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NOVELLUS SYS : Novellus Systems Reports Fourth Quarter and Year-End Results

01/31/2011 | 04:10pm US/Eastern

SAN JOSE, Calif., Jan. 31, 2011 /PRNewswire/ -- Novellus Systems, Inc. (Nasdaq: NVLS) today reported operating results for its fourth quarter and year ended December 31, 2010. Net sales for the fourth quarter were $384.4 million, up $17.2 million or 4.7 percent from third quarter 2010 net sales of $367.2 million, and up $140.2 million or 57.4 percent from fourth quarter 2009 net sales of $244.2 million. Net income for the fourth quarter was $81.5 million, or $0.89 per diluted share, up $5.2 million from the third quarter 2010 net income of $76.3 million, or $0.82 per diluted share, and up $46.3 million from the fourth quarter 2009 net income of $35.2 million, or $0.36 per diluted share.

(Logo: http://photos.prnewswire.com/prnh/20091020/SF95832LOGO)

Fourth quarter 2010 results of operations include $2.4 million in charges related to the consolidation of our Industrial Applications Group manufacturing facilities in Germany, $9.9 million in charges due to the adoption of our accelerated stock vesting retirement plan and $0.7 million in adjustments to prior restructuring charges. Net income excluding these charges was $94.3 million or $1.03 per diluted share. Excluding certain charges and benefits, third quarter 2010 and fourth quarter 2009 net income was $81.3 million and $38.2 million, respectively, or $0.88 and $0.39 per diluted share, respectively. A reconciliation of non-GAAP operating results to U.S. generally accepted accounting principles ("GAAP") is included below.

Net sales for fiscal year 2010 were $1.3 billion, up $710.0 million or 111.1 percent from net sales of $639.2 million in fiscal year 2009. Net income for the year was $262.3 million or $2.79 per diluted share compared with a net loss of $85.2 million or $0.88 per diluted share for fiscal year 2009.

Fiscal year 2010 results of operations include $7.2 million in charges related to the consolidation of our Industrial Applications Group manufacturing facilities in Germany, $0.5 million in charges related to reductions in workforce, $0.9 million in charges due to consolidation of manufacturing in Oregon, $9.9 million in charges due to the adoption of our accelerated stock vesting retirement plan, $1.4 million in adjustments to prior restructuring charges and $4.4 million in charges due to legal fees for the Linear trial. Fiscal year 2010 net income was $284.8 million or $3.03 per diluted share excluding those items. Excluding certain charges and benefits, fiscal year 2009 net loss was $49.1 million or $0.51 per diluted share. A reconciliation of non-GAAP operating results to GAAP is included below.

Bookings in the fourth quarter were $410.6 million, up $3.7 million or 0.9 percent from third quarter 2010 bookings of $406.9 million. Fourth quarter 2010 shipments of $417.9 million were up by $54.6 million or 15.0 percent from $363.3 million in the third quarter of 2010. Deferred revenue at the end of the quarter was $75.8 million, an increase of $28.4 million or 60.0 percent from $47.4 million at the end of the third quarter of 2010. Deferred revenue in the fourth and third quarters of 2010 included $59.7 million and $32.4 million, respectively, related to system sales.

Cash, cash equivalents and short-term investments as of December 31, 2010 were $671.3 million, an increase of $76.7 million or 12.9 percent from the third quarter 2010 ending balance of $594.5 million. Long-term investments and restricted cash and cash equivalents as of December 31, 2010 were $189.9 million, a decrease of $1.4 million or 0.7 percent from the third quarter 2010 ending balance of $191.3 million. During the fourth quarter of 2010, we repurchased approximately 3.5 million shares of our common stock at an average price of $29.50 per share for $103.2 million and we received $98.6 million from the exercise of stock options. Cash flow from operations during the fourth quarter of 2010 was $88.4 million, up $6.6 million or 8.1 percent from $81.8 million in the third quarter of 2010.

