SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 29, 1999
(August 16, 1999)
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FEI COMPANY
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(Exact name of registrant as specified in charter)
OREGON
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(State of incorporation or organization)
0-22780 93-0621989
------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
7451 NW Evergreen Parkway, Hillsboro, OR 97214-5830
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (503) 640-7500
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Item 2. Acquisition or Disposition of Assets
On August 16, 1999, upon the filing of Articles of Merger with the state of
Oregon, FEI Company ( "FEI") acquired Micrion Corporation, a Massachusetts
corporation ("Micrion"), as a result of a merger through which Micrion became a
wholly owned subsidiary of FEI (the "Merger"). The Merger, as contemplated by
the Agreement and Plan of Merger dated December 3, 1998, between the FEI,
Micrion and MC Acquisition Corporation, an Oregon corporation and wholly owned
subsidiary of FEI, was approved by the shareholders of the FEI at a shareholders
meeting held on June 10, 1999 and by the stockholders of Micrion at a
shareholders meeting held on June 10, 1999. Proxies for both meetings were
solicited pursuant to Section 14(a) of the Securities and Exchange Act of 1934,
as amended.
The aggregate consideration paid at closing on August 16, 1999 consisted of
$30,384,658 in cash and 5,064,109 shares of FEI's common stock valued at $7.00 a
share, the closing price of FEI's common stock on Friday, August 13. Holders of
Micrion common stock received one share of FEI common stock and $6.00 in cash
(together, the "Merger Consideration") in exchange for each share of Micrion
common stock. The cash portion of the Merger Consideration was financed by
Philips Business Electronics International, B.V., ("PBE") the majority
shareholder of FEI, which purchased 3,913,299 newly issued shares of FEI common
stock for $8.02 a share in connection with the merger.
The Joint Proxy Statement/Prospectus dated May 5, 1999, which is part of
the Registration Statement on Form S-4 (No. 333-77849) filed by FEI (the "Joint
Proxy Statement"), contains information regarding the Merger, is filed as an
exhibit to this Report and is incorporated herein by reference.
Item 7. Financial Statement and Exhibits
The following financial statements and exhibits are filed as part of this
Report, as indicated.
(a) Financial Statements of Businesses Acquired
This Form 8-K/A contains the Independent Auditors' Report and the
accompanying consolidated balance sheets of Micrion as of June 30, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1999.
(b) Pro Forma Financial Information
This Form 8-K/A contains the unaudited pro forma condensed combined balance
sheet as of July 4, 1999, prepared as if the merger had occurred on that date,
and the unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1998 and the twenty-six weeks ended July 4, 1999,
prepared as if the merger transaction had occurred on January 1, 1998.
In the opinion of management, all adjustments necessary to present fairly
the pro forma condensed combined financial statements have been made based on
the term and structure of the merger. Management, however, is still in the
process of evaluating the projections and assumptions used in determining the
value of in-process research and development and existing technology. Management
is also in the process of finalizing its plans to reconcile product lines and
eliminate duplicate positions and facilities. As these assumptions are refined,
plans developed, and actual costs incurred, the allocation of the purchase price
to specific assets and liabilities may change.
These unaudited pro forma condensed combined financial statements are not
necessarily indicative of what actual results would have been had the merger or
issuance of FEI shares to PBE occurred at the beginning of the period nor do
they purport to indicate the results of
2
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future operations of FEI and Micrion. The unaudited pro forma condensed combined
financial statements should be read in conjunction with the accompanying notes
and the historical financial statements and notes thereto of FEI and Micrion.
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of December 3, 1998, as between
FEI Company, MC Acquisition Corporation and Micrion. Incorporated by
reference from Appendix A to the Joint Proxy Statement.
2.2 Stock Purchase Agreement dated as of December 3, 1998, between FEI and
Philips Business Electronics International B.V. Incorporated by
reference from Appendix H to the Joint Proxy Statement.
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Joint Proxy Statement. Incorporated by reference from FEI's
Registration Statement on Form S-4 (No. 333-77849).
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Independent Auditors' Report
The Board of Directors
Micrion Corporation:
We have audited the accompanying consolidated balance sheets of Micrion
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Micrion Corporation
and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Boston, Massachusetts
August 2, 1999, except for notes 11 and 15 which are as of August 13, 1999
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<TABLE>
<CAPTION>
MICRION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,854,400 $ 3,349,100
Accounts receivable (notes 3, 9 and 10) 10,241,000 18,303,300
Income tax receivable 651,900 --
Inventories (note 4) 22,984,100 19,717,300
Prepaid expenses and other current assets 675,400 635,400
Net deferred income taxes (note 11) 2,956,800 3,156,000
------------ ------------
Total current assets 39,363,600 45,161,100
------------ ------------
Property and equipment, net (notes 5 and 7) 4,400,000 5,145,500
Other assets, net 1,542,900 1,540,800
------------ ------------
Total assets $ 45,306,500 $ 51,847,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (notes 6 and 15) 4,850,000 3,605,000
Current portion of long-term debt (notes 6 and 15) 5,333,400 4,000,000
Accounts payable 3,964,400 2,681,700
Accrued expenses 4,017,000 3,566,000
Accrued warranty expenses 1,496,400 1,499,300
Current installments of obligations under capital leases (note 7) 555,500 668,000
Customer deposits and deferred income 1,819,500 1,213,900
------------ ------------
Total current liabilities 22,036,200 17,233,900
------------ ------------
Long term debt, net of current portion (notes 6 and 15) -- 4,000,000
Obligations under capital leases, net of current installments (note 7) 132,200 687,700
COMMITMENTS AND CONTINGENCIES (notes 7 and 13)
STOCKHOLDER'S EQUITY (notes 8 and 15):
Preferred stock, no par value; authorized 5,000,000 shares -- --
Common stock, no par value; authorized 12,300,000 shares 32,709,600 31,825,500
Accumulated deficit (9,529,700) (1,963,800)
Accumulated other comprehensive income (loss) (41,800) 64,100
------------ ------------
Total stockholders' equity 23,138,100 29,925,800
------------ ------------
Total liabilities and stockholders' equity $ 45,306,500 $ 51,847,400
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MICRION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended June 30,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Product revenues (notes 9 and 10) $ 37,825,200 $ 52,583,400 $ 54,822,700
Contract revenues 2,257,900 2,073,800 1,156,600
------------- ------------- -------------
Total revenues 40,083,100 54,657,200 55,979,300
------------- ------------- -------------
Cost of revenues:
Cost of product revenues 26,262,200 36,626,100 33,782,700
