FEI Company Reports Results for Second Quarter of 2005 Company Details Impairment, Restructuring and Other Charges Related to Profit

Improvement Plans



    HILLSBORO, Ore., Aug. 3 /PRNewswire-FirstCall/ -- FEI Company
 (Nasdaq:   FEIC) reported final results for the second quarter of 2005.  The
 company also detailed the impairment, restructuring and other charges outlined
 in the July announcement.
     Net sales for the quarter ended July 3, 2005 were $107.5 million, compared
 with net sales of $108.5 million in the second quarter of 2004 and net sales
 of $121.0 million for the first quarter of 2005.
     Bookings in the second quarter totaled $112.8 million, resulting in a
 book-to-bill ratio of 1.05 and a record backlog of $168.6 million at the end
 of the quarter.
     The GAAP net loss for the second quarter of 2005 was $67.4 million,
 compared with net income of $3.1 million in the second quarter of 2004 and
 $3.4 million in the first quarter of 2005.  The loss per diluted share in the
 latest quarter was $2.01, compared with earnings per diluted share of $0.08 in
 the second quarter of 2004 and $0.09 in the first quarter of 2005.
 
     Included in the latest quarter were the following gain and charges:
     -- a gain of $0.8 million from the sale of the secondary ion mass
        spectrometer product line, included in selling, general and
        administrative expense;
     -- a charge of $1.8 million related to the repurchase and retirement of
        $70 million face value of the company's 5.5% convertible notes,
        included in interest expense;
     -- charges for the write-down of inventory and capitalized software of
        $6.4 million, included in cost of goods sold;
     -- charges for restructuring, reorganization and moving expenses,
        primarily for a reduction in force of approximately 30 employees, of
        $1.1 million, included as a separate line item;
     -- an impairment in an equity investment in a non-public company of $0.8
        million, included in other non-operating expense;
     -- charges for impairment of goodwill and certain fixed, intangible and
        other assets related primarily to parts of the company's semiconductor
        business, totaling $37.5 million and included as a separate line item;
     -- income tax expense of $19.8 million including $14.3 million due to a
        re-evaluation of the company's deferred tax assets and $5.5 million for
        foreign, local and other income taxes.
 
     These gains and charges totaled $66.6 million or $1.99 per basic and
 diluted share.
     Revenue for the quarter of $107.5 million is below the range of guidance
 from July 11th due to the exclusion from revenue of $3.1 million from an April
 2005 shipment to an Asian customer due to collectibility concerns.  The
 company has decided to defer recognition of this revenue until the matter is
 resolved.
     "As we announced several weeks ago, delays in expected orders from the
 semiconductor market led to the decline in revenue and lower earnings compared
 with the first quarter," said Vahe A. Sarkissian, chairman, president and
 chief executive officer of FEI.  "Paced by the very positive customer response
 to our new Titan(TM) scanning/transmission electron microscope, bookings from
 our industry and institute market grew 48% from last year's second quarter.
 Demand from the volatile data storage market was also strong, with bookings up
 56% from the first quarter level, matching last year's second quarter level
 and the second highest in the company's history of selling to that market.
     "We expect increased bookings in the second half of the year," added
 Sarkissian, "and they are expected to generate a sequential revenue increase
 in the fourth quarter.  When that is combined with reduced costs and lower
 break-even level from our ongoing restructuring actions, we expect improved
 operating earnings, exclusive of anticipated second half restructuring costs."
     Cash used in operations was $11.9 million for the quarter.  Capital
 spending for the quarter was $4.7 million, and depreciation expense was $4.0
 million.  Inventory turnover was 3.1 times in the second quarter unchanged
 from the first quarter of 2005.  Accounts receivable decreased by $18.5
 million from the prior quarter, while days sales outstanding improved to 99
 days, compared with 102 days at the end of the first quarter.  While
 completing the $70 million note repurchase, the company continued to maintain
 a strong balance sheet, with cash and short and long term investments of
 $276.1 million, convertible debt of $225.0 million (due in 2008) and
 shareholders' equity of $293.3 million as of July 3, 2005.
 
