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 September 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: 7,956,933 shares of
Common Stock were outstanding at October 31, 1996.
<PAGE>
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
(unaudited) and December 31, 1995............................ 1
Consolidated Statements of Operations - Three Months
Ended September 30, 1996 and September 30, 1995 and
Nine Months Ended September 30, 1996 and September 30,
1995 (unaudited)............................................. 2
Consolidated Statements of Changes in Shareholders'
Equity - Nine Months Ended September 30, 1996 (unaudited)
and Year Ended December 31, 1995 ............................ 3
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 (unaudited) and September 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 6. Exhibits and Reports on Form 8-K.............................12
Signatures.................................................................13
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
ASSETS
December 31, September 30,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $ 2,700 $ 1,485
Investments (Note 4) 4,961 --
Receivables (Note 5) 13,769 12,232
Tax refund receivable 36 17
Inventories (Note 6) 10,425 18,790
Prepaid expenses 159 404
Deferred income taxes 626 994
----------- ----------
Total current assets 32,676 33,922
INVESTMENTS (NOTE 4) 2,540 1,000
EQUIPMENT 4,604 8,295
LEASE AND NOTE RECEIVABLES (Note 11) 2,663 2,532
OTHER ASSETS (Note 7) 2,159 6,132
----------- ----------
TOTAL $ 44,642 $ 51,881
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit and notes payable (Note 10) $ -- $ 3,328
Accounts payable 2,597 4,358
Accrued payroll liabilities 606 802
Accrued warranty reserves 892 1,121
Deferred revenue 434 491
Income taxes payable 870 397
Other current liabilities 871 811
----------- ----------
Total current liabilities 6,270 11,308
COMMITMENTS AND CONTINGENCIES -- --
LONG-TERM DEBT (Note 9) 3,500 --
DEFERRED INCOME TAXES 450 489
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 7,956,933 shares issued and outstanding 27,150 31,658
Warrants - 200,001 and zero issued and outstanding 59 --
Retained earnings 7,099 8,418
Unrealized gain on marketable securities 96 --
Cumulative foreign currency translation adjustment 18 8
----------- ----------
Total shareholders' equity 34,422 40,084
----------- ----------
TOTAL $ 44,642 $ 51,881
=========== ==========
See notes to consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 11,010 $ 9,894 $ 29,131 $ 33,576
COST OF SALES 6,874 6,496 17,846 21,605
---------- ---------- ---------- ----------
Gross profit 4,136 3,398 11,285 11,971
OPERATING EXPENSES:
Research and development 681 975 1,903 2,809
Selling and marketing 1,189 1,553 3,224 4,264
General and administrative 592 1,053 1,850 3,100
---------- ---------- ---------- ----------
Total operating expenses 2,462 3,581 6,977 10,173
OPERATING INCOME 1,674 (183) 4,308 1,798
OTHER INCOME (EXPENSE):
Foreign currency gain (loss) (108) (27) (312) (26)
Interest income 331 125 606 527
Interest expense (103) (16) (550) (81)
Other (8) (5) (181) (27)
---------- ---------- ---------- ----------
Total other income (expense) 112 77 (437) 393
INCOME BEFORE TAXES 1,786 (106) 3,871 2,191
TAX EXPENSE 592 29 1,407 872
---------- ---------- ---------- ----------
NET INCOME $ 1,194 $ (135) $ 2,464 $ 1,319
========== ========== ========== ==========
NET INCOME PER SHARE $ 0.16 $ (0.02) $ 0.40 $ 0.16
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 7,702,942 7,956,933 6,229,902 8,037,945
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands except share data)
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) --
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) 1,319 1,319
Proceeds from exercise of
options for 108,020 shares of
common stock (unaudited) 108,020 949 949
Exercise of convertible options
for 466,667 shares of common
stock (unaudited) 466,667 3,500 3,500
Exercise of 200,001 warrants
into 159,882 shares of
common stock (unaudited) 159,882 59 (200,001) (59) --
Unrealized loss on marketable
securities (unaudited) (96) (96)
Foreign currency translation
adjustment (unaudited) (10) (10)
-----------------------------------------------------------------------------------------------
BALANCE, September 30, 1996
(unaudited) 7,956,963 $31,658 -- $ -- $ 8,418 $ -- $ 8 $ 40,084
