Novellus Systems Reports Fourth Quarter and Year-End Results

Novellus Systems Reports Fourth Quarter and Year-End Results

SAN JOSE, Calif., Jan. 27 /PRNewswire-FirstCall/ -- Novellus Systems, Inc. (NASDAQ:NVLS) today reported net sales and results of operations for its fourth quarter and year ended December 31, 2004. Net sales for the fourth quarter were $340.3 million, down 18.2 percent from $415.9 million in the third quarter 2004 and up 50.2 percent from net sales of $226.5 million for the fourth quarter 2003. Net income for the quarter was $37.5 million or $0.27 per diluted share, down $27.1 million or 42.0 percent from the third quarter 2004 net income of $64.7 million or $0.45 per diluted share. Net income for the fourth quarter increased by 259.1 percent from the fourth quarter net income of $10.5 million or $0.07 per diluted share in the prior year.

The fourth quarter results include restructuring and other charges of $2.4 million. Without these charges, net income would have been $39.2 million, or $0.28 per diluted share. The third quarter 2004 results included a cash receipt of $8.0 million, and the reversal of $8.1 million in previously accrued royalty payments, as a result of the settlement of litigation with Applied Materials, Inc. The third quarter 2004 results also included a pre-tax charge of $2.9 million related to the settlement of litigation with Semitool, Inc. and the reversal of a previously recorded restructuring accrual of $0.9 million. Without these net benefits, third quarter 2004 net income would have been $54.7 million, or $0.38 per diluted share. The fourth quarter 2003 results do not include any unusual charges or benefits.

Net sales for the fiscal year 2004 were $1.4 billion, up 46.7 percent from $925.1 million in fiscal year 2003. Net income for the year was $156.7 million, or $1.06 per diluted share, compared with the fiscal year 2003 net loss of $67.8 million, or $0.45 per diluted share.

The fiscal year 2004 results include net restructuring and other charges of $1.5 million, acquired in-process research and development write-offs of $6.1 million, net recovery from legal settlements of $2.6 million and the reversal of previously accrued royalty payments of $8.1 million. Without these charges and benefits, net income for fiscal year 2004 would have been $156.3 million, or $1.06 per diluted share. In comparison, the fiscal year 2003 net loss of $67.8 million includes restructuring and other charges of $62.5 million and a non-cash charge of $62.8 million, net of tax, recorded as a cumulative effect of a change in accounting principle to consolidate properties previously accounted for as synthetic leases. Without these charges, net income for fiscal year 2003 would have been $35.9 million, or $0.23 per diluted share.

Shipments of $335.1 million in the fourth quarter represent a decrease of $47.2 million or 12.3 percent from $382.2 million reported in the third quarter 2004. Deferred revenue at the end of the quarter was $140.8 million, a decrease of $6.6 million or 4.5 percent from $147.4 million at the end of the third quarter 2004.

The financial measures, which present net income excluding unusual charges and benefits and revenue on a shipments basis, are not in accordance with U.S. generally accepted accounting principles (GAAP). The Company believes that these non-GAAP financial measures provide further insight into the results of ongoing operations and enhance the comparability of those results to results in prior periods because they assist shareholder understanding of the effects of unusual charges and benefits on the quarter's and the year's results and allow comparability to revenue recognition on a shipments basis.

Cash, cash equivalents, restricted cash and short-term investments as of December 31, 2004 were $759.7 million, an increase of $71.7 million or 10.4 percent from the third quarter 2004 ending balance of $688.0 million.

"Fourth quarter bookings came in slightly better than the $325 - $330 million that we communicated in our last mid-quarter update. Still, we continue to contend with a choppy bookings environment, a trend that began back in September. While we believe the worst is behind us, many of our customers are dealing with declining utilization rates," said Richard S. Hill, chairman and chief executive officer of Novellus Systems, Inc. "This near term uncertainty, however, should not cloud the progress we've made on our product portfolio. Specifically, we are pleased with our improved position within the PVD product category."

