Fargo Electronics, Inc. (NASDAQ:FRGO) today reported net sales of
$20,110,000 for the first quarter ended March 31, 2006, an increase
of 8% over the $18,657,000 reported in the first quarter of 2005.
Net income for the quarter was $2,055,000 compared to $2,149,000 in
the same period last year. Earnings per diluted share for the first
quarter were $0.16 compared to $0.17 in the first quarter of 2005.
The impact of the company's adoption of SFAS 123 (R) Share-Based
Payment in the first quarter of 2006 on earnings per share for the
quarter was $0.01. "Fargo has made a solid start to fiscal 2006,"
said Gary R. Holland, Fargo's president and chief executive
officer. "The investments we made in our international sales
infrastructure in 2005 showed results in the quarter as
international sales increased 36% over the first quarter of 2005.
We also continued our focus on innovation with the launch of the
HDP600 CR100 card printer/encoder, the industry's only desktop
printer able to print full images over the edges on oversized
cards. In addition, we introduced the Fargo Software Development
Kit, a collection of software development tools that make it easy
for most smart card applications to control the necessary encoding
functions of Fargo printer/encoders. We believe the outlook for
Fargo is positive and we remain optimistic about the future." Gross
profit margins for the quarter were 44% compared to 43% in the
first quarter of 2005. The improvement in gross margins is
primarily due to improved contribution from printer/encoders.
Operating expenses for the quarter were $6,105,000 compared to
$4,923,000 in the first quarter of 2005. The increase is due to the
impact of increased headcount added during 2005 in sales and
marketing and research and development to drive growth; higher
health insurance costs; and the effect of recognizing stock-based
compensation in the quarter for the first time. The effective tax
rate for the quarter was 35% compared to 31% in the first quarter
of 2005. The company did not recognize any benefit in the quarter
for research and experimentation credits as the federal legislation
authorizing such credits expired on December 31, 2005, and has not
yet been renewed. The 2005 rate benefited from the recognition of
research and experimentation credits as well as recognition of
prior year credits following resolution of a tax audit in the
quarter. Outlook Fargo presently anticipates that earnings per
diluted share for the second quarter of fiscal 2006 will be in the
range of $0.16 to $0.20. This includes an estimated $0.01 per
diluted share for the expensing of stock options as required under
SFAS No. 123 (R), Share-Based Payment. Forward-looking Statements
Statements made in this report concerning our expectations about
future results or events, are "forward-looking statements". When
used in this report, words such as "anticipate," "believe,"
"estimate," "expect," and "forecast" as they relate to us or our
management are intended to identify such forward-looking
statements, but are not the exclusive means of identifying these
statements. Such statements are subject to the safe harbor created
by the Private Securities Litigation Reform Act of 1995, and are
necessarily subject to risks and uncertainties. Actual results may
differ materially from those reflected in these forward-looking
statements. These statements are based on current expectations,
forecasts and assumptions, and are subject to the risks and
uncertainties inherent in general industry and market conditions,
general domestic and international economic conditions, and other
factors. These risks and uncertainties include, but are not limited
to: product acceptance and customer demand for our card
personalization systems and proprietary supplies; actions taken and
alternative products marketed by our competitors; supplier
relationships, including reliance on sole and single-source
suppliers; manufacturing or design defects that we may discover
after shipment; challenges in successfully implementing a new
enterprise resource planning computer system; lack of inventories
of component parts or finished goods; our focus on the
identification card personalization market; continuing
technological changes in our industry; our dependence on a
distribution network and the reaction of this network to changes in
distribution programs; domestic and international regulations and
standards; our dependence on international sales and foreign
suppliers; material changes in orders placed by large end users;
challenges in effectively managing growth; our dependence on
technologies we do not own; complex design that could result in
manufacturing delays; protecting and enforcing our intellectual
property rights; inadequate protection against infringement claims;
the costs of implementing and complying with new regulations
enacted in various countries requiring the reduction of hazardous
substances in electrical and electronic equipment, including the
European Union Waste Electrical and Electronic Equipment Directive
and Restriction of Hazardous Substances Directive; and adverse
economic and business conditions, including conditions resulting
from the terrorist attack on the U.S. on September 11, 2001 and the
resulting hostilities and the war with Iraq. For more detail of the
risks, uncertainties and other factors that could affect our future
operations and results, see our filings with the Securities and
Exchange Commission, particularly the Annual Report on Form 10-K
for the year ended December 31, 2005. The Company assumes no
obligation to update the forward-looking statements or any other
information contained in this release. About Fargo Founded in 1974,
Fargo Electronics is a global leader in the development of secure
technologies for identity card issuance systems, including secure
card printer/encoders, materials and software. The company has sold
more than 120,000 systems in the U.S. and over 80 other countries
worldwide. Fargo card issuance systems reduce vulnerabilities and
potential for loss of time, money and lives by continually
improving the security of identity credentials. Fargo provides
physical, information, and transaction security for a wide variety
of applications and industries, including government, corporate,
national IDs, drivers' licenses, universities, schools and
membership. Based in Minneapolis, MN., Fargo markets its products
through a global distribution network of professional security
integrators. For more information about Fargo, visit www.fargo.com.
