FEI Company Reports Results for Fourth Quarter of 2005 Company Restructuring Substantially Complete



Improved Revenue and Earnings Expected for 2006



    HILLSBORO, Ore., Feb. 7 /PRNewswire-FirstCall/ -- FEI Company
 (Nasdaq:   FEIC) reported results for the fourth quarter of 2005.  Both revenue
 and bookings increased from the third quarter, but the company recorded a loss
 for the latest quarter, due to substantial restructuring and asset revaluation
 charges, including charges related to the previously announced decision to
 consolidate operations.  The company is entering 2006 with a record backlog
 and reduced expenses and expects higher revenue and improved financial results
 in 2006.
     Net sales for the quarter ended December 31, 2005 of $101.6 million are up
 5% compared to the net sales of $97.1 million in the third quarter of 2005.
     Bookings in the fourth quarter totaled $116.1 million, resulting in a
 book-to-bill ratio of 1.14 and a record high backlog of $186.3 million at the
 end of the quarter.  Bookings were up 16% from the third quarter of 2005.
     The net loss on the basis of accounting principles generally accepted in
 the United States (GAAP) was $30.7 million for the fourth quarter of 2005,
 compared with a net loss of $5.1 million in the third quarter of 2005 and net
 income of $8.4 million in the fourth quarter of 2004.  The diluted loss per
 share in the latest quarter was $0.91, compared with a diluted loss per share
 of $0.15 in the third quarter of 2005.
     Restructuring, asset impairment charges and related inventory write-offs
 in the fourth quarter were $24.2 million, including:
 
      -    $5.4 million of inventory write-downs and adjustments, included in
           cost of sales, primarily related to product lines formerly
           manufactured at the company's facility in Peabody, Massachusetts;
           the Peabody facility was closed in December 2005, as previously
           announced;
      -    $0.9 million for asset impairments related to the Peabody facility;
      -    $7.7 million for asset impairments related to our decision to
           discontinue implementation of a new enterprise resource planning
           system and pursue less costly alternatives;
      -    $5.6 million impairment of investments in minority-owned companies,
           included on the income statement in other expense, net; and
      -    $4.6 million of restructuring charges, primarily for severance,
           lease termination, and relocation expenses, related to the Peabody
           closure and included as a separate line item in operating expenses.
 
     The company recorded an income tax expense in the fourth quarter of $2.3
 million.  Excluding the tax expense, as well as the restructuring, asset
 impairment charges and related inventory write-offs, the non-GAAP pretax loss
 in the latest quarter was $4.2 million.  Investors should refer to the
 attached table for a reconciliation of the GAAP loss before taxes to the non-
 GAAP loss before taxes.
     "2005 results were disappointing, but we believe we have taken the right
 steps to renew our growth and significantly improve our profitability in
 2006," said Vahe A. Sarkissian, chairman, president and chief executive
 officer of FEI.  "In the last year, we have:
 
      -    reorganized the company around our major market growth
           opportunities;
      -    introduced important new products, including the world's most
           powerful electron microscope, the Titan(TM);
      -    reduced our operating costs;
      -    focused our investment on the most important growth opportunities
           and away from under-performing product lines;
      -    and generated positive cash flow.
 
     "In the fourth quarter, we saw renewed growth in our bookings," continued
 Sarkissian, "and we added to our backlog, which will help us improve our
 production flow and further aid in lowering costs.  We enter 2006 with a
 record backlog and reduced costs, and expect to deliver significantly improved
 operating results in 2006.  We have large market opportunities and powerful
 technology resources, to which we have added an increased market focus and
 improved operating processes."
     Total cash and investments increased in the quarter by $14.4 million,
 including positive operating cash flow of $5.8 million.  Capital spending for
 the quarter was $3.3 million, and depreciation expense was $3.3 million.
 Inventory turnover improved to an annual rate of 3.1 times in the fourth
 quarter compared with 2.6 times in the third quarter.  Accounts receivable
 decreased by $10.2 million from the prior quarter, while days sales
 outstanding improved to 88 days, compared with 102 days in the third quarter.
 Cash and short and long term investments were $280.5 million, convertible debt
 totaled $225.0 million (due in 2008) and shareholders' equity was $292.4
 million as of December 31, 2005.
 
