UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
| |
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
quarterly period ended
April 2, 2005
OR
| |
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
transition period from _________ to __________
Commission
File Number: 0-23081
FARO
TECHNOLOGIES, INC.
(Exact
name of Registrant as specified in its charter)
Florida |
|
59-3157093 |
(State
or other jurisdiction of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
| |
|
|
|
125
Technology Park Drive, Lake Mary, Florida |
|
32746 |
|
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
| |
|
|
|
Registrant’s
Telephone Number, including area code: |
|
(407)
333-9911 |
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes x No
o
The
number of shares outstanding of the registrant’s common stock as of May 5, 2005
was 14,214,835.
FARO
TECHNOLOGIES, INC.
Form
10-Q
For the
Quarter Ended April 2, 2005
INDEX
|
PART
I. FINANCIAL INFORMATION |
PAGE
NUMBER |
| |
|
|
|
Item
1. |
Financial
Statements |
|
| |
|
|
| |
a)
Consolidated Balance Sheets (Unaudited)
As
of April 2, 2005 and December 31, 2004 |
3 |
| |
|
|
| |
|
|
| |
b)
Consolidated Statements of Income (Unaudited)
For
the Three Months Ended April 2, 2005 and April 3, 2004 |
4 |
| |
|
|
| |
|
|
| |
c)
Consolidated Statements of Cash Flows (Unaudited)
For
the Three Months Ended April 2, 2005 and April 3, 2004 |
5 |
| |
|
|
| |
|
|
| |
d)
Notes to Consolidated Financial Statements (Unaudited) |
6-11 |
| |
|
|
|
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
12-17 |
| |
|
|
| |
|
|
|
Item
3. |
Quantitative
and Qualitative Disclosures about Market Risk |
18 |
| |
|
|
|
Item
4. |
Controls
and Procedures |
18 |
| |
|
|
| |
|
|
|
PART
II. OTHER INFORMATION |
|
| |
|
|
|
Item
1. |
Legal
Proceedings |
19 |
| |
|
|
|
Item
4. |
Submission
of Matters to a Vote of Security Holders |
19 |
| |
|
|
|
Item
5. |
Other
Information |
19 |
| |
|
|
|
Item
6. |
Exhibits
and Reports on Form 8-K |
19 |
| |
|
|
| |
|
|
|
SIGNATURES |
20 |
| |
|
|
|
|
|
|
|
CERTIFICATIONS |
21-24 |
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
FARO
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
| |
|
April
2, |
|
December
31, |
|
|
(in
thousands, except share data) |
|
2005 |
|
2004 |
|
|
ASSETS |
|
|
|
|
|
|
Current
Assets: |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
13,501 |
|
$ |
16,357 |
|
|
Short-term
investments |
|
|
21,485
|
|
|
22,485
|
|
|
Accounts
receivable, net |
|
|
23,515
|
|
|
22,484
|
|
|
Inventories |
|
|
19,215
|
|
|
16,378
|
|
|
Deferred
tax asset, net |
|
|
1,554
|
|
|
744
|
|
|
Prepaid
expenses and other current assets |
|
|
2,668
|
|
|
2,538
|
|
|
Total
current assets |
|
|
81,938
|
|
|
80,986
|
|
|
Property
and Equipment: |
|
|
|
|
|
|
|
|
Machinery
and equipment |
|
|
5,239
|
|
|
4,352
|
|
|
Furniture
and fixtures |
|
|
2,555
|
|
|
2,394
|
|
|
Leasehold
improvements |
|
|
1,014
|
|
|
910
|
|
|
Property
and equipment at cost |
|
|
8,808
|
|
|
7,656
|
|
|
Less:
accumulated depreciation and amortization |
|
|
(4,005 |
) |
|
(3,641 |
) |
|
Property
and equipment, net |
|
|
4,803
|
|
|
4,015
|
|
|
Goodwill |
|
|
16,695
|
|
|
8,077
|
|
|
Intangible
assets, net |
|
|
3,567
|
|
|
3,568
|
|
|
Service
Inventory |
|
|
3,778
|
|
|
4,159
|
|
|
Deferred
tax asset, net |
|
|
3,154
|
|
|
4,273
|
|
|
Total
Assets |
|
$ |
113,935 |
|
$ |
105,078 |
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
7,576 |
|
$ |
4,736 |
|
|
Accrued
liabilities |
|
|
5,899
|
|
|
7,252
|
|
|
Income
taxes payable |
|
|
708
|
|
|
104
|
|
|
Current
portion of unearned service revenues |
|
|
2,727
|
|
|
2,663
|
|
|
Customer
deposits |
|
|
455
|
|
|
441
|
|
|
Current
portion of obligations under capital leases |
|
|
100
|
|
|
104
|
|
|
Total
current liabilities |
|
|
17,465
|
|
|
15,300
|
|
|
Unearned
service revenues - less current portion |
|
|
774
|
|
|
474
|
|
|
Obligations
under capital leases - less current portion |
|
|
352
|
|
|
146
|
|
|
Total
Liabilities |
|
|
18,591
|
|
|
15,920
|
|
|
Commitments
and contingencies - See Note O |
|
|
|
|
|
|
|
|
Shareholders'
Equity: |
|
|
|
|
|
|
|
|
Common
stock - par value $.001, 50,000,000 shares authorized; 14,406,877 and
14,004,092 issued; 14,204,433 and 13,964,092 outstanding,
respectively |
|
|
14
|
|
|
14
|
|
|
Additional
paid-in-capital |
|
|
82,519
|
|
|
78,282
|
|
|
Deferred
compensation |
|
|
382
|
|
|
505
|
|
|
Retained
earnings |
|
|
12,546
|
|
|
9,077
|
|
|
Accumulated
other comprehensive income |
|
|
34
|
|
|
1,431
|
|
|
Common
stock in treasury, at cost - 40,000 shares |
|
|
(151 |
) |
|
(151 |
) |
|
Total
shareholders' equity |
|
|
95,344
|
|
|
89,158
|
|
|
Total
Liabilities and Shareholders' Equity |
|
$ |
113,935 |
|
$ |
105,078 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FARO
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
| |
|
Three
Months Ended |
|
|
(in
thousands, except per share data) |
|
Apr.
