SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q



(Mark One)
 
xQuarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended JulyJanuary 31, 20042005 or
oTransition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________.


Commission File No. 0-9143


HURCO COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Indiana
 
35-1150732
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)  
   
One Technology Way
  
Indianapolis, Indiana
 
46268
(Address of principal executive offices) (Zip code)


Registrant’s telephone number, including area code (317) 293-5309





Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for the past 90 days:
YesxXNo __o


Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes __ NooNXox


The number of shares of the Registrant's common stock outstanding as of SeptemberMarch 1, 20042005 was5,975,694. 6,199,447.






HURCO COMPANIES, INC.
July 2004January 2005 Form 10-Q Quarterly Report


Table of Contents



Part I - Financial Information


Item 1.Condensed Financial Statements 
   
 
Condensed Consolidated Statement of Operations ………………………………………..
Three months ended January 31, 2005 and nine months ended July 31, 2004 and 2003
3
   
 
Condensed Consolidated Balance Sheet …………………………………………………..
As of JulyJanuary 31, 20042005 and October 31, 20032004
4
   
 
Condensed Consolidated Statement of Cash FlowsFlows………………………………………..
Three months ended January 31, 2005 and nine months ended July 31, 2004 and 2003
5
   
 
Condensed Consolidated Statement of Changes in Shareholders' EquityEquity…………………
NineThree months ended JulyJanuary 31, 20042005 and 20032004
6
   
 
Notes to Condensed Consolidated Financial Statements
Statements…………………………………..		7
   
Item 2.
Management's Discussion and Analysisof Financial ……………………………………..
Condition and Results of Operations
10
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk …………………………….1615
   
Item 4.Controls and Procedures …………………………………………………………………...1817
   

Part II - Other Information


Item 1.Legal ProceedingsProceedings…………………………………...…………………………………...19
Item 5.Other Information1918
   
Item 6.
Exhibits and Reports on Form 8-K
Exhibits................................................................................................................................		2018
   
Signatures…………………………………………………………………………………………….2119





2

PART I - FINANCIAL INFORMATION


Item 1. CONDENSED FINANCIAL STATEMENTS


HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)

 Three Months Ended Nine Months Ended  Three Months Ended 
 July 31 July 31  January 31 
 2004 2003 2004 2003  2005 2004 
 (unaudited) (unaudited)  (unaudited) 
              
Sales and service fees $23,748 $18,354 $70,721 $51,760  $30,246 $22,718 
                    
Cost of sales and service  16,435  13,280  49,464  37,564   20,506  16,187 
                    
Gross profit
  7,313  5,074  21,257  14,196   9,740  6,531 
                    
Selling, general and administrative expenses  5,241  4,332  15,295  13,323   6,187  4,927 
                    
Operating income
  2,072  742  5,962  873   3,553  1,604 
                    
Interest expense  113  167  374  476   83  144 
                    
Variable options expense  --  --  322  --   --  255 
                    
Other income (expense), net  28  (43) (119) 5 
Other expense, net  71  170 
                    
Income before taxes
  1,987  532  5,147  402   3,399  1,035 
                    
Provision for income taxes  405  201  1,159  514   369  366 
                    
Net income (loss)
 $1,582 $331 $3,988 $(112)
Net income
 $3,030 
$
669
 
                    
Earnings (loss) per common share
             
Earnings per common share
       
                    
Basic
 
$
0.27
 
$
0.06
 
$
0.70
 
$
(0.02
)
 $0.50 
$
0.12
 
Diluted
 
$
0.25
 
$
0.06
 
$
0.67
 
$
(0.02
)
 $0.48 
$
0.12
 
                    
Weighted average common shares outstanding
                    
                    
Basic
  5,882  5,583  5,722  5,583   6,071  5,588 
Diluted
  6,204  5,630  5,964  5,583   6,270  5,753 



The accompanying notes are an integral part of the condensed consolidated financial statements.


HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)

  
January 31
 
October 31
 
  
2005
 
2004
 
  
(unaudited)
 
(audited)
 
ASSETS
     
Current assets:
     
Cash and cash equivalents
 $11,303 $8,249 
Cash - restricted
  --  277 
Accounts receivable
  16,651  17,337 
Inventories
  31,394  28,937 
Other
  3,232  1,672 
Total current assets
  62,580  56,472 
        
Property and equipment:
       
Land
  761  761 
Building
  7,205  7,205 
Machinery and equipment
  12,645  12,106 
Leasehold improvements
  700  676 
   21,311  20,748 
Less accumulated depreciation and amortization
  (12,772) (12,512)
   8,539  8,236 
        
Software development costs, less amortization
  2,979  2,920 
Investments and other assets
  5,878  5,818 
  $79,976 $73,446 
        
LIABILITIES AND SHAREHOLDERS’ EQUITY
       
Current liabilities:
       
Accounts payable
 $19,249 $18,361 
Accrued expenses
  11,541  11,447 
Current portion of long-term debt
  319  317 
Total current liabilities
  31,109  30,125 
        
Non-current liabilities:
       
Long-term debt 
  4,106  4,283 
Deferred credits and other obligations 
  659  583 
Total liabilities
  35,874  34,991 
        
Shareholders’ equity:
       
Preferred stock: no par value per share; 1,000,000 shares
       
authorized; no shares issued
       
Common stock: no par value; $.10 stated value per share;
       
12,500,000 shares authorized, and 6,177,714 and 6,019,594
       
shares issued and outstanding, respectively
  618  602 
Additional paid-in capital 
  47,425  46,778 
Accumulated deficit 
  (412) (3,442)
Accumulated other comprehensive income 
  (3,529) (5,483)
Total shareholders’ equity
  44,102  38,455 
  $79,976 $73,446 


The accompanying notes are an integral part of the condensed consolidated financial statements.


HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
  Three Months Ended 
  January 31 
  2005 2004 
  (unaudited)   
Cash flows from operating activities:
     
Net income
 $3,030 
$
669
 
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
       
Equity in (income) loss of affiliates
  67  -- 
Depreciation and amortization
  317  331 
Change in assets and liabilities:
       
(Increase) decrease in accounts receivable
  883  634 
(Increase) decrease in inventories
  (1,487) 368 
Increase (decrease) in accounts payable
  156  4,099 
Increase (decrease) in accrued expenses
  (73) (2,505)
Other
  (27) (98)
 Net cash provided by operating activities
  2,866  3,498 
        
Cash flows from investing activities:
       
Purchase of property and equipment 
  (486) (207)
Software development costs 
  (137) (264)
Change in restricted cash 
  277  (470)
Other investments 
  (54) (46)
Net cash used for investing activities
  (400) (987)
        
Cash flows from financing activities:
       
Advances on bank credit facilities 
  4,350  13,118 
Repayment on bank credit facilities 
  (4,501) (15,629)
Repayment on first mortgage 
  (29) (27)
Repayment of term debt 
  --  (337)
Proceeds from exercise of common stock options 
  663  338 
Net cash provided by (used for)
financing activities
  
483
  
(2,537
)
        
Effect of exchange rate changes on cash 
  105  341 
        
Net increase in cash and
cash equivalents
  
3,054
  
315
 
        
Cash and cash equivalents
at beginning of period
  
8,249
  
5,289
 
        
Cash and cash equivalents
at end of period
 
$
11,303
 
$
5,604
 




The accompanying notes are an integral part of the condensed consolidated financial statements.

3

HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETSTATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)For the three months ended January 31, 2005 and 2004

  
July 31
 
October 31
 
  
2004
 
2003
 
  
(unaudited)
 
(audited)
 
ASSETS
     
Current assets:
       
Cash and cash equivalents
 
$
6,564
 
$
5,289
 
Cash - restricted
  --  622 
Accounts receivable
  14,351  12,823 
Inventories
  27,393  22,247 
Other
  2,171  1,409 
Total current assets
  50,479  42,390 
        
Property and equipment:       
Land
  761  761 
Building
  7,242  7,239 
Machinery and equipment
  10,908  10,568 
Leasehold improvements
  648  544 
   19,559  19,112 
Less accumulated depreciation and amortization
  (11,131) (10,730)
   
8,428
  8,382 
        
Software development costs, less amortization
  2,686  1,922 
Investments and other assets
  5,599  5,264 
  
$
67,192
 
$
57,958
 
        
LIABILITIES AND SHAREHOLDERS’ EQUITY
       
Current liabilities:
       
Accounts payable
 
$
16,746
 
$
9,461
 
Accrued expenses
  9,035  10,048 
Current portion of long-term debt
  315  645 
Total current liabilities
  26,096  20,154 
        
Non-current liabilities:
       
Long-term debt   
  4,638  8,577 
Deferred credits and other obligations   
  552  486 
Total liabilities
  31,286  29,217 
        
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, 5,953,694 and 5,575,987 shares
       
issued, respectively
  595  557 
Additional paid-in capital   
  46,495  44,695 
Accumulated deficit   
  (5,723) (9,711)
Accumulated other comprehensive income   
  (5,461) (6,800)
Total shareholders’ equity
  35,906  28,741 
  
$
67,192
 
$
57,958
 

  
 
 
Common Stock
 
 
 
Additional
   
Accumulated
Other
Comprehensive
   
  
Shares Issued
& Outstanding
 
 
Amount
 
Paid-In
Capital
 
Accumulated
Deficit
 
Income
(Loss)
 
 
Total
 
  (Dollars in thousands) 
              
Balances, October 31, 2003
  
5,575,987
 
$
557
 
$
44,695
 
$
(9,711
)
$
(6,800
)
$
28,741
 
Net income  --  --  --  669  --  669 
Translation of foreign currency
financial statements
  
--
  
--
  
--
  
--
  
869
  
869
 
Unrealized loss on derivative
instruments
  
--
  
--
  
--
  
--
  (591) (591)
Comprehensive income  --  --  --  --  --  947 
Exercise of common stock options  74,700  8  330  --  --  338 
Balances, January 31, 2004
  
5,650,687
 
$
565
 
$
45,025
 
$
(9,042
)
$
(6,522
)
$
30,026
 
                    
Balances, October 31, 2004
  
6,019,594
 
$
602
 
$
46,778
 
$
(3,442
)
$
(5,483
)
$
38,455
 
            
Net income  --  --  --  3,030  --  3,030 
                    
Translation of foreign currency financial statements  
--
  
--
  
--
  
--
  
489
  
489
 
                    
Unrealized gain of derivative instruments  --  --  --  --  1,465  1,465 
Comprehensive income  --  --  --  --  --  
4,984
 
                    
Exercise of common stock options  158,120  16  647  --  --  663 
                   
Balances, January 31, 2005
  
6,177,714
 
$
618
 
$
47,425
 
$
(412
)
$
(3,529
)
$
44,102
 




The accompanying notes are an integral part of the condensed consolidated financial statements.

4

HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
  Three Months Ended Nine Months Ended 
  July 31 July 31 
  2004 2003 2004 2003 
          
Cash flows from operating activities:
         
Net income (loss)
 $1,582 $331 $3,988 
$
(112
)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
             
Equity in (income) loss of affiliates
  (123) (11) (215) (156)
Depreciation and amortization
  291  358  932  1,073 
Change in assets and liabilities:
             
(Increase) decrease in accounts receivable
  417  (69) (1,203) 2,751 
(Increase) decrease in inventories
  (2,816) (178) (4,223) (2,608)
Increase in accounts payable
  1,499  (854) 7,316  1,287 
Increase (decrease) in accrued expenses
  81  (1,036) (1,291) (3,061)
Other
  41  
(352
)
 (534) (399)
Net cash provided by (used for) operating activities
  972  (1,811) 4,770  (1,225)
              
Cash flows from investing activities:
             
Purchase of property and equipment   
  (395) (86) (749) (381)
Software development costs   
  (347) (252) (983) (454)
Change in restricted cash   
  -  629  622  (521)
Other investments   
  (26) 6  (63) (20)
Net cash provided by (used for) investing activities
  (768) 297  (1,173) (1,376)
              
Cash flows from financing activities:
             
Advances on bank credit facilities   
  1,047  17,952  20,308  38,631 
Repayment of bank credit facilities   
  (1,401) (15,867) (24,229) (36,757)
Repayment on first mortgage   
  (27) (27) (80) (76)
Repayment of term debt   
  -  (336) (338) (673)
Proceeds from exercise of common stock options   
  547  --  1,838  -- 
Net cash provided by (used for)
financing activities
  
166
  
1,722
  
(2,501
)
 
1,125
 
             
Effect of exchange rate changes on cash   
  1  71  179  345 
              
Net increase (decrease) in cash and
cash equivalents
  
371
  
279
  
1,275
  
(1,131
)
              
Cash and cash equivalents
at beginning of period
  
6,193
  
2,948
  
5,289
  
4,358
 
              
Cash and cash equivalents
at end of period
 
$
6,564
 
$
3,227
 
$
6,564
 
$
3,227
 




The accompanying notes are an integral part of the condensed consolidated financial statements.