     First Quarter Guidance and 2006 Outlook
     FEI currently expects net sales for the first quarter of 2006 to be in the
 range of $106 million to $111 million.  Bookings are expected to be greater
 than sales for the quarter.  The company expects a non-cash restructuring and
 impairment charge of approximately $2 million in the first quarter of 2006 due
 to implementation of the final steps in its restructuring plan.  As a result
 of adopting the new requirements for accounting for stock options and other
 equity awards under SFAS 123(R), the company expects to record approximately
 $1.9 million of stock option expense in the first quarter, and approximately
 $2.3 million per quarter in subsequent quarters of 2006.  GAAP earnings per
 share in the first quarter are expected to be in the range of breakeven to a
 small loss.  Excluding the restructuring charges and stock option expense,
 non-GAAP earnings per share are expected to be in the range of $0.01 to $0.06
 per share.  The company expects a tax rate for the first quarter of
 approximately 35%.
     For 2006, the company expects continued growth in the research sector of
 its business and a modest recovery in the semiconductor and data storage
 markets.  Revenue for the year is currently expected to grow compared to 2005.
 As a result of revenue growth and lower costs due to the company's
 restructuring and other cost-improvement programs, earnings are expected to
 improve substantially over 2005 levels.  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 Tuesday, February 7, 2006
     Parties interested in listening to FEI's quarterly conference call may do
 so by dialing 1-800-218-4007 (domestic, toll-free) or 1-303-262-2131
 (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 11050789#.
 
     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 50
 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 2006 and statements about future bookings,
 revenue, earnings, financial results, profitability, backlog growth, and
 reduced costs as well as restructuring plans and anticipated benefits. 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; failure of customers to adopt new technologies; 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;
 delays in shipping new products; 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; failure to accurately estimate the amounts
 and timing of restructuring charges; delays in or failure to complete planned
 restructurings in the first quarter of 2006; timing of facilities closings,
 relocations, severance and other charges included in restructurings;
 additional restructurings and reorganizations not presently anticipated;
 reduced sales due to geopolitical risks; changes in trade policies and tariff
 regulations; additional research and development expenses; inability to
 overcome technological barriers; 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, Forms 8-K 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 Balance Sheets
                                 (In thousands)
                                  (Unaudited)
 
                                           December 31, October 2, December 31,
     ASSETS                                    2005        2005        2004
 
     CURRENT ASSETS:
       Cash and cash equivalents              $79,315     $75,632    $128,958
       Short-term investments in
        marketable securities                 156,049     146,368     173,681
       Receivables                             98,330     108,544     159,526
       Inventories                             84,879      97,900      87,783
       Deferred tax assets                      5,157       3,823       8,365
       Other current assets                    32,328      26,377      31,528
 
                Total current assets          456,058     458,644     589,841
 
     Non-current investments in marketable
      securities                               44,602      43,769      33,850
 
     Long-term restricted cash                    519         323       4,177
 
     Property plant and equipment, net         59,011      64,241      71,550
 
     Purchased technology, net                  8,154       8,821      22,080
 
     Goodwill                                  41,402      41,459      41,486
 
     Deferred tax assets                        1,095       2,214      18,555
 
     Other assets, net                         45,190      51,922      59,505
 
     TOTAL                                   $656,031    $671,393    $841,044
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
 
     CURRENT LIABILITIES:
       Accounts payable                       $26,186     $30,450     $36,618
       Current accounts with Philips            1,964       1,795       4,240
       Accrued payroll liabilities              9,205      12,014      15,070
       Accrued warranty reserves                5,193       5,466       9,073
       Deferred revenue                        43,647      42,468      42,599
       Income taxes payable                     9,021       2,916       7,962
       Accrued restructuring,
        reorganization and relocation           5,274       2,614       1,020
       Other current liabilities               31,072      31,544      38,107
 
