Fargo Electronics Reports Second Quarter 2005 Results

Net sales up 13 percent over same quarter in 2004


MINNEAPOLIS - Fargo Electronics, Inc. reported net sales for the second quarter ended June 30, 2005, of $18,886,000 compared with net sales of $17,545,000 in the second quarter of 2004. Net income for the second quarter was $2,366,000, or $0.18 per diluted share, compared with $1,747,000, or $0.14 per diluted share in the same period last year.

For the six months ended June 30, 2005, the company reported net sales of $37,543,000, an increase of 13% over the $33,099,000 reported in the same period last year. Net income for the period was $4,515,000, or $0.35 per diluted share, an increase of 42% over the $3,174,000, or $0.25 per diluted share reported in the previous year.

"Fargo has performed well in the first half of 2005," said Gary R. Holland, Fargo's president and chief executive officer. "Demand for our printer/encoders continues to be strong, resulting in printer revenue growth of 10% over the comparable quarter last year and 16% for the first half year. Operating profitability and cash flow remain high. With our new security-focused product line, we believe Fargo is positioned well to meet the needs of organizations worldwide that are concerned about the security of their personnel, facilities and information.

"We are also pleased at the settlement reached during the quarter with Toppan Printing Co. Ltd. and Viisage Technology, Inc. of the lawsuit we filed last year," continued Holland. "As a result of the settlement we now have another technology partner in Toppan, and the opportunity to increase our distribution by working with Viisage."

Gross profit margins for the quarter were 44% and benefited from lower manufacturing costs and reduced warranty expense due to improved product quality. Operating expenses were $5,342,000 compared to $4,257,000 last year. The increase is primarily due to higher sales and marketing expenses, increased headcount and increased professional fees. Operating income for the quarter was $2,978,000, or 16% of revenues, compared to $2,555,000, or 15% of revenues last year. Other income for the quarter was $588,000 and included $400,000 received from Toppan Printing Co. Ltd. as part of the litigation settlement.

Other accomplishments included the addition of Fargo to the Russell 3000 Index and the receipt of notice of allowances from the United States Patent and Trademark Office on six patent applications. A notice of allowance is the final step before issuance of the patent. These applications relate to printer consumables, feeding of cards into the printer, and lamination technologies.

Fargo presently anticipates that earnings per diluted share for the third quarter of fiscal 2005 will be in the range of $0.18 to $0.21.