FEI Company Reports Results for Third Quarter of 2005 Expense Reductions Reduce Loss for Quarter



Improved Results Expected for Fourth Quarter and 2006



    HILLSBORO, Ore., Oct. 25 /PRNewswire-FirstCall/ -- FEI Company
 (Nasdaq:   FEIC) reported results for the third quarter of 2005.  While revenue
 declined from the level of the second quarter, the company also reduced its
 operating expenses.  The company expects higher revenue in the fourth quarter
 of 2005 and improved financial results for 2006.
     Net sales for the quarter ended October 2, 2005 were $97.1 million,
 compared with net sales of $107.0 million in the third quarter of 2004 and net
 sales of $107.5 million for the second quarter of 2005.
     Bookings in the third quarter totaled $100.3 million, resulting in a book-
 to-bill ratio of 1.03 and a record backlog of $171.8 million at the end of the
 quarter.
     The net loss on the basis of accounting principles generally accepted in
 the United States (GAAP) was $5.1 million for the third quarter of 2005,
 compared with net income of $3.3 million in the third quarter of 2004 and a
 net loss of $45.8 million in the second quarter of 2005.  The diluted loss per
 share in the latest quarter was $0.15, compared with earnings per share of
 $0.08 in the third quarter of 2004 and a loss per share of $1.36 in the second
 quarter of 2005.
 
     Restructuring and asset impairment charges and related inventory write-
 offs in the third quarter were $6.0 million, including:
     -- $2.4 million of inventory write-downs related to the previously
        announced closure of the company's facility in Peabody, Massachusetts,
        included in cost of sales;
     -- $0.8 million for asset impairments primarily related to the company's
        semiconductor products, included as a separate line item; and
     -- $2.8 million of restructuring charges, primarily for severance, lease
        termination, and relocation expenses, included as a separate line item.
 
     The company recorded an income tax benefit in the third quarter of $1.4
 million as a result of the implementation of new tax strategies.  Excluding
 the tax benefit as well as the restructuring and asset impairment charges and
 related inventory write-offs, the non-GAAP pretax loss in the latest quarter
 was $456,000.  Investors should refer to the attached table for a
 reconciliation of the GAAP loss before taxes to the non-GAAP loss before
 taxes.
     "Despite lower revenue, our pre-tax loss excluding charges was within our
 guidance range, as operating expenses declined from second quarter levels,"
 said Vahe A. Sarkissian, chairman, president and chief executive officer of
 FEI.  "This progress is the initial result of the steps we began to implement
 in the second quarter to improve our results.
     "Sales from our industry and institute market continued to grow in the
 third quarter, paced by initial shipments of our industry-leading Titan(TM)
 scanning/transmission electron microscope," continued Sarkissian.  "Our
 revenue decline compared with the second quarter was concentrated in the
 semiconductor and data storage markets.  However, bookings from the
 semiconductor market improved compared with the second quarter and were
 greater than revenue for the quarter.  The historically volatile data storage
 market had reduced bookings and sales for the quarter, but we expect improved
 performance in that market over time as the data storage industry continues
 its move to new recording technology.
     "We expect increased bookings and sales in the fourth quarter of the
 year," added Sarkissian.  "More importantly, we expect to enter 2006 with a
 record backlog and a reduced cost structure."
     Operating cash flow was negative $1.0 million for the quarter.  Capital
 spending for the quarter was $2.6 million, and depreciation expense was $3.5
 million.  Inventory turnover was 2.6 times in the third quarter compared with
 3.1 times in the second quarter.  Accounts receivable decreased by $8.3
 million from the prior quarter, while days sales outstanding were 102 days,
 compared with 99 days in the second quarter.  Cash and short and long term
 investments were $268.0 million, convertible debt totaled $225.0 million (due
 in 2008) and shareholders' equity was $311.5 million as of October 2, 2005.
 