                Total current liabilities     131,562     129,267     154,689
 
     Convertible debt                         225,000     225,000     295,000
 
     Deferred tax liabilities                   1,947         648       6,412
 
     Other liabilities                          5,079       4,952       5,373
 
     SHAREHOLDERS' EQUITY:
       Preferred stock - 500 shares
        authorized; none issued and
        outstanding                                --          --          --
       Common stock - 70,000 shares
        authorized; 33,800; 33,675; and
        33,413 shares issued and outstanding
        at December 31, 2005; October 2,
        2005; and December 31, 2004           332,125     319,067     315,632
       Accumulated (deficit) earnings         (56,081)    (25,388)     22,077
       Accumulated other comprehensive
        income                                 16,399      17,847      41,861
 
                Total shareholders' equity    292,443     311,526     379,570
 
     TOTAL                                   $656,031    $671,393    $841,044
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                               Thirteen Weeks Ended            Year Ended
                          December    October  December   December   December
                             31,         2,       31,        31,        31,
                            2005       2005      2004       2005       2004
 
     NET SALES:
       Products            $76,725   $70,889   $119,724   $325,679   $374,908
       Service              24,896    26,233     25,450    101,550     90,797
                Total net
                 sales     101,621    97,122    145,174    427,229    465,705
 
     COST OF SALES:
       Products             52,005    42,704     69,007    201,024    213,434
       Service              19,826    17,984     17,712     74,382     62,815
                Total
                 cost of
                 sales      71,831    60,688     86,719    275,406    276,249
 
                Gross
                 profit     29,790    36,434     58,455    151,823    189,456
 
     OPERATING EXPENSES:
       Research and
        development         14,388    13,429     15,576     59,870     55,857
       Selling, general
        and administrative  24,050    25,251     27,828     99,787     94,307
       Amortization of
        purchased
        technology             640       720      1,685      4,220      5,924
       Asset impairment      8,607       801         --     25,352         --
       Restructuring,
        reorganization
        and relocation       4,615     2,804       (100)     8,544        607
                Total
                 operating
                 expenses   52,300    43,005     44,989    197,773    156,695
 
     OPERATING (LOSS)
      INCOME               (22,510)   (6,571)    13,466    (45,950)    32,761
 
     OTHER INCOME
      (EXPENSE):
       Interest income       2,233     1,866      1,508      7,819      5,212
       Interest expense     (1,461)   (1,392)    (2,675)    (9,342)   (10,332)
       Other expense, net   (6,701)     (399)      (557)    (8,310)    (3,270)
                Total other
                 expense,
                 net        (5,929)       75     (1,724)    (9,833)    (8,390)
 
     (LOSS) INCOME BEFORE
      TAXES                (28,439)   (6,496)    11,742    (55,783)    24,371
 
     INCOME TAX EXPENSE      2,255    (1,393)     3,378     22,375      7,798
 
     NET (LOSS) INCOME    $(30,694)  $(5,103)    $8,364   $(78,158)   $16,573
 
     PER SHARE DATA:
       Basic (loss)
        earnings per share  $(0.91)   $(0.15)     $0.25     $(2.33)     $0.50
       Diluted (loss)
        earnings per
        share               $(0.91)   $(0.15)     $0.21     $(2.33)     $0.42
 
     WEIGHTED AVERAGE
      SHARES OUTSTANDING:
       Basic                33,718    33,664     33,323     33,595     33,253
       Diluted              33,718    33,664     39,664     33,595     39,668
 
 
      RECONCILIATION OF RESULTS (1)
 
     The following table reconciles the specific items excluded from U.S. GAAP
 in the calculation of Non-GAAP results for the periods indicated below:
 
      INCOME STATEMENT
      RECONCILIATION               Thirteen Weeks Ended         Year Ended
                                December  October  December  December  December
                                   31,       2,      31,       31,       31,
                                  2005     2005     2004      2005      2004
 
