824 | $ | (1,872 | ) | $ | 114,740 | ||||||||||||
Net income
|
— | — | — | 8,470 | — | 8,470 | ||||||||||||||||||
Translation of foreign currency financial statements
|
— | — | — | — | 2,214 | 2,214 | ||||||||||||||||||
Realized gain on derivative instruments reclassified into operations, net of tax of $(226)
|
— | — | — | — | (384 | ) | (384 | ) | ||||||||||||||||
Unrealized loss on derivative instruments, net of tax of $(386)
|
— | — | — | — | (657 | ) | (657 | ) | ||||||||||||||||
Comprehensive income
|
— | — | — | — | — | 9,643 | ||||||||||||||||||
Stock-based compensation expense
|
— | — | 332 | — | — | 332 | ||||||||||||||||||
Balances, July 31, 2011 (Unaudited)
|
6,440,851 | $ | 644 | $ | 52,476 | $ | 72,294 | $ | (699 | ) | $ | 124,715 |
1.
|
GENERAL
|
2.
|
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|
2011
|
2010
|
||||||||||
Balance sheet
|
Fair
|
Balance sheet
|
Fair
|
||||||||
Derivatives
|
location
|
value
|
location
|
value
|
|||||||
Designated as hedging instruments:
|
|||||||||||
Foreign exchange forward contracts
|
Derivative assets
|
$ | 320 |
Derivative assets
|
$ | 872 | |||||
Foreign exchange forward contracts
|
Derivative liabilities
|
$ | 1,800 |
Derivative liabilities
|
$ | 1,778 | |||||
Not designated as hedging instruments:
|
|||||||||||
Foreign exchange forward contracts
|
Derivative assets
|
$ | 61 |
Derivative assets
|
$ | 33 | |||||
Foreign exchange forward contracts
|
Derivative liabilities
|
$ | 217 |
Derivative liabilities
|
$ | 345 |
Derivatives
|
Amount of gain (loss)
recognized in Other
comprehensive loss
Nine months ended July 31,
|
Location of
gain (loss)
reclassified
from Other
comprehensive
loss
|
Amount of gain (loss)
reclassified from Other
comprehensive loss
Nine months ended July 31,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
Designated as hedging instruments:
(Effective portion)
Foreign exchange forward contracts
– Intercompany sales/purchases
|
$ | (1,043 | ) | $ | 517 |
Cost of sales
and service
|
$ | 610 | $ | (160 | ) | ||||||
Foreign exchange forward contract
– Net investment
|
$ | (153 | ) | $ | 482 |
Derivatives
|
Location of gain (loss)
recognized in operations
|
Amount of gain (loss)
recognized in operations
Nine months ended July 31,
|
||||||||
2011
|
2010
|
|||||||||
Not designated as hedging instruments:
|
||||||||||
Foreign exchange forward contracts
|
Other (income)
expense, net
|
$ | (461 | ) | $ | 1,293 |
Derivatives
|
Amount of gain (loss)
recognized in Other
comprehensive loss
Three months ended July 31,
|
Location of
gain (loss)
reclassified
from Other
comprehensive
loss
|
Amount of gain (loss)
reclassified from Other
comprehensive loss
Three months ended
July 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
Designated as hedging instruments: (Effective portion)
Foreign exchange forward contracts – Intercompany sales/purchases
|
$ | 370 | $ | (881 | ) |
Cost of sales
and service
|
$ | 113 | $ | (39 | ) | |||||||
Foreign exchange forward contract – Net investment
|
$ | 126 | $ | 81 |
Amount of gain (loss)
|
||||||||||
Derivatives
|
Location of gain (loss)
recognized in operations
|
recognized in operations
Three months ended July 31,
|
||||||||
2011
|
2010
|
|||||||||
Not designated as hedging instruments:
|
||||||||||
Foreign exchange forward contracts
|
Other (income)
expense, net
|
$ | 87 | $ | (41 | ) |
3.