Cost of contract revenues 2,010,800 1,446,100 962,400
------------- ------------- -------------
Total cost of revenues 28,273,000 38,072,200 34,745,100
------------- ------------- -------------
Gross profit 11,810,100 16,585,000 21,234,200
Operating expenses:
Selling, general and administrative expenses 12,695,000 12,595,400 10,449,500
Research and development expenses, net (note 2) 5,143,900 6,326,900 5,775,800
Employee severance and other one-time charges -- 998,300 --
Merger expenses (note 15) 1,087,800 -- --
------------- ------------- -------------
Total operating expenses 18,926,700 19,920,600 16,225,300
------------- ------------- -------------
(Loss) income from operations (7,116,600) (3,335,600) 5,008,900
Other (expense) income:
Interest income 122,900 200,900 158,000
Interest expense (1,231,500) (1,192,900) (471,600)
Other 7,400 (41,800) 2,500
------------- ------------- -------------
Total other expense (1,101,200) (1,033,800) (311,100)
------------- ------------- -------------
(Loss) income before income taxes (8,217,800) (4,369,400) 4,697,800
Benefit (provision) for income taxes (note 11) 651,900 1,529,000 (1,648,600)
------------- ------------- -------------
Net (loss) income $ (7,565,900) $ (2,840,400) $ 3,049,200
============= ============= =============
(Loss) earnings per share:
Basic $ (1.85) $ (.70) $ .76
============= ============= =============
Diluted $ (1.85) $ (.70) $ .72
============= ============= =============
Weighted average number of shares:
Basic 4,096,900 4,056,700 4,036,400
============= ============= =============
Diluted 4,096,900 4,056,700 4,218,800
============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MICRION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Accumulated
Retained other
Common stock earnings comprehensive Total
------------------------ (accumulated Deferred income stockholders'
Shares Amount deficit) compensation (loss) equity
--------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 4,028,814 $ 31,426,800 $ (2,172,600) $ (5,100) $ 7,700 $ 29,256,800
Issuance of common stock
pursuant to employee
stock purchase plan 10,217 107,400 -- -- 107,400
Issuance of common stock
pursuant to employee
stock option plan 1,531 16,800 -- -- 16,800
Amortization of deferred
compensation (note 8) -- -- -- 4,000 4,000
Comprehensive income:
Cumulative translation
adjustment -- -- -- 13,700 13,700
Net income -- -- 3,049,200 -- 3,049,200
--------------
Total comprehensive income -- -- -- -- 3,062,900
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1997 4,040,562 31,551,000 876,600 (1,100) 21,400 32,447,900
Issuance of common stock
pursuant to employee
stock purchase plan 13,604 181,300 -- -- 181,300
Issuance of common stock
pursuant to employee
stock option plan 8,633 93,200 -- -- 93,200
Amortization of deferred
compensation (note 8) -- -- -- 1,100 1,100
Comprehensive income (loss):
Cumulative translation
adjustment -- -- -- 42,700 42,700
Net loss -- -- (2,840,400) -- (2,840,400)
--------------
Total comprehensive income
(loss) -- -- -- -- (2,797,700)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1998 4,062,799 31,825,500 (1,963,800) -- 64,100 29,925,800
Issuance of common stock
pursuant to employee
stock purchase plan 22,887 193,400 -- -- 193,400
Issuance of common stock
pursuant to employee
stock option plan 6,145 30,700 -- -- 30,700
Issuance of common stock
pursuant to underwriter
stock warrants 100,000 660,000 -- -- 660,000
Comprehensive income (loss):
Cumulative translation
adjustment -- -- -- (105,900) (105,900)
Net loss -- -- (7,565,900) -- (7,565,900)
--------------
Total comprehensive income
(loss) -- -- -- -- (7,671,800)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1999 4,191,831 $ 32,709,600 $ (9,529,700) -- $ (41,800) $ 23,138,100
======================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MICRION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended June 30,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (7,565,900) $ (2,840,400) $ 3,049,200
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,277,400 1,946,700 1,596,400
Amortization of unearned compensation -- 1,100 4,000
Decrease (increase) in deferred income taxes 199,200 (1,788,900) 448,800
Changes in operating assets and liabilities:
Accounts receivable 7,817,500 451,600 (7,653,800)
Income tax receivable (651,900) -- --
Inventories (3,266,800) 3,296,700 (2,505,200)
Prepaid expenses and other current assets (153,000) 38,000 (41,900)
Accounts payable 1,282,700 (4,348,200) 557,200
Accrued expenses 541,400 (1,009,100) 1,679,000
Accrued warranty expenses (11,900) 280,200 (34,500)
Customer deposits and deferred income 605,600 962,900 (138,000)
------------- ------------- -------------
Net cash provided by (used in) operating activities 1,074,300 (3,009,400) (3,038,800)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (1,743,500) (1,767,800) (2,914,900)
Disposition of property and equipment 214,000 1,117,500 --
Increase in other assets (2,000) (82,000) (42,000)
------------- ------------- -------------
Net cash used in investing activities (1,531,500) (732,300) (2,956,900)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from capital lease obligations -- -- 494,400
Repayments of capital lease obligations (668,000) (659,200) (564,000)
Net (repayments) borrowings from line of credit 1,245,000 (3,250,000) 6,515,000
Net proceeds from long-term debt issuance -- 7,960,000 --
Repayment of long-term debt (2,666,600) -- --
Proceeds from sale of common stock, net 884,100 274,500 124,000
------------- ------------- -------------
Net cash (used in) provided by financing activities (1,205,500) 4,325,300 6,569,400
------------- ------------- -------------
Effect of exchange rate changes on cash 168,000 89,000 21,600
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents (1,494,700) 672,600 595,300
Cash and cash equivalents, beginning of year 3,349,100 2,676,500 2,081,200
------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,854,400 $ 3,349,100 $ 2,676,500
============= ============= =============
SUMMARY OF NONCASH FINANCING TRANSACTIONS:
Equipment acquired under capital lease $ -- $ -- $ 1,058,500
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,227,900 $ 1,131,600 $ 440,000
============= ============= =============
Income taxes $ 12,400 $ 661,000 $ 953,000
============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
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MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(1) NATURE OF BUSINESS
Micrion Corporation (the 'Company') and its subsidiaries are engaged in the
development, production and marketing of capital equipment used in the
manufacturing and processing of semiconductor and other high technology devices.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Micrion
Corporation and its wholly owned subsidiaries, Micrion Japan Corporation KK,
Micrion GmbH, Micrion Corporation Limited and Micrion Foreign Sales Corporation.
All significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market (net realizable value).
Cost is determined using the first-in, first-out (FIFO) method.
(c) Revenue Recognition
Product revenues are recorded at the time of factory acceptance by the customer,
with the exception of certain systems with significant engineering costs, which
are accounted for under the percentage-of-completion accounting method. Sales of
spare parts are recorded at the time of shipment and maintenance service
revenues are billed in advance as deferred revenue and are recognized as the
service is performed.
Contract revenues are accounted for under the percentage-of-completion
accounting method. Losses are recognized in full when they become known.