      U.S. GAAP gross margin      29,790  $36,434  $58,455  $151,823  $189,456
 
      Add back:
          Inventory write-offs
           and adjustments         5,388    2,435       --    14,239        --
 
      Non-GAAP gross margin      $35,178  $38,869  $58,455  $166,062  $189,456
 
      Non-GAAP gross margin
       percentage                  34.6%    40.0%    40.3%     38.9%     40.7%
 
 
      U.S. GAAP (loss) income
       before taxes             $(28,439) $(6,496) $11,742  $(55,783)  $24,371
 
        Add back:
          Inventory write-offs
           and adjustments         5,388    2,435       --    14,239        --
          Asset impairment
           charges                 8,607      801       --    25,352        --
          Write off of cost
           method investments      5,638       --       --     6,408        --
          Restructuring,
           reorganization and
           relocation              4,615    2,804     (100)    8,544       607
          Bond buy-back costs         --       --       --     1,796        --
          Gain on sale of SIMS
           product line               --       --       --      (797)       --
 
      Non-GAAP (loss) income
       before taxes              $(4,191)   $(456) $11,642     $(241)  $24,978
 
 
     (1) The press release and reconciliation table contain non-GAAP pre-tax
 net income information that excludes certain significant charges.  These
 excluded items are:
 
      -    Inventory write-downs related to the previously announced closure of
           the company's facility in Peabody, Massachusetts and the company's
           decision to no longer invest in certain business lines (included in
           cost of sales);
      -    Asset impairment charges primarily related to the company's
           semiconductor products (included as a separate line item); and
      -    Restructuring charges, primarily for severance, lease termination,
           and relocation expenses (included as a separate line item).
 
     We generally use non-GAAP financial measures for assessing the company's
 performance against management targets, which do not account for charges or
 gains of this type, as a basis for making strategic and tactical decisions and
 as a means to evaluate period-to-period comparison.  We believe that use of
 non-GAAP numbers is important as these figures ignore certain events that
 could obscure or enhance trends or other factors affecting our business.  This
 is especially true when, as in this quarter, the GAAP financial information
 includes a number of charges that did not exist in the company's prior
 comparable reporting periods.  For these reasons, we believe that these non-
 GAAP measures are also useful to investors.  Further, we believe the financial
 analysts who regularly follow and report on our company or sector exclude
 items such as these when analyzing our performance relative to our guidance
 and the performance of other sector participants, and in projecting our future
 financial results.
     These non-GAAP measures should be considered as a supplement to, and not
 as a substitute for, or superior to, GAAP measures of earnings per share.  Our
 non-GAAP numbers may be different from those of other companies and direct
 comparison should not be relied upon.
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                                        Thirteen Weeks Ended      Year Ended
                                         Dec.    Oct.    Dec.    Dec.    Dec.
                                          31,     2,      31,     31,     31,
                                         2005    2005    2004    2005    2004
     NET SALES:
       Products                          75.5%   73.0%   82.5%   76.2%   80.5%
       Service                           24.5%   27.0%   17.5%   23.8%   19.5%
                Total net sales         100.0%  100.0%  100.0%  100.0%  100.0%
 
     COST OF SALES:
       Products                          51.2%   44.0%   47.5%   47.1%   45.8%
       Service                           19.5%   18.5%   12.2%   17.4%   13.5%
                Total cost of sales      70.7%   62.5%   59.7%   64.5%   59.3%
 
                Gross profit             29.3%   37.5%   40.3%   35.5%   40.7%
 
     OPERATING EXPENSES:
       Research and development          14.2%   13.8%   10.7%   14.0%   12.0%
       Selling, general and
        administrative                   23.7%   26.0%   19.2%   23.4%   20.3%
       Amortization of purchased
        technology                        0.6%    0.7%    1.2%    1.0%    1.3%
       Asset impairment                   8.5%    0.8%    0.0%    5.9%    0.0%
       Restructuring, reorganization
        and relocation                    4.5%    2.9%   -0.1%    2.0%    0.1%
                Total operating
                 expenses                51.5%   44.3%   31.0%   46.3%   33.6%
 
