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SEC Response Letter 4-15-05

April 15,
2005

Ms.
Angela Crane

Accounting
Branch Chief

Division
of Corporation Finance

U.S.
Securities and Exchange Commission

450 Fifth
Street, NW

Washington,
D.C. 20549

Re: April 6,
2005 Comment Letter

Hurco
Companies, Inc.

Dear Ms.
Crane,

We have
received the staff comments outlined in the above-reference letter regarding our
Form 10-K for the fiscal year ended October 31, 2004 and Form 10-Q for the
fiscal quarter ended January 31, 2005. We have responded to each comment by item
number below.

Form
10-K for the fiscal year ended October 31, 2004

Item
7. Management’s Discussion and Analysis

Results
of Operations

Selling,
General and Administrative Expenses (SG&A) - Page 19

      1.

      When
      you cite more than one factor in explaining the change in a financial
      statement line item the amounts of the individual factors cited, including
      offsetting factors, should be separately quantified. For example, revise
      future filings to quantify the key drivers of higher SG&A expenses in
      fiscal 2004 such as increase currency translation effects and higher sales
      commissions paid. In addition, each significant factor that contributed to
      the significant variances in net sales and expenses should also be
      quantified and discussed. Please apply throughout MD&A to the extent
      practicable in future filings.

Hurco’s
Response: In future
Form 10-K and 10-Q filings when we cite more than one factor as explanations for
changes in financial statement line items, we will separately quantify each
factor.

Restructuring
Charges

    2.

      We
      note that you discontinued the production of sale of underperforming
      products, In future filings, please disclose the products discontinued and
      make quantified disclosures about anticipated and actual cost savings
      derived from your restructuring efforts during the periods
      presented.

Hurco’s
Response:  The
discontinuation of under performing product lines occurred in fiscal 2002 and we
included detailed disclosures in the fiscal 2002 Management’s Discussion and
Analysis. In future filings, we will include the disclosures recommended by this
comment.

Financial
Statements

Report
of Independent Registered Public Accounting Firm

    3.

      The
      audit report included in the Form 10-K filed in EDGAR is not signed. In
      future filings ensure that the audit report includes the conformed
      signature of your independent auditor. Refer to Regulation S-X, Article
      2.

Hurco’s
Response:  In future
Form 10-K filings, we will include the conformed signature of our independent
auditor in accordance with Regulation S-X Article 2.

Consolidated
Statement of Operations

    4.

      It
      appears that your service fee revenues were over 10 percent of total
      revenues for the periods presented. In future filings revise your income
      statement to separately disclose revenues from the sale of products,
      services, and other products if revenues from any individual referenced
      components are more than 10 percent of the total revenue for the year.
      Related costs and expenses should also be disclosed separately. Refer to
      Regulation S-X, Article 5-03 (b)(1) and (2).

Hurco’s
Response: In fiscal
2004, service fee revenue was 3.6% of consolidated sales and service fees and
service part revenue was 8.8% of consolidated sales and service fees. Service
parts are a tangible product and should not be combined with service revenues in
accordance with Regulation S-X, Article 5-03(b)(1) and (2). We believe our
current disclosure of combining all revenue components into sales and service
fees is appropriate because no item individually exceeds 10% of total revenues.
We will monitor these percentages in future periods and separately disclose if
appropriate.

    5.

      We
      note that “variable options expense” is included as a non-operating
      expense in your consolidated statement of operations. In future filings,
      please revise to include as part of operating expense or tell us why the
      current presentation is appropriate.

Hurco’s
Response: The
variable option expense was the result of the repricing of stock options for our
former CEO as part of a severance package. In future filings, we will include
variable option expense as part of operating expenses.

Note
1: Summary of Significant Accounting Policies

Hedging

    6.

      We
      note that you entered into forward currency exchange contracts to hedge
      inter-company liabilities and commitments denominated in foreign
      currencies. We also note that you are accounting for them as cash flow
      hedges. Please explain how you met the criteria in paragraph 40 of SFAS
      133, including subparagraphs A, B, and C as
applicable.

Hurco’s
Response: We
account for our foreign exchange contracts as cash flow hedges because we
believe we meet the requirements of paragraph 40 of SFAS 133 subparagraphs A, B
and C as follows:

Sub
Paragraph A

Hurco
Companies, Inc. has the foreign currency exposure and is a party to the hedging
instrument.

