Fargo (NASDAQ:FRGO)
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Fargo Electronics, Inc. (NASDAQ:FRGO) today reported net
sales of $21,029,000 for the fourth quarter ended December 31, 2005,
an increase of 7% over the $19,668,000 reported in the fourth quarter
of 2004. Net income for the quarter was $2,511,000, an increase of 12%
over the $2,237,000 in the same period last year. Earnings per diluted
share for the fourth quarter were $0.19 compared to $0.17 in the
fourth quarter of 2004.
For the full year, net sales increased 12% to $81,028,000.
Operating income was $13,770,000, an increase of 27% over 2004. Net
income for 2005 was $10,097,000, an increase of 31% over the
$7,716,000 earned in 2004. Earnings per diluted share for the year
were $0.77 compared to $0.60 in 2004. Sales, operating income and net
income results were all records for the company.
"Our fourth quarter results completed a very successful year for
Fargo," commented Gary R. Holland, Fargo's president and chief
executive officer. "We achieved record annual revenues while
increasing operating margins and continuing to generate excellent cash
flow. Our continued investments in sales and marketing helped drive
international growth and we significantly enhanced our software
development capabilities. Overall, we continue to execute on our
strategy to provide end users with the most secure card identity
solutions by offering secure printer/encoders linked with secure
materials and secure software."
Gross profit margins for the fourth quarter were 44% compared to
39% in the fourth quarter of 2004. Gross margins in the quarter
benefited from an improved cost position for printer/encoders, and the
mix of product sales. Fourth quarter 2004 margins were affected by
large project business and the launch of new products. Operating
expenses were $5,786,000 compared to $4,665,000 last year. The
increase over 2004 is primarily due to higher compensation expense as
a result of growth, increased marketing expenses and higher health
insurance and professional fees. Operating income for the quarter was
$3,447,000, an increase of 15% over the $3,008,000 reported in 2004.
In fiscal 2005, Fargo:
-- Increased international revenues by 15% over 2004.
-- Increased the gross margin percent to 43% from 40% over 2004.
-- Increased the operating margin percent to 17% from 15% over
2004.
-- Generated $13.9 million cash from operations and finished the
year with $36.5 million in cash.
-- Increased its United States patent portfolio to 67 with
approximately 50 other patent applications pending.
Outlook
Fargo presently anticipates that earnings per diluted share for
the first quarter of fiscal 2006 will be in the range of $0.13 to
$0.15. 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. Historically, the first quarter has been
seasonally the company's lowest revenue quarter.
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, 2004
and our Form 10-Q reports for 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 100,000 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.
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FARGO ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
December 31, December 31,
ASSETS 2005 2004
------------ ------------
Current assets:
Cash and cash equivalents $36,475 $23,435
Accounts receivable, net 10,286 9,702
Inventories, net 6,178 6,219
Other current assets 460 271
Deferred income taxes 3,423 3,259
------------ ------------
Total current assets 56,822 42,886
Equipment and leasehold improvements, net 3,636 2,026
Deferred income taxes 14,360 16,966
Other 19 27
------------ ------------
Total assets $74,837 $61,905
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,225 $6,018
Accrued liabilities 3,666 2,806
------------ ------------
Total current liabilities 9,891 8,824
------------ ------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value; 50,000
shares authorized, 12,784 and 12,603
shares issued and outstanding at December
31, 2005 and December 31, 2004,
respectively 128 126
Additional paid-in capital 152,069 150,303
Accumulated deficit (87,251) (97,348)
------------ ------------
Total stockholders' equity 64,946 53,081
------------ ------------
Total liabilities and stockholders'
equity $74,837 $61,905
============ ============
FARGO ELECTRONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended December 31,
---------------------------------
2005 2004
---------------- ----------------
Net sales $21,029 $19,668
Cost of sales 11,796 11,995
---------------- ----------------
Gross profit 9,233 7,673
---------------- ----------------
Operating expenses
Research and development 1,499 1,310
Selling, general and administrative 4,287 3,355
---------------- ----------------
Total operating expenses 5,786 4,665
---------------- ----------------
Operating income 3,447 3,008
---------------- ----------------
Other income
Interest, net 327 87
Other, net (6) (2)
---------------- ----------------
Total other income 321 85
---------------- ----------------
Income before provision for income
taxes 3,768 3,093
Provision for income taxes 1,257 856
---------------- ----------------
Net
income $2,511 $2,237
================ ================
Net income per common share
Basic earnings per share $0.20 $0.18
Diluted earnings per share $0.19 $0.17
Weighted average common shares
outstanding
Basic 12,777 12,575
Diluted 13,145 12,966
Twelve Months Ended December 31,
---------------------------------
2005 2004
---------------- ----------------
Net sales $81,028 $72,393
Cost of sales 45,795 43,319
---------------- ----------------
Gross profit 35,233 29,074
---------------- ----------------
Operating expenses
Research and development 5,724 5,151
Selling, general and administrative 15,739 13,060
---------------- ----------------
Total operating expenses 21,463 18,211
---------------- ----------------
Operating income 13,770 10,863
---------------- ----------------
Other income
Interest, net 884 193
Other, net 386 (2)
---------------- ----------------
Total other income 1,270 191
---------------- ----------------
Income before provision for income
taxes 15,040 11,054
Provision for income taxes 4,943 3,338
---------------- ----------------
Net
income $10,097 $7,716
================ ================
Net income per common share
Basic earnings per share $0.79 $0.62
Diluted earnings per share $0.77 $0.60
Weighted average common shares
outstanding
Basic 12,704 12,515
Diluted 13,072 12,869
FARGO ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twelve Months Ended December 31,
--------------------------------
2005 2004
--------------- ---------------
Cash flows from operating activities:
Net income $10,097 $7,716
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,146 1,092
Provision for excess and obsolete
inventory 333 107
Loss on disposal of equipment 16 2
Deferred income taxes 2,442 2,917
Tax benefit recognized for stock
options 374 259
Changes in operating assets and
liabilities
Accounts receivable (584) (2,687)
Inventories (292) (1,478)
Prepaid expenses and other assets (189) (53)
Accounts payable (317) 2,156
Accrued liabilities 860 41
--------------- ---------------
Net cash provided by operating
activities 13,886 10,072
--------------- ---------------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements (2,240) (948)
--------------- ---------------
Net cash used in investing
activities (2,240) (948)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common
stock 1,394 866
--------------- ---------------
Net cash provided by financing
activities 1,394 866
--------------- ---------------
Net increase in cash and cash
equivalents 13,040 9,990
Cash and cash equivalents, beginning
of period 23,435 13,445
--------------- ---------------
Cash and cash equivalents, end of
period $36,475 $23,435
=============== ===============
Significant noncash activities:
Purchases of equipment included in
accounts payable $524 $60
FARGO ELECTRONICS, INC.
SUPPLEMENTAL SALES INFORMATION
(In thousands)
(Unaudited)
Sales by Product Category
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Secure printers/encoders $8,351 $9,104 $31,673 $28,944
Secure materials 12,678 10,564 49,355 43,449
--------- --------- --------- ---------
Total sales $21,029 $19,668 $81,028 $72,393
========= ========= ========= =========
Sales by Geographic Region
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
--------- --------- --------- ---------
U.S. $10,732 $10,921 $44,512 $40,544
International 10,297 8,747 36,516 31,849
--------- --------- --------- ---------
Total sales $21,029 $19,668 $81,028 $72,393
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