     Third Quarter 2005 Guidance and Fourth Quarter Preliminary Outlook
     FEI currently expects net sales for the third quarter of 2005 to be flat
 to down slightly from the second quarter in the range of $100 million to $108
 million.  As previously announced, the company expects approximately $15
 million of additional restructuring charges in the second half of 2005, with
 up to $8 million projected in the third quarter.  The final amounts and
 allocation of these charges between the third quarter and fourth quarters will
 depend on the timing of severance, employee relocations, inventory valuations
 and facility closings. The company expects a pre-tax loss to range from $8
 million to $12 million in the third quarter, assuming $8 million of
 restructuring charges in the quarter.  In addition, tax expense for the
 quarter is estimated to range from $2 million to $4 million.  FEI is
 forecasting its fourth quarter 2005 revenues to be up at least 10% over the
 third quarter.  The company expects that bookings will be greater than revenue
 in both the third and fourth quarters, and it will exit 2005 with a record
 backlog.  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. PDT Wednesday, August 3, 2005
     Parties interested in listening to FEI's quarterly conference call may do
 so by dialing 1-800-366-7449 (domestic, toll-free) or 1-303-262-2191
 (international) and asking for the FEI Q2 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 11036222#.
 
     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 third and fourth quarters of 2005 and statements about future
 bookings, revenue, earnings, restructuring plans, tax expense 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; 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 restructurings in the
 second half of 2005; timing of facilities closings, relocations, severance and
 other charges included in restructurings; additional restructurings and
 reorganizations not presently anticipated; the geographic location where tax
 expense is incurred; 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 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)
 
                                                July 3,  April 3,  December 31,
     ASSETS                                      2005     2005         2004
 
     CURRENT ASSETS:
       Cash and cash equivalents                $88,280  $158,257     $130,682
       Short-term investments in marketable
        securities                              126,166   160,889      173,681
       Receivables                              116,877   135,406      160,276
       Inventories                               91,976    92,604       87,783
       Deferred tax assets                        2,032     7,394        8,365
       Other current assets                      30,344    22,936       29,804
 
         Total current assets                   455,675   577,486      590,591
 
     NON-CURRENT INVESTMENTS IN MARKETABLE
      SECURITIES                                 57,264    36,614       33,850
 
     LONG-TERM RESTRICTED CASH                    4,359     3,963        4,177
 
     PROPERTY PLANT AND EQUIPMENT, NET           65,312    71,270       71,550
 
     PURCHASED TECHNOLOGY, NET                    9,603    20,613       22,080
 
     GOODWILL                                    19,892    41,476       41,486
 
     DEFERRED TAX ASSETS                          6,690    24,409       18,555
 
     OTHER ASSETS, NET                           49,076    55,912       59,505
 
     TOTAL                                     $667,871  $831,743     $841,794
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
 
     CURRENT LIABILITIES:
       Accounts payable                         $34,244   $41,266      $36,618
       Current accounts with Philips              2,757     4,766        4,240
       Accrued payroll liabilities               10,898    13,762       15,070
       Accrued warranty reserves                  8,479     9,784       10,052
       Deferred revenue                          42,278    44,809       43,349
       Income taxes payable                       9,074     5,390        7,962
       Accrued restructuring, reorganization
        and relocation                              693       706        1,020
       Other current liabilities                 31,257    30,875       37,128
 
         Total current liabilities              139,680   151,358      155,439
 
     CONVERTIBLE DEBT                           225,000   295,000      295,000
 
     DEFERRED TAX LIABILITIES                     5,076     5,638        6,412
 
     OTHER LIABILITIES                            4,831     5,195        5,373
 
     SHAREHOLDERS' EQUITY:
       Preferred stock - 500 shares authorized;
        none issued and outstanding                  --        --           --
       Common stock - 70,000 shares authorized;
        33,653; 33,493 and 33,413 shares issued
        and outstanding at July 3, 2005;
        April 3, 2005; and December 31, 2004    318,769    317,777     315,632
       Accumulated earnings (deficit)           (41,854)    25,500      22,077
       Accumulated other comprehensive income    16,369     31,275      41,861
 
