Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| x |
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the fiscal year ended October 31, 2004 or |
| o |
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from _________ to _________. |
Commission File No. 0-9143
HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
|
Indiana |
35-1150732 |
|
(State or other jurisdiction of |
(I.R.S. Employer Identification Number) |
|
incorporation or organization) |
|
| |
|
|
One Technology Way |
|
|
Indianapolis, Indiana |
46268 |
|
(Address of principal executive offices) |
(Zip code) |
|
Registrant’s telephone number, including area code |
(317) 293-5309 |
|
Securities registered pursuant to Section 12(b) of the Act: |
None |
|
Securities registered pursuant to Section 12(g) of the Act: |
Common Stock, No Par Value |
| |
(Title of Class) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days.Yes x Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). YesoNo x
The aggregate market value of the Registrant's voting stock held by non-affiliates as of April 30, 2004 (the last day of our most recently completed second quarter) was $45,566,569.
The number of shares of the Registrant’s common stock outstanding as of January 3, 2005 was 6,129,067.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant’s Proxy Statement for its 2005 Annual Meeting of Shareholders (Part III).
The number of pages included in this document is 61.
Disclosure Concerning Forward-looking Statements
Certain statements made in this annual report on form 10-K may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, changes in general economic and business conditions that affect market demand for machine tools and related computer control systems, software products, and replacement parts, changes in manufacturing markets, adverse currency movements, innovations by competitors, performance of our contract manuf
acturers, governmental actions and initiatives, including import and export restrictions and tariffs, and developments in the relations among the U.S., China and Taiwan.
PART I
Item 1. BUSINESS
General
Hurco Companies, Inc. is an industrial technology company. We design and produce interactive, personal computer (PC) based, computer control systems and software and computerized machine tools for sale to the metal working industry through a worldwide sales, service and distribution network. Our proprietary computer control systems and software products are sold primarily as integral components of our computerized machine tool products.
We pioneered the application of microprocessor technology and conversational programming software for application on computer controls for machine tools and, since our founding in 1968, have been a leader in the introduction of interactive computer control systems that automate manufacturing processes and improve productivity in the metal parts manufacturing industry. We have concentrated on designing "user-friendly" computer control systems that can be operated by both skilled and unskilled machine tool operators and yet are capable of instructing a machine to perform complex tasks. The combination of microprocessor technology and patented interactive, conversational programming software in our computer control systems enables operators on the production floor to quickly and easily create a program for machinin
g or forming a particular part from a blueprint or computer-aided design (CAD) and immediately begin production of that part.
Our executive offices and principal design, engineering, and manufacturing management operations are headquartered in Indianapolis, Indiana. Sales, application engineering and service offices are located in Indianapolis, Indiana; High Wycombe, England; Munich, Germany; Paris, France; Milan, Italy; Singapore and Taichung, Taiwan. We also have a representative sales office in Shanghai, China. Distribution facilities are located in Los Angeles, California and Venlo, the Netherlands; a manufacturing facility is located in Taichung, Taiwan.
Our strategy is to design, develop, produce and sell to the global metalworking market a comprehensive line of computerized machine tools that incorporate our proprietary interactive computer control technology. This technology is designed to enhance the machine tool user's productivity through ease of operation and higher levels of machine performance (speed, accuracy and surface finish quality). We use an open system software architecture that permits our computer control systems and software to be used with standard PC hardware and have emphasized an operator friendly design that employs both interactive conversational and graphical programming software.
Products
Our core products consist of general purpose computerized machine tools for the metal cutting industry (principally vertical machining centers) into which our proprietary Ultimax® and/or MAX® software and computer control systems hav
e been fully integrated. In September 2004, we introduced a product line of turning centers, or lathes, which are also powered by Hurco’s MAX® control. We also produce computer control systems and related software for press brake applications that are sold as retrofit control systems. In addition, we produce and distribute software options, control upgrades, hardware accessories and replacement parts related to our product lines and provide operator training and support services to our customers.
