##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549





FORM 10-K

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year Ended: December 31, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 000-22780





FEI COMPANY

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oregon                                                         |  | 93-0621989                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                              |  |           
|--------------------------------------------- |  | ----------
|5350 NE Dawson Creek Drive, Hillsboro, Oregon |  | 97124-5793
|(Address of principal executive offices)      |  | (Zip Code)

Registrants telephone number, including area code: 503-726-7500

Securities registered pursuant to
Section 12(b) of the Act: Common Stock and associated Preferred Stock

Purchase Rights (currently attached to and
trading only with the Common Stock)

Name of each exchange on which registered: NASDAQ Global Stock Market

Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the Registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   ̈

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
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  | x                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ̈    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates,
computed by reference to the last sales price ($22.25) as reported by The NASDAQ Global Stock Market, as of the last business day of the registrants most recently completed second fiscal quarter (July 2, 2009), was $831,609,080.

The number of shares outstanding of the registrants Common Stock as of February 17, 2010 was 37,887,334 shares.

Documents Incorporated by Reference

The Registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its Proxy Statement for its 2010 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.









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FEI COMPANY

2009 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|PART I    
|           |  |                                                                                                             
|Item 1.    |  | Business                                                                                                     |  | 2   
|           |  |                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                 |  | 9   
|           |  |                                                                                                             
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 23  
|           |  |                                                                                                             
|Item 2.    |  | Properties                                                                                                   |  | 23  
|           |  |                                                                                                             
|Item 3.    |  | Legal Proceedings                                                                                            |  | 23  
|           |  |                                                                                                             
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 23  
|          
|PART II   
|           |  |                                                                                                             
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 24  
|           |  |                                                                                                             
|Item 6.    |  | Selected Financial Data                                                                                      |  | 26  
|           |  |                                                                                                             
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 28  
|           |  |                                                                                                             
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 47  
|           |  |                                                                                                             
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 50  
|           |  |                                                                                                             
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 91  
|           |  |                                                                                                             
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 91  
|           |  |                                                                                                             
|Item 9B.   |  | Other Information                                                                                            |  | 93  
|          
|PART III  
|           |  |                                                                                                             
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 93  
|           |  |                                                                                                             
|Item 11.   |  | Executive Compensation                                                                                       |  | 93  
|           |  |                                                                                                             
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 93  
|           |  |                                                                                                             
|Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 93  
|           |  |                                                                                                             
|Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 93  
|          
|PART IV   
|           |  |                                                                                                             
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 94  
|           | 
|Signatures |  | 97                                                                                                          



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##### Table of Contents

PART I

Item 1. Business

Overview

We were founded in 1971 and our shares began trading on The NASDAQ Stock Market
in 1995. We are a leading supplier of instruments for nanoscale imaging, analysis and prototyping to enable research, development and manufacturing in a range of industrial, academic and research institutional applications. We report our revenue
based on a market-focused organization: the Electronics market segment, the Research and Industry market segment, the Life Sciences market segment and the Service and Components market segment.

Our products include focused ion beam systems, or FIBs; scanning electron microscopes, or SEMs; transmission electron microscopes, or TEMs; and
DualBeam systems, which combine a FIB and SEM on a single platform.

Our DualBeam systems include models that have wafer
handling capability and are purchased by semiconductor and data storage manufacturers (wafer-level DualBeamsystems) and models that have small stages and are sold to customers in several markets (small-stage DualBeamsystems).

We have research, development and manufacturing operations in Hillsboro, Oregon; Eindhoven, The Netherlands; and Brno,
Czech Republic. Our sales and service operations are conducted in the U.S. and approximately 50 other countries around the world. We also sell our products through independent agents, distributors and representatives in additional countries.

To date, we have a total worldwide installed base of over 8,000 systems. The development of these solutions has been driven by our strong
technology base that includes patented and proprietary technologies and the technical expertise and knowledge base of research and development personnel worldwide.

The Electronics market segment consists of customers in the semiconductor, data storage and related industries, such as manufacturers of solar panels and light-emitting diodes (LEDs). For the
semiconductor market, our growth is driven by shrinking line widths and process nodes of 45 nanometers and smaller, the use of multiple layers of new materials such as copper and low-k dielectrics and increasing device complexity. Our products are
used primarily in laboratories to speed new product development and increase yields by enabling 3D wafer metrology, defect analysis, root cause failure analysis and circuit edit for modifying device structures. In the data storage market, our
products offer 3D metrology for thin film head processing and root cause failure analysis. Factors affecting our data storage business include advances in perpendicular recording heads technology, such as rapidly increasing storage densities that
require smaller recording heads, thinner geometries and materials that increase the complexity of device structures.

The Research and
Industry market segment includes universities, public and private research laboratories and customers in a wide range of industries, including automobiles, aerospace, forensics, metals, mining and petrochemicals. Growth in these markets is driven by
global corporate and government funding for research and development in materials science and by development of new products and processes based on innovations in materials at the nanoscale. Our solutions provide researchers and manufacturers with
atomic-level resolution images and permit development, analysis and production of advanced products. Our products are also used in mineral concentration analysis, root cause failure analysis and quality control applications.

The Life Sciences market segment includes universities, government laboratories and research institutes engaged in biotech and life sciences applications,
as well as pharmaceutical, biotech and medical device companies and hospitals. Our products ultra-high resolution imaging allows cell biologists and drug researchers to create detailed 3D reconstructions of complex biological structures. Our
products are also used in particle analysis and a range of pathology and quality control applications.



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Our Service and Components market segment provides support for products and customers for the entire life
cycle of a tool from installation through the warranty period, and after warranty period through contract coverage or on a time and materials basis. We believe strong technical support is an important part of the value proposition that we offer
customers when a tool is sold. Our Service and Components market segment provides support across all markets and all regions.

Core
Technologies

We use several core technologies to deliver a range of value-added customer solutions. Our core technologies include:



| |  |  | focused ion beams, which allow modification of structures in sub-micron geometries;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | focused electron beams, which allow imaging, analysis and measurement of structures at sub-micron and even atomic levels;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | beam gas chemistries, which increase the effectiveness of ion and electron beams and allow etching and deposition of materials on structures at
sub-micron levels; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | domain software, system automation and sample management tools, which provide faster access to data and improved ease of use for operators of our
systems.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Particle beam technologiesfocused ion beams and electron beams. The emission and
focusing of ions, which are positively or negatively charged atoms, or electrons from a source material, is fundamental to many of our products. Particle beams are accelerated and focused on a sample for purposes of high resolution
imaging and sample processing. The fundamental properties of ion and electron beams permit them to perform various functions. The relatively low mass subatomic electrons interact with the sample and release secondary electrons. When collected, these
secondary electrons can provide high quality images at nanometer-scale resolution. In previously thinned samples, collection of high energy electrons transmitted through the sample can yield image resolution at the atomic
scale. The much greater mass ions dislodge surface particles, also resulting in displacement of secondary ions and electrons. Through the use of FIBs, the surface can be modified or milled with sub-micron precision by direct action of the
ion beam or in combination with gases. Secondary electrons and ions may also be collected for imaging and compositional analysis. Our ion and electron beam technologies provide advanced capabilities and applications when coupled with our other core
technologies.

Beam gas chemistry. Beam gas chemistry plays an important role in enabling our electron and ion beam based
products to perform many tasks successfully. Beam gas chemistry involves the interaction of the primary ion beam with an injected gas near the surface of the sample. This interaction results in either the deposition of material or the enhanced
removal of material from the sample. Both of these processes are critical to optimizing and expanding FIB and SEM applications. Our markets have growing needs for gas chemistry technologies, and we have aimed our development strategy at
meeting these requirements.



| |  |  | Deposition: Deposition of materials enables our FIBs to connect or isolate features electrically on, for example, an integrated circuit. A
deposited layer of metal also can be used before FIB milling to protect surface features for more accurate cross-sectioning or sample preparation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Etching: The fast, clean and selective removal of material is the most important function of our FIBs. Our FIBs have the ability to mill specific
types of material faster than other surrounding material. This process is called selective etching and is used to enhance image contrast or aid in the modification of various structures.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

System automation and sample management. Drawing on our knowledge of application needs, and using robotics and image recognition and
reconstruction software, we have developed automation capabilities that allow us to increase system performance, speed and precision. These capabilities have been especially important to our development efforts for in-line products and
applications in the Electronics market segment and are expected to be increasingly important in emerging production and process



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control applications in the Research and Industry and Life Sciences market segments. Two important areas where we have developed significant automation technologies are TEM sample preparation and
3D process control. TEMs are widely used in the semiconductor and data storage markets to obtain valuable high-resolution images of extremely small, even atomic-level, structures. TEM sample preparation has traditionally been a slow and
difficult manual process. With our DualBeam systems and proprietary software, we have automated this process, significantly improving the sample consistency and overall throughput. Similarly, by automating 3D process control applications, we
allow customers to acquire previously unobtainable subsurface process metrics directly from within the production line, improving process management.

Research and Development

We have research and development operations in Hillsboro, Oregon; Eindhoven, The Netherlands; Brno,
Czech Republic; and Brisbane, Australia.

Our research and development staff at December 31, 2009 consisted of 331 employees, including
scientists, engineers, designer draftsmen, technicians and software developers.

In the last year, we introduced several new and improved
products, including:



| |  |  | the Titan G2 second-generation scanning transmission electron microscope (S/TEM);
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the Quanta 50 Scanning Electron Microscope (SEM);
| | - |  | ---------------------------------------------------



| |  |  | the Helios Nanolab 1200 wafer-level DualBeam system;
| | - |  | ----------------------------------------------------



| |  |  | the Tecnai Osiris TEM with significantly improved analytical capability; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | the Falcon direct electron detector.
| | - |  | ------------------------------------

We believe our knowledge of field emission technology and products incorporating focused ion beams remain critical to our performance in the focused charged particle beam business. Drawing on this
technology, we have developed a number of product innovations, including:



| |  |  | Enhancement in the S/TEM system platform with unprecedented stability coupled with new aberration correctors and monochromator technology, enabling
sub-angstrom resolution;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Enhanced robotics, processes and tool connectivity, enabling in-line sample lift-out and S/TEM imaging from semiconductor wafers for defect analysis
and process control applications with new automation software that improves the quality and consistency of multiple site-specific samples;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Advanced image processing hardware and software enabling high performance 3D tomographic, TEM-based imaging and advance cryogenic fixation technology
and subsequent imaging of aqueous samples at cryo temperatures in a TEM for aqueous biological and colloidal polymer, pigment and nanoparticle samples;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | High-speed analytic characterization technology that includes the proprietary X-Field Emission Guns (X-FEG) ultra-high brightness electron
source and Super-X, our new Energy Dispersive X-ray (EDX) detection system based on Silicon Drift Detector (SDD) technology; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct electron detector technology with improved quantum efficiency, capturing more information from a given electron dose, and accelerating the rate
at which the signal-to-noise ratio improves over the exposure period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

From time to time, we engage in joint research and
development projects with some of our customers and other parties. In Europe, our electron microscope development is conducted in collaboration with universities and research institutions, often supported by European Union research and development
programs. We periodically have received public funds under Dutch government and European Union-funded research and development programs, and expect to continue to leverage these funding opportunities in the future. However, these funds can vary from
year to year and we are not able to predict the amount of future funding. We also maintain other informal collaborative relationships with universities and other research institutions, and we work with several of our customers to evaluate new
products.



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The markets into which we sell our principal products are subject to rapid technological development,
product innovation and competitive pressures. Consequently, we have expended substantial amounts of money on research and development. We generally intend to continue investing in research and development and believe that continued investment will
be important to our ability to address the needs of our customers and to develop additional product offerings. Research and development efforts continue to be directed toward development of next generation product platforms, new ion and electron
columns, beam chemistries, system automation and new applications. We believe these areas hold promise of yielding significant new products and existing product enhancements. Research and development efforts are subject to change due to product
evolution and changing market needs. Often, these changes cannot be predicted.

Net research and development expense was $67.7 million in
2009, $70.4 million in 2008 and $66.0 million in 2007.

Manufacturing

We have manufacturing operations located in Hillsboro, Oregon; Eindhoven, The Netherlands; and Brno, Czech Republic. Our system manufacturing operations consist largely of final assembly and the testing
of finished products. Product performance is documented and validated with factory acceptance and selective customer witness acceptance tests before these products are shipped. We also fabricate electron and ion source materials and manufacture
component products at our facilities in Oregon and the Czech Republic.

We currently use numerous vendors to supply parts, components and
subassemblies for the manufacture and support of our products. Some key parts, however, may only be obtained from a single supplier or a limited group of suppliers. In particular, we rely on: VDL Enabling Technologies Group, or ETG, AP Tech,
Frencken Mechatronics B.V., Sanmina-SCI Corporation and AZD Praha SRO for our supply of mechanical parts and subassemblies; Gatan, Inc. for critical accessory products; and Neways Electronics, N.V. for some of our electronic subassemblies. A
portion of the subcomponents that make up the components and sub-assemblies supplied to us are proprietary in nature and are provided to our suppliers only from single sources. We monitor those parts subject to single or a limited source supply to
minimize factory down time due to unavailability of such parts, which could impact our ability to meet manufacturing schedules.

Sales,
Marketing and Service

Sales, marketing and service operations are conducted in the U.S. and approximately 50 other countries around the
world. We also sell our products through independent agents, distributors and representatives in additional countries.

Our sales and
marketing staff at December 31, 2009 consisted of 333 employees, including account managers, direct salespersons, sales support management, administration, demo lab personnel, marketing support, product managers, product marketing engineers,
applications specialists and technical writers. Applications specialists identify and develop new applications for our products, which we expect to further expand our markets. Our sales force and marketing efforts are organized through four
geographic sales and services divisions: North America, Europe, the Asia-Pacific region and Japan. Our service staff at December 31, 2009 consisted of 509 employees.

We require sales representatives to have the technical expertise and understanding of the businesses of our principal and potential customers to meet the requirements for selling our products. Normally, a
sales representative will have the knowledge of, and experience with, our products or similar products, markets or customers at the time the sales representative is hired. We also provide additional training to our sales force on an ongoing basis.
Our marketing efforts include presentations at trade shows, advertising in trade journals, development of printed collateral materials, customer forums, public relations efforts in trade media and our website. In addition, our employees publish
articles in scientific journals and make presentations at scientific conferences.



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In a typical sale, our sales representatives provide a potential customer with information about our
products, including specifications and performance data. The customer then often participates in a product demonstration at our facilities, using samples provided by the customer. The sales cycle for our systems typically ranges from three to
12 months, but can be longer when our customers are evaluating new applications of our technology.

Our products are sold generally with
a 12 month warranty. Customers may purchase service contracts for our products of one year or more in duration after expiration of any warranty. We employ service engineers in each of the four regions in which we have sales and service divisions. We
also contract with independent service representatives for product service in some foreign countries.

Competition

The markets for our products are highly competitive. Some of our competitors and potential competitors have greater financial, marketing and production
resources than we do. In addition, some of our competitors have formed collaborative relationships and otherwise may cooperate with each other. Additionally, markets for our products are subject to constant change, due in part to evolving customer
needs. As we respond to this change, the elements of competition as well as the specific competitors may change. Moreover, one or more of our competitors might achieve a technological advance that would put us at a competitive disadvantage.

Our significant competitors, with respect to the manufacture and sale of equipment, include: JEOL Ltd., Hitachi High Technologies
Corporation, Seiko Instruments Inc., Carl Zeiss SMT A.G. and others. We believe the key competitive factors are performance, range of features, reliability and price. We believe that we are competitive with respect to each of these factors. Our
ability to remain competitive depends in part upon our success in developing new and enhanced systems and introducing these systems at competitive prices on a timely basis.

Our service business faces little significant third-party competition. Because of the highly specialized nature of our products and technology, and because of the critical mass necessary to support a
worldwide field service capability, few competitors have emerged to provide service to our installed base of systems. Some of our older, less sophisticated equipment, particularly in the Research and Industry market segment, is serviced by
independent field service engineers who compete directly with us. We believe we will continue to provide most of the field service for our products.

Patents and Intellectual Property

We rely on a combination of trade secret protection (including use of nondisclosure
agreements), trademarks, copyrights and patents to establish and protect our proprietary rights. These intellectual property rights may not have commercial value or may not be sufficiently broad to protect the aspect of our technology to which they
relate or competitors may design around the patents. We own, solely or jointly, approximately 168 patents in the U.S. and approximately 269 patents outside of the U.S., many of which correspond to the U.S. patents. Further, we license additional
patents from third parties. Our patents expire over a period of time from 2010 to 2028.

Several of our competitors hold patents covering a
variety of focused ion beam products and applications and methods of use of focused ion and electron beam products. Some of our customers may use our products for applications that are similar to those covered by these patents. As the number and
sophistication of focused ion and electron beam products in the industry increase through the continued introduction of new products by us and others, and the functionality of these products further overlaps, manufacturers and users of ion and
electron beam products may become increasingly subject to infringement claims.



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We also depend on trade secrets used in the development and manufacture of our products. We endeavor to
protect these trade secrets but the measures we have taken to protect these trade secrets may be inadequate or ineffective.

We claim
trademarks on a number of our products and have registered some of these marks. Use of the registered and unregistered marks, however, may be subject to challenge with the potential consequence that we would have to cease using marks or pay fees for
their use.

Our automation software incorporates software from third-party suppliers, which is licensed to end users along with our
proprietary software. We depend on these outside software suppliers to continue to develop automation capacities. The failure of these suppliers to continue to offer and develop software consistent with our automation efforts could undermine our
ability to deliver product applications.

Employees

At December 31, 2009, we had 1,766 full-time equivalent, permanent employees and 15 temporary employees worldwide. Some of the 1,235 employees who are employed outside of the U.S. are covered by
national, industry-wide agreements or national work regulations that govern various aspects of employment conditions and compensation. None of our U.S. employees are subject to collective bargaining agreements, and we have never experienced a work
stoppage, slowdown or strike in any of our worldwide operations. We believe we maintain good employee relations.

Backlog

Orders received in a particular period that cannot be built and shipped to the customer in that period represent backlog. We only recognize backlog for
purchase commitments for which the terms of the sale have been agreed upon, including price, configuration, options and payment terms. Product backlog consists of all open orders meeting these criteria. Service and Components backlog consists of
open orders for service, unearned revenue on service contracts and open orders for spare parts. U.S. government backlog is limited to contracted amounts. In addition, some of the U.S. government backlog represents uncommitted funds. At
December 31, 2009, our total backlog was $354.6 million, compared to $330.5 million at December 31, 2008. At December 31, 2009, our backlog consisted of $286.6 million of products and $68.0 million related to service and components
compared to product backlog of $273.5 million and service and components backlog of $57.0 million at December 31, 2008.

Of our total
backlog at December 31, 2009, approximately 90% is expected to be shippable within 12 months and approximately 10% requires some incremental development. Customers may cancel or delay delivery on previously placed orders, although our standard
terms and conditions include penalties for cancellations made close to the scheduled delivery date. As a result, the timing of the receipt of orders or the shipment of products could have a significant impact on our backlog at any date.
Historically, cancellations have been minor. However, historic cancellation rates may increase in the future. During 2009 and 2008, we experienced cancellations or de-bookings of $12.4 million and $7.6 million, respectively. From time to time, we
have experienced difficulty in shipping our product from backlog due to single-sourcing issues and problems in securing electronic components from a certain vendor. In addition, product shipments have been extended due to delays in completing
certain application development, by our customers pushing out shipments because their facilities are not ready to install our systems and by our own manufacturing delays due to the technical complexity of our products and supply chain issues. A
significant portion of our backlog is denominated in currencies other than the U.S. dollar and, therefore, our reported backlog fluctuates, to an extent, as a result of foreign currency exchange rate movements. For these reasons, the amount of
backlog at any date is not necessarily indicative of revenue to be recognized in future periods.



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Geographic Revenue and Assets

The following table summarizes sales by geographic region in 2009 (in thousands):



|                            |  |                |         |        |   |                             |  |       |         |  |   |        
|--------------------------- |  | -------------- | ------- | ------ | - | --------------------------- |  | ----- | ------- |  | - | -------
|                            |  | U.S. andCanada |         | Europe |   | Asia-PacificandRest
ofWorld |  | Total
|Product sales               |  | $              | 134,919 |        | $ | 166,581                     |  | $     | 138,203 |  | $ | 439,703
|Service and Component sales |  |                | 63,718  |        |   | 45,226                      |  |       | 28,697  |  |   | 137,641
|                            |  |                |         |        |   |                             |  |       |         |  |   |        
|Total sales                 |  | $              | 198,637 |        | $ | 211,807                     |  | $     | 166,900 |  | $ | 577,344
|                            |  |                |         |        |   |                             |  |       |         |  |   |        

Sales to countries which totaled 10% or more of our total net sales in
2009 were as follows (dollars in thousands):



|              |  |              |         |                     |      |  
|------------- |  | ------------ | ------- | ------------------- | ---- | -
|              |  | DollarAmount |         | % of TotalNet Sales |     
|United States |  | $            | 189,596 |                     | 32.8 | %

Our long-lived assets were
geographically located as follows at December 31, 2009 (in thousands):



|                |  |   |       
|--------------- |  | - | ------
|United States   |  | $ | 55,342
|The Netherlands |  |   | 18,888
|Other           |  |   | 15,111
|                |  |   |       
|Total           |  | $ | 89,341
|                |  |   |       

See also Note 20 of Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K for additional geographic and segment information.

Seasonality

Our history shows that our revenues and bookings normally peak in the fourth quarter. Bookings are normally the lowest in the second quarter
and revenues are normally lowest in the third quarter.

In addition, our sales have tended to grow more rapidly from the third to the fourth
quarter of the year than in other sequential quarterly periods, primarily because our Research and Industry market segment customers budget their spending on an annual basis. Correspondingly, the Research and Industry market segment has tended to
record declines in revenue from the fourth quarter of one year to the first quarter of the next year. These seasonal trends can be offset by numerous other factors, including our introduction of new products, the overall economic cycle and the
business cycles in the semiconductor and data storage industries.

Where You Can Find More Information

Our principal executive offices are located at 5350 NE Dawson Creek Drive, Hillsboro, Oregon 97124. Our website is at http://www.fei.com. We file annual,
quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 as amended (Exchange Act). We make available free of charge on
our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. You can inspect
and copy our reports, proxy statements and other information filed with the SEC at the offices of the SECs Public Reference Room located at 100 F Street, NE, Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of Public Reference Rooms. The SEC also maintains an Internet website at http://www.sec.gov/ where you can obtain most of our SEC filings. You can also obtain copies of these materials free of charge by contacting our investor
relations department at 503-726-7500.



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Item 1A. Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties,
together with the other information contained in this report and in our other public filings. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans,
projections and other forward-looking statements included in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report and in our other public filings. In
addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our
stock to decline, perhaps significantly.

We operate in highly competitive industries, and we cannot be certain that we will be able to
compete successfully in such industries.

The industries in which we operate are intensely competitive. Established companies, both
domestic and foreign, compete with us in each of our product lines. Some of our competitors have greater financial, engineering, manufacturing and marketing resources than we do and may price their products very aggressively. In addition, these
competitors may be willing to operate at a less profitable level than at which we would expect to operate. Our significant competitors include, among others: JEOL Ltd., Hitachi High Technologies Corporation and Carl Zeiss SMT A.G. In addition, some
of our competitors have formed collaborative relationships and otherwise may cooperate with each other.

A substantial investment by customers
is required for them to install and integrate capital equipment into their laboratories and process applications. As a result, once a manufacturer has selected a particular vendors capital equipment, the manufacturer generally relies on that
equipment for a specific production line or process control application and frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, if a particular customer selects a competitors
capital equipment, we expect to experience difficulty selling to that customer for a significant period of time.

Our ability to compete
successfully depends on a number of factors both within and outside of our control, including:



| |  |  | price;
| | - |  | ------



| |  |  | product quality;
| | - |  | ----------------



| |  |  | breadth of product line;
| | - |  | ------------------------



| |  |  | system performance;
| | - |  | -------------------



| |  |  | ease of use;
| | - |  | ------------



| |  |  | cost of ownership;
| | - |  | ------------------



| |  |  | global technical service and support;
| | - |  | -------------------------------------



| |  |  | success in developing or otherwise introducing new products; and
| | - |  | ----------------------------------------------------------------



| |  |  | foreign currency movements.
| | - |  | ---------------------------

We cannot be certain that we will be able to compete successfully on these or other factors, which could negatively impact our revenues, gross margins and net income in the future.

Because many of our shipments occur in the last month of a quarter, we are at risk of one or more transactions not being delivered according to forecast.

We have historically shipped approximately 75% of our products in the last month of each quarter. As any one shipment may be significant
to meeting our quarterly sales projection, any slippage of shipments into a subsequent quarter may result in our not meeting our quarterly sales projection, which may adversely impact our results of operations for the quarter.



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Because we have significant operations outside of the U.S., we are subject to political, economic and
other international conditions that could result in increased operating expenses and regulation of our products and increased difficulty in maintaining operating and financial controls.

Since a significant portion of our operations occur outside of the U.S., our revenues and expenses are impacted by foreign economic and regulatory
conditions. For each of the last three years, more than 61% of our sales came from outside of the U.S. We have manufacturing facilities in Brno, Czech Republic and Eindhoven, The Netherlands and sales offices in many other countries.

Moreover, we operate in over 50 countries, 23 with a direct presence. Some of our global operations are geographically isolated, are distant from corporate
headquarters and/or have little infrastructure support. Therefore, maintaining and enforcing operating and financial controls can be difficult. Failure to maintain or enforce controls could have a material adverse effect on our control over service
inventories, quality of service, customer relationships and financial reporting.

Our exposure to the business risks presented by foreign
economies will increase to the extent we continue to expand our global operations. International operations will continue to subject us to a number of risks, including:



| |  |  | longer sales cycles;
| | - |  | --------------------



| |  |  | multiple, conflicting and changing governmental laws and regulations;
| | - |  | ---------------------------------------------------------------------



| |  |  | protectionist laws and business practices that favor local companies;
| | - |  | ---------------------------------------------------------------------



| |  |  | price and currency exchange rates and controls;
| | - |  | -----------------------------------------------



| |  |  | taxes and tariffs;
| | - |  | ------------------



| |  |  | export restrictions;
| | - |  | --------------------



| |  |  | difficulties in collecting accounts receivable;
| | - |  | -----------------------------------------------



| |  |  | travel and transportation difficulties resulting from actual or perceived health risks (e.g., SARS and avian or swine influenza);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the regulatory environment in countries where we do business could lead to delays in the importation of products into those countries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the implementation of China Restrictions on Hazardous Substances (RoHS) regulations could lead to delays in the importation of products
into China;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | political and economic instability; and
| | - |  | ---------------------------------------



| |  |  | risk of failure of internal controls and failure to detect unauthorized transactions.
| | - |  | -------------------------------------------------------------------------------------

The industries in which we sell our products are cyclical, which may cause our results of operations to fluctuate.

Our business depends in large part on the capital expenditures of customers within our Electronics, Research and Industry and Life Sciences market segments,
which, along with Service and Components sales, accounted for the following amounts (in thousands) and percentages of our net sales for the periods indicated:



|                       |  |                         |         |  |       |   |  |   |         |  |       |  
|---------------------- |  | ----------------------- | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                       |  | Year Ended December 31, |        
|                       |  | 2009                    |         |  | 2008  |  
|Electronics            |  | $                       | 126,417 |  | 21.9  | % |  | $ | 152,076 |  | 25.4  | %
|Research and Industry  |  |                         | 231,462 |  | 40.1  | % |  |   | 238,615 |  | 39.8  | %
|Life Sciences          |  |                         | 81,824  |  | 14.2  | % |  |   | 70,815  |  | 11.8  | %
|Service and Components |  |                         | 137,641 |  | 23.8  | % |  |   | 137,673 |  | 23.0  | %
|                       |  |                         |         |  |       |   |  |   |         |  |       |  
|                       |  | $                       | 577,344 |  | 100.0 | % |  | $ | 599,179 |  | 100.0 | %
|                       |  |                         |         |  |       |   |  |   |         |  |       |  

The largest sub-parts of the Electronics market segment are the semiconductor and data storage industries. These industries
are cyclical and have experienced significant economic downturns at various times in the last decade. Such downturns have been characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity. A
downturn in one or both of these industries, or the businesses of one or more of our customers, could have a material adverse effect



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on our business, prospects, financial condition and results of operations. Since the second half of 2007, we have experienced a significant decline in bookings and revenue in our Electronics
segment due to a general decline in semiconductor and data storage capital equipment spending. The semiconductor capital equipment market showed signs of recovery near the end of 2009, but the strength and durability of the recovery are uncertain.
Global economic conditions may be beginning to stabilize, but economic recovery is tentative and its strength is unknown. During downturns, our sales and gross profit margins generally decline.

The Research and Industry market segment is also affected by overall economic conditions, but is not as cyclical as the Electronics market segment. However,
Research and Industry customer spending is highly dependent on governmental and private funding levels and timing, which can vary depending on budgetary or economic constraints and changes in administration. The current global financial crisis may
result in cutbacks in funding by various governments and institutions, which could eventually result in reduced orders for our products. In addition, institutional endowments and philanthropy, which are a source of funding of some customer
purchases, are threatened by the recent significant declines in capital markets world-wide. Recently, both philanthropic giving and endowments have declined.

The Life Sciences market segment is a smaller and still emerging market, and the tools we sell into that market often have average selling prices ranging from $0.5 million to over $3.0 million.
Consequently, loss of demand among a relatively small group of potential customers can have a material impact on the overall demand for our products. As a result, movement of a small number of sales from one quarter to the next could cause
significant variability in quarter-to-quarter growth rates, even as we believe that this market has the potential for long-term growth.

As a
capital equipment provider, our revenues depend in large part on the spending patterns of our customers, who could delay expenditures or cancel orders in reaction to variations in their businesses or general economic conditions. Because a high
proportion of our costs are fixed, we have a limited ability to reduce expenses quickly in response to revenue shortfalls. In a prolonged economic downturn, we may not be able to reduce our significant fixed costs, such as manufacturing overhead,
capital equipment or research and development costs, which may cause our gross margins to erode and our net loss to increase or earnings to decline.

Our history shows that our revenues and bookings normally peak in the fourth quarter. Bookings are normally the lowest in the second quarter and revenues are normally lowest in the third quarter.

If our customers cancel or reschedule orders or if an anticipated order for even one of our systems is not received in time to permit shipping during a
certain fiscal period, our operating results for that fiscal period may fluctuate and our business and financial results for such period could be materially and adversely affected. Cancellation risks rise in periods of economic downturn.

Our customers are able to cancel or reschedule orders, generally with limited or no penalties, depending on the products stage of
completion. The amount of purchase orders at any particular date, therefore, is not necessarily indicative of sales to be made in any given period. Our build cycle, or the time it takes us to build a product to customer specifications, typically
ranges from one to six months. During this period, the customer may cancel the order, although generally we will be entitled to receive a cancellation fee based on the agreed-upon shipment schedule. The risks of cancellation are higher during times
of economic downturn, such as the U.S. and global economies are presently experiencing. In addition, we derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced systems, with a
large portion in the last month of the quarter. Further, in some cases, our customers have to make changes to their facilities to accommodate the site requirements for our systems and may reschedule their orders because of the time required to
complete these facility changes. This is particularly true of the high-performance TEMs. As a result, the timing of revenue recognition for a single transaction could have a material effect on our revenue and results of operations for a particular
fiscal period.



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Due to these and other factors, our net revenues and results of operations have fluctuated in the past and
are likely to fluctuate significantly in the future on a quarterly and annual basis. It is possible that in some future quarter or quarters our results of operations will be below the expectations of public market analysts or investors. In such
event, the market price of our common stock may decline significantly.

Due to our extensive international operations and sales, we are
exposed to foreign currency exchange rate risks that could adversely affect our revenues, gross margins and results of operations.

A
significant portion of our sales and expenses are denominated in currencies other than the U.S. dollar, principally the euro. For 2009, 2008 and 2007, approximately 30% to 40% of our revenue was denominated in euros, while more than half of our
expenses were denominated in euros or other foreign currencies. Particularly as a result of this imbalance, changes in the exchange rate between the U.S. dollar and foreign currencies, especially the euro, can impact our revenues, gross margins,
results of operations and cash flows. We undertake hedging transactions to limit our exposure to changes in the dollar/euro exchange rate. The hedges are designed to protect us as the dollar weakens but also provide us with some flexibility if the
dollar strengthens.

We use option contracts and zero cost collars in an effort to reduce the exposure of our cash flows to exchange rate
movements. These contracts are considered derivatives. We are required to carry all open derivative contracts on our balance sheet at fair value. When specific accounting criteria have been met, derivative contracts can be designated as hedging
instruments and changes in fair value related to these derivative contracts are recorded in other comprehensive income, rather than net income, until the underlying hedged transaction affects net income, which is at the time the gains or losses
related to the derivatives are recorded in cost of goods sold. We are required to record changes in fair value for derivatives not designated as hedges in net income in the current period. Our ability to designate derivative contracts as hedges
significantly reduces the volatility in our operating results due to changes in the fair value of the derivative contracts.

Achieving hedge
designation is based on evaluating the effectiveness of the derivative contracts ability to mitigate the foreign currency exposure of the linked transaction. We are required to monitor the effectiveness of all new and open derivative contracts
designated as hedges on a quarterly basis. We recorded a $1.3 million charge for hedge ineffectiveness related to our cash flow hedges in both 2009 and 2008 as a result of currency movements. Failure to meet the hedge accounting requirements could
result in the requirement to record deferred and current realized and unrealized gains and losses into net income in the current period. This failure could result in significant fluctuations in operating results. In addition, we will continue to
recognize unrealized gains and losses related to the changes in fair value of derivative contracts not designated as hedges in the current period net income. Accordingly, the related impact to operating results may be recognized in a different
period than the foreign currency impact of the hedged transaction.

We also enter into foreign forward exchange contracts that are designed to
partially mitigate the impact of specific cash, receivables or payables positions denominated in foreign currencies. Foreign currency losses recorded in other income (expense), inclusive of the impact of derivatives which are not designated as
hedges, totaled $3.6 million in 2009 and $4.9 million in 2008.

We seek to mitigate derivative credit risk by transacting with highly rated
counterparties. We have evaluated the credit and non-performance risks associated with our derivative counterparties and believe them to be insignificant and not warranting a credit adjustment at December 31, 2009.

The recent extreme volatility of dollar-euro exchange rates has also made it more difficult for us to deploy our hedging program and create effective
hedges.



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Current economic conditions may adversely affect our industry, business and results of operations.

The global economy is undergoing a period of slowdown and the future economic climate may continue to be less favorable than that of the
past. This slowdown has, and could further lead to, reduced consumer and business spending in the foreseeable future, including by our customers, and the purchasers of their products and services. If such spending continues to slow down or
decrease, our industry, business and results of operations may be adversely impacted. Also, in times of severe economic distress, hardship, bankruptcy and insolvency among our customers could increase. This may make it more difficult to collect on
receivables.

Gross margins on our products vary between product lines and markets and, accordingly, changes in product mix will affect our
results of operations.

If a higher portion of our net sales in any given period have lower gross margins, our overall gross margins and
earnings would be negatively affected. For example, during 2008 and 2009, our net sales contained a smaller portion of sales from our relatively higher margin products within the Electronics segment, which contributed to a decrease in our overall
gross margins as compared to 2007. Our Electronics business, which ultimately depends on consumers who buy electronic devices, has been particularly hard hit by the overall economic downturn. To the extent that this market segment continues to
suffer, our overall margins will continue to be under pressure. In addition, the Life Sciences business has been growing as a percentage of our business. Particularly in the second half of 2009, Life Sciences margins were below overall averages due
to aggressive pricing on certain new products, as well as unexpected higher manufacturing costs on some of our new products. If we are not able to reduce manufacturing costs and obtain higher pricing, our margins could suffer in the future.

Our business is complex, and changes to the business may not achieve their desired benefits.

Our business is based on a myriad of technologies, encompassed in multiple different product lines, addressing various markets in different regions of the
world. A business of our breadth and complexity requires significant management time, attention and resources. In addition, significant changes to our business, such as changes in manufacturing, operations, product lines, market focus or
organizational structure or focus, can be distracting, time-consuming and expensive. These changes can have short-term adverse effects on our financial results and may not provide their intended long-term benefits. Failure to achieve these benefits
would have a material adverse impact on our financial position, results of operations or cash flow.

Restructuring activities may be
disruptive to our business and financial performance. Any delay or failure by us to execute planned cost reductions could also be disruptive and could result in total costs and expenses that are greater than expected.

At various times, we have restructured our business. In 2006, we undertook a restructuring that caused us to record restructuring, reorganization,
relocation and severance charges of approximately $12.6 million.

We have initiated various corporate wide restructuring and
infrastructure improvement programs in order to increase operational efficiency, reduce costs as well as balance the effects of currency movements on our financial results. These actions have historically included reductions of work-force as
well as the costs to migrate portions of our supply chain to dollar-linked contracts. We expect to continue to incur costs in 2010 related to our supply chain migration and also expect to incur additional costs of approximately $2.2 million
related to certain IT system upgrades that we plan to complete in the next twelve months.

In 2008, we announced a restructuring that will
involve estimated cash charges of approximately $9.2 million, $7.8 million of which has been incurred through December 31, 2009. The plan includes relocating part of our supply chain and relocating and outsourcing some manufacturing to reduce
cost of goods sold



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and improve imbalances in our foreign currency exposures. In addition, we will have severed some employees and are aiming to lower operating expenses. The expense of the restructuring
adversely affected our financial performance for 2008 and 2009. Moreover, the cash charges for the 2008 restructuring is only an estimate and actual results may differ. If we have additional activities beyond what is currently planned, we may incur
additional restructuring and related expenses.

Restructuring could adversely affect our business, financial condition and results of
operations in other respects as well. This includes potential disruption of manufacturing operations, our supply chain and other aspects of our business. Employee morale and productivity could also suffer and result in unintended employee
attrition. Loss of sales, service and engineering talent, in particular, could damage our business. The restructuring will require substantial management time and attention and may divert management from other important work. Moreover, we could
encounter delays in executing our plans, which could cause further disruption and additional unanticipated expense. Some of our employees work in areas, such as Europe and Asia, where workforce reductions are highly regulated, and this could
slow the implementation of planned workforce reductions.

It is also the case that our restructuring plans may fail to achieve the stated aims
for reasons similar to those described in the prior paragraph.