|
EQUITY INCENTIVE PLAN
|
Stock
Options
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding at October 31, 2010
|
115,369 | $ | 20.66 | |||||
Options granted
|
— | — | ||||||
Options exercised
|
— | — | ||||||
Options cancelled
|
— | — | ||||||
Outstanding at July 31, 2011
|
115,369 | $ | 20.66 |
Options already
vested and expected
to vest
|
Options currently
exercisable
|
|||||||
Number of outstanding options
|
115,369 | 68,036 | ||||||
Weighted average remaining contractual life (years)
|
7.26 | 4.61 | ||||||
Weighted average exercise price per share
|
$ | 20.66 | $ | 24.05 | ||||
Intrinsic value of outstanding options
|
$ | 1,075,000 | $ | 429,000 |
Number of
Shares
|
Weighted Average
Grant Date
Fair Value
|
|||||||
Unvested at October 31, 2010
|
— | $ | — | |||||
Shares granted
|
30,859 | 24.38 | ||||||
Shares vested
|
— | — | ||||||
Shares cancelled
|
— | — | ||||||
Unvested at July 31, 2011
|
30,859 | $ | 24.38 |
4.
|
EARNINGS (LOSS) PER SHARE
|
Three months ended
|
Nine months ended
|
|||||||||||||||||||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||||||||||||||||||
(in thousands, except per share
amount)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||||||||||||||||
Basic
|
Diluted
|
Basic
|
Diluted
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||||||||||||||
Net income (loss)
|
$ | 4,575 | $ | 4,575 | $ | (1,173 | ) | $ | (1,173 | ) | $ | 8,470 | $ | 8,470 | $ | (4,582 | ) | $ | (4,582 | ) | ||||||||||||
Undistributed earnings | ||||||||||||||||||||||||||||||||
Allocated to participating shares
|
(22 | ) | (22 | ) | - | - | (40 | ) | (40 | ) | - | - | ||||||||||||||||||||
Net income (loss) applicable
to common shareholders
|
$ | 4,553 | $ | 4,553 | $ | (1,173 | ) | $ | (1,173 | ) | $ | 8,430 | $ | 8,430 | $ | (4,582 | ) | $ | (4,582 | ) | ||||||||||||
Weighted average shares outstanding
|
6,441 | 6,441 | 6,441 | 6,441 | 6,441 | 6,441 | 6,441 | 6,441 | ||||||||||||||||||||||||
Stock options
|
— | 39 | — | — | — | 33 | — | — | ||||||||||||||||||||||||
6,441 | 6,480 | 6,441 | 6,441 | 6,441 | 6,474 | 6,441 | 6,441 | |||||||||||||||||||||||||
Income (loss) per share
|
$ | 0.71 | $ | 0.70 | $ | (0.18 | ) | $ | (0.18 | ) | $ | 1.31 | $ | 1.30 | $ | (0.71 | ) | $ | (0.71 | ) |
5.
|
ACCOUNTS RECEIVABLE
|
6.
|
INVENTORIES
|
July 31, 2011
|
October 31, 2010
|
|||||||
Purchased parts and sub-assemblies
|
$ | 20,380 | $ | 16,137 | ||||
Work-in-process
|
14,717 | 13,157 | ||||||
Finished goods
|
40,008 | 26,572 | ||||||
$ | 75,105 | $ | 55,866 |
7.
|
SEGMENT INFORMATION
|
8.
|
GUARANTEES AND WARRANTIES
|
Nine months ended
|
||||||||
July 31, 2011
|
July 31, 2010
|
|||||||
Balance, beginning of period
|
$ | 1,591 | $ | 1,286 | ||||
Provision for warranties during the period
|
2,224 | 1,285 | ||||||
Charges to the reserve
|
(2,061 | ) | (1,329 | ) | ||||
Impact of foreign currency translation
|
27 | (59 | ) | |||||
Balance, end of period
|
$ | 1,781 | $ | 1,183 |
9.
|
COMPREHENSIVE INCOME (LOSS)
|
Three months ended
|
||||||||
July 31, 2011
|
July 31, 2010
|
|||||||
Net income (loss)
|
$ | 4,575 | $ | (1,173 | ) | |||
Translation of foreign currency financial statements
|
(674 | ) | (645 | ) | ||||
Realized (gain) loss on derivative instruments reclassified into operations, net of tax
|
(71 | ) | 24 | |||||
Unrealized gain (loss) on derivative instruments, net of tax
|
233 | (545 | ) | |||||
Comprehensive income (loss)
|
$ | 4,063 | $ | (2,339 | ) |
10.