2, 2005 |
|
Apr.
3, 2004 |
|
| |
|
|
|
|
|
|
SALES |
|
$ |
27,617 |
|
$ |
21,025 |
|
|
COST
OF SALES (exclusive of depreciation and amortization, shown separately
below) |
|
|
10,274
|
|
|
7,561
|
|
|
Gross
profit |
|
|
17,343
|
|
|
13,464
|
|
| |
|
|
|
|
|
|
|
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
|
Selling
|
|
|
7,666
|
|
|
5,563
|
|
|
General
and administrative |
|
|
3,467
|
|
|
2,567
|
|
|
Depreciation
and amortization |
|
|
690
|
|
|
557
|
|
|
Research
and development |
|
|
1,327
|
|
|
1,441
|
|
| |
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
13,150
|
|
|
10,128
|
|
| |
|
|
|
|
|
|
|
|
INCOME
FROM OPERATIONS |
|
|
4,193
|
|
|
3,336
|
|
|
OTHER
INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
Interest
income |
|
|
132
|
|
|
74
|
|
|
Other
(expense) income, net |
|
|
(29 |
) |
|
206
|
|
|
Interest
expense |
|
|
(2 |
) |
|
(2 |
) |
|
INCOME
BEFORE INCOME TAX |
|
|
4,294
|
|
|
3,614
|
|
| |
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE |
|
|
825
|
|
|
766
|
|
| |
|
|
|
|
|
|
|
|
NET
INCOME |
|
$ |
3,469 |
|
$ |
2,848 |
|
| |
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE - BASIC |
|
$ |
0.25 |
|
$ |
0.21 |
|
| |
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE - DILUTED |
|
$ |
0.24 |
|
$ |
0.20 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FARO
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
|
Three
Months Ended |
|
| |
|
April
2, |
|
April
3, |
|
|
(in
thousands) |
|
2005 |
|
2004 |
|
|
CASH
FLOWS FROM: |
|
|
|
|
|
|
OPERATING
ACTIVITIES: |
|
|
|
|
|
|
Net
income |
|
$ |
3,469 |
|
$ |
2,848 |
|
|
Adjustments
to reconcile net income to net cash and cash equivalents provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
690
|
|
|
557
|
|
|
Income
tax benefit from exercise of stock options |
|
|
157
|
|
|
611
|
|
|
Deferred
income tax expense (benefit) |
|
|
310
|
|
|
(680 |
) |
|
Employee
stock option (income) expense |
|
|
(121 |
) |
|
37
|
|
|
Change
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease
(increase) in: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(498 |
) |
|
1,781
|
|
|
Inventories
|
|
|
(2,541 |
) |
|
(2,271 |
) |
|
Prepaid
expenses and other current assets |
|
|
437
|
|
|
(302 |
) |
|
Increase
(decrease) in: |
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
|
|
(1,130 |
) |
|
(1,663 |
) |
|
Income
taxes payable |
|
|
605
|
|
|
(481 |
) |
|
Customer
deposits |
|
|
(68 |
) |
|
(249 |
) |
|
Unearned
service revenues |
|
|
432
|
|
|
740
|
|
|
Net
cash provided by operating activities |
|
|
1,743
|
|
|
928
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Acquisition
of iQvolution |
|
|
(4,270 |
) |
|
-
|
|
|
Purchases
of property and equipment |
|
|
(662 |
) |
|
(811 |
) |
|
Payments
for intangible assets |
|
|
(249 |
) |
|
(173 |
) |
|
Purchases
of short-term investments |
|
|
(900 |
) |
|
(6,048 |
) |
|
Proceeds
from short-term investments |
|
|
1,900
|
|
|
-
|
|
|
Net
cash used in investing activities |
|
|
(4,182 |
) |
|
(7,032 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Payments
on line of credit and capital leases |
|
|
(25 |
) |
|
(10 |
) |
|
Proceeds
from issuance of stock, net |
|
|
209
|
|
|
175
|
|
|
Net
cash provided by financing activities |
|
|
184
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
|
(601 |
) |
|
(631 |
) |
| |
|
|
|
|
|
|
|
|
DECREASE
IN CASH AND CASH EQUIVALENTS |
|
|
(2,856 |
) |
|
(6,570 |
) |
| |
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
16,357
|
|
|
17,425
|
|
| |
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
13,501 |
|
$ |
10,855 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FARO
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For the
three months ended April 2, 2005 and April 3, 2004
(Unaudited)
(in
thousands, except share and per share data, or as otherwise noted)
NOTE A -
DESCRIPTION OF BUSINESS
FARO
Technologies, Inc. and subsidiaries (collectively the “Company”) develop,
manufacture, market and support software-based three dimensional measurement
devices for manufacturing, industrial, building construction and forensic
applications. Its principal products include the Faro Arm, Faro Scan Arm,
Digital Template and Faro Gage, all articulated electromechanical measuring
devices, the Faro Laser Tracker and the Faro Laser Scanner LS, both laser-based
measuring devices. Markets for the Company’s products include automobile,
aerospace, heavy equipment and countertop manufacturers, and law enforcement
agencies. The Company sells the vast majority of its products though a direct
sales force located in many of the world’s largest industrialized
countries.
NOTE B -
PRINCIPLES OF CONSOLIDATION
The
consolidated financial statements of the Company include the accounts of FARO
Technologies, Inc. and all its subsidiaries. All significant intercompany
transactions and balances have been eliminated. The financial statements of the
foreign subsidiaries are translated into U.S. dollars using exchange rates in
effect at period-end for assets and liabilities and average exchange rates
during each reporting period for results of operations. Adjustments resulting
from translation of financial statements are reflected as a separate component
of accumulated other comprehensive income.
NOTE C -
BASIS OF PRESENTATION
The
consolidated financial statements of the Company include all adjustments,
consisting of only normal recurring items, considered necessary by management
for their fair presentation in conformity with accounting principles generally
accepted in the United States of America. Preparing financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The consolidated results of operations for the three
months ended April 2, 2005 are not necessarily indicative of results that may be
expected for the year ending December 31, 2005.
