Novellus Systems Reports Third Quarter 2010 Results

Oct 26, 2010, 16:05 ET from Novellus Systems, Inc.

SAN JOSE, Calif., Oct. 26 /PRNewswire-FirstCall/ -- Novellus Systems, Inc. (Nasdaq: NVLS) today reported operating results for its third quarter ended September 25, 2010. Net sales for the third quarter were $367.2 million, up $45.8 million or 14.3 percent from second quarter net sales of $321.4 million, and up $190.3 million or 107.6 percent from third quarter 2009 net sales of $176.9 million. Net income for the third quarter was $76.3 million, or $0.82 per diluted share, up $13.0 million from second quarter net income of $63.3 million, or $0.66 per diluted share. The third quarter 2009 net loss was $4.0 million, or $(0.04) per diluted share.

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Third quarter 2010 net income includes charges of $5.1 million, net of tax, primarily related to the consolidation of our Industrial Applications Group manufacturing facilities in Germany.  Net income excluding these charges was $81.3 million, or $0.88 per diluted share. Excluding certain charges, second quarter 2010 net income was $63.5 million, or $0.66 per diluted share, and third quarter 2009 net loss was $2.5 million, or $(0.03) per diluted share. A reconciliation of our non-GAAP operating results to U.S. generally accepted accounting principles ("GAAP") is included below.

Bookings in the third quarter of 2010 were $406.9 million, up $22.0 million or 5.7 percent from second quarter bookings of $384.9 million. Third quarter shipments of $363.3 million were up by $31.2 million or 9.4 percent from $332.1 million in the second quarter. Deferred revenue as of the end of the quarter was $47.4 million, an increase of $3.0 million or 6.8 percent from $44.4 million at the end of the second quarter.  Deferred revenue in the second and third quarters included $30.6 million and $32.4 million, respectively, related to system sales.

Cash, cash equivalents, and short-term investments as of the end of the third quarter were $594.5 million, an increase of $39.5 million or 7.1 percent from the second quarter ending balance of $555.0 million. Long-term investments and restricted cash and cash equivalents as of the end of the third quarter were $191.3 million, an increase of $3.6 million or 1.9 percent from the second quarter ending balance of $187.7 million. During the third quarter, we repurchased 1.6 million shares of our common stock at an average price of $24.00 per share, for $37.9 million.  Cash flow from operations during the third quarter of 2010 was $81.8 million, down $22.4 million or 21.5 percent from $104.2 million in the second quarter of 2010.

Richard S. Hill, Chairman and Chief Executive Officer said, "It is a pleasure to announce another strong quarter of financial results.  Our operational execution on manufacturing, product development and customer service continues to improve.  We have had very strong profitability and cash flow which we feel will help us continue to grow and strengthen our market position."

Management uses non-GAAP measures to evaluate operating performance. The discussion of bookings, shipments, net income (loss) excluding certain charges and benefits, and net income (loss) per diluted share excluding certain charges and benefits are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. We discuss these non-GAAP measures because we believe these metrics assist investors to assess certain business trends in the same way that these trends are analyzed by management.  Non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures.

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

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the statements regarding (i) the continued improvement of our operational execution on manufacturing, product development and customer service and (ii) the continued growth and the strengthening of our market position. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by such statements. These risks and uncertainties include but are not limited to (i) the economy or the specific markets in which we operate may fail to continue to improve; (ii) our ability to manage costs of operation; (iii) increased competition from new competitors or current competitors with new products; (iv) our ability to maintain customer satisfaction; (v) our continued efforts in product development, and (vi) other risks indicated in our filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the quarter ended June 26, 2010, our Current Reports on Form 8-K, and amendments to such reports. Forward-looking statements are made and based on information available to us on the date of this press release. We do not assume, and expressly disclaim, any obligation to update this information.

About Novellus:

Novellus Systems, Inc. (NASDAQ: NVLS) is a leading provider of advanced process equipment for the global semiconductor industry. The Company's products deliver value to customers by providing innovative technology backed by trusted productivity. An S&P 500 company, Novellus is headquartered in San Jose, CA with subsidiary offices across the globe. For more information please visit www.novellus.com.

NOVELLUS SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

(In thousands, except per share amounts) (Unaudited)

September 25, 2010

June 26, 2010

September 26, 2009

September 25, 2010

September 26, 2009

Net sales

$  367,203

$  321,369

$  176,879

$  964,801

$  395,000

Cost of sales

186,774

164,431

106,171

493,468

267,548

Gross profit

180,429

156,938

70,708

471,333

127,452

% 

49.1%

48.8%

40.0%

48.9%

32.3%

Selling, general, and administrative

46,426

43,032

36,648

134,509

125,565

Research and development

44,271

40,790

37,013

124,747

112,369

Restructuring charges

240

211

324

657

3,558

Total operating expenses

90,937

84,033

73,985

259,913

241,492

% 

24.8%

26.1%

41.8%

26.9%

61.1%

Operating income (loss)

89,492

72,905

(3,277)

211,420

(114,040)

% 

24.4%

22.7%

(1.9%)

21.9%

(28.9%)

Other income (loss), net

(132)

2,195

(124)

3,590

4,078

Income (loss) before income taxes

89,360

75,100

(3,401)

215,010

(109,962)

Provision for income taxes

13,095

11,792

625

34,181

10,464

Net income (loss)

$  76,265

$  63,308

$  (4,026)

$  180,829

$  (120,426)

Net income (loss) per share:

Basic

$  0.83

$  0.67

$  (0.04)

$  1.93

$  (1.25)

Diluted

$  0.82

$  0.66

$  (0.04)

$  1.90

$  (1.25)