-0- *T FARGO ELECTRONICS, INC. SUPPLEMENTAL SALES INFORMATION (In
thousands) (Unaudited) Sales by Product Category Three Months Ended
March 31, 2006 2005 ------------------ ---------------- Secure
printers/encoders $7,397 $6,671 Secure materials 12,713 11,986
------------------ ---------------- Total sales $20,110 $18,657
================== ================ Sales by Geographic Region
Three Months Ended March 31, 2006 2005 ------------------
---------------- U.S. $9,609 $10,927 International 10,501 7,730
------------------ ---------------- Total sales $20,110 $18,657
================== ================ FARGO ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three
Months Ended March 31, -------------------- 2006 2005 ----------
--------- Cash flows from operating activities: Net income $2,055
$2,149 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 313 247
Provision for excess and obsolete inventory 25 92 Loss on disposal
of equipment - 8 Deferred income taxes 591 668 Stock-based
compensation 149 - Changes in operating assets and liabilities
Accounts receivable (864) 1,112 Inventories 185 218 Prepaid
expenses and other assets (183) (229) Accounts payable (931) (798)
Accrued liabilities (350) 396 ---------- --------- Net cash
provided by operating activities 990 3,863 ---------- ---------
Cash flows from investing activities: Purchases of equipment and
leasehold improvements (220) (496) ---------- --------- Net cash
used in investing activities (220) (496) ---------- --------- Cash
flows from financing activities: Proceeds from issuance of common
stock 79 237 ---------- --------- Net cash provided by financing
activities 79 237 ---------- --------- Net increase in cash and
cash equivalents 849 3,604 Cash and cash equivalents, beginning of
period 36,475 23,435 ---------- --------- Cash and cash
equivalents, end of period $37,324 $27,039 ---------- ---------
Significant noncash activities: Purchases of equipment included in
accounts payable $388 $277 FARGO ELECTRONICS, INC. CONDENSED
STATEMENTS OF OPERATIONS (In thousands, except per share data)
(Unaudited) Three Months Ended March 31,
---------------------------- 2006 2005 --------------- ------------
Net sales $20,110 $18,657 Cost of sales 11,211 10,713
--------------- ------------ Gross profit 8,899 7,944
--------------- ------------ Operating expenses Research and
development 1,580 1,253 Selling, general and administrative 4,525
3,670 --------------- ------------ Total operating expenses 6,105
4,923 --------------- ------------ Operating income 2,794 3,021
--------------- ------------ Other income (expense) Interest, net
388 122 Other, net - (8) --------------- ------------ Total other
income 388 114 --------------- ------------ Income before provision
for income taxes 3,182 3,135 Provision for income taxes 1,127 986
--------------- ------------ Net income $2,055 $2,149
--------------- ------------ Net income per common share Basic
earnings per share $0.16 $0.17 Diluted earnings per share $0.16
$0.17 Weighted average common shares outstanding Basic 12,788
12,615 Diluted 13,125 12,971 FARGO ELECTRONICS, INC. CONDENSED
BALANCE SHEETS (In thousands, except per share data) (Unaudited)
March 31, December 31, ASSETS 2006 2005 ---------- ------------
Current assets: Cash and cash equivalents $37,324 $36,475 Accounts
receivable, net 11,150 10,286 Inventories, net 5,968 6,178 Other
current assets 643 460 Deferred income taxes 3,423 3,423 ----------
------------ Total current assets 58,508 56,822 Equipment and
leasehold improvements, net 3,933 3,636 Deferred income taxes
13,769 14,360 Other 17 19 ---------- ------------ Total assets
$76,227 $74,837 ---------- ------------ LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $5,682
$6,225 Accrued liabilities 3,316 3,666 ---------- ------------
Total current liabilities 8,998 9,891 ---------- ------------
Commitments and contingencies - - Stockholders' equity: Common
stock, $.01 par value; 50,000 shares authorized, 12,791 and 12,784
shares issued and outstanding at March 31, 2006 and December 31,
2005, respectively 128 128 Additional paid-in capital 152,297
152,069 Accumulated deficit (85,196) (87,251) ----------
------------ Total stockholders' equity 67,229 64,946 ----------
------------ Total liabilities and stockholders' equity $76,227
$74,837 ---------- ------------ *T
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