The
information included in this Form 10-Q, including the interim consolidated
financial statements and notes that accompany these financial statements, should
be read in conjunction with the audited consolidated financial statements
reported as of December 31, 2004 and 2003, and for each of the three years
included in our 2004 Annual Report on Form 10-K.
NOTE D -
RECLASSIFICATIONS
Certain
amounts have been reclassified to conform to current period
presentation.
NOTE E -
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R, “Share-Based
Payment.” SFAS No.
123R requires employee stock options and rights to purchase shares under stock
participation plans to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, as allowed under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing
model for estimating fair value, which is amortized to expense over the service
periods. The requirements of SFAS No. 123R were effective for interim or fiscal
periods beginning after June 15, 2005. The SEC has delayed the required
implementation date of this rule to the beginning of the next fiscal year,
instead of the next reporting period that begins after June 15, 2005. The
Company intends to adopt the provisions of FAS 123(R) effective January 1,
2006.
NOTE F -
STOCK-BASED COMPENSATION
In
December 2002, the FASB issued SFAS No. 148, “Accounting
for Stock-Based Compensation-Transition and Disclosure.” SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123, “Accounting
for Stock-Based Compensation,” to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002 and for interim
periods beginning after December 15, 2002. The annual disclosure requirements of
SFAS No. 148 were adopted by the Company on January 1, 2003.
In
accordance with SFAS No. 123, the Company has elected to continue to account for
its employee stock compensation plans using the intrinsic value based method
with pro-forma disclosures of net earnings and earnings per share, as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
Under the intrinsic value based method, compensation cost is measured by the
excess, if any, of the quoted market price of the stock at the grant date over
the amount an employee must pay to acquire the stock. Under the fair value based
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Included in net income are certain compensation expenses subject
to variable accounting treatment.
Had
compensation cost for the Company’s stock-based compensation plans been
determined consistent with the fair value based method under SFAS No. 123, the
Company’s net income and earnings per share would have been as
follows:
| |
|
Three
Months Ended |
|
|
|
|
Apr.
2, 2005 |
|
Apr.
3, 2004 |
|
|
Net
income, as reported |
|
$ |
3,469 |
|
$ |
2,848 |
|
|
Add
(Deduct): Stock-based employee compensation (income) expense included in
reported net income, net of related tax effects |
|
|
(76 |
) |
|
24
|
|
|
Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax
effects |
|
|
(588 |
) |
|
(148 |
) |
|
Pro
forma net income |
|
$ |
2,805 |
|
$ |
2,724 |
|
| |
|
|
|
|
|
|
|
|
Earnings
per share: |
|
|
|
|
|
|
|
|
Basic
- as reported |
|
$ |
0.25 |
|
$ |
0.21 |
|
|
Basic
- pro forma |
|
$ |
0.20 |
|
$ |
0.20 |
|
|
Diluted
- as reported |
|
$ |
0.24 |
|
$ |
0.20 |
|
|
Diluted
- pro forma |
|
$ |
0.19 |
|
$ |
0.19 |
|
NOTE G -
SUPPLEMENTAL CASH FLOW INFORMATION
Selected
cash payments and non cash activities were as follows:
| |
|
Three
Months Ended |
|
| |
|
Apr.
2, 2005 |
|
Apr.
3, 2004 |
|
|
Cash
paid for interest |
|
$ |
2 |
|
$ |
2 |
|
|
Cash
paid for income taxes |
|
|
25
|
|
|
—
|
|
|
Cash
received from income tax refund |
|
|
1,161
|
|
|
—
|
|
|
Non-Cash
Activity: |
|
|
|
|
|
|
|
|
Value
of shares issued for acquisition of iQvolution |
|
$ |
3,869 |
|
$ |
— |
|
NOTE H -
ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
| |
|
As
of |
|
As
of |
|
| |
|
Apr.
2, 2005 |
|
Dec.
31, 2004 |
|
|
Accounts
receivable |
|
$ |
23,825 |
|
$ |
22,823 |
|
|
Allowance
for doubtful accounts |
|
|
(310 |
) |
|
(339 |
) |
|
Total |
|
$ |
23,515 |
|
$ |
22,484 |
|
NOTE I -
INVENTORIES
Inventories
consist of the following:
| |
|
As
of |
|
As
of |
|
| |
|
Apr.
2, 2005 |
|
Dec.
31, 2004 |
|
|
Raw
materials |
|
$ |
7,697 |
|
$ |
6,620 |
|
|
Work-in-process |
|
|
973
|
|
|
428
|
|
|
Finished
goods |
|
|
1,767
|
|
|
1,424
|
|
|
Sales
Demonstration Inventory |
|
|
9,140
|
|
|
8,097
|
|
|
Reserve
for Obsolescence |
|
|
(362 |
) |
|
(191 |
) |
|
Inventory |
|
|
19,215
|
|
|
16,378
|
|
|
Service
Inventory |
|
|
3,778
|
|
|
4,159
|
|
| |
|
|
|
|
|
|
|
|
Total |
|
$ |
22,993 |
|
$ |
20,537 |
|
NOTE J -
EARNINGS PER SHARE
A
reconciliation of the number of common shares used in the calculation of basic
and diluted earnings per share (EPS) is presented below:
| |
|
Three
Months Ended |
|
| |
|
April
2, 2005 |
|
April
3, 2004 |
|
| |
|
|
|
Per-Share |
|
|
|
Per-Share |
|
| |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic
EPS |
|
|
14,037,027
|
|
$ |
0.25 |
|
|
13,522,921
|
|
$ |
0.21 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities |
|
|
370,982
|
|
$ |
(0.01 |
) |
|
557,182
|
|
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS |
|
|
14,408,009
|
|
$ |
0.24 |
|
|
14,080,103
|
|
$ |
0.20 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE K -
ACCRUED LIABILITIES
Accrued
liabilities consist of the following:
| |
|
As
of |
|
As
of |
|
| |
|
Apr.