|
DEBT AGREEMENTS
|
11.
|
INCOME TAXES
|
12.
|
FINANCIAL INSTRUMENTS
|
Assets
|
Liabilities
|
|||||||||||||||
July 31,
2011
|
October 31,
2010
|
July 31,
2011
|
October 31,
2010
|
|||||||||||||
Level 1
|
||||||||||||||||
Deferred Compensation
|
$ | 755 | $ | 674 | $ | - | $ | - | ||||||||
Level 2
|
||||||||||||||||
Derivatives
|
$ | 381 | $ | 905 | $ | 2,017 | $ | 2,123 |
Sales and Service Fees by Geographic Region
|
||||||||||||||||||||||||
Three months ended July 31,
|
Change
|
|||||||||||||||||||||||
2011
|
2010
|
Amount
|
%
|
|||||||||||||||||||||
North America
|
$ | 13,119 | 26 | % | $ | 7,208 | 27 | % | $ | 5,911 | 82 | % | ||||||||||||
Europe
|
31,305 | 62 | % | 15,896 | 60 | % | 15,409 | 97 | % | |||||||||||||||
Asia Pacific
|
6,149 | 12 | % | 3,370 | 13 | % | 2,779 | 82 | % | |||||||||||||||
Total
|
$ | 50,573 | 100 | % | $ | 26,474 | 100 | % | $ | 24,099 | 91 | % |
Sales and Service Fees by Product Category
|
||||||||||||||||||||||||
Three months ended July 31,
|
Change
|
|||||||||||||||||||||||
2011
|
2010
|
Amount
|
%
|
|||||||||||||||||||||
Computerized Machine Tools
|
$ | 44,421 | 88 | % | $ | 22,020 | 83 | % | $ | 22,401 | 102 | % | ||||||||||||
Service Fees, Parts and Other
|
6,152 | 12 | % | 4,454 | 17 | % | 1,698 | 38 | % | |||||||||||||||
Total
|
$ | 50,573 | 100 | % | $ | 26,474 | 100 | % | $ | 24,099 | 91 | % |
Sales and Service Fees by Geographic Region
|
||||||||||||||||||||||||
Nine months ended July 31,
|
Change
|
|||||||||||||||||||||||
2011
|
2010
|
Amount
|
%
|
|||||||||||||||||||||
North America
|
$ | 35,718 | 27 | % | $ | 19,114 | 27 | % | $ | 16,604 | 87 | % | ||||||||||||
Europe
|
79,881 | 61 | % | 43,254 | 61 | % | 36,627 | 85 | % | |||||||||||||||
Asia Pacific
|
16,230 | 12 | % | 8,810 | 12 | % | 7,420 | 84 | % | |||||||||||||||
Total
|
$ | 131,829 | 100 | % | $ | 71,178 | 100 | % | $ | 60,651 | 85 | % |
Sales and Service Fees by Product Category
|
||||||||||||||||||||||||
Nine months ended July 31,
|
Change
|
|||||||||||||||||||||||
2011
|
2010
|
Amount
|
%
|
|||||||||||||||||||||
Computerized Machine Tools
|
$ | 114,250 | 87 | % | $ | 58,793 | 83 | % | $ | 55,457 | 94 | % | ||||||||||||
Service Fees, Parts and Other
|
17,579 | 13 | % | 12,385 | 17 | % | 5,194 | 42 | % | |||||||||||||||
Total
|
$ | 131,829 | 100 | % | $ | 71,178 | 100 | % | $ | 60,651 | 85 | % |
|
·
|
A recurrent global recession which could reduce overall demand and our customers’ ability to purchase our products and services;
|
|
·
|
The cyclical nature of the machine tool industry;
|
|
·
|
The risks of our international operations;
|
|
·
|
The limited number of our manufacturing sources;
|
|
·
|
The effects of changes in currency exchange rates;
|
|
·
|
Our dependence on new product development;
|
|
·
|
Possible obsolescence of our technology and the need to make technological advances;
|
|
·
|
Competition with larger companies that have greater financial resources;
|
|
·
|
Increases in the prices of raw materials, especially steel and iron products;
|
|
·
|
Acquisitions that could disrupt our operations and affect operating results;
|
|
·
|
Impairment of our assets;
|
|
·
|
Negative or unforeseen tax consequences;
|
|
·
|
The need to protect our intellectual property assets; and
|
|
·
|
The effect of the loss of members of senior management and key personnel.
