SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-22780
FEI COMPANY
(Exact name of registrant as specified in its charter)
Oregon 93-0621989
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
7451 NE Evergreen Parkway
Hillsboro, Oregon 97124-5830
(Address of principal executive offices) (Zip Code)
(503) 640-7500
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 7,915,401
shares of Common Stock were outstanding at July 31, 1996.
<PAGE>
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996 (unaudited)
and December 31, 1995..................................... 1
Consolidated Statements of Operations - Three Months Ended
June 30, 1996 and June 30, 1995 and Six Months Ended
June 30, 1996 and June 30, 1995 (unaudited)................ 2
Consolidated Statements of Changes in Shareholders'
Equity - Six Months Ended June 30, 1996 (unaudited)
and Year Ended December 31, 1995 ......................... 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1996 (unaudited) and June 30, 1995 (unaudited)... 4
Notes to Consolidated Financial Statements (unaudited).... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders....... 12
Item 6. Exhibits and Reports on Form 8-K.......................... 14
Signatures............................................................... 15
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
ASSETS
December 31, June 30,
1995 1996
------------ --------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $ 2,700 $ 3,734
Investments (Note 4) 4,961 1,319
Receivables (Note 5) 13,769 11,881
Tax refund receivable 36 36
Inventories (Note 6) 10,425 15,256
Prepaid expenses 159 346
Deferred income taxes 626 819
-------- --------
Total current assets 32,676 33,391
INVESTMENTS 2,540 2,461
EQUIPMENT 4,604 5,708
LEASE RECEIVABLES 2,663 2,726
OTHER ASSET (Note 7) 2,159 5,822
-------- --------
TOTAL $ 44,642 $ 50,108
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,597 $ 5,553
Accrued payroll liabilities 606 781
Accrued warranty reserves 892 1,054
Deferred revenue 434 549
Income taxes payable 870 882
Other current liabilities 871 747
-------- --------
Total current liabilities 6,270 9,566
COMMITMENTS AND CONTINGENCIES -- --
LONG-TERM DEBT (Note 9) 3,500 --
DEFERRED INCOME TAXES 450 386
SHAREHOLDERS' EQUITY: (Note 8)
Preferred stock - 500,000 shares authorized;
none issued and outstanding -- --
Common stock - 15,000,000 shares authorized;
7,222,394 and 7,915,431 shares issued and outstanding 27,150 31,615
Warrants - 200,001 and 50,000 issued and outstanding 59 15
Retained earnings 7,099 8,553
Unrealized gain (loss) on marketable securities 96 (39)
Cumulative foreign currency translation adjustment 18 12
-------- --------
Total shareholders' equity 34,422 40,156
-------- --------
TOTAL $ 44,642 $ 50,108
======== ========
See notes to consolidated financial statement
1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 9,201 $ 12,075 $ 18,121 $ 23,682
COST OF SALES 5,695 7,875 10,972 15,109
---------- ---------- ---------- ----------
Gross profit 3,506 4,200 7,149 8,573
OPERATING EXPENSES:
Research and development 627 936 1,222 1,834
Selling and marketing 1,041 1,299 2,035 2,711
General and administrative 641 1,047 1,258 2,047
---------- ---------- ---------- ----------
Total operating expenses 2,309 3,282 4,515 6,592
---------- ---------- ---------- ----------
OPERATING INCOME 1,197 918 2,634 1,981
OTHER INCOME (EXPENSE):
Foreign currency gain (loss) 170 22 (204) 1
Interest income 187 207 275 402
Interest expense (207) (3) (447) (65)
Other (146) (16) (173) (22)
---------- ---------- ---------- ----------
Total other income (expense) 4 210 (549) 316
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 1,201 1,128 2,085 2,297
TAX EXPENSE 456 419 815 843
---------- ---------- ---------- ----------
NET INCOME $ 745 $ 709 $ 1,270 $ 1,454
========== ========== ========== ==========
NET INCOME PER SHARE $ 0.13 $ 0.09 $ 0.23 $ 0.18
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,866,801 8,243,878 5,493,607 8,037,632
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
Unrealized Cumulative
Gain Foreign
(Loss) on Currency
Common Stock Warrants Retained Marketable Translation
Shares Amount Shares Amount Earnings Securities Adjustment Total