(d) Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment, leasehold improvements and assets under capital leases
are provided by straight-line or accelerated methods over the estimated useful
lives of the respective assets as follows:
Furniture and fixtures 7 - 10 years
Computer, engineering and production equipment 3 - 7 years
Sales demonstration systems 5 years
Leasehold improvements 5 - 10 years
Assets under capital leases 3 - 5 years
License fees, which are included in other assets, are amortized using the
straight-line method over their estimated useful life, generally five years.
In accordance with Statements of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
(e) Stock-Based Compensation
In 1997, the Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation"(SFAS 123), which established financial
accounting and reporting standards for stock-based employee compensation plans.
As permitted by SFAS 123, the Company measures compensation cost in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The pro forma impact on net loss has been disclosed in Note 8.
9
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MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Research and Development
Expenditures for research and development are charged against operations as
incurred. For the years ended June 30, 1999, 1998 and 1997, aggregate research
and development costs were $6,961,500, $7,313,200 and $6,439,300, respectively,
net of $1,817,600, $986,300 and $663,500, respectively, of costs recovered under
research and development contracts.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(h) Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated into
U.S. dollars at the exchange rate in effect at the balance sheet date, and
revenue and expenses are translated at average rates in effect during the
period. The resulting translation adjustment is reflected within other
comprehensive income (loss) on the consolidated balance sheets. Transaction
gains and losses, which are immaterial, are reflected in the consolidated
statements of operations.
(i) Net (Loss) Earnings per Share
Basic net (loss) earnings per common share is computed by dividing net (loss)
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted net (loss) earnings per common
share reflects the maximum dilution that would have resulted from the assumed
exercise and share repurchase related to dilutive stock options and is computed
by dividing net (loss) earnings by the weighted average number of common shares
and all dilutive securities outstanding.
(j) Cash Equivalents
Cash equivalents consist of short-term investments with original maturities of
three months or less.
(k) Reclassification
Certain assets have been reclassified as of June 30, 1998 to conform with the
Company's policy for classification of assets as of June 30, 1999.
(l) Fair Value of Financial Instruments
The carrying value for cash and cash equivalents, accounts receivable, accounts
payable, capital lease obligations and short-term debt approximates fair value
because of the short maturity of these instruments.
Long-term debt approximates fair value due to variable interest rates.
(m) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash and cash equivalents and
accounts receivable. The Company invests its excess cash primarily in high
quality securities of short duration and limits the amount of credit exposure to
any one financial institution. The Company also provides credit, in the normal
course of business, primarily to large multinational corporations. Credit risk
on trade receivables is minimized as the result of the strong financial position
of the Company's customer base.
(n) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
10
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MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(3) ACCOUNTS RECEIVABLE
Accounts receivable consist of:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Trade accounts $ 9,261,100 $ 16,842,200
Billed:
Product revenues with significant engineering costs 540,000 --
Research and development contracts in progress 122,000 50,600
Unbilled:
Product revenues with significant engineering costs 98,000 1,320,400
Research and development contracts in progress 219,900 90,100
------------- --------------
Total receivables $ 10,241,000 $ 18,303,300
============= ==============
</TABLE>
(4) INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Raw materials and manufactured parts, net $ 10,918,500 $ 8,779,600
Work in process 8,829,100 7,829,000
Finished goods 3,236,500 3,108,700
------------- --------------
Total inventories $ 22,984,100 $ 19,717,300
============= ==============
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Furniture and fixtures $ 854,000 $ 820,700
Computer, engineering and production equipment 7,762,400 6,752,400
Leasehold improvements 604,800 590,200
Assets under capital lease 3,464,300 3,464,300
------------- --------------
12,685,500 11,627,600
Accumulated depreciation and amortization (8,285,500) (6,482,100)
------------- --------------
Net property and equipment $ 4,400,000 $ 5,145,500
============= ==============
</TABLE>
At June 30, 1999 and 1998, accumulated amortization for assets under capital
lease was $2,852,000 and $2,172,700, respectively.
(6) INDEBTEDNESS
On November 17, 1995, the Company modified its bank line of credit to provide
borrowings up to $5.0 million. Amounts borrowed bore interest at the bank's
prime rate. On May 16, 1996, the Company entered into a second modification of
the line of credit agreement to provide borrowings up to $10.0 million. Amounts
borrowed bore interest at the bank's prime rate. On September 22, 1998, the
Company entered into another modification of the line of credit. In connection
with the modification, the Company and the bank agreed to change the various
loan covenants. Amounts borrowed bear interest at the bank's prime rate plus
1.5% (9.25 % at June 30, 1999). At June 30, 1999 and 1998, $4,850,000 and
$3,605,000, respectively, were outstanding against the line of credit.
The bank line of credit expires on December 1, 1999 and is secured by the
Company's assets and intellectual property. The Company may borrow up to the
lesser of (i) $10 million or (ii) an amount equal to the sum of 80% of eligible
accounts receivable and $2 million of eligible inventory.
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MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(6) INDEBTEDNESS (continued)
In July 1997, the Company entered into a secured long-term debt loan agreement
with Fleet Bank, N.A. for $8.0 million. The loan is secured by the Company's
assets and intellectual property. The term loan bears interest at the bank's
prime rate plus 1.5% (9.25% at June 30, 1999). This agreement with the bank
calls for eight quarterly payments of $1.0 million starting in the quarter ended
September 30, 1998 through the quarter ended June 30, 2000. On September 22,
1998, the Company entered into a modification of the long-term loan with Fleet
Bank, N.A. Under the terms of the new agreement, twelve quarterly payments of
$667,000 are required starting in the quarter ending September 30, 1998 through
September 30, 2001. As of June 30, 1999, the outstanding balance on the bank
debt was $5,333,400. Also, as of June 30, 1999, the Company was in violation of
certain bank covenants (see note 15).
(7)LEASES
The Company occupies its facilities under operating leases. During fiscal 1995,
the Company's headquarters lease was renegotiated with the expiration date
extended to February 2005. During fiscal 1997, the Company entered into a second
operating lease, expiring in July 2001, to expand its manufacturing capacity.
Rent expense was approximately $886,800, $877,800 and $832,500 for the years
ended June 30, 1999, 1998 and 1997, respectively. Capital lease obligations
consist of amounts due under equipment leases expiring in fiscal 2001. Assets
under capital lease consists primarily of computers, engineering equipment,
marketing demonstration systems and related software.
At June 30, 1999, future minimum lease payments under these non-cancelable
agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending June 30: Lease Lease
------------- -------------
<S> <C> <C>
2000 $ 583,100 $ 1,922,500
2001 134,500 1,855,100
2002 -- 1,180,300
2003 -- 503,900
2003-2005 -- 839,100
------------- -------------
Minimum future lease payments 717,600 $ 6,300,900
=============
Less amounts representing interest (29,900)
Present value of minimum future lease payments 687,700
Less current installments (555,500)
-------------
Obligations under capital lease,
net of current installments $ 132,200
=============
</TABLE>
In addition, the Company is responsible for additional operating expenses
incurred by the lessor under the operating leases. Such expenses are
approximately $185,000 annually.