During the course of executing the restructuring, we could incur material
non-cash charges such as write-downs of inventories or other tangible assets. We test our goodwill and other intangible assets for impairment annually or when an event occurs indicating the potential for impairment. If we record an impairment charge
as a result of this analysis, it could have a material impact on our results of operations.

A portion of our manufacturing operations are
going to be relocated between existing facilities or outsourced to third-parties, which will involve significant costs and the risk of operational interruption.

In the second quarter of 2008, we began implementing a plan to shift manufacturing for certain products to other of our factories and third parties in the U.S. Moving product manufacturing includes, among
others, the following risks:



| |  |  | failing to transfer product knowledge from one site to another or to a third party;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | unanticipated additional costs connected to such moves;
| | - |  | -------------------------------------------------------



| |  |  | delay or failure in being able to build the transferred product at the new sites;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | unanticipated additional labor and materials costs related to such moves;
| | - |  | -------------------------------------------------------------------------



| |  |  | logistical issues arising from the moves; and
| | - |  | ---------------------------------------------



| |  |  | potential vendor problems.
| | - |  | --------------------------

Any of these factors could cause us to miss product orders, cause a decline in product quality and completeness, damage our reputation, increase costs of goods sold or decrease revenue and gross margins.

Dependence on contract manufacturing and outsourcing other portions of our supply chain may adversely affect our ability to bring products to market and
damage our reputation.

As part of our efforts to streamline operations and cut costs, we have been outsourcing aspects of our
manufacturing processes and other functions and we continue to evaluate additional outsourcing. If our contract manufacturers or other outsourcers fail to perform their obligations in a timely manner or at satisfactory quality levels, our
ability to bring products to market and our reputation could suffer. For example, during a market upturn, our contract manufacturers may be unable to meet our demand requirements, and replacement manufacturers may be unavailable, which may
preclude us from fulfilling our customer orders on a timely basis. The ability of these manufacturers to perform is largely outside of our control. Moreover, delays could cause us to suffer penalties with our customers, which could also
impact our profitability.



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A significant percentage of our current investments in marketable securities consist of auction rate
securities. If a liquid market for these securities is not maintained, we may be unable to dispose of these securities, which could negatively impact our liquidity, cash on hand and results of operations.

At December 31, 2009, we held auction rate securities (ARS) having a fair value of $87.2 million, which have short-term stated maturities
for which the interest rates are reset through a Dutch auction, which generally occurs every 28 days. The auctions have historically provided a liquid market for these securities as investors could readily sell their investments at auction. With the
liquidity issues experienced in global credit and capital markets, the ARS held by us have experienced multiple failed auctions, beginning on February 19, 2008, as the amount of securities submitted for sale has exceeded the amount of purchase
orders. We expect that the market for these securities will remain illiquid until the securities are either redeemed or mature. During the fourth quarter of 2008, we entered into a settlement agreement with UBS Financial Services Inc.
(UBS), the issuer of the ARS, pursuant to which UBS would repurchase all of our ARS at par on or before June 30, 2010 (the Put Right). As a result of this settlement, we reclassified our ARS from available for sale
securities and into trading securities. In connection with the reclassification into trading securities, we reclassified the temporary impairment related to these securities of $18.4 million from accumulated other comprehensive income and into
other income, net during 2008. Offsetting this loss within other income, net was a $17.9 million gain related to the Put Right we obtained pursuant to the agreement. Our inability to dispose of our ARS prior to June 30, 2010 could
negatively impact our liquidity and cash on hand, which, in turn, could cause us to forego potentially beneficial operational and strategic transactions or to incur additional indebtedness. During the first quarter of 2009, we pledged our ARS as
collateral against the UBS Credit Facility and drew down $70.8 million, or approximately 75% of the value of the ARS. As of December 31, 2009, $59.6 million was outstanding on the UBS Credit Facility. During the fourth quarter of 2009, $11.2
million of the ARS were called and the proceeds were utilized to repay a portion of the UBS Credit Facility. In addition, in the first quarter of 2010 through the date of the filing of this Form 10-K, an additional $8.2 million of the ARS were
called, with the proceeds being used to repay a portion of the UBS Credit Facility. The proceeds derived from sales of the remaining ARS we hold in accounts with UBS will be applied to repay outstanding obligations under the UBS Credit Facility. We
expect to exercise our Put Right in June 2010. Additionally, we could be adversely impacted if UBS is unable to meet its obligations under the repurchase agreement in 2010. Changes in the fair value of the ARS and the Put Right, which were an
increase of $6.7 million and a decrease of $6.2 million, respectively, in 2009, are recognized currently as a component of other income, net.

We rely on a limited number of parts, components and equipment manufacturers. Failure of any of these suppliers to provide us with quality products in a timely manner could negatively affect our revenues and results of operations.

Failure of critical suppliers of parts, components and manufacturing equipment to deliver sufficient quantities to us in a timely and
cost-effective manner could negatively affect our business, including our ability to convert backlog into revenue. We currently use numerous vendors to supply parts, components and subassemblies for the manufacture and support of our products. Some
key parts, however, may only be obtained from a single supplier or a limited group of suppliers. In particular, we rely on: AP Tech, Frencken Mechatronics B.V., Sanmina-SCI Corporation and AZD Praha SRO for our supply of mechanical parts and
subassemblies; Gatan, Inc. for critical accessory products; and Neways Electronics, N.V. for some of our electronic subassemblies. In addition, some of our suppliers rely on sole suppliers. As a result of this concentration of key suppliers,
our results of operations may be materially and adversely affected if we do not timely and cost-effectively receive a sufficient quantity of quality parts to meet our production requirements or if we are required to find alternative suppliers for
these supplies. We may not be able to expand our supplier group or to reduce our dependence on single suppliers. If our suppliers are not able to meet our supply requirements, constraints may affect our ability to deliver products to customers in a
timely manner, which could have an adverse effect on our results of operations. In addition, world-wide restrictions governing the use of certain hazardous substances in



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electrical and electronic equipment (RoHS regulations) may impact parts and component availability or our electronics suppliers ability to source parts and components in a timely and
cost-effective manner. Overall, because we only have a few equipment suppliers, we may be more exposed to future cost increases for this equipment.

Our acquisition and investment strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses.

In addition to our efforts to develop new technologies from internal sources, we also may seek to acquire new technologies or operations from external sources. As part of this effort, we may make
acquisitions of, or make significant debt and equity investments in, businesses with complementary products, services and/or technologies. Acquisitions can involve numerous risks, including management issues and costs in connection with the
integration of the operations and personnel, technologies and products of the acquired companies, the possible write-downs of impaired assets and the potential loss of key employees of the acquired companies. The inability to effectively manage any
of these risks could seriously harm our business. Additionally, difficulties in integrating any potential acquisitions into our internal control structure could result in a failure of our internal control over financial reporting, which, in turn,
could create a material weakness.

To the extent we make investments in entities that we control, or have significant influence in, our
financial results will reflect our proportionate share of the financial results of the entity.

Our sales contracts often require delivery
of multiple elements with complex terms and conditions that may cause our quarterly results to fluctuate.

Our system sales contracts are
complex and often include multiple elements such as delivery of more than one system, installation obligations (sometimes for multiple tools), accessories and/or service contracts, as well as provisions for customer acceptance. Typically, we
recognize revenue as the various elements are delivered to the customer or the related services are provided. However, certain of these contracts have complex terms and conditions or technical specifications that require us to deliver most, or
sometimes all, elements under the contract before revenue can be recognized. This could result in a significant delay between production and delivery of products and when revenue is recognized, which may cause volatility in, or adversely impact, our
quarterly results of operations and cash flows.

The loss of one or more of our key customers would result in the loss of significant net
revenues.

A relatively small number of customers account for a large percentage of our net revenues, although no customer has accounted
for more than 10% of total annual net revenues in the recent past. Our business will be seriously harmed if we do not generate as much revenue as we expect from these key customers, if we experience a loss of any of our key customers or if we suffer
a substantial reduction in orders from these customers. Our ability to continue to generate revenues from our key customers will depend on our ability to introduce new products that are desirable to these customers.

If third parties assert that we violate their intellectual property rights, our business and results of operations may be materially adversely affected.

Several of our competitors hold patents covering a variety of technologies that may be included in some of our products. In addition,
some of our customers may use our products for applications that are similar to those covered by these patents. From time to time, we and our respective customers have received correspondence from our competitors claiming that some of our products,
as sold by us or used by our customers, may be infringing one or more of these patents. Any claim of infringement from a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract
our management from running the business.



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As described in more detail in the section entitled Item 3. Legal Proceedings, in November 2009,
one of our competitors, Hitachi High-Technologies Corporation (Hitachi), filed suit against our subsidiary, FEI Company Japan Ltd. (FEI Japan), in the District Court in Tokyo alleging infringement of five patents. Based on
information available to us, we believe we have meritorious defenses against this lawsuit and we intend to vigorously defend our interests in this matter. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur.
An unfavorable ruling could prohibit us from selling one or more products, and could include monetary damages. If we were to receive an unfavorable ruling, or if we are unable to negotiate a satisfactory settlement in this matter, our business and
results of operations could be materially harmed.

In addition, our competitors or other entities may assert infringement claims against us or
our customers in the future with respect to current or future products or uses, and these assertions may result in costly litigation or require us to obtain a license to use intellectual property rights of others. Additionally, if claims of
infringement are asserted against our customers, those customers may seek indemnification from us for damages or expenses they incur.

If we
become subject to additional infringement claims, we will evaluate our position and consider the available alternatives, which may include seeking licenses to use the technology in question or defending our position. These licenses, however, may not
be available on satisfactory terms or at all. If we are not able to negotiate the necessary licenses on commercially reasonable terms or successfully defend our position, these potential infringement claims could have a material adverse effect on
our business, prospects, financial condition and results of operations.

We have fixed debt obligations, which could adversely affect our
ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future manufacturing capacity and research and development needs.

We have significant indebtedness. As of December 31, 2009, we had total convertible long-term debt of $100.0 million due in 2013. We also had $59.6 million outstanding under our short-term UBS Credit
Facility. In addition, we have a secured credit line for $100.0 million and also have access to a $50.0 million yen unsecured uncommitted bank borrowing facility in Japan. However, no amounts were outstanding on these credit facilities at
December 31, 2009. The degree to which we are leveraged could have important consequences, including but not limited to the following:



| |  |  | our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes
may be limited;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our credit line, which was established in June 2008, contains numerous restrictive covenants, which, if not adhered to, could result in the
cancellation of the entire line;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our shareholders may be further diluted if holders of all or a portion of our outstanding 2.875% subordinated convertible notes elect to convert their
notes, up to a maximum aggregate of 3,407,155 shares of our common stock. These shares were not included in our diluted share count for 2009 or 2008, because they were antidilutive; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and
economic conditions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our ability to pay interest and principal on our debt securities, to satisfy our other debt
obligations and to make planned expenditures will be dependent on our future operating performance, which could be affected by changes in economic conditions and other factors, some of which are beyond our control. A failure to comply with the
covenants and other provisions of our debt instruments could result in events of default under such instruments, which could permit acceleration of the debt under such instruments and in some cases acceleration of debt under other instruments that
contain cross-default or cross-acceleration provisions. If we are at any time unable to generate sufficient cash flow from operations to service our indebtedness, we may be required to attempt to renegotiate the terms of the instruments relating to
the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. We cannot assure you that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any
additional financing could be obtained on terms that are favorable or acceptable to us.



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Because we do not have long-term contracts with our customers, our customers may stop purchasing our
products at any time, which makes it difficult to forecast our results of operations and to plan expenditures accordingly.

We do not have
long-term contracts with our customers. Accordingly:



| |  |  | customers can stop purchasing our products at any time without penalty;
| | - |  | -----------------------------------------------------------------------



| |  |  | customers may cancel orders that they previously placed;
| | - |  | --------------------------------------------------------



| |  |  | customers may purchase products from our competitors;
| | - |  | -----------------------------------------------------



| |  |  | we are exposed to competitive pricing pressure on each order; and
| | - |  | -----------------------------------------------------------------



| |  |  | customers are not required to make minimum purchases.
| | - |  | -----------------------------------------------------

If we do not succeed in obtaining new sales orders from existing customers, our results of operations will be negatively impacted.

Many of our projects are funded under federal, state and local government contracts and if we are found to have violated the terms of the government contracts or applicable statutes and regulations, we
are subject to the risk of suspension or debarment from government contracting activities, which could have a material adverse effect on our business and results of operations.

Many of our projects are funded under federal, state and local government contracts worldwide. Government contracts are subject to specific procurement regulations, contract provisions and requirements
relating to the formation, administration, performance and accounting of these contracts. Many of these contracts include express or implied certifications of compliance with applicable laws and contract provisions. As a result of our government
contracting, claims for civil or criminal fraud may be brought by the government for violations of these regulations, requirements or statutes. Further, if we fail to comply with any of these regulations, requirements or statutes, our existing
government contracts could be terminated, we could be suspended or debarred from government contracting or subcontracting, including federally funded projects at the state level. If one or more of our government contracts are terminated for any
reason, or if we are suspended from government work, we could suffer the loss of the contracts, which could have a material adverse effect on our business and results of operations.

Changes and fluctuations in government spending priorities could adversely affect our revenue.

Because a significant part of our overall business is generated either directly or indirectly as a result of worldwide federal and local government regulatory and infrastructure priorities, shifts in these priorities due to changes in
policy imperatives or economic conditions or government administration, which are often unpredictable, may affect our revenues.

Political
instability in key regions around the world coupled with the U.S. governments commitment to military related expenditures put at risk federal discretionary spending, including spending on nanotechnology research programs and projects that are
of particular importance to our business. Also, changes in U.S. Congressional appropriations practices could result in decreased funding for some of our customers. At the state and local levels, the need to compensate for reductions in federal
matching funds, as well as financing of federal unfunded mandates, creates strong pressures to cut back on research expenditures as well. A potential reduction of federal funding may adversely affect our business. Moreover, due to the world-wide
economic downturn, many state and national governments are seeing significant declines in tax revenue, while also seeing increased demand for services. This could reduce the money available to our potential customers from government funding sources
that could be used to purchase our products and services.

In February 2009, the U.S. Congress passed the American Recovery and Reconstruction
Act (the ARRA), which included approximately $15 billion of additional stimulus funding for agencies which are our customers, or which fund some of our customers. A portion of these funds could be allocated to scientific equipment
purchases. Less than 10% of our orders in the second half of 2009 were funded by the ARRA and agency awards under the ARRA have been occurring somewhat more slowly than we expected. If the funding under the ARRA is rescinded, or if the agencies
allocate the funds away from our types of equipment, a potential source of growth for us could be reduced or removed completely.



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We have long sales cycles for our systems, which may cause our results of operations to fluctuate and
could negatively impact our stock price.

Our sales cycle can be 12 months or longer and is unpredictable. Variations in the length
of our sales cycle could cause our net sales and, therefore, our business, financial condition, results of operations, operating margins and cash flows, to fluctuate widely from period to period. These variations could be based on factors partially
or completely outside of our control.

The length of time it takes us to complete a sale depend on many factors, including:



| |  |  | the efforts of our sales force and our independent sales representatives;
| | - |  | -------------------------------------------------------------------------



| |  |  | changes in the composition of our sales force, including the departure of senior sales personnel;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the history of previous sales to a customer;
| | - |  | --------------------------------------------



| |  |  | the complexity of the customers manufacturing processes;
| | - |  | ---------------------------------------------------------



| |  |  | the introduction, or announced introduction, of new products by our competitors;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the economic environment;
| | - |  | -------------------------



| |  |  | the internal technical capabilities and sophistication of the customer; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | the capital expenditure budget cycle of the customer.
| | - |  | -----------------------------------------------------

Our sales cycle also extends in situations where the sale involves developing new applications for a system or technology. As a result of these and a number of other factors that could influence sales
cycles with particular customers, the period between initial contact with a potential customer and the time when we recognize revenue from that customer, if we ever do, may vary widely.

The loss of key management or our inability to attract and retain managerial, engineering and other technical personnel could have a material adverse effect on our business, financial condition and
results of operations.

Attracting qualified personnel is difficult, and our recruiting efforts may not be successful. Specifically, our
product generation efforts depend on hiring and retaining qualified engineers. The market for qualified engineers is very competitive. In addition, experienced management and technical, marketing and support personnel in the technology industry are
in high demand, and competition for such talent is intense. The loss of key personnel, or our inability to attract key personnel, could have an adverse effect on our business, financial condition or results of operations.

Our customers experience rapid technological changes, with which we must keep pace, but we may be unable to introduce new products on a timely and
cost-effective basis to meet such changes.

Customers in each of our market segments experience rapid technological change and new product
introductions and enhancements. Our ability to remain competitive depends in large part on our ability to develop, in a timely and cost-effective manner, new and enhanced systems at competitive prices and to accurately predict technology
transitions. In addition, new product introductions or enhancements by competitors could cause a decline in our sales or a loss of market acceptance of our existing products. Increased competitive pressure also could lead to intensified price
competition, resulting in lower margins, which could materially adversely affect our business, prospects, financial condition and results of operations.

Our success in developing, introducing and selling new and enhanced systems depends on a variety of factors, including:



| |  |  | selection and development of product offerings;
| | - |  | -----------------------------------------------



| |  |  | timely and efficient completion of product design and development;
| | - |  | ------------------------------------------------------------------



| |  |  | timely and efficient implementation of manufacturing processes;
| | - |  | ---------------------------------------------------------------



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##### Table of Contents

| |  |  | effective sales, service and marketing functions; and
| | - |  | -----------------------------------------------------



| |  |  | product performance.
| | - |  | --------------------

Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both the future demand for products under development and the equipment required to produce such products. We cannot be
certain that we will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products. On occasion, certain product and application developments have taken longer than expected. These delays can have
an adverse affect on product shipments and results of operations.

The process of developing new high technology capital equipment products
and services is complex and uncertain, and failure to accurately anticipate customers changing needs and emerging technological trends, to complete engineering and development projects in a timely manner and to develop or obtain appropriate
intellectual property could significantly harm our results of operations. We must make long-term investments and commit significant resources before knowing whether our predictions will result in products that the market will accept.

To the extent that a market does not develop for a new product, we may decide to discontinue or modify the product. These actions could involve significant
costs and/or require us to take charges in future periods. If these products are accepted by the marketplace, sales of our new products may cannibalize sales of our existing products. Further, after a product is developed, we must be able to
manufacture sufficient volume quickly and at low cost. To accomplish this objective, we must accurately forecast production volumes, mix of products and configurations that meet customer requirements. If we are not successful in making accurate
forecasts, our business and results of operations could be significantly harmed.

In addition, new product launches are costly and may not
always prove to be successful. For example, in the fourth quarter of 2009, we announced the sale of our Phenom product line to the NTS Group as it did not deliver the level of revenues we had originally forecast.

We may not be able to enforce our intellectual property rights, especially in foreign countries, which could have a material adverse affect on our
business.

Our success depends in large part on the protection of our proprietary rights. We incur significant costs to obtain and
maintain patents and defend our intellectual property. We also rely on the laws of the U.S. and other countries where we develop, manufacture or sell products to protect our proprietary rights. We may not be successful in protecting these
proprietary rights, these rights may not provide the competitive advantages that we expect or other parties may challenge, invalidate or circumvent these rights.

Further, our efforts to protect our intellectual property may be less effective in some countries where intellectual property rights are not as well protected as they are in the U.S. Many U.S. companies
have encountered substantial problems in protecting their proprietary rights against infringement in foreign countries. For each of the last three years, we have derived more than 61% of our sales from countries outside of the U.S. If we fail to
adequately protect our intellectual property rights in these countries, our business may be materially adversely affected.

Infringement of
our proprietary rights could result in weakened capacity to compete for sales and increased litigation costs, both of which could have a material adverse effect on our business, prospects, financial condition and results of operations.

We may have exposure to income tax rate fluctuations as well as to additional tax liabilities, which would impact our financial position.

As a corporation with operations both in the U.S. and abroad, we are subject to income taxes in both the U.S. and various foreign
jurisdictions. Our effective tax rate is subject to significant fluctuation from one period to the next as the income tax rates for each year are a function of the following factors, among others:



| |  |  | the effects of a mix of profits or losses earned by us and our subsidiaries in numerous foreign tax jurisdictions with a broad range of income tax
rates;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | our ability to utilize recorded deferred tax assets;
| | - |  | ----------------------------------------------------



| |  |  | changes in uncertain tax positions, interest or penalties resulting from tax audits; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | changes in tax rates and laws or the interpretation of such laws.
| | - |  | -----------------------------------------------------------------

Changes in the mix of these items and other items may cause our effective tax rate to fluctuate between periods, which could have a material adverse effect on our financial results.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and
various foreign jurisdictions.

We are regularly under audit by tax authorities with respect to both income and non-income taxes and may have
exposure to additional tax liabilities as a result of these audits.

Significant judgment is required in determining our provision for income
taxes and other tax liabilities. Although we believe that our tax estimates are reasonable, we cannot assure you that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax
provisions and accruals.

Many of our current and planned products are highly complex and may contain defects or errors that can only be
detected after installation, which may harm our reputation.

Our products are highly complex, and our extensive product development,
manufacturing and testing processes may not be adequate to detect all defects, errors, failures and quality issues that could impact customer satisfaction or result in claims against us. As a result, we could have to replace certain components
and/or provide remediation in response to the discovery of defects in products after they are shipped. The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our
resources, legal actions by our customers and other losses to us or to our customers. These occurrences could also result in the loss of, or delay in, market acceptance of our products and loss of sales, which would harm our business and adversely
affect our revenues and profitability.

Changes in accounting pronouncements or taxation rules or practices may affect how we conduct our
business.

Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results.
Other new accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practices have occurred and may occur in the future. New rules, changes to existing rules, if any, or the questioning of
current practices may adversely affect our reported financial results or change the way we conduct our business.

Terrorist acts, acts of
war and natural disasters may seriously harm our business and revenues, costs and expenses and financial condition.

Terrorist acts, acts
of war and natural disasters, wherever located around the world, may cause damage or disruption to us or our employees, facilities, partners, suppliers, distributors and customers, any and all of which could significantly impact our revenues,
expenses and financial condition. This impact could be disproportionately greater on us than on other companies as a result of our significant international presence. The potential for future terrorist attacks, the national and international
responses to terrorist attacks and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in ways that cannot presently be predicted.



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##### Table of Contents

Some of our systems use hazardous gases and emit x-rays, which, if not properly contained, could result
in property damage, bodily injury and death.

A product safety failure, such as a hazardous gas or x-ray leak or extreme pressure release,
could result in substantial liability and could also significantly damage customer relationships and disrupt future sales. Moreover, remediation could require redesign of the tools involved, creating additional expense, increasing tool costs and
damaging sales. In addition, the matter could involve significant litigation that would divert management time and resources and cause unanticipated legal expense. Further, if such a leak or release involved violation of health and safety laws, we
may suffer substantial fines and penalties in addition to the other damage suffered.

Unforeseen health, safety and environmental costs
could impact our future net earnings.

Some of our operations use substances that are regulated by various federal, state and
international laws governing health, safety and the environment. We could be subject to liability if we do not handle these substances in compliance with safety standards for storage and transportation and applicable laws. We will record a liability
for any costs related to health, safety or environmental remediation when we consider the costs to be probable and the amount of the costs can be reasonably estimated.

We may not be successful in obtaining the necessary export licenses to conduct operations abroad, and the U.S. Congress may prevent proposed sales to foreign customers.

We are subject to export control laws that limit which products we sell and where and to whom we sell our products. Moreover, export licenses are required
from government agencies for some of our products in accordance with various statutory authorities, including U.S. statutes such as the Export Administration Act of 1979, the International Emergency Economic Powers Act of 1977, the Trading with the
Enemy Act of 1917 and the Arms Export Control Act of 1976. Depending on the shipment, we are also subject to Dutch or Czech law regarding export controls and licensing requirements. We may not be successful in obtaining these necessary licenses in
order to conduct business abroad. Failure to comply with applicable export controls or the termination or significant limitation on our ability to export certain of our products would have an adverse effect on our business, results of operations and
financial condition.

Provisions of our charter documents, our shareholder rights plan and Oregon law could make it more difficult for a
third party to acquire us, even if the offer may be considered beneficial by our shareholders.

Our articles of incorporation and bylaws
contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. Our Board of Directors has also adopted a shareholder rights plan, or poison pill, which would significantly
dilute the ownership of a hostile acquirer. In addition, the Oregon Control Share Act and the Oregon Business Combination Act limit the ability of parties who acquire a significant amount of voting stock to exercise control over us. These provisions
may have the effect of lengthening the time required for a person to acquire control of us through a proxy contest or the election of a majority of our Board of Directors, may deter efforts to obtain control of us and may make it more difficult for
a third party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by our shareholders.



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##### Table of Contents

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters is located in a facility we own in
Hillsboro, Oregon. This facility totals approximately 180,000 square feet and houses a range of activities, including manufacturing, research and development, corporate finance and administration and sales and marketing.

We also maintain a major facility in Eindhoven, The Netherlands, consisting of 263,285 square feet of space. The lease for this space expires in 2018.
Present lease payments are approximately $287,000 per month. This facility is used for research and development, manufacturing, sales, marketing and administrative functions.

We maintain a manufacturing and development facility in Brno, Czech Republic, which consists of 111,112 square feet of space, and is leased for approximately $153,000 per month. The lease expires in 2012.

We operate support offices for sales, service and some research and development in leased facilities in the Peoples Republic of China
(PRC), Japan, Hong Kong, Singapore, The Netherlands, Australia and the U.S., as well as other smaller offices in the other countries where we have direct sales and service operations. In some of these locations, we lease space directly.

We expect that our facilities arrangements will be adequate to meet our needs for the foreseeable future and, overall, believe we can meet
increased demand for facilities that may be required to meet increased demand for our products. In addition, we believe that, if product demand increases, we can use outsourced manufacturing, additional manufacturing shifts and currently
underutilized space as a means of adding capacity without increasing our direct investment in additional facilities.

Item 3. Legal Proceedings

We are involved in various legal proceedings and receive claims from time to time, arising
in the normal course of our business activities, including claims for alleged infringement or violation of intellectual property rights.

In
November 2009, Hitachi filed a complaint against our subsidiary, FEI Japan, in the District Court in Tokyo alleging infringement of five patents. Hitachis complaint seeks a permanent injunction requiring us to cease the sale of our allegedly
infringing products in Japan, and attorneys fees and costs. We are in the process of preparing responses to Hitachis allegations. We believe we have meritorious defenses to these claims, and intend to vigorously defend our interests in
this matter.

In managements opinion, the resolution of this case, as well as other matters, is not expected to have a material adverse
effect on our financial condition, but it could be material to the net income or cash flows of a particular quarter. This claim, or any claim of infringement or violation of intellectual property rights, with or without merit, could require us to
change our technology, change our business practices, pay damages, enter into a licensing arrangement or take other actions that may result in additional costs or other actions that are detrimental to our business.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our shareholders during the fourth quarter ended December 31, 2009.



23



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##### Table of Contents

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Stock Prices, Issuances of Common Stock and Dividends

Our common stock is quoted on the NASDAQ Global Market under the symbol FEIC. The high and low sales prices on the NASDAQ Global Market for the past two years were as follows:



|          |  |      |       |     |   |      
|--------- |  | ---- | ----- | --- | - | -----
|2008      |  | High |       | Low
|Quarter 1 |  | $    | 25.06 |     | $ | 19.79
|Quarter 2 |  |      | 25.40 |     |   | 20.66
|Quarter 3 |  |      | 29.14 |     |   | 21.98
|Quarter 4 |  |      | 24.70 |     |   | 15.87
|          |  |     
|2009      |  | High |       | Low
|Quarter 1 |  | $    | 20.51 |     | $ | 11.36
|Quarter 2 |  |      | 23.67 |     |   | 14.69
|Quarter 3 |  |      | 26.50 |     |   | 21.22
|Quarter 4 |  |      | 25.78 |     |   | 22.50

The approximate number of beneficial
shareholders and shareholders of record at February 17, 2010 was 8,600 and 99, respectively.

In February 1997, we acquired the
electron optics business of Philips pursuant to a combination agreement between us and a subsidiary of Philips. We issued shares of our common stock to Philips at the time of the combination and agreed to issue additional shares of our common stock
when stock options that were outstanding on the date of the closing of the combination (February 21, 1997) are exercised. The additional shares are issued at a rate of approximately 1.22 shares to Philips for each share issued on exercise
of these options. During 2009 or 2008, we did not issue any shares of our common stock to Philips in connection with this agreement and, as of December 31, 2009, 165,000 shares of our common stock remained issuable under this agreement.

We did not pay or declare any cash dividends in 2009 or 2008. We intend to retain any earnings for use in our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future.

Equity Compensation Plans

Information regarding securities authorized for issuance under equity compensation plans will be included in the section titled Securities Authorized
for Issuance Under Equity Compensation Plans in the proxy statement for our 2010 Annual Meeting of Shareholders and is incorporated by reference herein.



24



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##### Table of Contents

Stock Performance Graph

The following line-graph presentation compares cumulative five-year shareholder returns on an indexed basis, assuming a $100 initial investment and reinvestment of dividends, of (a) FEI Company,
(b) a broad-based equity market index and (c) an industry-specific index. The broad-based market index used is the NASDAQ Composite Index and the industry-specific index used is the NASDAQ Non-Financial Index.

LOGO



|                       |  |                    |          |                            |          |        |          |   |          |  |          |        |  |   |       |  |   |       
|---------------------- |  | ------------------ | -------- | -------------------------- | -------- | ------ | -------- | - | -------- |  | -------- | ------ |  | - | ----- |  | - | ------
|                       |  | BasePeriod12/31/04 |          | Indexed Returns Year Ended
|Company/Index          |  |                    | 12/31/05 |                            | 12/31/06 |        | 12/31/07 |   | 12/31/08 |  | 12/31/09
|FEI Company            |  | $                  | 100.00   |                            | $        | 91.27  |          | $ | 125.55   |  | $        | 118.21 |  | $ | 89.79 |  | $ | 111.22
|NASDAQ Composite Index |  |                    | 100.00   |                            |          | 102.12 |          |   | 112.73   |  |          | 124.73 |  |   | 74.87 |  |   | 108.83
|NASDAQ Non-Financial   |  |                    | 100.00   |                            |          | 102.28 |          |   | 112.15   |  |          | 127.21 |  |   | 58.24 |  |   | 82.80 



25



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##### Table of Contents

Item 6. Selected Financial Data

The selected consolidated financial data below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.



|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | --------- | - |  | ---- | ------- | - |  | - | ------- | -
|In thousands, except per share amounts                       |  | Year Ended December 31, |        
|Statement of Operations Data                                 |  | 2009                    |         |   | 2008 |   |         | 2007 |  |   | 2006      |   |  | 2005 |        
|Net sales                                                    |  | $                       | 577,344 |   |      | $ | 599,179 |      |  | $ | 592,510   |   |  | $    | 479,491 |   |  | $ | 420,097 |  
|Cost of sales(1)                                             |  |                         | 347,840 |   |      |   | 364,638 |      |  |   | 346,090   |   |  |      | 283,045 |   |  |   | 274,903 |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Gross profit                                                 |  |                         | 229,504 |   |      |   | 234,541 |      |  |   | 246,420   |   |  |      | 196,446 |   |  |   | 145,194 |  
|Total operating expenses(2)                                  |  |                         | 197,882 |   |      |   | 203,413 |      |  |   | 191,707   |   |  |      | 173,399 |   |  |   | 191,752 |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Operating income (loss)                                      |  |                         | 31,622  |   |      |   | 31,128  |      |  |   | 54,713    |   |  |      | 23,047  |   |  |   | (46,558 | )
|Other expense, net(3)                                        |  |                         | (3,961  | ) |      |   | (4,528  | )    |  |   | (486      | ) |  |      | (5,699  | ) |  |   | (19,662 | )
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Income (loss) from continuing operations before income taxes |  |                         | 27,661  |   |      |   | 26,600  |      |  |   | 54,227    |   |  |      | 17,348  |   |  |   | (66,220 | )
|Income tax expense(4)                                        |  |                         | 5,017   |   |      |   | 8,612   |      |  |   | 8,077     |   |  |      | 10,467  |   |  |   | 22,071  |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Income (loss) from continuing operations                     |  |                         | 22,644  |   |      |   | 17,988  |      |  |   | 46,150    |   |  |      | 6,881   |   |  |   | (88,291 | )
|(Loss) income from discontinued operations, net of tax       |  |                         |        |   |      |   |        |      |  |   |          |   |  |      | (947    | ) |  |   | 302     |  
|Gain on disposal of discontinued operations, net of tax(5)   |  |                         |        |   |      |   |        |      |  |   | 390       |   |  |      | 3,335   |   |  |   |        |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Net income (loss)                                            |  | $                       | 22,644  |   |      | $ | 17,988  |      |  | $ | 46,540    |   |  | $    | 9,269   |   |  | $ | (87,989 | )
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Basic income (loss) per share from continuing operations     |  | $                       | 0.60    |   |      | $ | 0.49    |      |  | $ | 1.29      |   |  | $    | 0.20    |   |  | $ | (2.63   | )
|Basic income per share from discontinued operations          |  |                         |        |   |      |   |        |      |  |   | 0.01      |   |  |      | 0.07    |   |  |   | 0.01    |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Basic net income (loss) per share                            |  | $                       | 0.60    |   |      | $ | 0.49    |      |  | $ | 1.30      |   |  | $    | 0.27    |   |  | $ | (2.62   | )
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Diluted income (loss) per share from continuing operations   |  | $                       | 0.60    |   |      | $ | 0.48    |      |  | $ | 1.23      |   |  | $    | 0.20    |   |  | $ | (2.63   | )
|Diluted income per share from discontinued operations        |  |                         |        |   |      |   |        |      |  |   | 0.01      |   |  |      | 0.07    |   |  |   | 0.01    |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Diluted net income (loss) per share                          |  | $                       | 0.60    |   |      | $ | 0.48    |      |  | $ | 1.24      |   |  | $    | 0.27    |   |  | $ | (2.62   | )
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Shares used in basic per share calculations                  |  |                         | 37,537  |   |      |   | 36,766  |      |  |   | 35,709    |   |  |      | 33,818  |   |  |   | 33,595  |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Shares used in diluted per share calculations                |  |                         | 37,905  |   |      |   | 37,158  |      |  |   | 40,725    |   |  |      | 34,223  |   |  |   | 33,595  |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|                                                             | 
|                                                             |  | December 31,            |        
|                                                             |  | 2009                    |         |   | 2008 |   |         | 2007 |  |   | 2006      |   |  | 2005 |        
|Balance Sheet Data                                           |  |                         |         |   |      |   |         |      |  |   |           |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                    |  | $                       | 124,199 |   |      | $ | 146,521 |      |  | $ | 280,593   |   |  | $    | 110,656 |   |  | $ | 58,766  |  
|Working capital                                              |  |                         | 435,034 |   |      |   | 355,917 |      |  |   | 434,558   |   |  |      | 477,660 |   |  |   | 327,789 |  
|Total assets                                                 |  |                         | 953,969 |   |      |   | 832,172 |      |  |   | 1,007,836 |   |  |      | 837,561 |   |  |   | 655,168 |  
|Short-term line of credit                                    |  |                         | 59,600  |   |      |   |        |      |  |   |          |   |  |      |        |   |  |   |        |  
|Current portion of convertible debt                          |  |                         |        |   |      |   |        |      |  |   | 189,395   |   |  |      |        |   |  |   |        |  
|Convertible debt, net of current portion                     |  |                         | 100,000 |   |      |   | 115,000 |      |  |   | 115,000   |   |  |      | 292,252 |   |  |   | 195,253 |  
|Shareholders equity                                         |  |                         | 567,524 |   |      |   | 519,089 |      |  |   | 493,708   |   |  |      | 368,020 |   |  |   | 321,326 |  



|(1) | Included in 2005 cost of sales was $14.2 million of inventory write-downs related to the closure of our Peabody, Massachusetts facility, the relocation and refocus of
the product lines that were at that facility, a price adjustment on a product sale from that operation and capitalized software impairment charges related to certain semiconductor products.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Included in 2009 operating expenses was $3.5 million of restructuring, reorganization, relocation and severance.
|--- | ----------------------------------------------------------------------------------------------------------------

Included in 2008 operating expenses was $4.3 million of restructuring, reorganization, relocation and severance.

Included in 2006 operating expenses were the following:



| |  |  | restructuring, reorganization, relocation and severance charges of $12.6 million;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | merger costs of $0.5 million;
| | - |  | -----------------------------



| |  |  | asset impairment charges of $0.5 million; and
| | - |  | ---------------------------------------------



| |  |  | a $1.5 million gain related to the sale of certain intellectual property rights to a privately-held company.
| | - |  | ------------------------------------------------------------------------------------------------------------

Included in 2005 operating expenses were the following:



| |  |  | $25.4 million of asset impairment charges primarily related to semiconductor products and the write-off of all costs related to our ERP system as we
determined that the future cost required to complete the ERP system did not justify the potential return; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $8.5 million of restructuring charges, primarily for severance, lease terminations and relocation expenses for the closure of our Peabody facility and
consolidation of certain of our European facilities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Included in other income (expense), net in 2009 were the following:
|--- | -------------------------------------------------------------------



| |  |  | a $2.0 million gain on the early redemption of our 2.875% notes;
| | - |  | ----------------------------------------------------------------



| |  |  | a $0.5 million net gain on our ARS and Put Right; and
| | - |  | -----------------------------------------------------



| |  |  | a $1.3 million charge for cash flow hedge ineffectiveness, foreign currency gains and losses on transactions and realized and unrealized gains and
losses on the changes in fair value of derivative contracts entered into to hedge these transactions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Included in other income (expense), net in 2008 were the following:



| |  |  | $18.4 million of unrealized losses on our ARS and a $17.9 million gain related to the fair value of the put right we received pursuant to an agreement
we entered into with UBS, the issuer of the ARS. The put right requires UBS to repurchase all of our ARS at par on or before June 30, 2010;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $1.3 million charge for ineffectiveness of certain of our cash flow hedges due to increased currency volatility;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | a $1.3 million gain related to the disposal of an insignificant sales subsidiary; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | $6.3 million of non-cash interest expense related to our $150 million zero coupon convertible notes.
| | - |  | ----------------------------------------------------------------------------------------------------

Included in other income (expense), net in 2007 were the following:



| |  |  | a $0.5 million gain related to the disposal of one of our cost-method investments;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | a $0.5 million gain on the sale of a minority interest in a small technology company; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | $11.8 million of non-cash interest expense related to our $150 million zero coupon convertible notes.
| | - |  | -----------------------------------------------------------------------------------------------------

Included in other income (expense), net in 2006 were the following:



| |  |  | interest expense of $0.5 million in the first half of 2006 related to the repurchase of $29.0 million face value of our 5.5% convertible notes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $5.2 million gain related to the sale of our entire ownership interest in a privately-held company in the third quarter of 2006;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $3.9 million charge related to the write-off of our equity and debt investment in a privately-held company in the third quarter of 2006; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $10.8 million of non-cash interest expense related to our $150 million zero coupon convertible notes.
| | - |  | -----------------------------------------------------------------------------------------------------

Included in 2005 other income (expense), net was $6.4 million for realized losses on investments in privately-held companies and the
write-down of certain of these investments for which we concluded an other-than-temporary impairment existed. It also included $9.8 million of non-cash interest expense related to our $150 million zero coupon convertible notes.



|(4) | Our 2009 tax provision reflected taxes accrued in foreign jurisdictions, reduced by a tax benefit of $3.9 million related to the release of valuation allowances
recorded against net operating loss deferred tax assets utilized to offset income earned in the U.S. The tax provision also reflected the release of tax liabilities totaling $1.3 million due to the lapses of statutes of limitations and effective
settlements with tax authorities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our 2008 tax provision reflected taxes on foreign earnings offset by a $1.5 million release
of unrecognized tax benefits, including interest and penalties, as a result of the settlement of foreign tax audits and a tax benefit of $0.5 million related to the release of a valuation allowance recorded against net operating loss deferred tax
assets utilized to offset income earned in the U.S.