         Total shareholders' equity             293,284    374,552     379,570
 
     TOTAL                                     $667,871   $831,743    $841,794
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                                        Thirteen Weeks        Twenty Six Weeks
                                            Ended                  Ended
                                  July 3,   April 3, July 4,  July 3,  July 4,
                                   2005      2005     2004     2005     2004
 
     NET SALES:
       Products                   $82,312  $95,753  $86,551 $178,065  $170,825
       Service                     25,181   25,240   21,917   50,421    42,737
         Total net sales          107,493  120,993  108,468  228,486   213,562
 
     COST OF SALES:
       Products                    52,840   53,475   49,569  106,315    98,969
       Service                     17,992   18,581   15,138   36,573    28,801
         Total cost of sales       70,832   72,056   64,707  142,888   127,770
 
         Gross profit              36,661   48,937   43,761   85,598    85,792
 
     OPERATING EXPENSES:
       Research and development    15,867   16,187   13,131   32,054    26,698
       Selling, general and
        administrative             25,174   25,313   22,764   50,487    42,878
       Amortization of purchased
        technology                  1,517    1,342    1,413    2,859     2,826
       Asset impairment            37,513                     37,513
       Restructuring,
        reorganization and
        relocation                  1,124       --      488    1,124       707
         Total operating expenses  81,195   42,842   37,796  124,037    73,109
 
     OPERATING INCOME (LOSS)      (44,534)   6,095    5,965  (38,439)   12,683
 
     OTHER INCOME (EXPENSE):
       Interest income              1,905    1,814    1,288    3,719     2,351
       Interest expense            (3,982)  (2,507)  (2,611)  (6,489)   (5,079)
       Other expense, net            (993)    (216)      57   (1,209)   (2,355)
         Total other expense, net  (3,070)    (909)  (1,266)  (3,979)   (5,083)
 
     INCOME (LOSS) BEFORE TAXES   (47,604)   5,186    4,699  (42,418)    7,600
 
     INCOME TAX EXPENSE            19,750    1,763    1,645   21,513     2,660
 
     NET INCOME (LOSS)           $(67,354)  $3,423   $3,054 $(63,931)   $4,940
 
     PER SHARE DATA:
       Basic earnings (loss)
        per share                  $(2.01)   $0.10    $0.09   $(1.91)    $0.15
       Diluted earnings (loss)
        per share                  $(2.01)   $0.09    $0.08   $(1.91)    $0.12
 
     WEIGHTED AVERAGE SHARES
      OUTSTANDING:
       Basic                       33,544   33,456   33,241   33,500    33,213
       Diluted                     33,544   39,878   39,734   33,500    39,724
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                                        Thirteen Weeks        Twenty Six Weeks
                                            Ended                  Ended
                                  July 3,   April 3, July 4,  July 3,  July 4,
                                   2005      2005     2004     2005     2004
 
     NET SALES:
       Products                    76.6%     79.1%    79.8%     77.9%    80.0%
       Service                     23.4%     20.9%    20.2%     22.1%    20.0%
         Total net sales          100.0%    100.0%   100.0%    100.0%   100.0%
 
     COST OF SALES:
       Products                    49.2%     44.2%    45.7%     46.5%    46.3%
       Service                     16.7%     15.4%    14.0%     16.0%    13.5%
         Total cost of sales       65.9%     59.6%    59.7%     62.5%    59.8%
 
         Gross profit              34.1%     40.4%    40.3%     37.5%    40.2%
 
     OPERATING EXPENSES:
       Research and development    14.8%     13.4%    12.1%     14.0%    12.5%
       Selling, general and
        administrative             23.4%     20.9%    21.0%     22.1%    20.1%
       Amortization of purchased
        technology                  1.4%      1.1%     1.3%      1.3%     1.3%
       Asset impairment            34.9%      0.0%     0.0%     16.4%     0.0%
       Restructuring,
        reorganization and
        relocation                  1.0%      0.0%     0.4%      0.5%     0.3%
         Total operating expenses  75.5%     35.4%    34.8%     54.3%    34.2%
 