|
Notional
Amount
|
Weighted
Avg.
|
Contract Amount at
Forward Rates in
U.S. Dollars
|
|||||||||||||||
Forward Contracts
|
in Foreign
Currency
|
Forward
Rate
|
Contract
Date
|
July 31,
2011
|
Maturity Dates
|
||||||||||||
Sale Contracts:
|
|||||||||||||||||
Euro
|
33,660,000 | 1.3952 | 46,963,049 | 48,154,337 |
August 2011 – July 2012
|
||||||||||||
Pound Sterling
|
6,445,000 | 1.6034 | 10,333,893 | 10,571,903 |
August 2011 – July 2012
|
||||||||||||
Purchase Contracts:
|
|||||||||||||||||
New Taiwan Dollar
|
798,000,000 | 28.776 | * | 27,731,807 | 27,913,065 |
August 2011 – July 2012
|
Notional
Amount in
|
Weighted
Avg.
|
Contract Amount at
Forward Rates in
U.S. Dollars
|
|||||||||||||||
Forward Contracts
|
Foreign
Currency
|
Forward
Rate
|
Contract
Date
|
July 31,
2011
|
Maturity Dates
|
||||||||||||
Sale Contracts:
|
|||||||||||||||||
Euro
|
12,643,718 | 1.4286 | 18,063,275 | 18,132,983 |
August 2011 – October 2011
|
||||||||||||
Pound Sterling
|
1,187,037 | 1.6242 | 1,928,041 | 1,949,570 |
August 2011 – September 2011
|
||||||||||||
Canadian Dollar
|
589,730 | 1.0541 | 621,645 | 616,113 |
September 2011 – October 2011
|
||||||||||||
Singapore Dollar
|
543,263 | .8283 | 449,982 | 451,723 |
December 2011
|
||||||||||||
South African Rand
|
5,707,998 | .1458 | 832,000 | 842,600 |
October 2011
|
||||||||||||
Purchase Contracts: | |||||||||||||||||
New Taiwan Dollar
|
471,093,892 | 28.709 | * | 16,409,235 | 16,364,887 |
August 2011 – September 2011
|
Notional
Amount
|
Weighted
Avg.
|
Contract Amount at
Forward Rates in
U.S. Dollars
|
|||||||||||||||
Forward Contracts
|
in Foreign
Currency
|
Forward
Rate
|
Contract
Date
|
July 31,
2011
|
Maturity Date
|
||||||||||||
Sale Contracts:
|
|||||||||||||||||
Euro
|
3,000,000 | 1.3549 | 4,064,700 | 4,296,720 |
November 2011
|
Item 6.
|
EXHIBITS
|
31.1
|
Certification by the Chief Executive Officer, pursuant to Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended.
|
|
31.2
|
Certification by the Chief Financial Officer, pursuant to Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended.
|
|
32.1
|
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS
|
XBRL Instance Document*
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
HURCO COMPANIES, INC.