Our 2007 tax provision reflected taxes on foreign earnings offset by a
$4.7 million release of unrecognized tax benefits, including interest and penalties, as a result of settlements with foreign taxing authorities and lapses of statutes of limitations and a tax benefit of $5.3 million related to the release of a
valuation allowance recorded against net operating loss deferred tax assets utilized to offset income earned in the U.S.

Our
2006 tax provision consisted primarily of taxes accrued in foreign jurisdictions and reflects a benefit of $1.5 million related to the release of valuation allowances against a portion of U.S. deferred tax assets utilized during the
period.

Our 2005 tax expense primarily consisted of $15.1 million in expense related to the establishment of valuation
allowances against the U.S. deferred tax assets, which offset the benefit from U.S. net operating losses generated in 2005. Additionally, we had approximately $10.9 million of foreign tax expense, which was offset by a net current tax benefit of
$4.1 million primarily related to tax audit settlements in the U.S.



|(5) | Represents the gain on the sale of our Knights Technology assets. For additional information, see Managements Discussion and Analysis of Financial Condition
and Results of Operations  Discontinued Operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Factors That May Affect
Future Results

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include any expectations of earnings,
revenues, gross margins, non-operating expense, tax rates, net income or other financial items, as well as backlog, order levels and activity of our company as a whole or our particular markets; any statements of the plans, strategies and objectives
of management for future operations, restructuring and outsourcing initiatives; factors that may affect our 2009 operating results; any statements concerning proposed new products, services, developments, changes to our restructuring reserves, our
competitive position, hiring levels, sales and bookings or anticipated performance of products or services; any statements related to future capital expenditures; any statements related to the needs or expected growth of our target markets; any
statement related to our ability to recognize value from the auction rate securities we hold; any statements concerning the effects of litigation on our financial condition; any statements concerning the resolution of any tax positions; any
statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. You can identify these statements by the fact that they do not relate strictly to historical or
current facts and use words such as anticipate, estimate, expect, project, intend, plan, believe, appear and other words and terms of similar meaning.
From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. The risks, uncertainties and assumptions referred to above include, but are not limited to, those discussed here and the
risks discussed from time to time in our other public filings. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us as of the date of this report, and we assume no obligation to update
these forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q and 8-K filed with, or furnished to, the SEC. You also should read Item 1A. Risk Factors
for factors that we believe could cause our actual results to differ materially from expected and historical results. Other factors also could adversely affect us.



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Summary of Products and Segments

We are a leading supplier of instruments for nanoscale imaging, analysis and prototyping to enable research, development and manufacturing in a range of industrial, academic and research institutional
applications. We report our revenue based on a market-focused organization: the Electronics market segment, the Research and Industry market segment, the Life Sciences market segment and the Service and Components market segment.

Our products include focused ion beam systems, or FIBs; scanning electron microscopes, or SEMs; transmission electron microscopes, or TEMs; and
DualBeam systems, which combine a FIB and SEM on a single platform.

Our DualBeam systems include models that have wafer
handling capability and are purchased by semiconductor and data storage manufacturers (wafer-level DualBeamsystems) and models that have small stages and are sold to customers in several markets (small-stage DualBeamsystems).

The Electronics market segment consists of customers in the semiconductor, data storage and related industries such as
manufacturers of solar panels and light-emitting diodes (LEDs). For the semiconductor market, our growth is driven by shrinking line widths and process nodes of 45 nanometers and smaller, the use of multiple layers of new materials such
as copper and low-k dielectrics and increasing device complexity. Our products are used primarily in laboratories to speed new product development and increase yields by enabling 3D wafer metrology, defect analysis, root cause failure analysis and
circuit edit for modifying device structures. In the data storage market, our products offer 3D metrology for thin film head processing and root cause failure analysis. Factors affecting our business include advances in perpendicular recording head
technology, such as rapidly increasing storage densities that require smaller recording heads, thinner geometries and materials that increase the complexity of device structures.

The Research and Industry market segment includes universities, public and private research laboratories and customers in a wide range of industries, including automobiles, aerospace, forensics, metals,
mining and petrochemicals. Growth in these markets is driven by global corporate and government funding for research and development in materials science and by development of new products and processes based on innovations in materials at the
nanoscale. Our solutions provide researchers and manufacturers with atomic-level resolution images and permit development, analysis and production of advanced products. Our products are also used in mineral concentration analysis, root cause failure
analysis and quality control applications.

The Life Sciences market segment includes universities, government laboratories and research
institutes engaged in biotech and life sciences applications, as well as pharmaceutical, biotech and medical device companies and hospitals. Our products ultra-high resolution imaging allows cell biologists and drug researchers to create
detailed 3D reconstructions of complex biological structures. Our products are also used in particle analysis and a range of pathology and quality control applications.

Overview

Net sales decreased to $577.3 million in 2009 compared to $599.2 million in 2008.
Revenue increased in Life Sciences, decreased in Electronics and Research and Industry and was flat in Service and Components, as discussed in more detail below.

At December 31, 2009, our total backlog was $354.6 million compared to $330.5 million at December 31, 2008. As discussed in the section titled Business-Backlog, orders received in a
particular period that cannot be built and shipped to the customer in that period represent backlog.



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Outlook for 2010

We enter 2010 with the largest backlog of unfilled orders in our history. Orders from Electronics industry customers were strong in the fourth quarter of 2009, and the semiconductor and data storage
capital equipment industries may be in the midst of a cyclical recovery. Although it is likely to remain variable from quarter to quarter, our Life Sciences business may grow as the use of electron microscopy expands in that research market. Early
adopters of our leading-edge tools are beginning to publish research based on their use of our tools, and we expect those results will spur additional demand. However, the timing of that cycle of adoption is somewhat uncertain. We could also see
additional Life Sciences demand as a result of U.S. stimulus funding. Revenue from our largest segment, Research and Industry, has grown at a compound annual rate of 17% since 2004, based on the strength of our leading-edge products, although
it decreased in 2009 compared to 2008. While we continue to add innovative products to the portfolio, we expect slower growth in the coming year. Potential growth from U.S. stimulus funding could potentially be offset by government funding
limitations globally due to debt and deficit levels. Our fourth segment, Service and Components, is expected to see modest growth, based on continued growth in our installed base.

Our goal is to improve gross and operating margins during 2010, based upon improved product mix by increasing the proportion of higher margin products, higher volume and thus spreading our fixed costs
over a larger base, a growing impact from our improvements in sourcing components, continued tight control of operating expenses, and other operating improvements. We expect to continue to report a net expense for other income (expense), net, due
mainly to low levels of market interest earned on our cash investments, offset by interest expense and currency costs.

Global foreign
exchange rates could have a significant impact on our results. In general, a stronger U.S. dollar compared with the euro will reduce our revenue growth rate and improve our operating income, while a stronger euro has the opposite effect.

Please see the risk factors listed at the beginning of Item 1A for the risk factors that could cause our results to vary from this Outlook for 2010.

Results of Operations

The
following table sets forth our statement of operations data (in thousands):



|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                              |  | Year Ended December 31, |        
|                                                              |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Net sales                                                     |  | $                       | 577,344 |   |      | $ | 599,179 |      |  | $ | 592,510 |  
|Cost of sales                                                 |  |                         | 347,840 |   |      |   | 364,638 |      |  |   | 346,090 |  
|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                                  |  |                         | 229,504 |   |      |   | 234,541 |      |  |   | 246,420 |  
|Research and development                                      |  |                         | 67,698  |   |      |   | 70,378  |      |  |   | 66,042  |  
|Selling, general and administrative                           |  |                         | 126,728 |   |      |   | 128,768 |      |  |   | 125,937 |  
|Restructuring, reorganization, relocation and severance costs |  |                         | 3,456   |   |      |   | 4,267   |      |  |   | (272    | )
|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating income                                              |  |                         | 31,622  |   |      |   | 31,128  |      |  |   | 54,713  |  
|Other expense, net                                            |  |                         | (3,961  | ) |      |   | (4,528  | )    |  |   | (486    | )
|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations before income taxes         |  |                         | 27,661  |   |      |   | 26,600  |      |  |   | 54,227  |  
|Income tax expense                                            |  |                         | 5,017   |   |      |   | 8,612   |      |  |   | 8,077   |  
|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations                             |  |                         | 22,644  |   |      |   | 17,988  |      |  |   | 46,150  |  
|Gain on disposal of discontinued operations, net of tax       |  |                         |        |   |      |   |        |      |  |   | 390     |  
|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                                    |  | $                       | 22,644  |   |      | $ | 17,988  |      |  | $ | 46,540  |  
|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  



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The following table sets forth our statement of operations data as a percentage of net sales:



|                                                              |  |                            |   |  |       |   |  |       |  
|------------------------------------------------------------- |  | -------------------------- | - |  | ----- | - |  | ----- | -
|                                                              |  | Year Ended December 31,(1) |  
|                                                              |  | 2009                       |   |  | 2008  |   |  | 2007  |  
|Net sales                                                     |  | 100.0                      | % |  | 100.0 | % |  | 100.0 | %
|Cost of sales                                                 |  | 60.2                       |   |  | 60.9  |   |  | 58.4  |  
|                                                              |  |                            |   |  |       |   |  |       |  
|Gross profit                                                  |  | 39.8                       |   |  | 39.1  |   |  | 41.6  |  
|Research and development                                      |  | 11.7                       |   |  | 11.7  |   |  | 11.1  |  
|Selling, general and administrative                           |  | 22.0                       |   |  | 21.5  |   |  | 21.3  |  
|Restructuring, reorganization, relocation and severance costs |  | 0.6                        |   |  | 0.7   |   |  |      |  
|                                                              |  |                            |   |  |       |   |  |       |  
|Operating income                                              |  | 5.5                        |   |  | 5.2   |   |  | 9.2   |  
|Other expense, net                                            |  | (0.7                       | ) |  | (0.8  | ) |  | (0.1  | )
|                                                              |  |                            |   |  |       |   |  |       |  
|Income from continuing operations before income taxes         |  | 4.8                        |   |  | 4.4   |   |  | 9.2   |  
|Income tax expense                                            |  | 0.9                        |   |  | 1.4   |   |  | 1.4   |  
|                                                              |  |                            |   |  |       |   |  |       |  
|Income from continuing operations                             |  | 3.9                        |   |  | 3.0   |   |  | 7.8   |  
|Gain on disposal of discontinued operations, net of tax       |  |                           |   |  |      |   |  | 0.1   |  
|                                                              |  |                            |   |  |       |   |  |       |  
|Net income                                                    |  | 3.9                        | % |  | 3.0   | % |  | 7.9   | %
|                                                              |  |                            |   |  |       |   |  |       |  



|(1) | Percentages may not add due to rounding.
|--- | ----------------------------------------

Net sales decreased $21.9 million, or 3.6%, to $577.3 million in 2009 compared to $599.2 million in 2008 and increased $6.7 million, or 1.1%, in 2008 compared to $592.5 million in 2007. The factors
affecting net sales are discussed in more detail in the Net Sales by Segment discussion below.

As compared to 2008 exchange rates, currency
movements decreased net sales by approximately $9.6 million during 2009 as approximately 66% of our net sales were denominated in foreign currencies that declined in strength against the U.S. dollar. A significant portion of our revenue is
denominated in foreign currencies, especially the euro. As the U.S. dollar strengthens against the euro, this generally has the effect of reducing net sales and backlog.

Net Sales by Segment

Net sales by market segment (in thousands) and as a percentage
of net sales were as follows:



|                       |  |                         |         |  |       |   |  |      |         |  |       |   |  |   |         |  |       |  
|---------------------- |  | ----------------------- | ------- |  | ----- | - |  | ---- | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                       |  | Year Ended December 31, |        
|                       |  | 2009                    |         |  | 2008  |   |  | 2007 |        
|Electronics            |  | $                       | 126,417 |  | 21.9  | % |  | $    | 152,076 |  | 25.4  | % |  | $ | 198,663 |  | 33.5  | %
|Research and Industry  |  |                         | 231,462 |  | 40.1  | % |  |      | 238,615 |  | 39.8  | % |  |   | 214,551 |  | 36.2  | %
|Life Sciences          |  |                         | 81,824  |  | 14.2  | % |  |      | 70,815  |  | 11.8  | % |  |   | 51,874  |  | 8.8   | %
|Service and Components |  |                         | 137,641 |  | 23.8  | % |  |      | 137,673 |  | 23.0  | % |  |   | 127,422 |  | 21.5  | %
|                       |  |                         |         |  |       |   |  |      |         |  |       |   |  |   |         |  |       |  
|                       |  | $                       | 577,344 |  | 100.0 | % |  | $    | 599,179 |  | 100.0 | % |  | $ | 592,510 |  | 100.0 | %
|                       |  |                         |         |  |       |   |  |      |         |  |       |   |  |   |         |  |       |  

Electronics

The $25.7 million, or 16.9%, decrease in Electronics sales in 2009 compared to 2008 was primarily due to a decrease in the volume of our sales as a result of the cyclical downturn in the semiconductor industry. In addition, currency
movements decreased Electronics sales by $0.5 million in 2009 compared to 2008. Currently, a majority of our Electronics revenue comes from the larger semiconductor and data storage companies that are working to develop next generation devices.

The $46.6 million, or 23.5%, decrease in Electronics sales in 2008 compared to 2007 was primarily due to global softness for semiconductor
capital spending. The softness in the semiconductor industry resulted in fewer large wafer-levelDualBeam and high-end TEM shipments.

Research and Industry

The $7.2 million, or 3.0%, decrease in Research and Industry sales in 2009 compared to 2008 was due
primarily to a $6.3 million decrease related to currency movements, as well as the global recession and slowdown in research spending in some areas. While fewer units were sold in 2009 compared to 2008, we realized an increase in the average price
per unit sold for our TEMs and SEMs due to shifts in product mix.



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The $24.1 million, or 11.2%, increase in Research and Industry sales in 2008 compared to 2007 was due
primarily to continued strength in shipments to global nanotechnology research centers and increased shipments of our TEM products.

Life
Sciences

The $11.0 million, or 15.5%, increase in Life Sciences sales in 2009 compared to 2008 was due primarily to continued expansion of
our high-end cryogenic TEM product offerings and increasing use of electron microscopes, especially our TEM product offerings, in Life Sciences applications. These increases were partially offset by the sale of fewer units in 2009 compared to 2008
and a $1.2 million decrease related to currency movements. While we expect long-term growth, Life Sciences is an emerging market with a relatively small number of high dollar unit sales and, accordingly, sales from this segment will be variable from
quarter to quarter.

The $18.9 million, or 36.5%, increase in Life Sciences sales in 2008 compared to 2007 was primarily due to improvements
in product mix as well as an overall increase in the number of TEM systems shipped. The increase in the volume of our high-end TEM system sales was primarily driven by growth in the world-wide funding of Life Sciences research and greater acceptance
of our TEM systems by these customers due to our leadership in 3-D tomography and automation. Currency fluctuations during 2008 increased net sales $2.5 million, as, in general, the decline in strength of the U.S. dollar against the euro results in
an increase in net sales.

Service and Components

Service and Components sales were flat in 2009 compared to 2008 due primarily to a $1.6 million decrease related to currency movements and decreased sales of our components as a result of industry-wide
reductions in semiconductor capital equipment spending, offset by an increase in service revenue due to a larger installed base. In the first half of 2009, some customers deferred renewing certain service contracts due to idle machinery as a result
of over-capacity in the semiconductor industry. Component sales include sales of individual components as well as equipment refurbishment.

The $10.3 million, or 8.0%, increase in Service and Components sales in 2008 compared to 2007 was due primarily to a higher volume of service contracts as our installed base continued to grow.

Net Sales by Geographic Region

A
significant portion of our net sales has been derived from customers outside of the U.S., which we expect to continue. The following table shows our net sales by geographic location (dollars in thousands):



|                                      |  |                         |         |  |       |   |  |      |         |  |       |   |  |   |         |  |       |  
|------------------------------------- |  | ----------------------- | ------- |  | ----- | - |  | ---- | ------- |  | ----- | - |  | - | ------- |  | ----- | -
|                                      |  | Year Ended December 31, |        
|                                      |  | 2009                    |         |  | 2008  |   |  | 2007 |        
|U.S. and Canada                       |  | $                       | 198,637 |  | 34.4  | % |  | $    | 216,182 |  | 36.1  | % |  | $ | 232,171 |  | 39.2  | %
|Europe                                |  |                         | 211,807 |  | 36.7  | % |  |      | 201,128 |  | 33.6  | % |  |   | 178,010 |  | 30.0  | %
|Asia-Pacific Region and Rest of World |  |                         | 166,900 |  | 28.9  | % |  |      | 181,869 |  | 30.3  | % |  |   | 182,329 |  | 30.8  | %
|                                      |  |                         |         |  |       |   |  |      |         |  |       |   |  |   |         |  |       |  
|                                      |  | $                       | 577,344 |  | 100.0 | % |  | $    | 599,179 |  | 100.0 | % |  | $ | 592,510 |  | 100.0 | %
|                                      |  |                         |         |  |       |   |  |      |         |  |       |   |  |   |         |  |       |  

U.S. and Canada

The U.S. and Canada region also includes Mexico.

The $17.5 million, or 8.1%, decrease in sales to the U.S. and Canada in 2009
compared to 2008 was primarily due to lower Electronics sales due to the continued effects of the downturn in capital spending in the semiconductor industry, which experienced a sharp fall-of in demand beginning in the second half of 2008. Sales to
the Research and Industry and Life Sciences segments were flat in 2009 compared to 2008.

The $16.0 million, or 6.9%, decrease in sales to the
U.S. and Canada in 2008 compared to 2007 was primarily due to the decline in our Electronics market segment sales, which was related to the general slow-down in global semiconductor capital spending.



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Europe

Our European region also includes Central America, South America, Africa (excluding South Africa), the Middle East and Russia.

The $10.7 million, or 5.3%, increase in sales to Europe in 2009 compared to 2008 was primarily due to an increase in Research and Industry sales as a result of ongoing private and government investment in
advanced materials research. In addition, a large sale to a Saudi Arabian university positively affected the 2009 results. Offsetting these factors was a $13.8 million negative effect related to currency movements.

The $23.1 million, or 13.0%, increase in sales to Europe in 2008 compared to 2007 was primarily due to strong sales of our high-end research tools,
especially our TEMs. In addition, currency movements increased European sales in 2008 by approximately $16.1 million as compared to 2007.

Asia-Pacific Region and Rest of World

The $15.0 million, or 8.2%, decrease in sales to the Asia-Pacific Region and Rest of
World in 2009 compared to 2008 was primarily due to decreased sales from our Electronics segment as semiconductor capital spending declined, partially offset by improvements in research spending and our strategic emphasis on growing our Asian sales.

The $0.5 million, or 0.3%, decrease in sales to the Asia-Pacific Region and Rest of World in 2008 compared to 2007 was primarily due to
declines in Electronics sales being partially offset by increases in Research and Industry and Life Sciences sales. In addition, currency movements during 2008 increased the Asia-Pacific Region and Rest of World sales in 2008 by approximately $7.3
million as compared to 2007.

Cost of Sales and Gross Margin

Our gross margin (gross profit as a percentage of net sales) by segment was as follows:



|                       |  |                         |   |  |      |   |  |      |  
|---------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                       |  | Year Ended December 31, |  
|                       |  | 2009                    |   |  | 2008 |   |  | 2007 |  
|Electronics            |  | 48.8                    | % |  | 47.5 | % |  | 51.8 | %
|Research and Industry  |  | 42.0                    | % |  | 40.7 | % |  | 41.5 | %
|Life Sciences          |  | 34.7                    | % |  | 37.7 | % |  | 39.8 | %
|Service and Components |  | 30.6                    | % |  | 28.0 | % |  | 26.6 | %
|Overall                |  | 39.8                    | % |  | 39.1 | % |  | 41.6 | %

Cost of sales includes
manufacturing costs, such as materials, labor (both direct and indirect) and factory overhead, as well as all of the costs of our customer service function such as labor, materials, travel and overhead. The five primary drivers affecting gross
margin include: product mix (including the effect of price competition), volume, cost reduction efforts, competitive pricing pressure and currency movements.

Cost of sales decreased $16.8 million, or 4.6%, to $347.8 million in 2009 compared to $364.6 million in 2008 primarily due to an approximately $19.1 million decrease in cost of sales due to favorable
currency movements and overall lower sales. These factors were partially offset by a shift in mix to a larger percentage of our sales coming from our Life Sciences segment, which has lower gross margins than sales from our Electronics segment.

The net effect on our gross margin from the effect of currency movements on our net sales and cost of sales in 2009 was an increase to our
gross margin percentage of approximately 2.3 percentage points.

Cost of sales increased $18.5 million, or 5.4%, to $364.6 million in 2008
compared to $346.1 million in 2007. This increase was primarily due to increased sales in 2008, the impact of higher costs of products produced in Europe due to the stronger euro for a majority of the year and a shift to a larger quantity of
higher-cost TEMs and SEMs shipped in 2008 compared to 2007. Currency movements increased cost of sales by approximately $32.5 million in 2008 compared to 2007.



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The net effect on our gross margin from the effect of currency movements on our net sales and cost of sales
in 2008 was a decrease to our gross margin percentage of approximately 3.2 percentage points.

Electronics

The increase in Electronics gross margin in 2009 compared to 2008 was due primarily to currency movements, partially offset by a shift in mix away from the
higher-margin data storage and other wafer-level DualBeam products in 2009. We also sold fewer higher-margin small DualBeams in 2009 and experienced pricing pressures on certain products. Similarly, significant pricing pressure on
certain transactions in the first quarter of 2008 lowered gross margins in 2008.

The decrease in Electronics gross margin in 2008 compared to
2007 was due primarily to the negative impact currency movements on our costs of products produced in Europe and a shift in product mix to fewer semiconductor-related high-end TEM and wafer-level DualBeam tools for the data storage market.

Research and Industry

The
increase in the Research and Industry gross margin in 2009 compared to 2008 resulted primarily from continued penetration of our high-end product offerings being sold into research institutions and sales of large-scale bundled systems with higher
overall margins. Additionally, currency movements improved gross margins 2.6 percentage points.

The decrease in Research and Industry
gross margin in 2008 compared to 2007 was primarily due to the negative impact of currency movements, partially offset by a shift in product mix to more higher-end TEM tools.

Life Sciences

The decrease in the Life Sciences gross margin in 2009 compared to 2008 was
primarily due to aggressive pricing and unexpected higher costs of selected strategic early-stage shipments of higher-end TEM products, partially offset by favorable currency movements in 2009.

The decrease in the Life Sciences gross margins in 2008 compared to 2007 was primarily due to the negative impact of currency movements, as well as a shift
in TEM product mix and pricing pressure on our low-end TEMs in the first quarter of 2008.

Service and Components

The increase in the Service and Components gross margin in 2009 compared to 2008 was primarily due to favorable currency movements and improvements in part
usage and cost control.

The increase in the Service and Components gross margin in 2008 compared to 2007 was primarily due to improvements in
parts usage, partially offset by an increase in labor costs in Europe as we realigned our European operations to service higher-end units. In addition, we gained efficiencies as revenues grew.

Research and Development Costs

Research and development (R&D) costs include labor, materials, overhead and payments to third parties for research and development of new products and new software or enhancements to existing products and software. These
costs are presented net of subsidies received for such efforts. During 2009, 2008 and 2007, we received subsidies from European governments for technology developments specifically in the areas of semiconductor and life science equipment.

R&D costs were $67.7 million (11.7% of net sales) in 2009, $70.4 million (11.7% of net sales) in 2008 and $66.0 million (11.1% of net
sales) in 2007.



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R&D costs are reported net of subsidies and were as follows (in thousands):



|               |  |                         |        |   |      |   |        |      |  |   |        |  
|-------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|               |  | Year Ended December 31, |       
|               |  | 2009                    |        |   | 2008 |   |        | 2007 | 
|Gross spending |  | $                       | 74,401 |   |      | $ | 74,238 |      |  | $ | 70,058 |  
|Less subsidies |  |                         | (6,703 | ) |      |   | (3,860 | )    |  |   | (4,016 | )
|               |  |                         |        |   |      |   |        |      |  |   |        |  
|Net expense    |  | $                       | 67,698 |   |      | $ | 70,378 |      |  | $ | 66,042 |  
|               |  |                         |        |   |      |   |        |      |  |   |        |  

The decrease in R&D costs in 2009 compared to 2008 was primarily due to an increase in subsidies received as a result of
more projects in 2009, as well as a decrease as a result of favorable currency movements of $2.8 million, offset by increased spending for R&D projects as we continue to invest in the development of new products.

The $4.4 million increase in R&D costs in 2008 compared to 2007 was primarily due to a $3.2 million increase in labor and related costs due mainly to
currency movements.

We anticipate that we will continue to invest in R&D at a similar percentage of revenue for the foreseeable future.
Accordingly, as revenues increase, we currently anticipate that R&D expenditures also will increase. Actual future spending, however, will depend on market conditions.

Selling, General and Administrative Costs

Selling, general and administrative
(SG&A) costs include labor, travel, outside services and overhead incurred in our sales, marketing, management and administrative support functions. SG&A costs also include sales commissions paid to our employees as well as to
our agents.

SG&A costs were $126.7 million (22.0% of net sales) in 2009, $128.8 million (21.5% of net sales) in 2008 and $125.9 million
(21.3% of net sales) in 2007.

The decrease in SG&A costs in 2009 compared to 2008 was due primarily to a $2.2 million decrease related to
currency movements. In addition, lower legal, accounting, consulting and travel and entertainment costs contributed to the decreases. Offsetting these decreases were an increase in labor and related costs and an increase in agent commissions due to
a higher mix of sales through agents for sales in emerging markets.

The increase in SG&A costs in 2008 compared to 2007 was due primarily
to a $3.0 million increase in overall labor and related costs as a result of increased sales force headcount and a $4.8 million increase due to currency movements, offset by a $4.5 million decrease related to variable incentive compensation expenses
and lower consulting and corporate costs.

Restructuring, Reorganization, Relocation and Severance

We have initiated various corporate wide restructuring and infrastructure improvement programs in order to increase operational efficiency, reduce costs as
well as balance the effects of currency movements on our financial results. These actions have historically included reductions of work-force as well as the costs to migrate portions of our supply chain to dollar-linked contracts. We
expect to continue to incur costs in 2010 related to our supply chain migration and also expect to incur additional costs of approximately $2.2 million related to certain IT system upgrades that we plan to complete in the next twelve months.

In 2009, we incurred $3.5 million of costs related to our plan, which commenced in April 2008, related to improving the efficiency of our
operations and improving the currency balance in our supply chain so that more of our costs are denominated in dollar or dollar-linked currencies. We incurred a total of $7.8 million of costs in 2008 and 2009 related to this plan and expect to
incur approximately $1.4 million in 2010 related to the implementation of this plan. These actions are expected to reduce operating expenses,



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improve our factory utilization and help offset the effect of currency movements on our cost of goods sold. The main activities, approximate range of associated costs and expected timing are
described in the table below. Presently, all of the costs described are expected to result in cash expenditures and we currently expect the total cost of the April 2008 restructuring to be approximately $9.2 million.

The actions related to our 2008 restructuring plan reduced annualized manufacturing costs and operating expenses and increased cash flow by approximately
$6.0 million in 2009 and we expect them to reduce such costs and increase cash flow by approximately $15 million to $18 million over the next three years.

A summary of the expenses related to our April 2008 restructuring plan is as follows:



|                                                                                   |  |                      |  |                                                            
|---------------------------------------------------------------------------------- |  | -------------------- |  | -----------------------------------------------------------
|Type of Expense                                                                    |  | Expected Total Costs |  | Amount Incurred and Expected Timing forRemainder of Charges
|Severance costs related to work force reduction of 3% (approximately 60 employees) |  | $2.9 million         |  | $2.9 million incurred.                                     
|                                                                                   |  |                     
|Transfer of manufacturing and other activities                                     |  | $0.3 million         |  | $0.3 million incurred.                                     
|                                                                                   |  |                     
|Shift of supply chain                                                              |  | $6.0 million         |  | $4.6 million incurred. Remainder in 2010.                  

The $4.3 million of restructuring, reorganization, relocation and severance expense in 2008 related to our April 2008 restructuring plan.

The net $0.3 million expense reversal of restructuring, reorganization, relocation and severance costs in 2007 related to favorable buyouts of our Peabody
lease, offset by changes in estimates incorporated into our restructuring accrual related to our ability to sublease certain abandoned facilities under lease.

For information regarding the related accrued liability, see Note 13 of Notes to Consolidated Financial Statements.

Other Income (Expense), Net

Other income (expense) items include interest income,
interest expense, foreign currency gains and losses and other miscellaneous items.

Interest income represents interest earned on cash and
cash equivalents and investments in marketable securities. Interest income was $2.9 million in 2009, $14.4 million in 2008 and $22.4 million in 2007.

The decrease in 2009 compared to 2008 was primarily due to lower interest rates and a decrease in our invested balances, primarily due to the use of $13.1 million of cash and $194.9 million of cash, respectively, for the repayment of debt
in 2009 and 2008.

The decrease in 2008 compared to 2007 was primarily due to a decrease in our invested balances, due to $45.9 million of
payments in the first quarter of fiscal 2008 to repay the remaining balance on our 5.5% convertible notes and $149.0 million of payments in the second and third quarters of fiscal 2008 to repay principal on our $150.0 million zero coupon convertible
notes and much lower interest rates.

Interest expense for 2009, 2008 and 2007 included interest expense related to our 2.875% convertible
notes. Interest expense in 2008 and 2007 also included interest related to our 5.5% convertible notes, which were repaid in full in January 2008. Interest expense in 2008 and 2007 also included $6.3 million and $11.8 million, respectively, of
non-cash interest related to the effects of the adoption on January 1, 2009 of accounting guidance regarding debt instruments that may be settled in cash upon conversion. See Note 22 of Notes to the Consolidated Financial Statements.



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The amortization of capitalized note issuance costs related to our convertible note issuances is also
included as a component of interest expense. Interest expense in 2009 included $0.3 million related to the write-off of note issuance costs in connection with the early redemption of a total of $15.0 million of our 2.875% convertible notes.

Interest expense in 2008 included $0.2 million of premiums and commissions paid on the repurchase of the remaining $45.9 million of our 5.5%
convertible notes as well as the write-off of $0.1 million of related deferred note issuance costs and $0.4 million of premiums and commissions paid on the repurchase of $148.9 million principal amount of our $150.0 million zero coupon convertible
notes as well as the write-off of $0.2 million of related deferred note issuance costs.

Assuming no additional note repurchases, amortization
of our remaining convertible note issuance costs will total approximately $0.1 million per quarter through the second quarter of 2013.

Other,
net primarily consists of foreign currency gains and losses on transactions and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions.

Other, net in 2009 included a $2.0 million gain on the early redemption of our 2.875% notes and a $1.3 million charge for cash flow hedge ineffectiveness,
foreign currency gains and losses on transactions and realized and unrealized gains and losses on the changes in fair value of derivative contracts entered into to hedge these transactions.

Other, net in 2008 included a loss of $1.3 million related to ineffectiveness of certain of our cash flow hedges due to increased currency volatility and a
$1.3 million gain related to the disposal of an insignificant sales subsidiary. In addition, during the fourth quarter of 2008, we classified our ARS as trading securities and, therefore, recognized an $18.4 million unrealized loss due to a decline
in the fair market value of the ARS. Offsetting this loss was a $17.9 million gain related to the fair value of a put right (the Put Right) we received pursuant to an agreement we entered into with UBS, the issuer of the ARS. The Put
Right requires UBS to repurchase all of our ARS at par on or before June 30, 2010. See Liquidity and Capital Resources below for more information.

Other, net in 2007 included a $0.5 million gain related to the disposal of one of our cost-method investments and a $0.5 million gain for the final escrow payment on the sale of a minority interest in a
small technology company.

At December 31, 2009, we had $0.6 million in cost-method investments and, at December 31, 2008, we did
not have any significant cost-method investments on our balance sheet.

Income Tax Expense

Our effective income tax rate of 18.1% for 2009 reflected taxes accrued in foreign jurisdictions, reduced by a tax benefit of $3.9 million related to the
release of valuation allowance recorded against net operating loss deferred tax assets utilized to offset income earned in the U.S. The tax rate also reflected the release of tax liabilities totaling $1.3 million due to the lapses of statutes of
limitations and effective settlements with tax authorities. We continue to record a valuation allowance against U.S. deferred tax assets, as we do not believe it is more likely than not that we will be able to utilize the deferred tax assets in
future periods.

Our effective income tax rate of 32.4% for 2008 reflected taxes on foreign earnings offset by a $1.5 million release of
unrecognized tax benefits, including interest and penalties, as a result of the settlement of foreign tax audits and a tax benefit of $0.5 million related to the release of valuation allowance recorded against net operating losses used to offset
income earned in the U.S.



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Our effective income tax rate of 14.9% for 2007 reflected taxes on foreign earnings offset by a $4.7 million
release of unrecognized tax benefits, including interest and penalties, as a result of settlements with foreign taxing authorities and lapses of statutes of limitations and a tax benefit of $5.3 million related to the release of valuation allowances
recorded against net operating loss deferred tax assets utilized to offset income earned in the U.S.

During the first quarter of 2009, we
reclassified approximately $15.4 million of non-current tax liabilities to current in expectation that a settlement could be reached within the next 12 months. We still anticipate resolution of the tax positions within the next 12 months and, if
resolved favorably, the reversal of the current tax liabilities could provide a tax benefit up to approximately $17.7 million, including accruals through December 31, 2009, in the thirteen week period we determine the positions are more likely
than not to be sustained.

As of December 31, 2009, unrecognized tax benefits totaled $20.2 million and related primarily to uncertainty
surrounding intercompany pricing and permanent establishment. All unrecognized tax benefits would decrease the effective tax rate if recognized.

Our net deferred tax assets totaled $1.6 million and $0.6 million, respectively, at December 31, 2009 and 2008. Valuation allowances on deferred tax assets totaled $38.0 million and $42.8 million as of December 31, 2009 and 2008,
respectively.

We are currently awaiting governmental approval to implement changes to certain transfer pricing methodologies that, when
completed, will shift taxable income into the U.S. This additional income in the U.S. can be offset by net operating loss carryforwards. As the governmental approval is not assured, we cannot conclude that valuation allowance against U.S. deferred
tax assets is no longer needed. When governmental approval is received, we will reassess the need for the valuation allowance using all available positive and negative evidence. Due to the uncertainty surrounding the timing of governmental approval,
we believe it is reasonably possible that valuation allowance could decrease between zero and $38.0 million in the next 12 months, with approximately zero to $21 million reducing tax expense.

Our effective tax rate may differ from the U.S. federal statutory tax rate primarily as a result of the effects of state and foreign income taxes, research
and experimentation tax credits earned in the U.S. and foreign jurisdictions, adjustments to our unrecognized tax benefits and our ability or inability to utilize various carry forward tax items. In addition, our effective income tax rate may be
affected by changes in statutory tax rates and laws in the U.S. and foreign jurisdictions and other factors.

Gain on Disposal of
Discontinued Operations

Gain on disposal of discontinued operations, net of tax, of $0.4 million in 2007 related to final settlements
from the sale of the assets and operations related to Knights Technology, which was a consolidated subsidiary, in the fourth quarter of 2006.

LIQUIDITY AND CAPITAL RESOURCES

Auction Rate Securities and UBS Credit Facility

On November 6, 2008, we accepted an offer by UBS AG (together with its affiliates, UBS) of certain auction rate securities rights (the
Put Right). The Put Right permits us to cause UBS to repurchase, at par value, our ARS during the period beginning on June 30, 2010 and ending on July 2, 2012. The fair value of the ARS and the Put Right was approximately $87.2
million and $11.7 million, respectively, as of December 31, 2009, as discussed in more detail below. The par value of the ARS was $98.9 million at December 31, 2009. The Put Right was offered in connection with settlement agreements
entered into by UBS with the U.S. SEC and other federal and state regulatory authorities.



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In addition, UBS offered us the ability to borrow no-net cost loans secured by the ARS. On March 25,
2009, we entered into an uncommitted secured demand revolving credit facility with UBS Bank USA, providing for a line of credit in an amount of up to $70.8 million, or approximately 75% of the market value of the ARS. The obligations under the UBS
Credit Facility are secured by substantially all of our collateral accounts, money, investment property and other property maintained with UBS, including the ARS, subject to certain exceptions.