Richard S. Hill, Chairman and Chief Executive Officer said, "I am extremely pleased to report that 2010 was an outstanding year, with record earnings per share which was achieved without record revenue levels. We also generated strong cash flow from operations, and returned to shareholders in excess of $263 million through share repurchases in 2010, bringing our program total to over $2 billion since 2002." Hill added, "Demand for semiconductors continues to remain robust due to the confluence of multiple demand drivers across the industrial, public and global consumer sectors. PC and laptop demand remains strong as the adoption of Windows 7 continues unabated. Additionally, we see continued progress in the gentrification of the Internet and worldwide communications infrastructure and the China consumer continues to spend. We expect these positive factors will continue to drive semiconductor demand and consequently the need for capacity expansion through 2011. While the equipment industry remains cyclical, any current pause in capital spending is likely to be digestion of recently delivered equipment rather than a slowing in end demand for electronic products that drive capacity expansion. We emerged from one of the worst downturns as a stronger company with a solid portfolio of products and we are optimistic about our future prospects."

Management uses non-GAAP measures to evaluate operating performance. The discussion of bookings and shipments and the discussion of gross profit, operating expenses, operating income (loss), income (loss) before taxes, provision for income taxes, effective tax rate, net income (loss), and net income (loss) per diluted share, each 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 provide additional insight into underlying operating results and prospects for the future, allowing investors to assess certain business trends in the same way that these trends are utilized by management in its financial and operational decision making. Shipments consist of products shipped to customers, without regard to net sales adjustments such as deferrals associated with customer acceptance. Bookings consist of current period orders less current period cancellations and other adjustments. We do not report bookings for systems with delivery dates more than 12 months from the latest balance sheet date. Shipments and bookings are used to forecast and plan future operations. 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 demand for semiconductors and the need for capacity expansion in 2011; (ii) PC and laptop demand and the unabated adoption of Windows 7; (iii) the gentrification of the Internet and worldwide communications infrastructure; (iv) continued Chinese consumer spending; and (v) the likely causes for any current pauses in capital spending. 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 Annual Report on Form 10-K for the year ended December 31, 2009, our Quarterly Reports on Form 10-Q for the quarters ended March 27, 2010, June 26, 2010 and September 25, 2010, respectively, 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
                                             Three Months Ended
                                             ------------------
    (In thousands, except per        December    September   December
     share amounts)                     31,         25,         31,
    (Unaudited)                           2010        2010        2009
                                          ----        ----        ----
    Net sales                         $384,357    $367,203    $244,194
    Cost of sales                      190,357     186,774     130,556
                                       -------     -------     -------
       Gross profit                    194,000     180,429     113,638
       %                                  50.5%       49.1%       46.5%
    Operating expenses:
       Selling, general and
        administrative                  54,974      46,426      38,560
       Research and development         49,992      44,271      36,732
       Restructuring and other
        charges                            716         240         282
                                           ---         ---         ---
    Total operating expenses           105,682      90,937      75,574
       %                                  27.5%       24.8%       30.9%
                                          ----        ----        ----
    Income (loss) from operations       88,318      89,492      38,064
       %                                  23.0%       24.4%       15.6%
    Other income (expense), net          1,330        (132)      2,517
                                         -----        ----       -----
    Income (loss) before income
     taxes                             $89,648     $89,360     $40,581
    Provision for income taxes           8,145      13,095       5,390
                                         -----      ------       -----
    Net income (loss)                  $81,503     $76,265     $35,191
                                       =======     =======     =======
    Net income (loss) per share:
       Basic                             $0.91       $0.83       $0.37
                                         =====       =====       =====
       Diluted                           $0.89       $0.82       $0.36
                                         =====       =====       =====
    Shares used in basic per
     share calculation                  89,576      91,512      96,053
                                        ======      ======      ======
    Shares used in diluted per
     share calculation                  91,934      92,859      97,161
                                        ======      ======      ======


                                          Year Ended
                                          ----------
    (In thousands, except per       December    December
     share amounts)                    31,         31,
    (Unaudited)                          2010        2009
                                         ----        ----
    Net sales                      $1,349,158    $639,194
    Cost of sales                     683,824     398,104
                                      -------     -------
       Gross profit                   665,334     241,090
       %                                 49.3%       37.7%
    Operating expenses:
       Selling, general and
        administrative                189,483     164,125
       Research and development       174,740     149,101
       Restructuring and other
        charges                         1,373       3,840
                                        -----       -----
    Total operating expenses          365,596     317,066
       %                                 27.1%       49.6%
                                         ----        ----
    Income (loss) from operations     299,738     (75,976)
       %                                 22.2%      -11.9%
    Other income (expense), net         4,920       6,595
                                        -----       -----
    Income (loss) before income
     taxes                           $304,658    $(69,381)
    Provision for income taxes         42,326      15,854
                                       ------      ------
    Net income (loss)                $262,332    $(85,235)
                                     ========    ========
    Net income (loss) per share:
       Basic                            $2.83      $(0.88)
                                        =====      ======
       Diluted                          $2.79      $(0.88)
                                        =====      ======
    Shares used in basic per
     share calculation                 92,690      96,487
                                       ======      ======
    Shares used in diluted per
     share calculation                 94,084      96,487
                                       ======      ======

