Novellus Systems Reports Record Fourth Quarter and Year-End 2000 Results and Discusses the Effect of Adoption of Staff Accounting Bulletin 101.

Business Editors & High-Tech Writers

SAN JOSE, Calif.--(BUSINESS WIRE)--Jan. 16, 2001

Novellus Systems Inc. (Nasdaq:NVLS) Tuesday reported 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 with 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 with 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.

The company 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 the company has shipped to date and recognizable revenue under SAB 101 new guidelines. Deferred revenue will continue to be reported in the company results.

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

Cash and short-term investments at Dec. 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 Jan. 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.

Novellus Systems 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.

"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 Dec. 31, 1999, and quarterly reports on Form 10-Q for the first three fiscal quarters of 2000.

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/a

                         NOVELLUS SYSTEMS INC.
       CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNDER SAB 101

               (in thousands, except per-share amounts)

                                           Three Months    12 Months
                                               Ended         Ended
                                           Dec. 31, 2000  Dec. 31, 2000

Net Sales                                    $389,879     $1,173,731
Cost of Sales                                 163,483        516,516
        Gross Profit                          226,396        657,215

Operating Expenses
    Research and Development                   54,876        191,213
    Selling, General and Administrative        52,378        178,093

Total Operating Expenses                      107,254        369,306

Income from Operations                        119,142        287,909
Interest Income, Net                           17,342         53,680

Income before Income Taxes                    136,484        341,589

Provision for Income Taxes                     42,310        105,893

Income before cumulative effect of
 a change in accounting principle              94,174        235,696

Cumulative effect of change in accounting
 principle, net of tax benefit                               (84,632)

Net Income                                    $94,174       $151,064

   Per diluted share amounts:

Income before cumulative effect of
 change in accounting principle               $  0.69       $   1.75

Cumulative effect of change
 in accounting principle                                    $  (0.63)

Net Income                                    $  0.69       $   1.12

Shares Used in Diluted Per-Share
 Calculation                                  136,753        135,109

See Exhibit D for an explanation of revenue recognition under SAB 101.

                Exhibit B: Consolidated Balance Sheets

                         NOVELLUS SYSTEMS INC.
         CONDENSED CONSOLIDATED BALANCE SHEETS UNDER SAB 101/a

                            (in thousands)

                                                Dec. 31,     Dec. 31,
                                                  2000         1999
Assets
Current Assets:
  Cash and Short-Term Investments              $1,152,114    $385,257
  Accounts Receivable, Net                        366,224     213,678
  Inventories                                     177,561     103,883
  Deferred Taxes                                  122,728      24,521
  Other Current Assets                              8,659       5,327

Total Current Assets                            1,827,286     732,666

Property and Equipment, Net                       136,160     106,779
Other Assets                                       52,026      70,484
Total Assets                                   $2,015,472    $909,929

Liabilities and Shareholders' Equity
Current Liabilities:
  Accounts Payable                               $109,504     $43,438
  Short-Term Obligations                           16,056      13,521
  Deferred Profit/b                               185,893        --
  Other Accrued Liabilities                       193,306      83,271
Total Current Liabilities                         504,759     140,230

Shareholders' Equity:
   Common Stock                                 1,095,469     490,587
   Retained Earnings and Accumulated
    Other Comprehensive Income                    415,244     279,112
Total Shareholders' Equity                      1,510,713     769,699

Total Liabilities and Shareholders' Equity     $2,015,472    $909,929

(a) See Exhibit D for an explanation of revenue recognition under SAB
    101.
(b) Deferred profit includes deferred revenue of $432 million and
    related costs.

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

                         NOVELLUS SYSTEMS INC.
         CONDENSED CONSOLIDATED PRO-FORMA STATEMENTS OF INCOME

               (in thousands, except per-share amounts)

                              Three Months Ended       Year Ended
Pro-Forma                      Dec. 31, Dec. 31,   Dec. 31,  Dec. 31,
                                 2000     1999       2000      1999

Net Sales                      $425,138 $191,716  $1,384,293  $592,741
Cost of Sales                   184,117   85,122     599,476   271,710

        Gross Profit            241,021  106,594     784,817   321,031

Operating Expenses
    Research and Development     54,877   32,647     191,213   119,667
    Selling, General and
     Administrative              52,252   29,879     179,393   101,027

Total Operating Expenses        107,129   62,526     370,606   220,694

Income from Operations          133,892   44,068     414,211   100,337
Interest Income, Net             17,341    5,152      53,680    13,953

Income before Income Taxes      151,233   49,220     467,891   114,290

Provision for Income Taxes       46,882   16,243     145,046    37,716

Net Income                     $104,351  $32,977    $322,845   $76,574

Basic Net Income Per Share        $0.80    $0.28       $2.53     $0.67

Diluted Net Income Per Share      $0.76    $0.27       $2.39     $0.64

Shares Used in Basic
 Calculation                    131,234  118,183     127,731   114,817

Shares Used in Diluted
 Calculation                    136,753  124,277     135,109   120,097

Exhibit D: Explanation of Revenue Recognition under SAB 101

Summary

SAB 101, Revenue Recognition in Financial Statements:

On Dec. 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 (Jan. 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.