During the first quarter of 2009, we drew down $70.8 million, the full amount available under the UBS Credit Facility and, as of December 31, 2009,
$59.6 million remained outstanding. During the fourth quarter of 2009, $11.2 million of the ARS were called and the proceeds were utilized to repay a portion of the UBS Credit Facility. In addition, in the first quarter of 2010 through the date of
the filing of this Form 10-K, an additional $8.2 million of the ARS were called, with the proceeds being used to repay a portion of the UBS Credit Facility. The proceeds derived from sales of the remaining ARS we hold in accounts with UBS will be
applied to repay outstanding obligations under the UBS Credit Facility.

The UBS Credit Facility includes customary events of default that
include, among other things, non-payment defaults, the failure to maintain sufficient collateral, covenant defaults, inaccuracy of representations and warranties, the failure to provide financial and other information in a timely manner, bankruptcy
and insolvency defaults, cross-defaults to other indebtedness and judgment defaults. The occurrence of an event of default will result in the acceleration of the obligations under the UBS Credit Facility and any amounts due and not paid following an
event of default will bear interest at a rate per annum equal to 2.00% above the applicable interest rate. As of December 31, 2009, we were in compliance with all of the terms of the UBS Credit Facility.

See Note 3 of Notes to the Consolidated Financial Statements for additional information.

Other Credit Facilities and Letters of Credit

We have a $100.0 million secured
revolving credit facility, including a $50.0 million subfacility for the issuance of letters of credit. We may, upon notice to JPMorgan Chase Bank, N.A., request to increase the revolving loan commitments by an aggregate amount of up to $50.0
million with new or additional commitments subject only to the consent of the lender(s) providing the new or additional commitments, for a total secured credit facility of up to $150.0 million. We also have a 50.0 million yen unsecured and
uncommitted bank borrowing facility in Japan and various limited facilities in select foreign countries. We mitigate credit risk by transacting with highly rated counterparties. We have evaluated the credit and non-performance risks associated with
our lenders and believe them to be insignificant. No amounts were outstanding under any of these facilities as of December 31, 2009.

As
part of our contracts with certain customers, we are required to provide letters of credit or bank guarantees which these customers can draw against in the event we do not perform in accordance with our contractual obligations. At December 31,
2009, we had $53.7 million of these guarantees and letters of credit outstanding, of which approximately $53.0 million were secured by restricted cash deposits. Restricted cash balances securing bank guarantees that expire within 12 months of the
balance sheet date are recorded as a current asset on our consolidated balance sheets. Restricted cash balances securing bank guarantees that expire beyond 12 months from the balance sheet date are recorded as long-term restricted cash on our
consolidated balance sheet.

Sources of Liquidity and Capital Resources

Our sources of liquidity and capital resources as of December 31, 2009 consisted of $353.5 million of cash, cash equivalents, short-term restricted cash
and short-term investments, $39.7 million in non-current investments, $35.9 million of long-term restricted cash, $100.0 million available under revolving credit facilities (including the UBS Credit Facility), as well as potential future cash flows
from operations. Restricted cash relates to deposits to secure bank guarantees for customer prepayments that expire through 2013.



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We believe that we have sufficient cash resources and available credit lines to meet our expected
operational and capital needs for at least the next twelve months from December 31, 2009.

In 2009, cash and cash equivalents and
short-term restricted cash decreased $16.2 million to $141.3 million as of December 31, 2009 from $157.5 million as of December 31, 2008 primarily as a result of $13.1 million used for the repayment of $15.0 million face amount of our
2.875% convertible notes, $13.4 million used for the purchase of property, plant and equipment, the net purchase of $129.5 million of marketable securities and $4.1 million used for the purchase of certain assets of a division of an Australian
software company. These factors were offset by $68.1 million provided by operations, $59.6 million of net proceeds from our UBS line of credit, $6.9 million of proceeds from the exercise of employee stock options and a $0.2 million favorable effect
of exchange rate changes.

Accounts receivable increased $12.9 million to $152.6 million as of December 31, 2009 from $139.7 million
as of December 31, 2008, primarily due to increased frequency of extended payment terms as a result of geographic sales mix and customer requests, as well as decreased collections in the fourth quarter of 2009. The December 31, 2009
balance also included a $1.8 million increase related to changes in currency exchange rates. Our days sales outstanding, calculated on a quarterly basis, was 90 days at December 31, 2009 compared to 84 days at December 31, 2008.

Inventories decreased $3.4 million to $138.2 million as of December 31, 2009 compared to $141.6 million as of December 31,
2008, primarily due to the timing of shipments and product mix. The December 31, 2009 balance included a $4.2 million increase related to changes in currency exchange rates. Our annualized inventory turnover rate, calculated on a quarterly
basis, was 2.6 times for the quarter ended December 31, 2009 and 2.5 times for the quarter ended December 31, 2008.

Other current
assets increased $6.6 million to $39.5 million as of December 31, 2009 compared to $32.9 million as of December 31, 2008, primarily due to the transfer of our Put Right from other assets, net to other current assets, offset by a decrease
in income tax receivables. Other current assets at December 31, 2009 included $11.7 million for the value of the Put Right related to our ARS.

Expenditures for property, plant and equipment of $13.4 million in 2009 primarily consisted of expenditures for machinery and equipment, including instruments used for demonstration as part of our marketing programs. We expect to continue
to invest in capital equipment, demonstration systems and R&D equipment for applications development. We estimate our total capital expenditures in 2010 to be approximately $16 million, primarily for the development and introduction of new
products, demonstration equipment and upgrades and incremental improvements to our enterprise resource planning (ERP) system.

Other assets, net decreased $16.9 million to $17.6 million as of December 31, 2009 compared to $34.5 million as of December 31, 2008, primarily due to the transfer of the Put Right to other current assets during the second quarter
of 2009 based on our intent to exercise this option in June 2010.

Other current liabilities increased $14.0 million to $47.7 million as of
December 31, 2009 compared to $33.7 million as of December 31, 2008. The increase resulted primarily from a reclassification of $15.4 million of unrecognized tax benefits from long-term to current during the first quarter of 2009,
partially offset by a decrease in our derivative liabilities.

Other liabilities decreased $11.6 million to $30.7 million as of
December 31, 2009 compared to $42.3 million as of December 31, 2008. The decrease resulted primarily from the reclassification of $15.4 million of unrecognized tax benefits from long-term to current during the first quarter of 2009, offset
by an increase in deferred maintenance revenue.



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CONTRACTUAL PAYMENT OBLIGATIONS

A summary of our contractual commitments and obligations as of December 31, 2009 was as follows (in thousands):



|                                      |  |                        |         |      |   |              |  |              |        |                |   |         |  |   |       
|------------------------------------- |  | ---------------------- | ------- | ---- | - | ------------ |  | ------------ | ------ | -------------- | - | ------- |  | - | ------
|                                      |  | Payments Due By Period
|Contractual Obligation                |  | Total                  |         | 2010 |   | 2011 and2012 |  | 2013 and2014 |        | 2015 andbeyond
|Convertible Debt                      |  | $                      | 100,000 |      | $ |             |  | $            |       |                | $ | 100,000 |  | $ |      
|Convertible Debt Interest             |  |                        | 9,823   |      |   | 2,875        |  |              | 5,750  |                |   | 1,198   |  |   |      
|Short-term line of credit             |  |                        | 59,600  |      |   | 59,600       |  |              |       |                |   |        |  |   |      
|Letters of Credit and Bank Guarantees |  |                        | 53,666  |      |   | 17,699       |  |              | 7,120  |                |   | 133     |  |   | 28,714
|Purchase Order Commitments            |  |                        | 41,286  |      |   | 41,286       |  |              |       |                |   |        |  |   |      
|Pension Related Obligations           |  |                        | 1,967   |      |   | 26           |  |              | 66     |                |   | 138     |  |   | 1,737 
|Deferred Compensation Liability       |  |                        | 2,848   |      |   |             |  |              |       |                |   |        |  |   | 2,848 
|Capital Leases                        |  |                        | 2,027   |      |   | 1,189        |  |              | 838    |                |   |        |  |   |      
|Operating Leases                      |  |                        | 49,939  |      |   | 7,060        |  |              | 12,013 |                |   | 8,885   |  |   | 21,981
|Uncertain tax positions               |  |                        | 17,734  |      |   | 17,734       |  |              |       |                |   |        |  |   |      
|                                      |  |                        |         |      |   |              |  |              |        |                |   |         |  |   |       
|Total                                 |  | $                      | 338,890 |      | $ | 147,469      |  | $            | 25,787 |                | $ | 110,354 |  | $ | 55,280
|                                      |  |                        |         |      |   |              |  |              |        |                |   |         |  |   |       

We also have other liabilities of $2.5 million relating to additional
uncertain tax positions. However, as we are unable to reliably estimate the timing of future payments related to these additional uncertain tax positions, we have excluded this amount from the table above.

OFF-BALANCE SHEET ARRANGEMENTS

We do not
have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts 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 reporting period.

Significant accounting policies and estimates underlying the accompanying consolidated financial statements include:



| |  |  | the timing of revenue recognition;
| | - |  | ----------------------------------



| |  |  | the allowance for doubtful accounts;
| | - |  | ------------------------------------



| |  |  | valuations of excess and obsolete inventory;
| | - |  | --------------------------------------------



| |  |  | the lives and recoverability of equipment and other long-lived assets such as goodwill;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | restructuring, reorganization, relocation and severance costs;
| | - |  | --------------------------------------------------------------



| |  |  | accounting for income taxes;
| | - |  | ----------------------------



| |  |  | warranty liabilities;
| | - |  | ---------------------



| |  |  | stock-based compensation;
| | - |  | -------------------------



| |  |  | accounting for derivatives;
| | - |  | ---------------------------



| |  |  | valuation of investments in ARS; and
| | - |  | ------------------------------------



| |  |  | valuation of UBS put right.
| | - |  | ---------------------------



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It is reasonably possible that the estimates we make may change in the future.

Revenue Recognition

We recognize
revenue when persuasive evidence of a contractual arrangement exists, delivery has occurred or services have been rendered, the sellers price to the buyer is fixed and determinable, and collectibility is reasonably assured.

For products demonstrated to meet our published specifications, revenue is recognized when the title to the product and the risks and rewards of ownership
pass to the customer. The portion of revenue related to installation and final acceptance, of which the estimated fair value is generally 4% of the total revenue of the transaction, is deferred until such installation and final customer acceptance
are completed. For products produced according to a particular customers specifications, revenue is recognized when the product meets the customers specifications and when the title and the risks and rewards of ownership have passed to
the customer. In each case, the portion of revenue applicable to installation and customer acceptance is recognized upon meeting specifications at the installation site. For new applications of our products where performance cannot be assured prior
to meeting specifications at the installation site, no revenue is recognized until such specifications are met.

For sales arrangements
containing multiple elements (products or services), revenue relating to undelivered elements is deferred at the estimated fair value until delivery of the deferred elements. To be considered a separate element, the product or service in question
must represent a separate unit under accounting rules and fulfill the following criteria: the delivered item(s) has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered item(s);
and, if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the arrangement does not meet all criteria
above, the entire amount of the transaction is deferred until all elements are delivered.

We provide maintenance and support services under
renewable, term maintenance agreements. Maintenance and support fee revenue is recognized ratably over the contractual term, which is generally 12 months, and commences from contract date.

Revenue from time and materials based service arrangements is recognized as the service is performed. Spare parts revenue is generally recognized upon
shipment.

Deferred revenue represents customer deposits on equipment orders, orders awaiting customer acceptance and prepaid service contract
revenue. Deferred revenue is recognized in accordance with our revenue recognition policies described above.

Allowance for Doubtful
Accounts

The allowance for doubtful accounts is estimated based on collection experience and known trends with current customers. The
large number of entities comprising our customer base and their dispersion across many different industries and geographies somewhat mitigates our credit risk exposure and the magnitude of our allowance for doubtful accounts. Our estimates of the
allowance for doubtful accounts are reviewed and updated on a quarterly basis. Changes to the reserve may occur based upon changes in revenue levels and associated balances in accounts receivable and estimated changes in individual customers
credit quality. Historically, we have not incurred significant write-offs of accounts receivable, however, an individual loss could be significant due to the relative size of our sales transactions. Our bad debt expense totaled $0.6 million, $1.1
million and $0.9 million, respectively, in 2009, 2008 and 2007. Our allowance for doubtful accounts totaled $3.3 million and $3.1 million, respectively, at December 31, 2009 and 2008.



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Valuation of Excess and Obsolete Inventory

Inventory is stated at the lower of cost or market, with cost determined by standard cost methods, which approximate the first-in, first-out method.
Inventory costs include material, labor and manufacturing overhead.

Manufacturing inventory is reviewed for obsolescence and excess
quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in support plans or technology could have
a significant impact on obsolescence.

To support our world-wide service operations, we maintain service spare parts inventory, which consists
of both consumable and repairable spare parts. Consumable service spare parts are used within our service business to replace worn or damaged parts in a system during a service call and are generally classified in current inventory as our stock of
this inventory turns relatively quickly. However, if there has been no recent usage for a consumable service spare part, but the part is still necessary to support systems under service contracts, the part is considered to be non-current and
included within non-current inventories within our consolidated balance sheet. Consumables are charged to cost of goods sold when issued during the service call.

We also maintain a substantial supply of repairable and reusable spare parts for possible use in future repairs and customer field service of our install base. We have classified this inventory as a
long-term asset given these parts can be repaired and reused in the service business over many years. As these service parts age over the related product groups post-production service life, we reduce the net carrying value of our repairable
spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of our systems is generally seven years and, at the end of seven years, the carrying value for these
parts in our consolidated balance sheet is reduced to zero. We also perform periodic monitoring of our installed base for premature end of service life events and expense, through cost of sales, the remaining net carrying value of any related spare
parts inventory in the period incurred.

Provision for manufacturing inventory valuation adjustments totaled $4.1 million, $1.7 million and
$1.0 million, respectively, in 2009, 2008 and 2007. Provision for service spare parts inventory valuation adjustments totaled $7.0 million, $4.3 million and $4.0 million, respectively, in 2009, 2008 and 2007.

Lives and Recoverability of Equipment and Other Long-Lived Assets

We evaluate the remaining life and recoverability of equipment and other assets, including intangible assets, whenever events or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. If there is an indication of impairment, we prepare an estimate of future, undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying value of
the asset, we adjust the carrying amount of the asset to its estimated fair value. No impairments related to our equipment or other long-lived assets were recognized during 2009, 2008 or 2007.

Goodwill

Goodwill represents the
excess purchase price over fair value of net assets acquired. Goodwill and other identifiable intangible assets with indefinite useful lives are not amortized, but, instead, a two-step impairment test is performed at least annually. We test goodwill
for impairment in the fourth quarter of each year. First, the fair value of each reporting unit is compared to its carrying value. We have defined our reporting units to be our operating segments. Fair value is determined based on the present value
of



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estimated cash flows using available information regarding expected cash flows of each reporting unit, discount rates and the expected long-term cash flow growth rates. Discount rates are
determined based on the cost of capital for the reporting unit. If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value
exceeds the fair value. The implied fair value of the reporting units goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, an
impairment loss equal to the difference will be recorded. No impairments were identified in step one of our annual analysis during the fourth quarter of 2009, 2008 or 2007.

Restructuring, Reorganization, Relocation and Severance Costs

Restructuring,
reorganization, relocation and severance costs are recognized and recorded at fair value as incurred. Such costs include severance and other costs related to employee terminations as well as facility costs related to future abandonment of various
leased office and manufacturing sites. Also, included are certain period costs to move our existing supply chain, as well as migration of certain IT systems to new platforms. Changes in our estimates could occur, and have occurred, due to
fluctuations in exchange rates, the sublease of unused space, unanticipated voluntary departures before severance was required and unanticipated redeployment of employees to vacant positions. See Note 13 of Notes to Consolidated Financial Statements
for additional information.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of the assets and liabilities. We record a valuation allowance to reduce deferred tax assets to the amount expected to more likely than not be realized in our future tax returns. During 2009,
2008 and 2007, we released approximately $3.9 million, $0.5 million and $5.3 million, respectively, in valuation allowance relating to U.S. deferred tax assets utilized to offset U.S. taxable income generated during the respective periods. Should we
determine that we would not be able to realize all or part of our remaining net deferred tax assets in the future, increases to the valuation allowance for deferred tax assets may be required. Conversely, if we determine that certain tax assets that
have been reserved for may be realized in the future, we may reduce our valuation allowance in future periods. Our net deferred tax assets totaled $1.6 million and $0.6 million, respectively, at December 31, 2009 and 2008 and our valuation
allowance totaled $38.0 million and $42.8 million, respectively.

In the ordinary course of business, there is inherent uncertainty in
quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon managements evaluation of the facts, circumstances and information available at the reporting
date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate or effective settlement with a
taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. When
applicable, associated interest and penalties have been recognized as a component of income tax expense.

At December 31, 2009 and 2008,
the liabilities related to total unrecognized tax benefits were $20.2 million and $18.4 million respectively, all of which would have an impact on the effective tax rate if recognized. Included in the liabilities for unrecognized tax benefits were
accruals for interest and penalties of $2.2 million and $1.7 million, respectively. Unrecognized tax benefits relate mainly to uncertainty surrounding intercompany pricing and permanent establishment. See Note 12 of Notes to Consolidated Financial
Statements for additional information.



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Warranty Liabilities

Our products generally carry a one-year warranty. A reserve is established at the time of sale to cover estimated warranty costs and certain commitments for product upgrades. Our estimate of warranty cost
is primarily based on our history of warranty repairs and maintenance, as applied to systems currently under warranty. For our new products without a history of known warranty costs, we estimate the expected costs based on our experience with
similar product lines and technology. While most new products are extensions of existing technology, the estimate could change if new products require a significantly different level of repair and maintenance than similar products have required in
the past. Our estimated warranty costs are reviewed and updated on a quarterly basis. Changes to the reserve occur as volume, product mix and warranty costs fluctuate. Our warranty reserve totaled $7.5 million and $6.4 million, respectively, at
December 31, 2009 and 2008. Warranty expense totaled $10.7 million, $10.6 million and $16.0 million, respectively, during 2009, 2008 and 2007.

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based payment awards granted to
our employees and directors, including employee stock options, non-vested stock and stock purchases related to our employee share purchase plan based on the estimated fair value of the award on the grant date. We utilize the Black-Scholes
valuation model for valuing our stock option awards.

The use of the Black-Scholes valuation model to estimate the fair value of stock option
awards requires us to make judgments on assumptions regarding the risk-free interest rate, expected dividend yield, expected term and expected volatility over the expected term of the award. The assumptions used in calculating the fair value of
stock-based payment awards represent managements best estimates at the time they are made, but these estimates involve inherent uncertainties and the application of expense could be materially different in the future.

Compensation expense is only recognized on awards that ultimately vest. Therefore, we have reduced the compensation expense to be recognized over the
vesting period for anticipated future forfeitures. Forfeiture estimates are based on historical forfeiture patterns. We update our forfeiture estimates quarterly and recognize any changes to accumulated compensation expense in the period
of change. If actual forfeitures differ significantly from our estimates, our results of operations could be materially impacted.

Accounting for Derivatives

We use a combination of forward contracts, zero cost collar contracts, option contracts and
other instruments to hedge certain anticipated foreign currency exchange transactions. When specific hedge criteria have been met, changes in fair values of hedge contracts relating to anticipated transactions are recorded in other comprehensive
income rather than net income until the underlying hedged transaction affects net income. One of the criteria for this accounting treatment is that the forward exchange contract amount should not be in excess of specifically identified anticipated
transactions. By their nature, our estimates of anticipated transactions may fluctuate over time and may ultimately vary from actual transactions. When anticipated transaction estimates or actual transaction amounts decrease below hedged levels, or
when the timing of transactions changes significantly, we reclassify a portion of the cumulative changes in fair values of the related hedge contracts from other comprehensive income to other income (expense) during the quarter in which such changes
occur.

We also use foreign forward exchange contracts to mitigate the foreign currency exchange impact of our cash, receivables and payables
denominated in foreign currencies. These derivatives do not meet the criteria for hedge accounting and, accordingly, changes in the fair value are recognized in net income in the current period.



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Valuation of Investments in Auction Rate Securities and Put Right

At December 31, 2009, we held ARS with a fair value of $87.2 million, which are included on our balance sheet at fair value as short-term investments in
marketable securities. The par value of these securities was $98.9 million at December 31, 2009. The ARS held by us have stated maturities for which the interest rates are reset through a Dutch auction, which generally occurs every 28 days. The
auctions have historically provided a liquid market for these securities as investors could readily sell their investments at auction. With the liquidity issues experienced in global credit and capital markets, the ARS held by us have experienced
multiple failed auctions, beginning on February 19, 2008, as the amount of securities submitted for sale has exceeded the amount of purchase orders.

All of the ARS held by us continue to carry AAA ratings, have not experienced any payment defaults and are backed by student loans, some of which are guaranteed under the Federal Family Education Loan
Program of the U.S. Department of Education (USDE).

On November 6, 2008 (the Acceptance Date), we entered into a
settlement agreement (the Agreement) with UBS Financial Services Inc. (UBS), the issuer of the ARS, pursuant to which UBS would repurchase all of our ARS at par on or before June 30, 2010. By accepting the terms of
the settlement, we (1) received the non-transferable right (the Put Right) to sell our ARS at par value to UBS on or before June 30, 2010, and (2) gave UBS the right to purchase the ARS from us at any time after the
Acceptance Date as long as we receive the par value.

We expect to sell the ARS under the Put Right. However, if the Put Right is not
exercised on or before June 30, 2010, it will expire and UBS will have no further rights or obligation to buy the ARS. Furthermore, UBSs obligations under the Put Right are not secured by its assets and do not require UBS to obtain any
financing to support its performance obligations under the Put Right. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Put Right.

The Agreement covers $98.9 million par value (fair value of $87.2 million) of the ARS held by us as of December 31, 2009. We consider the Put Right to
be a freestanding financial instrument and we have accounted for it separately from the ARS. We believe the Put Right does not meet the definition of a derivative as the underlying ARS are not considered by us to be readily convertible into
cash. Since the Put Right does not qualify as a derivative, we have elected the fair value option to account for the Put Right and have recorded the instrument as a current asset of approximately $11.7 million on our balance sheet as of
December 31, 2009.

We estimated the fair value of our ARS using a discounted cash flow model where we compared the expected rate of
interest received on the ARS to similar securities. We discounted the securities over a three to seven year term depending on the collateral underlying each ARS. The amounts derived through the discounted cash flow model were generally consistent
with the quoted price indicated by UBS, the bank which holds our ARS at December 31, 2009.

We calculated the fair value of the Put Right
based on the net present value of the difference between the par value and the fair market value of the ARS on December 31, 2009, using a six-month option period through the settlement date discounted by the credit default rate of UBS, the
issuer. We reassess the fair value quarterly based on several factors, including continued failure of auctions, failure of investments to be redeemed, deterioration of credit ratings of investments, overall market risk and other factors.
Changes in fair value are recorded currently as a component of other income (expense), net.

The net amount recorded as a component of other
income (expense), net related to the ARS and the Put Right totaled $0.5 million and $(0.5) million, respectively, in 2009 and 2008.



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Item 7A. Quantitative and Qualitative Disclosures About Market
Risk

Foreign Currency Exchange Rate Risk

A large portion of our business is conducted outside of the U.S. through a number of foreign subsidiaries. Each of the foreign subsidiaries keeps its accounting records in its respective local currency.
These local-currency-denominated accounting records are translated at exchange rates that fluctuate up or down from period to period and consequently affect our consolidated results of operations and financial position. The major foreign currencies
in which we experience periodic fluctuations are the euro, the Czech koruna, the Japanese yen and the British pound sterling. For each of the last three years, more than 61% of our sales occurred outside of the U.S.

In addition, because of our substantial research, development and manufacturing operations in Europe, we incur a greater proportion of our costs in Europe
than the revenue we derive from sales in that geographic region. Our raw materials, labor and other manufacturing costs are primarily denominated in U.S. dollars, euros and Czech korunas. This situation negatively affects our gross margins and
results of operations when the dollar weakens in relation to the euro or koruna. A strengthening of the dollar in relation to the euro or koruna would have a net positive effect on our gross margins and results of operations. Movement of Asian
currencies in relation to the dollar and euro can also affect our reported sales and results of operations because we derive more revenue than we incur costs from the Asia-Pacific region. In addition, several of our competitors are based in Japan
and a weakening of the Japanese yen has the effect of lowering their prices relative to ours.

Assets and liabilities of foreign subsidiaries
are translated using the exchange rates in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rate during the period. The resulting translation adjustments increased shareholders equity and
comprehensive income in 2009 by $8.9 million. Holding other variables constant, if the U.S. dollar weakened by 10% against all currencies that we translate, shareholders equity would increase by approximately $49.5 million as of
December 31, 2009. Holding other variables constant, if the U.S. dollar strengthened by 10% against all currencies that we translate, shareholders equity would decrease by approximately $40.5 million as of December 31, 2009.

Risk Mitigation

We use
derivatives to mitigate financial exposure resulting from fluctuations in foreign currency exchange rates. When specific accounting criteria have been met, changes in fair values of derivative contracts relating to anticipated transactions are
recorded in other comprehensive income, rather than net income, until the underlying hedged transaction affects net income. Changes in fair value for derivatives not designated as hedging instruments are recognized in net income in the current
period. As of December 31, 2009, the aggregate notional amount of our outstanding derivative contracts designated as cash flow hedges was $50 million, which contracts have varying maturities through the fourth quarter of 2010. The aggregate
notional amount of our outstanding balance sheet-related derivative contracts at December 31, 2009 was $88.9 million, which contracts have varying maturities through the first quarter of 2010. We do not enter into derivative financial
instruments for speculative purposes.

Holding other variables constant, if the U.S. dollar weakened by 10%, the market value of our foreign
currency contracts outstanding as of December 31, 2009 would increase by approximately $0.2 million. The increase in value relating to the forward sale or purchase contracts would, however, be substantially offset by the revaluation of the
transactions being hedged. A 10% increase in the U.S. dollar relative to the hedged currencies would have a similar, but negative, effect on the value of our foreign currency contracts, substantially offset again by the revaluation of the
transactions being hedged.



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Balance Sheet Related

We attempt to mitigate our currency exposures for recorded transactions by using forward exchange contracts to reduce the risk that our future cash flows will be adversely affected by changes in exchange
rates. We enter into forward sale or purchase contracts for foreign currencies to hedge specific cash, receivables or payables positions denominated in foreign currencies. Changes in fair value of derivatives entered into to mitigate the foreign
exchange risks related to these balance sheet items are recorded in other income (expense) currently together with the transaction gain or loss from the hedged balance sheet position.

The hedging transactions we undertake are intended to limit our exposure to changes in the dollar/euro exchange rate. Foreign currency losses recorded in other income (expense), inclusive of the impact of
derivatives, totaled $3.6 million, $4.9 million and $3.1 million, respectively, in 2009, 2008 and 2007.

Cash Flow Hedges

We use zero cost collar contracts and option contracts to hedge certain anticipated foreign currency exchange transactions. The
foreign exchange hedging structure is set up generally on a twelve-month time horizon. The hedging transactions we undertake primarily limit our exposure to changes in the U.S. dollar/euro exchange rate. The zero cost collar contract hedges are
designed to protect us as the U.S. dollar weakens, but also provide us with some flexibility if the dollar strengthens.

These derivatives
meet the criteria to be designated as hedges and, accordingly, we record the change in fair value of these hedge contracts relating to anticipated transactions in other comprehensive income rather than net income until the underlying hedged
transaction affects net income. We recognized realized gains of $0.4 million in 2009 in cost of sales related to hedge results, compared to realized gains of $6.0 million in 2008 and $5.0 million in 2007. As of December 31, 2009, $0.8 million
of deferred unrealized net losses on outstanding derivatives have been recorded in other comprehensive income and are expected to be reclassified to net income during the next 12 months as a result of the underlying hedged transactions also being
recorded in net income. We recorded a $1.3 million charge for hedge ineffectiveness in both 2009 and 2008 as a result of currency volatility. We continually monitor our hedge positions and forecasted transactions and, in the event changes to our
forecast occur, we may have dedesignations of our cash flow hedges in the future. Additionally, given the volatility in the global currency markets, the effectiveness attributed to these hedges may decrease or, in some instances, may result in
dedesignation as a cash flow hedge, which would require us to record a charge in other income (expense) in the period of ineffectiveness or dedesignation.

Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily
relates to our investments. Since we had no variable interest rate debt outstanding at December 31, 2009, our interest expense is relatively fixed and not affected by changes in interest rates. In the event we issue any new debt in the future,
increases in interest rates will increase the interest expense associated with the debt.

The primary objective of our investment activities
is to preserve principal while maximizing yields without significantly increasing risk. This objective is accomplished by making diversified investments, consisting only of investment grade securities.

Cash, Cash Equivalents and Restricted Cash

As of December 31, 2009, we held cash and cash equivalents of $124.2 million and short-term restricted cash of $17.1 million that consisted of cash and highly liquid short-term investments having maturity dates of no more than 90 days
at the date of acquisition. Declines of interest rates over time would reduce our interest income from our highly liquid short-term investments. A decrease in interest rates of one percentage point would cause a corresponding decrease in annual
interest income of approximately $1.4 million assuming our cash and cash equivalent balances at December 31, 2009 remained constant. Due to the nature of our highly liquid cash equivalents, an increase in interest rates would not materially
change the fair market value of our cash and cash equivalents.



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Fixed Rate Debt Securities

As of December 31, 2009, we held short-term fixed rate investments of $212.1 million that consisted of certificates of deposit, commercial paper and government-backed securities. These investments
are recorded on our balance sheet at fair value based on quoted market prices. Unrealized gains/losses resulting from changes in the fair value are recorded, net of tax, in shareholders equity as a component of other comprehensive income
(loss). Interest rate fluctuations impact the fair value of these investments, however, given our ability to hold these investments until maturity or until the unrealized losses recover, we do not expect these fluctuations to have a material impact
on our results of operations, financial position or cash flows. Declines in interest rates over time would reduce our interest income from our short-term investments, as our short-term portfolio is re-invested at current market interest rates. A
decrease in interest rates of one percentage point would cause a corresponding decrease in our annual interest income from these items of approximately $2.1 million assuming our investment balances at December 31, 2009 remained constant.

Variable Rate-Notes and Related Put Right

At December 31, 2009, we held ARS with a fair value of $87.2 million, which are included on our balance sheet at fair value as short-term investments in marketable securities. The par value of these
securities was $98.9 million at December 31, 2009. The ARS held by us have stated maturities for which the interest rates are reset through a Dutch auction, which generally occurs every 28 days. The auctions have historically provided a liquid
market for these securities as investors could readily sell their investments at auction. With the liquidity issues experienced in global credit and capital markets, the ARS held by us have experienced multiple failed auctions, beginning on
February 19, 2008, as the amount of securities submitted for sale has exceeded the amount of purchase orders.

All of the ARS held by us
continue to carry AAA ratings, have not experienced any payment defaults and are backed by student loans, some of which are guaranteed under the Federal Family Education Loan Program of the U.S. Department of Education (USDE).

On November 6, 2008 (the Acceptance Date), we entered into a settlement agreement (the Agreement) with UBS
Financial Services Inc. (UBS), the issuer of the ARS, pursuant to which UBS would repurchase all of our ARS at par on or before June 30, 2010. By accepting the terms of the settlement, we (1) received the non-transferable
right (the Put Right) to sell our ARS at par value to UBS on or before June 30, 2010, and (2) gave UBS the right to purchase the ARS from us at any time after the Acceptance Date as long as we receive the par value.

We expect to sell the ARS under the Put Right. However, if the Put Right is not exercised on or before June 30, 2010, it will expire and UBS will
have no further rights or obligation to buy the ARS. Furthermore, UBSs obligations under the Put Right are not secured by its assets and do not require UBS to obtain any financing to support its performance obligations under the Put Right. UBS
has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the Put Right.

Declines in
interest rates over time would reduce our interest income from our investments in variable-rate notes, as interest rates are reset periodically to current market interest rates. A decrease in interest rates of one percentage point would cause a
corresponding decrease in our annual interest income from these items of approximately $1.0 million assuming our investment balances at December 31, 2009 remained constant.

Fair Value of Convertible Debt

The fair market value of our fixed rate convertible debt is
subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The interest rate changes affect the fair market value of our long-term debt, but
do not impact earnings or cash flows. At December 31, 2009, we had $100.0 million of fixed rate convertible debt outstanding. Based on open market trades, we have determined that the fair market value of our long-term fixed interest rate debt
was approximately $105.5 million at December 31, 2009.



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Item 8. Financial Statements and Supplementary
Data

Unaudited quarterly financial data for each of the eight quarters in the two-year period ended December 31, 2009 is as
follows:



|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|-------------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------- | ----------- |  | - | ----------- | - |  | - | ------- | -
|2009(In thousands, except per share data)    |  | 1st Quarter |         |   | 2nd Quarter |   |         | 3rd Quarter |  |   | 4th Quarter |  
|Net sales                                    |  | $           | 141,833 |   |             | $ | 140,263 |             |  | $ | 140,799     |   |  | $ | 154,449 |  
|Cost of sales                                |  |             | 83,141  |   |             |   | 84,102  |             |  |   | 85,418      |   |  |   | 95,179  |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Gross profit                                 |  |             | 58,692  |   |             |   | 56,161  |             |  |   | 55,381      |   |  |   | 59,270  |  
|Total operating expenses(1)                  |  |             | 50,568  |   |             |   | 49,549  |             |  |   | 47,482      |   |  |   | 50,283  |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Operating income                             |  |             | 8,124   |   |             |   | 6,612   |             |  |   | 7,899       |   |  |   | 8,987   |  
|Other expense, net(2)                        |  |             | (320    | ) |             |   | (1,501  | )           |  |   | (809        | ) |  |   | (1,331  | )
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Income before income taxes                   |  |             | 7,804   |   |             |   | 5,111   |             |  |   | 7,090       |   |  |   | 7,656   |  
|Income tax expense(3)                        |  |             | 1,466   |   |             |   | 1,451   |             |  |   | 1,030       |   |  |   | 1,070   |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Net income                                   |  | $           | 6,338   |   |             | $ | 3,660   |             |  | $ | 6,060       |   |  | $ | 6,586   |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Basic net income per share                   |  | $           | 0.17    |   |             | $ | 0.10    |             |  | $ | 0.16        |   |  | $ | 0.17    |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Diluted net income per share                 |  | $           | 0.17    |   |             | $ | 0.10    |             |  | $ | 0.16        |   |  | $ | 0.17    |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Shares used in basic per share calculation   |  |             | 37,322  |   |             |   | 37,450  |             |  |   | 37,610      |   |  |   | 37,767  |  
|Shares used in diluted per share calculation |  |             | 37,616  |   |             |   | 37,745  |             |  |   | 38,067      |   |  |   | 38,194  |  
|                                             |  |             |         |  
|2008(In thousands, except per share data)    |  | 1st Quarter |         |   | 2nd Quarter |   |         | 3rd Quarter |  |   | 4th Quarter |  
|Net sales                                    |  | $           | 151,646 |   |             | $ | 154,039 |             |  | $ | 141,768     |   |  | $ | 151,726 |  
|Cost of sales                                |  |             | 92,421  |   |             |   | 95,419  |             |  |   | 85,066      |   |  |   | 91,732  |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Gross profit                                 |  |             | 59,225  |   |             |   | 58,620  |             |  |   | 56,702      |   |  |   | 59,994  |  
|Total operating expenses(4)                  |  |             | 50,419  |   |             |   | 53,686  |             |  |   | 50,484      |   |  |   | 48,824  |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Operating income                             |  |             | 8,806   |   |             |   | 4,934   |             |  |   | 6,218       |   |  |   | 11,170  |  
|Other expense, net(5)                        |  |             | (1,220  | ) |             |   | (1,698  | )           |  |   | (591        | ) |  |   | (1,019  | )
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Income before income taxes                   |  |             | 7,586   |   |             |   | 3,236   |             |  |   | 5,627       |   |  |   | 10,151  |  
|Income tax expense(6)                        |  |             | 2,553   |   |             |   | 1,578   |             |  |   | 1,679       |   |  |   | 2,802   |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Net income                                   |  | $           | 5,033   |   |             | $ | 1,658   |             |  | $ | 3,948       |   |  | $ | 7,349   |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Basic net income per share                   |  | $           | 0.14    |   |             | $ | 0.05    |             |  | $ | 0.11        |   |  | $ | 0.20    |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Diluted net income per share                 |  | $           | 0.14    |   |             | $ | 0.04    |             |  | $ | 0.11        |   |  | $ | 0.20    |  
|                                             |  |             |         |   |             |   |         |             |  |   |             |   |  |   |         |  
|Shares used in basic per share calculation   |  |             | 36,435  |   |             |   | 36,499  |             |  |   | 36,780      |   |  |   | 37,183  |  
|Shares used in diluted per share calculation |  |             | 36,841  |   |             |   | 36,895  |             |  |   | 37,306      |   |  |   | 37,446  |  



|(1) | Operating expenses in the first, second, third and fourth quarters of 2009 included $1.0 million, $1.1 million, $0.6 million and $0.8 million, respectively, of
restructuring, reorganization, relocation and severance expense.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Included in other income (expense), net in 2009 were the following:
|--- | -------------------------------------------------------------------



| |  |  | $6.7 million of unrealized gains related to our ARS and $6.2 million of unrealized losses related to the fair value of the Put Right we received
pursuant to an agreement we entered into with UBS, the issuer of the ARS. This Put Right requires UBS to repurchase all of our ARS at par on or before June 30, 2010; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $1.3 million charge for ineffectiveness of certain of our cash flow hedges due to increased currency volatility.
| | - |  | ------------------------------------------------------------------------------------------------------------------



|(3) | Income tax expense in 2009 included the release of $3.9 million of valuation allowances recorded against net operating loss deferred tax assets utilized to offset
income earned in the U.S., a portion of which was recorded each quarter, as well as a $1.3 million benefit related to the lapses of statutes of limitations and effective settlements with tax authorities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Operating expenses in the second, third and fourth quarters of 2008 included $2.3 million, $1.2 million and $0.8 million, respectively, of restructuring,
reorganization, relocation and severance expense.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Included in other income (expense), net in 2008 were the following:
|--- | -------------------------------------------------------------------



| |  |  | $18.4 million of unrealized losses related to our ARS and a $17.9 million gain related to the fair value of the put right we received pursuant to an
agreement we entered into with UBS, the issuer of the ARS. This put right requires UBS to repurchase all of our ARS at par on or before June 30, 2010;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $1.3 million charge for ineffectiveness of certain of our cash flow hedges due to increased currency volatility;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | a $1.3 million gain related to the disposal of an insignificant sales subsidiary; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | $6.3 million of non-cash interest expense related to our $150 million zero coupon convertible notes, of which, $3.1 million and $3.2 million,
respectively, was incurred in the first and second quarters of 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Income tax expense in 2008 included the release of $0.5 million of valuation allowances recorded against net operating loss deferred tax assets utilized to offset
income earned in the U.S., a portion of which was recorded each quarter.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



50



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

FEI Company

Hillsboro, Oregon

We have audited the accompanying consolidated balance sheets of FEI Company and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of
operations, comprehensive income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). 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, such
consolidated financial statements present fairly, in all material respects, the financial position of FEI Company and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB ASC 740, Income Taxes (formerly Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109,) effective January 1, 2007.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2009, based on Internal Control  Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 19, 2010 expressed an unqualified opinion on the Companys internal control over financial reporting.



|                                  
|----------------------------------
|/s/ DELOITTE & TOUCHE LLP         
|                                  
|February 19, 2010 Portland, Oregon



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##### Table of Contents

FEI Company and Subsidiaries

Consolidated Balance Sheets

(In thousands)



|                                                                                                       |  |              |         |      |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---- | - | ------- | -
|                                                                                                       |  | December 31, |        
|                                                                                                       |  | 2009         |         | 2008 |  
|Assets                                                                                                 |  |              |         |      |   |         |  
|Current Assets:                                                                                        |  |              |         |      |   |         |  
|Cash and cash equivalents                                                                              |  | $            | 124,199 |      | $ | 146,521 |  
|Short-term investments in marketable securities                                                        |  |              | 212,119 |      |   | 32,901  |  
|Short-term restricted cash                                                                             |  |              | 17,141  |      |   | 10,994  |  
|Receivables, net of allowances for doubtful accounts of $3,306 and $3,139                              |  |              | 152,601 |      |   | 139,733 |  
|Inventories                                                                                            |  |              | 138,242 |      |   | 141,609 |  
|Deferred tax assets                                                                                    |  |              | 2,734   |      |   | 2,884   |  
|Other current assets                                                                                   |  |              | 39,470  |      |   | 32,926  |  
|                                                                                                       |  |              |         |      |   |         |  
|Total Current Assets                                                                                   |  |              | 686,506 |      |   | 507,568 |  
|                                                                                                       |  |             
|Non-current investments in marketable securities                                                       |  |              | 39,662  |      |   | 94,098  |  
|Long-term restricted cash                                                                              |  |              | 35,901  |      |   | 34,833  |  
|Property, plant and equipment, net of accumulated depreciation of $86,942 and $85,391                  |  |              | 81,893  |      |   | 76,991  |  
|Goodwill                                                                                               |  |              | 44,615  |      |   | 40,964  |  
|Deferred tax assets                                                                                    |  |              | 3,369   |      |   | 2,188   |  
|Non-current inventories                                                                                |  |              | 44,385  |      |   | 41,072  |  
|Other assets, net                                                                                      |  |              | 17,638  |      |   | 34,458  |  
|                                                                                                       |  |              |         |      |   |         |  
|Total Assets                                                                                           |  | $            | 953,969 |      | $ | 832,172 |  
|                                                                                                       |  |              |         |      |   |         |  
|Liabilities and Shareholders Equity                                                                   |  |              |         |      |   |         |  
|Current Liabilities:                                                                                   |  |              |         |      |   |         |  
|Accounts payable                                                                                       |  | $            | 40,587  |      | $ | 34,964  |  
|Accrued payroll liabilities                                                                            |  |              | 18,911  |      |   | 19,219  |  
|Accrued warranty reserves                                                                              |  |              | 7,477   |      |   | 6,439   |  
|Accrued agent commissions                                                                              |  |              | 10,046  |      |   | 9,882   |  
|Deferred revenue                                                                                       |  |              | 65,805  |      |   | 44,135  |  
|Income taxes payable                                                                                   |  |              | 1,321   |      |   | 3,040   |  
|Accrued restructuring, reorganization, relocation and severance                                        |  |              | 32      |      |   | 240     |  
|Short-term line of credit                                                                              |  |              | 59,600  |      |   |        |  
|Other current liabilities                                                                              |  |              | 47,693  |      |   | 33,732  |  
|                                                                                                       |  |              |         |      |   |         |  
|Total Current Liabilities                                                                              |  |              | 251,472 |      |   | 151,651 |  
|                                                                                                       |  |             
|Convertible debt                                                                                       |  |              | 100,000 |      |   | 115,000 |  
|Deferred tax liabilities                                                                               |  |              | 4,298   |      |   | 4,164   |  
|Other liabilities                                                                                      |  |              | 30,675  |      |   | 42,268  |  
|                                                                                                       |  |             
|Commitments and contingencies                                                                          |  |              |         |      |   |         |  
|                                                                                                       |  |             
|Shareholders Equity:                                                                                  |  |              |         |      |   |         |  
|Preferred stock - 500 shares authorized; none issued and outstanding                                   |  |              |        |      |   |        |  
|Common stock - 70,000 shares authorized; 37,859 and 37,286 shares issued and outstanding, no par value |  |              | 485,557 |      |   | 469,893 |  
|Retained earnings (deficit)                                                                            |  |              | 21,476  |      |   | (1,168  | )
|Accumulated other comprehensive income                                                                 |  |              | 60,491  |      |   | 50,364  |  
|                                                                                                       |  |              |         |      |   |         |  
|Total Shareholders Equity                                                                             |  |              | 567,524 |      |   | 519,089 |  
|                                                                                                       |  |              |         |      |   |         |  
|Total Liabilities and Shareholders Equity                                                             |  | $            | 953,969 |      | $ | 832,172 |  
|                                                                                                       |  |              |         |      |   |         |  

See accompanying Notes to Consolidated Financial Statements.