     Fourth Quarter 2005 Guidance and 2006 Preliminary Outlook
     FEI currently expects net sales for the fourth quarter of 2005 to be in
 the range of $100 million to $105 million.  Bookings are expected to be
 greater than sales for the quarter.  The company expects additional
 restructuring charges of approximately $6 million to $8 million in the fourth
 quarter of 2005.  Excluding those charges, the company expects fourth quarter
 non-GAAP pre-tax results to be near breakeven to a profit of $2 million.
 Accordingly, the GAAP pre-tax loss is expected to be between $4 million and $8
 million.  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.  Combined with lower costs as a result of the company's
 restructuring and other cost-improvement programs, earnings are expected to
 improve 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. PDT Tuesday, October 25, 2005
     Parties interested in listening to FEI's quarterly conference call may do
 so by dialing 1-800-267-7087 (domestic, toll-free) or 1-303-205-0033
 (international) and asking for the FEI Q3 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 11041699#.
 
     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 fourth quarter of 2005 and for 2006 and statements about
 future bookings, revenue, earnings, financial results, profitability, improved
 performance in certain markets and changes in technologies used in certain
 markets, 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 restructurings in the
 fourth quarter of 2005; 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)
 
                                                October 2, July 3, December 31,
     ASSETS                                        2005     2005      2004
 
     CURRENT ASSETS:
       Cash and cash equivalents                  $77,534   $88,280  $130,682
       Short-term investments in marketable
        securities                                146,368   126,166   173,681
       Receivables                                108,544   116,877   160,276
       Inventories                                 97,900    91,976    87,783
       Deferred tax assets                          3,823     2,032     8,365
       Other current assets                        24,475    30,344    29,804
 
         Total current assets                     458,644   455,675   590,591
 
     Non-current investments in marketable
      securities                                   43,769    57,264    33,850
 
     Long-term restricted cash                        323     4,359     4,177
 
     Property plant and equipment, net             64,241    65,312    71,550
 
     Purchased technology, net                      8,821     9,603    22,080
 
     Goodwill                                      41,459    41,461    41,486
 
     Deferred tax assets                            2,214     5,415    18,555
 
     Other assets, net                             51,922    49,076    59,505
 
     TOTAL                                       $671,393  $688,165  $841,794
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
 
     CURRENT LIABILITIES:
       Accounts payable                           $30,450   $34,244   $36,618
       Current accounts with Philips                1,794     2,757     4,240
       Accrued payroll liabilities                 12,014    10,898    15,070
       Accrued warranty reserves                    6,229     8,479    10,052
       Deferred revenue                            42,468    42,278    43,349
       Income taxes payable                         2,916     9,074     7,962
       Accrued restructuring, reorganization
        and relocation                              2,614       693     1,020
       Other current liabilities                   30,781    31,257    37,128
 
         Total current liabilities                129,266   139,680   155,439
 
     Convertible debt                             225,000   225,000   295,000
 
     Deferred tax liabilities                         648     3,801     6,412
 
     Other liabilities                              4,952     4,831     5,373
 
     SHAREHOLDERS' EQUITY:
       Preferred stock - 500 shares authorized;
        none issued and outstanding                    --        --        --
       Common stock - 70,000 shares authorized;
        33,675; 33,653; and 33,413 shares issued
        and outstanding at October 2, 2005;
        July 3, 2005; and December 31, 2004       319,068   318,769   315,632
       Accumulated earnings (deficit)             (25,388)  (20,285)   22,077
       Accumulated other comprehensive income      17,847    16,369    41,861
 
         Total shareholders' equity               311,527   314,853   379,570
 
     TOTAL                                       $671,393  $688,165  $841,794
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                             Thirteen Weeks Ended      Thirty-Nine Weeks Ended
                         October 2, July 3, October 3,  October 2, October 3,
                            2005      2005    2004        2005        2004
 
     NET SALES:
       Products            $70,889  $82,312  $84,027    $248,954    $255,184
       Service              26,233   25,181   22,942      76,654      65,347
         Total net sales    97,122  107,493  106,969     325,608     320,531
 
     COST OF SALES:
       Products             42,704   52,840   45,458     149,018     144,427
       Service              17,984   17,992   16,302      54,558      45,103
         Total cost of
          sales             60,688   70,832   61,760     203,576     189,530
 
