FEI Company Reports Record Bookings and Sales for the Fourth Quarter of 2004 Net Income More than Doubles Over Prior Quarter and Prior Year

Nanotechnology Research Tools Drive Growth



    HILLSBORO, Ore., Feb. 2 /PRNewswire-FirstCall/ -- FEI Company
 (Nasdaq:   FEIC) reported record bookings and sales as well as significantly
 increased operating margins and income in its financial report for the fourth
 quarter of 2004.
     Net sales were $145.2 million for the fourth quarter ended December 31,
 2004, an increase of 36% compared with net sales of $107.0 million for the
 third quarter of 2004 and an increase of 49% compared with net sales of $97.7
 million for the fourth quarter of 2003.
     Bookings in the fourth quarter totaled $143.8 million, resulting in a
 book-to-bill ratio of 0.99 and a backlog of $160.0 million at the end of the
 quarter.  Bookings increased 14% compared with the previous record-high
 bookings reported for the third quarter of 2004 and increased 42% compared
 with the fourth quarter of 2003.
     GAAP net income for the fourth quarter of 2004 was $8.4 million, an
 increase of over 150% compared with net income of $3.3 million in both the
 third quarter of 2004 and the fourth quarter of 2003.
     Fully diluted earnings per share in the latest quarter were $0.21 compared
 with $0.08 in both the third quarter of 2004 and the fourth quarter of 2003.
 Pro-forma earnings per share in the latest quarter were $0.25 per diluted
 share, compared to the published consensus estimate by analysts of $0.19 per
 share.  Investors should refer to the attached table for a reconciliation of
 GAAP earnings to pro-forma earnings.
     Pro-forma earnings per share for the latest quarter are calculated by
 excluding amortization of purchased intangibles, excluding shares attributable
 to the potential conversion of the company's contingent convertible bonds
 (described below) and applying the tax rate in effect through the first nine
 months of the year.  Pro-forma earnings in prior periods exclude amortization
 of purchased intangibles; restructuring, reorganization and relocation costs;
 bond buy-back costs; and the shares attributable to contingent convertible
 bonds.
     The number of shares used to calculate fully diluted earnings per share in
 the latest quarter was 39.7 million and includes 5.5 million shares
 attributable to the potential conversion of the company's contingent
 convertible bonds, adding 16% dilution.  During the fourth quarter of 2004,
 the Emerging Issues Task Force of the Financial Accounting Standards Board
 changed the rules to require inclusion of these shares in the fully diluted
 share count.  Prior period share counts and fully diluted earnings per share
 figures have been restated to conform to the current presentation.
     "The fourth quarter results were exceptionally strong and exceeded our
 guidance by a wide margin," said Vahe A. Sarkissian, chairman, president and
 chief executive officer of FEI.  "We shattered our prior revenue and bookings
 records and more than doubled our earnings sequentially and from the prior
 year's fourth quarter. Annual results were also strong, with bookings growth
 of over 40% to over $500 million, revenue growth of nearly 30% and earnings
 more than double last year. Our performance was particularly strong in the
 nanotechnology research market where we have industry-leading new products and
 break-away technology. We also improved our operating margin and generated
 cash.
     "While we expect a seasonal slowdown in our business in the first quarter,
 especially after the very strong fourth quarter, we enter the year with a good
 backlog and anticipate further revenue and earnings growth in 2005," concluded
 Sarkissian.
     Net sales for the full year 2004 were $465.7 million, an increase of 29%
 from the 2003 total of $361.0 million.  Bookings for 2004 were $504.1 million,
 up 41% from $358.5 million in 2003.  GAAP net income for 2004 was $16.6
 million, or $0.42 per diluted share, compared with $7.2 million or $0.20 per
 diluted share in 2003.
     By market, sales to industry and institute customers in the fourth quarter
 were up 45% and bookings were up 37% compared with the third quarter.  For the
 full year, industry and institute sales were up 20% and bookings were up 21%.
 Sales to semiconductor customers in the fourth quarter increased 40% compared
 to the third quarter while bookings decreased by 7%.  For the full year,
 semiconductor customer sales increased 41% and bookings increased 72%.  Data
 storage sales in the fourth quarter were down 57% compared with the third
 quarter, while bookings were up 11%. For all of 2004, data storage sales
 increased 24% and bookings increased 17%.
     The operating margin in the fourth quarter was 9.3%, compared with 6.2% in
 the third quarter of 2004 and 2.0% in the fourth quarter of 2003.  The gross
 margin for the fourth quarter was 40.3% compared to 42.3% in the third quarter
 of 2004 and 38.9% in the fourth quarter of 2003; the sequential change from
 the third quarter was primarily due to a change in the mix of products sold.
 Operating expenses increased by $6.4 million compared with the third quarter
 due to increased sales commissions; employee profit sharing and bonuses; the
 impact of the weaker dollar compared to the euro; and increased regulatory
 expenses, primarily for Sarbanes-Oxley compliance.  Included in operating
 expenses in the fourth quarter was amortization of intangibles of $1.7
 million, compared with $1.4 million in the third quarter.  The tax rate for
 the fourth quarter was 28.8%, bringing the full-year 2004 tax rate down to
 32.0%.
     Cash generated by operations was $12.4 million for the quarter.  Capital
 spending for the quarter was $4.3 million, and depreciation expense was $4.1
 million.  Inventory turnover increased from 2.5 times in the third quarter to
 4.0 times in the fourth quarter as inventory decreased by $10.9 million from
 the third quarter level.  Accounts receivable increased by $32.6 million from
 the prior quarter due to increased shipments, while days sales outstanding
 decreased from 109 days at the end of the third quarter to 101 days at the end
 of the fourth quarter.  The company continued to maintain a strong balance
 sheet, with cash and investments of $341.9 million, convertible debt of $295.0
 million (due in 2008) and shareholders' equity of $379.8 million as of
 December 31, 2004.
 
