SecProbe.io

<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
August 12, 2005

Ms. Angela J. Crane
Accounting Branch Chief
Securities and Exchange Commission
Judiciary Plaza, 450 Fifth Street, N.W.
Washington, D.C. 20549

Re:    Response Submitted in the Matter of EXFO Electro-Optical
       Engineering, Inc. (File No. 0-30895)
       --------------------------------------------------------

Dear Ms. Crane:

On behalf of EXFO Electro-Optical  Engineering Inc. (the "COMPANY"),  I hereby
acknowledge that:

1.       the Company is responsible for the adequacy and accuracy of the
         disclosure in its Form 20-F for the fiscal year ended August 31, 2004
         and its Form 6-K filed April 6, 2005 (collectively, the "FILING");

2.       comments by the staff ("STAFF") of the Securities and Exchange
         Commission (the "COMMISSION") or changes to disclosure in response to
         Staff comments do not foreclose the Commission from taking any action
         with respect to the Filing; and

3.       the Company may not assert Staff comments as a defense in any
         proceeding initiated by the Commission or any person under the
         federal securities laws of the United States.

Very truly yours,

/s/ Pierre Plamondon
-------------------------
Pierre Plamondon, CA
Vice-President, Finance and
Chief Financial Officer

<PAGE>

August 12, 2005

Ms. Angela J. Crane
Accounting Branch Chief
Securities and Exchange Commission
Washington, D.C.  20549

RE:      EXFO ELECTRO-OPTICAL ENGINEERING INC.
         FORM 20-F FOR THE FISCAL YEAR ENDED AUGUST 31, 2004
         FILED JANUARY 14, 2005
         FILE NO. 0-30895

Dear Ms. Crane,

We have taken note of your comments raised in the review of our fiscal 2004
Annual Report on Form 20-F. Please find below our responses to each matter
that you raised.

FORM 20-F FOR THE PERIOD ENDED AUGUST 31, 2004

MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS, PAGE 43

NET LOSS AND PRO FORMA NET LOSS, PAGE 61

1. WE NOTE THAT YOU PRESENT "PRO FORMA NET LOSS" AND "PRO FORMA NET LOSS PER
SHARE" THAT APPEARS TO BE NON-GAAP FINANCIAL MEASURE AS DEFINED IN ITEM 10(E)
OF REGULATION S-K. AS INDICATED IN ITEM 10(E)(II)(B) OF REGULATION S-K, YOU
MAY NOT ADJUST NON-GAAP FINANCIAL MEASURES TO ELIMINATE OR SMOOTH ITEMS
IDENTIFIED AS NON-RECURRING, INFREQUENT OR UNUSUAL, WHEN THE NATURE OF THE
CHARGE OR GAIN IS SUCH THAT IT IS REASONABLY LIKELY TO RECUR WITHIN TWO YEARS
OR THERE WAS A SIMILAR CHARGE OR GAIN WITHIN THE PRIOR TWO YEARS. IN THIS
REGARD, WE NOTE ITEMS IDENTIFIED IN YOUR NET LOSS BREAKDOWN APPEAR TO BE
RECURRING IN NATURE. UNDER CERTAIN LIMITED CIRCUMSTANCES, A NON-GAAP FINANCIAL
MEASURE MAY BE ADJUSTED FOR RECURRING ITEMS, HOWEVER, COMPANIES MUST MEET THE
BURDEN OF DEMONSTRATING THE USEFULNESS OF ANY MEASURE THAT EXCLUDES RECURRING
ITEMS. REFER TO QUESTION 8 OF THE FREQUENTLY ASKED QUESTIONS REGARDING THE USE
OF NON-GAAP MEASURE. PLEASE REVISE FUTURE FILINGS OR ADVISE.

FORM 6-K

4. WE NOTE YOUR FORM 6-K FILED APRIL 6, 2005 AND JANUARY 14, 2005 CONTAIN
NON-GAAP FINANCIAL MEASURES THAT WOULD OTHERWISE BE PROHIBITED BY ITEM 10(E)
OF REGULATION S-K. NOTE THAT IF YOU CHOOSE TO INCORPORATE BY REFERENCE THESE
FORM 6-K OR ANY SUBSEQUENTLY FILED FORM 6-K'S THAT CONTAIN NON-GAAP FINANCIAL
MEASURES, YOU WILL BE REQUIRED TO COMPLY WITH ITEM 10(E) OF REGULATION S-K.

<PAGE>

Our pro forma net loss and pro forma net loss per share are indeed non-GAAP
financial measures as defined in Item 10(e) of Regulation S-K.

We use pro forma net loss and pro forma net loss per share (as disclosed in
our MD&As and press releases) to adjust items that are not representative of
our ongoing business, such as restructuring and other charges, impairment
losses on various assets, as well as non-cash items such as stock-based
compensation costs and amortization of intangible assets. Most of our
intangible assets come from business combinations.