(8) STOCKHOLDERS' EQUITY
(a) Preferred Stock
On March 31, 1994, the stockholders approved the creation of a new undesignated
class of preferred stock consisting of 5,000,000 shares, no par value. No shares
of this class of preferred stock have been issued as of June 30, 1999.
(b) Common Stock
In August 1993, the Board of Directors voted to adopt the 1993 Common Stock
Incentive Plan which provides for the award of up to 500,000 shares of common
stock to key employees and consultants. As of June 30, 1999, 429,698 shares of
stock have been awarded. The shares vest over a period of two to five years
depending on the employee's years of service with the Company. For the years
ended June 30, 1999, 1998 and 1997, the Company recorded $0, $1,100 and $4,000,
respectively, as compensation expense in connection with this award.
In conjunction with its 1994 initial public offering (IPO), the Company issued
warrants to the underwriters for the purchase of an aggregate of 100,000 shares
of common stock at a price of $6.60 per share. The warrants were exercisable
beginning May 10, 1995 through May 10, 1999. During fiscal 1999, all warrants
were exercised for 100,000 shares of common stock.
12
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(8) STOCKHOLDERS' EQUITY (continued)
(c) Rights Agreement
On August 4, 1997, the Company distributed a dividend of one purchase right
("Right") for every outstanding share of the Company's common stock. The terms
of the Rights are set forth in a Rights Agreement dated as of July 30, 1997 (the
Rights Agreement") between the Company and BankBoston, N.A. The Rights Agreement
provides for the issuance of one Right for every share of common stock issued
and outstanding on August 4, 1997, and for each share of common stock which is
issued or sold after that date and prior to the Distribution Date.
Each Right entitles the holder to purchase from the Company one one-thousandth
of a share of a Series A Junior Preferred Stock, $.01 par value, of the Company,
at a price of $90 per one one-thousandth of a share, subject to adjustments in
certain events. The Rights will expire on July 30, 2007 or upon the earlier
redemption of the Rights, and are not exercisable until the Distribution Date.
The Rights will separate from the Common Stock on the Distribution Date. Unless
otherwise determined, the Distribution Date will occur on the earlier of (i) the
tenth business day following the date of a public announcement that a person has
acquired or obtained the rights to acquire beneficial ownership of 15% or more
of the outstanding shares of Common Stock or (ii) the tenth business day
following commencement of a tender offer or exchange offer that would result in
any person owning 15% or more of the outstanding Common Stock.
(d) Stock Options and Stock Purchase Plan
On May 8, 1990, the Company adopted the 1990 Nonqualified Stock Option Plan.
Four hundred eighty-five (485) shares of common stock are reserved for issuance
under this plan. At June 30, 1999, 390 options to purchase common stock at $30
per share were outstanding, all of which are exercisable. There was no activity
under the plan in fiscal 1999, 1998 and 1997.
On March 31, 1994, the Company's stockholders approved the 1994 Omnibus Stock
Plan which provided for the issuance of up to 200,000 shares of common stock
pursuant to the grant of incentive stock options to employees and the grant of
nonqualified options or restricted stock to employees, consultants, directors
and officers of the Company. The stockholders also approved the 1994 Employee
Stock Purchase Plan which provides for the sale of up to 100,000 shares of
common stock to eligible employees at a price of the lesser of 85% of fair
market value at either the date of grant or the date of exercise. On November 3,
1995 and November 3, 1997, the Company's shareholders approved amendments to the
Company's 1994 Omnibus Stock Plan increasing the aggregate number of shares
issuable under such plan from 200,000 to 500,000 shares and from 500,000 to
1,000,000 shares, respectively. On October 14, 1998, 862,455 stock options were
repriced to an exercise price of $5.00 per share. The original exercise price
per share of the options were as follows:
Number of Options Original Exercise Price
----------------- -----------------------
209,000 $ 7.56
214,963 10.88
2,000 12.75
57,167 9.50
50,000 10.25
181,500 10.75
3,000 13.63
144,825 11.00
-------
862,455
13
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(8) STOCKHOLDERS' EQUITY (continued)
Stock option transactions for the Omnibus Stock Plan were as follows:
<TABLE>
<CAPTION>
Weighted average
Shares of exercise price of
ommon stock shares under plan
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1996 400,765 $10.83
- -------------------------------------------------------------------------------------------
Granted 63,000 10.00
Exercised (1,531) 10.95
Canceled (1,219) 10.93
- -------------------------------------------------------------------------------------------
Outstanding at June 30, 1997 461,015 9.35
- -------------------------------------------------------------------------------------------
Granted 443,800 15.00
Exercised (8,633) 10.80
Canceled (237,211) 18.68
- -------------------------------------------------------------------------------------------
Outstanding at June 30, 1998 658,971 10.73
- -------------------------------------------------------------------------------------------
Granted 224,500 5.00
Exercised (6,145) 5.00
Canceled (17,406) 5.00
- -------------------------------------------------------------------------------------------
Outstanding at June 30, 1999 859,920 $ 5.67
- -------------------------------------------------------------------------------------------
</TABLE>
The following statement summarizes information concerning currently outstanding
and exercisable options as of June 30, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------------------------------------ ------------------------------
Weighted average
Remaining Weighted Weighted
Number contractual life average Number average
Exercise prices outstanding (years) exercise price exercisable exercise price
------------------------------------------------------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.00 854,530 7.53 $ 5.00 526,383 $ 5.00
11.00 5,000 5.5 11.00 5,000 11.00
30.00 390 .75 30.00 390 30.00
- ---------------------------------------------------------------------------------------------------------------------
859,920 531,773
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
On November 17, 1994, the Company's stockholders approved the 1994 Non-Employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provides for
the issuance of a maximum amount of 50,000 shares of common stock pursuant to
the grant of stock options to eligible directors of the Company at an exercise
price equal to the fair market value of the common stock on the date of grant.
As of June 30, 1999, 50,000 options have been granted under this plan at a
weighted average exercise price of $13.08 per share, of which 33,125 shares were
exercisable and none of which have been exercised.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option and employee stock purchase plans. Accordingly, no compensation
expense has been recognized in the consolidated financial statements for such
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS 123, "Accounting for
Stock-based Compensation," the Company's net loss would have been increased to
the pro forma amounts indicated below:
14
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(8) STOCKHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net (loss) income:
As reported $ (7,565,900) $ (2,840,400) $ 3,049,200
Pro forma $ (7,985,400) $ (3,206,100) $ 2,571,900
</TABLE>
The following assumptions were used in the calculation of these values for
fiscal 1999, 1998 and 1997, respectively: volatility of 84.84%, 82.01% and
177.3%, risk free interest rate of 6.0%, 6.0% and 5.89% and expected life of
4.0, 5.0 and 4.0 years. The effect of applying SFAS 123 as shown in the above
pro forma disclosure is not representative of the pro forma effect on net income
in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to fiscal 1996.