52



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FEI Company and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)



|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                        |  | For the Year Ended December 31, |        
|                                                        |  | 2009                            |         |   | 2008 |   |         | 2007 | 
|Net Sales:                                              |  |                                 |         |   |      |   |         |      |  |   |         |  
|Products                                                |  | $                               | 439,125 |   |      | $ | 459,383 |      |  | $ | 464,191 |  
|Products - related party                                |  |                                 | 578     |   |      |   | 2,123   |      |  |   | 897     |  
|Service and components                                  |  |                                 | 137,361 |   |      |   | 137,314 |      |  |   | 127,101 |  
|Service and components - related party                  |  |                                 | 280     |   |      |   | 359     |      |  |   | 321     |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Total net sales                                         |  |                                 | 577,344 |   |      |   | 599,179 |      |  |   | 592,510 |  
|                                                        |  |                                 |        
|Cost of Sales:                                          |  |                                 |         |   |      |   |         |      |  |   |         |  
|Products                                                |  |                                 | 252,307 |   |      |   | 265,543 |      |  |   | 252,546 |  
|Service and components                                  |  |                                 | 95,533  |   |      |   | 99,095  |      |  |   | 93,544  |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Total cost of sales                                     |  |                                 | 347,840 |   |      |   | 364,638 |      |  |   | 346,090 |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Gross Profit                                            |  |                                 | 229,504 |   |      |   | 234,541 |      |  |   | 246,420 |  
|                                                        |  |                                 |        
|Operating Expenses:                                     |  |                                 |         |   |      |   |         |      |  |   |         |  
|Research and development                                |  |                                 | 67,698  |   |      |   | 70,378  |      |  |   | 66,042  |  
|Selling, general and administrative                     |  |                                 | 126,728 |   |      |   | 128,768 |      |  |   | 125,937 |  
|Restructuring, reorganization, relocation and severance |  |                                 | 3,456   |   |      |   | 4,267   |      |  |   | (272    | )
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                |  |                                 | 197,882 |   |      |   | 203,413 |      |  |   | 191,707 |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Operating Income                                        |  |                                 | 31,622  |   |      |   | 31,128  |      |  |   | 54,713  |  
|                                                        |  |                                 |        
|Other Income (Expense):                                 |  |                                 |         |   |      |   |         |      |  |   |         |  
|Interest income                                         |  |                                 | 2,880   |   |      |   | 14,362  |      |  |   | 22,372  |  
|Interest expense                                        |  |                                 | (5,441  | ) |      |   | (14,220 | )    |  |   | (20,533 | )
|Other, net                                              |  |                                 | (1,400  | ) |      |   | (4,670  | )    |  |   | (2,325  | )
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Total other income (expense), net                       |  |                                 | (3,961  | ) |      |   | (4,528  | )    |  |   | (486    | )
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations before income taxes   |  |                                 | 27,661  |   |      |   | 26,600  |      |  |   | 54,227  |  
|Income tax expense                                      |  |                                 | 5,017   |   |      |   | 8,612   |      |  |   | 8,077   |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income from continuing operations                       |  |                                 | 22,644  |   |      |   | 17,988  |      |  |   | 46,150  |  
|Gain on disposal of discontinued operations, net of tax |  |                                 |        |   |      |   |        |      |  |   | 390     |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net income                                              |  | $                               | 22,644  |   |      | $ | 17,988  |      |  | $ | 46,540  |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Basic income per share from continuing operations       |  | $                               | 0.60    |   |      | $ | 0.49    |      |  | $ | 1.29    |  
|Basic income per share from discontinued operations     |  |                                 |        |   |      |   |        |      |  |   | 0.01    |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Basic net income per share                              |  | $                               | 0.60    |   |      | $ | 0.49    |      |  | $ | 1.30    |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Diluted income per share from continuing operations     |  | $                               | 0.60    |   |      | $ | 0.48    |      |  | $ | 1.23    |  
|Diluted income per share from discontinued operations   |  |                                 |        |   |      |   |        |      |  |   | 0.01    |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Diluted net income per share                            |  | $                               | 0.60    |   |      | $ | 0.48    |      |  | $ | 1.24    |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Shares used in per share calculations:                  |  |                                 |         |   |      |   |         |      |  |   |         |  
|Basic                                                   |  |                                 | 37,537  |   |      |   | 36,766  |      |  |   | 35,709  |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  
|Diluted                                                 |  |                                 | 37,905  |   |      |   | 37,158  |      |  |   | 40,725  |  
|                                                        |  |                                 |         |   |      |   |         |      |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.



53



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FEI Company and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)



|                                                                                                              |  |                                 |        |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                              |  | For the Year Ended December 31, |       
|                                                                                                              |  | 2009                            |        |   | 2008 |   |         | 2007 | 
|Net income                                                                                                    |  | $                               | 22,644 |   |      | $ | 17,988  |      |  | $ | 46,540 |  
|Other comprehensive income, net of tax:                                                                       |  |                                 |        |   |      |   |         |      |  |   |        |  
|Change in cumulative translation adjustment                                                                   |  |                                 | 8,945  |   |      |   | (11,169 | )    |  |   | 26,486 |  
|Change in unrealized loss on available-for-sale securities                                                    |  |                                 | (66    | ) |      |   | (11,720 | )    |  |   | 415    |  
|Change in minimum pension liability                                                                           |  |                                 | (36    | ) |      |   | 498     |      |  |   | 204    |  
|Reclassification of auction rate securities unrealized losses to other income, net                            |  |                                 |       |   |      |   | 11,686  |      |  |   |       |  
|Changes due to cash flow hedging instruments:                                                                 |  |                                 |        |   |      |   |         |      |  |   |        |  
|Net gain on hedge instruments                                                                                 |  |                                 | 440    |   |      |   | 2,192   |      |  |   | 5,494  |  
|Reclassification to net income of previously deferred losses (gains) related to hedge derivatives instruments |  |                                 | 844    |   |      |   | (6,215  | )    |  |   | (4,977 | )
|                                                                                                              |  |                                 |        |   |      |   |         |      |  |   |        |  
|Comprehensive income                                                                                          |  | $                               | 32,771 |   |      | $ | 3,260   |      |  | $ | 74,162 |  
|                                                                                                              |  |                                 |        |   |      |   |         |      |  |   |        |  

See accompanying Notes to Consolidated Financial Statements.



54



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##### Table of Contents

FEI Company and Subsidiaries

Consolidated Statements of Shareholders Equity

For The Years Ended December 31, 2009, 2008 and 2007

(In thousands)



|                                                                                                        |              |        |   |        |   |         |   |                           |   |         |                                     |  |   |                          |   |  |   |         |  
|------------------------------------------------------------------------------------------------------- | ------------ | ------ | - | ------ | - | ------- | - | ------------------------- | - | ------- | ----------------------------------- |  | - | ------------------------ | - |  | - | ------- | -
|                                                                                                        |              |        |   |        |   |         |   | RetainedEarnings(Deficit) |   |         | AccumulatedOtherComprehensiveIncome |  |   | TotalShareholdersEquity |  
|                                                                                                        |              |        |   |       
|                                                                                                        | Common Stock |        |   |        |  
|                                                                                                        | Shares       |        |   | Amount |   |         |   |                          
|Balance at December 31, 2006                                                                            |              | 34,052 |   |        | $ | 400,347 |   |                           | $ | (69,797 | )                                   |  | $ | 37,470                   |   |  | $ | 368,020 |  
|                                                                                                        |              |        |   |        |  
|Net income                                                                                              |              |       |   |        |   |        |   |                           |   | 46,540  |                                     |  |   |                         |   |  |   | 46,540  |  
|Employee purchases of common stock through employee share purchase plan                                 |              | 212    |   |        |   | 4,412   |   |                           |   |        |                                     |  |   |                         |   |  |   | 4,412   |  
|Restricted shares issued and stock options exercised related to employee stock-based compensation plans |              | 2,141  |   |        |   | 36,482  |   |                           |   |        |                                     |  |   |                         |   |  |   | 36,482  |  
|Stock-based compensation expense                                                                        |              |       |   |        |   | 7,351   |   |                           |   |        |                                     |  |   |                         |   |  |   | 7,351   |  
|Taxes paid as part of the net share settlement of restricted stock units                                |              |       |   |        |   | 391     |   |                           |   |        |                                     |  |   |                         |   |  |   | 391     |  
|Restricted stock unit taxes for net share settlement                                                    |              |       |   |        |   | (1,211  | ) |                           |   |        |                                     |  |   |                         |   |  |   | (1,211  | )
|Translation adjustment                                                                                  |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 26,486                   |   |  |   | 26,486  |  
|Unrealized gain on available for sale securities                                                        |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 415                      |   |  |   | 415     |  
|Minimum pension liability, net of taxes                                                                 |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 204                      |   |  |   | 204     |  
|Net adjustment for fair value of hedge derivatives                                                      |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 517                      |   |  |   | 517     |  
|Implementation of FIN 48                                                                                |              |       |   |        |   |        |   |                           |   | 4,101   |                                     |  |   |                         |   |  |   | 4,101   |  
|                                                                                                        |              |        |   |        |   |         |   |                           |   |         |                                     |  |   |                          |   |  |   |         |  
|Balance at December 31, 2007                                                                            |              | 36,405 |   |        |   | 447,772 |   |                           |   | (19,156 | )                                   |  |   | 65,092                   |   |  |   | 493,708 |  
|                                                                                                        |              |        |   |        |  
|Net income                                                                                              |              |       |   |        |   |        |   |                           |   | 17,988  |                                     |  |   |                         |   |  |   | 17,988  |  
|Employee purchases of common stock through employee share purchase plan                                 |              | 259    |   |        |   | 4,804   |   |                           |   |        |                                     |  |   |                         |   |  |   | 4,804   |  
|Restricted shares issued and stock options exercised related to employee stock-based compensation plans |              | 585    |   |        |   | 9,280   |   |                           |   |        |                                     |  |   |                         |   |  |   | 9,280   |  
|Stock-based compensation expense                                                                        |              |       |   |        |   | 8,153   |   |                           |   |        |                                     |  |   |                         |   |  |   | 8,153   |  
|Zero coupon convertible note settlement                                                                 |              | 37     |   |        |   | 1,013   |   |                           |   |        |                                     |  |   |                         |   |  |   | 1,013   |  
|Reclassification of auction rate securities unrealized losses to other income, net                      |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 11,686                   |   |  |   | 11,686  |  
|Taxes paid as part of the net share settlement of restricted stock units                                |              |       |   |        |   | 329     |   |                           |   |        |                                     |  |   |                         |   |  |   | 329     |  
|Restricted stock unit taxes for net share settlement                                                    |              |       |   |        |   | (1,458  | ) |                           |   |        |                                     |  |   |                         |   |  |   | (1,458  | )
|Translation adjustment                                                                                  |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | (11,169                  | ) |  |   | (11,169 | )
|Unrealized loss on available for sale securities                                                        |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | (11,720                  | ) |  |   | (11,720 | )
|Minimum pension liability, net of taxes                                                                 |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 498                      |   |  |   | 498     |  
|Net adjustment for fair value of hedge derivatives                                                      |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | (4,023                   | ) |  |   | (4,023  | )
|                                                                                                        |              |        |   |        |   |         |   |                           |   |         |                                     |  |   |                          |   |  |   |         |  
|Balance at December 31, 2008                                                                            |              | 37,286 |   |        |   | 469,893 |   |                           |   | (1,168  | )                                   |  |   | 50,364                   |   |  |   | 519,089 |  
|                                                                                                        |              |        |   |        |  
|Net income                                                                                              |              |       |   |        |   |        |   |                           |   | 22,644  |                                     |  |   |                         |   |  |   | 22,644  |  
|Employee purchases of common stock through employee share purchase plan                                 |              | 271    |   |        |   | 4,662   |   |                           |   |        |                                     |  |   |                         |   |  |   | 4,662   |  
|Restricted shares issued and stock options exercised related to employee stock-based compensation plans |              | 386    |   |        |   | 2,260   |   |                           |   |        |                                     |  |   |                         |   |  |   | 2,260   |  
|Stock-based compensation expense                                                                        |              |       |   |        |   | 10,598  |   |                           |   |        |                                     |  |   |                         |   |  |   | 10,598  |  
|Restricted stock unit taxes for net share settlement                                                    |              | (84    | ) |        |   | (1,856  | ) |                           |   |        |                                     |  |   |                         |   |  |   | (1,856  | )
|Translation adjustment                                                                                  |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 8,945                    |   |  |   | 8,945   |  
|Unrealized loss on available for sale securities                                                        |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | (66                      | ) |  |   | (66     | )
|Minimum pension liability, net of taxes                                                                 |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | (36                      | ) |  |   | (36     | )
|Net adjustment for fair value of hedge derivatives                                                      |              |       |   |        |   |        |   |                           |   |        |                                     |  |   | 1,284                    |   |  |   | 1,284   |  
|                                                                                                        |              |        |   |        |   |         |   |                           |   |         |                                     |  |   |                          |   |  |   |         |  
|Balance at December 31, 2009                                                                            |              | 37,859 |   |        | $ | 485,557 |   |                           | $ | 21,476  |                                     |  | $ | 60,491                   |   |  | $ | 567,524 |  
|                                                                                                        |              |        |   |        |   |         |   |                           |   |         |                                     |  |   |                          |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.



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FEI Company and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)



|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                            |  | For the Year Ended December 31, |         
|                                                                                            |  | 2009                            |          |   | 2008 |   |          | 2007 | 
|Cash flows from operating activities:                                                       |  |                                 |          |   |      |   |          |      |  |   |          |  
|Net income                                                                                  |  | $                               | 22,644   |   |      | $ | 17,988   |      |  | $ | 46,540   |  
|Adjustments to reconcile net income to net cash provided by operating activities:           |  |                                 |          |   |      |   |          |      |  |   |          |  
|Depreciation                                                                                |  |                                 | 17,140   |   |      |   | 16,481   |      |  |   | 13,690   |  
|Amortization                                                                                |  |                                 | 3,092    |   |      |   | 10,589   |      |  |   | 15,400   |  
|Stock-based compensation                                                                    |  |                                 | 10,599   |   |      |   | 8,153    |      |  |   | 7,351    |  
|Gain on trading securities and UBS Put Right                                                |  |                                 | (501     | ) |      |   |         |      |  |   |         |  
|Asset impairments and write-offs of property, plant and equipment and other assets          |  |                                 |         |   |      |   | 528      |      |  |   |         |  
|Loss (gain) on disposal of investments, property, plant and equipment and intangible assets |  |                                 | 277      |   |      |   | 274      |      |  |   | (3       | )
|Write-off of deferred note issuance costs on redemption                                     |  |                                 | 250      |   |      |   | 226      |      |  |   |         |  
|Gain on redemption of 2.875% convertible note                                               |  |                                 | (2,025   | ) |      |   |         |      |  |   |         |  
|Other                                                                                       |  |                                 |         |   |      |   |         |      |  |   | 391      |  
|Income taxes receivable (payable), net                                                      |  |                                 | 3,313    |   |      |   | 7,862    |      |  |   | 3,824    |  
|Deferred income taxes                                                                       |  |                                 | (869     | ) |      |   | 2,536    |      |  |   | (1,498   | )
|Gain on disposal of discontinued operations                                                 |  |                                 |         |   |      |   |         |      |  |   | (390     | )
|(Increase) decrease in:                                                                     |  |                                 |          |   |      |   |          |      |  |   |          |  
|Receivables                                                                                 |  |                                 | (8,678   | ) |      |   | 16,680   |      |  |   | (1,911   | )
|Inventories                                                                                 |  |                                 | (1,160   | ) |      |   | (15,439  | )    |  |   | (34,772  | )
|Other assets                                                                                |  |                                 | (1,120   | ) |      |   | (799     | )    |  |   | (1,817   | )
|Increase (decrease) in:                                                                     |  |                                 |          |   |      |   |          |      |  |   |          |  
|Accounts payable                                                                            |  |                                 | 4,916    |   |      |   | 4,000    |      |  |   | (18,654  | )
|Accrued payroll liabilities                                                                 |  |                                 | (1,053   | ) |      |   | (6,421   | )    |  |   | 3,371    |  
|Accrued warranty reserves                                                                   |  |                                 | 1,015    |   |      |   | (109     | )    |  |   | 556      |  
|Deferred revenue                                                                            |  |                                 | 20,036   |   |      |   | (16,184  | )    |  |   | 16,664   |  
|Accrued restructuring, reorganization, relocation and severance costs                       |  |                                 | (205     | ) |      |   | (237     | )    |  |   | (1,927   | )
|Other liabilities                                                                           |  |                                 | 380      |   |      |   | 8,407    |      |  |   | 4,731    |  
|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                   |  |                                 | 68,051   |   |      |   | 54,535   |      |  |   | 51,546   |  
|                                                                                            |  |                                 |         
|Cash flows from investing activities:                                                       |  |                                 |          |   |      |   |          |      |  |   |          |  
|Increase in restricted cash                                                                 |  |                                 | (5,810   | ) |      |   | (1,537   | )    |  |   | (17,075  | )
|Acquisition of property, plant and equipment                                                |  |                                 | (13,430  | ) |      |   | (13,482  | )    |  |   | (18,483  | )
|Proceeds from disposal of property, plant and equipment                                     |  |                                 | 30       |   |      |   | 1        |      |  |   | 5        |  
|Purchase of investments in marketable securities                                            |  |                                 | (190,654 | ) |      |   | (93,857  | )    |  |   | (247,820 | )
|Redemption of investments in marketable securities                                          |  |                                 | 61,107   |   |      |   | 112,449  |      |  |   | 353,560  |  
|Proceeds from the sale of auction rate securities                                           |  |                                 | 11,200   |   |      |   |         |      |  |   |         |  
|Other                                                                                       |  |                                 | (4,570   | ) |      |   | (3,286   | )    |  |   | (268     | )
|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|Net cash (used in) provided by investing activities                                         |  |                                 | (142,127 | ) |      |   | 288      |      |  |   | 69,919   |  
|                                                                                            |  |                                 |         
|Cash flows from financing activities:                                                       |  |                                 |          |   |      |   |          |      |  |   |          |  
|Redemption of convertible notes                                                             |  |                                 | (13,077  | ) |      |   | (194,869 | )    |  |   |         |  
|Proceeds from line of credit                                                                |  |                                 | 70,800   |   |      |   |         |      |  |   |         |  
|Repayments on line of credit                                                                |  |                                 | (11,200  | ) |      |   |         |      |  |   |         |  
|Proceeds from exercise of stock options and employee stock purchases                        |  |                                 | 6,871    |   |      |   | 14,097   |      |  |   | 40,894   |  
|Other                                                                                       |  |                                 | (1,856   | ) |      |   | (1,947   | )    |  |   | (1,213   | )
|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                                         |  |                                 | 51,538   |   |      |   | (182,719 | )    |  |   | 39,681   |  
|                                                                                            |  |                                 |         
|Effect of exchange rate changes                                                             |  |                                 | 216      |   |      |   | (6,176   | )    |  |   | 8,791    |  
|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|(Decrease) increase in cash and cash equivalents                                            |  |                                 | (22,322  | ) |      |   | (134,072 | )    |  |   | 169,937  |  
|                                                                                            |  |                                 |         
|Cash and cash equivalents:                                                                  |  |                                 |          |   |      |   |          |      |  |   |          |  
|Beginning of year                                                                           |  |                                 | 146,521  |   |      |   | 280,593  |      |  |   | 110,656  |  
|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|End of year                                                                                 |  | $                               | 124,199  |   |      | $ | 146,521  |      |  | $ | 280,593  |  
|                                                                                            |  |                                 |          |   |      |   |          |      |  |   |          |  
|Supplemental Cash Flow Information:                                                         |  |                                 |          |   |      |   |          |      |  |   |          |  
|Cash paid (refunds received) for income taxes, net                                          |  | $                               | 2,391    |   |      | $ | (2,780   | )    |  | $ | (5,194   | )
|Cash paid for interest                                                                      |  |                                 | 4,581    |   |      |   | 7,783    |      |  |   | 7,061    |  
|Inventories transferred to fixed assets                                                     |  |                                 | 8,297    |   |      |   | 7,240    |      |  |   | 7,313    |  
|Notes payable issued to acquire intangible assets                                           |  |                                 |         |   |      |   |         |      |  |   | 4,014    |  

See accompanying Notes
to Consolidated Financial Statements.



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FEI COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

We are a leading supplier of instruments for nanoscale imaging, analysis and prototyping to enable research, development and manufacturing in a range of
industrial, academic and research institutional applications. We report our revenue based on a market-focused organization: the Electronics market segment, the Research and Industry market segment, the Life Sciences market segment and the Service
and Components market segment.

Our products include focused ion beam systems, or FIBs; scanning electron microscopes, or SEMs; transmission
electron microscopes, or TEMs; and DualBeam systems, which combine a FIB and SEM on a single platform.

Our DualBeam systems
include models that have wafer handling capability and are purchased by semiconductor and data storage manufacturers (wafer-level DualBeamsystems) and models that have small stages and are sold to customers in several markets
(small-stage DualBeamsystems).

We have research, development and manufacturing operations in Hillsboro, Oregon;
Eindhoven, The Netherlands; and Brno, Czech Republic. Our sales and service operations are conducted in the U.S. and approximately 50 other countries around the world. We also sell our products through independent agents, distributors and
representatives in additional countries.

Basis of Presentation

The consolidated financial statements include the accounts of FEI Company and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Financial Reporting

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts 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 reporting period. Significant accounting
policies and estimates underlying the accompanying consolidated financial statements include:



| |  |  | the timing of revenue recognition;
| | - |  | ----------------------------------



| |  |  | the allowance for doubtful accounts;
| | - |  | ------------------------------------



| |  |  | valuations of excess and obsolete inventory;
| | - |  | --------------------------------------------



| |  |  | the lives and recoverability of equipment and other long-lived assets such as goodwill;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | restructuring, reorganization, relocation and severance costs;
| | - |  | --------------------------------------------------------------



| |  |  | accounting for income taxes;
| | - |  | ----------------------------



| |  |  | warranty liabilities;
| | - |  | ---------------------



| |  |  | stock-based compensation;
| | - |  | -------------------------



| |  |  | accounting for derivatives;
| | - |  | ---------------------------



| |  |  | valuation of investments in auction rate securities (ARS); and
| | - |  | ----------------------------------------------------------------



| |  |  | valuation of UBS Financial Services Inc. (UBS) put right.
| | - |  | -----------------------------------------------------------

It is reasonably possible that the estimates we make may change in the future.



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Concentration of Credit Risk

Instruments that potentially subject us to concentration of credit risk consist principally of cash and cash equivalents, short-term investments and receivables. Our investment policy limits investments
with any one issuer to 10% or less of the total investment portfolio, with the exception of money market funds and securities issued by the U.S. government or its agencies which may comprise up to 100% of the total investment portfolio. Our exposure
to credit risk concentrations within our receivables balance is limited due to the large number of entities comprising our customer base and their dispersion across many different industries and geographies.

Dependence on Key Suppliers

Failure
of critical suppliers of parts, components and manufacturing equipment to deliver sufficient quantities to us in a timely and cost-effective manner could negatively affect our business, including our ability to convert backlog into revenue. We
currently use numerous vendors to supply parts, components and subassemblies for the manufacture and support of our products. Some key parts, however, may only be obtained from a single supplier or a limited group of suppliers. In particular, we
rely on: AP Tech, Frencken Mechatronics B.V., Sanmina-SCI Corporation and AZD Praha SRO for our supply of mechanical parts and subassemblies; Gatan, Inc. for critical accessory products; and Neways Electronics, N.V. for some of our electronic
subassemblies. In addition, some of our suppliers rely on sole suppliers. As a result of this concentration of key suppliers, our results of operations may be materially and adversely affected if we do not timely and cost-effectively receive a
sufficient quantity of quality parts to meet our production requirements or if we are required to find alternative suppliers for these supplies. We may not be able to expand our supplier group or to reduce our dependence on single suppliers. If our
suppliers are not able to meet our supply requirements, constraints may affect our ability to deliver products to customers in a timely manner, which could have an adverse effect on our results of operations. In addition, world-wide restrictions
governing the use of certain hazardous substances in electrical and electronic equipment (RoHS regulations) may impact parts and component availability or our electronics suppliers ability to source parts and components in a timely and
cost-effective manner. Overall, because we only have a few equipment suppliers, we may be more exposed to future cost increases for this equipment.

In addition, we rely on a limited number of equipment manufacturers to develop and supply the equipment we use to manufacture our products. The failure of these manufacturers to develop or deliver quality equipment on a timely basis could
have a material adverse effect on our business and results of operations. In addition, because we only have a few equipment suppliers, we may be more exposed to future cost increases for this equipment.

Cash and Cash Equivalents

Cash and
cash equivalents include cash deposits in banks, money market funds and other highly liquid marketable securities with maturities of three months or less at the date of acquisition.

Restricted Cash

Our restricted cash balances are held in deposit accounts with
banks that have issued guarantees and letters of credit to our customers for system sales transactions and customer advance deposits relating to prepayments for service contracts, mainly in Europe and Asia. This restricted cash can be drawn on by
the bank if goods are not delivered or services are not properly performed. In addition, while the restricted cash is held in the bank it is earning interest. Given these deposit accounts require satisfaction of conditions other than a withdrawal
demand for us to receive a return of principal, are interest bearing and are held for extended periods of time, we have concluded these balances are similar in nature to our other investments and that inclusion in investing activities on our
statement of cash flows is appropriate and consistent with our treatment of other investments. Restricted cash balances securing bank guarantees that expire within 12 months of the balance sheet date are recorded as a current asset on our
consolidated balance sheets. Restricted cash balances securing bank guarantees that expire beyond 12 months from the balance sheet date are recorded as long-term restricted cash on our consolidated balance sheets.



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Accounts Receivable

Activity within our accounts receivable allowance for the three-year period ended December 31, 2009 was as follows (in thousands):



|                           |  |   |        |  
|-------------------------- |  | - | ------ | -
|Balance, December 31, 2006 |  | $ | 4,181  |  
|Expense                    |  |   | 939    |  
|Write-offs                 |  |   | (1,549 | )
|Translation adjustments    |  |   | 248    |  
|                           |  |   |        |  
|Balance, December 31, 2007 |  |   | 3,819  |  
|Expense                    |  |   | 1,125  |  
|Write-offs                 |  |   | (1,787 | )
|Translation adjustments    |  |   | (18    | )
|                           |  |   |        |  
|Balance, December 31, 2008 |  |   | 3,139  |  
|Expense                    |  |   | 628    |  
|Write-offs                 |  |   | (525   | )
|Translation adjustments    |  |   | 64     |  
|                           |  |   |        |  
|Balance, December 31, 2009 |  | $ | 3,306  |  
|                           |  |   |        |  

Write-offs include amounts written off for specifically identified bad debts.

Marketable Securities

Our
investments include marketable debt securities, certificates of deposit, commercial paper and government-backed securities with maturities greater than 90 days at the time of purchase. Our fixed maturity securities, other than our ARS, are
classified as available-for-sale securities and, accordingly, are carried at fair value, based on quoted market prices, with the unrealized gains or losses reported, net of tax, in shareholders equity as a component of accumulated other
comprehensive income (loss).

Certain equity securities held in short-term and long-term investments related to the executive deferred
compensation plan, as well as our ARS, are classified as trading securities (see Notes 3 and 4). Investments designated as trading securities are carried at fair value on the balance sheet, with the unrealized gains or losses recorded in interest
income (expense) or other income (expense) in the period incurred.

Realized gains and losses on all investments are recorded on the specific
identification method and are included in interest income (expense) or other income (expense) in the period incurred. Investments with maturities greater than 12 months from the balance sheet date are classified as non-current investments, unless
they are expected to be liquidated within the next 12 months; in which case, the investment is classified as current.

Inventories

Inventories are stated at the lower of cost or market, with cost determined by standard cost methods, which approximate the first-in,
first-out method. Inventory costs include material, labor and manufacturing overhead. Service inventories that exceed the estimated requirements for the next 12 months based on recent usage levels are reported as other long-term assets. Management
has established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory.

Manufacturing inventory is
reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in
support plans or technology could have a significant impact on obsolescence.

To support our world-wide service operations, we maintain
service spare parts inventory, which consists of both consumable and repairable spare parts. Consumable service spare parts are used within our service business to replace worn or damaged parts in a system during a service call and are generally
classified in current inventory as our stock of this inventory turns relatively quickly. However, if there has been no recent usage for a consumable service spare part, but the part is still necessary to support systems under service contracts, the
part is considered to be non-current and included within non-current inventories within our consolidated balance sheet. Consumables are charged to cost of goods sold when issued during the service call.



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We also maintain a substantial supply of repairable and reusable spare parts for possible use in future
repairs and customer field service of our install base. We have classified this inventory as a long-term asset given these parts can be repaired and reused in the service business over many years. As these service parts age over the related product
groups post-production service life, we reduce the net carrying value of our repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of our
systems is generally seven years and, at the end of seven years, the carrying value for these parts in our consolidated balance sheet is reduced to zero. We also perform periodic monitoring of our installed base for premature end of service life
events and expense, through cost of sales, the remaining net carrying value of any related spare parts inventory in the period incurred.

The
activity in our manufacturing inventory and our service spare parts inventory valuation allowance accounts was as follows (in thousands):



|                           |  |                                           |        |   |                                                 |   |        |  
|-------------------------- |  | ----------------------------------------- | ------ | - | ----------------------------------------------- | - | ------ | -
|                           |  | ManufacturingInventory ValuationAllowance |        |   | Service Spare PartsInventory ValuationAllowance |  
|Balance, December 31, 2006 |  | $                                         | 10,103 |   |                                                 | $ | 10,367 |  
|Expense                    |  |                                           | 994    |   |                                                 |   | 3,963  |  
|Write-offs                 |  |                                           | (5,283 | ) |                                                 |   | (129   | )
|Translation adjustments    |  |                                           | 215    |   |                                                 |   | 745    |  
|                           |  |                                           |        |   |                                                 |   |        |  
|Balance, December 31, 2007 |  |                                           | 6,029  |   |                                                 |   | 14,946 |  
|Expense                    |  |                                           | 1,738  |   |                                                 |   | 4,341  |  
|Write-offs                 |  |                                           | (1,455 | ) |                                                 |   | (3,187 | )
|Translation adjustments    |  |                                           | (139   | ) |                                                 |   | (65    | )
|                           |  |                                           |        |   |                                                 |   |        |  
|Balance, December 31, 2008 |  |                                           | 6,173  |   |                                                 |   | 16,035 |  
|Expense                    |  |                                           | 4,118  |   |                                                 |   | 7,021  |  
|Write-offs                 |  |                                           | (2,087 | ) |                                                 |   | (3,240 | )
|Translation adjustments    |  |                                           | 145    |   |                                                 |   | 159    |  
|                           |  |                                           |        |   |                                                 |   |        |  
|Balance, December 31, 2009 |  | $                                         | 8,349  |   |                                                 | $ | 19,975 |  
|                           |  |                                           |        |   |                                                 |   |        |  

Write-offs include amounts written off for specifically identified inventory items.

Income Taxes

We account for income
taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of the assets and
liabilities. We record a valuation allowance to reduce deferred tax assets to the amount expected to more likely than not be realized in our future tax returns. During 2009, 2008 and 2007, we released approximately $3.9 million, $0.5
million and $5.3 million, respectively, in valuation allowance relating to U.S. deferred tax assets utilized to offset U.S. taxable income generated during the respective periods. Should we determine that we would not be able to realize all or part
of our remaining net deferred tax assets in the future, increases to the valuation allowance for deferred tax assets may be required. Conversely, if we determine that certain tax assets that have been reserved for may be realized in the future, we
may reduce our valuation allowance in future periods. Our net deferred tax assets totaled $1.6 million and $0.6 million, respectively, at December 31, 2009 and 2008 and our valuation allowance totaled $38.0 million and $42.8 million,
respectively.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income
tax positions and record tax benefits for all years subject to examination based upon managements evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not
that a tax benefit will be sustained, we have



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recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate or effective settlement with a taxing authority that has full knowledge of all
relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. When applicable, associated interest and penalties have
been recognized as a component of income tax expense.

At December 31, 2009 and 2008, the liabilities related to total unrecognized tax
benefits were $20.2 million and $18.4 million respectively, all of which would have an impact on the effective tax rate if recognized. Included in the liabilities for unrecognized tax benefits were accruals for interest and penalties of $2.2 million
and $1.7 million, respectively. Unrecognized tax benefits relate mainly to uncertainty surrounding intercompany pricing and permanent establishment. See Note 12 of Notes to Consolidated Financial Statements for additional information.