2, 2005 |
|
Dec.
31, 2004 |
|
|
Accrued
compensation and benefits |
|
$ |
1,640 |
|
$ |
3,046 |
|
|
Accrued
warranties |
|
|
649
|
|
|
565
|
|
|
Professional
and legal fees |
|
|
363
|
|
|
930
|
|
|
Other
accrued liabilities |
|
|
3,247
|
|
|
2,711
|
|
| |
|
$ |
5,899 |
|
$ |
7,252 |
|
NOTE L -
INCOME TAX EXPENSE
The tax
provision for the three months ended April 2, 2005 differs from the tax
provision for the three months ended April 3, 2004, principally due to increases
in earnings. The effective tax rate for the three months ended April 2, 2005 was
19.2% which continues to be lower than the statutory tax rate in the United
States resulting primarily from favorable tax rates and the use of previously
reserved net operating loss carryforwards in foreign jurisdictions.
NOTE M -
GEOGRAPHIC DATA
The
Company develops, manufactures, markets and supports software-based three
dimensional measurement devices for inspection, reverse engineering and for
gathering crime scene data. This one line of business represents approximately
99% of consolidated sales and is the Company’s only segment. The Company
operates through sales teams established by geographic area. Each team is
equipped to deliver the entire line of Company products to customers within its
geographic area.
The
following table presents information about the Company by geographic area:
| |
|
Three
Months Ended |
|
| |
|
Apr.
2, 2005 |
|
Apr.
3, 2004 |
|
|
SALES |
|
|
|
|
|
|
Americas
Region |
|
$ |
10,911 |
|
$ |
8,531 |
|
|
Europe/Africa
Region |
|
|
11,841
|
|
|
10,091
|
|
|
Asia
Pacific Region |
|
|
4,865
|
|
|
2,403
|
|
|
TOTAL |
|
$ |
27,617 |
|
$ |
21,025 |
|
NOTE N -
OTHER COMPREHENSIVE INCOME
Other
comprehensive income includes the effect of currency translation adjustments on
the investments in (capitalization of) foreign subsidiaries combined with the
earnings from operations.
| |
|
Three
Months Ended |
|
| |
|
Apr.
2, 2005 |
|
Apr.
3, 2004 |
|
|
Net
income |
|
|
3,469
|
|
|
2,848
|
|
|
Other
comprehensive income: |
|
|
|
|
|
|
|
|
Currency
translation adjustments |
|
|
(1,398 |
) |
|
(1,151 |
) |
|
Other
comprehensive income |
|
|
2,071
|
|
|
1,697
|
|
NOTE O -
COMMITMENTS AND CONTINGENCIES
Leases—The
Company is party to leases arising in the normal course of business, including
leases with related parties, that expire on or before 2009. Total obligations
under these leases will be approximately $1.7 million for 2005.
Purchase
Commitments—The
Company enters into purchase commitments for products and services in the
ordinary course of business. These purchases generally cover production
requirements for 60 to 90 days. We do not have any long-term commitments for
purchases.
Litigation—The
Company is not involved in any pending legal proceedings other than routine
litigation arising in the normal course of business. The Company does not
believe the results of such litigation, even if the outcome were unfavorable to
the Company, would have a material adverse effect on the Company’s business,
financial condition or results of operations.
NOTE P -
CREDIT FACILITY
The
Company has an available line of credit of $5 million. Terms of this line of
credit require the Company to maintain certain ratios and balances with respect
to a debt covenant agreement, including current ratio, consolidated EBITDA,
indebtedness to consolidated net worth, fixed charge coverage ratio and
consolidated tangible net worth. As of April 2, 2005 and April 3, 2004, the
Company was in compliance with the required ratios. Drawings under the line of
credit bear interest at a rate equivalent to LIBOR plus 1.75%. The line of
credit matures August 31, 2005. There were no amounts outstanding under the line
of credit at April 2, 2005 or April 3, 2004.
NOTE Q -
ACQUISITION
On March
29, 2005, the Company acquired 100% of the outstanding stock of privately held
iQvolution AG ("iQvolution"). iQvolution, headquartered in Ludwigsburg, Germany,
manufactures and supplies three-dimensional laser scanning products and
services. This purchase was a strategic acquisition to enable the Company to
enter broader three-dimensional measurement markets. The purchase price for the
transaction was approximately $12 million of which 64% was in shares of FARO
common stock and 36% was in cash. All of the cash portion of the acquisition and
slightly less than half of the stock portion were payable immediately. The
remaining stock is being held in escrow and may be paid over the following five
years subject to achieving predetermined milestones with respect to purchased
assets. The preliminary allocation of the purchase price is subject to
adjustment in subsequent quarters after the completion of fair market value
analyses of tangible and intangible assets acquired. The purchase price is
subject to adjustment based on the final accounting for the purchase from the
completion of our post-acquisition due diligence. No income was recognized by
the Company in the first quarter of 2005 related to this purchase.
Item
2. Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operations
The
following information should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Form 10-Q, and the Management’s Discussion and Analysis of Financial Condition
and Results of Operations included in the Company’s 2004 Annual Report, Form
10-K, for the year ended December 31, 2004.
FARO
Technologies, Inc. (the Company) has made "forward-looking statements" in this
report (within the meaning of the Private Securities Litigation Reform Act of
1995). Statements that are not historical facts or that describe our plans,
beliefs, goals, intentions, objectives, projections, expectations, assumptions,
strategies, or future events are forward-looking statements. In addition, words
such as "may," "will," "believe," "plan," "should," "could," "seek," "expect,"
"anticipate," "intend," "estimate," "goal," "objective," "project," "forecast,"
"target" and similar words, or discussions of our strategy or other intentions
identify forward-looking statements. Other written or oral statements that
constitute forward-looking statements also may be made by the Company from time
to time.
