HILLSBORO, Ore. — FEI Company (Nasdaq: FEIC) reported results for the third quarter of 2005. While revenue declined from the level of the second quarter, the company also reduced its operating expenses. The company expects higher revenue in the fourth quarter of 2005 and improved financial results for 2006. Net sales for the quarter ended October 2, 2005 were $97.1 million, compared with net sales of $107.0 million in the third quarter of 2004 and net sales of $107.5 million for the second quarter of 2005. Bookings in the third quarter totaled $100.3 million, resulting in a book- to-bill ratio of 1.03 and a record backlog of $171.8 million at the end of the quarter. The net loss on the basis of accounting principles generally accepted in the United States (GAAP) was $5.1 million for the third quarter of 2005, compared with net income of $3.3 million in the third quarter of 2004 and a net loss of $45.8 million in the second quarter of 2005. The diluted loss per share in the latest quarter was $0.15, compared with earnings per share of $0.08 in the third quarter of 2004 and a loss per share of $1.36 in the second quarter of 2005. Restructuring and asset impairment charges and related inventory write- offs in the third quarter were $6.0 million, including: — $2.4 million of inventory write-downs related to the previously announced closure of the company’s facility in Peabody, Massachusetts, included in cost of sales; — $0.8 million for asset impairments primarily related to the company’s semiconductor products, included as a separate line item; and — $2.8 million of restructuring charges, primarily for severance, lease termination, and relocation expenses, included as a separate line item. The company recorded an income tax benefit in the third quarter of $1.4 million as a result of the implementation of new tax strategies. Excluding the tax benefit as well as the restructuring and asset impairment charges and related inventory write-offs, the non-GAAP pretax loss in the latest quarter was $456,000. Investors should refer to the attached table for a reconciliation of the GAAP loss before taxes to the non-GAAP loss before taxes. “Despite lower revenue, our pre-tax loss excluding charges was within our guidance range, as operating expenses declined from second quarter levels,” said Vahe A. Sarkissian, chairman, president and chief executive officer of FEI. “This progress is the initial result of the steps we began to implement in the second quarter to improve our results. “Sales from our industry and institute market continued to grow in the third quarter, paced by initial shipments of our industry-leading Titan(TM) scanning/transmission electron microscope,” continued Sarkissian. “Our revenue decline compared with the second quarter was concentrated in the semiconductor and data storage markets. However, bookings from the semiconductor market improved compared with the second quarter and were greater than revenue for the quarter. The historically volatile data storage market had reduced bookings and sales for the quarter, but we expect improved performance in that market over time as the data storage industry continues its move to new recording technology. “We expect increased bookings and sales in the fourth quarter of the year,” added Sarkissian. “More importantly, we expect to enter 2006 with a record backlog and a reduced cost structure.” Operating cash flow was negative $1.0 million for the quarter. Capital spending for the quarter was $2.6 million, and depreciation expense was $3.5 million. Inventory turnover was 2.6 times in the third quarter compared with 3.1 times in the second quarter. Accounts receivable decreased by $8.3 million from the prior quarter, while days sales outstanding were 102 days, compared with 99 days in the second quarter. Cash and short and long term investments were $268.0 million, convertible debt totaled $225.0 million (due in 2008) and shareholders’ equity was $311.5 million as of October 2, 2005. Fourth Quarter 2005 Guidance and 2006 Preliminary Outlook FEI currently expects net sales for the fourth quarter of 2005 to be in the range of $100 million to $105 million. Bookings are expected to be greater than sales for the quarter. The company expects additional restructuring charges of approximately $6 million to $8 million in the fourth quarter of 2005. Excluding those charges, the company expects fourth quarter non-GAAP pre-tax results to be near breakeven to a profit of $2 million. Accordingly, the GAAP pre-tax loss is expected to be between $4 million and $8 million. For 2006, the company expects continued growth in the research sector of its business and a modest recovery in the semiconductor and data storage markets. Combined with lower costs as a result of the company’s restructuring and other cost-improvement programs, earnings are expected to improve over 2005 levels.