------ ------ ------ ------ -------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 4,363,705 $ 5,549 400,001 $ 119 $ 3,358 $ -- $ 21 $ 9,047
Net income 3,741 3,741
Proceeds from exercise of
options for 210,539 shares of
common stock 210,539 393 393
Proceeds from sale of 2,500,000
shares of common stock, less
$2,602 costs of issuance 2,500,000 21,148 21,148
Exercise of 200,000 warrants
into 148,150 shares of common
stock 148,150 60 (200,000) (60) 0
Unrealized gain on marketable
securities 96 96
Foreign currency translation
adjustment (3) (3)
---------------------------------------------------------------------------------------
BALANCE, December 31, 1995 7,222,394 27,150 200,001 59 7,099 96 18 34,422
Net income (unaudited) 1,454 1,454
Proceeds from exercise of
options for 104,320 shares of
common stock (unaudited) 104,320 921 921
Exercise of convertible options
for 466,667 shares of common
stock (unaudited) 466,667 3,500 3,500
Exercise of 150,001 warrants
into 122,050 shares of
common stock (unaudited) 122,050 44 (150,001) (44) 0
Unrealized loss on marketable
securities (unaudited) (135) (135)
Foreign currency translation
adjustment (unaudited) (6) (6)
---------------------------------------------------------------------------------------
BALANCE, June 30, 1996
(unaudited) 7,915,431 $31,615 50,000 $ 15 $ 8,553 $(39) $ 12 $40,156
=======================================================================================
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,270 $ 1,454
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 741 756
Deferred taxes on income 254 (257)
Decrease (increase) in assets:
Receivables (1,551) (1,362)
Inventories (352) (4,818)
Prepaid expenses and tax refund receivable 234 (187)
Other assets (6) (65)
Increase (decrease) in liabilities:
Accounts payable (805) 2,956
Accrued payroll liabilities 301 175
Accrued warranty reserves 103 162
Deferred revenue 18 115
Income taxes payable 151 12
Other current liabilities (9) (124)
--------- ---------
Net cash provided by (used in) operating activities 349 (1,183)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (1,058) (1,798)
Investment in software development (78) (437)
Proceeds from sale of investments -- 4,608
Purchase of investments -- (1,022)
(Investment in) reduction of lease receivables (645) (63)
Net disposals of equipment 31 14
--------- ---------
Net cash provided by (used in) investing activities (1,750) 1,302
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) line of credit
and notes payable (6,386) --
Proceeds from exercise of stock options and warrants 69 921
Net proceeds from sale of stock (Note 8) 21,231 --
Proceeds from issuance of long term debt 1,000 --
Payments on long term debt (1,348) --
--------- ---------
Net cash provided by financing activities 14,566 921
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 24 (6)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,189 1,034
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 192 2,700
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,381 $ 3,734
========= =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 511 $ 62
Income taxes paid 335 1,119
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of long-term debt into 466,667
shares of the Company's common stock (Note 9) $ -- $ 3,500
Exchange of receivable for investment in Norsam
Technologies, Inc. (Note 7) -- 3,250
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF BUSINESS
FEI Company and its wholly owned subsidiaries (the "Company") design,
manufacture and market focused ion beam ("FIB") workstations and components
based on field emission technology. The Company sells its FIB workstations
principally to integrated circuit manufacturers and sells components to
manufacturers of electron microscopes and other devices incorporating field
emission technology.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 2 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reported period. Actual results could differ from estimates.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following (in thousands):
December 31, 1995 June 30, 1996
----------------- -------------
Cash $ 590 $ 1,124
Money market investments 2,110 2,610
-------- --------
Total cash and cash equivalents $ 2,700 $ 3,734
======= =======
4. INVESTMENTS
Investments, classified as available for sale, consist of the following (in
thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
December 31, 1995
- -----------------
<S> <C> <C> <C> <C>
Debt securities issued by the United
States Treasury and other US government
corporations and agencies $1,908 $ 24 $ -- $1,932
Debt securities issued by states of the
United States and political subdivisions
thereof 3,508 56 -- 3,564
Corporate obligations 989 1 -- 990
Preferred stock 1,000 15 -- 1,015
------ ---- ---- ------
Total $7,405 $ 96 $ -- $7,501
====== ==== ==== ======
5
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
June 30, 1996
- -------------
Debt securities issued by the United
States Treasury and other US government
corporations and agencies $1,500 $ 1 $ -- $1,501
Debt securities issued by states of the
United States and political subdivisions
thereof 1,319 -- 40 1,279
Preferred stock 1,000 -- -- 1,000
------ ---- ---- ------
Total $3,819 $ 1 $ 40 $3,780
====== ==== ==== ======
</TABLE>
These investments have been reported as follows:
December 31, 1995 June 30, 1996
----------------- -------------
Current assets - investments $ 4,961 $ 1,319
Noncurrent assets - investments 2,540 2,461
-------- --------
Total $ 7,501 $ 3,780
======== ========
5. RECEIVABLES
Receivables consist of the following (in thousands):
December 31, 1995 June 30, 1996
----------------- -------------
Trade $ 12,000 $ 10,147
Foreign tax deposit and other 587 402
Current portion of lease receivable 1,277 1,473
--------- --------
Subtotal 13,864 12,022
Allowance for doubtful accounts (95) (141)
--------- --------
Total receivables $ 13,769 $ 11,881
========= ========
6
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. INVENTORIES
Inventories consist of the following (in thousands):
December 31, 1995 June 30, 1996
----------------- -------------
Raw materials and assembled parts $ 7,011 $ 9,098
Work in process 1,866 3,798
Finished goods 1,626 2,472
-------- --------
Subtotal 10,503 15,368
Inventory reserves (78) (112)
-------- --------
Total inventories $ 10,425 $ 15,256
======== ========
7. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
Service inventories, noncurrent, net of reserves of $375
and $634, respectively $ 1,500 $1,500
Investment in Norsam Technologies, Inc. -- 3,250
Capitalized software development costs, net of amortization
of $545 and $624, respectively 499 858
Goodwill, net of amortization of $102 and $113, respectively 73 62
Cash surrender value of life insurance 77 77
Deposits and other 10 75
------- ------
Total other assets $ 2,159 $5,822
======= ======
</TABLE>
In the three months ended June 30, 1996, the Company sold three FIB
workstations to Norsam Technologies, Inc. (Norsam) for use in a new
commercial application of FIB technology providing long term archival and
very high density data storage. The $3,250,000 sales price of the three FIB
workstations and the related receivable was paid in the form of 500,000
shares of Norsam Series A Preferred Stock convertible into an aggregate of
1,250,000 shares of Norsam Common Stock.
8. STOCK SALE
On June 1, 1995 the Company completed its initial public offering ("IPO")
by issuing 2,500,000 shares of common stock at $9.50 per share, and
proceeds, net of underwriters commissions and other expenses, amounted to
$21,148,000. Approximately $6,165,000 of the proceeds were used to pay off
the line of credit and lease finance line with the bank.
9. LONG-TERM DEBT
On March 1, 1996 the Company's $3,500,000 note payable to a non-bank lender
was converted into 466,667 shares of common stock.
7
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Standards No. 123 ("SFAS
No. 123"), "Accounting for Stock- Based Compensation," effective January 1,
1996. SFAS No. 123 defines a fair value based method of accounting for
employee stock options or similar instruments and permits companies to
adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows a company to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees." The Company has elected to
continue to measure compensation cost in conformity with APB No. 25 and to
make pro forma disclosures of net income and earnings per share in its
annual report on Form 10-K for the year ended December 31, 1996, as if the
fair value based method of accounting defined in SFAS No. 123 had been
applied.