|
|||
By:
|
/s/ John G. Oblazney
|
|
|
John G. Oblazney
|
|||
Vice President and
|
|||
Chief Financial Officer
|
By:
|
/s/ Sonja K. McClelland
|
|
|
Sonja K. McClelland
|
|||
Corporate Controller and
|
|||
Principal Accounting Officer
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)] for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ Michael Doar
|
|
Michael Doar
|
|
Chairman & Chief Executive Officer
|
|
September 9, 2011
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)] for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
|
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ John G. Oblazney
|
|
John G. Oblazney
|
|
Vice President & Chief Financial Officer
|
|
September 9, 2011
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Michael Doar
|
|
Michael Doar
|
|
Chairman & Chief Executive Officer
|
|
September 9, 2011
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ John G. Oblazney
|
|
John G. Oblazney
|
|
Vice President & Chief Financial Officer
|
|
September 9, 2011
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
|
Jul. 31, 2011
|
Oct. 31, 2010
|
---|---|---|
Preferred stock, no par value | $ 0 | $ 0 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, no par value | $ 0 | $ 0 |
Common stock, stated value per share | $ 0.10 | $ 0.10 |
Common stock, shares authorized | 13,250,000 | 13,250,000 |
Common stock, shares issued | 6,471,710 | 6,440,851 |
Common stock, shares outstanding | 6,440,851 | 6,440,851 |
Document and Entity Information
|
9 Months Ended | |
---|---|---|
Jul. 31, 2011
|
Sep. 01, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jul. 31, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q3 | Â |
Trading Symbol | HURC | Â |
Entity Registrant Name | HURCO COMPANIES INC | Â |
Entity Central Index Key | 0000315374 | Â |
Current Fiscal Year End Date | --10-31 | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 6,440,851 |
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ACCOUNTS RECEIVABLE
|
9 Months Ended | ||
---|---|---|---|
Jul. 31, 2011
|
|||
ACCOUNTS RECEIVABLE |
Accounts
receivable are net of allowances for doubtful accounts of $334,000
as of July 31, 2011 and $497,000 as of October 31,
2010.
|
DEBT AGREEMENTS
|
9 Months Ended | ||
---|---|---|---|
Jul. 31, 2011
|
|||
DEBT AGREEMENTS |
We
are party to a domestic credit agreement that provides us with a
$15.0 million revolving credit facility and maximum outstanding
letters of credit of $3.0 million. Borrowings under this
agreement may be used for general corporate purposes and bear
interest at a floating rate, based either on LIBOR or the prime
rate, plus an applicable margin. The agreement contains
financial covenant, including restrictions on incurring additional
debt, making acquisitions or paying dividends if we report a
cumulative net loss for four consecutive
quarters. We also have an uncommitted credit
facility in Taiwan in the amount of 100.0 million New Taiwan
Dollars (approximately $3.5 million) in addition to a £1.0
million revolving credit facility in the United Kingdom and a
€1.5 million revolving credit facility in Germany. The
domestic and United Kingdom facilities mature on December 7,
2012. The credit facility in Germany does not have an
expiration date.
On
March 7, 2011 we entered into an uncommitted credit facility in
China in the amount of 20.0 million Chinese Yuan (approximately
$3.0 million) and amended our domestic credit agreement to
accommodate the new facility. This facility expires on
February 24, 2012.
All
of our credit facilities are unsecured.
At
July 31, 2011, we had $854,000 of borrowings outstanding under our
credit facility in China, but had no other debt or borrowings under
any of our other credit facilities. At July 31, 2011, we
were in compliance with all covenants contained in the related
credit agreements and, as of that date, we had unutilized credit
facilities of $24.5 million.
|
GENERAL
|
9 Months Ended | ||
---|---|---|---|
Jul. 31, 2011
|
|||
GENERAL |
The
unaudited Condensed Consolidated Financial Statements include the
accounts of Hurco Companies, Inc. and its consolidated
subsidiaries. As used in this report, and unless the
context indicates otherwise, the terms “we”,
“us”, “our” and similar language refer to
Hurco Companies, Inc. and its consolidated subsidiaries. We design
and produce computerized machine tools, interactive computer
control systems and software for sale through our distribution
network to the worldwide metal cutting market. We also provide
software options, computer control upgrades, accessories and
replacement parts for our products, as well as customer service and
training support.
The
condensed financial information as of July 31, 2011 and for the
three and nine months ended July 31, 2011 and July 31, 2010 is
unaudited; however, in our opinion, the interim data includes all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly our consolidated financial position,
results of operations, changes in shareholders’ equity and
cash flows at the end of the interim periods. We suggest
that you read these condensed consolidated 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, 2010.
|
SEGMENT INFORMATION
|
9 Months Ended | ||
---|---|---|---|
Jul. 31, 2011
|
|||
SEGMENT INFORMATION |
We
operate in a single segment: industrial automation systems. We
design and produce interactive computer control systems and
software and computerized machine tools for sale through our own
distribution network to the worldwide metal-working market. We also
provide software options, control upgrades, accessories and
replacement parts for our products, as well as customer service and
training support.