-----------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,464 $ 1,319
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,161 1,210
Deferred taxes on income 128 (329)
Decrease (increase) in assets:
Receivables (3,867) (1,713)
Inventories (1,214) (7,700)
Prepaid expenses and tax refund receivable 218 (226)
Other assets (7) (179)
Increase (decrease) in liabilities:
Accounts payable 757 1,761
Accrued payroll liabilities 314 196
Accrued warranty reserves 288 229
Deferred revenue 58 57
Income taxes payable 708 (473)
Other current liabilities 313 (60)
Net cash provided (used in) operating activities 1,321 (5,908)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (1,355) (5,026)
Investment in software development (164) (650)
Purchase of marketable securities and other investments -- (1,038)
Sale of marketable securities -- 7,427
Net investment in lease receivables (Note 11) (8,516) (316)
Net disposals of equipment (339) 29
Net cash provided (used in) investing activities (10,342) 426
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) line of credit
and notes payable (6,386) 3,328
Proceeds from exercise of stock options and warrants 368 949
Net proceeds from sale of stock (Note 8) 21,152 --
Proceeds from issuance of long term debt 1,000 --
Payments on long term debt (1,348) --
Net cash provided by financing activities 14,786 4,277
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 13 (10)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,778 (1,215)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 192 2,700
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,970 $ 1,485
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 582 $ 81
Income taxes paid 534 1,694
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
Repossession of leased FIB workstation (Note 11) 447
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 accordance with generally
accepted account 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 period. Actual results could differ from estimates.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Cash $ 590 $ 1,188
Money market investments 2,110 297
-------- ---------
Total cash and cash equivalents $ 2,700 $ 1,485
======== =========
</TABLE>
4. INVESTMENTS
Investments, classified as available for sale, consist of the following (in
thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1995
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies $ 1,908 $ 24 $ -- $ 1,932
Debt securities issued by states of the
U. S. 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)
September 30, 1996
Preferred stock $ 1,000 $ -- $ -- $ 1,000
</TABLE>
These investments have been reported as follows:
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Current assets - investments $ 4,961 $ --
Noncurrent assets - investments 2,540 1,000
-------- ---------
Total $ 7,501 $ 1,000
======== =========
</TABLE>
5. RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Trade $ 12,000 $ 11,284
Foreign tax deposit and other 587 300
Current portion of lease receivable 1,277 868
----------- ----------
Allowance for doubtful accounts (95) (220)
----------- ----------
Total receivables $ 13,769 $ 12,232
=========== ==========
</TABLE>
6. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Raw materials and assembled parts $ 6,933 $ 10,449
Work in process 1,866 5,778
Finished goods 1,626 2,563
----------- -----------
Total inventories $ 10,425 $ 18,790
=========== ===========
</TABLE>
6
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Service inventories, noncurrent, net of reserves of $375
and $800, respectively $ 1,500 $ 1,500
Investment in Norsam Technologies, Inc. -- 3,250
Capitalized software development costs, net of amortization
of $545 and $651, respectively 499 1,043
Goodwill, net of amortization of $102 and $118, respectively 73 57
Cash surrender value of life insurance 77 77
Deposits and other 10 189
---------- ----------
Total other assets $ 2,159 $ 6,132
========== ==========
</TABLE>
The Company has sold three FIB worksations 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. In
addition, the Company has entered into an exclusive vendor relationship
with Norsam for the purchase of up to an additional twenty workstations. As
part of the initial transaction, the Company has received an equity
position in Norsam of 500,000 shares of Norsam Series A Preferred Stock.
