SAN JOSE, Calif., Jan. 24 /PRNewswire-FirstCall/ -- Novellus Systems, Inc. (NASDAQ:NVLS) today reported net sales and results of operations for its fourth quarter and year ended December 31, 2006. Net sales for the fourth quarter were $438.5 million, down $5.5 million or 1.2 percent from third quarter 2006 net sales of $444.0 million, and up $106.2 million or 32.0 percent from fourth quarter 2005 net sales of $332.3 million. Net income for the fourth quarter was $42.6 million, or $0.34 per diluted share, down $27.4 million or 39.2 percent from third quarter 2006 net income of $70.0 million, and up $19.6 million or 85.2 percent from fourth quarter 2005 net income of $23.0 million.
The fourth quarter results reflect a $1.9 million pre-tax reversal of a previously recorded restructuring accrual resulting primarily from a change in estimated sublease income over the remaining lease term. Also recorded in the fourth quarter was a tax charge of $46.1 million related to the planned implementation of a new global business structure. In future years we expect to achieve a lower tax rate, as well as business efficiencies, as a result of this new business structure. The tax charge was partially offset by an $8.5 million tax benefit attributable to the settlement of an IRS audit. As a result, the fourth quarter tax rate was 62.3%. The fourth quarter 2006 net income would have been $79.0 million, or $0.63 per diluted share, excluding these items. The third quarter 2006 results did not include any unusual charges or benefits. The fourth quarter 2005 results reflect net pre-tax restructuring and other charges of $5.9 million. Without the restructuring charges, fourth quarter 2005 net income would have been $26.6 million, or $0.20 per diluted share. A reconciliation of pro forma operating results to U.S. generally accepted accounting principals ("GAAP") results is included in the financial statements below.
Net sales for the fiscal year 2006 were $1.66 billion, up $318.0 million or 23.7% compared with net sales of $1.34 billion in fiscal year 2005. Net income for the year was $190.0 million or $1.50 per diluted share, compared with fiscal year 2005 net income of $110.1 million, or $0.80 per diluted share.
The fiscal year 2006 results include a pre-tax benefit of $1.5 million from the cumulative effect of a change in accounting principle due to the adoption of SFAS 123(R), a pre-tax net restructuring charge of $10.7 million, a pre-tax charge of $3.3 million for a legal settlement and the $46.1 million tax charge and $8.5 million tax benefit discussed above. Without these charges and benefits, net income for 2006 would have been $235.3 million, or $1.86 per diluted share. In comparison, the fiscal year 2005 results included pre-tax net restructuring charges of $9.2 million and a pre-tax inventory write-down of $5.3 million. Without these charges net income, for 2005 would have been $118.9 million, or $0.86 per diluted share.
Bookings in the fourth quarter were $441.6 million, down 6.1 percent over third quarter 2006 bookings of $470.3 million. Shipments of $390.2 million in the fourth quarter represent a decrease of $24.1 million or 5.8 percent from $414.2 million reported for the third quarter 2006. Deferred revenue at the end of the fourth quarter was $100.3 million, a decrease of $48.3 million or 32.5 percent from $148.6 million at the end of the third quarter of 2006.
Cash, cash equivalents, restricted cash and short-term investments as of December 31, 2006 were $993.2 million, an increase of $179.9 million or 22.1 percent from the third quarter of 2006 ending balance of $813.3 million.
The financial measures set forth above that present net income excluding certain charges and benefits, revenue on a shipments basis and bookings, are not in accordance with GAAP. The Company believes that these non-GAAP financial measures provide further insight into the results of operations and enhance the consistency and comparability of those results to results in prior periods because they assist shareholder understanding of the effects of certain charges and benefits on the quarter's results.
"2006 was a record year for bookings, shipments and revenues", said Richard S. Hill, chairman of the board and CEO. "In addition to our strong top line growth, we significantly improved our bottom line performance as a result of the initiatives we have taken to strengthen our product portfolio and improve our financial operating model."
"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 statements regarding (i) our continued progress to improve our bottom line performance resulting from the initiatives we have taken to strengthen our product portfolio and improve our financial operating model, (ii) our expectation that we will achieve a lower tax rate in future years and (iii) our belief that we will improve business efficiencies as a result of the Company's new global business structure, as well as other matters discussed in this news release that are not purely historical data, are forward-looking statements. 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, the Company's ability to accurately assess and strengthen the Company's product portfolio and financial operating model due to market fluctuations and unanticipated economic and industry downturns; the Company's ability to achieve greater tax efficiency and thereby lower the Company's tax rate in future years; the Company's ability to efficiently implement the new global business structure, and other risks indicated in our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2005, our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2006, July 1, 2006 and April 1, 2006, and 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
 