(e) Earnings Per Share Reconciliation
The reconciliation of the numerators and denominators of the basic and diluted
(loss) income per common share computations for the Company's reported net
(loss) income is as follows:
<TABLE>
<CAPTION>
Per share
Net (loss) income Shares Amount
----------------- ----------- -----------
<S> <C> <C> <C>
Year ended June 30, 1999
- ------------------------
Basic net loss per share $ (7,565,900) 4,096,900 $ (1.85)
Net additional common shares
upon exercise of common stock
options -- -- --
------------- ----------- -----------
Diluted net loss per share $ (7,565,900) 4,096,900 $ (1.85)
============= =========== ===========
Year ended June 30, 1998
Basic net loss per share $ (2,840,400) 4,056,700 $ (0.70)
Net additional common shares
upon exercise of common stock
options -- -- --
------------- ----------- -----------
Diluted net loss per share $ (2,840,400) 4,056,700 $ (0.70)
============= =========== ===========
Year ended June 30, 1997
Basic net income per share $ 3,049,200 4,036,400 $ 0.76
Net additional common shares
upon exercise of common stock
options -- 182,400 (.04)
Diluted net income per share $ 3,049,200 4,218,800 $ 0.72
============= =========== ===========
</TABLE>
For the years ended June 30, 1999 and 1998, net additional common shares
issuable upon exercise of common stock options outstanding of 208,300 were not
included in the calculations of diluted net (loss) income per share because the
effects were antidilutive.
(9) MARKETING AGREEMENT
In March 1988, the Company entered into a marketing agreement with a Japanese
distributor, Tokyo Electron Limited ("TEL"). The agreement grants TEL the right
to market, distribute, sell and service in Japan the Company's focused ion beam
wafer modification equipment and flat panel display laser repair equipment. The
agreement will remain in force unless terminated by mutual written agreement or
60 days written notice by either party. For the years ended June 30, 1999, 1998
and 1997, sales of $4,150,800, $13,578,300 and $8,321,500, respectively, were
made to TEL. At June 30, 1999 and 1998, receivables of $1,431,100 and
$1,468,800, respectively, were due from TEL.
15
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(10) SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one segment, which is capital equipment for the
semiconductor industry.
The following summarizes the geographic distribution of the Company's revenues:
For the years ended June 30,
<TABLE>
<CAPTION>
Total revenue: 1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
North America $ 21,475,500 $ 20,978,000 $ 20,363,600
Far East exports 11,439,700 23,561,800 29,158,300
Other foreign exports 7,167,900 10,117,400 6,457,400
------------- ------------- -------------
Total revenues $ 40,083,100 $ 54,657,200 $ 55,979,300
============= ============= =============
</TABLE>
The following table summarizes sales to significant customers stated as a
percentage of total revenues:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Company A 10% 25% 15%
Company B 24% 15% 10%
Company C - - 25%
Company D 12% - -
-------- -------- --------
46% 40% 50%
======== ======== ========
</TABLE>
At June 30, 1999, Company A, B and D represented 57% of total accounts
receivable.
(11) INCOME TAXES
The Company accounts for income tax expense according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, deferred tax assets, net of any valuation allowance, and liabilities
arising from temporary differences and loss carryforwards are measured using tax
rates expected to be in effect when they reverse or are realized. The components
of the net deferred tax assets recognized in the consolidated balance sheets are
as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net operating loss carryforwards $ 1,831,300 $ --
Reserves 2,885,000 2,802,000
Tax credit carryforwards 531,600 480,000
Depreciation 71,900 --
Deferred tax liabilities -- (126,000)
Valuation allowance (2,363,000) --
------------- -------------
Net deferred tax assets $ 2,956,800 $ 3,156,000
============= =============
</TABLE>
The deferred tax liabilities relate to property and equipment, principally the
difference between book and tax depreciation expense.
The amount recorded as net deferred tax assets as of June 30, 1999 represents
the amount of tax benefits of existing deductible temporary differences or
carry-forwards that the Company believes are more likely than not to be realized
through the generation of sufficient future taxable income within the
carry-forward period. The Company believes that the net deferred tax asset of
$2,956,800 at June 30, 1999, will more likely than not be realized in the
carryforward period using anticipated results from operations. The Company
continuously re-evaluates the recoverability of deferred tax assets.
16
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(11) INCOME TAXES (continued)
The components of the benefit (provision) for income taxes are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Federal:
Current $ 857,400 $ (250,000) $ (1,065,000)
Deferred (229,800) 1,594,000 (266,700)
State:
Current (4,300) (9,000) (120,000)
Deferred 30,600 196,000 (182,300)
Foreign:
Current (2,000) (2,000) (14,600)
Deferred -- -- --
------------- ------------- -------------
Benefit (provision) for income taxes $ 651,900 $ 1,529,000 $ (1,648,600)
============= ============= =============
</TABLE>
The actual income tax benefit (provision) differs from the "expected" income tax
expense computed by applying the U.S. federal corporate tax rate of 34% to net
income (loss) before benefit (provision) for income taxes as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Computed "expected" income tax benefit (expense) $ 2,794,100 $ 1,486,000 $ (1,597,300)
Reduction (increase) in income taxes resulting from:
State taxes, net of federal income tax benefit 150,300 120,000 (153,800)
Foreign taxes 2,800 (2,000) (16,400)
Foreign sales corporation benefit 43,900 (15,800) 298,500
Litigation settlement -- -- --
Other 23,800 (59,200) (179,600)
Change in valuation allowance (2,363,000) -- --
------------- ------------- -------------
Benefit (provision) for income taxes $ 651,900 $ 1,529,000 $ (1,648,600)
============= ============= =============
</TABLE>
At June 30, 1999 the Company had tax credit carryforwards available to reduce
future tax expense of approximately $532,000. These tax credit carryforwards
expire in varying amounts in the years 2002 through 2007. At June 30, 1999 the
Company had federal net operating loss carryforwards available to offset future
taxable income of approximately $5,280,000. The Company also had state net
operating loss carryforwards available to offset future state taxable income of
approximately $4,120,000.
These net operating loss carryforwards expire in varying amounts in the years
2004 through 2019. The Company underwent an ownership change as defined in
Section 382 of the Internal Revenue Code on August 13, 1999. The Company's tax
net operating losses and credit carryforwards generated prior to the ownership
change will be subject to an annual limitation which could cause utilization of
a portion of the Company's carryforwards to be deferred for a several year
period.