5

HURCO COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended July 31, 2004 and 2003


  
Common Stock
       
  
Shares
Issued &
Outstanding
 
Amount
 
Additional
Paid-In
Capital
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Income (loss)
 
Total
 
      (Dollars in thousands)     
                    
Balances, October 31, 2002
  
5,583,158
 
$
558
 
$
44,717
 
$
(10,173
)
$
(7,085
)
$
28,017
 
                    
Net income (loss)  --  --  --  (112) --  (112)
Translation of foreign currency
financial statements
  
--
  
--
  
--
  
--
  
1,032
  
1,032
 
Unrealized gain (loss) on derivative
instruments
  
--
  
--
  
--
  
--
  (951) (951)
Comprehensive loss  --  --  --  --  --  (31)
Exercise of common stock options  --  --  --  --  --  -- 
                    
Balances, July 31, 2003
  
5,583,158
 
$
558
 
$
44,717
 
$
(10,285
)
$
(7,004
)
$
27,986
 
                    
Balances, October 31, 2003
  
5,575,987
 
$
557
 
$
44,695
 
$
(9,711
)
$
(6,800
)
$
28,741
 
                    
Net income (loss)  --  --  --  3,988  --  3,988 
Translation of foreign currency
financial statements
  --  --  --  --  485  485 
Unrealized gain (loss) on derivative
instruments
  --  --  --  --  854  854 
Comprehensive income  --  --  --  --  --  5,327 
Exercise of common stock options  377,707  38  1,800  --  --  1,838 
                    
Balances, July 31, 2004
  
5,953,694
  
595
  
46,495
  
(5,723
)
 
(5,461
)
$
35,906
 

















The accompanying notes are an integral part of the condensed consolidated financial statements.

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.GENERAL

The unaudited Condensed Consolidated Financial Statements include the accounts of Hurco Companies, Inc. and its consolidated subsidiaries. We 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 JulyJanuary 31, 20042005 and for the three and nine months ended JulyJanuary 31, 20042005 and JulyJanuary 31, 20032004 is unaudited; however, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results and financial position for 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, 2003.2004.

2.HEDGING

We enter into foreign currency forward exchange contracts periodically to hedge certain forecast inter-company product sales and forecast inter-company and third partythird-party purchases of product purchases that will be denominated in foreign currencies (primarily the Pound Sterling, Euro and New Taiwan Dollar). The purpose of these instruments is to mitigate the risk that the U.S. dollarDollar net cash inflows and outflows resulting from the 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 Sheet at fair value in Other Current Assets and Accrued Expenses. Gains and losses resulting from changes in the fair value of these hedge instrumentscontracts are deferred in Accumu latedAccumulated Other Comprehensive Income and recognized as an adjustment to Cost of Sales in the period that the sale of the product that was the subject of therelated hedged transactionitem 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 item being hedged.

At JulyJanuary 31, 2004,2005, we had $961,000$261,000 of losses related to cash flow hedges deferred in Accumulated Other Comprehensive Income. Of this amount, $331,000$63,000 represents unrealized lossesgains related to future cash flow hedge instruments that remain subject to currency fluctuation risk. These deferred lossesgains will be recorded as an adjustment to Cost of Sales in the periods through March 2005,October 2006, in which the sale of the related hedged item is recognized, as described above. Net losses on cash flow hedge instrumentscontracts which we reclassified from Other Comprehensive Income to Cost of Sales in the quarters ended JulyJanuary 31, 2005 and 2004 were $633,000 and 2003 were $726,000 and $336,000,$941,000, respectively.

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 Statement of Financial Accounting Standards No. 133, "Accounting“Accounting Standards for Derivative Instruments and Hedging Activities"Activities” (SFAS 133), and, as a result, changes in fair value are reported currently as Other Income (Expense), Net in the Consolidated Statement of Operations consistent with the transaction gain or loss on the related foreign denominated receivable or payable. Such net transaction losses were $12,000$13,000 and $48,000$148,000 for the quarters ended JulyJanuary 31, 20042005 and 2003,2004, respectively.

3.STOCK OPTIONS

3.  STOCK OPTIONS
At JulyJanuary 31, 2004,2005, we had two stock-based compensation plans for employees and non-employee directors, which wereare described more fully in the notes to the consolidated financial statements included in our 20032004 annual report on Form 10-K. We account for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting“Accounting for Stock Issued to Employees,"” and related Interpretations. No stock based compensation cost is reflected in net earnings related to those plans, except for certain non-qualified options

7

subject to variable plan accounting, as all stock options granted had exercise prices equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting“Accounting for Stock Based Compensation,"” to the above plans.

  
Three Months Ended
January 31
 
  2005 2004 
      
Net income, as reported
 $3,030 
$
669
 
        
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  
(6
)
 
(24
)
        
Pro forma net income (loss) $3,024 
$
645
 
        
Earnings per share:
       
        
Basic as reported
 $0.50 
$
0.12
 
Basic pro forma
  0.50  0.12 
        
        
Diluted as reported
 $0.48 
$
0.12
 
Diluted pro forma
  0.48  0.11 
  
Three Months Ended
July 31
 
Nine Months Ended
July 31
 
  2004 2003 2004 2003 
(dollars in thousands, except per share data)
         
Net income (loss), as reported
 
$
1,582
 
$
331
 
$
3,988
 
$
(112
)
              
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  
(24
)
 
(49
)
 
(72
)
 
(148
)
              
Pro forma net income (loss) 
$
1,558
 
$
282
 
$
3,916
 
$
(260
)
              
Earnings (loss) per share:
             
              
Basic as reported
 
$
0.27
 
$
0.06
 
$
0.70
 
$
(0.02
)
Basic pro forma
  0.26  0.05  0.68  (0.05)
              
              
Diluted as reported
 
$
0.25
 
$
0.06
 
$
0.67
 
$
(0.02
)
Diluted pro forma
  0.25  0.05  0.66  (0.05)

On November 11, 2001, our former CEO was granted 110,000 options at $2.11 and all of his previous option grants were cancelled. These options were subject to variable plan accounting, which resulted in a charge to expense in the first half of fiscal 2004 of $322,000. As of July 31, 2004, all options subject to variable plan accounting have been exercised.