The following table sets forth the contribution of each of our product groups to our total sales and service fees during each of the past three fiscal years:
|
Net Sales and Service Fees by Product Category |
|
| |
|
Year ended October 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Continuing Products and Services |
|
|
|
|
|
|
|
|
|
|
|
|
Computerized Machine Tools |
|
$ |
83,663 |
|
|
84.0 |
% |
$ |
60,977 |
|
|
80.7 |
% |
$ |
52,056 |
|
|
73.9 |
% |
|
Computer Control Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Software |
|
|
3,604 |
|
|
3.6 |
% |
|
3,044 |
|
|
4.0 |
% |
|
3,194 |
|
|
4.5 |
% |
|
Service Parts |
|
|
8,696 |
|
|
8.8 |
% |
|
7,616 |
|
|
10.1 |
% |
|
7,240 |
|
|
10.3 |
% |
|
Service Fees |
|
|
3,609 |
|
|
3.6 |
% |
|
3,460 |
|
|
4.6 |
% |
|
3,240 |
|
|
4.6 |
% |
|
Total |
|
$ |
99,572 |
|
|
100 |
% |
$ |
75,097 |
|
|
99.4 |
% |
$ |
65,730 |
|
|
93.3 |
% |
|
Discontinued Products and Services |
|
|
-- |
|
|
0 |
% |
|
435 |
|
|
0.6 |
% |
|
4,756 |
|
|
6.7 |
% |
|
Total |
|
$ |
99,572 |
|
|
100 |
% |
$ |
75,532 |
|
|
100.0 |
% |
$ |
70,486 |
|
|
100.0 |
% |
* Amounts shown do not include computer control systems sold as integrated components of computerized machine tools.
Computerized Machine Tools - Machining Centers
We design, manufacture and sell computerized machine tools equipped with a fully integrated interactive Ultimax® computer control system. Our Ultimax® twin screen "conversational" computer control system is sold solely as a fully int
egrated feature of our computerized machine tools. This computer control system enables a machine tool operator to create a complex two-dimensional machining program directly from a blue print or CAD geometry file. An operator with little or no programming experience can successfully create a program and begin the machining of a part in a short time with minimal special training. Since the initial introduction of the Ultimax® computer control system, we have added enhancements related to operator programming productivity, CAD compatibility, data processing throughput and motion control speed and accuracy. Our current Ultimax® 4 programming station features an operator console with a liquid crystal display screen and incorporates a personal computer (PC) platform that includes a Pentium* processor. This upgradeable computer control product offers enhanced performance with ready access to cost effective computing hardware and software. Our current line of Ultimax® metal cutting machine tools consists of the following three product lines:
VM Product Line
The VM product line consists of moderately priced vertical machining centers for the entry-level market. The VM line features an extraordinarily large work cube and small footprint that optimizes available floor space. The VM line consists of four models with x-axis travel of 26, 40 and 50 inches. The base price of VM machines ranges from $36,000 to $67,000.
VMX Product Line
The VMX product line consists of higher performing vertical machining centers and is our signature product line. The VMX line consists of five base models with x-axis travel of 24, 30, 42, 50 and 64 inches. The maximum spindle speed on these machines ranges from 8,000 to 15,000 rpm. The base price of VMX machines ranges from $60,000 to $135,000.
VTX/HTX Product Line
The VTX/HTX product line consists of our highest performing machining centers and is designed for 5-axis positioning work on complex, multisided parts. The VTX/HTX product line consists of three models, two vertical cutting machines and one horizontal cutting machine. The base price of the VTX/HTX machines ranges from $160,000 to $170,000.
Computerized Machine Tools - Turning Centers
In September 2004, we introduced a new line of turning centers (lathes) designated as our TM Series. The TM Series is powered by Hurco’s MAX® control and consists of three models with chuck sizes of 6, 8 and 10 inches. The TM Series is designed for job shops and contract manufacturers seeking efficient processing of small to medium lot sizes. The base price of the TM Series ranges from $40,000 to $60,000.