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995:

The statements regarding the Company's (i) belief that the worst is behind it with regard to bookings, (ii) progress on its product portfolio, and (iii) satisfaction with its improved position within the PVD product category, as well as other matters discussed in this news release that are not purely historical data, are forward-looking statements. The forward-looking statements involve risks and uncertainties, including, but not limited to, inaccurate assessment of future demand for the Company's products, unanticipated technical difficulties with new products, competitor introduction of superior PVD products that take market share from the Company's products, and other risks indicated in our filings with the Securities and Exchange Commission (SEC). Actual results could differ materially. We assume no obligation to update this information. For more details, please refer to our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2003, our Quarterly Reports on Form 10-Q for the quarters ended March 27, 2004, June 26, 2004 and September 25, 2004, and our Current Reports on Form 8-K filed July 12, 2004, September 10, 2004, September 24, 2004, December 2, 2004 and December 15, 2004.

About Novellus:

Novellus Systems, Inc., an S&P 500 company, manufactures, markets and services advanced deposition, surface preparation and chemical mechanical planarization equipment for today's advanced integrated circuits. Our products are designed for high-volume production of advanced, leading-edge semiconductor devices at the lowest possible cost. Headquartered in San Jose, Calif., with subsidiaries throughout the United States, as well as in the United Kingdom, France, Germany, the Netherlands, Ireland, Italy, Israel, India, China, Japan, Korea, Malaysia, Singapore and Taiwan, we are a publicly traded company on the Nasdaq stock exchange and a component of the Nasdaq-100 Index(R). Additional information about Novellus is available on our home page at www.novellus.com.

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except
per share amounts) Three Months Ended Year Ended
(Unaudited) Dec. 31 Sept. 25 Dec. 31 Dec. 31 Dec. 31
2004 2004 2003 2004 2003

Net sales $340,272 $415,935 $226,511 $1,357,288 $925,070
Cost of sales 170,538 214,824 120,424 692,158 545,070

Gross profit 169,734 201,111 106,087 665,130 380,000
% 49.9% 48.4% 46.8% 49.0% 41.1%

Operating expenses:
Selling,
general and
administrative 55,439 49,585 38,422 194,652 165,618
Research
and development 61,453 68,202 54,064 252,083 227,439
Restructuring
and other charges
(benefits) 2,407 (923) -- 1,484 15,838
Acquired
in-process
research
and development -- -- -- 6,124 --
Legal settlement -- 2,900 -- 5,400 2,691

Total operating
expenses 119,299 119,764 92,486 459,743 411,586
% 35.1% 28.8% 40.8% 33.9% 44.5%

Income (loss)
from operations 50,435 81,347 13,601 205,387 (31,586)
% 14.8% 19.6% 6.0% 15.1% -3.4%

Other income, net 2,433 9,726 2,356 17,804 16,266

Income (loss)
before income
taxes and cumulative
effect of a change
in accounting
principle 52,868 91,073 15,957 223,191 (15,320)
Provision
(benefit) for
income taxes 15,332 26,411 5,505 66,501 (10,286)

Income (loss)
before cumulative
effect of a change
in accounting
principle 37,536 64,662 10,452 156,690 (5,034)
Cumulative effect
of a change in
accounting principle,
net of tax -- -- -- -- (62,780)

Net income (loss) $37,536 $64,662 $10,452 $156,690 $(67,814)

Net income (loss)
per share:
Basic
Income (loss)
before
cumulative
effect of a
change in
accounting
principle $0.27 $0.45 $0.07 $1.07 $(0.03)
Cumulative
effect of a
change in
accounting
principle,
net of tax -- -- -- -- (0.42)
Basic net
income (loss)
per share $0.27 $0.45 $0.07 $1.07 $(0.45)

Diluted
Income (loss)
before
cumulative
effect of a
change
in accounting
principle $0.27 $0.45 $0.07 $1.06 $(0.03)
Cumulative
effect of a
change in
accounting
principle,
net of tax -- -- -- -- (0.42)
Diluted net
income
(loss) per
share $0.27 $0.45 $0.07 $1.06 $(0.45)

Shares used in
basic per share
calculation 139,466 142,333 152,057 145,956 150,680
Shares used in
diluted per
share
calculation 140,687 143,574 156,580 147,937 150,680


NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(EXCLUDING CERTAIN UNUSUAL (CHARGES) BENEFITS)(1)


(In thousands, except per
share amounts)
(Unaudited) Three Months Ended Year Ended
Dec. 31 Sept. 25 Dec. 31 Dec. 31 Dec. 31
2004 2004 2003 2004 2003