4.EARNINGS PER SHARE

Basic and diluted earnings per common share are based on the weighted average number of our shares of common stock outstanding. Diluted earnings per common share give effect to outstanding stock options using the treasury method. The impact of stock options on the earnings per share calculation for the three months ended JulyJanuary 31, 2005 and 2004 was 199,000 and 2003 was 322,000 and 47,000 shares,165,000, respectively.

5.ACCOUNTS RECEIVABLE

The allowance for doubtful accounts was $833,000$751,000 as of JulyJanuary 31, 20042005 and $630,000$723,000 as of October 31, 2003.2004.

6.INVENTORIES

Inventories, priced at the lower of cost (first-in, first-out method) or market, are summarized below (in thousands):

  January 31, 2005 October 31, 2004 
Purchased parts and sub-assemblies $5,237 $4,714 
Work-in-process  4,034  5,148 
Finished goods  22,123  19,075 
  $31,394 $28,937 
  July 31, 2004

 

October 31, 2003 
Purchased parts and sub-assemblies 
$
4,571
 
$
3,452
 
Work-in-process  3,841  2,029 
Finished goods  18,981  16,766 
  
$
27,393
 
$
22,247
 

7.SEGMENT INFORMATION
 
We operate in a single segment: industrial automation systems.We design and produce computerized machine tools, interactive computer control systems and software for sale through our distribution network to the worldwide machine tool metal workingcutting market. We also provide software options, computer control upgrades, accessories and replacement parts for our products, as well as customer service and training support.


8

8.RESTRUCTURING EXPENSE AND OTHER EXPENSE, NET
 
We previously occupiedOn November 23, 2004, we entered into a facility located in England under a lease that expired in April 2002. The lease required that, following expiration ofseparation and release agreement with Roger J. Wolf, who retired from his position as Senior Vice President and as Chief Financial Officer. Under the lease,agreement, we make certain repairs to the facility resulting from deterioration of the facility during the lease term. On September 30, 2003, we settled this claim with the lessor for £684,000 (approximately $1.2 million), which we had previously accrued. The accrued liability was due and paid in full in the first quarter of fiscal 2004.will pay Mr. Wolf severance compensation totaling $465,000.

 
Description
 
Balance
10/31/04
 Provision (Credit) 
Charges to
Accrual
 
Balance
1/31/05
 
Severance costs 
$
465
  - - 
$
169
 
$
296
 
Total 
$
465
  - - 
$
169
 
$
296
 

9.GUARANTEES
 
From time to time, our European subsidiaries guarantee third party lease financing residuals in connection with the sale of certain machines in Europe. At JulyJanuary 31, 20042005 there were 2831 third party guarantees totaling approximately $1.6$1.8 million. A retention of title clause allows us to obtain the machine if athe customer defaults on aits lease. We believe that the proceeds availableobtained from liquidation of the machine would exceedcover our guarantee exposure.
 
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.

A reconciliation of the changes in our warranty reserve is as follows (in thousands):

 Warranty Reserve  Warranty Reserve 
Balance at October 31, 2003 
$
1,016
 
Balance at October 31, 2004 $1,750 
Provision for warranties during the period  1,598   549 
Charges to the accrual  (1,289)  (429)
Impact of foreign currency translation  25   38 
Balance at July 31, 2004 
$
1,350
 
Balance at January 31, 2005 $1,908 


9

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere herein. Certain statements made in this report may constitute "forward-looking statements"“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 machines tools and related computer control systems, software products, and replacement parts, , changes in manufacturing markets, adverse currency movements, innovations by competitors, quality and delivery performance by our contract manufacturers and component suppliers, and governmental actions and initiatives including import and export restrictions and tariffs.

EXECUTIVE OVERVIEW

Hurco Companies Inc. is an industrial technology company operating in a single segment. We design and produce computerized machine tools, featuring our proprietary computer control systems and software, for sale through our own distribution network to the worldwide metal cuttingworking market. We also provide software options, control upgrades, accessories and replacement parts for our products, as well as customer service and training support.

Our computerized metal cutting machine tools are manufactured in Taiwan to our specifications by our wholly owned subsidiary, Hurco Manufacturing Limited (HML), and an affiliate. We sell our products through approximately 200230 independent agents and distributors in approximately 4050 countries throughout North America, Europe and Asia. We also have our own direct sales and service organizations in England, France, Germany, Italy, Singapore and China.
The machine tool industry is highly cyclical and changes in demand can occur abruptly. Beginning in the third quarter of fiscal 1998 and continuing through the third quarter of fiscal 2003, we experienced the adverse effects of a significant decline in global demand. For example, our customer orders during the first quarter of fiscal 2003 were at their lowest level in ten years. During the downturn, we took actions to discontinue the production and sale of underperforming products, refocus on our core product lines and significantly reduce our operating costs. We also introduced new product models in late fiscal 2002 and throughout 2003. These new models,2004, which, together with an improvement in worldwide manufacturing activity, and a consequent improvement in demand for machine tools, that began in the fourth quarter of fiscal 2003, were largely responsible for thecontributed to a significant increase in sa les inour sales throughout fiscal 2004 and into the fourthfirst quarter of fiscal 2003 and the first nine months of fiscal 2004.2005.

OverApproximately 80% of worldwide demand for machine tools comes from outside the United States. During fiscal 2003 and the first nine of fiscal 2004, approximately 70%69% of our sales and service fees were attributable to customers located abroad. Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies—primarily the Euro and Pound Sterling—in the countries in which those customers are located, and our product costs are incurred and paid primarily in the New Taiwan Dollar and U.S. dollars. Changes in currency exchange rates can have a material effect on our operating results as reported under generally accepted accounting principles.when sales made and expenses incurred in foreign currencies are translated to U.S. dollars for financial reporting purposes. For example, when a foreign currency increases in value relative to the U.S. dollar, sales made (and expenses incurred) in that currency, when translated to U.S. dollars for reporting in our financial statements, are higher than would be the case when that currency has a lower value relative to the U.S. dollar. InFor this reason, in our comparison of period-to-period results, we discusscustomarily set forth not only the increases or decrease in those results as reported in our financial statements (which reflect translation to U.S. dollars at actual prevailing exchange rates), but also the effect that changesimpact of foreign currency-denominated revenue or expense translated to U.S. dollars at the same rate of exchange in exchange rates had on those results.both periods.