|
FINANCIAL INSTRUMENTS
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FINANCIAL INSTRUMENTS |
The
carrying amounts for our trade receivables and payables approximate
their fair values. We also have financial instruments in
the form of foreign currency forward exchange contracts as
described in Note 2. The U.S. Dollar equivalent notional
amounts of these contracts were $127.4 million and $89.1 million at
July 31, 2011 and October 31, 2010, respectively. The
fair value of Derivative assets recorded on our Condensed
Consolidated Balance Sheets was $381,000 at July 31, 2011 and
$905,000 at October 31, 2010. The fair value of
Derivative liabilities recorded on our Condensed Consolidated
Balance Sheets was $2.0 million at July 31, 2011 and $2.1 million
at October 31, 2010.
The
future value of our foreign currency forward exchange contracts and
the related currency positions are subject to offsetting market
risk resulting from foreign currency exchange rate
volatility. The counterparties to these contracts are
substantial and creditworthy financial institutions. We
do not consider either the risk of counterparty non-performance or
the economic consequences of counterparty non-performance as
material risks.
FASB
fair value guidance established a three-tier fair value hierarchy,
which categorizes the inputs used in measuring fair
value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable; and Level 3, defined
as unobservable inputs in which little or no market data exist,
therefore requiring an entity to develop its own
assumptions.
In
accordance with this guidance, the following table represents the
fair value hierarchy for our financial assets and liabilities
measured at fair value as of July 31, 2011 and October 2010 (in
thousands):
Included
in Level 1 assets are mutual fund investments under a nonqualified
deferred compensation plan. We estimate the fair value
of these investments on a recurring basis using market prices which
are readily available. Included as Level 2 fair
value measurements are derivative assets and liabilities related to
hedged and unhedged gains and losses on foreign currency forward
exchange contracts entered into with a third party. We
estimate the fair value of these derivatives on a recurring basis
using foreign currency exchange rates obtained from active
markets.
During
fiscal 2011, we did not have any significant non-recurring
measurements of nonfinancial assets and nonfinancial
liabilities.
|
GUARANTEES AND WARRANTIES
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GUARANTEES AND WARRANTIES |
From
time to time, our subsidiaries guarantee third party payment
obligations in connection with the sale of machines to customers
that use financing. We follow FASB guidance for
accounting for contingencies with respect to these
guarantees. As of July 31, 2011, we had 26
outstanding third party payment guarantees totaling approximately
$1.5 million. The terms of these guarantees are consistent with the
underlying customer financing terms. Upon shipment of a
machine, the customer has the risk of ownership. The customer does
not obtain title, however, until it has paid for the
machine. A retention of title clause allows us to
recover the machine if the customer defaults on the financing. We
accrue for potential liabilities under these guarantees when we
believe a loss is probable and can be estimated.
We
provide warranties on our products with respect to defects in
material and workmanship. The terms of these warranties are
generally one year for machines and shorter periods for service
parts. We recognize a reserve with respect to this
obligation at the time of product sale, with subsequent warranty
claims recorded against the reserve. The amount of the warranty
reserve is determined based on historical trend experience and any
known warranty issues that could cause future warranty costs to
differ from historical experience. The increased
provision in the first nine months ended July 31, 2011 compared to
the first nine months ended July 31, 2010 reflects the increased
volume of sales and anticipated claims related to machines under
warranty and the sale of a greater number of our higher performance
machines which have a higher cost per claim. A reconciliation of
the changes in our warranty reserve is as follows (in
thousands):
|
INVENTORIES
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES |
Inventories,
priced at the lower of cost (first-in, first-out method) or market,
are summarized below (in thousands):
|
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
We
are exposed to certain market risks relating to our ongoing
business operations, including foreign currency risk, interest rate
risk and credit risk. We manage our exposure to these
and other market risks through regular operating and financing
activities. Currently, the only risk that we manage
through the use of derivative instruments is foreign currency
risk.
We
operate on a global basis and are exposed to the risk that our
financial condition, results of operations and cash flows could be
adversely affected by changes in foreign currency exchange
rates. To reduce the potential effects of foreign
exchange rate movements on our net equity investment in one of our
foreign subsidiary’s gross profit and net earnings, we enter
into derivative financial instruments in the form of foreign
exchange forward contracts with a major financial
institution. We are primarily exposed to foreign
currency exchange rate risk with respect to transactions and net
assets denominated in Euros, Pounds Sterling, Canadian Dollars,
South African Rand, Singapore Dollars and New Taiwan
Dollars.