                                       NOVELLUS SYSTEMS, INC.
                     RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
                                                 Three Months Ended
                                                 ------------------
    (In thousands, except per share       December   September   December
     amounts)                                31,         25,        31,
    (Unaudited)                               2010        2010       2009
    Gross profit - GAAP                   $194,000    $180,429   $113,638
      % of sales                              50.5%       49.1%      46.5%
      Adjustment for:
        Consolidation of IAG
         manufacturing in Germany            1,403       2,474          -
        Reductions in workforce                  -           -       (288)
        Consolidation of semiconductor
         manufacturing in Oregon                 -           -      2,187
        Accelerated stock vesting
         retirement plan adoption              809           -          -
        Impairment of inventory and
         evaluation systems                      -           -          -
                                               ---         ---        ---
    Gross profit excluding certain
     charges and benefits                 $196,212    $182,903   $115,537
                                          ========    ========   ========
      % of sales                              51.0%       49.8%      47.3%


    Operating expenses - GAAP             $105,682     $90,937    $75,574
      % of sales                             27.5 %       24.8%      30.9%
      Adjustment for:
        Consolidation of IAG
         manufacturing in Germany             (968)     (2,387)         -
        Reductions in workforce                  -           -     (1,030)
        Consolidation of semiconductor
         manufacturing in Oregon                 -           -       (282)
        Accelerated stock vesting
         retirement plan adoption           (9,043)          -          -
        Restructuring charges                 (716)       (240)      (282)
        Legal fees for Linear trial              -           -          -
        Write down of certain research
         and development assets                  -           -          -
                                               ---         ---        ---
    Operating expenses excluding
     certain charges and benefits          $94,955     $88,310    $73,980
                                           =======     =======    =======
      % of sales                             24.7 %       24.0%      30.3%

    Operating income (loss) - GAAP         $88,318     $89,492    $38,064
      % of sales                              23.0%      24.4 %      15.6%
      Adjustment for:
         Consolidation of IAG
          manufacturing in Germany           2,371       4,861          -
           Reductions in workforce               -           -        742
           Consolidation of semiconductor
            manufacturing in Oregon              -           -      2,469
           Accelerated stock vesting
            retirement plan adoption         9,852           -          -
           Impairment of inventory and
            evaluation systems                   -           -          -
           Restructuring charges               716         240        282
           Legal fees for Linear trial           -           -          -
           Write down of certain research
            and development assets               -           -          -
                                               ---         ---        ---
    Operating income (loss)
     excluding certain charges and
     benefits                             $101,257     $94,593    $41,557
                                          ========     =======    =======
        % of sales                            26.3%       25.8%     17.0 %

    Income (loss) before income
     taxes -GAAP                           $89,648     $89,360    $40,581
       Adjustment for:
        Consolidation of IAG
         manufacturing in Germany            2,371       4,861          -
        Reductions in workforce                  -           -        742
        Consolidation of semiconductor
         manufacturing in Oregon                 -           -      2,469
        Accelerated stock vesting
         retirement plan adoption            9,852           -          -
        Impairment of inventory and
         evaluation systems                      -           -          -
        Restructuring charges                  716         240        282
        Legal fees for Linear trial              -           -          -
        Write down of certain research
         and development assets                  -           -          -
                                               ---         ---        ---
    Income (loss) before income
     taxes excluding certain
     charges and benefits                 $102,587     $94,461    $44,074
                                          ========     =======    =======