Although our high levels of foreign manufacturing and sales also subject us to cash flow risks due to fluctuating currency exchange rates, we mitigate those risks through the use of various hedging instruments - principally foreign currency forward exchange contracts.

10



The volatility of demand for machine tools can significantly impact our working capital requirements and, therefore, our cash flow from operations and operating profits. Because our products are manufactured in Taiwan, manufacturing and ocean transportation lead times require that we schedule machine tool production based on forecasts of customer orders for a future period of four or five months. We continually monitor order activity levels and rebalance future production schedules to changes in demand, but a significant unexpected decline in customer orders from forecasted levels can temporarily increase our finished goods inventories and use ofour need for working capital.

We monitor the U.S. machine tool market activity as reported by the Association of Manufacturing Technology (AMT), the primary industry group for U.S. machine tool consumption. We also monitor the PMI (formerly called the Purchasing Manager’s Index), as reported by the Institute for Supply Management. Our European and Asian subsidiaries monitor machine tool consumption through various government and trade publications.

We monitor key performance indicators such as days sales outstanding for accounts receivable and inventory turns for the trailing twelve months. We calculate net assets per dollar of revenue to assess our working capital levels. We also monitor operating income and selling, general and administrative expenses as a percentage of sales and service fees.

RESULTS OF OPERATIONS
 
Three Months Ended JulyJanuary 31, 20042005 Compared to Three Months Ended JulyJanuary 31, 20032004

For the thirdfirst quarter of fiscal 2004,2005, we reported net income of $1.6$3.0 million, or $.25$.48 per share, compared to $331,000,$669,000, or $.06$.12 per share, for the corresponding period one year ago. The improvement in net income was primarily dueWe attribute our improved results to athe substantial increase in our sales of our computerized machine tools attributableand, to newer models introduced in 2002 and 2003 and, improving market conditions, along witha lesser extent, the benefitbenefits of stronger European currencies in relation to the U.S. dollar.

Sales and Service Fees.Sales and service fees for the thirdfirst quarter of fiscal 20042005 were $23.7the highest in the company’s 26 year history and totaled $30.2 million, an increase of $5.4$7.5 million, or 29%33%, from the $18.4 millionamount reported for the thirdfirst fiscal quarter of 2003.2004. The increase in sales is attributed to increased unit sales reflected an improvement in industry demandat all geographic regions and our newer machine tool products, as well as the favorable effects of changes in exchange rates.translating foreign sales into U.S. dollars for financial reporting purposes. As noted below, approximately 61%62% of our sales and service fees in the third quarter of fiscal 2004 were derived from the European markets. The weighted average exchange rate between the Euro and the U.S. dollar during the thirdfirst quarter of fiscal 20042005 was $1.21$1.32 per €1.00, as compared to $1.15$1.22 per €1.00 for the thirdfirst quarter of fiscal 2003,2004, an increase of 5%8%. Approximately $1.0$1.5 million, or 18%20%, of the increase in total sales and service fees in the 20042005 period wa swas attributable to changes in currency exchange rates.

The following tables set forth net sales and service fees(in thousands) by geographic region and product category for the thirdfirst quarter of 20042005 and 2003:2004:

Sales and Service Fees by Geographic Region(dollars are in thousands)
Net Sales and Service Fees by Geographic Region
Net Sales and Service Fees by Geographic Region
 
 Three Months Ended July 31 Increase 
January 31,
 
Increase
 
 2004 2003 Amount % 
2005
 
2004
 
Amount
 
%
 
North America $ 7,779 33% $ 6,146 34% $ 1,633 27% $10,242 33.9%$7,175 31.6%$3,067 43%
Europe 14,466 61% 11,226 61% 3,240 29%  18,673 61.7% 14,543 64.0% 4,130 28%
Asia Pacific 1,503 6% 982 5% 521 53%  1,331  4.4% 1,000  4.4% 331  33%
Total $ 23,748 100% $ 18,354 100% $5,394 29% $30,246  100.0%$22,718  100.0%$7,528  33%
            


Sales and service fees in North America benefited from a 57%53% increase in unit salesshipments in the first quarter of 2005 compared to the prior year period. The unit shipment increase was partially due to our lathe product line, which was introduced during the first quarter of 2005. Excluding lathes, unit shipments increased 35% during the first quarter of fiscal 2005 and this increase was not significantly different between our entry-level VM product line and a 6% increase in unit sales of our higher-performinghigher performing VMX machining center product line. These increases are attributable to our newer models, along with an increase in domestic machine tool demand.

The 29% increase in our salesSales and service fees in Europe reflectedincreased $4.1 million, or 28%, in the previously discussed impact of stronger European currencies relative to the U.S. dollar and a $4.0 million increase in orders booked the thirdfirst quarter of fiscal 20042005 compared to the amount of orders bookedsame period one year ago. The increase is attributable to the currency benefit discussed above and a 13% increase in the third quarter of fiscal 2003.unit shipments. Approximately $1.0$1.4 million, or 30%,34% of the increase in European sales and service fees was attributabledue to changes in currency exchange rates. The unit increase was consistent among all of our geographic regions in Europe.



11


The increase in sales and service fees in Asia was due primarilyis the result of increased shipments to strengthening market demand for machine tools in South East Asia (principally in the semi-conductor industry) and, to a lesser extent, increased sales in China. ImprovementsChina as well as improvements made to our distribution network and selling organization in the region also contributedregion.

Net Sales and Service Fees by Product Category
 
  
January 31,
 
Increase
 
  
2005
 
2004
 
Amount
 
%
 
              
Computerized Machine Tools 
$
26,133
  86.4%
$
19,220
  84.6%
$
6,913
  36%
Service Fees, Parts and Other  4,113  13.6% 3,498  15.4% 615  18%
Total 
$
30,246
  100.0%
$
22,718
  100.0%
$
7,528
  33%

Consolidated unit sales of computerized machine tools increased 36% in the first quarter of fiscal 2005 compared to the increase. The impact of currency translation is not significant on sales and service fees in South East Asia.