         Gross profit       36,434   36,661   45,209     122,032     131,001
 
     OPERATING EXPENSES:
       Research and
        development         13,429   15,867   13,583      45,483      40,281
       Selling, general
        and administrative  25,251   25,174   23,601      75,738      66,479
       Amortization of
        purchased
        technology             720    1,517    1,413       3,579       4,239
       Asset impairment        801   15,944       --      16,745          --
       Restructuring,
        reorganization
        and relocation       2,804    1,124       --       3,928         707
         Total operating
          expenses          43,005   59,626   38,597     145,473     111,706
 
     OPERATING (LOSS)
      INCOME                (6,571) (22,965)   6,612     (23,441)     19,295
 
     OTHER INCOME (EXPENSE):
       Interest income       1,866    1,905    1,353       5,585       3,704
       Interest expense     (1,392)  (3,982)  (2,578)     (7,881)     (7,657)
       Other expense, net     (399)    (993)    (358)     (1,608)     (2,713)
     Total other expense,
      net                       75   (3,070)  (1,583)     (3,904)     (6,666)
 
     LOSS (INCOME) BEFORE
      TAXES                 (6,496) (26,035)   5,029     (27,345)     12,629
 
     INCOME TAX EXPENSE     (1,393)  19,750    1,760      20,120       4,420
 
     NET (LOSS) INCOME     $(5,103)$(45,785)  $3,269    $(47,465)     $8,209
 
     PER SHARE DATA:
       Basic earnings
        (loss) per share    $(0.15)  $(1.36)   $0.10      $(1.41)      $0.25
       Diluted earnings
        (loss) per share    $(0.15)  $(1.36)   $0.08      $(1.41)      $0.21
 
     WEIGHTED AVERAGE
      SHARES OUTSTANDING:
       Basic                33,664   33,544   33,262      33,555      33,229
       Diluted              33,664   33,544   39,561      33,555      39,670
 
 
                          FEI Company and Subsidiaries
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
                                        Thirty-Nine Weeks Ended
                            October 2, July 3, October 3, October 2, October 3,
                               2005     2005      2004       2005       2004
 
     NET SALES:
       Products                73.0%    76.6%    78.6%       76.5%      79.6%
       Service                 27.0%    23.4%    21.4%       23.5%      20.4%
         Total net sales      100.0%   100.0%   100.0%      100.0%     100.0%
 
     COST OF SALES:
       Products                44.0%    49.2%    42.5%       45.8%      45.1%
       Service                 18.5%    16.7%    15.2%       16.8%      14.1%
         Total cost of sales   62.5%    65.9%    57.7%       62.6%      59.1%
 
         Gross profit          37.5%    34.1%    42.3%       37.5%      40.9%
 
     OPERATING EXPENSES:
       Research and
        development            13.8%    14.8%    12.7%       14.0%      12.6%
       Selling, general and
        administrative         26.0%    23.4%    22.1%       23.3%      20.7%
       Amortization of
        purchased technology    0.7%     1.4%     1.3%        1.1%       1.3%
       Asset impairment         0.8%    14.8%     0.0%        5.1%       0.0%
       Restructuring,
        reorganization and
        relocation              2.9%     1.0%     0.0%        1.2%       0.2%
         Total operating
          expenses             44.2%    55.5%    36.1%       44.7%      34.9%
 
     OPERATING INCOME (LOSS)   -6.7%   -21.4%     6.2%       -7.2%       6.0%
 
     OTHER INCOME (EXPENSE):
       Interest income          1.9%     1.8%     1.3%        1.7%       1.2%
       Interest expense        -1.4%    -3.7%    -2.4%       -2.4%      -2.4%
       Other expense, net      -0.4%    -0.9%    -0.3%       -0.5%      -0.8%
         Total other expense,
          net                   0.1%    -2.9%    -1.5%       -1.2%      -2.1%
 
     INCOME (LOSS) BEFORE
      TAXES                    -6.6%   -24.2%     4.7%       -8.4%       3.9%
 
     INCOME TAX EXPENSE        -1.5%    18.4%     1.6%        6.2%       1.4%
 
     NET INCOME (LOSS)         -5.2%   -42.6%     3.1%      -14.6%       2.6%
 
 
 
      RECONCILIATION OF THIRD QUARTER 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     Thirty-Nine Weeks Ended
                          October 2, July 3, October 3,  October 2, October 3,
                              2005      2005     2004       2005       2004
 