    Provision for income taxes -
     GAAP                                   $8,145     $13,095     $5,390
      % of income (loss) before
       income taxes                            9.1%       14.7%      13.3%
       Income tax effect of non-GAAP
        adjustments                             94          26        456
       Benefit due to operating loss
        carryforward utilization, net            -           -          -
       Changes to unrecognized tax
        benefits, net                            -           -          -
       Charge due to California tax
        law change                               -           -          -
       Other discrete tax charges, net           -           -          -

    Provision for income taxes
     excluding certain charges and
                   benefits                 $8,239     $13,121     $5,846
                                            ======     =======     ======
      % of income (loss) before
       income taxes                            8.0%       13.9%      13.3%

    Net income (loss) - GAAP               $81,503     $76,265    $35,191
      Adjustment for:
        Consolidation of IAG
         manufacturing in Germany            2,371       4,861          -
        Reductions in workforce                  -           -        742
        Consolidation of semiconductor
         manufacturing in Oregon                 -           -      2,469
        Accelerated stock vesting
         retirement plan adoption            9,852           -          -
        Impairment of inventory and
         evaluation systems                      -           -          -
        Restructuring charges                  716         240        282
        Legal fees for Linear trial              -           -          -
        Write down of certain research
         and development assets                  -           -          -
        Income tax effect of non-GAAP
         adjustments                           (94)        (26)      (456)
        Discrete tax items                       -           -          -

    Net income (loss) excluding
     certain charges and benefits          $94,348     $81,340    $38,228
                                           =======     =======    =======

    Net income (loss) per diluted
     share -GAAP                             $0.89       $0.82      $0.36
      Adjustment for certain charges
       and benefits                           0.14        0.06       0.03
                                              ----        ----       ----
    Net income (loss) per diluted
     share excluding certain
     charges and benefits                    $1.03       $0.88      $0.39
                                             =====       =====      =====



                                                               Year Ended
                                                               ----------
                                                          December   December
    (In thousands, except per share amounts)                 31,        31,
    (Unaudited)                                               2010       2009
    Gross profit - GAAP                                   $665,334   $241,090
      % of sales                                              49.3%      37.7%
      Adjustment for:
        Consolidation of IAG manufacturing in
         Germany                                             3,877          -
        Reductions in workforce                                126      2,630
        Consolidation of semiconductor manufacturing
         in Oregon                                             485      3,338
        Accelerated stock vesting retirement plan
         adoption                                              809          -
        Impairment of inventory and evaluation
         systems                                                 -      4,867
                                                               ---      -----
    Gross profit excluding certain charges and
     benefits                                             $670,631   $251,925
                                                          ========   ========
      % of sales                                              49.7%      39.4%


    Operating expenses - GAAP                             $365,596   $317,066
      % of sales                                              27.1%      49.6%
      Adjustment for:
        Consolidation of IAG manufacturing in
         Germany                                            (3,355)         -
        Reductions in workforce                               (385)    (8,505)
        Consolidation of semiconductor manufacturing
         in Oregon                                            (390)      (373)
        Accelerated stock vesting retirement plan
         adoption                                           (9,043)         -
        Restructuring charges                               (1,373)    (3,840)
        Legal fees for Linear trial                         (4,428)         -
        Write down of certain research and
         development assets                                      -       (897)
                                                               ---       ----
    Operating expenses excluding certain charges
     and benefits                                         $346,622   $303,451
                                                          ========   ========
      % of sales                                             25.7 %      47.5%

    Operating income (loss) - GAAP                        $299,738   $(75,976)
      % of sales                                              22.2%    -11.9 %
      Adjustment for:
         Consolidation of IAG manufacturing in
          Germany                                            7,232          -
           Reductions in workforce                             511     11,135
           Consolidation of semiconductor manufacturing
            in Oregon                                          875      3,711
           Accelerated stock vesting retirement plan
            adoption                                         9,852          -
           Impairment of inventory and evaluation
            systems                                              -      4,867
           Restructuring charges                             1,373      3,840
           Legal fees for Linear trial                       4,428          -
           Write down of certain research and
            development assets                                   -        897
                                                               ---        ---
    Operating income (loss) excluding certain
     charges and benefits                                 $324,009   $(51,526)
                                                          ========   ========
        % of sales                                           24.0 %     -8.1 %