The valuation allowance for deferred tax assets as of June 30, 1999 was
$2,363,000. The full amount of this valuation allowance is attributable to net
operating losses and tax credit carryforwards. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Based upon projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize the benefit of these
deductible differences, net of the existing valuation allowance at June 30,
1999. The amount of the deferred tax asset considered realizable, however, could
be reduced if there are changes in the estimates of future taxable income during
the carryforward period.
17
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(12) EMPLOYEE BENEFIT PLAN
The Company has a tax-qualified employee savings and retirement plan under
Internal Revenue Code Section 401(k) ("Plan"), covering all of the Company's
employees following three months of service and attainment of the age of 18.
Participants may elect to contribute to the Plan up to the lesser of the
statutorily prescribed annual limit or 20% of their pre-tax compensation. The
Plan permits, but does not require, additional matching contributions by the
Company on behalf of all participants in the Plan. Effective January 1, 1996,
the Company began matching one half of each employee's contribution up to 3% of
their salary. The Company suspended the employer match effective December 1,
1998. For fiscal 1999 and 1998, the Company made matching contributions of
$104,000 and $307,000, respectively, to the plan.
(13) LITIGATION
On August 2, 1996, an action was filed in the U.S. District Court for the
District of Massachusetts against the Company, Nicholas P. Economou, a director
and officer of the Company, and David M. Hunter and Robert K. McMenamin,
officers of the Company. On September 9, 1996, another action was filed in the
same court against the Company, Dr. Economou, Messrs. Hunter and McMenamin and
Billy W. Ward, an officer of the Company. On December 6, 1996, the plaintiffs in
both actions filed an amended consolidated complaint. The consolidated complaint
does not contain a claim against Billy W. Ward. The consolidated complaint
purports to be brought on behalf of a class of purchasers of the Company's
common stock from April 26, 1996 through June 21, 1996. It asserts claims for
violations under the federal securities laws, alleging that the Company made
false and misleading statements to the public concerning the nature of its sales
agreement with a customer. Factual discovery in the case has been completed. The
Company filed a motion for summary judgement to dismiss the case, which was
denied on September 24, 1998. The Company believes the consolidated complaint to
be without merit and intends vigorously to continue to defend itself against the
claims. There can be no assurance, however, that the Company will be successful
in defending this lawsuit or that money damages, if awarded, would not have a
material adverse effect on the Company.
The Company is involved in other various legal proceedings and claims arising in
the ordinary course of business. Management believes that the disposition of
these matters would not have a material effect on the financial position or
results of the Company.
(14) UNAUDITED INTERIM FINANCIAL INFORMATION
Quarterly financial information is as follows:
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the quarters ended September 30, December 31, March 31,(a) June 30,
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1999
Revenues $ 10,809 $ 10,008 $ 10,178 $ 9,088
Gross profit 3,270 3,600 3,290 1,649
Net loss (894) (645) (1,438) (4,589)
Net loss per share (.22) (.16) (.35) (1.09)
Year ended June 30, 1998
Revenues $ 14,778 $ 14,565 $ 11,941 $ 13,373
Gross profit 5,484 6,046 4,470 585
Net income (loss) 636 640 (1,255) (2,861)
Net income (loss) per share .15 .15 (.31) (.70)
Note: Due to rounding, some totals may not add.
(a) - The Company has revised the quarterly financial information for the
quarter ended March 31, 1999 due to information which became available
subsequent to the filing of the Form 10-Q for the quarter ended March 31, 1999.
Previously reported revenues and net loss for the quarter ended March 31, 1999
were $11,406,000 and ($954,000), respectively.
</TABLE>
18
<PAGE>
MICRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
(15) SUBSEQUENT EVENTS
On December 3, 1998, the Company entered into a merger agreement with FEI
Company ("FEI"), an Oregon corporation engaged in the design, manufacture, sale
and service of products based on focused charged particle beam technology. The
transaction closed on August 13, 1999 and the Company became a wholly owned
subsidiary of FEI. Holders of the Company's stock received one share of FEI's
common stock and $6.00 in cash in exchange for each share of the Company's
common stock. The Company recorded merger expenses, primarily for legal
expenses, of $1,088,000. Also, on August 13, 1999, the line of credit and term
note with the bank were paid in full, which released all security interest in
the Company's assets and intellectual property.
19
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
FEI Company and Micrion Corporation
(Unaudited)
The following unaudited pro forma condensed combined financial statements
reflect the combination of FEI and Micrion and the issuance of FEI shares to
Micrion shareholders and to PBE. The unaudited proforma condensed combined
financial statements have been derived from audited and unaudited consolidated
financial statements of FEI and Micrion. Micrion's fiscal year ended June 30.
Micrion's historical financial information included in the pro forma condensed
combined statements of operations for the year ended December 31, 1998 and the
six months ended June 30, 1999 have been derived from Micrion's quarterly
results of operations.
The unaudited pro forma condensed combined balance sheet as of July 4, 1999 was
prepared as if the merger had occurred on that date. The unaudited proforma
condensed combined statements of operations for the year ended December 31, 1998
and the twenty-six weeks ended July 4, 1999 were prepared as if the transaction
had occurred on January 1, 1998.
The pro forma condensed combined statements of operations for the year ended
December 31, 1998 and the twenty-six weeks ended July 4, 1999 do not include a
charge related to the write-off of in-process research and development. Based on
FEI's preliminary valuation of Micrion's tangible and intangible assets, the
portion of the purchase price allocated to in-process research and development
was estimated to total $12 million or 13% of the total purchase price. This
amount was expensed by FEI subsequent to the merger closing. For purposes of the
pro forma condensed combined balance sheet, we have assumed the purchased
in-process research and development was written off concurrently with the
completion of the transaction.
In estimating the value of in-process research and development acquired, four
categories of research and development projects were identified. Two of those
categories represent enhancements to the resolution and automation of existing
products designed primarily for the semiconductor industry. The Micrion division
is also enhancing the automation of its products for the data storage industry.
Finally, the Micrion division is continuing to develop its products for the mask
repair market. None of the projects in these categories had been proven
technologically feasible or had generated revenue as of the date of the
evaluation; however, these projects are expected to begin generating revenue in
late 1999 or 2000. Management anticipates that the Company will spend
approximately $1.2 million during 1999 and 2000 to continue to develop the
Micrion division's products for the semiconductor industry. The Company expects
to spend approximately $0.6 million to further develop the Micrion division's
products for the data storage industry and to spend approximately $0.3 million
to further develop the Micrion division's product for the mask repair market.
Because of the nature of these projects, there is always the risk that a
technological hurdle may be encountered that may delay, prevent or increase the
cost of development of these projects.