Shares used in basic per share calculation

91,512

94,065

96,701

93,833

96,459

Shares used in diluted per share calculation

92,859

95,332

96,701

94,986

96,459

NOVELLUS SYSTEMS, INC. RECONCILIATION OF NET INCOME (LOSS), EXCLUDING CERTAIN CHARGES AND BENEFITS (1)

Three Months Ended

Nine Months Ended

(In thousands, except per share amounts) (Unaudited) 

September 25, 2010

June 26, 2010

September 26, 2009

September 25, 2010

September 26, 2009

Net income (loss) excluding certain charges and benefits(2):

$        81,340

$ 63,496

$  (2,507)

$  190,321

$(87,287)

Consolidation of IAG manufacturing in Germany(3)

(4,861)

(4,861)

Reductions in workforce

(1,070)

(511)

(10,393)

Consolidation of semiconductor manufacturing in Oregon(4)

(1,242)

(875)

(1,242)

Impairment of inventory and evaluation systems

(4,867)

Write down of certain research and development assets

(354)

(897)

Restructuring charges(5)

(240)

(211)

(324)

(657)

(3,558)

Legal fees

(4,428)

Total charges

(5,101)

(211)

(2,990)

(11,332)

(20,957)

Tax effect of the above charges

26

23

439

1,840

6,221

Benefit due to operating loss carryforward utilization

20,730

20,730

Changes to unrecognized tax benefits, net

(17,115)

(17,115)

Charge due to California tax law change

(19,435)

Other discrete tax charges, net

(2,583)

(2,583)

Net income (loss)

$      76,265

$ 63,308

$  (4,026)

$   180,829

$(120,426)

Net income (loss) per diluted share excluding certain charges and benefits:

$       0.88

$     0.66

$  (0.03)

$        2.00

$  (0.90)

Consolidation of IAG manufacturing in Germany  

(0.05)

(0.05)

Reductions in workforce

(0.01)

(0.00)

(0.11)

Consolidation of semiconductor manufacturing in Oregon

(0.01)

(0.01)

(0.01)

Impairment of inventory and evaluation systems

(0.05)

Write down of certain research and development assets

(0.00)

(0.01)

Restructuring charges

(0.01)

(0.00)

(0.00)

(0.01)

(0.03)

Legal fees

(0.05)

Tax effect of the above charges

0.00

0.00

0.01

0.02

0.06

Benefit due to operating loss carryforward utilization

0.21

0.21

Changes to unrecognized tax benefits, net

(0.18)

(0.18)

Charge due to California tax law change

(0.20)

Other discrete tax charges, net

(0.03)

(0.03)

Net income (loss) per diluted share

$       0.82

$     0.66

$     (0.04)

$        1.90

$  (1.25)

(1)

The reconciliation of net income (loss), excluding certain charges and benefits is intended to present our operating results, excluding certain charges and benefits. This reconciliation is not in accordance with or an alternative for GAAP and may be different from similar measures presented by other companies. Rounding differences may occur.

(2)

For the three months ended September 25, 2010, there are charges of $2.5 million in cost of sales, $1.6 million in selling, general, and administrative, $0.8 million in research and development, and $0.2 million in restructuring charges. For the nine months ended September 25, 2010, there are charges of $3.1 million in cost of sales, $6.6 million in selling, general, and administrative, $0.9 million in research and development, and $0.7 million in restructuring charges.

For the three months ended June 26, 2010, there are charges of $0.2 million in restructuring charges.

For the three months ended September 26, 2009, there are charges of $1.2 million in cost of sales, $0.8 million in selling, general, and administrative, $0.7 million in research and development, $0.3 million in restructuring charges, and a net benefit of $1.0 million in provision for (benefit from) income taxes related to discrete items. For the nine months ended September 26, 2009, there are net charges of $8.9 million in cost of sales, $6.9 million in selling, general, and administrative, $1.6 million in research and development, $3.6 million in restructuring charges, and $18.4 million in the provision for (benefit from) income taxes related to discrete items.

(3)

Amount includes reduction in workforce charges of $1.8 million.

(4)

Amounts include reduction in workforce charges of $0.2 million for the nine months ended September 25, 2010 and $1.0 million for both the three and nine months ended September 26, 2009.

(5)

Reflects changes in the estimated sublease income, including normal accretion, for facilities previously included in restructuring charges.    

NOVELLUS SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands) 

September 25, 2010

December 31, 2009

(Unaudited)

*

ASSETS

Current assets:

Cash, cash equivalents and short-term investments

$  594,547

$  501,370

Accounts receivable, net

199,018

150,624

Inventories

198,566

162,213

Deferred taxes and other current assets

80,231

83,615

Total current assets

1,072,362

897,822

Property and equipment, net

220,231

239,111

Non-current restricted cash and cash equivalents

119,697

133,105

Long-term investments

71,571

78,763

Goodwill

125,223

126,438

Intangible and other assets

79,160

83,739

Total assets

$  1,688,244

$  1,558,978

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$  236,660

$  162,387

Deferred profit

15,151

9,094

Current debt obligations

96

13

Total current liabilities

251,907

171,494

Long-term debt obligations

106,773

114,147

Long-term income taxes payable

50,528

48,332

Other liabilities

43,981

45,228

Total liabilities

453,189

379,201

Shareholders' equity:

Common stock

1,132,762

1,179,220

Retained earnings and accumulated other comprehensive loss

102,293

557

Total shareholders' equity

1,235,055

1,179,777

Total liabilities and shareholders' equity

$  1,688,244

$  1,558,978

*

The December 31, 2009 condensed consolidated balance sheet was derived from our audited consolidated financial statements.

SOURCE Novellus Systems, Inc.



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