Forward-looking
statements are not guarantees of future performance and are subject to a number
of known and unknown risks, uncertainties, and other factors that could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements. Consequently, undue reliance should not be placed on
these forward-looking statements. We do not intend to update any forward-looking
statements, whether as a result of new information, future events, or otherwise,
unless otherwise required by law. Important factors that could cause a material
difference in the actual results from those contemplated in such forward-looking
statements include among others those under "Cautionary Statements" and
elsewhere in this report and the following:
| · |
our
inability to further penetrate our customer base;
|
| · |
development
by others of new or improved products, processes or technologies that make
our products obsolete or less competitive; |
| · |
our
inability to maintain our technological advantage by developing new
products and enhancing our existing
products; |
| · |
our
inability to successfully identify and acquire target companies or achieve
expected benefits from acquisitions that are consummated;
|
| · |
the
cyclical nature of the industries of our customers and the financial
condition of our customers; |
| · |
the
fact that the market potential for the CAM2 market and the potential
adoption rate for our products are difficult to quantify and
predict; |
| · |
the
inability to protect our patents and other proprietary rights in the
United States and foreign countries and the assertion of infringement
claims against us; |
| · |
fluctuations
in our annual and quarterly operating results as a result of a number of
factors; |
| · |
the
inability of our products to displace traditional measurement devices and
attain broad market acceptance; |
| · |
the
impact of competitive products and pricing in the CAM2 market and the
broader market for measurement and inspection devices;
|
| · |
the
effects of increased competition as a result of recent consolidation in
the CAM2 market; |
| · |
risks
associated with expanding international operations, such as fluctuations
in currency exchange rates, difficulties in staffing and managing foreign
operations, political and economic instability, and the burdens of
complying with a wide variety of foreign laws and labor
practices; |
| · |
our
inability to continue to grow sales in the Asia Pacific
region; |
| · |
our
inability to keep our financial results within our target goals as a
result of various potential factors such as investments in potential
acquisitions or strategic sales, product or other
initiatives; |
| · |
our
inability to find less expensive alternatives to stock options to attract
and retain employees; |
| · |
the
loss of our Chief Executive Officer, our President and Chief Operating
Officer, our Executive Vice President, Secretary and Treasurer, or our
Chief Financial Officer or other key personnel;
|
| · |
the
failure to effectively manage our growth; |
| · |
difficulty
in predicting our effective tax rate; and |
| · |
the
loss of a key supplier and the inability to find a sufficient alternative
supplier in a reasonable period or on commercially reasonable
terms. |
Overview
The
Company designs, develops, markets and supports portable, software driven, 3-D
measurement systems that are used in a broad range of manufacturing, industrial,
building construction and forensic applications. The Company's Faro Arm, Faro
Scan Arm and Faro Gage articulated measuring devices, the Faro Laser Tracker,
and their companion CAM2 software, provide for Computer-Aided Design (CAD)-based
inspection and/or factory-level statistical process control. Together, these
products integrate the measurement, quality inspection, and reverse engineering
functions with CAD software to improve productivity, enhance product quality and
decrease rework and scrap in the manufacturing process. The Company uses the
acronym “CAM2” for this process, which stands for computer-aided manufacturing
measurement. The Company’s Digital Template articulated measuring device and its
related software are used to measure the shape of existing counter tops and
other structures in residential or commercial buildings to provide the data
required to manufacture replacement countertops or other structures. The Digital
Template reduces the time required to measure these existing products and to
provide the data to manufacturing machines to create the replacement structures,
compared to traditional techniques. In March 2005 the Company acquired
iQvolution AG, a German manufacturer of a portable laser-based device for
measuring the detailed composition of factories, oil refineries and other
structures. This device and its related software, which the company will sell
under the product name Laser Scanner LS also has forensic applications such as
capturing detailed 3D crime scene information. The Company expects to hire new
sales people with building construction and law enforcement experience to sell
the Digital Template and the forensic applications of the Laser Scanner LS. The
Company's products have been purchased by approximately 3,800 customers
worldwide, ranging from small machine shops to such large manufacturing and
industrial companies as Audi, Bell Helicopter, Boeing, British Aerospace,
Caterpillar, Daimler Chrysler, General Electric, General Motors, Honda, Johnson
Controls, Komatsu Dresser, Lockheed Martin, Nissan, Siemens and Volkswagen,
among many others.
We were
founded in 1982 and we re-incorporated in Florida in 1992. Our worldwide
headquarters are located at 125 Technology park, Lake Mary, Florida 32746, and
our telephone number is (407) 333-9911.
We
continue to pursue international markets. We established sales offices in France
and Germany in 1996, Great Britain in 1997, Japan and Spain in 2000, Italy in
2001, and China in 2003. We opened sales offices in South Korea and India in the
fourth quarter of 2004. In 2003 we began to manage and report our global sales
in three regions: the Americas, Europe/Africa and Asia/Pacific. In the first
quarter of 2005 39.5% of our sales were in the Americas compared to 40.6% in the
first quarter of 2004, 42.9% were in the Europe/Africa region compared to 48.0%
in the first quarter of 2004 and 17.6% were in the Asia/Pacific region, compared
to 11.4% in the first quarter of 2004 (see also Note M Geographic Data to the
financial statements above). Although we expect variations in the percentage of
our sales in the Asia/Pacific region from quarter to quarter going forward, we
generally expect higher percentage sales growth in the Asia/Pacific region than
the other regions in the remainder of 2005 and in 2006 as a result of our new
sales offices in China, India and South Korea, and the addition of sales
personnel and the opening of a service center in our Japan office. We also
expect to open an Asia/Pacific regional headquarters in Singapore in
2005.
We derive
revenues primarily from the sale of our Faro Arm, Faro Scan Arm, Faro Gage,
Digital Template, Faro Laser Scanner LS and Faro Laser Tracker 3-D measurement
equipment, and their related software. Revenue related to these products is
recognized upon shipment. In addition, we sell one and three-year extended
warranties and training and technology consulting services relating to our
products. We recognize the revenue from extended warranties proportionately, in
the same manner as costs are incurred for such revenues. We also receive
royalties from licensing agreements for our historical medical technology and
generally recognize the revenue from these royalties as licensees use the
technology. Royalties from licensing agreements were $298,000 and $124,000 in
the first quarter of 2005 and 2004, respectively. Included in royalties for the
first quarter of 2005 is $171,000 in revenue for previous years resulting from a
favorable audit of one of the Company’s license agreements.