Computer Control Systems and Software
The following machine tool computer control systems and software products are sold directly to end-users and/or to original equipment manufacturers.
Autobend®
Autobend® computer control systems are applied to metal bending press brake machines that form parts from sheet metal and steel plate. They consist of a microprocessor-based computer control and back gauge (an automated gauging system that determines where the bend will be made). We have manufactured and sold the Autobend®
product line since 1968. We currently market two models of our Autobend® computer control systems for press brake machines, in combination with six different back gauges, through distributors to end-users as retrofit units for installation on existing or new press brake machines, as well as to original equipment manufacturers and importers of such equipment.
· CAM and Software Products
In addition to our standard computer control features, we offer software option products for two and three-dimensional programming. These products are sold to users of our computerized machine tools equipped with our Ultimax® and/or MAX® computer control systems. Our Advanced Velocity Control (AVC) and Adaptive Surface Finish (ASF), high performance machining software options enable a customer to increase machine throughput using higher cutting feed rates. The ASF software option facilitates optimized surface finishes on complex parts using faster high resolution part data transfers.
Other products in this line are WinMax®, a Windows* Pentiu
m is a registered trademark of Intel Corporation
** Windows is a registered trademark of Microsoft Corporation.
* based desktop programming system; DXF, a data file transfer software option; and UltiNetÔ, a networking software option. The DXF software option eliminates manual data entry of part features by transferring AutoCAD™ drawing files directly into an Ultimax® or MAX® computer control, or into our desktop programming software
, substantially increasing operator productivity. UltiNetÔ is a networking software option used by our customers to transfer part design and manufacturing information to computerized machine tools at high speeds and to network computerized machine tools within the customer's manufacturing facility.
We also offer conversational part and tool dimension probing options for Ultimax® and MAX® based machines. These options permit the computerized dimensional measurement of machined parts and the associated cutting tools. This “o
n-machine” technique significantly improves the throughput of the measurement process when compared to traditional “off-machine” approaches.
Parts and Service
Our service organization provides installation, warranty, operator training and customer support for our products on a worldwide basis. In the United States, our principal distributors have primary responsibility for machine installation and warranty service and support for new product sales. We also service and support a substantial installed base of existing customers. Our service organization also sells software options, computer controls upgrades, accessories and replacement parts for our products. Our after-sale parts and service business helps strengthen our customer relationships and provides continuous information concerning the evolving requirements of end-users.
Marketing and Distribution
We sell our products through approximately 230 independent agents and distributors in approximately 50 countries throughout North America, Europe and Asia. We also have our own direct sales personnel in England, France, Germany, Italy, Singapore and China, which are among the world's principal machine tool consuming countries. During fiscal 2004, no distributor accounted for more than 5% of our sales and service fees. Approximately ---89% of the worldwide demand for computerized machine tools and computer control systems comes from outside the U.S. In fiscal 2004, approximately 69% of our revenues were from overseas customers and no single end-user of our products accounted for more than 5% of our total sales and service fees.
The end-users of our computerized machine tools are precision tool, die and mold manufacturers, independent metal parts manufacturers and specialized production applications or prototype shops within large manufacturing corporations. Industries served include aerospace, defense, medical equipment, energy, transportation and computer equipment.
Our computerized machine tool software options and accessories are sold primarily to end-users. We sell our AutobendÒ computer control systems to original equipment manufacturers of new machine tools who integrate them with their own products prior to the sale of those products to their own customers, to retrofitters of used machine tools who integrate them with those machines as part of the retrofitting operation and to end-users who have an installed base of machine tools, either with or without related computer control systems.
We believe that advances in industrial technology and the related demand for process improvements drive demand for our products.