 (In thousands,
   except per share
   amounts)                 Three Months Ended             Year Ended
                       December September December    December   December
 (Unaudited)             31        30        31          31         31
                         2006      2006      2005       2006        2005
 
 Net sales            $438,505 $444,032 $332,268 $1,658,516 $1,340,471
 Cost of sales         212,985   217,507  191,767     834,167     741,345
 
     Gross profit       225,520   226,525   140,501     824,349     599,126
     %                    51.4%     51.0%     42.3%       49.7%       44.7%
 
 Operating expenses:
     Selling, general
      and
      administrative     68,932    67,664    51,489     261,389     206,939
     Research and
      development        56,475    60,645    60,492     244,201     247,315
     Restructuring and
      other charges
      (benefits)         (1,894)        -     5,888      10,735       9,175
     Legal settlement         -         -         -       3,250           -
 
 Total operating
   expenses             123,513   128,309   117,869     519,575     463,429
     %                    28.2%     28.9%     35.5%       31.3%       34.6%
 
 Income from
   operations           102,007    98,216    22,632     304,774     135,697
     %                    23.3%     22.1%      6.8%       18.4%       10.1%
 
 Other income, net      10,881     9,574    13,368      34,145      22,916
 
 Income before income
   taxes and
   cumulative effect
   of a change in
   accounting
   principle            112,888   107,790    36,000     338,919     158,613
 Provision for income
   taxes                 70,314    37,770    13,010     149,851      48,506
 
 Income before
   cumulative effect
   of a
   change in
   accounting
   principle             42,574    70,020    22,990     189,068     110,107
 
 Cumulative effect of
   a change in
   accounting
   principle, net of
   tax                        -         -         -         948           -
 
 Net income            $42,574   $70,020   $22,990    $190,016    $110,107
 
 Net income per
   share:
   Basic
     Income before
      cumulative
      effect of a
      change in
      accounting
      principle           $0.35     $0.57     $0.17       $1.51       $0.80
 
     Cumulative effect
      of a change in
      accounting
      principle, net
      of tax                  -         -         -        0.01           -
 
     Basic net income
      per share           $0.35     $0.57     $0.17       $1.52       $0.80
 
   Diluted
     Income before
      cumulative
      effect of a
      change in
      accounting
      principle           $0.34     $0.57     $0.17       $1.49       $0.80
 
     Cumulative effect
      of a change in
      accounting
      principle, net
      of tax                  -         -         -        0.01           -
 
     Diluted net
      income per share    $0.34     $0.57     $0.17       $1.50       $0.80
 
 Shares used in basic
   per share
   calculation          122,766   122,150   133,980     125,286     137,447
 Shares used in
   diluted per share
   calculation          124,447   123,357   134,752     126,483     138,423
 
 
                            NOVELLUS SYSTEMS, INC.
                RECONCILIATION OF THE STATEMENTS OF OPERATIONS
                 (EXCLUDING CERTAIN CHARGES AND BENEFITS)(1)
 
   (In thousands, except per
    share amounts                Three Months Ended          Year Ended
                             December September December December December
   (Unaudited)                  31       30       31        31        31
                               2006     2006     2005      2006      2005
 
   Net income excluding
    certain charges and
   benefits                  $78,979 $70,020 $26,611 $235,310 $118,947
 
   Charges and benefits:
     Cumulative effect of a
      change in
      accounting principle          -        -        -     1,542         -
     Restructuring and other
      (charges) benefits        1,894        -   (5,888) (10,735)   (9,175)
     Inventory write-down           -        -        -         -    (5,250)
     Legal settlement               -        -        -    (3,250)        -
     Total charges and
      benefits                  1,894        -   (5,888) (12,443) (14,425)
     Adjustments on provision
      for income taxes:
       Tax effect of the
        above charges and
        benefits                 (720)       -    2,267     4,728     5,585
       Settlement of IRS
        audit                   8,527        -        -     8,527         -
       Tax charge associated
        with new global
        business structure    (46,106)       -        -   (46,106)        -
   Net income                 $42,574 $70,020   22,990 $190,016 $110,107
 