We
record all derivative instruments as assets or liabilities at fair
value.
Derivatives Designated as Hedging Instruments
We
enter into foreign currency forward exchange contracts periodically
to hedge certain forecasted inter-company sales and purchases
denominated in foreign currencies (the Pound Sterling, Euro and New
Taiwan Dollar). The purpose of these instruments is to
mitigate the risk that the U.S. Dollar net cash inflows and
outflows resulting from sales and purchases denominated in foreign
currencies will be adversely affected by changes in exchange
rates. These forward contracts have been designated as
cash flow hedge instruments, and are recorded in the Condensed
Consolidated Balance Sheets at fair value in Derivative assets and
Derivative liabilities. The effective portion of the
gains and losses resulting from the changes in the fair value of
these hedge contracts are deferred in Accumulated other
comprehensive loss and recognized as an adjustment to Cost of sales
and service in the period that the corresponding inventory sold
that is the subject of the related hedge contract is recognized,
thereby providing an offsetting economic impact against the
corresponding change in the U.S. Dollar value of the inter-company
sale or purchase being hedged. The ineffective portion
of gains and losses resulting from the changes in the fair value of
these hedge contracts is reported in Other (income) expense, net
immediately. We perform quarterly assessments of hedge
effectiveness by verifying and documenting the critical terms of
the hedge instrument and determining that forecasted transactions
have not changed significantly. We also assess on
a quarterly basis whether there have been adverse developments
regarding the risk of a counterparty default.
We
had forward contracts outstanding as of July 31, 2011, denominated
in Euros, Pounds Sterling and New Taiwan Dollars with set maturity
dates ranging from August 2011 through July 2012. The
contract amounts, expressed at forward rates in U.S. Dollars at
July 31, 2011, were $48.2 million for Euros, $10.6 million for
Pounds Sterling and $27.9 million for New Taiwanese
Dollars. At July 31, 2011, we had
approximately $1.5 million of losses, net of tax, related to cash
flow hedges deferred in Accumulated other comprehensive
loss. Of this amount, $786,000 represents unrealized
losses, net of tax, related to cash flow hedge instruments that
remain subject to currency fluctuation risk. The
majority of these deferred losses will be recorded as an adjustment
to Cost of sales and service in periods through July 2012, when the
corresponding inventory that is the subject of the related hedge
contract is sold, as described above.
We
are also exposed to foreign currency exchange risk related to our
investment in net assets in foreign countries. To
manage this risk, we have maintained a forward contract with a
notional amount of €3.0 million. We designated
this forward contract as a hedge of our net investment in Euro
denominated assets. We selected the forward method under
Financial Accounting Standards Board, or FASB, guidance related to
the accounting for derivatives instruments and hedging activities.
The forward method requires all changes in the fair value of the
contract to be reported as a cumulative translation adjustment in
Accumulated other comprehensive loss, net of tax, in the same
manner as the underlying hedged net assets. This forward
contract matures in November 2011. At July 31, 2011, we
had $216,000 of realized gains and $146,000 of unrealized losses,
net of tax, recorded as cumulative translation adjustments in
Accumulated other comprehensive loss related to this forward
contract.
Derivatives Not Designated as Hedging
Instruments
We
also enter into foreign currency forward exchange contracts to
protect against the effects of foreign currency fluctuations on
receivables and payables denominated in foreign currencies. These
derivative instruments are not designated as hedges under guidance
of the FASB guidance and, as a result, changes in their fair value
are reported currently as Other (income) expense, net in the
Condensed Consolidated Statements of Operations consistent with the
transaction gain or loss on the related receivables and payables
denominated in foreign currencies.
We
had forward contracts outstanding as of July 31, 2011, in Euros,
Pounds Sterling, Canadian Dollars, South African Rand, Singapore
Dollars and New Taiwan Dollars with set maturity dates ranging from
August 2011 through December 2011. The aggregate amount
of these contracts at forward rates in U.S. Dollars at July 31,
2011 for Euros, Pounds Sterling, Canadian Dollars, South African
Rand, New Taiwan Dollars and Singapore Dollars totaled $38.4
million.