Net sales $340,272 $415,935 $226,511 $1,357,288 $925,070
Cost of sales 170,538 214,824 120,424 692,158 501,118

Gross profit 169,734 201,111 106,087 665,130 423,952
% 49.9% 48.4% 46.8% 49.0% 45.8%

Operating expenses:
Selling, general
and
administrative 55,439 57,661 38,422 202,728 165,618
Research and
development 61,453 68,202 54,064 252,083 227,439

Total
operating
expenses 116,892 125,863 92,486 454,811 393,057
% 34.4% 30.3% 40.8% 33.5% 42.5%

Income from
operations 52,842 75,248 13,601 210,319 30,895
% 15.5% 18.1% 6.0% 15.5% 3.3%

Other income,
net 2,433 1,726 2,356 9,804 16,266

Income before
income taxes 55,275 76,974 15,957 220,123 47,161
Provision for
income taxes 16,030 22,322 5,505 63,835 11,270

Net income $39,245 $54,652 $10,452 $156,288 $35,891

Net income
per share:
Basic net income
per share $0.28 $0.38 $0.07 $1.07 $0.24
Diluted net income
per share $0.28 $0.38 $0.07 $1.06 $0.23

Shares used in
basic per share
calculation 139,466 142,333 152,057 145,956 150,680
Shares used in
diluted per
share
calculation 140,687 143,574 156,580 147,937 154,324

A reconciliation of our net income excluding certain unusual charges
and benefits to our net income (loss) under accounting principles
generally accepted in the United States of America is presented below:

Net income excluding unusual
(charges) and
benefits $39,245 $54,652 $10,452 $156,288 $35,891

Unusual (charges)
and benefits:
Inventory write-down -- -- -- -- (43,952)
Reversal of
liability in
connection with
Applied
Materials settlement
(included in SG&A) -- 8,076 -- 8,076 --
Restructuring and
other
(charges)
benefits (2,407) 923 -- (1,484) (15,838)
Acquired
in-process
research and
development -- -- -- (6,124) --
Legal settlement -- (2,900) -- (5,400) (2,691)
Cash receipt from
Applied Materials
settlement
(included in
Other income, net) -- 8,000 -- 8,000 --
Cumulative effect
of a change
in accounting
principle -- -- -- -- (62,780)
Total (charges)
and benefits (2,407) 14,099 -- 3,068 (125,261)
Adjustments on
provision for
income taxes 698 (4,089) -- (2,666) 21,556
Net income
(loss) $37,536 $64,662 $10,452 $156,690 $(67,814)

(1) The condensed consolidated statements of operations (excluding
certain unusual charges and benefits) are intended to present our
operating results, excluding certain unusual charges, benefits and
related adjustments on provisions for income taxes. These condensed
consolidated statements of operations are not in accordance with or
an alternative for accounting principles generally accepted in the
United States of America and may be different from similar measures
used by other companies.

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
December 31 December 31
2004 2003
(Unaudited) *
ASSETS
Current assets:
Cash and short-term investments $583,021 $1,002,132

Accounts receivable, net 395,522 231,760

Inventories 261,046 199,100

Deferred taxes and other current assets 129,735 138,996

Total current assets 1,369,324 1,571,988


Property and equipment, net 476,492 506,567

Restricted cash 176,708 2,861

Goodwill 278,972 173,267

Intangible and other assets 100,336 84,217


Total assets $2,401,832 $2,338,900


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $242,037 $150,945

Deferred profit 71,216 46,821

Income taxes payable 14,691 10,293

Current obligations under lines of credit 3,103 13,023

Total current liabilities 331,047 221,082


Long-term debt 161,103 --

Other liabilities 47,848 45,958

Total liabilities 539,998 267,040


Shareholders' equity:
Common stock 1,456,670 1,565,926

Retained earnings and accumulated other
comprehensive income 405,164 505,934

Total shareholders' equity 1,861,834 2,071,860


Total liabilities and shareholders' equity $2,401,832 $2,338,900


* The December 31, 2003 condensed consolidated balance sheet was derived
from our audited consolidated financial statements.



Source: Novellus Systems, Inc.

CONTACT: Kevin S. Royal, Vice President and Chief Financial Officer, or
Matthew Grech, Vice President, Investment and Investor Relations, both of
Novellus Systems, Inc., +1-408-943-9700

Web site: http://www.novellus.com/


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