     First Quarter 2005 Guidance
     The company normally experiences a seasonal decline in bookings and
 revenue from the fourth quarter to the first quarter in most years, and it
 expects that decline to happen this year.  Currently it expects net sales for
 the first quarter of 2005 to be in the range of $120 million to $130 million.
 GAAP earnings per share are anticipated to be in the range of $0.09 to $0.13
 per share.  Pro-forma earnings per share, excluding amortization of purchased
 intangibles and the shares attributable to the conversion of the contingent
 convertible bonds, are thus anticipated to be in the range of $0.13 to $0.18.
 For reasons why the company's actual results may differ from guidance, please
 see the section titled "Safe Harbor Statement" below.
 
     Investor Conference Call -- 2:00 p.m. PST Wednesday, February 2, 2005
     Parties interested in listening to FEI's quarterly conference call may do
 so by dialing 1-800-218-4007 (domestic, toll-free) or 1-303-262-2130
 (international) and asking for the FEI Q4 Earnings call. The call can also be
 accessed via the web by going to FEI's Investor Relations page at
 http://www.feicompany.com , where the webcast will also be archived. A
 telephone replay of the call will also be accessible for one month by dialing
 1-800-405-2236 (US) or 1-303-590-3000 (international) and entering the access
 code 11020807#.
 
     About FEI
     FEI's Tools for Nanotech(TM), featuring focused ion- and electron-beam
 technologies, deliver 3D characterization, analysis and modification
 capabilities with resolution down to the sub-Angstrom level. With R&D centers
 in North America and Europe and sales and service operations in more than 40
 countries around the world, FEI is bringing the nanoscale within the grasp of
 leading researchers and manufacturers and helping to turn some of the biggest
 ideas of this century into reality. More information can be found on the FEI
 website at: http://www.feicompany.com .
 