     OPERATING (LOSS) INCOME            -22.2%   -6.8%    9.3%  -10.8%    7.0%
 
     OTHER INCOME (EXPENSE):
       Interest income                    2.2%    1.9%    1.0%    1.8%    1.1%
       Interest expense                  -1.4%   -1.4%   -1.8%   -2.2%   -2.2%
       Other expense, net                -6.6%   -0.4%   -0.4%   -1.9%   -0.7%
     Total other expense, net            -5.8%    0.1%   -1.8%   -2.3%   -1.8%
 
     (LOSS) INCOME BEFORE TAXES         -28.0%   -6.7%    8.1%  -13.1%    5.2%
 
     INCOME TAX EXPENSE                   2.2%   -1.4%    2.3%    5.2%    1.7%
 
     NET (LOSS) INCOME                  -30.2%   -5.3%    5.8%  -18.3%    3.6%
 
 
                                  FEI COMPANY
                               Supplemental Data
                    ($ In Millions Except Per Share Amounts)
                                  (Unaudited)
 
                                              Q4 Ended    Q3 Ended    Q4 Ended
                                             12/31/2005  10/2/2005   12/31/2004
     Income Statement Highlights
      Consolidated sales                        $101.6       $97.1      $145.2
      Gross margin                               29.3%       37.5%       40.3%
      R & D spending                             $14.4       $13.4       $15.6
      R & D (% of sales)                         14.2%       13.8%       10.7%
      SG&A                                       $24.1       $25.3       $27.8
      SG&A (% of sales)                          23.7%       26.0%       19.2%
      Net (loss) income - GAAP                  ($30.7)      ($5.1)       $8.4
      Diluted earnings (loss) per share - GAAP  ($0.91)     ($0.15)      $0.21
     Sales by Business Segment
      MicroElectronics                           $32.1       $29.0       $63.3
      Electron Optics                            $43.0       $39.9       $54.1
      Service                                    $24.9       $26.2       $25.5
      Components                                  $1.6        $2.0        $2.3
     Sales by Market Sector
      Semiconductor                              $32.8       $36.0       $69.0
      Data Storage                                $5.5        $4.2        $3.1
      I & I                                      $63.3       $56.9       $73.1
     Sales by Geography
      North America                              $33.8       $31.7       $44.6
      Europe                                     $31.4       $36.8       $49.4
      Asia Pacific                               $36.4       $28.6       $51.2
     Bookings
       Total                                    $116.1      $100.3      $143.8
       Book to bill ratio                         1.14        1.03        0.99
       Backlog - total                          $186.3      $171.8      $160.0
       Backlog - Service                         $36.8       $39.0       $31.0
     Bookings by Business Segment
       MicroElectronics                          $35.9       $35.6       $51.0
       Electron Optics                           $55.9       $37.6       $62.6
       Service                                   $22.7       $24.6       $28.4
       Components                                 $1.6        $2.5        $1.8
     Bookings by Market Sector
      Semiconductor                              $41.8       $39.1       $60.7
      Data Storage                                $6.1        $2.1        $5.0
      I & I                                      $68.2       $59.1       $78.1
     Balance Sheet Highlights
      Cash, equivalents, investments,
       restricted cash                          $280.5      $266.1      $340.7
      Operating cash generated (used)             $5.8       ($2.6)      $12.4
      Accounts receivable                        $98.3      $108.5      $159.5
      Days sales outstanding (DSO)                  88         102         100
      Inventory turnover                           3.1         2.6         4.0
      Inventories                                $84.9       $97.9       $87.8
      Property, plant and equipment              $59.0       $64.2       $71.6
      Fixed asset investment (during quarter)     $3.3        $2.6        $4.3
      Depreciation expense                        $3.3        $3.5        $4.1
      Current liabilities                       $131.6      $129.3      $154.7
      Working Capital                           $324.5      $329.4      $435.1
      Shareholders' equity                      $292.4      $311.5      $379.6
      Headcount (permanent and temporary)         1674        1726        1756
 
 
 

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