In 2003,
we began to manufacture our Faro Arm products in Switzerland for customer orders
from the Europe/Africa and Asia/Pacific regions. We began to manufacture our
Faro Gage product, and parts of our Faro Laser Tracker product in our Swiss
plant in the third quarter of 2004. We expect to begin complete production of
the Faro Laser Tracker product in our Swiss plant in 2005. The production of
these products for customer orders from the Americas will be done in our
manufacturing facilities located in Florida and Pennsylvania. In March 2005 we
acquired iQvolution AG and we expect to move the manufacturing of iQvolutions’s
products to our Swiss factory in the second quarter of 2005. We expect all our
existing plants to have the production capacity necessary to support our growth,
at least through 2006.
In our
previously filed Form 10-K for 2004 we said that we expected to recognize
expenses of approximately $2 million in 2005 as calculated under the
Black-Scholes method of FAS 123, related to our expected adoption of FAS 123(R)
for the expensing of stock options. We will not recognize these expenses in 2005
because the SEC has delayed the required implementation date of this rule to the
beginning of the next fiscal year, instead of the next reporting period that
begins after June 15, 2005. This allows the Company to defer the effect of FAS
123(R) until the first quarter of 2006.
Our
effective tax rate in the first quarter of 2005 was 19.2% compared to 20.2% in
the first quarter of 2004, which continues to be lower than the statutory tax
rate in the United States resulting primarily from favorable tax rates in
foreign jurisdictions. We expect the blended (consolidated) tax rate to be
approximately 20% for 2005, and this could fluctuate depending upon, among other
things, our ability to use more previously reserved net operating loss
carry-forwards and the proportion of income in foreign jurisdictions. See
“Critical Accounting Policies - Income Taxes” below. In the full year 2003 and
2004 we have been able to use previously reserved net operating loss
carry-forwards, which have reduced our effective tax rate to 12.3% in 2003 and
2.3% in 2004.
Accounting
for wholly owned foreign subsidiaries is maintained in the currency of the
respective foreign jurisdiction and, therefore, fluctuations in exchange rates
may have an impact on inter-company accounts reflected in our consolidated
financial statements. We are aware of the availability of off-balance sheet
financial instruments to hedge exposure to foreign currency exchange rates,
including cross-currency swaps, forward contracts and foreign currency options
(see Foreign Exchange Exposure below). However, we do not regularly use such
instruments, and none were utilized in the first quarter of 2005.
We have
had eleven consecutive profitable quarters through April 2, 2005. This followed
a period of losses in 2001 and the first half of 2002, which resulted from an
economic slowdown in manufacturing in 2001, and expenses arising from the
acquisition in January 2002 of SpatialMetriX Corporation (SMX). Our sales growth
and return to profitability since then was a result of a number of factors
including the acquisition of SMX, which manufactured the predecessor to the Faro
Laser Tracker, the introduction in October 2002 of the latest generation of our
traditional Faro Arm product, the introduction of the Faro Gage in September
2003, the introduction of our Faro Scan Arm product in 2004, and an increase in
the number of sales people worldwide. Our worldwide sales and marketing
headcount at the end of the first quarter of 2005 and 2004 was 190 and 125,
respectively. The Digital Template and Faro Laser Scanner products are very
recent additions to our product line and are not a significant part of our first
quarter 2005 growth.
Results
of Operations
Three
Months Ended April 2, 2005 Compared to the Three Months Ended April 3,
2004
Sales
increased by $6.6 million or 31.4% from $21.0 million for the three months ended
April 3, 2004 to $27.6 million for the three months ended April 2, 2005. This
increase resulted primarily from higher product sales and the effect of an
increase in the number of sales people worldwide. Sales in the Americas region
increased $2.4 million or 28.2% to $10.9 million for the three months ended
April 2, 2005 from $8.5 million in the three months ended April 3, 2004. Sales
in the Europe/Africa region increased $1.7 million or 16.8%, to $11.8 million
for the three months ended April 2, 2005 from $10.1 million in the three months
ended April 3, 2004. Sales in the Asia/Pacific region increased $2.5 million or
104.2% to $4.9 million for the three months ended April 2, 2005 from $2.4
million in the three months ended April 3, 2004.
Gross
profit increased by $3.8 million or 28.1% from $13.5 million for the three
months ended April 3, 2004 to $17.3 million for the three months ended April 2,
2005. Gross margin percentage decreased to 62.8% for the three months ended
April 2, 2005 from 64.0% for the three months ended April 3, 2004, in line with
our expectations and gross margin goals.
Selling
expenses increased by $2.1 million or 37.5% from $5.6 million for three months
ended April 3, 2004 to $7.7 million for the three months ended April 2, 2005.
This increase was primarily due to higher product demonstration costs of $1.1
million, higher compensation expense of $579,000 and higher commissions of
$534,000. As a percentage of sales, selling expenses increased to 27.8% of sales
in the three months ended April 2, 2005 from 26.5% in the three months ended
April 3, 2004.
General
and administrative expenses increased by $901,000 or 34.7% from $2.6 million for
the three months ended April 3, 2004 to $3.5 million for the three months ended
April 2, 2005. This increase resulted primarily from higher professional and
legal fees of $696,000, higher salaries and bonuses of $434,000 and higher
travel costs of $128,000, partially offset by a decrease in bad debt losses of
$229,000 and a decrease in stock option expense of $158,000. New professional
and legal expenses in the first quarter of 2005 which did not exist in the first
quarter of 2004 were related to legal expenses for various projects of $114,000
and our Sarbanes-Oxley 404 compliance of $380,000. General and administrative
expenses as a percentage of sales increased to 12.6% for the three months ended
April 2, 2005 from 12.2% for the three months ended April 3, 2004.
Depreciation
and amortization expenses increased by $133,000 from $557,000 for the three
months ended April 3, 2004 to $690,000 for the three months ended April 2, 2005
as a result of higher amounts of computer equipment and intangible assets from
patents and R&D foreign language software for the U.S in the current
year.
