Novellus Systems Reports Third Quarter Results

SAN JOSE, CA, Oct 26 (MARKET WIRE) --
Novellus Systems, Inc. (NASDAQ: NVLS) today reported operating results
for its third quarter ended September 24, 2011. Net sales for the third
quarter were $306.7 million, down $43.5 million or 12.4 percent from
second quarter 2011 net sales of $350.2 million, and down $60.5 million
or 16.5 percent from third quarter 2010 net sales of $367.2 million. Net
income for the third quarter was $51.1 million, or $0.73 per diluted
share, down $13.6 million from second quarter 2011 net income of $64.7
million, or $0.79 per diluted share, and down $25.2 million from third
quarter 2010 net income of $76.3 million, or $0.82 per diluted share.

Bookings in the third quarter of 2011 were $226.9 million, down $84.7
million or 27.2 percent from second quarter 2011 bookings of $311.6
million. Third quarter shipments of $301.6 million were down $57.7
million or 16.1 percent from $359.3 million in the second quarter of
2011. (1)

Cash, cash equivalents, and short-term investments at the end of the
third quarter were $736.6 million, a decrease of $75.8 million or 9.3
percent from the second quarter 2011 ending balance of $812.4 million.
Long-term investments and non-current restricted cash and cash
equivalents at the end of the third quarter were $186.0 million, a
decrease of $2.8 million or 1.5 percent from the second quarter 2011
ending balance of $188.8 million. During the third quarter of 2011, we
repurchased 5.2 million shares of our common stock at an average price of
$29.19 per share, for $150.6 million. Cash flows from operations during
the third quarter of 2011 were $99.7 million, up $4.5 million or 4.7
percent from $95.2 million in the second quarter of 2011, and up $17.9
million or 21.9 percent from $81.8 million in the third quarter of 2010.

Richard S. Hill, Chairman and Chief Executive Officer, said, "The current
global market volatility has affected capital intensive business
investment but we are optimistic that the underlying demand for
technology products will enable us to profitably ride through this period
of uncertainty." Hill added, "We remain confident that our investments in
Novellus' core products, and our investments in new technologies to
support the enabling processing trends in 3-dimensional NAND, advanced
logic, and advanced packaging are the right technologies at the right
time. We believe this will allow us to drive revenue growth and
profitability for the long term."

"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) our belief that the
underlying demand for technology products will enable us to profitably
ride through this period of uncertainty; (ii) our investments in our core
products and in new technologies are the right technologies at the right
time, and our belief that this will allow us to drive revenue growth and
profitability for the long term; and (iii) our belief in the future of
3-dimensional NAND, advanced logic, and advanced packaging.
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) disruptions in the economy or the specific markets in which we
operate; (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; (vi) demand and growth in the
semiconductor industry; and (vii) other risks indicated in our filings
with the Securities and Exchange Commission, including our Annual Report
on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on
Form 8-K, and any 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.

(1) Bookings and shipments are non-GAAP measures; they are not in accordance
with or an alternative for U.S. GAAP (generally accepted accounting
principles) and may be different from similar measures used by other
companies. For more information regarding non-GAAP measures, please see
footnote (2).

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended
----------------------------- ---------------------
(In thousands, except
per share amounts) September June 25, September September September
(Unaudited) 24, 2011 2011 25, 2010 24, 2011 25, 2010
----------------------- --------- --------- --------- ----------- ---------
Net sales $ 306,731 $ 350,223 $ 367,203 $ 1,070,139 $ 964,801
Cost of sales 158,824 173,913 186,774 537,644 493,468
--------- --------- --------- ----------- ---------
Gross profit 147,907 176,310 180,429 532,495 471,333
--------- --------- --------- ----------- ---------
% 48.2% 50.3% 49.1% 49.8% 48.9%