Property, Plant and Equipment

Land
is stated at cost. Buildings and improvements are stated at cost and depreciated over estimated useful lives of approximately 40 years using the straight-line method. Machinery and equipment, including systems used in research and development
activities, production and in demonstration laboratories, are stated at cost and depreciated over estimated useful lives of approximately three to seven years using the straight-line method. Leasehold improvements are amortized over the shorter of
their economic lives or the lease term. Maintenance and repairs are expensed as incurred.

Demonstration systems consist primarily of
internally manufactured products and related accessories that we use for marketing purposes in our demonstration laboratories (NanoPorts) or for trade shows. These systems are not held for sale and accordingly are recorded as a component
of property, plant and equipment and depreciated using the straight-line method over their expected useful lives of approximately three to seven years with the expense being reflected as a component of selling, general and administrative.

On occasion we loan systems to customers on a temporary basis while they wait for their tool to be manufactured or for evaluation. These
systems are included in our finished goods inventories and the lending/evaluation periods are typically for a time period of less than one year. The sale of disposable products or services is not typically included in these arrangements. Any expense
associated with these systems is recorded as a component of cost of sales.

Additionally, we lease systems to customers as operating type
leases where we are the lessor. Under the operating method, rental revenue is recognized over the lease period. The leased asset is depreciated over the life of the lease. In addition to the depreciation charge, maintenance costs and
the cost of any other services rendered under the provision of the lease that pertain to the current accounting period are charged to expense.

Long-Lived Asset Impairment

We evaluate the remaining life and recoverability of equipment and other assets that are to
be held and used, including purchased technology and other intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If there is an indication of
impairment, we prepare an estimate of future, undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying value of the asset, we adjust the carrying amount of the
asset to its estimated fair value. Long-lived assets to be disposed of by sale are valued at the lower of book value or fair value less cost to sell.

Goodwill

Goodwill represents the excess purchase price over fair value of net assets acquired. Goodwill and other
identifiable intangible assets with indefinite useful lives are not amortized, but, instead, a two-step impairment test is performed at least annually. We test goodwill for impairment in the fourth quarter of each year. First, the fair value of each
reporting unit is compared to its carrying value. We have defined our reporting units to be our operating segments. Fair value is determined based on the present value of



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estimated cash flows using available information regarding expected cash flows of each reporting unit, discount rates and the expected long-term cash flow growth rates. Discount rates are
determined based on the cost of capital for the reporting unit. If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value
exceeds the fair value. The implied fair value of the reporting units goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, an
impairment loss equal to the difference will be recorded. No impairments were identified in step one of our annual analysis during the fourth quarter of 2009, 2008 or 2007.

Segment Reporting

We have determined that we operate in four reportable operating
segments: Electronics, Research and Industry, Life Sciences and Service and Components. There are no differences between the accounting policies used for our business segments compared to those used on a consolidated basis.

Revenue Recognition

We recognize
revenue when persuasive evidence of a contractual arrangement exists, delivery has occurred or services have been rendered, the sellers price to the buyer is fixed and determinable, and collectibility is reasonably assured.

For products demonstrated to meet our published specifications, revenue is recognized when the title to the product and the risks and rewards of ownership
pass to the customer. The portion of revenue related to installation and final acceptance, of which the estimated fair value is generally 4% of the total revenue of the transaction, is deferred until such installation and final customer acceptance
are completed. For products produced according to a particular customers specifications, revenue is recognized when the product meets the customers specifications and when the title and the risks and rewards of ownership have passed to
the customer. In each case, the portion of revenue applicable to installation and customer acceptance is recognized upon meeting specifications at the installation site. For new applications of our products where performance cannot be assured prior
to meeting specifications at the installation site, no revenue is recognized until such specifications are met.

For sales arrangements
containing multiple elements (products or services), revenue relating to undelivered elements is deferred at the estimated fair value until delivery of the deferred elements. To be considered a separate element, the product or service in question
must represent a separate unit under accounting rules and fulfill the following criteria: the delivered item(s) has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of the undelivered item(s);
and, if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the arrangement does not meet all criteria
above, the entire amount of the transaction is deferred until all elements are delivered.

We provide maintenance and support services under
renewable, term maintenance agreements. Maintenance and support fee revenue is recognized ratably over the contractual term, which is generally 12 months, and commences from contract date.

Revenue from time and materials based service arrangements is recognized as the service is performed. Spare parts revenue is generally recognized upon
shipment.

Deferred Revenue

Deferred revenue represents customer deposits on equipment orders, orders awaiting customer acceptance and prepaid service contract revenue. Deferred revenue is recognized in accordance with our revenue recognition policies described above.



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Product Warranty Costs

Our products generally carry a one-year warranty. A reserve is established at the time of sale to cover estimated warranty costs as a component of cost of sales on our consolidated statements of
operations. Our estimate of warranty cost is based on our history of warranty repairs and maintenance. While most new products are extensions of existing technology, the estimate could change if new products require a significantly different level
of repair and maintenance than similar products have required in the past. Our estimated warranty costs are reviewed and updated on a quarterly basis. Historically, we have not made significant adjustments to our estimates.

A roll-forward of our warranty liability was as follows (in thousands):



|                                       |  |   |         |  
|-------------------------------------- |  | - | ------- | -
|Balance, December 31, 2006             |  | $ | 5,716   |  
|Reductions for warranty costs incurred |  |   | (15,124 | )
|Warranties issued                      |  |   | 15,950  |  
|Translation adjustments                |  |   | 43      |  
|                                       |  |   |         |  
|Balance, December 31, 2007             |  |   | 6,585   |  
|Reductions for warranty costs incurred |  |   | (10,708 | )
|Warranties issued                      |  |   | 10,622  |  
|Translation adjustments                |  |   | (60     | )
|                                       |  |   |         |  
|Balance, December 31, 2008             |  |   | 6,439   |  
|Reductions for warranty costs incurred |  |   | (9,751  | )
|Warranties issued                      |  |   | 10,727  |  
|Translation adjustments                |  |   | 62      |  
|                                       |  |   |         |  
|Balance, December 31, 2009             |  | $ | 7,477   |  
|                                       |  |   |         |  

Research and Development

Research and development costs are expensed as incurred. We periodically receive funds from various organizations to subsidize our research and development. These funds are reported as an offset to
research and development expense. These subsidies totaled $6.7 million, $3.9 million and $4.0 million in 2009, 2008 and 2007, respectively. Subsidies have increased as the projects available for subsidies, primarily in The Netherlands and the U.S.,
have increased.

Advertising

Advertising costs are expensed as incurred and are included as a component of selling, general and administrative costs on our consolidated statements of operations. Advertising expense totaled $2.4 million, $3.7 million and $3.5 million in
2009, 2008 and 2007, respectively.

Restructuring, Reorganization, Relocation and Severance

Liabilities for costs associated with exit or disposal activities are recognized and measured at fair value in the period the liability is incurred.



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Computation of Per Share Amounts

Following is a reconciliation of basic earnings per share (EPS) and diluted EPS (in thousands, except per share amounts):



|                                                                                            |  |                         |        |        |        |                 |   |            |  |        |        |                 |        |  |   |       |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ------ | ------ | --------------- | - | ---------- |  | ------ | ------ | --------------- | ------ |  | - | ----- | -
|                                                                                            |  | Year Ended December 31, |       
|                                                                                            |  | 2009                    |        | 2008   |       
|                                                                                            |  | Net Income              |        | Shares |        | Per ShareAmount |   | Net Income |  | Shares |        | Per ShareAmount |       
|Basic EPS                                                                                   |  | $                       | 22,644 |        | 37,537 |                 | $ | 0.60       |  | $      | 17,988 |                 | 36,766 |  | $ | 0.49  |  
|Dilutive effect of stock options calculated using the treasury stock method                 |  |                         |       |        | 108    |                 |   |           |  |        |       |                 | 168    |  |   | (0.01 | )
|Dilutive effect of restricted shares                                                        |  |                         |       |        | 90     |                 |   |           |  |        |       |                 | 39     |  |   |      |  
|Dilutive effect of shares issuable to Philips                                               |  |                         |       |        | 170    |                 |   |           |  |        |       |                 | 185    |  |   |      |  
|                                                                                            |  |                         |        |        |        |                 |   |            |  |        |        |                 |        |  |   |       |  
|Diluted EPS                                                                                 |  | $                       | 22,644 |        | 37,905 |                 | $ | 0.60       |  | $      | 17,988 |                 | 37,158 |  | $ | 0.48  |  
|                                                                                            |  |                         |        |        |        |                 |   |            |  |        |        |                 |        |  |   |       |  
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                         |        |        |        |                 |   |            |  |        |        |                 |        |  |   |       |  
|Stock options, restricted shares and restricted stock units                                 |  |                         |        |        | 961    |                 |   |            |  |        |        |                 |       |  |   |       |  
|                                                                                            |  |                         |        |        |        |                 |   |            |  |        |        |                 |        |  |   |       |  
|Convertible debt                                                                            |  |                         |        |        | 3,407  |                 |   |            |  |        |        |                 | 3,918  |  |   |       |  
|                                                                                            |  |                         |        |        |        |                 |   |            |  |        |        |                 |        |  |   |       |  



|                                                                                            |  |                              |        |        |        |                 |   |       |  
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | ------ | ------ | --------------- | - | ----- | -
|                                                                                            |  | Year Ended December 31, 2007 |       
|                                                                                            |  | Net Income                   |        | Shares |        | Per ShareAmount |  
|Basic EPS                                                                                   |  | $                            | 46,540 |        | 35,709 |                 | $ | 1.30  |  
|Dilutive effect of 2.875% convertible subordinated notes                                    |  |                              | 3,756  |        | 3,918  |                 |   | (0.03 | )
|Dilutive effect of stock options calculated using the treasury stock method                 |  |                              |       |        | 692    |                 |   | (0.02 | )
|Dilutive effect of restricted shares                                                        |  |                              |       |        | 221    |                 |   | (0.01 | )
|Dilutive effect of shares issuable to Philips                                               |  |                              |       |        | 185    |                 |   |      |  
|                                                                                            |  |                              |        |        |        |                 |   |       |  
|Diluted EPS                                                                                 |  | $                            | 50,296 |        | 40,725 |                 | $ | 1.24  |  
|                                                                                            |  |                              |        |        |        |                 |   |       |  
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                              |        |        |        |                 |   |       |  
|Stock options, restricted shares and restricted stock units                                 |  |                              |        |        | 492    |                 |   |       |  
|                                                                                            |  |                              |        |        |        |                 |   |       |  
|Convertible debt                                                                            |  |                              |        |        | 6,456  |                 |   |       |  
|                                                                                            |  |                              |        |        |        |                 |   |       |  

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based payment awards granted to our employees and directors, including employee stock options, non-vested stock and stock purchases related to
our employee share purchase plan based on the estimated fair value of the award on the grant date. We utilize the Black-Scholes valuation model for valuing our stock option awards.

The use of the Black-Scholes valuation model to estimate the fair value of stock option awards requires us to make judgments on assumptions regarding the risk-free interest rate, expected dividend yield,
expected term and expected volatility over the expected term of the award. The assumptions used in calculating the fair value of stock-based payment awards represent managements best estimates at the time they are made, but these
estimates involve inherent uncertainties and the determination of expense could be materially different in the future.



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We amortize stock-based compensation expense on a straight-line basis over the vesting period of the
individual award with estimated forfeitures considered. Vesting periods are generally four years. Shares to be issued upon the exercise of stock options will come from newly issued shares. The exercise price of issued options equals the grant date
fair value of the underlying shares and the options generally have a legal life of seven years.

Compensation expense is only recognized on
awards that ultimately vest. Therefore, we have reduced the compensation expense to be recognized over the vesting period for anticipated future forfeitures. Forfeiture estimates are based on historical forfeiture patterns. We update
our forfeiture estimates quarterly and recognize any changes to accumulated compensation expense in the period of change. If actual forfeitures differ significantly from our estimates, our results of operations could be materially impacted.

Our stock-based compensation expense was included in our statements of operations as follows (in thousands):



|                                    |  |      |        |      |   |       |  |   |      
|----------------------------------- |  | ---- | ------ | ---- | - | ----- |  | - | -----
|Year Ended December 31,             |  | 2009 |        | 2008 |   | 2007 
|Cost of sales                       |  | $    | 1,352  |      | $ | 1,036 |  | $ | 1,008
|Research and development            |  |      | 1,312  |      |   | 1,061 |  |   | 950  
|Selling, general and administrative |  |      | 7,935  |      |   | 6,056 |  |   | 5,393
|                                    |  |      |        |      |   |       |  |   |      
|                                    |  | $    | 10,599 |      | $ | 8,153 |  | $ | 7,351
|                                    |  |      |        |      |   |       |  |   |      

Stock-based compensation costs related to inventory or fixed assets
were not significant in the years ended December 31, 2009, 2008 or 2007.

The following weighted average assumptions were utilized in
determining fair value pursuant to the Black-Scholes option pricing model:



|                                       |  |               |  |             |     |  |             |    
|-------------------------------------- |  | ------------- |  | ----------- | --- |  | ----------- | ---
|Year Ended December 31,                |  | 2009          |  | 2008        |     |  | 2007        |    
|Risk-free interest rate                |  | 0.14% - 2.35% |  | 0.5% - 3.2% |     |  | 3.4% - 5.0% |    
|Dividend yield                         |  | 0.0%          |  | 0.0%        |     |  | 0.0%        |    
|Expected lives:                        |  |               |  |             |     |  |             |    
|Option plans                           |  | 5.2 years     |  |            | (1) |  |            | (1)
|Employee share purchase plan           |  | 6 months      |  | 6 months    |     |  | 6 months    |    
|Volatility                             |  | 44% - 51%     |  | 37% - 46%   |     |  | 38% - 40%   |    
|Discount for post vesting restrictions |  | 0.0%          |  | 0.0%        |     |  | 0.0%        |    



|(1) | No options granted during 2008 or 2007.
|--- | ---------------------------------------

The
risk-free rate used is based on the U.S. Treasury yield over the estimated term of the options granted. Expected lives were estimated based on historical exercise data. The expected volatility is calculated based on the historical volatility of our
common stock.

Foreign Currency Translation

Assets and liabilities denominated in a foreign currency, where the local currency is the functional currency, are translated to U.S. dollars at the exchange rate in effect on the respective balance sheet
date. Gains and losses resulting from the translation of assets, liabilities and equity are included in accumulated other comprehensive income on the consolidated balance sheet. Transactions representing revenues, costs and expenses are translated
using an average rate of exchange for the period, and the related gains and losses are reported as other income (expense) on our consolidated statement of operations.

2. NEW ACCOUNTING PRONOUNCEMENTS

Codification

Effective July 1, 2009, the Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) became
the single official source of authoritative, nongovernmental generally accepted accounting principles (GAAP) in the United States. The historical GAAP hierarchy was



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eliminated and the ASC became the only level of authoritative GAAP, other than guidance issued by the Securities and Exchange Commission. Our accounting policies were not affected by the
conversion to ASC. However, references to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate section of ASC.

Recently Adopted Accounting Guidance

Effective January 1, 2009 we adopted FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors that should be considered in developing the renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets, and adds certain disclosure requirements for intangible assets with finite useful lives. The adoption of
FSP No. FAS 142-3, which was codified within ASC 350, Intangibles-Goodwill and Other, did not have a material impact on our financial position, results of operations or cash flows.

Effective January 1, 2009 we adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, which
requires enhanced disclosures about derivative instruments and hedging activities. Given that this guidance primarily relates to footnote disclosures, the adoption of SFAS No. 161, which was codified within ASC 815, Derivatives and
Hedging, did not have a material impact on our financial position, results of operations or cash flow. See Note 18 for our disclosures required pursuant to ASC 815.

Effective July 5, 2009 we adopted SFAS No. 165, Subsequent Events, which defines subsequent events as transactions that occur after the balance sheet date but before financial
statements are issued or are available to be issued. This guidance defines two types of subsequent events: (i) events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing financial statements (that is, recognized subsequent events); and (ii) events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date
(that is, nonrecognized subsequent events). In addition, this guidance requires an entity to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the
date the financial statements were available to be issued. SFAS No. 165, which was codified within ASC 855, Subsequent Events, is effective for periods ending after June 15, 2009. The adoption of this guidance effective
July 5, 2009 did not have any effect on our financial position, results of operations or cash flows. See Note 23 for our disclosures pursuant to ASC 855.

Recent Accounting Guidance Not Yet Adopted

In June 2009, the FASB issued SFAS
No. 167, Amendments to FASB Interpretation No. 46(R), which amends certain concepts related to consolidation of variable interest entities. Among other accounting and disclosure requirements, this guidance replaces the
quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a
variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. While we are adopting the provisions of SFAS No. 167, which has been codified within ASC 810,
Consolidation, in our first annual and interim reporting periods beginning after November 15, 2009, we do not have any entities that fall under this guidance and therefore, we believe this guidance will not have any effect on our
financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers
of Financial Assets  an Amendment of FASB Statement No. 140, which relates to accounting for transfers of financial assets. This guidance, which has been codified within ASC 860, Transfers and Servicing, improves the
information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a continuing interest in transferred financial
assets. In addition, this guidance amends various ASC concepts with respect to accounting for transfers and servicing of financial assets and extinguishments of liabilities, including removing the concept of qualified special purpose entities. SFAS
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beginning of an entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. SFAS No. 166 must be applied to transfers occurring on or after the effective date. The adoption will not have a material effect on our results of operations or cash flows.

In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue Recognition (an update to Topic
605): Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task Force. This update provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in
identifying and accounting for separate deliverables under an arrangement. The update introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of
selling price is not available, and significantly expands related disclosure requirements. This update is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. We plan to adopt this guidance effective January 1, 2010, and do not expect it to have a material effect on our results of
operations or cash flows.

In August 2009, the FASB issued ASU 2009-05, an update to ASC 820, Fair Value Measurements and
Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that, in circumstances in which a
quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASU 2009-05. ASU 2009-05 will become effective for our
annual financial statements for the year ending December 31, 2009. The adoption of this guidance effective January 1, 2010 did not have a material effect on our results of operations or cash flows.

3. AUCTION RATE SECURITIES, PUT RIGHT AND RELATED LINE OF CREDIT

At December 31, 2009, we held ARS having a fair value of $87.2 million, which have short-term stated maturities for which the interest rates are reset through a Dutch auction, which generally occurs
every 28 days. The auctions have historically provided a liquid market for these securities as investors could readily sell their investments at auction. With the liquidity issues experienced in global credit and capital markets, the ARS held by us
have experienced multiple failed auctions, beginning on February 19, 2008, as the amount of securities submitted for sale has exceeded the amount of purchase orders.

On November 6, 2008, we accepted an offer by UBS of certain auction rate securities rights (the Put Right). The Put Right permits us to cause UBS to repurchase, at par value, our ARS
during the period beginning on June 30, 2010 and ending on July 2, 2012. The fair value of the ARS and the Put Right was approximately $87.2 million and $11.7 million, respectively, as of December 31, 2009, as discussed in more detail
below. As of December 31, 2009, both the ARS and the Put Right were classified as current on our consolidated balance sheet based on our intent to exercise the Put Right within the next 12 months. The par value of the ARS was $98.9 million at
December 31, 2009. The Put Right was offered in connection with UBSs obligations under settlement agreements with the SEC and other federal and state regulatory authorities.

In addition, UBS offered us the ability to borrow no-net cost loans secured by the ARS. On March 25, 2009, we entered into an uncommitted secured demand revolving credit facility (the UBS
Credit Facility) with UBS Bank USA (the Lender), providing for a line of credit in an amount of up to $70.8 million, or approximately 75% of the market value of the ARS. The obligations under the UBS Credit Facility are secured by
substantially all of our collateral accounts, money, investment property and other property maintained with UBS, including the ARS (the UBS Collateral), subject to certain exceptions. In connection with entering into the UBS Credit
Facility agreement, we amended our $100.0 million secured revolving credit facility with JPMorgan Chase Bank, N.A. to permit the incurrence of indebtedness secured by the UBS Collateral and the transactions contemplated under the UBS Credit
Facility.



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During the first quarter of 2009, we drew down $70.8 million, the full amount available under the UBS Credit
Facility, and, at December 31, 2009, $59.6 million remained outstanding. During the fourth quarter of 2009, $11.2 million of the ARS were called and the proceeds were utilized to repay a portion of the UBS Credit Facility. The proceeds derived
from any sales of the remaining ARS we hold in accounts with UBS will be applied to repay outstanding obligations under the UBS Credit Facility. See Note 23 for a discussion of ARS that were called in the first quarter of 2010.

The UBS Credit Facility contains affirmative and negative covenants, including, among other things, (i) a covenant that, if at any time there are
amounts owing under the UBS Credit Facility and the ARS can be sold or otherwise conveyed by us for gross proceeds that are at least equal to the par value of the ARS, then we will sell or convey the ARS to the extent necessary to pay off any
amounts owing under the UBS Credit Facility and will use the proceeds to pay those amounts, and (ii) a covenant that limits our ability to grant liens on the collateral.

The UBS Credit Facility includes customary events of default that include, among other things, non-payment defaults, the failure to maintain sufficient collateral, covenant defaults, inaccuracy of
representations and warranties, the failure to provide financial and other information in a timely manner, bankruptcy and insolvency defaults, cross-defaults to other indebtedness and judgment defaults. The occurrence of an event of default will
result in the acceleration of the obligations under the UBS Credit Facility and any amounts due and not paid following an event of default will bear interest at a rate per annum equal to 2.00% above the applicable interest rate. As of
December 31, 2009, we were in compliance with all of the terms of the UBS Credit Facility.

We estimate the fair value of our ARS on a
quarterly basis using a discounted cash flow model, comparing the expected rate of interest to be received on the ARS to similar securities. We then discount the securities over a three to seven year term, depending on the collateral underlying each
ARS. The amounts derived through the discounted cash flow model were generally consistent with the quoted price indicated by UBS, the bank which holds our ARS at December 31, 2009.

We also calculate the fair value of the Put Right on a quarterly basis based on the net present value of the difference between the par value and the fair market value of the ARS at the end of each
quarter, using a nine month option period through the settlement date discounted by the credit default rate of UBS, the issuer. We also consider several other factors, including continued failure of auctions, failure of investments to be
redeemed, deterioration of credit ratings of investments, overall market risk and other factors.

The net amount recorded as a component of
other income (expense), net related to the ARS and the Put Right totaled $0.5 million and $(0.5) million, respectively, in 2009 and 2008. See also Note 21.

4. INVESTMENTS

Investments held consisted of the following (in thousands):



|                                             |  |           |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |                |         |  |   |        |  |   |    
|-------------------------------------------- |  | --------- | ------- | --------------- | - | ---------------- |  | - | ------------------- | ---- | --------------------- | - | -------------------- |  | -------------- | ------- |  | - | ------ |  | - | ---
|December 31, 2009                            |  | Costbasis |         | Unrealizedgains |   | Unrealizedlosses |  |   | Estimatedfair value |      | Short-terminvestments |   | Long-terminvestments |  | Otherassets(1)
|Fixed Maturity Securities                    |  |           |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |                |         |  |   |        |  |   |    
|Certificates of deposit and commercial paper |  | $         | 33,585  |                 | $ | 13               |  | $ | (23                 | )    |                       | $ | 33,575               |  | $              | 31,657  |  | $ | 1,918  |  | $ |   
|U.S. Government-backed securities            |  |           | 128,198 |                 |   |                 |  |   | (28                 | )    |                       |   | 128,170              |  |                | 93,274  |  |   | 34,896 |  |   |   
|ARS                                          |  |           | 98,925  |                 |   |                 |  |   | (11,737             | )(2) |                       |   | 87,188               |  |                | 87,188  |  |   |       |  |   |   
|                                             |  |           |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |                |         |  |   |        |  |   |    
|Fixed Maturity Securities                    |  |           | 260,708 |                 |   | 13               |  |   | (11,788             | )    |                       |   | 248,933              |  |                | 212,119 |  |   | 36,814 |  |   |   
|                                             |  |           |         |                 |   |                  | 
|Equity Securities                            |  |           |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |                |         |  |   |        |  |   |    
|Mutual funds                                 |  |           | 3,138   |                 |   |                 |  |   | (290                | )    |                       |   | 2,848                |  |                |        |  |   | 2,848  |  |   |   
|Cost Method Investments                      |  |           | 608     |                 |   |                 |  |   |                    |      |                       |   | 608                  |  |                |        |  |   |       |  |   | 608
|                                             |  |           |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |                |         |  |   |        |  |   |    
|                                             |  | $         | 264,454 |                 | $ | 13               |  | $ | (12,078             | )    |                       | $ | 252,389              |  | $              | 212,119 |  | $ | 39,662 |  | $ | 608
|                                             |  |           |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |                |         |  |   |        |  |   |    



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|                             |  |            |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |   |        |  |   |       
|---------------------------- |  | ---------- | ------- | --------------- | - | ---------------- |  | - | ------------------- | ---- | --------------------- | - | -------------------- |  | - | ------ |  | - | ------
|December 31, 2008            |  | Cost basis |         | Unrealizedgains |   | Unrealizedlosses |  |   | Estimatedfair value |      | Short-terminvestments |   | Long-terminvestments
|Fixed Maturity Securities    |  |            |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |   |        |  |   |       
|Corporate notes and bonds    |  | $          | 17,789  |                 | $ | 14               |  | $ | (44                 | )    |                       | $ | 17,759               |  | $ | 17,759 |  | $ |      
|Government-backed securities |  |            | 15,085  |                 |   | 57               |  |   |                    |      |                       |   | 15,142               |  |   | 15,142 |  |   |      
|ARS                          |  |            | 110,125 |                 |   |                 |  |   | (18,445             | )(2) |                       |   | 91,680               |  |   |       |  |   | 91,680
|                             |  |            |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |   |        |  |   |       
|Fixed Maturity Securities    |  |            | 142,999 |                 |   | 71               |  |   | (18,489             | )    |                       |   | 124,581              |  |   | 32,901 |  |   | 91,680
|                             |  |            |         |                 |   |                 
|Equity Securities            |  |            |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |   |        |  |   |       
|Mutual funds                 |  |            | 3,002   |                 |   |                 |  |   | (584                | )    |                       |   | 2,418                |  |   |       |  |   | 2,418 
|                             |  |            |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |   |        |  |   |       
|                             |  | $          | 146,001 |                 | $ | 71               |  | $ | (19,073             | )    |                       | $ | 126,999              |  | $ | 32,901 |  | $ | 94,098
|                             |  |            |         |                 |   |                  |  |   |                     |      |                       |   |                      |  |   |        |  |   |       



|(1) | Investments for which it is not practical to estimate fair value are included at cost and primarily consist of investments in privately-held
companies.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Unrealized gains or losses on the ARS, which are held as trading securities, were included in other income (expense), net and were substantially offset by unrealized
gains or losses on the related Put Right. See also Notes 3 and 21.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Realized gains and losses on sales of marketable debt
securities were insignificant in 2009, 2008 and 2007.

We review available for sale investments in debt and equity securities for other than
temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investments carrying amount is not recoverable within a reasonable period of time. In the evaluation of whether an
impairment is other-than-temporary, we consider our ability and intent to hold the investment until the market price recovers, the reasons for the impairment, compliance with our investment policy, the severity and duration of the
impairment and expected future performance. Unrealized losses on our corporate notes and bonds and government-backed securities are mainly due to interest rate movements, and no unrealized losses of any significance existed for a period in excess of
12 months.

Our investments classified as trading securities, such as our ARS and assets related to our deferred compensation plan, are
carried on the balance sheet at fair value. All unrealized gains or losses are recorded in other income (expense), net in the period incurred.

For investments in small privately-held companies, which are recorded at cost, it is often not practical to estimate fair value. In order to assess if impairments exist that are other-than-temporary, we reviewed recent interim
financial statements and held discussions with these entities management about their current financial conditions and future economic outlooks. We also considered our willingness to support future funding requirements as well as our intention
and/or ability to hold these investments long-term. In 2007, we recorded a $0.5 million gain for the final escrow payment related to the disposal of one such investment. We recorded an additional $0.5 million gain in 2007 related to the sale of
another investment, which was previously written down in 2006. At December 31, 2009, we had $0.6 million in cost-method investments and, at December 31, 2008, we did not have any significant cost-method investments on our balance
sheet.

Contractual maturities or expected liquidation dates of long-term marketable securities at December 31, 2009 were as follows (in
thousands):



|                                                                                |  |             |        |       |   |       
|------------------------------------------------------------------------------- |  | ----------- | ------ | ----- | - | ------
|                                                                                |  | 1 - 2 years |        | Total
|Certificates of deposit, commercial paper and U.S. Government-backed securities |  | $           | 36,814 |       | $ | 36,814
|                                                                                |  |             |        |       |   |       



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5. FACTORING OF ACCOUNTS RECEIVABLE

In 2009 and 2008, we entered into agreements under which we sold a total of $13.5 million and $12.3 million, respectively, of our accounts receivable at a discount to unrelated third party financiers
without recourse. The transfers qualified for sales treatment and, accordingly, discounts related to the sale of the receivables, which were immaterial, were recorded on our statements of operations as other expense.

6. INVENTORIES

Inventories consisted of
the following (in thousands):



|                                                    |  |              |         |      |   |        
|--------------------------------------------------- |  | ------------ | ------- | ---- | - | -------
|                                                    |  | December 31,
|                                                    |  | 2009         |         | 2008
|Raw materials and assembled parts                   |  | $            | 44,829  |      | $ | 44,458 
|Service inventories, estimated current requirements |  |              | 15,765  |      |   | 18,588 
|Work-in-process                                     |  |              | 57,762  |      |   | 56,777 
|Finished goods                                      |  |              | 19,886  |      |   | 21,786 
|                                                    |  |              |         |      |   |        
|Total inventories                                   |  | $            | 138,242 |      | $ | 141,609
|                                                    |  |              |         |      |   |        
|Non-current inventories                             |  | $            | 44,385  |      | $ | 41,072 
|                                                    |  |              |         |      |   |        

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):



|                                         |  |              |         |   |      |   |         |  
|---------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                         |  | December 31, |        
|                                         |  | 2009         |         |   | 2008 |  
|Land                                     |  | $            | 7,780   |   |      | $ | 7,780   |  
|Buildings and improvements               |  |              | 18,562  |   |      |   | 18,195  |  
|Leasehold improvements                   |  |              | 7,530   |   |      |   | 7,079   |  
|Machinery and equipment                  |  |              | 85,138  |   |      |   | 76,375  |  
|Demonstration systems                    |  |              | 24,588  |   |      |   | 27,780  |  
|Other fixed assets                       |  |              | 25,237  |   |      |   | 25,173  |  
|                                         |  |              |         |   |      |   |         |  
|                                         |  |              | 168,835 |   |      |   | 162,382 |  
|Accumulated depreciation                 |  |              | (86,942 | ) |      |   | (85,391 | )
|                                         |  |              |         |   |      |   |         |  
|Total property, plant and equipment, net |  | $            | 81,893  |   |      | $ | 76,991  |  
|                                         |  |              |         |   |      |   |         |  

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The roll-forward of our activity related to goodwill was as follows (in
thousands):



|                           |  |                         |        |      |   |       
|-------------------------- |  | ----------------------- | ------ | ---- | - | ------
|                           |  | Year Ended December 31,
|                           |  | 2009                    |        | 2008
|Balance, beginning of year |  | $                       | 40,964 |      | $ | 40,864
|Additions                  |  |                         | 3,631  |      |   |      
|Adjustments to goodwill    |  |                         | 20     |      |   | 100   
|                           |  |                         |        |      |   |       
|Balance, end of year       |  | $                       | 44,615 |      | $ | 40,964
|                           |  |                         |        |      |   |       

Additions represent the goodwill from our acquisition of certain
assets of a division of an Australian software company that provides software for our mineral liberation analysis products in the second quarter of 2009. The total purchase price was $4.1 million. Pro forma operating results and the remaining asset
allocation were immaterial.

Adjustments to goodwill include translation adjustments resulting from a portion of our goodwill being recorded
on the books of our foreign subsidiaries.



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Other Intangible Assets

At December 31, 2009 and 2008, our other intangible assets included purchased technology, patents, trademarks and other and note issuance costs. The gross amount of our other intangible assets and
the related accumulated amortization were as follows (in thousands):



|                                                           |  |                    |      |              |         |      |  |   |         |  
|---------------------------------------------------------- |  | ------------------ | ---- | ------------ | ------- | ---- |  | - | ------- | -
|                                                           |  | AmortizationPeriod |      | December 31, |        
|                                                           |  |                    | 2009 |              |         | 2008 | 
|Purchased technology                                       |  | 5 to 12 years      |      | $            | 46,299  |      |  | $ | 46,492  |  
|Accumulated amortization                                   |  |                    |      |              | (45,913 | )    |  |   | (45,197 | )
|                                                           |  |                    |      |              |         |      |  |   |         |  
|                                                           |  |                    |      |              | 386     |      |  |   | 1,295   |  
|                                                           |  |                    |     
|Patents, trademarks and other                              |  | 2 to 15 years      |      |              | 7,474   |      |  |   | 7,569   |  
|Accumulated amortization                                   |  |                    |      |              | (2,852  | )    |  |   | (3,612  | )
|                                                           |  |                    |      |              |         |      |  |   |         |  
|                                                           |  |                    |      |              | 4,622   |      |  |   | 3,957   |  
|                                                           |  |                    |     
|Note issuance costs                                        |  | 7 years            |      |              | 2,747   |      |  |   | 3,159   |  
|Accumulated amortization                                   |  |                    |      |              | (1,405  | )    |  |   | (1,165  | )
|                                                           |  |                    |      |              |         |      |  |   |         |  
|                                                           |  |                    |      |              | 1,342   |      |  |   | 1,994   |  
|                                                           |  |                    |      |              |         |      |  |   |         |  
|Total intangible assets included in other long-term assets |  |                    |      | $            | 6,350   |      |  | $ | 7,246   |  
|                                                           |  |                    |      |              |         |      |  |   |         |  

See Note 10 for a discussion of note issuance cost write-offs totaling $0.3 million in 2009 and $0.1 million in 2008 related
to the convertible note redemptions.

Amortization expense, excluding note issuance cost write-offs, and including amortization of the debt
discount pursuant to accounting guidance for debt instruments that may be settled in cash upon conversion (see Note 22), was as follows (in thousands):



|                              |  |                         |       |      |   |        |  |   |       
|----------------------------- |  | ----------------------- | ----- | ---- | - | ------ |  | - | ------
|                              |  | Year Ended December 31,
|                              |  | 2009                    |       | 2008 |   | 2007  
|Purchased technology          |  | $                       | 638   |      | $ | 1,808  |  | $ | 1,777 
|Patents, trademarks and other |  |                         | 1,129 |      |   | 1,108  |  |   | 754   
|Note issuance costs           |  |                         | 652   |      |   | 767    |  |   | 1,295 
|Debt discount                 |  |                         |      |      |   | 6,487  |  |   | 12,144
|                              |  |                         |       |      |   |        |  |   |       
|                              |  | $                       | 2,419 |      | $ | 10,170 |  | $ | 15,970
|                              |  |                         |       |      |   |        |  |   |       

Expected amortization, without consideration for foreign currency
effects, is as follows over the next five years and thereafter (in thousands):



|           |  |                     |     |                             |   |                   |  |   |      
|---------- |  | ------------------- | --- | --------------------------- | - | ----------------- |  | - | -----
|           |  | PurchasedTechnology |     | Patents,Trademarksand Other |   | NoteIssuanceCosts
|2010       |  | $                   | 386 |                             | $ | 1,053             |  | $ | 393  
|2011       |  |                     |    |                             |   | 990               |  |   | 393  
|2012       |  |                     |    |                             |   | 945               |  |   | 393  
|2013       |  |                     |    |                             |   | 888               |  |   | 163  
|2014       |  |                     |    |                             |   | 511               |  |   |     
|Thereafter |  |                     |    |                             |   | 235               |  |   |     
|           |  |                     |     |                             |   |                   |  |   |      
|           |  | $                   | 386 |                             | $ | 4,622             |  | $ | 1,342
|           |  |                     |     |                             |   |                   |  |   |      

9. CREDIT FACILITIES AND RESTRICTED CASH

Multibank Credit Agreement

On June 4,
2008, we entered into a multibank credit agreement (the Credit Agreement). The Credit Agreement provides for a $100.0 million secured revolving credit facility, including a $50.0 million subfacility for the issuance of letters of credit.
We may, upon notice to JPMorgan Chase Bank, N.A., (the Agent), request to increase the revolving loan commitments by an aggregate amount of up to $50.0



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million with new or additional commitments subject only to the consent of the lender(s) providing the new or additional commitments, for a total secured credit facility of up to $150.0 million.
In connection with this loan agreement, we incurred approximately $0.8 million of loan origination fees, which are being amortized as additional interest expense over the five-year term of the loan.

The Credit Agreement contains quarterly commitment fees that vary based on borrowings outstanding.

The revolving loans under the Credit Agreement will generally bear interest, at our option, at either (i) the alternate base rate, which is defined as
a rate per annum equal to the higher of (A) Agents prime rate as announced from time to time and (B) the average rate of the overnight federal funds plus a margin equal to 0.50%, plus a margin equal to between 0.00% and 0.50%,
depending on our leverage ratio as of the fiscal quarter most recently ended, or (ii) a floating per annum rate based on LIBOR (based on one, two, three or six-month interest periods) plus a margin equal to between 1.00% and 2.00%, depending on
our leverage ratio as of the fiscal quarter most recently ended. A default interest rate shall apply on all obligations during an event of default under the Credit Agreement, at a rate per annum equal to 2.00% above the applicable interest rate.
Revolving loans may be borrowed, repaid and reborrowed until June 4, 2013 and voluntarily prepaid at any time without premium or penalty.

The obligations under the Credit Agreement are guaranteed by our present and future material domestic subsidiaries. In addition, obligations outstanding under the Credit Agreement are secured by substantially all of our assets and the
assets of our material domestic subsidiaries.

The Credit Agreement contains customary covenants for a credit facility of this size and type,
that include, among others, covenants that limit our ability to incur indebtedness, create liens, merge or consolidate, dispose of assets, make investments, enter into swap agreements, pay dividends or make distributions, enter into transactions
with affiliates, enter into restrictive agreements and enter into sale and leaseback transactions. The Credit Agreement provides for financial covenants that require us to maintain a minimum interest coverage ratio and minimum liquidity, and limit
the maximum leverage that we can maintain at any one time.