Sales and Service Fees by Product Category(dollars are in thousands)
     
  Three Months Ended July 31 Increase
  2004 2003 Amount %
Computerized Machine Tools $ 19,645 83% $ 14,774 80% $ 4,871 33%
Service Fees, Parts and Other 4,103 17% 3,580 20% 523 15%
Total $ 23,748 100% $ 18,354 100% $ 5,394 29%
             

prior year period. Approximately $840,000,$1.5 million, or 17%,22% of the increase in our reported sales of computerized machine tools was dueattributable to changes in currency exchange rates. Unit sales of our computerized machine tools increased 30% in the third quarter of fiscal 2004 compared to the prior year period. However, theThe average net selling price per unit (when measured in local currencies, declined approximately 4%currencies) during the same period due to planned reductions in ourperiods declined 1%. However, when measured using current rates, the average net selling prices and to the higher percentage of units of our more moderately priced VM product line in our total product mix during the 2004 period. However, the impact of lower net selling prices was more than offset by the favorable effects of stronger European currencies.price increased 10% when translating foreign sales for financial reporting purposes.

Orders and Backlog.New order bookings for the thirdfirst quarter of fiscal 20042005 were $27.4$26.9 million, an increase of $8.5$3.3 million, or 45%14%, from the $18.9$23.5 million reported for the corresponding quarter of fiscal 2003.2004. Approximately $1.2 million, or 14%37%, of the increase was attributable to changes in currency exchange rates. The dollar value ofincrease in orders increased 54%was primarily generated in the United States 33%while orders in Europe and 244%measured in Asia reflecting an improvement inlocal currencies were slightly below the worldwide metal cutting machine tool market. Unitlevel of orders in the third quartercorresponding period of fiscal 2004 for our entry level VM product line increased 100% from the corresponding quarter of fiscal 2003 while unit orders for our VMX product line increased 33% and total unit orders increased 60%.2004. Backlog was $11.1$9.6 million at JulyJanuary 31, 2004,2005, compared to $7.4$12.7 million at April 30, 2004, and $8.2 million at Octob erOctober 31, 2003.2004.

Gross Margin. Gross margin for the thirdfirst quarter of 20042005 was 30.8%32.2%, ana substantial increase over the 27.6%28.7% margin realized in the corresponding 20032004 period, due principally to increased sales volume and the favorable effectseffect of stronger European currencies.

Operating Expenses.Selling, general and administrative expenses during the thirdfirst quarter of 20042005 increased approximately $900,000,$1.3 million, or 21%26%, from the amount reported for the 20032004 period, primarily due to currency translation effects and the increased commissions to European selling agents associated with the increase in European sales. Selling, general and administrative expenses were 20% of net sales and increased sales and marketing expenditures.service fees during the first quarter of fiscal 2005 compared to 22% in the corresponding period in the prior year.

Operating Income. Operating income for the first quarter of fiscal 2005 was a record for Hurco and totaled $3.6 million, or 12% of sales and service fees, compared to $1.6 million, or 7% of sales and service fees in the prior year.

Income Taxes.The provision for income taxes is primarily related to the earnings of two foreign subsidiaries. In the United States and certain other foreign jurisdictions, we have net operating loss carryforwards and business tax credits (collectively referred to as “tax benefits”) for which we have a 100% valuation reserve at JulyJanuary 31, 2004.2005. The provision for incomeeffective tax increasedrate in fiscal 2005 was significantly lower than the amount reported in the third fiscalprior year due to increased earnings in jurisdictions with tax benefits, primarily the United States. The established valuation reserve is reviewed each quarter for propriety. It was not adjusted in the first quarter of 2004 becausefiscal 2005 as the level of increaseddomestic taxable earnings recorded by our taxable foreign subsidiaries.

NineMonths Ended July 31, 2004 Comparedprior to Nine Months Ended July 31, 2003expiration of net operating losses remains uncertain.

For the first nine months of fiscal 2004, we reported net income of $4.0 million, or $.67 per share, compared to a net loss of $112,000, or $.02 per share, for the corresponding period one year ago.

Sales and service fees for the first nine months of fiscal 2004 were $70.7 million, an increase of $19.0 million, or 37%, from the $51.8 million reported for the first nine months of 2003. Approximately 63% of our sales and service fees in the first nine months of fiscal 2004 were derived from European markets. The weighted average exchange rate between the Euro and the U.S. dollar during the first nine months of fiscal 2004 was $1.22 per €1.00, as compared to $1.09 per €1.00 for the corresponding period of fiscal 2003, an increase of 12%. Approximately $4.9 million, or 26%, of the increase in sales and service fees was attributable to changes in currency exchange rates.


12

The following tables set forth sales and service fees by geographic region and product category for the first half of 2004 and 2003:

Sales and Service Fees by Geographic Region(dollars are in thousands)
             
  Nine Months Ended July 31 Increase
  2004 2003 Amount %
North America $ 22,116 31% $ 17,411 34% $ 4,705 27%
Europe 44,177 63% 32,387 62% 11,790 36%
Asia Pacific 4,428 6% 1,962 4% 2,466 126%
Total $ 70,721 100% $ 51,760 100% $ 18,961 37%
             

Sales and service fees in North America benefited from a 55% increase in unit sales of our new entry-level VM product line and a 22% increase in unit sales of our higher-performing VMX machining center product line. These increases are attributable to our newer models, along with improving domestic economy.

The 36% increase in our sales and service fees in Europe reflect a 32% increase in unit sales, which was experienced most strongly in Germany, due in large measure to continuing acceptance of and demand for our new product models, as well as the previously discussed impact of the stronger Euro relative to the U.S. dollar. Approximately $4.8 million, or 41%, of the increase in European sales and service fees was attributable to changes in currency exchange rates.

The increase in sales and service fees in Asia is the result of strengthening market demand for machine tools in South East Asia (primarily in the semi-conductor industry) and increased sales in China. Improvements made to our distribution network and selling organization in the region also contributed to the increase.