Other factors affecting demand include:
| · |
the need to continuously improve productivity and shorten cycle time, |
| · |
an aging machine tool installed base that will require replacement with more advanced and efficient technology created by shorter product life cycles, |
| · |
the industrial development of emerging countries in Asia and Eastern Europe, and |
| · |
the declining supply of skilled machinists. |
However, demand for our products is highly dependent upon economic conditions and the general level of business confidence, as well as such factors as production capacity utilization and changes in governmental policies regarding tariffs, corporate taxation and other investment incentives. By marketing and distributing our products on a worldwide basis, we seek to reduce the potential impact on our total sales and service fees of adverse changes in economic conditions in any particular geographic region.
Competition
We compete with many other companies in the United States and international markets. Several of our competitors are larger and have greater financial resources than we do. We strive to compete effectively by incorporating into our products unique, patented software and other proprietary features that offer enhanced productivity, greater technological capabilities and ease of use. We offer our products in a range of prices and capabilities to target a broad potential market. We also believe that our competitiveness is aided by our reputation for reliability and quality, our strong international sales and distribution organization and our extensive customer service organization.
In the United States and European metal cutting markets, major competitors include Haas Automation, Inc., Cincinnati Machine, Deckel, Maho Gildemeister Group (DMG), Bridgeport Machines, Ltd., Hardinge Inc. and Fadal Engineering along with a large number of foreign manufacturers, including Okuma Machinery Works Ltd., Mori Seiki Co., Ltd., Masak and Matsuura Machinery Corporation.
Manufacturing
Our manufacturing strategy is based on global sourcing of components and a network of contract suppliers and sub-contractors who manufacture our products in accordance with our proprietary design, quality standards and cost specifications. This has enabled us to lower our production costs, reduce our working capital per sales dollar and increase our worldwide manufacturing capacity without significant incremental investment in capital equipment or personnel.
Our computerized metal cutting machine tools are manufactured to our specifications primarily by our wholly owned subsidiary in Taiwan, Hurco Manufacturing Limited (HML), which we established in fiscal 2000. This subsidiary has increased our overall capacity and reduced or eliminated our dependence on other Taiwan contract manufacturers. In addition, we have a 24% ownership interest in a contract machine manufacturer in Taiwan that produces certain models included in our product line. Both of these manufacturers conduct final assembly operations and are supported by a network of sub-contract suppliers of components and sub-assemblies.
We have a contract manufacturing agreement for computer control systems with another Taiwan based company in which we have a 35% ownership interest. This company manufactures our Ultimax,® MAX® and Autobend® computer control systems to our specifications, and is engaged primarily in the sourcing of industry standard computer components and proprietary parts, as well as final assembly and test operations. We source one of the proprietary Ultimax® computer components, printed circuit boards (PCB), from a sole domestic supplier with whom we have had a long-term relationship.
We work closely with our wholly owned manufacturing subsidiary and our minority-owned affiliates to assure that their production capacity will be sufficient to meet the projected demand for our machine tool products. We continue to consider additional contract manufacturing resources that will increase our long-term capacity, and believe that, except for the sole-sourced PCB, alternative sources for standard and proprietary components are available. However, any prolonged interruption of operations or significant reduction in capacity or performance capability of any of our Taiwan-based manufacturers or the PCB supplier would have a material adverse effect on our operations.
Backlog
Backlog consists of firm orders received from customers and distributors but not yet shipped. Backlog was $12.8 million, $8.2 million and $5.3 million as of October 31, 2004, 2003, and 2002, respectively.
Intellectual Property
We consider certain features of our products to be proprietary. We own, directly or through a subsidiary, a number of patents that are significant to our business.
In 2002, Hurco acquired the assets of a small automation software company that included the following technology patents: Computer Assisted Manual Machining Technology (US Patent: 6,019,554), Rapid Touch - Digital Probe Routing Technology (US Patent: 6,052,628), and Tolerance Based Control Technology (US Patent: 6,242,880 B1). In 2004, Hurco was granted a new patent on Tolerance Based Probing Technology (US Patent: 6,754,550), based on an application made in 2001 by the automation software company above. Hurco intends to incorporate these technologies in our proprietary computer control system.