     Safe Harbor Statement
     This news release contains forward-looking statements that include our
 guidance for the first quarter of 2005 and statements about future bookings,
 revenue, operating margins earnings and profitability. Factors that could
 affect these forward-looking statements include, but are not limited to, the
 continued growth in nanotechnology markets in general and more particularly,
 the strength of the scientific research, semiconductor and data storage
 markets; cyclical changes in the data storage and semiconductor industries;
 fluctuations in foreign exchange and interest rates; our continued ability to
 maintain deferral accounting of hedge transactions; reduced profitability due
 to failure to achieve or sustain margin improvement or cost reductions; lower
 than expected customer orders; cancellation of customer orders; increased
 competition and new product offerings from competitors; lower average sales
 prices and reduced margins on some product sales due to increased competition;
 failure of the company's products and technology to find acceptance with
 customers; changes in the mix of products sold in a quarter; unfavorable
 business conditions and lack of growth in the general economy, both domestic
 and foreign; restructurings and reorganizations not presently anticipated;
 reduced sales due to geopolitical risks; changes in trade policies and tariff
 regulations; additional research and development expenses; additional selling,
 general and administrative expenses; additional costs related to future merger
 and acquisition activity; and failure of the company to achieve anticipated
 benefits of current or future acquisitions, including failure to achieve
 financial goals and integrate the acquisitions successfully.  Please also
 refer to our Form 10-K, Forms 10-Q and other filings with the U.S. Securities
 and Exchange Commission for additional information on these factors and other
 factors that could cause actual results to differ materially from the forward-
 looking statements. FEI assumes no duty to update forward-looking statements.
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                                    Thirteen Weeks Ended      Year Ended
                                     Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31,
                                       2004       2003      2004       2003
     NET SALES:
       Products                      $119,724   $73,842   $374,908   $279,882
       Service                         25,450    23,895     90,797     81,095
                Total net sales       145,174    97,737    465,705    360,977
 
     COST OF SALES:
       Products                        69,007    42,320    213,434    160,374
       Service                         17,712    17,425     62,815     55,292
                Total cost of sales    86,719    59,745    276,249    215,666
 
                Gross profit           58,455    37,992    189,456    145,311
 
     OPERATING EXPENSES:
       Research and development        15,576    13,475     55,857     46,312
       Selling, general and
        administrative                 27,828    21,955     94,307     77,463
       Amortization of purchased
        technology                      1,685     1,266      5,924      5,069
       Purchased in-process research
        and development                    --        --         --      1,240
       Restructuring, reorganization
        and relocation                   (100)     (622)       607      1,678
                Total operating
                 expenses              44,989    36,074    156,695    131,762
 
     OPERATING INCOME                  13,466     1,918     32,761     13,549
 
     OTHER INCOME (EXPENSE):
       Interest income                  1,508       993      5,212      4,868
       Interest expense                (2,675)   (2,441)   (10,332)   (11,470)
       Other income (expense), net       (557)    4,286     (3,270)     3,790
     Total other expense, net          (1,724)    2,838     (8,390)    (2,812)
 
     INCOME BEFORE TAXES               11,742     4,756     24,371     10,737
 
     INCOME TAX EXPENSE                 3,378     1,450      7,798      3,543
 
     NET INCOME                        $8,364    $3,306    $16,573     $7,194
 
     PER SHARE DATA:
       Basic earnings per share         $0.25     $0.10      $0.50      $0.22
       Diluted earnings per share       $0.21     $0.08      $0.42      $0.20
 
     WEIGHTED AVERAGE SHARES
      OUTSTANDING:
       Basic                           33,323    33,141     33,253     32,930
       Diluted                         39,664    39,711     39,668     36,844
 
 
     RECONCILIATION OF FOURTH QUARTER RESULTS (1)
 
     The following table reconciles the specific items excluded from U.S. GAAP
 in the calculation of Pro-forma results for the periods indicated below:
 
     INCOME STATEMENT RECONCILIATION  Thirteen Weeks Ended       Year Ended
                                      Dec. 31,  Dec. 31,   Dec. 31,   Dec. 31,
                                        2004      2003       2004       2003
 
     U.S. GAAP net income              $8,364    $3,306    $16,573     $7,194
 
       Add back:
         Amortization of purchased
          technology                    1,685     1,266      5,924      5,069
         Purchased in-process
          research and development         --        --        --       1,240
         Restructuring,
          reorganization and
          relocation                     (100)     (622)       607      1,678
         Bond buy-back costs               --        --         --      1,590
         Reduction in Q4 2004
          effective tax rate             (732)       --       (732)        --
         Tax effect                      (555)     (196)    (2,285)    (3,160)
 