 
   Net income per diluted
    share excluding
    certain charges and
    benefits                    $0.63    $0.57    $0.20     $1.86     $0.86
 
   Charges and benefits:
     Cumulative effect of a
      change in
      accounting principle        -        -        -        0.01       -
     Restructuring and other
      (charges) benefits         0.02      -      (0.05)    (0.09)    (0.06)
     Inventory write-down         -        -        -         -       (0.04)
     Legal settlement             -        -        -       (0.03)      -
     Adjustments on provision
      for income taxes:
       Tax effect of the
        above charges and
        benefits                (0.01)     -       0.02      0.04      0.04
       Settlement of IRS
        audit                    0.07      -        -        0.07       -
       Tax charge associated
        with new global
        business structure      (0.37)     -        -       (0.36)      -
   Net income per diluted
    share                       $0.34    $0.57    $0.17     $1.50     $0.80
 
 
 (1)The reconciliation of the statements of operations (excluding certain
     charges and benefits) is intended to present our operating results,
     excluding certain charges, benefits and related adjustments on
     provisions for income taxes. The reconciliation of the statements of
     operations is not in accordance with or an alternative for U.S.
     generally accepted accounting principles and may be different from
     similar measures by other companies.
 
 
                            NOVELLUS SYSTEMS, INC.
                     SCHEDULE OF SHARE-BASED COMPENSATION
 
    (In thousands)                    Three Months Ended      Year Ended
    (Unaudited)                    Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
                                      2006    2006   2005    2006     2005
 
                                      (1)     (3)     (2)     (1)     (2)
 
    Cost of sales                      $179    $400   $264  $1,425    $736
    Selling, general and
     administrative                   5,792   5,516    778   22,337   2,168
    Research and development          2,713   2,741    468   11,179   1,305
 
        Total share-based
         compensation expenses        8,684   8,657 1,510   34,941   4,209
 
    Benefit from income taxes         2,866   2,857    581   11,531   1,620
 
        Net share-based compensation
         expenses                    $5,818 $5,800   $929 $23,410 $2,589
 
 
    (1) Amounts include amortization expense related to stock options of
        $5.9 million and $25.1 million, employee stock purchase plan of $0.6
        million and $2.4 million, and restricted stock awards of $2.2
        million and $7.5 million for the three and twelve months ended
        December 31, 2006, respectively.
 
    (2) Amounts include amortization expense related to restricted stock
        awards of $1.5 million and $4.2 million for the three and twelve
        months ended December 31, 2005, respectively.
 
    (3) Amounts include amortization expense related to stock options of
        $6.5 million, employee stock purchase plan of $0.6 million, and
        restricted stock awards of $1.7 million.
 
 
                           NOVELLUS SYSTEMS, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
 
 (In thousands)                               December 31,     December 31,
                                                  2006              2005
                                               (Unaudited)            *
                 ASSETS
    Current assets:
      Cash and short-term investments           $849,407          $654,983
      Accounts receivable, net                   310,888           391,791
      Inventories                                198,571           193,787
      Deferred taxes and other current
       assets                                    142,439           122,951
        Total current assets                   1,501,305         1,363,512
 
    Property and equipment, net                  364,599           423,749
    Restricted cash                              143,769           140,212
    Goodwill                                     225,431           255,584
    Intangible and other assets                  122,012           107,192
 
    Total assets                              $2,357,116        $2,290,249
 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued
       liabilities                              $261,659          $253,984
      Deferred profit                             41,351            68,718
      Income taxes payable                        37,750             5,898
      Current obligations under lines
       of credit                                  15,559            15,744
        Total current liabilities                356,319           344,344
 
    Long-term debt                               127,862           124,858
    Other liabilities                             38,556            41,764
    Total liabilities                            522,737           510,966
 
    Shareholders' equity:
      Common stock                             1,393,588         1,393,805
      Retained earnings and accumulated
       other comprehensive income                440,791           385,478
        Total shareholders' equity             1,834,379         1,779,283
 
    Total liabilities and shareholders'
     equity                                   $2,357,116        $2,290,249
 
 * The December 31, 2005 condensed consolidated balance sheet was derived
    from our audited consolidated financial statements.
Source: Novellus Systems, Inc.
CONTACT: William H. Kurtz, Executive Vice President and Chief Financial
Officer, or Robin Yim, Investor Relations, both of Novellus Systems, Inc.,
+1-408-943-9700