August 3, 2005

FEI Company Reports Results for Second Quarter of 2005

Company Details Impairment, Restructuring and Other Charges Related to Profit Improvement Plans

HILLSBORO, Ore., Aug 03, 2005 /PRNewswire-FirstCall via COMTEX/ -- 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 Titanâ„¢ 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 Nanotechâ„¢, 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, 2005
April 3, 2005
December 31, 2004
ASSETS
CURRENT ASSETS:
Cash and Cash equivalents
$88,280
$158,257
$130,682
Short-term investments in marketable securities
126,166
160,888
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
65,312
71,270
71,550
PURCHASED TECHNOLOGY, NET
9,603
22,613
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 INCOME TAXES
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 Ended
Twenty Six Weeks Ended
July 3, 2005
April 3, 2005
July 4, 2004
July 3, 2005
July 4, 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 (EXPENSES):
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 Ended
Twenty Six Weeks Ended
July 3, 2005
April 3, 2005
July 4, 2004
July 3, 2005
July 4, 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 (EXPENSES):
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 Comany
Supplemental Data
($ In Millions Except Per Share Amounts)
(Unaudited)
Q2 Ended
Q1 Ended
Q2 Ended
07/03/2005
04/03/2005
07/04/2004
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
$8.4
I & I
$65.4
$66.4
$44.3
Balance Sheet Highlights
Cash, equivalents, investments
$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




SOURCE FEI Company

Fletcher Chamberlin, Investor Relations of FEI Company, +1-503-726-7710

http://www.prnewswire.com


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