Research
and development expenses decreased by $114,000 or 8.1% from $1.4 million for the
three months ended April 3, 2004 to $1.3 million for the three months ended
April 2, 2005. Research and development expenses as a percentage of sales
decreased to 4.8% for the three months ended April 2, 2005 from 6.9% for the
three months ended April 3, 2004.
Interest
income increased by $58,000 from $74,000 for the three months ended April 3,
2004, to $132,000 for the three months ended April 2, 2005.
Other
(expense) income, net decreased by $235,000 to an expense of $29,000 for the
three months ended April 2, 2005 from income of $206,000 for the three months
ended April 3, 2004. This decrease was primarily due to a decrease of $215,000
in foreign exchange gains.
Income
tax expense increased by $60,000 from $765,000 for the three months ended April
3, 2004 to $825,000 for the three months ended April 2, 2005. This increase is
primarily due to an increase in taxable income in the United States, offset by
the impact of lower statutory tax rates in foreign jurisdictions.
Net
income increased by $620,000 from $2.8 million for the three months ended April
3, 2004 to $3.5 million for the three months ended April 2, 2005 as a result of
the factors described above.
Liquidity
and Capital Resources
Since
1997, the Company had financed its operations primarily from cash provided by
operating activities and from the proceeds of its 1997 initial public offering
of common stock (approximately $31.7 million). On November 12, 2003 the Company
completed a private placement of its common stock with various institutional
investors, resulting in total proceeds before placement agent fees and other
offering expenses of $24.9 million.
On
September 17, 2003, the Company entered into a loan agreement with SunTrust Bank
for a line of credit of $5 million. This agreement was renewed and is due to
mature on August 31, 2005. The facility bears an interest rate at LIBOR plus
1.75%. The Company has not drawn on this line of credit.
On
January 10, 2005, the Company filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission allowing it to raise proceeds of up to
$125 million. The proceeds from any offerings with respect to this registration
statement, if any, would be used for either repayment or refinancing of debt,
acquisition of additional businesses or technologies or for working capital and
general corporate purposes. We have not raised any capital under this Form S-3
Registration Statement.
Cash
provided by operating activities was approximately $1.7 million in the first
three months of 2005, an increase of approximately $0.8 million from the first
three months of the prior year. The $0.8 million increase reflects strong growth
in operating income and the favorable impact from several tax-related items
combined with a decrease in prepaid expenses, which were partially offset by
increases in inventories and accounts receivable and decreases in accounts
payable.
Cash used
in investing activities was approximately $4.2 million in the first three months
of 2005, a decrease of approximately $2.8 million from the first three months of
the prior year, primarily reflecting deployment of cash balances to short-term
investments of approximately $900,000, the purchase of capital equipment of
$663,000, and our acquisition of iQvolution of $4.3 million.
Cash
provided by financing activities was approximately $184,000 in the first three
months of 2005, reflecting proceeds from the exercise of stock
options.
We
believe that our working capital, together with anticipated cash flow from our
operations and our credit facility, will be sufficient to fund our long-term
liquidity requirements.
Critical
Accounting Policies
In
response to the SEC’s financial reporting release, FR-60, “Cautionary
Advice Regarding Disclosure About Critical Accounting
Policies,” we have
selected our critical accounting policies for purposes of explaining the
methodology used in the calculation in addition to any inherent uncertainties
pertaining to the possible effects on our financial condition. The critical
policies discussed below are our processes of recognizing the reserve for
obsolete and slow-moving inventory, income taxes, and the reserve for
warranties. These policies affect current assets and operating results and are
therefore critical in assessing our financial and operating status. These
policies involve certain assumptions that, if incorrect, could create an adverse
impact on our operations and financial position.
The
Reserve for Obsolescence - Since the
amount of inventoriable cost that we will truly recoup through sales cannot be
known with exact certainty, we rely upon both past sales experience and future
sales forecasts. Inventory is considered obsolete if we have withdrawn those
products from the market or if we had no sales of the product for the past 12
months, and have no sales forecasted for the next 12 months. Accordingly, a
reserve in an amount equal to 100% of the average cost of such inventory is
recorded in order to reduce the carrying value to net realizable value. While
such write-offs have historically been within its expectations, we cannot
guarantee this will continue in the future.
Income
Taxes - We review
our deferred tax assets on a regular basis to evaluate their recoverability
based on projections of the turnaround timing of our deferred tax liabilities,
projections of future taxable income, and tax planning strategies that we might
employ to utilize such assets, including net operating loss carryforwards. Based
on the positive and negative evidence described in Financial Accounting
Standards Board Statement No. 109, “Accounting
for Income Taxes,” we
establish a valuation allowance against the net deferred assets of a taxing
jurisdiction in which we operate unless it is “more likely than not” that we
will recover such assets through the above means. Management has released an
amount from the valuation allowance of one of its foreign subsidiaries using
projections of future taxable earnings over the next two years. In the future,
our evaluation of the need for the valuation allowance will be significantly
influenced by our ability to achieve profitability and our ability to predict
and achieve future projections of taxable income.
The
Company operates in a number of different countries around the world. In 2003
the Company began to manufacture its products in Switzerland, where it has
received a permanent income tax rate commitment from the Swiss government as an
incentive to establish a manufacturing plant there. The Company does not provide
deferred tax assets on temporary differences scheduled to reverse after the
commitment period because all of its earnings are included in the current tax
provision. Approximately 60% of all finished goods shipments come from the Swiss
plant, with the balance coming from the Company’s manufacturing facilities
located in the United States.
Significant
judgment is required in determine our worldwide provision for income taxes. In
the ordinary course of global business, there are many transactions for which
the ultimate tax outcome is uncertain. We have appropriately reserved for our
tax uncertainties based on the criteria established by SFAS No. 5, “Accounting
for loss contingencies”. Some of
the uncertainties arise as a result of inter-company arrangements to share
revenue and costs. In such arrangements there are uncertainties about the amount
and manner of such sharing, which could ultimately result in changes once the
arrangements are reviewed by taxing authorities.