11. LITIGATION
In May 1995 Micrion Corporation ("Micrion"), a principal competitor of the
Company, filed a lawsuit against the Company in the United States District
Court for the District of Massachusetts (the "Court") alleging infringement
of a patent issued to Micrion relating to the use of an electron beam to
neutralize a positive charge that can develop with the use of an ion beam
in a FIB workstation. The complaint also alleges that the Company used
information confidential to Micrion to develop devices to effect charge
neutralization, to incorporate such devices into the Company's FIB
workstations, to manufacture certain ion emitters, and to persuade
prospective purchasers of FIB workstations to purchase workstations from
the Company rather than from Micrion. Micrion seeks an injunction against
infringement of the Micrion patent, damages of at least $1 million for
misuse of confidential information, treble damages for infringement of the
Micrion patent, attorneys' fees and other damages. The Company believes it
has valid defenses to Micrion's claims.
The Company initiated a proceeding with the American Arbitration
Association seeking to arbitrate Micrion's non-patent claims. In response
to motions filed by the Company in the Court and the United States District
Court for the District of Oregon, Micrion was ordered to arbitrate these
matters in Oregon, and the Court action has been stayed with respect to
these matters. The Company has filed an Answer and Counterclaim in the
Court, asserting that the patent is not infringed and is invalid. In May
1996, the parties agreed to dismiss the Court action and the arbitration,
both without prejudice. Either Micrion or the Company may re-initiate
either the Court action or the arbitration on or after November 1, 1996.
Although the Company believes it has valid defenses to Micrion's claims, a
determination that the Micrion patent is valid and infringed or that the
Company has misused confidential information could result in an award of
damages to Micrion or an injunction against sale of certain of the
Company's products, which could have a material adverse effect upon the
Company's financial condition and results of operations. Regardless of its
outcome, the litigation could result in substantial costs and diversion of
management and other resources.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenues are derived primarily from sales of FIB
workstations and, to a lesser extent, from the sale of emitters, focusing
columns and services. FIB workstations can be purchased with various
options, including gas injectors, a secondary ion mass spectrometry
("SIMS") analytical function, x-ray analysis equipment and computer aided
design ("CAD") navigational software.
From time to time the Company may issue forward-looking statements
that involve a number of risks and uncertainties. The following are among
the factors that could cause actual results to differ materially from the
forward-looking statements: business conditions and growth in the
electronics industry and general economies, both domestic and
international; lower than expected customer orders; competitive factors,
including increased competition, new product offerings by competitors and
price pressures; the availability of parts and supplies at reasonable
prices; changes in product mix; receipt of a significant portion of
customer orders and product shipments in the last month of each quarter;
technological difficulties and resource constraints encountered in
developing new products; and product shipment interruptions due to
manufacturing difficulties. The forward-looking statements contained in
this document regarding industry trends, product development and
introductions, sales, marketing and manufacturing trends, litigation,
liquidity and future business activities should be considered in light of
these factors.
Results of Operations
Net Sales. Net sales for the three months ended June 30, 1996 increased
$2.9 million (31%) and for the six months ended June 30, 1996 increased
$5.6 million (31%) compared to the corresponding periods in 1995. The
majority of this increase in sales can be attributed to increased sales of
FIB workstations, which rose by $1.6 million and $3.3 million for the three
months and six months ended June 30, 1996, respectively. In the three
months ended June 30, 1996, the Company sold three FIB workstations to
Norsam Technologies, Inc. ("Norsam") for use in a new commercial
application of FIB technology providing long term archival and very high
density data storage. The $3,250,000 sales price of the three FIB
workstations and the related receivable was paid in the form of 500,000
shares of Norsam Series A Preferred Stock convertible into an aggregate of
1,250,000 shares of Norsam common stock.
International sales accounted for 42% of sales for the six months ended
June 30, 1995 and 55% of sales for the six months ended June 30, 1996. The
increase in international sales resulted from increased sales and marketing
efforts in selected Asian markets, and the opening of a branch office in
Germany. The Company expects that international sales will continue to
represent a significant percentage of its net sales.
The Company believes recent slow downs in the integrated circuit industry
will reduce the growth in sales for the balance of 1996.
Gross Profit. Gross profit for the three months ended June 30, 1996
increased $.7 million (20%) and for the six months ended June 30, 1996
increased $1.4 million (20%) compared to the corresponding periods in 1995.
