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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/ .


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This story has been adapted from a news release -
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