Sub
Paragraph B

Hurco
Companies, Inc.’s functional currency is the U.S. dollar and the hedging units
currencies are pound sterling, euro, and NT dollar.

Sub
Paragraph C - Refer to SFAS 133 paragraphs 28 and 29

Paragraph
28

    (a)

      We
      have a formal hedging policy that outlines our risk management objectives
      and strategy. We also document the risk management objective for each
      hedge contract at the time we enter into a hedge contract. We hedge
      intercompany shipments based on forecast transactions with our
      subsidiaries. The hedge contracts are placed for the month the shipments
      are forecast to occur and are assigned to the first shipments of the
      month. We test the effectiveness of all hedge contracts at each quarter
      end.

    (b)

      See
      (a) above

    (c)

      We
      do not enter into written options

    (d)

      We
      do not enter into hedging instruments used to modify the interest receipts
      or payments associated with a financial asset of
  liability.

Paragraph
29

    (a)

      The
      transactions hedged are identified as a group of individual transactions
      and represent intercompany machine shipments. The group of transaction
      share the same risk exposure.

    (b)

      The
      transactions forecast are probable.

    (c)

      The
      transactions are not with an external party. However, this criteria is not
      required and hedge accounting can be used.

    (d)

      We
      do not hedge a forecasted transaction for the acquisition of an asset or
      incurrence of a liability to be subsequently remeasured.

    (e)

      We
      do not hedge the variable cash flows of forecasted transactions related to
      a debt security that is classified as
held-to-maturity.

    (f)

      We
      do not hedge forecasted transactions related to a business
      combination.

    (g)

      We
      do not hedge transactions for the forecasted sale and purchase of a
      non-financial asset.

    (h)

      We
      do not hedge the forecasted purchase or sale of a financial asset or
      liability or the variable cash inflow and outflow of an existing financial
      asset or liability.

Revenue
Recognition

    7.

      Describe
      the significant terms of your agreements with distributors, including
      payment, return, exchange, and other significant matters. Supplementally
      explain and support when you believe it is appropriate to recognize
      revenue of products sent to distributors. Revise future filings as
      necessary. Refer to SAB 104 and to SFAS 48 in your
    response.

Hurco’s
Response: Hurco’s
product sold through distributors has fixed payment terms, usually 30 days.
Machines sold through distributors are shipped directly to the customer. In most
instances, the distributor has installation and service responsibilities.
Transfer of ownership and risk of loss pass to the distributor at shipment and
the sale is not contingent upon contractual customer acceptance.

We
believe that revenue should be realized when the product is shipped because the
criteria in SAB 104 has been achieved.

    ·

      Persuasive
      evidence of an arrangement exists.
      Distributor orders are prepared by the distributor and acknowledged by
      Hurco.

    ·

      Delivery
      has occurred or services have been rendered. We
      recognize revenue at the time of shipment because ownership and risk of
      loss

    ·

      passes
      to the distributor at that time. We consider the machine installation
      process to be inconsequential and perfunctory.

    ·

      The
      seller’s price to the buyer is fixed or determinable. The
      price is included on the order acknowledgement.

    ·

      Collectibility
      is reasonably assured. We
      perform credit checks on all distributors prior to
    shipment.

Our
distributors and customers do not have a right to return the product; therefore,
the criteria under SFAS 48 does not apply.

We will
expand our disclosure in future filings in a manner consistent with our
response.

    8.

      We
      note that title is retained for products sent to certain foreign locations
      under a “retention of title clause.” Tell us more about this. For example,
      who has the risk of loss in the event of theft or physical destruction or
      damage to the product? Who carries insurance on the property after the
      products are shipped? Tell us in greater detail why you believe your
      current accounting complies with GAAP.

Hurco’s
Response: The
retention of title clause is similar to UCC filings in the United States and
provides the creditor with additional rights to the machine if the customer
fails to pay. SAB 104, Topic 13 A2, Question #3 allows revenue recognition in
this instance as long as all other revenue recognition criteria have been met.
Upon shipment, the customer has the risk of loss and insures the machine. We
believe the current accounting complies with GAAP because the ownership and risk
of loss passes to the customer upon shipment and the revenue recognition
criteria of SAB 104 have been achieved.

    9.