Each share of Preferred Stock is convertible into shares of Norsam common
stock at a conversion rate of $5.00 per share. The value of this
transaction was $3,250,000.
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 then-existing 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.
10. LINE OF CREDIT
A $10,000,000 operating line of credit is available at the bank's variable
basic rate (8.5% at September 30, 1996). The amounts outstanding at
December 31, 1995 and September 30, 1996 were zero and $3,328,000,
respectively. The demand line will be subject to review on July 31, 1997.
Borrowings under the line of credit are secured by eligible receivables,
inventories and equipment.
11. LEASE AND NOTE RECEIVABLES
During September, 1996, the Company repossessed a FIB workstation that had
been leased to Beam-It, Inc. The balance of the lease obligation, after
deducting the value of the FIB workstation taken back, was $800,000. On
September 30, 1996, Beam-It signed an agreement to repay the remaining
balance owing by providing marketing services to the Company during the
next five years.
7
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financials Standards No. 123 ("SFAS No.
123"), "Account 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.
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 September 30, 1996
decreased $1.1 million (10%) and for the nine months ended September 30,
1996 increased $4.4 million (15%) compared to the corresponding periods in
1995. The decrease in sales for the three months ended September 30, 1996
is the result of decreased sales of FIB workstations, which dropped by $2.4
million compared to the same period last year. This decline in FIB sales
for the quarter is the result of slow downs in the integrated circuit
industry. The majority of the increased sales for the nine months ended
September 30, 1996 can be attributed to increased sales of both components
and FIB workstations, which rose by $3.0 million and $833,000,
respectively, compared to the same period last year. In the nine months
ended September 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 was paid
in the form of 500,000 shares of Norsam Series A Preferred Stock
convertible into shares of Norsam common stock at a conversion rate of
$5.00 per share.
International sales accounted for 57% of sales for the nine months end
September 30, 1995, and 52% of sales for the nine months ended September
30, 1996. The Company expects that international sales will continue to
represent a significant percentage of its net sales.
The Company believes that recent slow downs in the integrated circuit
industry will result in lower sales growth for the remainder of 1996.
Gross Profit. Gross profit for the three months ended September 30, 1996
decreased $738,000 (18%) and for the nine months ended September 30, 1996
increased $686,000 (6%) compared to the corresponding periods in 1995.
Gross profit as a percentage of sales for the three months ended September
30, 1996 decreased to 34% from 38% for the corresponding period in 1995,
and gross profit as a percentage of sales for the nine months ended
September 30, 1996 decreased to 36% from 39% for the corresponding period
in 1995. This decrease in gross profit percent is caused by two significant
factors, one of which is increased customer service costs. Customer service
labor costs nearly doubled, increasing $240,000 for the three months and
$740,000 for the nine months ended September 30, 1996, as compared to the
same periods in 1995. Depreciation expense, primarily depreciation of
customer service inventory, increased $131,000 and $331,000 for the three
months and nine months ended September 30, 1996.
The second factor causing the decline in gross profit as a percentage of
sales, primarily in the nine months ended September 30, 1996, was increased
sales into selected strategic Asian markets, where selling prices are lower
due to greater price competition.
9
<PAGE>
The Company purchases a substantial number of components for its FIB
workstations from Philips Electron Optics B.V. ("Philips") for which the
purchase prices are denominated in Dutch guilders. The prices of those
components are established annually by the Company and Philips. 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 gross profit margins.
Research and Development. For the three months ended September 30, 1996,
research and development expense increased $294,000 (43%) and for the nine
months ended September 30, 1996 increased $906,000 (48%) compared to the
corresponding periods in 1995. These increases are primarily attributable
to increased engineer staffing levels, consultant costs and use of
operating supplies. The latter two factors are principally related to FIB
workstation automation and clean room development projects. Labor and
related expenses increased $268,000 for the quarter and $781,000 for the
nine months ended September 30, 1996 as compared to the same periods in
1995, and operating supplies increased $79,000 and $138,000 for the same
periods, respectively.