The pro forma net loss and pro forma net loss per share are the primary
financial measures used by our management to assess EXFO's overall performance
on a monthly basis. Most of our internal financial reports are consequently
prepared on a pro forma basis. This information is also provided to the Audit
Committee and to the Board of Directors on a quarterly basis. It is also the
primary financial measures used by the financial analysts that cover EXFO. In
fact, the analysts' consensus on EXFO's market value is based on pro forma net
earnings. Detailed reports from financial analysts who cover EXFO showing the
use of pro forma results are available and will be provided to you upon
request. As a matter of fact, we firmly believe that if we do not provide pro
forma numbers to investors, some of them may be misled, as different versions
of pro forma results may be prepared, creating confusion in the marketplace.
In other words, by providing pro forma results, we make sure that financial
analysts use the same format of pro forma results to prevent any confusion in
the marketplace.

Furthermore, as you may have noticed, in our 2004 Annual Report, we disclosed
our three strategic objectives for fiscal 2005. As recommended by the Canadian
Securities Authorities and in order to help investors evaluate management's
performance, we established and communicated corporate objectives to our
shareholders. One of our three strategic objectives for fiscal 2005 was to
maximize profitability. To assess the realization of this objective, we
established a key performance indicator which was being profitable on a pro
forma basis. In our Annual Report, we clearly defined pro forma profitability
as being GAAP net earnings, excluding stock-based compensation costs,
amortization of intangible assets and restructuring charges. Since the
beginning of fiscal 2005, we have been disclosing pro forma information on
that basis to provide shareholders and financial analysts with actual results
on that corporate objective in order to help them assess the company's and
management's performance.

In our fiscal 2005 Annual Report's MD&A, we are planning to follow up on our
three strategic objectives as outlined at the beginning of the year and for
which we provided an update on a quarterly basis in 2005. One of these
follow-ups requires that we provide investors with the pro forma results
information, as defined at the beginning of the fiscal year. Our shareholders
expect the management to report on the achievement of the objectives
established at the beginning of the fiscal year; otherwise, they will be left
with a big gap in our financial reporting, and the credibility of the company
and management will be severely hurt.

<PAGE>

We firmly believe that it is critical for our investors to be able to predict
our future results of operations with a high degree of certainty and with the
same information as the management (see results through the eyes of
management). Based on our past experience and our continuous communication
with investors and the financial market, we believe that our pro forma
information is required and necessary to help investors and the financial
market to properly assess our performance and to help them forecast our future
performance.

As mentioned above, the four main adjustments made to the pro forma net loss
and the pro forma net loss per share relate to restructuring and other
charges, asset impairment losses, non-cash stock-based compensation costs and
amortization of intangible assets. We adjust the restructuring and other
charges and impairment losses because we believe that these items are
non-recurring and not representative of our past and future operations. Over
the past years, we faced different situations that led to restructuring
actions. First, the telecommunications downturn, which resulted in a reduced
demand for our products, led us to reduce our workforce and to record asset
impairment charges. In addition, following the business combinations completed
in fiscal 2001 and 2002, we recorded additional restructuring charges to
optimize the synergy created by the combinations and to streamline our
operations. Finally, in fiscal 2004, we refocused our business in the telecom
sector, which led to restructuring actions in our Photonics and Life Sciences
Division. However, based on our current business model, we do not expect to
record restructuring charges in the short- and mid-term.

We adjust stock-based compensation costs because it is a non-cash item and
also to ease the comparison with our competitors, most of which are in the
United States, where they were not yet required to record the fair value of
their stock-based compensation costs in their GAAP measures. In addition, we
adjust stock-based compensation costs to ease the comparison with our past
results, as we did not have to record stock-based compensation costs prior to
fiscal 2003.

Finally, we adjust amortization of intangible assets because it is also a
non-cash item that arose mainly from business combinations and which may
create distortions in reported GAAP results depending on whether an enterprise
develops products and markets internally or through acquisitions. Accordingly,
eliminating such amortization facilitates comparison with competitors who grew
internally.

As you must have noted, for each and every filing that contains pro forma
information, we provide the reader with a detailed quantitative reconciliation
of the pro forma numbers with the most directly comparable GAAP numbers. The
material limitations associated with the use of the pro forma net loss and the
pro forma net loss per share are clearly set out in a note that follows the
quantitative reconciliation.

We finally want to bring to your attention that other SEC registrants, such as
Agilent, Sunrise, Ixia, JDS Uniphase, Verizon and Corning, which are either
our direct competitors or simply in our global industry, use non-GAAP
financial measures with adjustments similar to ours. As we are compared to
some of these companies, it is important to provide pro forma information to
be compared on the same basis.