To estimate the value of each of these research and development projects,
management projected product revenues, gross margins (projected at 46 to 60
percent, depending on the product and the stage in its life cycle), operating
expenses, income taxes and returns on requisite assets. The resulting operating
income projections for each project were discounted to a net present value using
discount rates ranging from 21 to 23 percent. This valuation approach was
applied to existing technology and other identified intangibles as well as to
in-process research and development projects.
In the opinion of management, all adjustments necessary to present fairly the
pro forma condensed combined financial statements have been made based on the
terms and structure of the merger. Management, however, is still in the process
of evaluating the projections and assumptions used in determining the value of
in-process research and development and existing technology. Management is also
in the process of finalizing its plans to reconcile product lines and eliminate
duplicate positions and facilities. As these assumptions are refined, plans
developed, and actual costs incurred, the allocation of the purchase price to
specific assets and liabilities may change.
These unaudited pro forma condensed combined financial statements are not
necessarily indicative of what actual results would have been had the merger or
issuance of FEI shares to PBE occurred at the beginning of the period nor do
they purport to indicate the results of future operations of FEI and Micrion.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the accompanying notes and the historical financial
statements and notes thereto of FEI and Micrion.
20
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
July 4, 1999
(In thousands)
Historical
FEI Micrion Pro Forma Pro Forma
July 4, 1999 June 30, 1999 Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,560 $ 1,854 $ 4,383 (a) $ 15,252
31,384 (b)
(34,929)(c)
Receivables 46,142 10,241 - 56,383
Current accounts with Philips 1,200 - 1,200
Income tax receivable - 652 - 652
Inventories 44,934 22,984 (7,220)(d) 60,698
Deferred income taxes 7,974 2,957 4,618 (e) 15,549
Other 2,664 675 - 3,339
------------ ------------- ------------- -------------
Total current assets 115,474 39,363 (1,764) 153,073
EQUIPMENT 23,394 4,400 - 27,794
OTHER ASSETS 40,931 1,543 43,818 (f) 86,292
------------ ------------- ------------- -------------
TOTAL $ 179,799 $ 45,306 $ 42,054 $ 267,159
============ ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt and obligations under
capital leases $ - $ 10,739 $ - $ 10,739
Accounts payable 17,319 3,964 - 21,283
Accrued expenses and deferred income 27,313 7,333 - 34,646
Other current liabilities 15,864 - 4,325 (d) 20,189
------------ ------------- ------------- -------------
Total current liabilities 60,496 22,036 4,325 86,857
LINE OF CREDIT, LONG-TERM DEBT AND
OBLIGATIONS UNDER CAPITAL LEASES 461 132 - 593
LONG TERM ACCOUNT WITH PHILIPS 12,033 - 12,033
OTHER LIABILITIES 2,418 - - 2,418
DEFERRED INCOME TAXES 6,050 - 6,800 (e) 12,850
SHAREHOLDERS' EQUITY
Preferred stock - - -
Common stock 150,207 32,710 31,384 (b) 216,274
(32,710)(g)
34,683 (h)
Accumulated deficit (43,830) (9,530) 9,530 (g) (55,830)
(12,000)(i)
Accumulated other comprehensive loss (8,036) (42) 42 (g) (8,036)
------------ ------------- ------------- -------------
Total shareholders' equity 98,341 23,138 30,929 152,408
------------ ------------- ------------- -------------
TOTAL $ 179,799 $ 45,306 $ 42,054 $ 267,159
============ ============= ============= =============
See Notes to Pro Forma Condensed Combined Balance Sheet
</TABLE>
21
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
July 4, 1999
(In thousands, except share and per share data)
(a) To reflect cash proceeds from the exercise of Micrion's "in the money"
options since such options were exercised prior to the consummation of the
transaction.
(b) To reflect the cash proceeds from the issuance of the financing shares to
PBE as follows:
Cash paid to acquire Micrion shares $ 30,384
Transaction cost allowance 1,000
--------
$ 31,384
========
(c) To reflect cash portion of the Micrion purchase price and cash transaction
costs as follows:
Micrion shares outstanding 4,192
Micrion options exercised prior to the closing 872
--------
Total Micrion shares acquired 5,064
Cash price per outstanding Micrion share $ 6.00
--------
$ 30,384
Estimated transaction costs 4,545
--------
$ 34,929
========
(d) In conjunction with the merger, FEI management is in the process of
formulating a plan to reconcile product lines and eliminate duplicate
positions and facilities. Certain of Micrion's product lines are almost
identical to product lines produced by FEI. As a result of the merger, FEI
management has decided to eliminate three products and, accordingly, has
reduced the value of the related inventory. Because of Micrion's
commitments to certain customers to continue certain of those product
lines, the Company has also recorded an obligation representing the costs
to honor such commitments. In addition, the Company intends to eliminate
approximately 60 positions. The following amounts have been recorded in
conjunction with such plan:
Inventory writedown in conjunction
with product line reconciliation $ 7,220
Customer commitments assumed 2,500
Estimated severance costs 700
Closure of duplicate facilities 794
Consolidation of foreign subsidiaries 331
--------
$ 11,545
========
The above purchase price adjustments are presented in the condensed
combined pro forma balance sheet as follows:
Inventories $ 7,220
Other current liabilities 4,325
(e) Adjustment to deferred taxes to reflect the tax effect of the recognition
in purchase accounting of the fair value of Micrion's tangible and
intangible assets. The amounts allocated to current and noncurrent deferred
taxes are as follows:
Current deferred taxes $ 4,618
Noncurrent deferred taxes (6,800)
--------
$ (2,182)
========
(f) To reflect the difference between the purchase price and the tangible net
worth of Micrion. Based on the purchase price and a preliminary valuation
of Micrion's intangible assets, the excess of the purchase price over the
book value of tangible assets has been allocated as follows:
Existing technology $ 17,000
Goodwill 26,818
--------
$ 43,818
========
The allocation above is based on a preliminary valuation. To determine the
value of existing technology, FEI estimated future cash flows from that
technology and determined the present value of those cash flows using
discount rates ranging from 15% to 23%. Based on that valuation, FEI
estimated the fair value of existing technology to be $17,000.
(g) Adjustment to common stock, accumulated deficit and accumulated other
comprehensive loss to eliminate Micrion's historical shareholder's equity
as follows:
Common stock $ 32,710
Accumulated deficit (9,530)
Accumulated other comprehensive loss (42)
--------
$ 23,138
========
22
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
July 4, 1999
(In thousands, except share and per share data)
(h) Adjustment to common stock to reflect the estimated purchase price for
Micrion's net assets acquired as follows:
Common stock issued to Micrion
shareholders $ 34,683
Cash paid to Micrion shareholders 30,384
Estimated transaction costs 4,545
--------
Purchase price $ 69,612
========
Based on a preliminary purchase price allocation, FEI plans to allocate the
estimated purchase price to Micrion's assets acquired and liabilities
assumed as follows:
Current assets, including proceeds
of $4,383 from the exercise of $ 36,526
Micrion options.