Selling, general and
administrative 44,364 47,378 46,426 141,082 134,509
Research and
development 47,827 47,270 44,271 141,818 124,747
Restructuring charges
(benefits), net (1,258) 141 240 (936) 657
--------- --------- --------- ----------- ---------
Total operating
expenses 90,933 94,789 90,937 281,964 259,913
--------- --------- --------- ----------- ---------
% 29.6% 27.1% 24.8% 26.3% 26.9%

Income from operations 56,974 81,521 89,492 250,531 211,420
% 18.6% 23.3% 24.4% 23.4% 21.9%

Interest income 1,340 1,484 1,549 4,321 5,625
Interest expense (5,979) (3,253) (411) (9,658) (1,037)
Other income (expense) 2,785 (1,236) (1,270) 1,195 (998)
--------- --------- --------- ----------- ---------

Income before income
taxes 55,120 78,516 89,360 246,389 215,010
Provision for income
taxes 4,038 13,783 13,095 34,216 34,181
--------- --------- --------- ----------- ---------
Net income $ 51,082 $ 64,733 $ 76,265 $ 212,173 $ 180,829
========= ========= ========= =========== =========

Net income per share:
Basic $ 0.74 $ 0.81 $ 0.83 $ 2.67 $ 1.93
========= ========= ========= =========== =========
Diluted $ 0.73 $ 0.79 $ 0.82 $ 2.60 $ 1.90
========= ========= ========= =========== =========
Shares used in basic
per share calculation 68,883 80,068 91,512 79,401 93,833
========= ========= ========= =========== =========
Shares used in diluted
per share calculation 70,379 82,074 92,859 81,464 94,986
========= ========= ========= =========== =========

NOVELLUS SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (2)

Three Months Ended Nine Months Ended
----------------------------- ---------------------
(In thousands, except
per share amounts) September June 25, September September September
(Unaudited) 24, 2011 2011 25, 2010 24, 2011 25, 2010
Gross profit - GAAP $ 147,907 $ 176,310 $ 180,429 $ 532,495 $ 471,333
% of sales 48.2% 50.3% 49.1% 49.8% 48.9%
Adjustment for:
Consolidation of
IAG manufacturing
in Germany -- -- 2,474 -- 2,474
Reductions in
workforce -- -- -- -- 126
Consolidation of
semiconductor
manufacturing in
Oregon -- -- -- -- 484
--------- --------- --------- ---------- ----------
Gross profit excluding
certain charges and
benefits $ 147,907 $ 176,310 $ 182,903 $ 532,495 $ 474,417
========= ========= ========= ========== ==========
% of sales 48.2% 50.3% 49.8% 49.8% 49.2%

Operating expenses -
GAAP $ 90,933 $ 94,789 $ 90,937 $ 281,964 $ 259,913
% of sales 29.6% 27.1% 24.8% 26.3% 26.9%
Adjustment for:
Supplier settlement 2,350 -- -- 2,350 --
Consolidation of
IAG manufacturing
in Germany -- -- (2,386) -- (2,386)
Reductions in
workforce (1,962) -- -- (1,962) (385)
Consolidation of
semiconductor
manufacturing in
Oregon -- -- -- -- (390)
Restructuring
charges 1,258 (141) (240) 936 (657)
Legal fees for
Linear trial -- -- -- -- (4,428)
--------- --------- --------- ---------- ----------
Operating expenses
excluding certain
charges and benefits $ 92,579 $ 94,648 $ 88,311 $ 283,288 $ 251,667
========= ========= ========= ========== ==========
% of sales 30.2% 27.0% 24.0% 26.5% 26.1%

Operating income - GAAP $ 56,974 $ 81,521 $ 89,492 $ 250,531 $ 211,420
% of sales 18.6% 23.3% 24.4% 23.4% 21.9%
Adjustment for:
Supplier settlement (2,350) -- -- (2,350) --
Consolidation of
IAG manufacturing
in Germany -- -- 4,861 -- 4,861
Reductions in
workforce 1,962 -- -- 1,962 511
Consolidation of
semiconductor
manufacturing in
Oregon -- -- -- -- 875
Restructuring
charges (1,258) 141 240 (936) 657
Legal fees for
Linear trial -- -- -- -- 4,428
--------- --------- --------- ---------- ----------
Operating income
excluding certain
charges and benefits $ 55,328 $ 81,662 $ 94,593 $ 249,207 $ 222,752
========= ========= ========= ========== ==========
% of sales 18.0% 23.3% 25.8% 23.3% 23.1%

Income before income
taxes - GAAP $ 55,120 $ 78,516 $ 89,360 $ 246,389 $ 215,010
Adjustment for:
Supplier settlement (2,350) -- -- (2,350) --
Consolidation of
IAG manufacturing
in Germany -- -- 4,861 -- 4,861
Reductions in
workforce 1,962 -- -- 1,962 511
Consolidation of
semiconductor
manufacturing in
Oregon -- -- -- -- 875
Restructuring
charges (1,258) 141 240 (936) 657
Legal fees for
Linear trial -- -- -- -- 4,428
--------- --------- --------- ---------- ----------
Income before income
taxes excluding
certain charges and
benefits $ 53,474 $ 78,657 $ 94,461 $ 245,065 $ 226,342
========= ========= ========= ========== ==========

Provision for income
taxes - GAAP $ 4,038 $ 13,783 $ 13,095 $ 34,216 $ 34,181
% of income before
income taxes 7.3% 17.6% 14.7% 13.9% 15.9%
Income tax effect of
non-GAAP adjustments (1,081) 53 26 (960) 1,840
--------- --------- --------- ---------- ----------
Provision for income
taxes excluding
certain charges and
benefits $ 2,957 $ 13,836 $ 13,121 $ 33,256 $ 36,021
========= ========= ========= ========== ==========
% of income before
income taxes
excluding certain
charges and benefits 5.5% 17.6% 13.9% 13.6% 15.9%

Net income - GAAP $ 51,082 $ 64,733 $ 76,265 $ 212,173 $ 180,829
Adjustment for:
Supplier settlement (2,350) -- -- (2,350) --
Consolidation of
IAG manufacturing
in Germany -- -- 4,861 -- 4,861
Reductions in
workforce 1,962 -- -- 1,962 511
Consolidation of
semiconductor
manufacturing in
Oregon -- -- -- -- 875
Restructuring
charges (1,258) 141 240 (936) 657
Legal fees for
Linear trial -- -- -- -- 4,428
Income tax effect
of non-GAAP
adjustments 1,081 (53) (26) 960 (1,840)
--------- --------- --------- ---------- ----------
Net income excluding
certain charges and
benefits $ 50,517 $ 64,821 $ 81,340 $ 211,809 $ 190,321
========= ========= ========= ========== ==========

Net income per diluted
share - GAAP $ 0.73 $ 0.79 $ 0.82 $ 2.60 $ 1.90
Adjustment for
certain charges and
benefits (0.01) 0.00 0.06 0.00 0.10
--------- --------- --------- ---------- ----------
Net income per diluted
share excluding
certain charges and
benefits $ 0.72 $ 0.79 $ 0.88 $ 2.60 $ 2.00
========= ========= ========= ========== ==========

(2) The discussion of bookings and shipments and the presentation of gross
profit, operating expenses, operating income, income before taxes,
provision for income taxes, effective tax rate, net income, and net
income per diluted share, set forth in the table above, each excludes
certain charges and benefits and are not in accordance with U.S. GAAP
and may differ from non-GAAP methods of accounting and reporting used by
other companies. The non-GAAP financial measures we provide have certain
limitations because they do not reflect all of the costs associated with
the operation of our business as determined in accordance with GAAP. The
non-GAAP measures are in addition to, and not a substitute for, or
superior to, measures of financial performance prepared in accordance
with GAAP. We endeavor to compensate for the limitations of these non-
GAAP measures by providing GAAP financial statements, descriptions of
the reconciling items, and a reconciliation of the non-GAAP measures to
the most directly comparable GAAP measures so that investors can
appropriately incorporate the non-GAAP measures and their limitations
into their analyses.