     Pro-forma net income              $8,662    $3,754    $20,087    $13,611
 
     DILUTED SHARES RECONCILIATION    Thirteen Weeks Ended       Year Ended
                                       Dec. 31,   Dec. 31,  Dec. 31,   Dec. 31,
                                         2004      2003       2004       2003
 
     U.S. GAAP diluted shares           39,664    39,711     39,668     36,844
 
        Contingent convertible shares   (5,529)   (5,529)    (5,529)    (3,023)
 
     Pro-forma diluted shares           34,135    34,182     34,139     33,821
 
     EARNINGS PER SHARE RECONCILIATION
                                     Thirteen Weeks Ended       Year Ended
                                      Dec. 31,   Dec. 31,  Dec. 31,   Dec. 31,
                                        2004       2003      2004       2003
 
     U.S. GAAP diluted earnings per
      share                             $0.21     $0.08      $0.42      $0.20
 
       Add back:
         Amortization of purchased
          technology                     0.04      0.03       0.15       0.14
         Purchased in-process
          research and development         --        --         --       0.03
         Restructuring,
          reorganization and
          relocation                       --     (0.02)      0.02       0.05
         Bond buy-back costs               --        --         --       0.04
         Reduction Q4 2004 effective
          tax rate                      (0.02)       --      (0.02)        --
         Tax effect                     (0.02)       --      (0.05)     (0.09)
           subtotal                      0.21      0.09       0.52       0.37
         Impact of contingent
          convertible shares             0.04      0.02       0.07       0.03
 
     Pro-forma diluted earnings per
      share                             $0.25     $0.11      $0.59      $0.40
 
      (1)  The press release and reconciliation table contain non-GAAP net
           income and earnings per share information (referred to as
           "Pro-forma") that excludes the impact of amortization of intangible
           assets; excludes bond buy-back costs in 2003; excludes restructuring
           costs; applies the tax rate in effect for the first nine months of
           fiscal 2004 to the fourth quarter of fiscal 2004; and excludes the
           shares attributable to potential conversion of the company's
           contingently convertible bonds.  Management of the company believes
           it is useful for investors to have this supplemental non-GAAP
           information because management evaluates the company's operating
           performance using this non-GAAP information and the non-GAAP
           measures are key measures used by management to plan and forecast
           business and assess overall company performance.  Further, non-GAAP
           net income and EPS are common performance tools used by the investor
           community to evaluate results.  Non-GAAP financial measures should
           not be considered as a substitute for measures of financial
           performance prepared in accordance with GAAP.  Also, the non-GAAP
           financial measures are not prepared in accordance with generally
           accepted accounting principles and may be different from non-GAAP
           financial measures used by other companies.
 
 
                          FEI Company and Subsidiaries
                     Condensed Consolidated Balance Sheets
                                 (In thousands)
                                  (Unaudited)
 
                                                December 31,      December 31,
     ASSETS                                         2004              2003
 
     CURRENT ASSETS:
       Cash and cash equivalents                  $246,259          $236,488
       Short-term investments in
        marketable securities                       62,841            63,480
       Receivables                                 160,276           102,342
       Inventories                                  87,783           102,315
       Deferred tax assets                           8,343             8,307
       Other current assets                         28,469            13,155
 
                Total current assets               593,971           526,087
 
     NON-CURRENT INVESTMENTS IN MARKETABLE
      SECURITIES                                    32,824            22,068
 
     PROPERTY PLANT AND EQUIPMENT, NET              71,550            69,392
 
     PURCHASED TECHNOLOGY, NET                      22,080            27,105
 
     GOODWILL                                       41,486            41,423
 
     OTHER ASSETS, NET                              78,060            71,162
 
     TOTAL                                        $839,971          $757,237
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
 