We also own patents for an object-oriented, open architecture methodology for computer control software. We also hold a non-exclusive license covering features of the automatic tool changer offered with certain of our computerized machining centers as well as a patent for a manual tool changing apparatus.
Research and Development
Research and development expenditures for new products and significant product improvements, included as period operating expenses, were $2.0 million, $1.8 million and $2.4 million in fiscal 2004, 2003, and 2002, respectively. In addition, we recorded expenditures of $1.3 million in 2004, $679,000 in 2003, and $534,000 in 2002 related to software development projects that were capitalized.
Employees
We had 250 employees at the end of fiscal 2004, none of which are covered by a collective-bargaining agreement or represented by a union. We have experienced no employee-generated work stoppages or disruptions and we consider our employee relations to be satisfactory.
Geographic Areas
Financial information about geographic areas is set forth in Note 14 to the Consolidated Financial Statements.
We are subject to the risks of doing business on a global basis, including foreign currency fluctuation risks, changes in general economic and business conditions in the countries and markets that we serve and government actions and initiatives including import and export restrictions and tariffs.
Availability of Reports and Other Information
Our website is www.hurco.com. We make available on this website, free of charge, access to our annual, quarterly and current reports and other documents filed by us with the Securities and Exchange Commission as soon as reasonably practical after the filing date. These reports can also be obtained at the SEC’s Public Reference Room at 450 Fifth Street, NW Washington, DC 20549.
Item 2. PROPERTIES
The following table sets forth the location, size and principal use of each of our facilities:
|
Location |
|
Square Footage |
|
Principal Uses |
| |
|
|
|
|
|
Indianapolis, Indiana |
|
165,000 |
(1) |
|
Corporate headquarters, design and
engineering, product testing, computer control assembly, sales, application engineering and customer service |
| |
|
|
|
|
|
Los Angeles, California |
|
13,000 |
|
|
Warehouse, distribution, sales, application engineering and customer service |
| |
|
|
|
|
|
High Wycombe, England |
|
12,000 |
|
|
Sales, application engineering and
customer service |
| |
|
|
|
|
|
Paris, France |
|
4,800 |
|
|
Sales, application engineering and
customer service |
| |
|
|
|
|
|
Munich, Germany |
|
22,850 |
|
|
Sales, application engineering and
customer service |
| |
|
|
|
|
|
Milan, Italy |
|
4,850 |
|
|
Sales, application engineering and
customer service |
| |
|
|
|
|
|
Singapore |
|
3,000 |
|
|
Sales, application engineering and
customer service |
| |
|
|
|
|
|
Shanghai, China |
|
3,000 |
|
|
Sales, application engineering and
customer service |
| |
|
|
|
|
|
Taichung, Taiwan |
|
83,700 |
|
|
Manufacturing |
(1) Approximately 45,000 square feet is leased to a third-party under a lease which expires January 30, 2005. We have a letter of understanding from our tenant to extend the lease for five years and increase the leased space to approximately 50,000 square feet.
We own the Indianapolis facility and lease all other facilities. The leases have terms expiring at various dates ranging from February 2005 to November 2008. We believe that all of our facilities are well maintained and are adequate for our needs now and in the foreseeable future. We do not believe that we would experience any difficulty in replacing any of the present facilities if any of our leases were not renewed at expiration.
Item 3. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits arising in the normal course of business. We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial position or results of operations.
Item. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
Executive officers are elected each year by the Board of Directors at the first board meeting following the Annual Meeting of Shareholders to serve during the ensuing year and until their respective successors are elected and qualified. There are no family relationships between any of our executive officers or between any of them and any of the members of the Board of Directors.
The following information sets forth as of December 31, 2004, the name of each executive officer, his or her age, tenure as an officer, principal occupation and business experience for the last five years: