Press Releases

San Jose, Calif. -- Jan. 16, 2001 -- Novellus Systems, Inc. (Nasdaq NM: NVLS) Novellus today is reporting its transition from the Company's historical accounting method to the method required by the Securities and Exchange Commission Staff Accounting Bulletin 101 (SAB 101).

Using its historical method now called pro-forma, the Company reports that its shipments for the fourth quarter 2000 were $425.1 million. Pro-forma revenue for the fourth quarter was a record $425.1 million, an increase of 122 percent over fourth quarter 1999 reported net sales of $191.7 million. Pro-forma fourth quarter 2000 net income was $104.4 million or $0.76 per fully diluted share, an increase of 216 percent and 181 percent respectively, when compared to the fourth quarter 1999 reported net income of $33.0 million or $0.27 per fully diluted share.

Shipments for the year were $1.384 billion. Pro-forma revenue for the year was a record $1.384 billion, an increase of 134 percent from 1999 reported net sales of $592.7 million. Pro-forma net income for the year was a record $322.8 million or $2.39 per fully diluted share, an increase of 322 percent and 273 percent, respectively, when compared to reported net income in 1999 of $76.6 million or $0.64 per fully diluted share. Please see exhibit C for the detailed Pro-forma Income Statement under the Historical method.

We will now report under SAB 101.

Shipments for the fourth quarter 2000 were $425.1 million. Net sales for the fourth quarter 2000 were a record $389.9 million and net income was $94.2 million or $0.69 per fully diluted share.

Shipments for the year were $1.384 billion. Net sales for the year were a record $1.174 billion and net income for the year was a record $235.7 million or $1.75 per fully diluted share before an $84.6 million ($0.63 per share) cumulative effect of the SAB 101 change in accounting principle. This change in accounting principle results in a cumulative deferred revenue of $432 million at year-end 2000. This $432 million represents the difference between what we have shipped to date and recognizable revenue under SAB 101 new guidelines. Deferred revenue will continue to be reported in the Company results.

Backlog at December 31, 2000 reached a record $575.7 million, an increase of 75 percent from the $329.5 million reported at December 31, 1999.

Cash and short-term investments at December 31, 2000 were $1.152 billion, an increase of $48.7 million over third quarter 2000 balances of $1.103 billion. Cash generation continued in the fourth quarter despite increased working capital requirements to support revenue growth. Please see exhibit B for the Balance Sheet.

Richard Hill, Chairman and Chief Executive Officer said, "We are very proud of the efforts of everyone in the Company which produced the best year in the Company's history, with record backlog and with revenue more than double the prior year."

Hill also added, "Novellus looks back on a very successful year in which we crossed the billion dollar revenue level, introduced the Vector, the most successful product introduction in the Company's history, and made a major move into the surface preparation market with our acquisition of GaSonics International, Inc., which was initiated during the year and closed on January 10, 2001. Novellus remains committed to new product development and continuous improvement of existing products to maintain our role as the industry leader for deposition technologies."

Robert Smith, Executive Vice-President and Chief Financial Officer also commented, "During this time of transition to the requirements of SAB 101, our investors have indicated that a comparison of our results of operations under our historical method, which we refer to as the shipments method, and under SAB 101, would be both useful and informative. Accordingly, we are presenting our operating results under both SAB 101 and the shipments method." Please see exhibit D for an explanation of revenue recognition under SAB 101.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: The statements regarding the Company's move into surface preparation and its commitment to new product development and continuous improvement, as well as other matters discussed in the 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, the inability of the Company's product development efforts to continue its position as an industry leader in deposition technologies, the possible difficulties in integrating GaSonics' surface preparation product offerings, and other risks indicated in our filings with the Securities and Exchange Commission (SEC). Actual results could differ materially. Novellus assumes no obligation to update this information. For more details, please refer to Novellus' SEC filings, including its most recent Annual Report on Form 10-K for the year ended December 31, 1999 and quarterly reports on Form 10-Q for the first three fiscal quarters of 2000.

Novellus Systems, Inc. manufactures, markets, and services advanced automated wafer fabrication systems for the deposition of thin films. Novellus deposition systems are designed for high-volume production of advanced, leading-edge semiconductors at the lowest overall cost. The Company's stock trades on the Nasdaq Stock Market's National Market under the symbol "NVLS". Additional information about the Company is available on the Novellus Systems home page on the World Wide Web, located at http://www.novellus.com.

Note:
See exhibit A for the income statement under SAB 101.
See exhibit B for the balance sheet.
See exhibit C for Pro-forma income statement under the shipments method.
See exhibit D for an explanation of revenue recognition under SAB 101.

Exhibit A: Fourth Quarter and annual 2000 results under SAB 101*

Exhibit B: Consolidated Balance Sheets

Exhibit C: Fourth Quarter and annual Pro-Forma results under the "shipments method."

Exhibit D: Explanation of Revenue Recognition under SAB 101

Summary

SAB 101, Revenue Recognition in Financial Statements:

On December 3, 1999, the staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements.” The SEC Staff address several issues in SAB No. 101, including the timing of revenue recognition for sales that involve contractual customer acceptance provisions and installation of the product if these events occur after shipment and transfer of title. The Company’s previous revenue recognition policy was to recognize revenue at the time the customer takes title to the product, generally at the time of shipment. In October 2000, the SEC issued Staff Accounting Bulleting No. 101: Revenue Recognition in Financial Statements – Frequently Asked Questions and Answers (“SAB 101 FAQ”). The SAB 101 FAQ was issued to clarify many of the implementation questions surrounding SAB No. 101.

Explanation of Revenue Recognition under SAB 101:

Novellus derives revenues from three sources – equipment sales, spare part sales and service contracts. SAB 101 has no effect on the Company’s revenue recognition policy for spare parts or services. There are different revenue recognition points under SAB 101, which are described as follows:

Acceptance: For equipment sales to a new customer, existing products with new specifications and/or a new product, revenue is recognized upon customer acceptance. 

Shipment and acceptance: Equipment sales to existing customers, who have purchased the same equipment with the same customer-specified acceptance provisions in the past, are accounted for as multiple-element arrangements.  Upon shipment, the lesser of the fair value of the equipment or the contractual amount billable upon shipment is recorded as revenue upon title transfer. The remainder is recorded as revenue upon customer acceptance.

Revenue related to spare part sales is recognized on shipment. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts.

Cumulative Effect of Change in Accounting Principle:

As a result of the change in accounting to SAB 101, Novellus has reported a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes, by a cumulative effect adjustment.  Because Novellus is a calendar year company who is adopting SAB 101 in the fourth quarter, no cumulative effect of the change is included in net income of the fourth quarter.  Instead, APB 20 requires that the change be made as of the beginning of the year (January 1, 2000) and that financial information for prechange interim periods, in this case the first three quarters of 2000, be restated by applying SAB 101 to those periods.