Novellus Systems Reports Results for the Third Quarter 2005
Monday October 17, 4:05 pm ET
SAN JOSE, Calif., Oct. 17 /PRNewswire-FirstCall/ -- Novellus Systems, Inc. (Nasdaq: NVLS - News) today reported net sales and results of operations for its third quarter ended October 1, 2005. Net sales for the quarter were $338.9 million, up 2.8 percent from $329.6 million in the second quarter of 2005 and down 18.5 percent from the third quarter 2004 net sales of $415.9 million. Net income for the third quarter of 2005 was $23.4 million or $0.17 per diluted share, down $9.8 million or 29.5 percent from the second quarter 2005 net income of $33.2 million or $0.24 per diluted share and down $41.2 million or 63.8 percent from the third quarter 2004 net income of $64.7 million or $0.45 per diluted share.
The third quarter 2005 results include a net $8.6 million pre-tax charge primarily related to the Company's decision to consolidate operations and streamline certain product offerings as announced on August 31, 2005. Included in this charge is a pre-tax inventory write-down of $5.2 million within cost of goods sold. The other pre-tax costs associated with the restructuring were $6.3 million, which were partially offset by a pre-tax reversal of $3.0 million of a previously recorded restructuring accrual. Without these charges, the third quarter 2005 net income would have been $28.7 million, or $0.21 per diluted share. The second quarter 2005 results did not include any significant unusual charges or benefits. A reconciliation of pro forma operating results and GAAP results is included in the financial statements attached below.
The third quarter 2004 results included, in other income, net, a cash receipt of $8.0 million and, in selling, general and administrative expenses, the reversal of $8.1 million previously accrued, both as a result of the settlement of litigation with Applied Materials, Inc. These results also include a pre-tax charge of $2.9 million related to the settlement of litigation with Semitool, Inc. and the reversal of a previously recorded pre-tax restructuring accrual of $0.9 million. Without these net benefits, the net income for the third quarter of 2004 would have been $54.7 million, or $0.38 per diluted share.
Shipments of $316.4 million in the third quarter of 2005 represent a decrease of $31.2 million or 9.0 percent from $347.6 million reported in the second quarter of 2005. Deferred revenue at the end of the third quarter of 2005 was $158.7 million, a decrease of $22.4 million or 12.4 percent from $181.1 million at the end of the second quarter of 2005.
The financial measures set forth above which present net income, excluding unusual charges and benefits, and which present revenue on a shipment 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 comparison of those results to results in other periods, because they assist management and shareholder understanding of the effect of unusual charges or benefits on the quarter's results and allow comparison to the more traditional shipment method of revenue recognition.
Cash, cash equivalents, restricted cash and short-term investments as of October 1, 2005 were $879.5 million, an increase of $34.6 million or 4.1 percent from the second quarter 2005 ending balance of $844.9 million.
"While we have made our earnings per share targets for the company, it was not achieved while hitting our gross margin targets. Our gross margin suffered because of higher warranty costs, lower absorption of operations overheads and other timing effects. While we are generating improvements in operations they have not yet translated into materially greater gross margin performance," said Richard Hill, chairman and chief executive officer. He continued, "We have a laser focus on execution at this point and have taken steps this quarter to lower our operating costs and improve our margins through product quality improvements and a consolidation of manufacturing facilities. We are committed to improving the profitability of our business and will continue to aggressively review all R&D programs to achieve our goals of increasing our market share and improving shareholder value."
"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 improvements in operations, execution of steps to lower operating costs and improve margins, and achievement of increased market share and improvements in profitability and shareholder value, as well as other matters discussed in this news release that are not purely historical data. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Such risks and uncertainties include, but are not limited to the inability to effect operating efficiencies at the gross margin level or at the operating expense level, the inability to improve product quality and consolidate manufacturing facilities, and other risks indicated in our filings with the Securities and Exchange Commission (SEC). 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 and 10K/A for the year ended December 31, 2004, our Quarterly Reports on Form 10-Q and 10Q/A for the quarters ended July 2, 2005 and April 2, 2005, and our Current Reports on Form 8-K.
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, Israel, India, China, Japan, Korea, Malaysia, Singapore and Taiwan, we are a publicly traded company on the Nasdaq stock exchange (Nasdaq: NVLS - News) and a component of the Nasdaq-100 Index®. Additional information about Novellus is available on our home page atwww.novellus.com.