Fair Value of Derivative Instruments
We
recognize the fair value of derivative instruments as assets and
liabilities on a gross basis on our Condensed Consolidated Balance
Sheets. As of July 31, 2011 and October 31, 2010, all
derivative instruments were recorded at fair value on the balance
sheets as follows (in thousands):
Effect of Derivative Instruments on the Condensed Consolidated
Balance Sheets and Condensed Consolidated Statements of Changes in
Shareholders’ Equity and Operations
Derivative
instruments had the following effects on our Condensed Consolidated
Balance Sheets and Condensed Consolidated Statements of Changes in
Shareholders’ Equity and Operations during the first nine
months ended July 31, 2011 and 2010 (in thousands):
We
recognized a loss of $28,000 for the first nine months ended July
31, 2011, and a loss of $38,000 for the first nine months ended
July 31, 2010 as a result of contracts closed early that were
deemed ineffective for financial reporting purposes and did not
qualify as cash flow hedges.
Derivative
instruments had the following effects on our Condensed Consolidated
Balance Sheets and Condensed Consolidated Statements of Changes in
Shareholders’ Equity and Operations during the three months
ended July 31, 2011 and 2010 (in thousands):
We
recognized a loss of $3,000 for the three months ended July 31,
2011, and a gain of $27,000 for the three months ended July 31,
2010 as a result of contracts closed early that were deemed
ineffective for financial reporting purposes and did not qualify as
cash flow hedges.
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EQUITY INCENTIVE PLAN
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Jul. 31, 2011
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EQUITY INCENTIVE PLAN |
In
March 2008, we adopted the Hurco Companies, Inc. 2008 Equity
Incentive Plan (the “2008 Plan”), which allows us to
grant awards of stock options, Stock Appreciation Rights settled in
stock (SARs), restricted shares, performance shares and performance
units. The 2008 Plan replaced the 1997 Stock Option and
Incentive Plan (the “1997 Plan”) which expired in March
2007. The Compensation Committee of the Board of
Directors has authority to determine the officers, directors and
key employees who will be granted awards; designate the number of
shares subject to each award; determine the terms and conditions
upon which awards will be granted; and prescribe the form and terms
of award agreements. We have granted stock options under
both plans which are currently outstanding and restricted shares
under the 2008 Plan. No stock option may be exercised
more than ten years after the date of grant or such shorter period
as the Compensation Committee may determine at the date of
grant. The total number of shares of our common stock
that may be issued as awards under the 2008 Plan is
750,000. The market value of a share of our common
stock, for purposes of the 2008 Plan, is the closing sale price as
reported by the Nasdaq Global Select Market on the date in question
or, if not a trading day, on the last preceding trading
date.
A
summary of stock option activity for the nine-month period ended
July 31, 2011, is as follows:
Summarized
information about outstanding stock options as of July 31, 2011,
that have already vested and those that are expected to vest, as
well as stock options that are currently exercisable, are as
follows:
The
intrinsic value of an outstanding stock option is calculated as the
difference between the stock price as of July 31, 2011 and the
exercise price of the option.
On
December 22, 2010, the Compensation Committee granted a total of
25,000 shares of restricted stock to our executive
officers. The restricted stock vests in full three years
from the date of grant provided the recipient remains employed by
us through that date. The grant date fair value of the
restricted stock is based on the closing sales price of our common
stock on the grant date which was $23.10 per share.
On
March 17, 2011, the Compensation Committee granted a total of 5,859
shares of restricted stock to our board of
directors. The restricted stock vests one year from the
date of grant provided the recipient remains on the board of
directors through that date. The grant date fair value
of the restricted stock is based on the closing sales price of our
common stock on the grant date which was $29.86 per
share.
A
reconciliation of the Company’s restricted stock activity and
related information is as follows:
During
the first nine months of fiscal 2011 and 2010, we recorded $332,000
and $95,000, respectively, of stock-based compensation expense
related to grants of stock options and shares of restricted stock
under the plans. As of July 31, 2011, there was $888,000
of total unrecognized stock-based compensation cost that we expect
to recognize by the end of fiscal 2014.
|
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