The
Reserve For Warranties - The
Company establishes a liability for included twelve-month warranties by the
creation of a warranty reserve, which is an estimate of the repair expenses
likely to be incurred for the remaining period of warranty measured in
installation-months in each major product group. Warranty reserve is reflected
in accrued liabilities in the accompanying consolidated balance sheets. The
warranty expense is estimated by determining the total repair expenses for each
product group in the period and determining a rate of repair expense per
installation month. The rate is multiplied by the number of machine-months of
warranty for each product group sold during the period to determine the
provision for warranty expenses for the period. The Company reevaluates its
exposure to warranty costs at the end of each period using the estimated expense
per installation month for each major product group, the number of machines
remaining under warranty and the remaining number of months each machine will be
under warranty. While such expenses have historically been within its
expectations, we cannot guarantee this will continue in the
future.
Transactions
with Related and Other Parties
The
Company leases its headquarters in Lake Mary, Florida from Xenon Research, Inc.,
all of the issued and outstanding capital stock of which is owned by Simon Raab,
the Company's Chief Executive Officer, and Diana Raab, his spouse. The term of
the lease expires on February 28, 2006, and the Company has a five year renewal
option. Base rent during renewal periods will reflect changes in the U.S. Bureau
of Labor Statistics Consumer Price Index for all Urban Consumers.
Foreign
Exchange Exposure
We
conduct a significant portion of our business outside the United States. At
present, approximately 50% of our revenues are invoiced, and a significant
portion of our operating expenses paid, in foreign currencies. Fluctuations in
exchange rates between the U.S. dollar and such foreign currencies may have a
material adverse effect on our business, results of operations and financial
condition, and could specifically result in foreign exchange gains and losses.
The impact of future exchange rate fluctuations on the results of our operations
cannot be accurately predicted. To the extent that the percentage of our
non-U.S. dollar revenues derived from international sales increases (or
decreases) in the future, our exposure to risks associated with fluctuations in
foreign exchange rates may increase (or decrease).
Item
3. - Quantitative and Qualitative Disclosures about Market
Risk
The
information required by this item is incorporated by reference herein from the
section of this Report in Part I, Item 2, under the caption “Foreign Exchange
Exposure”, above.
Item
4. - Controls and Procedures
As of the
end of the period covered by this Quarterly Report on Form 10-Q, management
carried out an evaluation, under the supervision and with the participation of
its Chief Executive Officer and its principal financial officer, of the
effectiveness of the design and operation of its disclosure controls and
procedures as such term is defined under Securities Exchange Act of 1934, as
amended (the “Exchange Act”) Rule 13a-15(e). Based on this evaluation,
management has concluded that such disclosure controls and procedures were
effective to provide reasonable assurance that the Company records, processes,
summarizes and reports the information the Company must disclose in reports that
the Company files or submits under the Exchange Act within the time periods
specified in the SEC’s rules and forms.
There
were no changes in the Company’s internal control over financial reporting
during the quarter ended April 2, 2005 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II. OTHER INFORMATION
Item
1. - Legal Proceedings
The
Company is not a party to any material pending legal proceedings other than
ordinary routine litigation incidental to the Company’s business. The Company is
subject to various claims and contingencies related to lawsuits arising out of
the normal course of business. The Company believes that the ultimate outcome of
any pending legal proceeding, even if the outcome were unfavorable to the
Company, is not likely to have a materially adverse effect on the Company's
business, financial condition or results of operations.
Item
4. - Submission of Matters to a Vote of Security Holders
None.
Item
5. - Other Information
On May
11, 2004, the Company established a nomination committee consisting of Messrs.
Schipper (Chair) Andre Julien, Hubert d’Amours, John Caldwell, and Stephen Cole.
The nominating committee is responsible for selecting and recommending for
approval by the Board and the Company’s shareholders director nominees. The
Company has established a nominations process for the selection of director
nominees, which is set forth in the Company's proxy statement for its annual
shareholders meeting to be held on May 17, 2005. The proxy statement incorrectly
states that the entire Board fulfills the role of the nominating
committee.
The
Company also has established a compensation committee that is responsible for
establishing the compensation of the Company’s directors, officers and other
managerial personnel, including salaries, bonuses, termination arrangements and
other benefits. In addition, the Compensation Committee administers the
Company’s 1993 Stock Option Plan, 1997 Employee Stock Option Plan, 1997
Non-employee Director Stock Option Plan, 1997 Non-employee Directors’ Fee Plan
and 2004 Equity Compensation Plan. Effective May 10, 2005, Simon Raab and
Gregory A. Fraser no longer serve on the compensation committee. Previously, the
compensation committee consisted of Simon Raab, Gregory Fraser, Norman Schipper,
John Caldwell, Stephen Cole, Hubert d’Amours, and Andre Julien, although Messrs.
Raab and Fraser, the Company's "executive officers" in 2004, did not participate
in any discussions with respect to their compensation.
Item
6. - Exhibits And Reports On Form 8-K
| |
31-A |
Certification
of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
| |
31-B
|
Certification
of the Principal Financial and Accounting Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
| |
32-A |
Certification
of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
| |
32-B
|
Certification
of the Principal Financial and Accounting Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
On March
30, 2005, we filed a Current Report on Form 8-K in connection with a press
release announcing our acquisition of iQvolution AG.
On April
1, 2005, we filed a Current Report on Form 8-K in connection with our
acquisition of iQvolution AG.
On April
13, 2005, we filed a Current Report on Form 8-K in connection with a press
release announcing our sales and new orders results for the quarter ended April
2, 2005.
On May 9,
2005, we filed a Current Report on Form 8-K in connection with a press release
announcing our results of operations for the quarter ended April 2,
2005.
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.
| |
|
|
| |
FARO
Technologies, Inc.
(Registrant) |
|
|
|
| Date: May 10, 2005 |
By: |
/s/ |
| |
|
| |
Gregory A. Fraser
Executive
Vice President, Secretary and Treasurer (Duly Authorized Officer and
Principal Financial Officer) |