Gross profit as a percentage of sales for the three months ended June 30,
1996 decreased to 35% from 38% for the corresponding period in 1995, and
gross profit as a percentage of sales for the six months ended June 30,
1996 decreased to 36% from 39% for the corresponding period in 1995. This
decrease resulted primarily because the Company has increased sales into
selected strategic Asian markets, where selling prices are lower due to
increased competition, creating a negative impact on gross profit margins.
The Company purchases a substantial number of components for its FIB
workstations from Philips Electron Optics B.V. ("Philips"), the purchase
prices for which are denominated in Dutch guilders. The prices of those
components are agreed to by the Company and Philips annually. An increase
in the value of the Dutch guilder in relation to the U.S. dollar would
effectively increase the cost to the Company of those components and
adversely affect the Company's cost of sales.
Research and Development. For the three months ended June 30, 1996,
research and development expense increased $309,000 (49%) and for the six
months ended June 30, 1996 increased $612,000 (50%) compared to the
corresponding periods in 1995. These increases are primarily attributable
to increased engineer staffing levels and consultant costs related to FIB
workstation automation and clean room development
9
<PAGE>
projects. Labor and related expenses increased $302,000 for the quarter and
$513,000 for the six months ended June 30, 1996 as compared to the same
periods in 1995.
Capitalized software development costs were $28,000 and $231,000 for the
three months ended June 30, 1995 and 1996, respectively, and $78,000 and
$437,000 for the six months ended June 30, 1995 and 1996, respectively.
Selling and Marketing. Selling and marketing expense for the three months
ended June 30, 1996 increased $258,000 (25%) and for the six months ended
June 30, 1996 increased $676,000 (33%) compared to the corresponding
periods in 1995. Selling and marketing expense as a percentage of sales for
the three months ended June 30, 1995 and 1996 was 11%, and for the six
months ended June 30, 1995 and 1996 was also 11%. The increase in dollar
amounts reflects the greater amount of sales commissions paid in connection
with increased sales volume. Sales commissions increased $76,000 for the
quarter and $230,000 for the six months ended June 30, 1996 as compared to
the same periods in 1995. Increased sales, technical marketing and support
staffing levels were also a significant factor in the increase of selling
and marketing expenses. Labor and related expenses increased $121,000 for
the quarter and $303,000 for the six months ended June 30, 1996 as compared
to the same periods in 1995.
General and Administrative. General and administrative expense for the
three months ended June 30, 1996 increased $406,000 (63%) and for the six
months ended June 30, 1996 increased $789,000 (63%) compared to the
corresponding periods in 1995. The increase was primarily due to the hiring
of additional administrative staff, which increased such expense $298,000
for the quarter and $600,000 for the six months ended June 30, 1996 as
compared to the same periods in 1995, and the additional costs of public
and shareholder reporting, which were $102,000 for the quarter and $151,000
for the six months ended June 30, 1996, and $0 for the same periods in
1995.
Other Income (Expense). Foreign currency gain decreased $148,000 (87%) for
the three months ended June 30, 1996 and foreign currency loss decreased
$205,000 (100%) for the six months ended June 30, 1996 compared to the
corresponding periods in 1995. This change between periods was driven by
relatively constant exchange rates for the periods in 1996 compared with
the fluctuation in value of the US dollar against the Dutch guilder in
1995.
Interest income increased $20,000 (11%) for the three months ended June 30,
1996 and $127,000 (46%) for the six months ended June 30, 1996 compared to
the corresponding periods in 1995. This increase results from earnings on
the excess cash generated by the initial public offering of the Company's
stock.
Interest expense decreased $204,000 (100%) for the three months ended
June 30, 1996 and $382,000 (85%) for the six months ended June 30, 1996
compared to the corresponding periods in 1995. This decrease is because of
the repayment of debt with the proceeds from the initial public offering of
the Company's stock.
Other expense for the three and six months ended June 30, 1995 includes a
writeoff of purchased software that was no longer in use.
Tax Expense. The effective income tax rate was 38% for the three months and
six months ended June 30, 1995 compared to effective rates of 37% and 37%
for the three months and six months ended June 30, 1996, respectively.