<PAGE>

The following table summarizes different kinds of adjustments made by those
registrants:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                  STOCK-BASED               AMORTIZATION OF
     SEC REGISTRANTS          COMPENSATION COSTS           INTANGIBLE ASSETS     RESTRUCTURING CHARGES
------------------------------------------------------------------------------------------------------
<S>                           <C>                          <C>                   <C>
Agilent                                                                                   X
------------------------------------------------------------------------------------------------------
Sunrise                                X                         X
------------------------------------------------------------------------------------------------------
Ixia                                   X                         X
------------------------------------------------------------------------------------------------------
JDS Uniphase                                                     X                        X
------------------------------------------------------------------------------------------------------
Verizon                                                          X
------------------------------------------------------------------------------------------------------
Corning                                                                                   X
------------------------------------------------------------------------------------------------------
</TABLE>

We take very good note of your comments, and in our future filings, we will be
very careful about the nature of the adjustments made to our pro forma net
earnings to make sure they continue to be relevant and useful for a better
understanding of our results by our investors and financial analysts.

NOTE 20. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, PAGE F-39

2. PLEASE REFER TO NOTE (D). EXPLAIN HOW YOUR RESTRUCTURING CHARGES AND
INTEGRATION ACTIVITIES MEET THE CRITERIA IN EITF 95-3. FOR EXAMPLE, BASED ON
PAGE F-16, IT APPEARS THAT CONSOLIDATION EXPENSES SUCH AS TRAINING, RECRUITING
AND OTHER SPECIAL TERMINATION BENEFITS WOULD BE OUTSIDE THE SCOPE OF EITF
95-3. PLEASE ADVISE.

We respectfully submit that the restructuring charges recorded during fiscal
2004 and 2005, in conjunction with the consolidation of EXFO Burleigh's
operations, were accounted for under Statement of FAS 146, "Accounting for
Costs Associated with Exit or Disposal Activities", rather than under EITF
95-3, "Recognition of Liabilities in Connection with a Business Combination".

Also, in your comments, you refer to note 20(d) when addressing the
restructuring charges issue. Note 20(d) relates to a measurement issue for
shares issued upon business combinations that occurred in 2001 as well as a
difference in accounting treatment between Canadian GAAP and US GAAP for
future income taxes on acquired in-process R&D upon business combinations.

We would like to point out that we have incurred just over $1.2 million in
restructuring charges for the consolidation of EXFO Burleigh's operations.
These expenses can be broken down as follows:

Severance expenses                                      $772,000
Stay bonuses                                             $83,000
Training expenses                                        $76,000
Recruiting expenses                                      $35,000

<PAGE>

Expenses related to building held for sale               $67,000
Expenses related to transfer of assets                  $196,000
Other                                                    $25,000

Stay bonuses as well as training and recruiting expenses, which you refer to
in your comment, were recorded when incurred; that is, for the most part, in
the second quarter of fiscal 2005. Also, expenses related to the building held
for sale and expenses related to the transfer of assets were expensed as
incurred.

3. WITH REGARD TO NOTE (E) RELATED TO GOODWILL, FULLY EXPLAIN HOW YOUR U.S.
GAAP ACCOUNTING COMPLIES WITH SFAS 142. EXPLAIN IN DETAIL YOUR GOODWILL
IMPAIRMENT TESTING PROCESS AND DESCRIBED THE BASIS FOR DETERMINING YOUR
REPORTING UNITS AND YOUR GOODWILL ALLOCATION METHOD.

Note 20(e) to our 2004 annual consolidated financial statements addresses the
differences between Canadian GAAP and US GAAP that occurred during our 2002
and 2003 impairment tests for goodwill and acquired intangible assets.

The impairment tests for goodwill and intangible assets performed in fiscal
2002 were made pursuant to APB 17 for goodwill and FAS 121 for intangible
assets under US GAAP, which were the accounting standards in force during that
year.

However, the impairment tests for goodwill and intangible assets performed in
fiscal 2003 and 2004 were indeed made pursuant to new accounting standards FAS
142 and FAS 144 under US GAAP, which are similar to Canadian GAAP.

a)       IDENTIFICATION OF REPORTING UNITS AND ALLOCATION OF GOODWILL

We recorded goodwill for the four business combinations we made over the last
four fiscal years; that is EXFO Burleigh, EXFO Photonics, EXFO Protocol and
EXFO Gnubi.

For the purposes of the goodwill impairment test performed under FAS 142, we
allocated goodwill to identified reporting units. Reporting units were
identified based on the criteria of FAS 142. In 2003, EXFO Burleigh, EXFO
Photonics and EXFO Protocol were each considered a component of a business
segment; because they constituted a business, we had discrete sets of
financial statements for each of them and management reviewed these financial
statements on a monthly basis. In 2004, EXFO Protocol was merged with the
parent company and we ceased having discr