      Supplementally
      describe the existing inventive programs currently in place. Are these
      shown as a reduction of revenue? When are they recorded and how are they
      measured? Tell us how volume discounts and sales incentives are estimated
      at the time of shipment. Refer to EITF 01-9 in your
    response

Hurco’s
Response: Most of
the sales incentive programs offered by Hurco involve cash consideration and are
recognized as a reduction of revenue at the time the sale is invoiced. We
occasionally offer interest rate buy downs, which is recorded as a reduction in
revenue, or free promotional items, which are accounted for as an expense in
accordance with EITF 01-9. Volume discounts and sales incentives are negotiated
as part of the transaction and are included on the sales acknowledgement and
customer invoice.

    10.

      If
      shipping and handling fees and/or costs are material, please quantify
      these revenues and costs and explain in future filings how they are
      classified in the income statement. Refer to EITF 00-10 in your
      response.

Hurco’s
Response: Shipping
and handling fees are not material. Customers are responsible for arranging the
carriers that transport our machine tools and they pay the freight charges. We
charge customer standard shipping rates for parts sales and only benefit from
volume discounts received from the shipping companies. The volume discounts are
not material. The freight billed to customers is recorded as parts revenue while
freight paid is recorded as cost of parts. We do not charge handling fees.

    11.

      Supplementally
      and in detail, explain the nature of your product or products. Do you sell
      hardware and software separately or together? If together, how do you
      allocate revenue to these elements? Are customers provided with a right to
      receive additional software products free or at a reduced price? Does your
      fee also cover PCS or other service elements? How is revenue allocated and
      recognized for PCS and other service arrangements? Explain how you comply
      with SOP 97-2. Note that reference to accounting literature is not
      sufficient disclosure.

Hurco’s
Response: We sell
approximately 1,000 computerized machine tools annually, which include hardware
and software options. We sell hardware and software options as part of machine
tool sales but these options can also be sold as stand-alone products. Hardware
options are recorded as machine tool revenue and software options are recorded
as software revenues. The revenue of hardware and software options are allocated
based on the net selling price, which approximates fair value.

The
customer is not entitled to additional functionality and features without
purchasing additional software. We are under no contractual obligation to
provide additional support to the customer. On occasion, we provide customers
with software bug fixes. This is not a material component of software sales. Our
customers are not provided with a right to purchase additional software products
free of charge or at a reduced price. PCS is not material. We consider whether
software sales include additional elements for which revenue should be
separately identified. These elements have historically been diminimus in
nature. As a result we have not allocated the revenues of these
components.

We comply
with SOP 97-2 because the revenue recognition requirements of paragraph 08 of
SOP 97-2 are achieved. The software sold does not require production,
modification, or customization and the four criteria of paragraph 08 of SOP 97-2
are achieved at shipment. We will enhance our disclosure in future filings to
explain how we comply with SOP 97-2.

Note 8
- Stock Options

    12.

      In
      future filings please relocate the disclosures required by SFAS 148 to
      include in the summary of significant accounting policies in your
      financial statements.

Hurco’s
Response: In future
filings we will include disclosures required by SFAS 148 in the summary of
significant accounting policies footnote.

Notes
9 - Related Party Transactions

    13.

      We
      note that you have presented summarized financial information for two
      affiliates accounted for using the equity method. We assume that the
      affiliates do not meet the significance criteria set forth under Rule
      3-09. Please confirm and provide your calculation. You need only provide
      your detailed computations for the income test (condition 3) as outlined
      in Rule 1-02(w).

Hurco’s
Response: We have
two affiliates that we account for using the equity method. The affiliates do
not meet the significance criteria under Rule 3-09. See Exhibit A for the income
test as outlined in Rule 1-02(w).

Note
14 - Segment Information

    14.

      Disclosure
      of long-lived assets by geographic area under SFAS 131 should present
      tangible assets only and should not include intangibles or investments. Se
      question 22 in the FASB Staff Implementation Guide to Statement 131.
      Revise future filings as necessary.

Hurco’s
Response: Our
disclosure of long-lived assets does include investments and intangibles. We
will revise future filings to be in accordance with SFAS 131.

    15.

      If
      revenues derived from any particular foreign country are material, revise
      future filings to disclose the name of the country and the amount of
      revenue from the country. Refer to paragraph 38(a) SFAS
    131.

Hurco’s
Response:  We will
revise our future filings in