Sales and Service Fees by Product Category(dollars are in thousands)
      
 
             
  Nine Months Ended July 31 Increase
  2004 2003 Amount %
Computerized Machine Tools $ 59,089 84% $ 41,618 80% $ 17,471 42%
Service Fees, Parts and Other 11,632 16% 10,142 20% 1,490 15%
Total $ 70,721 100% $ 51,760 100% $ 18,961 37%
             

Approximately $4.4 million, or 25%, of the increase in machine tool sales was due to changes in currency exchange rates. Unit sales of our computerized machine tools increased 39% in the first nine months of fiscal 2004 compared to the prior year period. However, our average net selling price per unit, measured in local currencies, declined approximately 6% during the same periods, due to planned reductions in our net selling prices and to the higher percentage of units of the more moderately priced VM product line in our total product mix during the 2004 period. The impact of lower net selling prices was offset by the favorable effects of stronger European currencies.

New order bookings for the nine months of fiscal 2004 were $73.3 million, an increase of $20.0 million, or 38%, from the $53.3 million reported for the corresponding quarter of fiscal 2003. Approximately $4.7 million, or 23%, of the increase was attributable to changes in currency exchange rates. The dollar value of orders increased 44% in the United States, 28% in Europe and 149% in Asia reflecting an improvement in the

13

worldwide metal cutting machine tool market. Unit orders for the nine months of fiscal 2004 for our entry level VM product line increased 96% from the corresponding quarter of fiscal 2003 while unit orders for our VMX product line increased 24% and total unit orders increased 45%.

Gross margin for the first nine months of fiscal 2004 was 30.1%, an increase over the 27.4% margin realized in the corresponding 2003 period, due principally to increased machine sales volume and the favorable effect of stronger European currencies.

Selling, general and administrative expenses during the first nine months of 2004 increased approximately $2.0 million, or 15%, from the amount reported for the 2003 period, due primarily to currency translation effects, increased commissions to European selling agents associated with the increase in European sales and increased sales and marketing expenditures.

Variable option expense of $322,000 is related to certain stock options that were subject to variable plan accounting. The stock options subject to variable plan accounting have all been exercised and no additional variable option expense is expected.
The provision for income taxes is related to the earnings of two foreign subsidiaries. In the United States and certain other foreign jurisdictions, we have net operating loss carryforwards for which we have a 100% valuation reserve at July 31, 2004. The provision for income tax increased in fiscal 2004 because of increased earnings from our taxable foreign subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

At JulyJanuary 31, 2004,2005, we had cash and cash equivalents of $6.6$11.3 million, compared to $5.9$8.5 million at October 31, 2003.2004. Cash generated from operations totaled $4.8$2.9 million for the first nine months of fiscal 2004,quarter ended January 31, 2005, compared to cash used of $1.2$3.5 million in the prior year period.

Working capital, excluding short-term debt, was $24.7$31.8 million at JulyJanuary 31, 2004, slightly higher than the $22.92005, compared to $26.7 million at October 31, 2003. Accounts receivable and inventory combined increase was $5.4 million during2004. During the first nine monthsquarter of fiscal 2004 but2005, cash flow from operations was offsetunfavorably affected by a $7.3$1.5 million increase in inventory, which was partially offset by an approximate $900,000 decrease in accounts payable.receivable. The increase in inventory is due to a build upwas the result of finished product and an increase in workproduction at our principal manufacturing facility in process inventoryTaiwan, which was disproportionate to meet forecastedthe increase in demand. Theour machine sales. We have moderately reduced our machine production and expect inventory levels to decline in the third quarter of fiscal 2005. Accounts receivable decreased, despite the increase in accounts payable was primarilysales, due to increased manufacturing activity, accompanied by favorable payment terms from our suppliers in Taiwan. Additionally,sales occurring fairly evenly throughout the first quarter of fiscal 2005 compared to a reductiongreater percentage of accrued expenses of $1.3 million resulted from a $1.2 million paymentsales occurring in the first fiscalfinal month of the fourth quarter for the settlement of a foreign lease liability and the timing of paymen ts for normal year-end accruals. As our sales increase in 2004, we2004. We expect our working capital requirements to continue to increase accordingly.in fiscal 2005, as our sales increase.

Capital investments during the first half of fiscal 2004 consisted ofquarter included approximately $350,000 for enterprise resource planning software in the United States and normal expenditures for software development projects and purchases of equipment. We funded these expenditures with cash flow from operations.

Total debt at JulyJanuary 31, 20042005 was $5.0$4.4 million, representing 12%9% of our total capitalization, which totaled $48.5 million, compared to $9.2$4.6 million, or 24%11% of our total capitalization, at October 31, 2003.2004. Total debt primarily consists of the outstanding balance of a term loan secured by our Indianapolis facility. We were in compliance with all loan covenants and had unused credit availability of $12.2$11.3 million at JulyJanuary 31, 2004.2005. We believe that cash flow from operations and borrowings available to us under our credit facilities arewill be sufficient to meet our anticipated cash requirements for the balance of fiscal 2004.2005.


14

NEW ACCOUNTING PRONOUNCEMENTSPRONOUCEMENTS

In December 2004, the first quarterFASB issued Statement No. 123R, “Share Based Payment”, that requires companies to expense the value of fiscal 2004, we adoptedemployee stock options and similar awards for interim and annual periods beginning after June 15, 2005 and applies to all outstanding and unvested stock-based awards at a company’s adoption date. We are evaluating the Financial Accounting Standards Board Interpretation No. 46 (FIN 46) Consolidation of Variable Interest Entities. This Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries ifimpact that the entities do not effectively disperse risks among parties. The adoption of this standard did notwill have a material effect on the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

Our accounting policies, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2003,2004, require our management to make significant estimates and assumptions using information available at the time the estimates are made. These estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenues and expenses. If our future experience differs materially from these estimates and assumptions, our results of operations and financial condition could be affected. There were no material changes to our critical accounting policies during the thirdfirst quarter of 2004.2005.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

There have been no material changes from the information provided in our Annual Report on Form 10-K for the fiscal year ended October 31, 2003.2004.

OFF BALANCE SHEET ARRANGEMENTS

From time to time, our German subsidiary guarantees third party lease financing residuals in connection with the sale of certain machines in Europe. At JulyJanuary 31, 20042005 there were 2831 third party guarantees totaling approximately $1.6$1.8 million. A retention of title clause allows this subsidiary to recover the machine if the customer defaults on its lease. We believe that the proceeds available from liquidation of the machine would cover any payments required under the guarantee.