    Income (loss) before income taxes - GAAP              $304,658   $(69,381)
       Adjustment for:
        Consolidation of IAG manufacturing in
         Germany                                             7,232          -
        Reductions in workforce                                511     11,135
        Consolidation of semiconductor manufacturing
         in Oregon                                             875      3,711
        Accelerated stock vesting retirement plan
         adoption                                            9,852          -
        Impairment of inventory and evaluation
         systems                                                 -      4,867
        Restructuring charges                                1,373      3,840
        Legal fees for Linear trial                          4,428          -
        Write down of certain research and
         development assets                                      -        897
                                                               ---        ---
    Income (loss) before income taxes excluding
     certain charges and benefits                         $328,929   $(44,931)
                                                          ========   ========



    Provision for income taxes - GAAP                      $42,326    $15,854
      % of income (loss) before income taxes                  13.9%    -22.9 %
       Income tax effect of non-GAAP adjustments             1,790      6,675
       Benefit due to operating loss carryforward
        utilization, net                                         -     20,730
       Changes to unrecognized tax benefits, net                 -    (17,115)
       Charge due to California tax law change                   -    (19,435)
       Other discrete tax charges, net                           -     (2,583)
                                                                       ------
    Provision for income taxes excluding certain
     charges and                benefits                   $44,116     $4,126
                                                           =======     ======
      % of income (loss) before income taxes                  13.4%    - 9.2%

    Net income (loss) - GAAP                              $262,332   $(85,235)
      Adjustment for:
        Consolidation of IAG manufacturing in
         Germany                                             7,232          -
        Reductions in workforce                                511     11,135
        Consolidation of semiconductor manufacturing
         in Oregon                                             875      3,711
        Accelerated stock vesting retirement plan
         adoption                                            9,852          -
        Impairment of inventory and evaluation
         systems                                                 -      4,867
        Restructuring charges                                1,373      3,840
        Legal fees for Linear trial                          4,428          -
        Write down of certain research and
         development assets                                      -        897
        Income tax effect of non-GAAP adjustments           (1,790)    (6,675)
        Discrete tax items                                       -     18,403
                                                                       ------
    Net income (loss) excluding certain charges
     and benefits                                         $284,813   $(49,057)
                                                          ========   ========

    Net income (loss) per diluted share - GAAP               $2.79     $(0.88)
      Adjustment for certain charges and benefits             0.24       0.37
                                                              ----       ----
    Net income (loss) per diluted share
     excluding certain charges and benefits                  $3.03     $(0.51)
                                                             =====     ======


    (1)  The reconciliation of gross profit, operating expenses,
    operating income (loss), income (loss) before income taxes,
    provision for income taxes, net income (loss) and net income (loss)
    per diluted share 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 by other companies.

                          NOVELLUS SYSTEMS, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                                                    December      December
                                                     31            31
                                                           2010     2009*
    (In thousands)                                  (Unaudited)     -----
                                                    -----------
                        ASSETS
    Current assets:
       Cash, cash equivalents and short-term
        investments                                    $671,251    $501,370
       Accounts receivable, net                         256,731     150,624
       Inventories                                      208,894     162,213
       Deferred taxes and other current assets           65,525      83,615
                                                         ------      ------
          Total current assets                        1,202,401     897,822
    Property and equipment, net                         218,569     239,111
    Non-current restricted cash and cash
     equivalents                                        121,226     133,105
    Long-term investments                                68,645      78,763
    Goodwill                                            125,043     126,438
    Intangible and other assets                          96,513      83,739
                                                         ------      ------
    Total assets                                     $1,832,397  $1,558,978
                                                     ==========  ==========
         LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
       Accounts payable and accrued liabilities        $261,220    $162,387
       Deferred profit                                   29,693       9,094
       Current debt obligations                              98          13
                                                            ---         ---
          Total current liabilities                     291,011     171,494
    Long-term debt                                      105,592     114,147
    Long-term income taxes payable                       61,381      48,332
    Other liabilities                                    46,275      45,228
                                                         ------      ------
          Total liabilities                             504,259     379,201
                                                        -------     -------
    Shareholders' equity:
       Common stock                                   1,206,887   1,179,220
       Retained earnings and accumulated other
        comprehensive income                            121,251         557
                                                        -------         ---
          Total shareholders' equity                  1,328,138   1,179,777
                                                      ---------   ---------
    Total liabilities and shareholders' equity       $1,832,397  $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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