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share
amounts) Three Months Ended Nine Months Ended
September
(Unaudited) October 1 July 2 25 October 1 September 25
2005 2005 2004 2005 2004
Net sales $338,878 $329,585 $415,935 $1,008,203 $1,017,016
Cost of sales 191,684 172,023 214,824 549,578 521,620
Gross profit 147,194 157,562 201,111 458,625 495,396
% 43.4% 47.8% 48.4% 45.5% 48.7%
Operating expenses:
Selling, general
and
administrative 53,365 50,325 49,585 155,450 139,213
Research and
development 61,263 63,512 68,202 186,823 190,630
Acquired in-
process research
and development -- -- -- -- 6,124
Legal settlement -- -- 2,900 5,400
Restructuring and
other charges
(benefits) 3,361 (74) (923) 3,287 (923)
Total operating
expenses 117,989 113,763 119,764 345,560 340,444
% 34.8% 34.5% 28.8% 34.3% 33.5%
Income from
operations 29,205 43,799 81,347 113,065 154,952
% 8.6% 13.3% 19.6% 11.2% 15.2%
Other income, net 2,405 3,674 9,726 9,548 15,371
Income before income
taxes 31,610 47,473 91,073 122,613 170,323
Provision for income
taxes 8,195 14,242 26,411 35,496 51,169
Net income $23,415 $33,231 $64,662 $87,117 $119,154
Net income per
share:
Basic net income
per share $0.17 $0.24 $0.45 $0.63 $0.80
Diluted net
income per share $0.17 $0.24 $0.45 $0.62 $0.79
Shares used in basic
per share
calculation 137,848 138,068 142,333 138,602 148,119
Shares used in
diluted per share
calculation 138,895 138,944 143,574 139,646 150,353
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(EXCLUDING CERTAIN UNUSUAL CHARGES AND BENEFITS) (1)
(In thousands,
except per share
amounts) Three Months Ended Nine Months Ended
September
(Unaudited) October 1 July 2 25 October 1 September 25
2005 2005 2004 2005 2004
Net sales $338,878 $329,585 $415,935 $1,008,203 $1,017,016
Cost of sales 186,434 172,023 214,824 544,328 521,620
Gross profit 152,444 157,562 201,111 463,875 495,396
% 45.0% 47.8% 48.4% 46.0% 48.7%
Operating expenses:
Selling, general
and
administrative 53,365 50,325 57,661 155,450 147,289
Research and
development 61,263 63,512 68,202 186,823 190,630
Total operating
expenses 114,628 113,837 125,863 342,273 337,919
% 33.8% 34.5% 30.3% 33.9% 33.2%
Income from
operations 37,816 43,725 75,248 121,602 157,477
% 11.2% 13.3% 18.1% 12.1% 15.5%
Other income, net 2,405 3,674 1,726 9,548 7,371
Income before income
taxes 40,221 47,399 76,974 131,150 164,848
Provision for income
taxes 11,535 14,220 22,322 38,814 47,805
Net income $28,686 $33,179 $54,652 $92,336 $117,043
Net income per
share:
Basic net income
per share $0.21 $0.24 $0.38 $0.67 $0.79
Diluted net
income per
share $0.21 $0.24 $0.38 $0.66 $0.78
Shares used in basic
per share
calculation 137,848 138,068 142,333 138,602 148,119
Shares used in
diluted per share
calculation 138,895 138,944 143,574 139,646 150,353
A reconciliation of
our net income
excluding certain
unusual charges and
benefits to our net
income under U.S.
generally accepted
accounting
principles is
presented below:
Net income excluding
unusual (charges)
and benefits $28,686 $33,179 $54,652 $92,336 $117,043
Unusual (charges)
and benefits:
Acquired in-
process research
and development -- -- -- -- (6,124)
Legal settlement -- -- (2,900) -- (5,400)
Restructuring and
other (charges)
benefits (3,361) 74 923 (3,287) 923
Inventory write-
down (5,250) -- -- (5,250) --
Reversal of a
liability in
connection with
Applied
Materials
settlement
(included in
SG&A) -- -- 8,076 -- 8,076
Cash receipt from
Applied Materials
settlement
(included in
Other income,
net) -- -- 8,000 -- 8,000
Total (charges)
and benefits (8,611) 74 14,099 (8,537) 5,475
Adjustments to
provision for
income taxes 3,340 (22) (4,089) 3,318 (3,364)
Net income $23,415 $33,231 $64,662 $87,117 $119,154
(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 U.S. generally accepted
accounting principles and may be different from similar measures
by other companies.
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) October 1 December 31
2005 2004
(Unaudited) *
ASSETS
Current assets:
Cash and short-term investments $730,994 $587,762
Accounts receivable, net 343,884 395,522
Inventories 205,607 261,046
Deferred taxes and other current
assets 136,097 124,994
Total current assets 1,416,582 1,369,324
Property and equipment, net 440,917 476,492
Restricted cash 148,545 176,708
Goodwill 265,398 278,972
Intangible and other assets 103,509 100,336
Total assets $2,374,951 $2,401,832
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $217,497 $235,020
Deferred profit 69,869 71,216
Income taxes payable 16,898 14,691
Current obligations under lines
of credit 6,225 3,103
Total current liabilities 310,489 324,030
Long-term debt 125,752 161,103
Other liabilities 46,941 54,865
Total liabilities 483,182 539,998
Shareholders' equity:
Common stock 1,450,688 1,456,670
Retained earnings and accumulated
other
comprehensive income 441,081 405,164
Total shareholders' equity 1,891,769 1,861,834
Total liabilities and shareholders'
equity $2,374,951 $2,401,832
* The December 31, 2004 condensed consolidated balance sheet was derived
from our audited consolidated financial statements.
--------------------------------------------------------------------------------
Source: Novellus Systems, Inc. |