The Credit Agreement contains customary events of default for a credit facility of
this size and type that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, bankruptcy and insolvency defaults, material judgments
defaults, defaults for the occurrence of certain ERISA events and change of control defaults. The occurrence of an event of default could result in an acceleration of the obligations under the Credit Agreement.

As of December 31, 2009, there were no revolving loans or letters of credit outstanding under the Credit Agreement, we were in compliance with all
covenants and we were not in default under the Credit Agreement.

Japanese Bank Borrowing Facility

We also have a 50.0 million yen unsecured and uncommitted bank borrowing facility in Japan and various limited facilities in select foreign countries.
No amounts were outstanding under any of these facilities as of December 31, 2009.

UBS Line of Credit

See Note 3 for a discussion of our revolving credit facility with UBS.

Restricted Cash

As part of our contracts with certain customers, we are required to
provide letters of credit or bank guarantees which these customers can draw against in the event we do not perform in accordance with our contractual obligations. At December 31, 2009, we had $53.7 million of these guarantees and letters of
credit outstanding, of which approximately $53.0 million were secured by restricted cash deposits. Restricted cash balances securing bank guarantees that expire within 12 months of the balance sheet date are recorded as a current asset on our
consolidated balance sheets. Restricted cash balances securing bank guarantees that expire beyond 12 months from the balance sheet date are recorded as long-term restricted cash on our consolidated balance sheet.



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10. CONVERTIBLE NOTES

2.875% Convertible Subordinated Notes

On May 19, 2006, we issued $115.0
million aggregate principal amount of convertible subordinated notes. The interest rate on the notes is 2.875%, payable semi-annually. The notes are due on June 1, 2013, are subordinated to all previously existing and future senior
indebtedness, and are effectively subordinated to all indebtedness and other liabilities of our subsidiaries. The cost of this transaction, including underwriting discounts and commissions and offering expenses, totaled $3.1 million and is recorded
on our balance sheet in other long-term assets and is being amortized over the life of the notes. The amortization of these costs totals $0.1 million per quarter and is reflected as additional interest expense in our statements of
operations.

We redeemed the following amounts of our 2.875% Convertible Subordinated Notes in 2009:



|              |  |                |              |                 |      |   |                    |   |                                       |  |   |            
|------------- |  | -------------- | ------------ | --------------- | ---- | - | ------------------ | - | ------------------------------------- |  | - | -----------
|Date          |  | AmountRedeemed |              | RedemptionPrice |      |   | RedemptionDiscount |   | Related NoteIssuance CostsWritten Off
|February 2009 |  | $              | 15.0 million |                 | 86.5 | % |                    | $ | 2.0 million                           |  | $ | 0.3 million
|              |  |                |              |                 |      |   |                    |   |                                       |  |   |            

The remaining $100.0 million of notes outstanding at December 31,
2009 are convertible into 3,407,155 shares of our common stock, at the note holders option, at a price of $29.35 per share.

5.5%
Convertible Subordinated Notes

On August 3, 2001, we issued $175.0 million of convertible subordinated notes, due August 15,
2008, through a private placement. The notes were fully redeemed with the following transactions:



|              |  |                |               |                 |                 |                   |   |                                       |  |   |            
|------------- |  | -------------- | ------------- | --------------- | --------------- | ----------------- | - | ------------------------------------- |  | - | -----------
|Date          |  | AmountRedeemed |               | RedemptionPrice |                 | RedemptionPremium |   | Related NoteIssuance CostsWritten Off
|June 2003     |  | $              | 30.0 million  |                 | 102.75%         |                   | $ | 0.8 million                           |  | $ | 0.7 million
|May 2005      |  |                | 70.0 million  |                 | 101.0%          |                   | $ | 0.7 million                           |  |   | 1.1 million
|February 2006 |  |                | 24.9 million  |                 | 100.375%        |                   | $ | 0.1 million                           |  |   | 0.3 million
|June 2006     |  |                | 4.2 million   |                 | 100.4% - 100.5% |                   | $ | 0.1 million                           |  |   |           
|January 2008  |  |                | 45.9 million  |                 | 100.0%          |                   |   |                                      |  |   | 0.1 million
|              |  |                |               |                 |                 |                   |   |                                       |  |   |            
|              |  | $              | 175.0 million |                 |                 |                   | $ | 1.7 million                           |  | $ | 2.2 million
|              |  |                |               |                 |                 |                   |   |                                       |  |   |            

The redemption premium and write-off of related note issuance costs
were included as a component of interest expense in the period of redemption. As of December 31, 2008, none of our 5.5% convertible subordinated notes remained outstanding.

Zero Coupon Convertible Subordinated Notes

On June 13, 2003, we issued $150.0
million aggregate principal amount of zero coupon convertible subordinated notes. The stated interest rate on the notes was zero. See Note 22 for interest expense recorded pursuant to the adoption in 2009 of new accounting guidance for convertible
debt that may be settled in cash upon conversion. The notes were due on June 15, 2023 and were first puttable to us at the noteholders option (in whole or in part) for cash on June 15, 2008, at a price equal to 100.25% of the
principal amount, and on June 15, 2013 and 2018, at a price equal to 100% of the principal amount.

The noteholders of $148.9 million
principal amount put their notes to us on June 15, 2008 at 100.25% of the principal amount. Accordingly, the $148.9 million principal amount, plus $0.4 million of premium, was paid to the noteholders in June 2008. The premium was reflected as
additional interest expense in 2008. In addition, unamortized debt offering costs, which totaled $0.2 million, were also recognized as additional interest expense in 2008.



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We called the remaining $1.1 million of outstanding notes on July 30, 2008. On August 14, 2008,
$1.0 million of notes were converted to 37,335 shares of our common stock and $0.1 million was paid in cash to redeem the notes.

As of
December 31, 2008, none of our zero coupon convertible subordinated notes remained outstanding.

11. LEASE OBLIGATIONS

We have operating leases for certain of our manufacturing and administrative facilities that extend through 2019. The lease agreements generally provide
for payment of base rental amounts plus our share of property taxes and common area costs. The leases generally provide renewal options at current market rates.

Rent expense is recognized on a straight-line basis over the term of the lease. Rent expense was $7.2 million in 2009, $7.6 million in 2008 and $7.1 million in 2007.

The approximate future minimum rental payments due under these agreements as of December 31, 2009, were as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Year Ending December 31, |  |  
|2010                     |  | $ | 7,060 
|2011                     |  |   | 6,109 
|2012                     |  |   | 5,904 
|2013                     |  |   | 4,684 
|2014                     |  |   | 4,201 
|Thereafter               |  |   | 21,981
|                         |  |   |       
|Total                    |  | $ | 49,939
|                         |  |   |       

12. INCOME TAXES

Income before income taxes included the following components:



|        |  |                         |        |      |   |        |  |   |       
|------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|        |  | Year Ended December 31,
|        |  | 2009                    |        | 2008 |   | 2007  
|U.S.    |  | $                       | 10,544 |      | $ | 4,986  |  | $ | 22,565
|Foreign |  |                         | 17,117 |      |   | 21,614 |  |   | 31,662
|        |  |                         |        |      |   |        |  |   |       
|Total   |  | $                       | 27,661 |      | $ | 26,600 |  | $ | 54,227
|        |  |                         |        |      |   |        |  |   |       

Income tax expense (benefit) consisted of the following (in
thousands):



|                                   |  |                         |        |   |      |   |       |      |  |   |        |  
|---------------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                   |  | Year Ended December 31, |       
|                                   |  | 2009                    |        |   | 2008 |   |       | 2007 | 
|Current:                           |  |                         |        |   |      |   |       |      |  |   |        |  
|Federal                            |  | $                       |       |   |      | $ |      |      |  | $ |       |  
|State                              |  |                         | 483    |   |      |   | (63   | )    |  |   | (756   | )
|Foreign                            |  |                         | 6,914  |   |      |   | 8,112 |      |  |   | 11,720 |  
|                                   |  |                         |        |   |      |   |       |      |  |   |        |  
|                                   |  |                         | 7,397  |   |      |   | 8,049 |      |  |   | 10,964 |  
|Foreign deferred (benefit) expense |  |                         | (2,380 | ) |      |   | 563   |      |  |   | (2,887 | )
|                                   |  |                         |        |   |      |   |       |      |  |   |        |  
|Total income tax expense           |  | $                       | 5,017  |   |      | $ | 8,612 |      |  | $ | 8,077  |  
|                                   |  |                         |        |   |      |   |       |      |  |   |        |  



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The effective income tax rate applied to net income varied from the U.S. federal statutory rate due to the
following (in thousands):



|                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                            |  | Year Ended December 31, |       
|                                                            |  | 2009                    |        |   | 2008 |   |        | 2007 | 
|Tax expense at statutory rates                              |  | $                       | 9,681  |   |      | $ | 11,520 |      |  | $ | 23,108 |  
|Increase (decrease) resulting from:                         |  |                         |        |   |      |   |        |      |  |   |        |  
|State income taxes, net of federal benefit                  |  |                         | 890    |   |      |   | 520    |      |  |   | 343    |  
|Foreign taxes                                               |  |                         | (1,466 | ) |      |   | (1,343 | )    |  |   | (7,829 | )
|Research and experimentation benefit                        |  |                         | (1,225 | ) |      |   | (1,982 | )    |  |   | (1,268 | )
|Tax audit settlements and lapses of statutes of limitations |  |                         | (1,328 | ) |      |   | (1,483 | )    |  |   | (4,694 | )
|Non-deductible items                                        |  |                         | 1,715  |   |      |   | 1,527  |      |  |   | 1,664  |  
|Release of valuation allowance                              |  |                         | (3,886 | ) |      |   | (464   | )    |  |   | (5,305 | )
|Other                                                       |  |                         | 636    |   |      |   | 317    |      |  |   | 2,058  |  
|                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|                                                            |  | $                       | 5,017  |   |      | $ | 8,612  |      |  | $ | 8,077  |  
|                                                            |  |                         |        |   |      |   |        |      |  |   |        |  

Our tax provision in 2009, 2008 and 2007 primarily reflected taxes on foreign earnings, offset by the release of valuation
allowance recorded against net operating loss deferred tax assets utilized to offset income earned in the U.S. As detailed in the table above, the 2009, 2008 and 2007 provisions were also affected by releases of $1.3 million, $1.5 million and $4.7
million, respectively, of unrecognized tax benefits, including interest and penalties, as a result of settlements with foreign taxing authorities and lapses of statutes of limitations.

Current taxes payable were reduced for foreign tax benefits recorded to common stock and related to stock compensation of $0, $0.3 million and $0.4 million, respectively, in 2009, 2008 and 2007. No tax
benefits were recorded in the U.S. for excess tax benefits relating to stock-based compensation in 2009, 2008 or 2007 due to our current valuation allowance against U.S. deferred tax assets.

Deferred Income Taxes

Net deferred
tax assets and liabilities were included in the following consolidated balance sheet accounts:



|                                       |  |              |        |   |      |   |        |  
|-------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                       |  | December 31, |       
|                                       |  | 2009         |        |   | 2008 |  
|Deferred tax assets  current          |  | $            | 2,734  |   |      | $ | 2,884  |  
|Deferred tax assets  non-current      |  |              | 3,369  |   |      |   | 2,188  |  
|Other current liabilities              |  |              | (229   | ) |      |   | (274   | )
|Deferred tax liabilities  non-current |  |              | (4,298 | ) |      |   | (4,164 | )
|                                       |  |              |        |   |      |   |        |  
|Net deferred tax assets                |  | $            | 1,576  |   |      | $ | 634    |  
|                                       |  |              |        |   |      |   |        |  



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The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and
deferred tax liabilities were as follows (in thousands):



|                               |  |              |         |   |      |   |         |  
|------------------------------ |  | ------------ | ------- | - | ---- | - | ------- | -
|                               |  | December 31, |        
|                               |  | 2009         |         |   | 2008 |  
|Deferred tax assets:           |  |              |         |   |      |   |         |  
|Accrued liabilities            |  | $            | 1,476   |   |      | $ | 1,397   |  
|Warranty reserves              |  |              | 1,372   |   |      |   | 1,236   |  
|Inventory reserves             |  |              | 7,712   |   |      |   | 6,704   |  
|Allowance for bad debts        |  |              | 448     |   |      |   | 256     |  
|Revenue recognition            |  |              | 3,786   |   |      |   | 2,874   |  
|Loss carryforwards             |  |              | 17,398  |   |      |   | 20,983  |  
|Tax credit carryforwards       |  |              | 7,455   |   |      |   | 8,087   |  
|Fixed assets                   |  |              | 177     |   |      |   | 443     |  
|Intangible assets              |  |              | 712     |   |      |   | 3,054   |  
|Unrealized investment          |  |              | 1,129   |   |      |   | 1,588   |  
|Stock compensation             |  |              | 1,071   |   |      |   | 614     |  
|Other assets                   |  |              | 1,350   |   |      |   | 657     |  
|                               |  |              |         |   |      |   |         |  
|Gross deferred tax assets      |  |              | 44,086  |   |      |   | 47,893  |  
|Valuation allowance            |  |              | (37,982 | ) |      |   | (42,821 | )
|                               |  |              |         |   |      |   |         |  
|Net deferred tax assets        |  |              | 6,104   |   |      |   | 5,072   |  
|                               |  |             
|Deferred tax liabilities:      |  |              |         |   |      |   |         |  
|Fixed assets                   |  |              | (283    | ) |      |   | (221    | )
|Other liabilities              |  |              | (4,245  | ) |      |   | (4,217  | )
|                               |  |              |         |   |      |   |         |  
|Total deferred tax liabilities |  |              | (4,528  | ) |      |   | (4,438  | )
|                               |  |              |         |   |      |   |         |  
|Net deferred tax asset         |  | $            | 1,576   |   |      | $ | 634     |  
|                               |  |              |         |   |      |   |         |  

At December 31, 2009, we had approximately $46.0 million of U.S. net operating loss carryforwards that can be used to
offset future income for U.S. federal income tax purposes, which expire through 2028, and approximately $35.0 million for Oregon income tax purposes, which expire through 2023. Approximately $5.8 million of the decrease in net operating loss
carryforwards was due to excess non-deductible stock-based compensation in 2009. Additionally, deferred tax expense of $0.1 million, $0.1 million and $0.8 million was recorded in other comprehensive income in 2009, 2008 and 2007, respectively.

As of December 31, 2009 and 2008, our valuation allowance on deferred tax assets totaled $38.0 million and $42.8 million, respectively,
including $9.4 million and $11.6 million, respectively, attributable to excess stock option deductions included in the net operating loss deferred tax asset. In assessing the realizability of deferred tax assets, we utilize a more likely than not
standard. If it is determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, historical operating performance, projected
future taxable income and tax planning strategies in making this assessment. Our more likely than not assessment was principally based upon our historical losses in the U.S. and our forecast of future profitability in certain tax
jurisdictions, primarily the U.S.

We are currently awaiting governmental approval to implement changes to certain transfer pricing
methodologies that, when completed, will shift taxable income into the U.S. This additional income in the U.S. can be offset by net operating loss carryforwards. As the governmental approval is not assured, we cannot conclude that valuation
allowance against U.S. deferred tax assets is no longer needed. When governmental approval is received, we will reassess the need for the valuation allowance using all available positive and negative evidence. Due to the uncertainty surrounding the
timing of governmental approval, we believe it is reasonably possible that valuation allowance could decrease between zero and $38.0 million in the next 12 months, with approximately zero to $21 million reducing tax expense.



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Federal and state research and development tax credit carryforwards as of December 31, 2009 were $5.6
million and expire between 2010 and 2029. Federal foreign tax credits as of December 31, 2009 were $1.3 million and expire between 2010 and 2011. We also have $1.1 million of alternative minimum tax carryforwards, which do not expire.

As of December 31, 2009, U.S. income taxes have not been provided for approximately $102.7 million of cumulative undistributed earnings
of several non-U.S. subsidiaries, as our current intention is to reinvest these earnings indefinitely outside the U.S. Foreign tax provisions have been provided for these cumulative undistributed earnings. Upon distribution of those earnings in the
form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Similarly, we have not provided deferred taxes on the
cumulative translation adjustment related to those non-U.S. subsidiaries.

Unrecognized Tax Benefits and Other Tax Contingencies

As of December 31, 2009, unrecognized tax benefits related mainly to uncertainty surrounding intercompany pricing and permanent
establishment. A reconciliation of our unrecognized tax benefits was as follows (in thousands):



|                                                   |  |                          |        |  
|-------------------------------------------------- |  | ------------------------ | ------ | -
|                                                   |  | UnrecognizedTax Benefits |       
|Balance at December 31, 2007                       |  | $                        | 15,747 |  
|Additions for tax positions taken in 2008          |  |                          | 4,060  |  
|Increases for tax positions taken in prior periods |  |                          | 375    |  
|Decreases for lapses in statutes of limitations    |  |                          | (332   | )
|Decreases for settlements with taxing authorities  |  |                          | (1,483 | )
|                                                   |  |                          |        |  
|Balance at December 31, 2008                       |  |                          | 18,367 |  
|Additions for tax positions taken in 2009          |  |                          | 2,648  |  
|Increases for tax positions taken in prior periods |  |                          | 846    |  
|Decreases for tax positions taken in prior periods |  |                          | (383   | )
|Decreases for lapses in statutes of limitations    |  |                          | (398   | )
|Decreases for settlements with taxing authorities  |  |                          | (930   | )
|                                                   |  |                          |        |  
|Balance at December 31, 2009                       |  | $                        | 20,150 |  
|                                                   |  |                          |        |  

Current and non-current liability components of unrecognized tax benefits were classified on the balance sheet as follows
(in thousands):



|                          |  |              |        |      |   |       
|------------------------- |  | ------------ | ------ | ---- | - | ------
|                          |  | December 31,
|                          |  | 2009         |        | 2008
|Other current liabilities |  | $            | 17,734 |      | $ | 445   
|Other liabilities         |  |              | 2,416  |      |   | 17,922
|                          |  |              |        |      |   |       
|Unrecognized tax benefits |  | $            | 20,150 |      | $ | 18,367
|                          |  |              |        |      |   |       

The entire balance of unrecognized tax benefits, if recognized, would
reduce our effective tax rate.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. The liability
for unrecognized tax benefits included accruals for interest and penalties of $2.2 million and $1.7 million as of December 31, 2009 and 2008, respectively.

Tax expense included the following relating to interest and penalties (in thousands):



|                                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                                     |  | Year Ended December 31, |     
|                                                                                     |  | 2009                    |      |   | 2008 |   |      | 2007 | 
|Benefit for lapses of statutes of limitations and settlement with taxing authorities |  | $                       | (433 | ) |      | $ | (684 | )    |  | $ | (900 | )
|Accruals for current and prior periods                                               |  |                         | 944  |   |      |   | 936  |      |  |   | 805  |  
|                                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  
|                                                                                     |  | $                       | 511  |   |      | $ | 252  |      |  | $ | (95  | )
|                                                                                     |  |                         |      |   |      |   |      |      |  |   |      |  



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During 2007, we requested a bilateral Advance Pricing Agreement (APA) between the U.S. and Dutch
tax authorities under the mutual agreement procedures of the tax treaty. The requested transfer pricing methodologies would result in a total of approximately $48.1 million of additional tax deductions in The Netherlands and $48.1 million of
additional taxable income in the U.S. The additional income in the U.S. can be offset by net operating loss carryforwards. As the outcome of the requested APA is not considered more likely than not, we have not recognized the benefit
resulting from the additional tax deductions in The Netherlands. Due to the uncertainty surrounding the timing of a possible agreement between the taxing authorities, we believe it is reasonably possible that unrecognized tax benefits related
to this matter could decrease in the range of zero to $16.6 million in the next 12 months.

For the remainder of the unrecognized tax benefits,
we believe it is reasonably possible they could decrease, in the next 12 months, between zero and $1.1 million due to lapses of statutes of limitations and as the result of settlements with taxing authorities.

For our major tax jurisdictions, the following years were open for examination by the tax authorities as of December 31, 2009:



|                |  |                 
|--------------- |  | ----------------
|Jurisdiction    |  | Open Tax Years  
|U.S.            |  | 2004 and forward
|The Netherlands |  | 2005 and forward
|Czech Republic  |  | 2008 and forward

13.
RESTRUCTURING, REORGANIZATION, RELOCATION AND SEVERANCE

We have initiated various corporate wide restructuring and infrastructure
improvement programs in order to increase operational efficiency, reduce costs as well as balance the effects of currency movements on our financial results. These actions have historically included reductions of work-force as well as the costs
to migrate portions of our supply chain to dollar-linked contracts. We expect to continue to incur costs in 2010 related to our supply chain migration and also expect to incur additional costs of approximately $2.2 million related to certain IT
system upgrades that we plan to complete in the next twelve months.

In 2009, we incurred $3.5 million of costs related to our plan, which
commenced in April 2008, related to improving the efficiency of our operations and improving the currency balance in our supply chain so that more of our costs are denominated in dollar or dollar-linked currencies. We incurred a total of $7.8
million of costs in 2008 and 2009 related to this plan and expect to incur approximately $1.4 million in 2010 related to the implementation of this plan. These actions are expected to reduce operating expenses, improve our factory utilization
and help offset the effect of currency movements on our cost of goods sold. The main activities, approximate range of associated costs and expected timing are described in the table below. Presently, all of the costs described are expected to result
in cash expenditures and we currently expect the total cost of the April 2008 restructuring to be approximately $9.2 million.

A summary of
the expenses related to our April 2008 restructuring plan is as follows:



|                                                                                   |  |                      |  |                                                           
|---------------------------------------------------------------------------------- |  | -------------------- |  | ----------------------------------------------------------
|Type of Expense                                                                    |  | Expected Total Costs |  | Amount Incurred andExpected Timing
forRemainder of Charges
|Severance costs related to work force reduction of 3% (approximately 60 employees) |  | $2.9 million         |  | $2.9 million incurred.                                    
|                                                                                   |  |                     
|Transfer of manufacturing and other activities                                     |  | $0.3 million         |  | $0.3 million incurred.                                    
|                                                                                   |  |                     
|Shift of supply chain                                                              |  | $6.0 million         |  | $4.6 million incurred.Remainder
in 2010.                  



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The $4.3 million of restructuring, reorganization, relocation and severance expense in 2008 related to our
April 2008 restructuring plan.

The net $0.3 million expense reversal of restructuring, reorganization, relocation and severance costs in 2007
related to favorable buyouts of our Peabody lease, offset by changes in estimates incorporated into our restructuring accrual related to our ability to sublease certain abandoned facilities under lease.

The following tables summarize the charges, expenditures and write-offs and adjustments in 2009, 2008 and 2007 related to our restructuring, reorganization,
relocation and severance accruals (in thousands):



|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    
|-------------------------------------------------------------------------- |  | ------------------------- | ----- | --------------------------- | - | ----- | ------------ |  | - | ------------------------ | - |  | ---------------------- | ---- | - |  | - | ---
|Year Ended December 31, 2009                                               |  | BeginningAccruedLiability |       | Charged toExpense,Net       |   |       | Expenditures |  |   | Write-OffsandAdjustments |   |  | EndingAccruedLiability
|Severance, outplacement and related benefits for terminated employees      |  | $                         | 221   |                             | $ | 94    |              |  | $ | (288                     | ) |  | $                      | (27  | ) |  | $ |   
|Transfer of manufacturing and related activities and shift of supply chain |  |                           |      |                             |   | 3,336 |              |  |   | (3,339                   | ) |  |                        | 3    |   |  |   |   
|Abandoned leases, leasehold improvements and facilities                    |  |                           | 19    |                             |   | 26    |              |  |   | (10                      | ) |  |                        | (3   | ) |  |   | 32 
|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    
|                                                                           |  | $                         | 240   |                             | $ | 3,456 |              |  | $ | (3,637                   | ) |  | $                      | (27  | ) |  | $ | 32 
|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    
|                                                                           |  |                           |       |                             |  
|Year Ended December 31, 2008                                               |  | BeginningAccruedLiability |       | Charged toExpense,Net       |   |       | Expenditures |  |   | Write-OffsandAdjustments |   |  | EndingAccruedLiability
|Severance, outplacement and related benefits for terminated employees      |  | $                         |      |                             | $ | 2,787 |              |  | $ | (2,456                   | ) |  | $                      | (110 | ) |  | $ | 221
|Transfer of manufacturing and related activities and shift of supply chain |  |                           |      |                             |   | 1,620 |              |  |   | (1,620                   | ) |  |                        |     |   |  |   |   
|Abandoned leases, leasehold improvements and facilities                    |  |                           | 580   |                             |   | (140  | )            |  |   | (389                     | ) |  |                        | (32  | ) |  |   | 19 
|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    
|                                                                           |  | $                         | 580   |                             | $ | 4,267 |              |  | $ | (4,465                   | ) |  | $                      | (142 | ) |  | $ | 240
|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    
|                                                                           |  |                           |       |                             |  
|Year Ended December 31, 2007                                               |  | BeginningAccruedLiability |       | Charged(Credited) toExpense |   |       | Expenditures |  |   | Write-OffsandAdjustments |   |  | EndingAccruedLiability
|Severance, outplacement and related benefits for terminated employees      |  | $                         | 178   |                             | $ | 8     |              |  | $ | (187                     | ) |  | $                      | 1    |   |  | $ |   
|Abandoned leases, leasehold improvements and facilities                    |  |                           | 2,261 |                             |   | (280  | )            |  |   | (1,454                   | ) |  |                        | 53   |   |  |   | 580
|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    
|                                                                           |  | $                         | 2,439 |                             | $ | (272  | )            |  | $ | (1,641                   | ) |  | $                      | 54   |   |  | $ | 580
|                                                                           |  |                           |       |                             |   |       |              |  |   |                          |   |  |                        |      |   |  |   |    

14. SHAREHOLDERS EQUITY

Preferred Stock Rights Plan

On
July 21, 2005, the Board of Directors adopted a Preferred Stock Rights Plan. Pursuant to the Preferred Stock Rights Plan, we distributed Rights as a dividend at the rate of one Right for each share of our common stock held by shareholders
of record as of the close of business on August 12, 2005. The Rights expire on August 12, 2015, unless redeemed or exchanged.

The
Rights are not exercisable until the earlier of: (1) 10 days (or such later date as may be determined by the Board of Directors) following an announcement that a person or group has acquired beneficial ownership of 20% of our common stock or
(2) 10 days (or such later date as may be determined by the Board of Directors) following the announcement of a tender offer which would result in a person or group obtaining beneficial ownership of 20% or more of our outstanding common stock,
subject to certain exceptions (the earlier of such dates being called the Distribution Date). The Rights are initially exercisable for one-thousandth of a share of our Series A Preferred Stock at a price of $120 per one-thousandth share,



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subject to adjustment. However, if: (1) after the Distribution Date we are acquired in certain types of transactions, or (2) any person or group (with limited exceptions) acquires
beneficial ownership of 20% of our common stock, then holders of Rights (other than the 20% holder) will be entitled to receive, upon exercise of the Right, common stock (or in case we are completely acquired, common stock of the acquirer) having a
market value of two times the exercise price of the Right. Philips Business Electronics International B.V., or any of its affiliates, shall not be considered for the 20% calculation so long as it does not acquire 30% or more of our common
shares.

We are entitled to redeem the Rights, for $0.001 per Right, at the discretion of the Board of Directors, until certain specified
times. We may also require the exchange of Rights, at a rate of one share of common stock for each Right, under certain circumstances. We also have the ability to amend the Rights, subject to certain limitations.

PEO Combination

On
February 21, 1997, we acquired substantially all of the assets and liabilities of the electron optics business of Koninklijke Philips Electronics N.V. (the PEO Combination), in a transaction accounted for as a reverse acquisition.
As part of the PEO Combination, we agreed to issue to Philips additional shares of our common stock whenever stock options that were outstanding on the date of the closing of the PEO Combination are exercised. Any such additional shares are issued
at a rate of approximately 1.22 shares to Philips for each share issued on exercise of these options. We receive no additional consideration for these shares issued to Philips under this agreement. We did not issue any shares in 2009, 2008 or 2007
to Philips under this agreement. As of December 31, 2009, 165,000 shares of our common stock are potentially issuable and reserved for issuance as a result of this agreement.

Stock Incentive Plans

As of December 31, 2009, a total of 5,194,048 shares of
our common stock were reserved for issuance pursuant to our stock incentive plans.

15. STOCK INCENTIVE PLANS AND STOCK-BASED COMPENSATION

Stock-Based Compensation Information

Certain information regarding our stock-based compensation was as follows (in thousands):



|                                                                                             |  |      |       |      |   |        |  |   |       
|-------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ------ |  | - | ------
|Year Ended December 31,                                                                      |  | 2009 |       | 2008 |   | 2007  
|Weighted average grant-date fair value of share options granted                              |  | $    | 6,479 |      | $ |       |  | $ |      
|Weighted average grant-date fair value of restricted shares and restricted stock units       |  |      | 7,939 |      |   | 11,013 |  |   | 8,538 
|Total intrinsic value of share options exercised                                             |  |      | 653   |      |   | 3,064  |  |   | 34,083
|Fair value of restricted shares and restricted stock units vested                            |  |      | 6,829 |      |   | 4,594  |  |   | 2,528 
|Cash received from options exercised and shares purchased under all stock-based arrangements |  |      | 6,871 |      |   | 14,097 |  |   | 40,894
|Tax benefit realized for stock options                                                       |  |      |      |      |   | 329    |  |   | 391   

1995 Stock Incentive Plan and
1995 Supplemental Stock Incentive Plan

Our 1995 Stock Incentive Plan, as amended (the 1995 Plan) allows for the issuance
of a maximum of 10,000,000 shares of our common stock and our 1995 Supplemental Stock Incentive Plan (the 1995 Supplemental Plan) allows for the issuance of a maximum of 500,000 shares of our common stock.

We maintain stock incentive plans for selected directors, officers, employees and certain other parties that allow the Board of Directors to grant options
(incentive and nonqualified), stock and cash bonuses, stock appreciation rights, restricted stock units (RSUs) and restricted shares. The Board of Directors ability to grant options under either the 1995 Plan or the 1995
Supplemental Plan will terminate, if the plans are not amended, when all shares reserved for issuance have been issued and all restrictions on such shares have lapsed, or earlier, at the discretion of the Board of Directors. At December 31,
2009, there were 2,751,134 shares available for grant under these plans and 5,194,048 shares of our common stock were reserved for issuance.



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Activity under these plans was as follows (share amounts in thousands):



|                            |  |                                           |   |  |                                               |      
|--------------------------- |  | ----------------------------------------- | - |  | --------------------------------------------- | -----
|                            |  | Shares Subjectto Options                  |   |  | Weighted AverageExercise Price               
|Balances, December 31, 2008 |  | 2,003                                     |   |  | $                                             | 23.99
|Granted                     |  | 255                                       |   |  |                                               | 25.41
|Forfeited                   |  |                                          |   |  |                                               |     
|Expired                     |  | (519                                      | ) |  |                                               | 27.19
|Exercised                   |  | (128                                      | ) |  |                                               | 17.33
|                            |  |                                           |   |  |                                               |      
|Balances, December 31, 2009 |  | 1,611                                     |   |  |                                               | 23.71
|                            |  |                                           |   |  |                                               |      
|                            |  |                                          
|                            |  | RestrictedShares
andRestrictedStock Units |   |  | Weighted AverageGrant
DatePer ShareFair Value
|Balances, December 31, 2008 |  | 825                                       |   |  | $                                             | 26.49
|Granted                     |  | 321                                       |   |  |                                               | 24.73
|Forfeited                   |  | (54                                       | ) |  |                                               | 26.15
|Vested                      |  | (260                                      | ) |  |                                               | 26.38
|                            |  |                                           |   |  |                                               |      
|Balances, December 31, 2009 |  | 832                                       |   |  |                                               | 25.86
|                            |  |                                           |   |  |                                               |      

Summary

Certain information regarding all options outstanding as of December 31, 2009 was as follows (share amounts in thousands):



|                                            |  |                    |             |                    |   |            
|------------------------------------------- |  | ------------------ | ----------- | ------------------ | - | -----------
|                                            |  | OptionsOutstanding |             | OptionsExercisable
|Number                                      |  |                    | 1,611       |                    |   | 1,279      
|Weighted average exercise price             |  | $                  | 23.71       |                    | $ | 23.63      
|Aggregate intrinsic value                   |  | $                  | 3.1 million |                    | $ | 2.8 million
|Weighted average remaining contractual term |  |                    | 3.2 years   |                    |   | 2.5 years  

As of December 31, 2009,
unrecognized stock-based compensation related to outstanding, but unvested stock options, restricted shares and RSUs was $21.1 million, which will be recognized over the weighted average remaining vesting period of 1.9 years.

Employee Share Purchase Plan

In
1998, we implemented an Employee Share Purchase Plan (ESPP). A total of 2,950,000 shares of our common stock may be issued pursuant to the ESPP, as amended. Under the ESPP, employees may elect to have compensation withheld and placed in
a designated stock subscription account for purchase of our common stock. Each ESPP offering period consists of one six-month purchase period. The purchase price in a purchase period is set at a 15% discount to the lower of the market price on
either the first day of the applicable offering period or the purchase date. The ESPP allows a maximum purchase of 1,000 shares by each employee during any two consecutive offering periods. A total of 270,939 shares were purchased pursuant to the
ESPP during 2009 at a weighted average purchase price of $17.21 per share, which represented a weighted average discount of $3.04 per share compared to the fair market value of our common stock on the dates of purchase. At December 31, 2009,
762,113 shares of our common stock remained available for purchase and were reserved for issuance under the ESPP.

16. EMPLOYEE BENEFIT
PLANS

Pension Plans

Employee retirement plans have been established in some foreign countries in accordance with the legal requirements and customs in the countries involved. The majority of employees in Europe, Asia and Canada are covered by defined benefit,
multi-employer or defined contribution pension plans. The benefits provided by these plans are based primarily on years of service and employees compensation near retirement. Employees in the U.S. are covered by a profit sharing 401(k) plan,
which is a defined contribution plan.



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Employees in The Netherlands participate with other companies in making collectively-bargained payments to
the Metal-Electro Industry pension fund. Pension costs relating to this multi-employer plan were $6.8 million in 2009, $7.8 million in 2008 and $6.7 million in 2007.

Outside the U.S. and The Netherlands, employees are covered under various defined contribution and defined benefit plans as required by local law.

Plan costs for our defined contribution plans outside the U.S. and The Netherlands totaled $1.5 million in 2009, $1.3 million in 2008 and $0.8 million in
2007.

Plan costs for our defined benefit pension plans were $0.5 million in 2009, insignificant in 2008 and $0.9 million in 2007. Obligations
under the defined benefit pension plans are not funded. A liability for the projected benefit obligations of these plans of $2.0 million and $1.5 million was included in other non-current liabilities as of December 31, 2009 and 2008,
respectively. Unrealized gains recorded in other comprehensive income related to the additional minimum pension liability for these plans totaled $0 in 2009, $0.5 million in 2008 and $0.2 million in 2007. Due to the immateriality of these defined
benefit pension plan costs, we have not included all required disclosures.

Profit Share and Variable Compensation Programs

We maintain an Employee Profit Share Plan and a Management Variable Compensation Plan for management-level employees to reward
achievement of corporate and individual objectives. The Compensation Committee of the Board of Directors generally determines the structure of the overall incentive program at the beginning of each year. In setting the structure and the
amount of the overall target incentive pool, the Compensation Committee considers potential size of the pool in relation to our earnings and other financial estimates, the achievability of the corporate targets under the plan, historical
payouts under the plan and other factors. The total cost of these plans was $6.1 million in 2009, $4.2 million in 2008 and $9.2 million in 2007.

Profit Sharing 401(k) Plan

We maintain a profit sharing 401(k) plan that covers substantially all U.S. employees.
Employees may elect to defer a portion of their compensation, and we may contribute an amount approved by the Board of Directors. We match 100% of employee contributions to the 401(k) plan up to 3% of each employees eligible compensation.
Employees must meet certain requirements to be eligible for the matching contribution. We contributed $1.3 million in 2009, $1.3 million in 2008 and $1.4 million in 2007 to this plan. Our 401(k) plan does not allow for the investment in shares of
our common stock.

Deferred Compensation Plan

We maintain a deferred compensation plan (the Plan), which permits certain employees to defer payment of a portion of their annual compensation. We do not match deferrals or make any
additional contributions to the Plan. Distributions from the Plan are generally payable as a lump sum payment or in multi-year installments as directed by the participant according to the Plan provisions. Undistributed amounts under the Plan are
subject to the claims of our creditors. As of December 31, 2009 and 2008, the invested amounts under the Plan totaled $2.8 million and $2.4 million, respectively, and were recorded on our balance sheets as non-current investments in
marketable securities and as a long-term liability to recognize undistributed amounts due to employees.

17. RELATED-PARTY ACTIVITY

We sold products and services to Applied Materials, Inc. A director of Applied Materials is a member of our Board of Directors. We also sold
services to Cascade Microtech, Inc. Our Chief Financial Officer is on the Board of Directors of Cascade Microtech. Sales to Applied Materials and Cascade Microtech were as follows (in thousands):



|                    |  |                         |     |      |   |       |  |   |      
|------------------- |  | ----------------------- | --- | ---- | - | ----- |  | - | -----
|                    |  | Year Ended December 31,
|                    |  | 2009                    |     | 2008 |   | 2007 
|Product sales:      |  |                         |     |      |   |       |  |   |      
|Applied Materials   |  | $                       | 578 |      | $ | 2,123 |  | $ | 897  
|                    |  |                         |     |      |   |       |  |   |      
|Total product sales |  |                         | 578 |      |   | 2,123 |  |   | 897  
|                    |  |                         |     |      |   |       |  |   |      
|Service sales:      |  |                         |     |      |   |       |  |   |      
|Applied Materials   |  |                         | 266 |      |   | 332   |  |   | 306  
|Cascade Microtech   |  |                         | 14  |      |   | 27    |  |   | 15   
|                    |  |                         |     |      |   |       |  |   |      
|Total service sales |  |                         | 280 |      |   | 359   |  |   | 321  
|                    |  |                         |     |      |   |       |  |   |      
|Total sales         |  | $                       | 858 |      | $ | 2,482 |  | $ | 1,218
|                    |  |                         |     |      |   |       |  |   |      



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As of December 31, 2009, Applied Materials and Cascade Microtech owed us $40,000 and $7,000,
respectively, related to their purchases.