Capitalized software development costs were $86,000 and $213,000 for the
three months ended September 30, 1995 and 1996, respectively, and $164,000
and $650,000 for the nine months ended September 30, 1995 and 1996,
respectively. The Company is continuing to invest in internal development
of focused ion and electron beam technology.
Selling and Marketing. Selling and marketing expenses for the three months
ended September 30, 1996 increased $364,000 (31%) and for the nine months
ended September 30, 1996 increased $1,040,000 (32%) compared to the same
periods in 1995. Selling and marketing expenses as a percentage of sales
for the three months ended September 30, 1995 and 1996 was 11% and 16%,
respectively, and for the nine months ended September 30, 1995 and 1996 was
11% and 13%, respectively. These increases reflect the greater amount of
sales commissions paid in connection with increased sales volume. Sales
commissions increased $43,000 for the quarter and $272,000 for the nine
months ended September 30, 1996 as compared to the same periods in 1995.
Increased sales, technical marketing and support staffing levels, plus
increased travel costs were also significant factors in the increase of
selling and marketing expenses. Labor and related expenses increased
$242,000 for the quarter and $545,000 for the nine months ended September
30, 1996 as compared to the same periods in 1995. Travel costs increased
$50,000 for the quarter and $118,000 for the nine months ended September
30, 1996 as compared to the same periods in 1995.
General and Administrative. General and administrative expenses for the
three months ended September 30, 1996 increased $461,000 (78%) and for the
nine months ended September 30, 1996 increased $1,250,000 (68%) compared to
the corresponding periods in 1995. The increase was primarily due to the
hiring of additional administrative staff, which accounted for an increase
of $284,000 for the quarter and $885,000 for the nine months ended
September 30, 1996 as compared to the same periods in 1995, the additional
cost of public and shareholder reporting, which accounted for $40,000 for
the quarter and $191,000 for the nine months ended September 30, 1996, and
was zero for the same periods in 1995, and increased bad debt accrual of
$161,000 for the three months and $126,000 for the nine months ended
September 30, 1996 as compared to the same periods in 1995. In addition, a
re-negotiation of an existing lease receivable during the three months
ended September 30, 1996 resulted in a direct charge to bad debt expense of
$52,000.
Other Income (Expense). Foreign currency loss decreased $81,000 (75%) for
the three months ended September 30, 1996 and $286,000 (92%) for the nine
months ended September 30, 1996, compared to the corresponding periods in
1995. This change between periods was caused 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 decreased $206,000 (62%) for the three months ended
September 30, 1996 and $79,000 (13%) for the nine months ended September
30, 1996, compared to the corresponding periods in 1995. This decrease
results from the liquidation of short term investments, which had been
earning interest.
Interest expense decreased $87,000 (84%) for the three months ended
September 30, 1996 and $471,000 (86%) for the nine months ended September
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. Also included in other expense for the
nine months ended September 30, 1996 was miscellaneous expense of
$(181,000).
10
<PAGE>
Other expense for the nine months ended September 30, 1995 includes a write
off of purchased software that was no longer in use.
Tax Expense (Benefit). The effective income tax rate was 33% and 36% for
the three months and nine months ended September 30, 1995 compared to
effective rates of (27)% and 40% for the three months and nine months ended
September 30, 1996, respectively. For the three months ended September 30,
1996, the Company had a small tax expense despite a net operating loss, due
to annualization of tax-exempt interest income, foreign sales credits and
the impact of foreign taxes. These rates vary from the Company's federal
statutory tax rate of 34% primarily due to the addition of state, foreign
and foreign sales corporation taxes and the reduction of foreign sales
corporation dividends, and various treatments of international transactions
and related taxes. The increase in the effective tax rates for 1996 periods
from the corresponding periods in 1995 is primarily due to larger foreign
sales corporation tax credits during the 1995 periods and higher foreign
taxes during 1996.