     OPERATING INCOME (LOSS)      -41.4%      5.0%     5.5%    -16.8%     5.9%
 
     OTHER INCOME (EXPENSE):
       Interest income              1.8%      1.5%     1.2%      1.6%     1.1%
       Interest expense            -3.7%     -2.1%    -2.4%     -2.8%    -2.4%
       Other expense, net          -0.9%     -0.2%     0.1%     -0.5%    -1.1%
         Total other expense, net  -2.9%     -0.8%    -1.2%     -1.7%    -2.4%
 
     INCOME (LOSS) BEFORE TAXES   -44.3%      4.3%     4.3%    -18.6%     3.6%
 
     INCOME TAX EXPENSE            18.4%      1.5%     1.5%      9.4%     1.2%
 
     NET INCOME (LOSS)            -62.7%      2.8%     2.8%    -28.0%     2.3%
 
 
                                  FEI COMPANY
                               Supplemental Data
                    ($ In Millions Except Per Share Amounts)
                                  (Unaudited)
 
                                                  Q2 Ended  Q1 Ended  Q2 Ended
                                                  7/3/2005  4/3/2005  7/4/2004
 
     Income Statement Highlights
       Consolidated sales                          $107.5    $121.0    $108.5
       Gross margin                                 34.1%     40.4%     40.3%
       R & D spending                               $15.9     $16.2     $13.1
       R & D (% of sales)                           14.8%     13.4%     12.1%
       SG&A                                         $25.2     $25.3     $22.8
       SG&A (% of sales)                            23.4%     20.9%     21.0%
       Net income (loss) - GAAP                    ($67.4)     $3.4      $3.1
       Diluted earnings (loss) per share - GAAP    ($2.01)    $0.09     $0.08
     Sales by Business Segment
        MicroElectronics                            $45.9     $57.7     $54.4
        Electron Optics                             $34.7     $36.1     $29.5
        Service                                     $25.2     $25.2     $21.9
        Components                                   $1.7      $2.0      $2.7
     Sales by Market Sector
       Semiconductor                                $43.9     $60.4     $55.4
       Data Storage                                 $13.3      $7.5     $11.5
       I & I                                        $50.3     $53.1     $41.5
     Sales by Geography
       North America                                $33.8     $33.7     $46.9
       Europe                                       $47.4     $45.2     $24.7
       Asia Pacific                                 $26.3     $42.1     $36.8
     Bookings
       Total                                       $112.8    $124.3    $125.4
       Book to bill ratio                            1.05      1.03      1.16
       Backlog - total                             $168.6    $163.3    $141.9
       Backlog - Service                            $40.7     $39.6     $31.5
     Bookings by Business Segment
       MicroElectronics                             $44.1     $40.1     $70.1
       Electron Optics                              $40.7     $48.4     $32.8
       Service                                      $26.2     $33.9     $19.7
       Components                                    $1.8      $1.9      $2.8
     Bookings by Market Sector
       Semiconductor                                $32.3     $48.2     $66.1
       Data Storage                                 $15.1      $9.6     $15.0
       I & I                                        $65.4     $66.4     $44.3
     Balance Sheet Highlights
       Cash, equivalents, investments, restricted
        cash                                       $276.1    $359.7    $311.3
       Operating cash (used) generated             ($11.9)    $29.6     $10.8
       Accounts receivable                         $116.9    $135.4    $123.3
       Days sales outstanding (DSO)                    99       102       104
       Inventory turnover                             3.1       3.1       2.8
       Inventories                                  $92.0     $92.6     $92.2
       Property, plant and equipment                $65.3     $71.3     $72.4
       Fixed asset investment (during quarter)       $4.7      $4.4      $3.7
       Depreciation expense                          $4.0      $4.1      $3.9
       Current liabilities                         $139.7    $151.4    $106.7
       Working Capital                             $316.0    $426.1    $431.9
       Shareholders' equity                        $293.3    $374.6    $341.8
       Headcount (permanent and temporary)          1,780     1,813     1,715
 
 
 

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