Management uses certain non-GAAP measures to evaluate operating
performance. We discuss these non-GAAP measures because we believe they
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. Further, we
believe the presentation of non-GAAP measures provides investors with
additional insight into underlying operating results by excluding
certain charges and benefits related to (i) supplier settlements, (ii)
consolidation of our IAG manufacturing in Germany, (iii) reductions in
workforce, (iv) consolidation of semiconductor manufacturing in Oregon,
(v) restructuring charges, and (vi) certain legal expenses. These
certain charges and benefits may not be indicative of our ongoing
operations or economic performance.

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

September 24, December 31,
(In thousands) 2011 2010
-------------------------------------------- -------------- --------------
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents and short-term
investments $ 736,609 $ 671,251
Accounts receivable, net 222,764 256,731
Inventories 216,865 208,894
Deferred taxes and other current assets 84,778 65,525
-------------- --------------
Total current assets 1,261,016 1,202,401
Property and equipment, net 205,783 218,569
Non-current restricted cash and cash
equivalents 132,540 121,226
Long-term investments 53,456 68,645
Goodwill 125,468 125,043
Intangible and other assets 95,010 96,513
-------------- --------------
Total assets $ 1,873,273 $ 1,832,397
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 230,857 $ 261,318
Deferred profit 20,775 29,693
-------------- --------------
Total current liabilities 251,632 291,011
Senior convertible notes 271,291 --
Other long-term debt obligations 108,235 105,592
Long-term income taxes payable 63,073 61,381
Long-term deferred tax liabilities 169,810 3,815
Other liabilities 39,051 42,460
-------------- --------------
Total liabilities 903,092 504,259
-------------- --------------
Shareholders' equity:
Common stock 1,195,235 1,206,887
Retained earnings (accumulated deficit)
and accumulated other comprehensive
income (loss) (225,054) 121,251
-------------- --------------
Total shareholders' equity 970,181 1,328,138
-------------- --------------
Total liabilities and shareholders'
equity $ 1,873,273 $ 1,832,397
============== ==============

* The December 31, 2010 condensed consolidated balance sheet was derived
from our audited consolidated financial statements.

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended
----------------------------
September 24, September 25,
2011 2010
------------- -------------
(In thousands)
Cash flows from operating activities:
Net income $ 212,173 $ 180,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26,466 30,775
Deferred income taxes 22,859 (2,876)
Stock-based compensation 31,307 25,706
Excess tax benefit from stock-based
compensation 0 (392)
Other non-cash charges, net 4,713 4,939
Changes in operating assets and
liabilities, net (18,872) 9,030
------------- -------------
Net cash provided by operating activities 278,646 248,011
------------- -------------
Cash flows from investing activities:
Net sales, maturities and purchases of
investments 33,221 (25,151)
Capital expenditures (15,509) (12,916)
Decrease (increase) in restricted cash and
cash equivalents (9,590) 8,652
------------- -------------
Net cash provided by (used in) investing
activities 8,122 (29,415)
------------- -------------
Cash flows from financing activities:
Proceeds from employee stock compensation
plans 112,711 7,641
Proceeds from senior convertible notes, net
of issuance costs 684,250 --
Net proceeds from (repayments of) other
debt obligations (72) 510
Repurchases of common stock (977,666) (161,037)
Excess tax benefit from stock-based
compensation 0 392
------------- -------------
Net cash used in financing activities (180,777) (152,494)
------------- -------------
Effects of exchange rate changes on cash and
cash equivalents 81 (262)
------------- -------------
Net increase in cash and cash equivalents 106,072 65,840
Cash and cash equivalents at the beginning of
the period 247,055 142,047
------------- -------------
Cash and cash equivalents at the end of the
period $ 353,127 $ 207,887
============= =============

Contacts:
John Hertz
Chief Financial Officer
Novellus Systems, Inc.
Phone: (408) 943-9700

Robin Yim
Investor Relations
Novellus Systems, Inc.
Phone: (408) 943-9700

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