Consolidated income before tax includes the parent and its three wholly
owned subsidiaries. Income before tax for the Company's subsidiaries, as a
percent of consolidated income before tax, was 3% for the nine months ended
September 30, 1995, and (11)% for the nine months ended September 30, 1996.
The loss for 1996 is due to start up and operating costs associated with
opening and operating the office of FEI Europe GmbH 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 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 have an adverse impact on profit levels.
Liquidity and Capital Resources
At September 30, 1996, the Company had total cash and cash equivalents of
$1.5 million compared to $2.7 million at December 31, 1995. Cash used by
operating activities for the nine months ended September 30, 1996 was $5.9
million compared to cash provided of $1.3 million for the nine months ended
September 30, 1995. The primary components causing this reduction in cash
from operating activities during the 1996 nine month period were an
increase in inventory of $7.7 million, offset by an increase in accounts
payable of $1.8 million, and the noncash sale of three FIB workstations to
Norsam and strategic stocking of some FIB workstation platforms. The
increase in inventory resulted from lower than expected sales of FIB
workstations, while the increase in accounts receivable was due to the fact
that an unusually high portion (66%) of the sales for the quarter ended
September 30, 1996 took place in the last month of the quarter.
Investing activities during the nine months ended September 30, 1996
provided net cash of $426,000, compared with net use of cash of $10.3
million during the nine months ended September 30, 1995. During the 1996
nine month period, FEI received $6.4 million cash from net sales of
investments and used cash of $5.0 million for the acquisition of equipment.
During the comparable period of 1995, the Company's principal investing
activities consisted of the purchase of investments for $8.5 million and
the purchase of equipment for $1.4 million. Capital expenditures increased
in first nine months of 1996 from the 1995 comparable period primarily
because of the purchase of research and development and training equipment.
FEI expect to continue to invest in property, plant and equipment needed
for future business requirements, including manufacturing capacity.
Financing activities provided net cash of $4.3 million for the nine months
ended September 30, 1996 and $14.8 million for the comparable 1995 period.
During 1995, FEI completed its initial public offering, which provided net
proceeds to the Company of $21.2 million. From these proceeds, the Company
paid off its bank line of credit and outstanding long-term debt. During the
period ended September 30, 1996, FEI borrowed $3.3 million under its $10
million bank line of credit. This line of credit is subject to renewal on
July 31, 1997 and contains certain eligibility requirements that could
limit future borrowings under the line of credit.
FEI believes its cash equivalents, investments and borrowings available
under its line of credit will be sufficient to fund operations for the next
twelve months. Management expects inventory levels to decrease in the
fourth quarter of 1996 and the first quarter of 1997 as FIB systems are
shipped from backlog. During the fourth quarter of 1996 and the first
quarter of 1997, however, management expects borrowings under the existing
line of credit to be close to the maximum available amount. If inventory
levels and accounts receivable are not reduced or if sales are lower than
expected during this twelve-month period, management believes the Company
may require additional sources of capital.
11
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment, dated August 6, 1996, to Loan Agreement
between the Company and Key Bank of Oregon
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.
12
<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: November 14, 1996 WILLIAM G. LANGLEY
-----------------------------------
William G. Langley
President, Chief Financial Officer
and Authorized Officer
13
<PAGE>
Exhibit Index
Exhibit Sequential Page
No. Description No.
- ------ ----------- ---------------
10.1 Amendment, dated August 6, 1996, to Loan Agreement
between the Company and Key Bank of Oregon
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
AMENDMENT TO LOAN AGREEMENT
That Loan Agreement (Revolving Line) dated December 17, 1993 and previously
amended April 26, 1994, June 1, 1994, August 1, 1994, December 21, 1994,
August 1, 1995 and June 1, 1996 between FEI Company and Key Bank of Oregon,
is hereby amended as follows:
SECTION 1.1 LOAN TERMS:
The phrase "principal amount of $5,000,000.00 ("the Credit
Limit") is amended to read "principal amount of $10,000,000.00 ("the Credit
Limit").