During 2009 and 2008, we purchased $12,000 and $17,000 of goods, respectively, from Cascade
Microtech, Inc. and, as of December 31, 2009, we did not owe Cascade Microtech, Inc. any amounts for these purchases.

During 2009 and
2008 we purchased $3.2 million and $2.5 million of goods, respectively, from Schneeberger, Inc. One of our named executive officers serves on the Board of Directors of Schneeberger, Inc. As of December 31, 2009, we owed Schneeberger, Inc. $0.3
million for these purchases.

During 2009 and 2008, we purchased goods totaling $227,000 and $439,000, respectively, from TMC BV. One of the
members of our Board of Directors also serves on the Supervisory Board of TMC BV. As of December 31, 2009, we did not owe TMC BV any amounts for these purchases.

During 2009, 2008 and 2007, we purchased services totaling $110,000, $150,000 and $157,000, respectively, from EasyStreet Online Services. One of the members of our Board of Directors also serves on the
Board of Directors of EasyStreet Online Services. As of December 31, 2009, we owed EasyStreet Online Services $14,000 for these purchased services.

18. DERIVATIVE INSTRUMENTS

In the normal course of business, we are exposed to foreign
currency risk and we use derivatives to mitigate financial exposure from movements in foreign currency exchange rates. As of December 31, 2009 and 2008, the aggregate notional amount of our outstanding derivative contracts designated as cash
flow hedges was $50.0 million and $34.5 million, respectively and the aggregate notional amount of our outstanding derivative contracts for our balance sheet positions was $88.9 million and $80.4 million, respectively. The outstanding contracts at
December 31, 2009 have varying maturities through the fourth quarter of 2010. We do not enter into derivative financial instruments for speculative purposes.

We attempt to mitigate derivative credit risk by transacting with highly rated counterparties. We have evaluated the credit and nonperformance risks associated with our derivative counterparties and
believe them to be insignificant and not warranting a credit adjustment at December 31, 2009. In addition, there are no credit contingent features in our derivative instruments.

Balance Sheet Related

In countries outside of the U.S., we transact business in
U.S. dollars and in various other currencies. We attempt to mitigate our currency exposures for recorded transactions by using forward exchange contracts to reduce the risk that our future cash flows will be adversely affected by changes in exchange
rates. We enter into forward sale or purchase contracts for foreign currencies to economically hedge specific cash, receivables or payables positions denominated in foreign currencies. Changes in fair value of derivatives entered into to mitigate
the foreign exchange risks related to these balance sheet items are recorded in other income (expense) currently together with the transaction gain or loss from the respective balance sheet position.



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Foreign currency losses recorded in other income (expense), inclusive of the impact of derivatives, totaled
$3.6 million, $4.9 million and $3.1 million, respectively, in 2009, 2008 and 2007.

Cash Flow Hedges

We use zero cost collar contracts and option contracts to hedge certain anticipated foreign currency exchange transactions. The foreign exchange hedging
structure is set up generally on a twelve-month time horizon. The hedging transactions we undertake primarily limit our exposure to changes in the U.S. dollar/euro and the U.S. dollar/Czech koruna exchange rate. The zero cost collar contract hedges
are designed to protect us as the U.S. dollar weakens, but also provide us with some flexibility if the dollar strengthens.

These derivatives
meet the criteria to be designated as hedges and, accordingly, we record the change in fair value of the effective portion of these hedge contracts relating to anticipated transactions in other comprehensive income rather than net income until the
underlying hedged transaction affects net income. Gains and losses resulting from the ineffective portion of the hedge contracts are recognized currently in net income.

Summary

At December 31, 2009 and 2008 the fair value carrying amount of our
derivative instruments were included in our balance sheet as follows:



|                                                  |  |                          
|------------------------------------------------- |  | -------------------------
|                                                  |  | Location in Balance Sheet
|Derivatives Designated as Hedging Instruments     |  |                          
|Foreign Exchange Contracts in Asset Position      |  | Other Current Assets     
|Foreign Exchange Contracts in Liability Position  |  | Other Current Liabilities
|                                                  | 
|Derivatives Not Designated as Hedging Instruments |  |                          
|Foreign Exchange Contracts in Asset Position      |  | Other Current Assets     
|Foreign Exchange Contracts in Liability Position  |  | Other Current Liabilities



|                                                  |  |                                                |     |                                                    |   |       |  |      |       |  |   |      
|------------------------------------------------- |  | ---------------------------------------------- | --- | -------------------------------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|Balance Sheet Information (in thousands)          |  | Fair Value of Asset Derivatives atDecember 31, |     | Fair Value of Liability Derivatives atDecember 31,
|                                                  |  | 2009                                           |     | 2008                                               |   | 2009  |  | 2008
|Derivatives Designated as Hedging Instruments     |  |                                                |     |                                                    |   |       |  |      |       |  |   |      
|Foreign Exchange Contracts                        |  | $                                              | 671 |                                                    | $ | 761   |  | $    | 549   |  | $ | 2,776
|                                                  |  |                                                |     |                                                    |   |       |  |      |       |  |   |      
|Derivatives Not Designated as Hedging Instruments |  |                                                |     |                                                    |   |       |  |      |       |  |   |      
|Foreign Exchange Contracts                        |  | $                                              | 183 |                                                    | $ | 1,938 |  | $    | 2,591 |  | $ | 5,775
|                                                  |  |                                                |     |                                                    |   |       |  |      |       |  |   |      



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The effect of derivative instruments on our Consolidated Statements of Operations during 2009, 2008 and 2007
were as follows (in thousands):



|                                               |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     |  |   |        |  
|---------------------------------------------- |  | ------------------------------------------------------ | ------ | - | --------------------------------------------------------------------------------- | ------------------ | ------------------------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | - | ------ | -
|Derivatives in Cash Flow Hedging Relationships |  | Amount ofGain/(Loss)Recognizedin OCI(EffectivePortion) |        |   | Location ofGain/(Loss)ReclassifiedfromAccumulatedOCI intoIncome(EffectivePortion) |                    | Amount ofGain/(Loss)ReclassifiedfromAccumulatedOCI intoIncome(EffectivePortion) |   | Location ofGain/(Loss)Recognized inIncome onDerivative(IneffectivePortion
andAmountExcluded fromEffectivenessTesting) |  | Amount ofGain/(Loss)Recognized inIncome onDerivative(IneffectivePortion
andAmountExcluded fromEffectivenessTesting) | 
|                                               |  |                                                        |        |   |                                                                                  
|Year Ended December 31, 2009                   |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     | 
|Foreign Exchange Contracts                     |  | $                                                      | (765   | ) |                                                                                   | Cost of Goods Sold |                                                                                 | $ | 426                                                                                                                   |  | Other, net                                                                                                          |  | $ | (1,270 | )
|                                               |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     |  |   |        |  
|                                               |  |                                                        |        |   |                                                                                  
|Year Ended December 31, 2008                   |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     | 
|Foreign Exchange Contracts                     |  | $                                                      | (1,225 | ) |                                                                                   | Cost of Goods Sold |                                                                                 | $ | 6,062                                                                                                                 |  | Other, net                                                                                                          |  | $ | (1,302 | )
|                                               |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     |  |   |        |  
|                                               |  |                                                        |        |   |                                                                                  
|Year Ended December 31, 2007                   |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     | 
|Foreign Exchange Contracts                     |  | $                                                      | 2,085  |   |                                                                                   | Cost of Goods Sold |                                                                                 | $ | 4,976                                                                                                                 |  | Other, net                                                                                                          |  | $ |       |  
|                                               |  |                                                        |        |   |                                                                                   |                    |                                                                                 |   |                                                                                                                       |  |                                                                                                                     |  |   |        |  



|                                                  |  |                                                         |  |                                                      |        |  
|------------------------------------------------- |  | ------------------------------------------------------- |  | ---------------------------------------------------- | ------ | -
|Derivatives Not Designated as Hedging Instruments |  | Location ofGain/(Loss)Recognized in Incomeon Derivative |  | Amount ofGain/(Loss)Recognized inIncome onDerivative |       
|                                                  |  |                                                        
|Year Ended December 31, 2009                      |  |                                                         |  |                                                      |       
|Foreign Exchange Contracts                        |  | Other, net                                              |  | $                                                    | (1,667 | )
|                                                  |  |                                                         |  |                                                      |        |  
|                                                  |  |                                                        
|Year Ended December 31, 2008                      |  |                                                         |  |                                                      |       
|Foreign Exchange Contracts                        |  | Other, net                                              |  | $                                                    | (8,179 | )
|                                                  |  |                                                         |  |                                                      |        |  
|                                                  |  |                                                        
|Year Ended December 31, 2007                      |  |                                                         |  |                                                      |       
|Foreign Exchange Contracts                        |  | Other, net                                              |  | $                                                    | 2,361  |  
|                                                  |  |                                                         |  |                                                      |        |  

The unrealized losses at December 31, 2009 are expected to be reclassified to net income during the next 12 months as a
result of the underlying hedged transactions also being recorded in net income.

19. COMMITMENTS AND CONTINGENT LIABILITIES

From time to time, we may be a party to litigation arising in the ordinary course of business.

In November 2009, Hitachi filed a complaint against our subsidiary, FEI Japan, in the District Court in Tokyo alleging infringement of five patents.
Hitachis complaint seeks a permanent injunction requiring us to cease the sale of our allegedly infringing products in Japan, and attorneys fees and costs. We are in the process of preparing responses to Hitachis allegations. We
believe we have meritorious defenses to these claims, and intend to vigorously defend our interests in this matter.



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In managements opinion, the resolution of this case, as well as other matters, is not expected to have
a material adverse effect on our financial condition, but it could be material to the net income or cash flows of a particular period. This claim, or any claim of infringement or violation of intellectual property rights, with or without merit,
could require us to change our technology, change our business practices, pay damages, enter into a licensing arrangement or take other actions that may result in additional costs or other actions that are detrimental to our business.

We have commitments under non-cancelable purchase orders, primarily relating to inventory, totaling $41.3 million at December 31, 2009. These
commitments expire at various times through the fourth quarter of 2010.

20. SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer.

We report our segments based on a market-focused organization. Our segments are: Electronics, Research and Industry, Life Sciences and Service and
Components.

The following table summarizes various financial amounts for each of our business segments (in thousands):



|                             |  |             |         |                     |   |              |  |                       |        |                          |   |         |       |   |         |   |  |   |        
|---------------------------- |  | ----------- | ------- | ------------------- | - | ------------ |  | --------------------- | ------ | ------------------------ | - | ------- | ----- | - | ------- | - |  | - | -------
|Year Ended December 31, 2009 |  | Electronics |         | ResearchandIndustry |   | LifeSciences |  | Service andComponents |        | CorporateandEliminations |   |         | Total
|Sales to external customers  |  | $           | 126,417 |                     | $ | 231,462      |  | $                     | 81,824 |                          | $ | 137,641 |       | $ |        |   |  | $ | 577,344
|Gross profit                 |  |             | 61,656  |                     |   | 97,317       |  |                       | 28,422 |                          |   | 42,109  |       |   |        |   |  |   | 229,504
|                             |  |             |         |                     |   |             
|Year Ended December 31, 2008 |  |             |         |                     |   |              |  |                       |        |                          |   |         |      
|Sales to external customers  |  | $           | 152,076 |                     | $ | 238,615      |  | $                     | 70,815 |                          | $ | 137,673 |       | $ |        |   |  | $ | 599,179
|Gross profit                 |  |             | 72,258  |                     |   | 97,023       |  |                       | 26,683 |                          |   | 38,577  |       |   |        |   |  |   | 234,541
|                             |  |             |         |                     |   |             
|Year Ended December 31, 2007 |  |             |         |                     |   |              |  |                       |        |                          |   |         |      
|Sales to external customers  |  | $           | 198,663 |                     | $ | 214,551      |  | $                     | 51,874 |                          | $ | 127,422 |       | $ |        |   |  | $ | 592,510
|Gross profit                 |  |             | 102,940 |                     |   | 88,964       |  |                       | 20,638 |                          |   | 33,878  |       |   |        |   |  |   | 246,420
|                             |  |             |         |                     |   |             
|December 31, 2009            |  |             |         |                     |   |              |  |                       |        |                          |   |         |      
|Total assets                 |  | $           | 99,091  |                     | $ | 127,938      |  | $                     | 59,897 |                          | $ | 137,207 |       | $ | 529,836 |   |  | $ | 953,969
|Goodwill                     |  |             | 18,139  |                     |   | 17,785       |  |                       | 3,628  |                          |   | 5,064   |       |   | (1      | ) |  |   | 44,615 
|                             |  |             |         |                     |   |             
|December 31, 2008            |  |             |         |                     |   |              |  |                       |        |                          |   |         |      
|Total assets                 |  | $           | 90,100  |                     | $ | 142,390      |  | $                     | 35,560 |                          | $ | 137,186 |       | $ | 426,936 |   |  | $ | 832,172
|Goodwill                     |  |             | 18,132  |                     |   | 14,148       |  |                       | 3,626  |                          |   | 5,061   |       |   | (3      | ) |  |   | 40,964 

Market segment disclosures are
presented to the gross profit level as this is the primary performance measure for which the segment general managers are responsible. Selling, general and administrative, research and development and other operating expenses are managed and
reported at the corporate level and, given allocation to the market segments would be arbitrary, have not been allocated to the market segments. See our Consolidated Statements of Operations for reconciliations from gross profit to income before
income taxes. These reconciling items are not included in the measure of profit and loss for each reportable segment.



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Our long-lived assets were geographically located as follows (in thousands):



|                |  |      |        |      |   |       
|--------------- |  | ---- | ------ | ---- | - | ------
|December 31,    |  | 2009 |        | 2008
|United States   |  | $    | 55,342 |      | $ | 53,544
|The Netherlands |  |      | 18,888 |      |   | 17,114
|Other           |  |      | 15,111 |      |   | 13,155
|                |  |      |        |      |   |       
|Total           |  | $    | 89,341 |      | $ | 83,813
|                |  |      |        |      |   |       

The following table summarizes sales by geographic region (in
thousands):



|                            |  |                |         |        |   |                              |  |       |         |  |   |        
|--------------------------- |  | -------------- | ------- | ------ | - | ---------------------------- |  | ----- | ------- |  | - | -------
|                            |  | U.S. andCanada |         | Europe |   | Asia-Pacificand Restof World |  | Total
|2009                        |  |                |         |        |   |                              |  |      
|Product sales               |  | $              | 134,919 |        | $ | 166,581                      |  | $     | 138,203 |  | $ | 439,703
|Service and component sales |  |                | 63,718  |        |   | 45,226                       |  |       | 28,697  |  |   | 137,641
|                            |  |                |         |        |   |                              |  |       |         |  |   |        
|Total sales                 |  | $              | 198,637 |        | $ | 211,807                      |  | $     | 166,900 |  | $ | 577,344
|                            |  |                |         |        |   |                              |  |       |         |  |   |        
|                            |  |                |         |       
|2008                        |  |                |         |        |   |                              |  |      
|Product sales               |  | $              | 150,443 |        | $ | 157,493                      |  | $     | 153,570 |  | $ | 461,506
|Service and component sales |  |                | 65,739  |        |   | 43,635                       |  |       | 28,299  |  |   | 137,673
|                            |  |                |         |        |   |                              |  |       |         |  |   |        
|Total sales                 |  | $              | 216,182 |        | $ | 201,128                      |  | $     | 181,869 |  | $ | 599,179
|                            |  |                |         |        |   |                              |  |       |         |  |   |        
|                            |  |                |         |       
|2007                        |  |                |         |        |   |                              |  |      
|Product sales               |  | $              | 166,510 |        | $ | 141,508                      |  | $     | 157,070 |  | $ | 465,088
|Service and component sales |  |                | 65,661  |        |   | 36,502                       |  |       | 25,259  |  |   | 127,422
|                            |  |                |         |        |   |                              |  |       |         |  |   |        
|Total sales                 |  | $              | 232,171 |        | $ | 178,010                      |  | $     | 182,329 |  | $ | 592,510
|                            |  |                |         |        |   |                              |  |       |         |  |   |        

None of our customers represented 10% or more of our total sales in
2009, 2008 or 2007.

Sales to countries which totaled 10% or more of our total sales were as follows (dollars in thousands):



|              |  |              |         |                 |      |  
|------------- |  | ------------ | ------- | --------------- | ---- | -
|              |  | DollarAmount |         | % of TotalSales |     
|2009          |  |              |         |                 |     
|United States |  | $            | 189,596 |                 | 32.8 | %
|              |  |             
|2008          |  |              |         |                 |     
|United States |  | $            | 194,740 |                 | 32.5 | %
|              |  |             
|2007          |  |              |         |                 |     
|United States |  | $            | 228,576 |                 | 38.6 | %

21. FAIR VALUE OF FINANCIAL
ASSETS AND LIABILITIES

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad
categories:



| |  |  | Level 1  quoted prices in active markets for identical securities as of the reporting date;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Level 2  other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment
speeds and credit risk; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with
investing in those securities.



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Following are the disclosures related to our financial assets as of December 31, 2009 (in thousands):



|                                             |  |         |         |         |   |        |         |  |   |       
|-------------------------------------------- |  | ------- | ------- | ------- | - | ------ | ------- |  | - | ------
|                                             |  | Level 1 |         | Level 2 |   |        | Level 3
|Available for sale marketable securities:    |  |         |         |         |   |        |         |  |   |       
|U.S. Government-backed securities            |  | $       | 128,170 |         | $ |       |         |  | $ |      
|Certificates of deposit and commercial paper |  |         | 33,575  |         |   |       |         |  |   |      
|Trading securities:                          |  |         |         |         |   |        |         |  |   |       
|Equity securities  mutual funds             |  |         | 2,848   |         |   |       |         |  |   |      
|ARS                                          |  |         |        |         |   |       |         |  |   | 87,188
|Derivative contracts, net                    |  |         |        |         |   | (2,286 | )       |  |   |      
|Put Right                                    |  |         |        |         |   |       |         |  |   | 11,711
|                                             |  |         |         |         |   |        |         |  |   |       
|                                             |  | $       | 164,593 |         | $ | (2,286 | )       |  | $ | 98,899
|                                             |  |         |         |         |   |        |         |  |   |       

A roll-forward of our Level 3 securities was as follows (in
thousands):



|                                                                                 |  |                        |         |   |          |   |        |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | -------- | - | ------ | -
|                                                                                 |  | Auction RateSecurities |         |   | PutRight |  
|Balance, December 31, 2008                                                       |  | $                      | 91,680  |   |          | $ | 17,917 |  
|Call of ARS                                                                      |  |                        | (11,200 | ) |          |   |       |  
|Increase in fair value of ARS included as a component of other income, net       |  |                        | 6,708   |   |          |   |       |  
|Decrease in fair value of Put Right included as a component of other income, net |  |                        |        |   |          |   | (6,206 | )
|                                                                                 |  |                        |         |   |          |   |        |  
|Balance, December 31, 2009                                                       |  | $                      | 87,188  |   |          | $ | 11,711 |  
|                                                                                 |  |                        |         |   |          |   |        |  

The fair value of our available for sale and trading marketable securities is based on quoted market prices.

We use an income approach to value the assets and liabilities for outstanding derivative contracts using current market information as of the reporting
date, such as spot rates, interest rate differentials and implied volatility. We mitigate derivative credit risk by transacting with highly rated counterparties. We have evaluated the credit and non-performance risks associated with our derivative
counterparties and believe them to be insignificant and not warranting a credit adjustment at December 31, 2009.

We estimated the fair
value of our ARS using a discounted cash flow model where we compared the expected rate of interest received on the ARS to similar securities. We discounted the securities over a three to seven year term depending on the collateral underlying each
ARS. The amounts derived through the discounted cash flow model were generally consistent with the quoted price indicated by UBS, the bank which holds our ARS at December 31, 2009.

We calculated the fair value of the Put Right based on the net present value of the difference between the par value and the fair market value of the ARS on December 31, 2009, using a six month
option period through the settlement date discounted by the credit default rate of UBS, the issuer. We will reassess the fair values in future reporting periods based on several factors, including continued failure of auctions, failure of
investments to be redeemed, deterioration of credit ratings of investments, overall market risk, and other factors.

See Note 3 for additional
information regarding the ARS and the Put Right.

There were no changes to our valuation techniques during 2009.

We believe the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities are a reasonable
approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

At December 31, 2009, we had $100.0 million of fixed rate convertible debt outstanding. Based on open market trades, we have determined that the fair value of our fixed rate convertible debt was
approximately $105.5 million at December 31, 2009.



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22. ADOPTION OF NEW ACCOUNTING GUIDANCE FOR CONVERTIBLE DEBT

On January 1, 2009, we adopted accounting guidance for debt instruments that may be settled in cash upon conversion. The issuer of these instruments
should separately account for the liability and equity components in a manner that reflects the entitys non-convertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance was retrospectively applied,
effective January 1, 2009, to our $150.0 million principal amount of zero coupon subordinated convertible notes. In accordance with the guidance, we recognized both the liability and equity component of our notes at fair value. The
liability component was recognized as the fair value of a similar instrument that did not have a conversion feature at issuance. The equity component, which was the conversion feature at issuance, was recognized as the difference between the
proceeds from the issuance of the notes and the fair value of the liability component. We recognized an effective interest rate of 8.874% on the carrying value of the debt.

The retrospective application of this guidance increased interest expense and reduced net income and earnings per share in 2008 and 2007 as indicated in the following tables (in thousands, except per
share amounts):



|           |  |                              |        |           |   |        |                          |  |   |                            |   |  |   |       |  
|---------- |  | ---------------------------- | ------ | --------- | - | ------ | ------------------------ |  | - | -------------------------- | - |  | - | ----- | -
|           |  | Year Ended December 31, 2008 |       
|           |  | InterestExpense              |        | NetIncome |   |        | Basic NetIncome PerShare |  |   | Diluted NetIncome PerShare |  
|Reported   |  | $                            | 7,906  |           | $ | 24,302 |                          |  | $ | 0.66                       |   |  | $ | 0.61  |  
|Adjustment |  |                              | 6,314  |           |   | (6,314 | )                        |  |   | (0.17                      | ) |  |   | (0.13 | )
|           |  |                              |        |           |   |        |                          |  |   |                            |   |  |   |       |  
|Revised    |  | $                            | 14,220 |           | $ | 17,988 |                          |  | $ | 0.49                       |   |  | $ | 0.48  |  
|           |  |                              |        |           |   |        |                          |  |   |                            |   |  |   |       |  



|           |  |                              |        |           |   |         |                          |  |   |                            |   |  |   |       |  
|---------- |  | ---------------------------- | ------ | --------- | - | ------- | ------------------------ |  | - | -------------------------- | - |  | - | ----- | -
|           |  | Year Ended December 31, 2007 |       
|           |  | InterestExpense              |        | NetIncome |   |         | Basic NetIncome PerShare |  |   | Diluted NetIncome PerShare |  
|Reported   |  | $                            | 8,735  |           | $ | 58,338  |                          |  | $ | 1.63                       |   |  | $ | 1.36  |  
|Adjustment |  |                              | 11,798 |           |   | (11,798 | )                        |  |   | (0.33                      | ) |  |   | (0.12 | )
|           |  |                              |        |           |   |         |                          |  |   |                            |   |  |   |       |  
|Revised    |  | $                            | 20,533 |           | $ | 46,540  |                          |  | $ | 1.30                       |   |  | $ | 1.24  |  
|           |  |                              |        |           |   |         |                          |  |   |                            |   |  |   |       |  

The effect of the adoption of these updates on the consolidated balance sheet as of December 31, 2008 was as follows
(in thousands):



|           |  |                   |         |                           |   |         |  
|---------- |  | ----------------- | ------- | ------------------------- | - | ------- | -
|           |  | December 31, 2008 |        
|           |  | Commonstock       |         | Retainedearnings(deficit) |  
|Reported   |  | $                 | 418,025 |                           | $ | 50,700  |  
|Adjustment |  |                   | 51,868  |                           |   | (51,868 | )
|           |  |                   |         |                           |   |         |  
|Revised    |  | $                 | 469,893 |                           | $ | (1,168  | )
|           |  |                   |         |                           |   |         |  

Amortization of the debt discount during 2008 and 2007 was $6.5 million and $12.1 million, respectively. The carrying value
of the equity component, the principal amount of the liability component and the unamortized discount were all zero at December 31, 2008.

Given that these notes were repaid in 2008, there was no impact on our consolidated statement of operations, statement of cash flows or statement of comprehensive income in 2009, nor will there be any impact in future years. The impact on
our balance sheet and statement of shareholders equity was a reclassification of $51.9 million between retained earnings and common stock.



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23. SUBSEQUENT EVENTS

We have considered all events that have occurred subsequent to December 31, 2009 and through February 19, 2010, the date the financial statements as of and for the year ended December 31,
2009 were issued.

Call of ARS

In the first quarter of 2010 through the date of filing of this Form 10-K, $8.2 million of our ARS were called, with the proceeds being used to pay down amounts outstanding on the UBS Credit Facility. Following these calls and repayments,
$51.0 million was outstanding on the UBS Credit Facility.



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Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation and under the
supervision of our President and Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our
President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such
information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial
reporting that occurred during our last fiscal year that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Managements Report on Internal Control Over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal control over financial reporting.

Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, we used the criteria set forth in Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our assessment using those criteria, our management concluded that, as of December 31, 2009, our internal control over financial reporting was effective.

Deloitte & Touche LLP has audited this assessment of our internal control over financial reporting and their report is included below.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or
that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls
can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

FEI
Company

Hillsboro, Oregon

We have
audited the internal control over financial reporting of FEI Company and subsidiaries (the Company) as of December 31, 2009, based on criteria established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Managements report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our
audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over
financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control
over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.

Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Company and our report dated February 19, 2010 expressed an unqualified opinion on those
financial statements.



|                                  
|----------------------------------
|/s/ DELOITTE & TOUCHE LLP         
|Portland, Oregon February 19, 2010



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Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and
Corporate Governance

Information required by this item will be included under the captions Governance, Code of Ethics,
Proposal No. 1 Election of Directors, Meetings and Committees of the Board of Directors, Executive Officers, Membership of the Audit Committee and Section 16(a) Beneficial Ownership Reporting Compliancein our
Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated by reference herein.

On September 9, 2003, we adopted a
code of business conduct and ethics that applies to all directors, officers and employees. We posted our code of business conduct and ethics on our website at www.fei.com. We intend to disclose any amendment to the provisions of the code of business
conduct and ethics that apply specifically to directors or executive officers by posting such information on our website. We intend to disclose any waiver to the provisions of the code of business conduct and ethics that apply specifically to
directors or executive officers by filing such information on a Current Report on Form 8-K with the SEC, to the extent such filing is required by the NASDAQ Global Markets listing requirements; otherwise, we will disclose such waiver by
posting such information on our website.

Item 11. Executive Compensation

Information required by this item will be included under the captions Director Compensation, Executive Compensation, Compensation Discussion and
Analysis for Named Executive Officers, Compensation Committee Report, Summary Compensation Table, Grants of Plan-Based Awards for Fiscal Year Ended 2009, Outstanding Equity Awards at Fiscal Year End for Fiscal Year Ended 2009, Option Exercises and
Stock Vested for Fiscal Year Ended 2009, Nonqualified Deferred Compensation for Fiscal Year Ended 2009, Potential Payments Upon Termination of EmploymentandCompensation Committee Interlocks and Insider Participationin our Proxy
Statement for our 2010 Annual Meeting of Shareholders and is incorporated by reference herein.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

Information required by this item will be included under the captions Security Ownership of Certain Beneficial Owners and Management and Securities
Authorized for Issuance Under Equity Compensation Plansin our Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item will be included under the captions Certain Relationships and Related TransactionsandDirector Independence in our Proxy Statement for our 2010 Annual
Meeting of Shareholders and is incorporated by reference herein.

Item 14. Principal Accountant
Fees and Services

Information required by this item will be included under the caption Proposal No. 4 Approval of Appointment
of Public Accounting Firm in our Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated by reference herein.



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PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements and Schedules

The
Consolidated Financial Statements, together with the report thereon of our independent registered public accounting firm, are included on the pages indicated below:



|                                                                                                      |  |     
|----------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                      |  | Page
|Report of Independent Registered Public Accounting Firm                                               |  | 51  
|                                                                                                      | 
|Consolidated Balance Sheets as of December 31, 2009 and 2008                                          |  | 52  
|                                                                                                      | 
|Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and
2007            |  | 53  
|                                                                                                      | 
|Consolidated Statements of Comprehensive Income for the years ended December 31, 2009, 2008 and
2007  |  | 54  
|                                                                                                      | 
|Consolidated Statements of Shareholders Equity for the years ended December 
31, 2009, 2008 and 2007 |  | 55  
|                                                                                                      | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007            |  | 56  
|                                                                                                      | 
|Notes to Consolidated Financial Statements                                                            |  | 57  

There are no schedules required to be
filed herewith.

Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index. A plus sign (+) beside the exhibit number indicates the exhibits containing a management contract, compensatory plan or arrangement,
which are required to be identified in this report.



|           |  |                                                                                                                                                                                                                                       
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                           
|           | 
|3.1(7)     |  | Third Amended and Restated Articles of Incorporation                                                                                                                                                                                  
|           | 
|3.2(9)     |  | Articles of Amendment to the Third Amended and Restated Articles of Incorporation                                                                                                                                                     
|           | 
|3.3(15)    |  | Amended and Restated Bylaws, as amended on February 18, 2009                                                                                                                                                                          
|           | 
|4.1(10)    |  | Indenture, dated as of May 19, 2006, between the Company and The Bank of New York Trust Company, as trustee                                                                                                                           
|           | 
|4.2        |  | Form of 2.875% Convertible Subordinated Note due 2013 (incorporated by reference to Annex A of Exhibit 4.1)                                                                                                                           
|           | 
|4.3(11)    |  | Registration Rights Agreement, dated as of May 19, 2006, among FEI Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Needham & Company, LLC, Thomas
Weisel Partners LLC, D.A. Davidson & Co. and Merriman Curhan Ford & Co.
|           | 
|4.4(9)     |  | Preferred Stock Rights Agreement dated July 21, 2005, between FEI and Mellon Investor Services, LLC                                                                                                                                   
|           | 
|10.1+      |  | 1995 Stock Incentive Plan, as amended                                                                                                                                                                                                 
|           | 
|10.2+(2)   |  | 1995 Supplemental Stock Incentive Plan                                                                                                                                                                                                
|           | 
|10.3+(1)   |  | Form of Incentive Stock Option Agreement                                                                                                                                                                                              
|           | 
|10.4+      |  | Form of Nonstatutory Stock Option Agreement                                                                                                                                                                                           



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|            |  |                                                                                                                                                                                                                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                          
|            | 
|10.5+(15)   |  | 1995 Employee Share Purchase Plan, as amended                                                                                                                                                                                                                                                                        
|            | 
|10.6(3)     |  | Lease Agreement, dated October 27, 1997, between Philips Business Electronics International B.V., as lessor, and Philips Electron Optics B.V., a wholly owned indirect
subsidiary of FEI, as lessee, including a guarantee by FEI of the lessees obligations thereunder                                             
|            | 
|10.7+(16)   |  | Amended and Restated Executive Severance Agreement by and between Dr. Don Kania and FEI Company                                                                                                                                                                                                                      
|            | 
|10.8+(11)   |  | Stand-alone Non-statutory Stock Option Agreement (for grant of 100,000 option shares outside of 1995 Stock Incentive Plan as a material inducement for Dr. Kania to accept
employment)                                                                                                                               
|            | 
|10.9+(11)   |  | Stand-alone Restricted Stock Unit Agreement (for grant of 25,000 units outside the 1995 Stock Incentive Plan as a material inducement for Dr. Kania to accept
employment)                                                                                                                                            
|            | 
|10.10+(11)  |  | Form of Restricted Stock Unit grant (for grant of 75,000 units to Dr. Kania within the 1995 Stock Incentive Plan)                                                                                                                                                                                                    
|            | 
|10.11+(4)   |  | FEI Company Nonqualified Deferred Compensation Plan                                                                                                                                                                                                                                                                  
|            | 
|10.12(5)    |  | Lease Agreement, dated December 11, 2002, by and among FEI, Technologicky Park Brno, a.s. and FEI Czech Republic, s.r.o.                                                                                                                                                                                             
|            | 
|10.13(6)    |  | Master Agreement for the Acht facility, dated January 14, 2003                                                                                                                                                                                                                                                       
|            | 
|10.14+(8)   |  | Form of Indemnity Agreement for Directors and Executive Officers of FEI                                                                                                                                                                                                                                              
|            | 
|10.15+(13)  |  | Description of Compensation of Non-Employee Directors                                                                                                                                                                                                                                                                
|            | 
|10.16+(19)  |  | 2009 and 2010 FEI Management Variable Compensation Plan Program Summary Description                                                                                                                                                                                                                                  
|            | 
|10.17+(12)  |  | Employment Agreement with Robert H. J. Fastenau, dated November 28, 2006                                                                                                                                                                                                                                             
|            | 
|10.18+(16)  |  | Amendment to Offer Letter of Employment to Benjamin Loh, dated December 19, 2008                                                                                                                                                                                                                                     
|            | 
|10.19(14)   |  | Credit Agreement, dated as of June 4, 2008, by and among FEI Company, the Guarantors party thereto from time to time, JPMorgan Chase Bank, N.A., as Administrative Agent, J.P.
Morgan Europe Limited, as Alternative Currency Agent, and each of the Lenders party thereto from time to time                         
|            | 
|10.20(14)   |  | Security and Pledge Agreement, dated as of June 4, 2008, by and among FEI Company, the Guarantors party thereto from time to time and JPMorgan Chase Bank, N.A., as
Administrative Agent                                                                                                                             
|            | 
|10.21(17)   |  | First Amendment to Credit Agreement, Security and Pledge Agreement and Disclosure Letter, dated as of March 3, 2009, by and among FEI Company, the Guarantors identified on the
signature pages thereto, the Lenders identified on the signature pages thereto and JPMorgan Chase Bank, N.A., as Administrative Agent
|            | 
|10.22+(16)  |  | Form of Amended and Restated Executive Severance Agreement                                                                                                                                                                                                                                                           
|            | 
|10.23+(16)  |  | Amendment to Offer Letter of Employment to Ray Link, dated December 10, 2008                                                                                                                                                                                                                                         
|            | 
|10.24(18)   |  | Form of Credit Line Account Application and Agreement, dated as of March 25, 2009, by and between UBS Bank USA and FEI Company                                                                                                                                                                                       
|            | 
|10.25(18)   |  | Form of First Addendum to Credit Line Account Application and Agreement, dated as of March 25, 2009 by and among UBS Bank USA, FEI Company and UBS Financial Services,
Inc.                                                                                                                                          
|            | 
|10.26(18)   |  | Form of Addendum to Credit Line Account Application and Agreement, dated as of March 25, 2009, executed by FEI Company                                                                                                                                                                                               
|            | 
|10.27(18)   |  | Form of Second Addendum to Credit Line Account Application and Agreement, dated as of March 25, 2009, by and among UBS Bank USA, FEI Company and UBS Financial Services Inc.                                                                                                                                         



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|           |  |                                                                                                                                                                                                                             
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                 
|           | 
|10.28(18)  |  | Form of Important Notice on Interest Rates and Payments, dated as of March 25, 2009, executed by FEI Company                                                                                                                
|           | 
|14(9)      |  | Code of Ethics                                                                                                                                                                                                              
|           | 
|21         |  | Subsidiaries                                                                                                                                                                                                                
|           | 
|23         |  | Consent of Deloitte & Touche, LLP                                                                                                                                                                                           
|           | 
|31.1       |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002                          
|           | 
|31.2       |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002                          
|           | 
|32.1       |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
|           | 
|32.2       |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002



|(1) | Incorporated by reference to our Registration Statement of Form S-1, as amended, effective May 31, 1995 (Commission Registration No. 33-71146).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 1995.
|--- | -------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 28, 1997.
|--- | --------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to our Registration Statement on Form S-3, filed on April 23, 2001.
|--- | ---------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2002.
|--- | -------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
|--- | ----------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 28, 2003.
|--- | --------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2003.
|--- | -------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2006.
|---- | ------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended July 2, 2006.
|---- | --------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 4, 2006.
|---- | ----------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2008.
|---- | -------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2009.
|---- | ------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2008.
|---- | -------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 5, 2009.
|---- | -------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended April 5, 2009.
|---- | ---------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference to our Current Reports on Form 8-K filed with the Securities and Exchange Commission on January 21, 2009, June 25, 2009 and
December 22, 2009.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|                        |  |  |  |             |  |                                                
|----------------------- |  |  |  | ----------- |  | -----------------------------------------------
|Date: February 19, 2010 |  |  |  | FEI COMPANY
|                        |  |  | 
|                        |  |  |  | By          |  | /s/ DON R. KANIA                               
|                        |  |  |  |             |  | Don R. Kania                                   
|                        |  |  |  |             |  | Director, President and Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 19, 2010:



|                                            |  |                                                                                                   |  | 
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | 
|Signature                                   |  | Title                                                                                             |  | 
|                                            |  |                                                                                                  
|/s/ DON R. KANIA Don R. Kania               |  | Director, President and Chief Executive Officer (Principal Executive Officer)                     |  | 
|                                            |  |                                                                                                  
|/s/ RAYMOND A. LINK Raymond A. Link         |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | 
|                                            |  |                                                                                                  
|/s/ LAWRENCE A. BOCK Lawrence A. Bock       |  | Director                                                                                          |  | 
|                                            |  |                                                                                                  
|/s/ WILFRED J. CORRIGAN Wilfred J. Corrigan |  | Director                                                                                          |  | 
|                                            |  |                                                                                                  
|/s/ THOMAS F. KELLY Thomas F. Kelly         |  | Director                                                                                          |  | 
|                                            |  |                                                                                                  
|/s/ WILLIAM W. LATTIN William W. Lattin     |  | Director                                                                                          |  | 
|                                            |  |                                                                                                  
|/s/ JAN C. LOBBEZOO Jan C. Lobbezoo         |  | Director                                                                                          |  | 
|                                            |  |                                                                                                  
|/s/ GERHARD H. PARKER Gerhard H. Parker     |  | Chairman of the Board                                                                             |  | 
|                                            |  |                                                                                                  
|/s/ JAMES T. RICHARDSON James T. Richardson |  | Director                                                                                          |  | 
|                                            |  |                                                                                                  
|/s/ RICHARD H. WILLS Richard H. Wills       |  | Director                                                                                          |  | 



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