These rates vary from the Company's federal statutory tax rate of 34%
primarily due to the addition of state and foreign sales corporation taxes
and the reduction of foreign sales corporation dividends, research and
development credits and various treatments of international transactions
and related taxes. The decrease in the effective tax rates for the 1996
periods from the corresponding periods in 1995 is primarily due to
additional foreign sales corporation exclusions during the 1996 periods.
Consolidated income before tax includes the parent and its two wholly owned
European subsidiaries (such subsidiaries are collectively referred to as
"FEI Europe"). Income before tax for FEI Europe, as a percentage of
consolidated income before tax, was 5% for the six months ended June 30,
1995, and (5)% for the six months ended June 30, 1996. The loss for 1996
was due to start up and operating costs associated with opening and running
a new office in Germany.
Certain risks are inherent in international operations, including changes
in demand resulting from fluctuations in interest and exchange rates, the
risk of government financed competition, changes in trade
10
<PAGE>
policies, tariff regulations and difficulties in obtaining U.S. export
licenses. Changes in relevant foreign currency exchange rates between time
of sale and time of payment can also adversely impact profits.
Liquidity and Capital Resources
At June 30, 1996, the Company had total cash and cash equivalents of
$3.7 million compared to $2.7 million at December 31, 1995. Cash used by
operating activities for the six months ended June 30, 1996 was $1.2
million compared to cash provided of $.3 million for the six months ended
June 30, 1995. The primary components causing this decrease in cash from
operating activities during 1996 were an increase in inventory of $4.8
million and an increase in accounts payable of $2.9 million. The increase
in inventory resulted from lower than expected sales of FIB workstations
and the increase in accounts payable represents a corresponding increase in
purchases to meet the projected sales levels.
Investing activities provided $1.3 million during the six months ended June
30, 1996 and consumed $1.8 million during the six months ended June 30,
1995. The majority of this increase during 1996 was from sales of
investments, which were $3.6 million, net. Capital expenditures increased
from 1995 levels primarily due to the purchase of research and development
and training equipment. The Company expects to continue to invest in
property, plant and equipment needed for future business requirements,
including manufacturing capacity.
Financing activities provided $.9 million for the six months ended June 30,
1996 and $14.6 million for the corresponding period in 1995. During 1995,
the Company completed its initial public offering, with net proceeds of
$21.2 million in cash. From these proceeds, the Company paid off its bank
line of credit and long term debt.
Other sources of liquidity include an unused bank line of credit at
August 6, 1996 of $10 million, which is subject to renewal on July 31,
1997. The Company believes it has the financial resources needed to meet
business requirements in the foreseeable future, including capital
expenditures and operating expenses.
11
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 1996 at the Company's Annual Meeting of shareholders, the
holders of the Company's outstanding Common Stock took the actions
described below. As of the record date for the Annual Meeting, 7,701,895
shares of Common Stock were issued and outstanding.
1. The shareholders elected each of Lynwood W. Swanson, William G.
Langley, Charles T. Riddle, Noel A. Martin, John C. Beckman, Edward H.
Cooley, Gregory J. Houser, Lloyd R. Swenson, and Donald R. VanLuvanee, by
the votes indicated below, to serve on the Company's Board of Directors for
the ensuing year:
Lynwood W. Swanson
------------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
William G. Langley
------------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
Charles T. Riddle
-----------------
6,152,532 shares in favor
25,026 shares against or withheld
0 abstentions
0 broker nonvotes
Noel A. Martin
--------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
John C. Beckman
---------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
Edward H. Cooley
----------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
12
<PAGE>
Gregory J. Houser
-----------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
Lloyd R. Swenson
----------------
6,153,558 shares in favor
24,000 shares against or withheld
0 abstentions
0 broker nonvotes
Donald R. VanLuvanee
--------------------
6,151,558 shares in favor
26,000 shares against or withheld
0 abstentions
0 broker nonvotes
2. The shareholders voted to amend the Company's 1995 Stock Incentive
Plan to increase the total number of shares of Common Stock of the Company
reserved for issuance under the Plan from 500,000 to 800,000 by the votes
indicated below:
5,590,603 shares in favor
455,519 shares against or withheld
131,436 abstentions
0 broker nonvotes
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which
this report is filed.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FEI COMPANY
(Registrant)
Dated: August 12, 1996 WILLIAM G. LANGLEY
--------------------------------------------
William G. Langley
President, Chief Financial Officer
and Authorized Officer
15
<PAGE>
Exhibit Index
Exhibit Sequential Page
No. Description No.