     U.S. GAAP gross margin  $36,434   $36,661  $45,209   $122,032    $131,001
 
     Add back:
       Inventory write-offs    2,435     6,416       --      8,851          --
 
     Non-GAAP gross margin   $38,869   $43,077  $45,209   $130,883    $131,001
 
     Non-GAAP gross margin
      percentage               40.0%     40.1%    42.3%      40.2%       40.9%
 
     U.S. GAAP (loss) income
      before taxes           $(6,496) $(26,035)  $5,029   $(27,345)    $12,629
 
     Add back:
       Inventory write-offs    2,435     6,416       --      8,851          --
       Asset impairment
        charges                  801    15,944       --     16,745          --
       Write off of cost
        method investment         --       770       --        770          --
       Restructuring,
        reorganization and
        relocation             2,804     1,124       --      3,928         707
       Bond buy-back costs        --     1,796       --      1,796          --
       Gain on sale of SIMS
        product line              --      (778)      --       (778)         --
 
     Non-GAAP (loss) income
      before taxes             $(456)    $(763)  $5,029     $3,967     $13,336
 
     (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 (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
                               Supplemental Data
                    ($ In Millions Except Per Share Amounts)
                                  (Unaudited)
 
                                                  Q3 Ended  Q2 Ended   Q3 Ended
                                                 10/2/2005  7/3/2005  10/3/2004
     Income Statement Highlights
       Consolidated sales                           $97.1     $107.5    $107.0
       Gross margin                                 37.5%      34.1%     42.3%
       R & D spending                               $13.4      $15.9     $13.6
       R & D (% of sales)                           13.8%      14.8%     12.7%
       SG&A                                         $25.3      $25.2     $23.6
       SG&A (% of sales)                            26.0%      23.4%     22.1%
       Net income (loss) - GAAP                     ($5.1)    ($45.8)     $3.3
       Diluted earnings (loss) per share - GAAP    ($0.15)    ($1.36)    $0.10
     Sales by Business Segment
       MicroElectronics                             $29.0      $45.9     $49.9
       Electron Optics                              $39.9      $34.7     $32.3
       Service                                      $26.2      $25.2     $22.9
       Components                                    $2.0       $1.7      $1.9
     Sales by Market Sector
       Semiconductor                                $36.0      $43.9     $49.2
       Data Storage                                  $4.2      $13.3      $7.2
       I & I                                        $56.9      $50.3     $50.6
     Sales by Geography
       North America                                $31.7      $33.8     $45.4
       Europe                                       $36.8      $47.4     $33.6
       Asia Pacific                                 $28.6      $26.3     $28.0
     Bookings
       Total                                       $100.3     $112.8    $126.4
       Book to bill ratio                            1.03       1.05      1.18
       Backlog - total                             $171.8     $168.6    $161.4
       Backlog - Service                            $39.0      $40.7     $28.0
     Bookings by Business Segment
       MicroElectronics                             $35.6      $44.1     $67.3
       Electron Optics                              $37.6      $40.7     $37.7
       Service                                      $24.6      $26.2     $19.4
       Components                                    $2.5       $1.8      $2.0
     Bookings by Market Sector
       Semiconductor                                $39.1      $32.3     $64.9
       Data Storage                                  $2.1      $15.1      $4.5
       I & I                                        $59.1      $65.4     $57.0
     Balance Sheet Highlights
       Cash, equivalents, investments, restricted
        cash                                       $268.0     $276.1    $313.8
       Operating cash (used) generated              ($1.0)    ($11.9)     $6.5
       Accounts receivable                         $108.5     $116.9    $127.7
       Days sales outstanding (DSO)                   102         99       109
       Inventory turnover                             2.6        3.1       2.5
       Inventories                                  $97.9      $92.0     $98.6
       Property, plant and equipment                $64.2      $65.3     $68.8
       Fixed asset investment (during quarter)       $2.6       $4.7      $1.4
       Depreciation expense                          $3.5       $4.0      $3.6
       Current liabilities                         $129.3     $139.7    $116.4
       Working Capital                             $329.4     $316.0    $429.4
       Shareholders' equity                        $311.5     $314.9    $347.4
       Headcount (permanent and temporary)          1,726      1,780     1,747
 
 

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