     CURRENT LIABILITIES:
       Accounts payable                            $36,618           $35,422
       Current accounts with Philips                 4,240             4,223
       Accrued payroll liabilities                  15,070             8,285
       Accrued warranty reserves                    10,052            10,500
       Deferred revenue                             43,349            28,743
       Income taxes payable                          7,434             3,108
       Accrued restructuring,
        reorganization and relocation                1,020             2,104
       Other current liabilities                    36,971            17,415
 
                Total current liabilities          154,754           109,800
 
     CONVERTIBLE DEBT                              295,000           295,000
 
     DEFERRED TAX LIABILITIES                        6,412            11,703
 
     OTHER LIABILITIES                               4,045             4,441
 
     SHAREHOLDERS' EQUITY:
       Preferred stock - 500 shares
        authorized; none issued and
        outstanding                                     --                --
       Common stock - 70,000 shares
        authorized; 33,413 and 33,153
        shares issued and outstanding at
        December 31, 2004 and December 31, 2003    315,679           308,509
       Note receivable from shareholder                 --            (1,506)
       Accumulated earnings                         22,077             5,504
       Accumulated other comprehensive income       42,004            23,786
 
                Total shareholders' equity         379,760           336,293
 
     TOTAL                                        $839,971          $757,237
 
 
                                  FEI COMPANY
                               Supplemental Data
                    (In millions, except per share amounts)
                                  (Unaudited)
 
                                              Q4 Ended    Q3 Ended    Q4 Ended
                                             12/31/2004  10/3/2004  12/31/2003
     Income Statement Highlights
       Consolidated sales                      $145.2      $107.0       $97.7
       Gross margin                             40.3%       42.3%       38.9%
       R & D spending                           $15.6       $13.6       $13.5
       R & D (% of sales)                       10.7%       12.7%       13.8%
       SG&A                                     $27.8       $23.6       $22.0
       SG&A (% of sales)                        19.2%       22.1%       22.5%
       Net income - GAAP                         $8.4        $3.3        $3.3
       Diluted earnings per share - GAAP        $0.21       $0.10       $0.10
     Sales by Business Segment
        MicroElectronics                        $63.3       $49.9       $39.2
        Electron Optics                         $54.1       $32.2       $31.6
        Service                                 $25.5       $22.9       $23.9
        Components                               $2.3        $1.9        $3.1
     Sales by Market Sector
       Semiconductor                            $69.0       $49.3       $44.1
       Data Storage                              $3.1        $7.2        $3.0
       I & I                                    $73.1       $50.5       $50.6
     Sales by Geography
       North America                            $44.6       $45.4       $33.7
       Europe                                   $49.4       $33.6       $33.8
       Asia Pacific                             $51.2       $28.0       $30.2
     Bookings
       Total                                   $143.8      $126.4      $101.5
       Book to bill ratio                        0.99        1.18        1.04
       Backlog - total                         $160.0      $161.4      $121.6
       Backlog - Service                        $31.0       $28.0       $27.5
     Bookings by Business Segment
       MicroElectronics                         $51.0       $67.3       $34.9
       Electron Optics                          $62.6       $37.7       $39.3
       Service                                  $28.4       $19.4       $24.1
       Components                                $1.8        $2.0        $3.2
     Bookings by Market Sector
       Semiconductor                            $60.7       $64.9       $41.3
       Data Storage                              $5.0        $4.5        $4.7
       I & I                                    $78.1       $57.0       $55.5
     Balance Sheet Highlights
       Cash, equivalents, investments          $341.9      $313.8      $322.0
       Operating cash (used) generated          $12.4        $9.0       $23.0
       Accounts receivable                     $160.3      $127.7      $103.6
       Days sales outstanding (DSO)               101         109          97
       Inventory turnover                         4.0         2.5         2.3
       Inventories                              $87.8       $98.6      $102.3
       Property, plant and equipment            $71.6       $68.8       $69.4
       Fixed asset investment (during quarter)   $4.3        $1.4        $9.0
       Depreciation expense                      $4.1        $3.6        $4.3
       Current liabilities                     $154.8      $116.4      $109.8
       Working Capital                         $439.2      $429.4      $416.3
       Shareholders' equity                    $379.8      $347.4      $336.3
       Headcount (permanent and temporary)      1,756       1,747       1,656
 
 
 

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