Equipment 4,400
Other assets 1,543
In-process research and development 12,000
Existing technology and other
identified intangibles 17,000
Goodwill 26,818
Deferred income taxes (2,182)
Current liabilities (26,361)
Long-term debt (132)
--------
$ 69,612
========
(i) Adjustment to reflect the writeoff in-process research and development
costs immediately subsequent to the closing.
23
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)
Year Ended December 31, 1998
(In thousands, except share data)
Historical Pro Forma Pro Forma
FEI Micrion Adjustments Combined
<S> <C> <C> <C> <C>
NET SALES $ 178,771 $ 46,131 $ (708) (a) $ 224,194
COST OF SALES 119,579 34,206 (674) (a) 153,111
----------- ----------- ----------- -----------
Gross profit 59,192 11,925 (34) 71,083
----------- ----------- ----------- -----------
OPERATING EXPENSES
Research and development 19,506 5,898 (34) (a) 25,370
General, selling, and administrative 41,426 12,701 - 54,127
Amortization of intangibles 2,516 - 3,935 (b) 6,451
Restructuring and reorganization costs 5,320 998 - 6,318
----------- ----------- ----------- -----------
Total operating expenses 68,768 19,597 3,901 92,266
----------- ----------- ----------- -----------
OPERATING LOSS (9,576) (7,672) (3,935) (21,183)
OTHER EXPENSE, NET (4,129) (1,028) - (5,157)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (13,705) (8,700) (3,935) (26,340)
TAX BENEFIT (4,797) (3,045) (680) (c) (8,522)
----------- ----------- ----------- -----------
NET LOSS $ (8,908) $ (5,655) $ (3,255) $ (17,818)
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ (0.49) $ (1.39) $ (0.66) $ (0.66)
Assuming dilution $ (0.49) $ (1.39) $ (0.66) $ (0.66)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 18,106 4,069 4,908 (d) 27,083
Assuming dilution 18,106 4,069 4,908 (d) 27,083
See notes to pro forma condensed combined statement of operations
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Year Ended December 31, 1998
(In thousands, except share and per share data)
(a) Adjustment to reclassify research and development contract activity
consistent with FEI's presentation.
(b) Adjustment to the amortization of intangibles includes the amortization of
the excess of the purchase price over the fair value of Micrion's tangible
assets acquired, based on the Company's preliminary purchase price
allocation. The acquired intangibles are being amortized over the following
estimated useful lives:
Existing technology 10 years
Goodwill 12
(c) Adjustment to income tax expense reflects the income tax effect of pro
forma adjustment (b) above at a combined marginal tax rate of approximately
40%. The effective tax rate associated with the pro forma adjustments
differs from the combined marginal tax rate due to nondeductible
amortization of goodwill.
(d) Adjustment to weighted average shares outstanding for the basic and diluted
earnings per share calculation is as follows:
Shares issued to acquire Micrion 5,064
Shares issued to PBE 3,913
Elimination of Micrion shares
outstanding (4,069)
-------
4,908
=======
25
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(Unaudited) Twenty-Six Weeks Ended July 4, 1999
(In thousands, except share data)
Historical Pro Forma Pro Forma
FEI Micrion Adjustments Combined
<S> <C> <C> <C> <C>
NET SALES $ 91,130 $ 19,266 $ (656) (a) $ 109,740
COST OF SALES 55,635 14,326 (643) (a) 69,318
----------- ----------- ----------- -----------
Gross profit 35,495 4,940 (13) 40,422
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development 9,776 2,471 (13) (a) 12,234
General, selling, and administrative 21,690 6,650 - 28,340
Amortization of intangibles 1,258 - 1,968 (b) 3,226
Restructuring, reorganization and merger costs 131 1,088 - 1,219
----------- ----------- ----------- -----------
Total operating expenses 32,855 10,209 1,955 45,019
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 2,640 (5,269) (1,968) (4,597)
OTHER INCOME (EXPENSE) 160 (581) - (421)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 2,800 (5,850) (1,968) (5,018)
TAX EXPENSE (BENEFIT) 1,120 177 (340) (c) 957
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 1,680 $ (6,027) $ (1,628) $ (5,975)
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.09 $ (1.46) $ (0.33) $ (0.22)
Assuming dilution $ 0.09 $ (1.46) $ (0.42) $ (0.22)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 18,290 4,119 4,858 (d) 27,267
Assuming dilution 19,287 4,119 3,861 (e) 27,267
See notes to pro forma condensed combined statement of operations
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)
Twenty-Six Weeks Ended July 4, 1999
(In thousands, except share and per share data)
(a) Adjustment to reclassify research and development contract activity
consistent with FEI's presentation.
(b) Adjustment to the amortization of intangibles includes the amortization of
the excess of the purchase price over the fair value of Micrion's tangible
assets acquired, based on the Company's preliminary purchase price
allocation. The acquired intangibles are being amortized over the following
estimated useful lives:
Existing technology 10 years
Goodwill 12
(c) Adjustment to income tax expense reflects the income tax effect of pro
forma adjustment (b) above at a combined marginal tax rate of approximately
40%. The effective tax rate associated with the pro forma adjustments
differs from the combined marginal tax rate due to nondeductible
amortization of goodwill.
(d) Adjustment to weighted average shares outstanding for the basic earnings
per share calculation is as follows:
Shares issued to acquire Micrion 5,064
Shares issued to PBE 3,913
Elimination of Micrion weighted average shares
outstanding (4,119)
------
4,858
======
(e) Adjustment to adjusted weighted average shares outstanding for the diluted
earnings per share calculation is as follows:
Adjustment to weighted average shares - basic 4,858
Elimination of dilutive effect of FEI options (997)
------
3,861
======
27
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FEI COMPANY
Date: October 29, 1999 By: VAHE' A. SARKISSIAN
-------------------------------------
Vahe' A. Sarkissian
President and Chief Executive Officer
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger dated as of December 3, 1998, as
between FEI Company, MC Acquisition Corporation and Micrion.
Incorporated by reference from Appendix A to the Joint Proxy
Statement.
2.2 Stock Purchase Agreement dated as of December 3, 1998, between FEI
and Philips Business Electronics International B.V. Incorporated
by reference from Appendix H to the Joint Proxy Statement.
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Joint Proxy Statement. Incorporated by reference from FEI's
Registration Statement on Form S-4 (No. 333-77849).
The Board of Directors
Micrion Corporation and subsidiaries
We consent to the inclusion of our report dated August 2, 1999, except for notes
11 and 15, which are as of August 13, 1999, with respect to the consolidated
balance sheets of Micrion Corporation and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1999, which report appears in the Form 8-K/A of FEI Company dated October
29, 1999.
KPMG LLP
Boston, Massachusetts
October 29, 1999