- ------- ----------- ---------------
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
Exhibit 11
FEI COMPANY AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In Thousands except share and per share data)
WEIGHTED AVERAGE NUMBER OF SHARES
The weighted average number of shares of common stock and common stock
equivalents, after adjusting for the two-for-three reverse split on May 15,
1995, was determined as follows:
Outstanding options for common stock and convertible warrants and options have
been included in the calculation of common and common equivalent shares using
the treasury stock method based on an assumed initial public offering price of
$9.50 per share as the market price for the three months and six months ended
June 30, 1995, and an average market price of $15.36 per share for the three
months and $13.30 per share for the six months ended June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Common Stock
Shares outstanding, beginning of period 4,370,372 7,701,925 4,363,705 7,222,394
Shares issued on exercise of options (1) 4,597 57,070 5,928 37,043
Shares issued on exercise of warrants (2) 12,165 33,530 6,083 16,765
Shares issued on conversion of options
from debt agreement (7) -- -- -- 310,257
Shares issued on completion of initial
public offering (3) 686,813 -- 343,407 --
SEC SAB 83 shares (4) 270,246 45,339 270,246 121,813
---------- ---------- ---------- ----------
5,344,193 7,837,864 4,989,369 7,708,272
---------- ---------- ---------- ----------
Common stock equivalents:
Warrants (5) 282,510 127,786 278,097 137,174
Options (6) 240,098 278,228 226,141 192,186
---------- ---------- ---------- ----------
522,608 406,014 504,238 329,360
---------- ---------- ---------- ----------
Weighted average number of shares 5,866,801 8,243,878 5,493,607 8,037,632
========== ========== ========== ==========
Net income (loss) $ 745 $ 709 $ 1,270 $ 1,454
========== ========== ========== ==========
Net income (loss) per share $ 0.13 $ 0.09 $ 0.23 $ 0.18
========== ========== ========== ==========
<FN>
- -------------------
(1) Under 1984 Stock Incentive Plan: weighted average shares from exercise
date of option.
(2) Weighted average share from conversion date of warrant.
(3) Initial public offering of June 1, 1995: weighted average shares from
date of sale.
(4) Employee options issued January 1, 1994
to April 21, 1995 105,278 118,783 105,278 122,848
Less shares reacquired under treasury
stock method 101,698 73,444 101,698 90,412
------- ------- ------- -------
3,580 45,339 3,580 32,436
Convertible options - debt
agreement (7) 266,666 0 266,666 89,377
------- ------- ------- -------
Net SAB No. 83 shares 270,246 45,339 270,246 121,813
======= ====== ======= =======
(5) Warrants issued 9/1/88 and 10/3/88 for 200,000 shares each, less
shares reacquired under treasury stock method.
(6) Options granted on annual basis under plan, less shares reacquired
under treasury stock method.
(7) Convertible options - debt agreements issued prior to January 1, 1994
are excluded from SAB No. 83 shares. Further, such options are anti-
dilutive and, therefore, presentation of fully diluted earnings per
share is not required. Share amounts are weighted average shares
from/to exercise date of option.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMETNS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,734
<SECURITIES> 3,780
<RECEIVABLES> 12,022
<ALLOWANCES> 141
<INVENTORY> 15,256
<CURRENT-ASSETS> 33,391
<PP&E> 10,890
<DEPRECIATION> 5,182
<TOTAL-ASSETS> 50,108
<CURRENT-LIABILITIES> 9,566
<BONDS> 0
0
0
<COMMON> 31,615
<OTHER-SE> 15
<TOTAL-LIABILITY-AND-EQUITY> 50,108
<SALES> 23,682
<TOTAL-REVENUES> 23,682
<CGS> 15,109
<TOTAL-COSTS> 15,109
<OTHER-EXPENSES> 6,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 2,297
<INCOME-TAX> 843
<INCOME-CONTINUING> 1,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,454
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