SECTION 1.1.(a) NON-CONFORMING LOAN TERMS:
The phrase "$4,000,000.00" which refers to LIBOR advances is
amended to read "$9,000,000.00" and the phrase "$5,000,000.00" which refers
to the Credit Limit is amended to read "$10,000,000.00" wherever such
phrases appear in this section.
SECTION 1.5 LINE FEE.
This section is amended to read: "Borrower shall pay to Bank a
line fee of $3,000.00 for the increase in the credit line from
$5,000,000.00 to $10,000,000.00 in full at signing of this renewal."
All other terms and conditions remain unchanged. A waiver by the Bank of
any of its rights under the Note, Loan Agreement or any other loan
documents on any one occasion shall not be construed as a waiver on any
other occasion, nor shall it be construed as a waiver of any other of the
Bank's rights.
Dated this 6th day of August, 1996.
FEI COMPANY KEY BANK OF OREGON
By: FREDERICK A.M. GORDON By: THOMAS N. SCIARRETT
----------------------------- ------------------------------
Frederick A. M. Gordon Thomas N. Sciarretta
Controller Vice President
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 average market price of
$13.00 per share the three months and $10.67 per share for the nine months
ended September 30, 1995, and an average market price of $10.76 per share
for the three months and $12.45 per share for the nine months ended
September 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Common Stock
Shares outstanding, beginning of period 6,991,838 7,915,431 4,363,705 7,222,394
Shares issued on exercise of options (1) 15,884 2,413 45,336 60,273
Shares issued on exercise of warrants (2) 28,266 6,991 20,099 54,190
Shares issued on conversion of options
from debt agreement (7) -- -- -- 362,393
Shares issued on completion of initial
public offering (3) -- -- 1,062,271 --
SEC SAB 83 shares (4) 270,246 13,155 270,246 85,594
--------- --------- --------- ---------
7,306,234 7,937,990 5,761,657 7,784,844
--------- --------- --------- ---------
Common stock equivalents:
Warrants (5) 225,394 29,393 260,529 101,247
Options (6) 170,864 71,188 207,716 151,854
--------- --------- --------- ---------
396,258 100,581 468,245 253,101
--------- --------- --------- ---------
Weighted average number of shares 7,702,492 8,038,571 6,229,902 8,037,945
========= ========= ========= =========
Net income (loss) $ 1,194 $ (135) $ 2,464 $ 1,319
========= ========= ========= =========
Net income (loss) per share $ 0.16 $ (0.02) $ 0.40 $ 0.16
========= ========= ========= =========
- ---------------
<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
104,383 112,499 104,980 119,397
Less shares reacquired under treasury
stock 100,803 99,344 101,400 93,389
--------- --------- --------- ---------
3,580 13,155 3,580 26,008
Convertible options - debt
agreement (7) 266,666 0 266,666 59,586
--------- --------- --------- ---------
Net SAB No. 83 shares 270,246 13,155 270,246 85,594
========= ========= ========= =========
(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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,485
<SECURITIES> 1,000
<RECEIVABLES> 12,452
<ALLOWANCES> 220
<INVENTORY> 18,790
<CURRENT-ASSETS> 33,922
<PP&E> 13,496
<DEPRECIATION> 5,201
<TOTAL-ASSETS> 51,881
<CURRENT-LIABILITIES> 11,308
<BONDS> 0
0
0
<COMMON> 31,658
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,881
<SALES> 33,576
<TOTAL-REVENUES> 33,576
<CGS> 21,605
<TOTAL-COSTS> 21,605
<OTHER-EXPENSES> 10,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 2,191
<INCOME-TAX> 872
<INCOME-CONTINUING> 1,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,319
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