15

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Interest on our bank borrowings and economic development bond areis affected by changes in prevailing U.S. and European interest rates. At JulyJanuary 31, 2004,2005, there were no outstanding borrowings under theseour bank credit facilities were $273,000.facilities. The remaining outstanding indebtedness of $4.7$4.4 million is at a fixed rate of interest.

Foreign Currency Exchange Risk

In the thirdfirst quarter of fiscal 2004,2005, approximately 70% of our sales and service fees were derived from foreign markets. All of our computerized machine tools and computer numerical control systems, as well as certain proprietary service parts, are sourced by our U.S.-based engineering and manufacturing division and re-invoiced to our foreign sales and service subsidiaries, primarily in their functional currencies.

Our products are manufactured primarily in Taiwan,sourced from foreign suppliers or built to our specifications by either our wholly owned subsidiary in Taiwan or contract manufacturers overseas. These purchases are predominantly in foreign currencies and an affiliate.in many cases our arrangements with these suppliers include foreign currency risk sharing agreements, which reduce (but do not eliminate) the effects of currency fluctuations on product costs. The predominant portion of our exchange rate risk associated with product costspurchases relates to the New Taiwan Dollar.

We enter into forward foreign exchange contracts from time to time to hedge the cash flow risk related to forecast inter-company sales, and forecast inter-company and third-party purchases denominated in, or based on, foreign currencies. We also enter into foreign currency forward exchange contracts to provide a natural hedge against the effects of foreign currency fluctuations on receivables and payables denominated in foreign currencies. We do not speculate in the financial markets and, therefore, do not enter into these contracts for trading purposes.

Forward contracts for the sale or purchase of foreign currencies as of JulyJanuary 31, 20042005 which are designated as cash flow hedges under SFAS No. 133 were as follows:

Notional Amount
Weighted
Avg.
Contract Amount at Forward Rates in
U.S. Dollars
  Notional Amount Weighted Avg. Contract Amount at Forward Rates inU.S. Dollars   
Forward Contracts
in Foreign
Currency
Forward
Rate
At Date ofContract
July 31,2004
Maturity Dates in ForeignCurrency ForwardRate ContractDate January 31,2005 Maturity Dates 
Sale Contracts:
                
Euro18,100,0001.197321,671,13021,736,621August 2004 - October 2005  27,350,000 1.2801 35,010,735 35,903,154 February 2005-October 2006 
     
Sterling2,200,0001.73093,807,9803,935,187August 2004 - October 2005  1,950,000 1.7794 3,469,830 3,641,951 February 2005-November 2005 
Purchase Contracts:
                 
New Taiwan Dollar120,000,00032.71*3,668,6033,530,518August 2004 - October 2004  700,000,000 33.21* 21,078,375 22,204,283 February 2005-November 2005 

*NT Dollars per U. S. DollarsU.S. Dollar
 

16

Forward contracts for the sale or purchases of foreign currencies as of JulyJanuary 31, 2004,2005, which were entered into to protect against the effects of foreign currency fluctuations on receivables and payables denominated in foreign currencies were as follows:

Notional Amount
Weighted
Avg.
Contract Amount at Forward Rates in
U.S. Dollars
      Contract Amount at Forward Rates inU.S. Dollars   
Forward Contracts
in Foreign
Currency
Forward
Rate
At Date ofContract
July 31,2004
Maturity Dates Notional Amount in ForeignCurrency Weighted Avg. ForwardRate ContractDate January 31,2005 Maturity Dates 
Sale Contracts:
               
Euro5,437,0571.21396,600,0436,529,910
August 2004 -
September 2004
  7,206,431 1.3204 9,515,371 9,395,086 February 2005-April 2005 
    
Singapore Dollar4,581,9911.7045*2,688,1732,668,742
August 2004 -
January 2005
  5,873,230 0.6016 3,533,408 3,594,312 February 2005-May 2005 
    
Sterling698,9011.80501,261,5161,267,898
August 2004 -
September 2004
  826,126 1.8871 1,558,982 1,551,384 February 2005-March 2005 
Purchase Contracts:
                
New Taiwan Dollar100,000,00033.83*2,955,9562,942,076
August 2004 -
September 2004
  80,000,000 31.78* 2,517,110 2,513,086 February 2005 

* NT Dollars per U.S. DollarsDollar


17

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of JulyJanuary 31, 20042005 pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the evaluation date.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended JulyJanuary 31, 20042005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II - OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

We are involved in various claims and lawsuits arising in the normal course of business. We believe it is remote that any of these claims will have a material adverse effect on our consolidated financial position or results of operations.

Item 5.OTHER INFORMATION

None



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Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits:

 11
3.1
     Statement re: ComputationAmended and Restated By-Laws of Per Share Earningsthe Registrant. (incorporated by reference to Exhibit to the Registrant's Current Report on Form 8-K filed January 11, 2005).

31.1Certification by the Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.

31.2Certification by the Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.

32.1Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 (b)
10.1
ReportsFirst Amendment to Third Amended and Restated Credit Agreement dated October 26, 2004 between the Registrant and Bank One, N.A. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K:8-K filed November 1, 2004).
10.2
Supplemental Facility Agreement to Revolving Credit Facility and Overdraft Facility dated October 26, 2004 between Hurco Europe Limited and Bank One, N.A. (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed November 1, 2004).
10.3
Separation and Release Severance Agreement between the Registrant and Roger J. Wolf(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed November 24, 2004).
10.4
Amendment to Split-Dollar Insurance Agreement between Registrant and Roger J. Wolf(incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed November 24, 2004).
11
Statement re: computation of per share earnings.
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 Financial 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.

Report furnished on May 19, 2004 under Item 12, Results of Operations and Financial Condition reporting that on May 19, 2004 the Company issued a press release containing earnings information for the quarter ended April 30, 2004. A copy of the press release was included as an exhibit.




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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



HURCO COMPANIES, INC.


By: /s/ RogerStephen J. WolfAlesia 
    RogerStephen J. WolfAlesia
    Senior Vice President and
Chief Financial Officer



By: /s/ Stephen J. AlesiaSonja K. McClelland 
    Stephen J. AlesiaSonja K. McClelland
Corporate Controller and
Principal Accounting Officer





SeptemberMarch 9, 2004


2005





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