Novellus Systems (NVLS) 8-K Novellus Systems Reports Results for the Third Quarter 2003

Exhibit 99.1

Contacts:	Kevin S. Royal	Robin S. Yim
	Vice President and Chief Financial Officer	Vice President, Treasurer
	Novellus Systems, Inc.	Novellus Systems, Inc.
	Phone: (408) 943-9700	Phone: (408) 943-9700

FOR IMMEDIATE RELEASE

NOVELLUS SYSTEMS REPORTS RESULTS FOR THE THIRD QUARTER 2003

SAN JOSE, Calif., October 14, 2003—Novellus Systems, Inc. (Nasdaq NM: NVLS) today reported the results of operations for its third quarter ended September 27, 2003. Third quarter 2003 net sales were $221.1 million, down 7.5 percent from $239.1 million in the previous quarter, and down 4.1 percent from third quarter 2002 net sales of $230.5 million. The net loss for the quarter was $97.6 million, or $0.64 per basic share, compared with second quarter 2003 net income of $7.4 million, and third quarter 2002 net income of $4.1 million.

As previously announced, the Company implemented a restructuring plan to align its cost structure with current business conditions. The restructuring plan resulted in a pre-tax charge of $59.8 million in the third quarter, which is composed of $44.0 million for inventory, $7.9 million for asset write-offs (including fixed assets and purchased technology), $4.1 million for facilities, and $3.8 million for severance. The inventory charge is included in cost of goods sold and the other restructuring charges are included in operating expenses.

Under new accounting guidelines adopted by the Company on June 29, 2003, the Company is required to consolidate certain properties, previously accounted for as synthetic leases, onto its balance sheet. Accordingly, in the third quarter, the Company recorded a non-cash, after-tax charge of $62.8 million as a cumulative effect of change in accounting principle. The gross charge represents $95.8 million of pre-tax depreciation that would have been recorded had the Company owned these properties from inception of the leases. As a result of the consolidation and subsequent purchase of the properties previously accounted for as synthetic leases, property and equipment, net of accumulated depreciation, increased by $360.6 million and other non-current assets decreased by $456.4 million. The accounting change and purchase of these properties had no impact on the Company’s liquidity.

Without restructuring charges of $59.8 million, a non-cash charge of $62.8 million from the consolidation of properties previously accounted for as synthetic leases, and legal settlements of $2.7 million, net income for the third quarter would have been $6.1 million, or $0.04 per diluted share, down $1.3 million, or 17.4 percent, from the second quarter net income of $7.4 million, and down $10.0 million, or 62.0 percent, from the third quarter 2002 net income of $16.1 million. These third quarter 2002 results do not include a $17.0 million pre-tax charge for the unamortized issuance costs related to the retirement of $880.0 million Liquid Yield Option Notes. There were no unusual charges in the second quarter of 2003. The financial measures presented above, which exclude certain unusual charges, are not in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP). The Company believes that these non-GAAP financial measures provide further insight into the results of ongoing operations and enhances the comparability of those results to prior quarters.

Shipments of $210.3 million in the third quarter of 2003 represent a decrease of $16.2 million, or 7.2 percent, from $226.5 million reported in the prior quarter. Deferred revenue at the end of the third quarter was $103.5 million, a decrease of $10.9 million, or 9.5 percent, from $114.4 million at the end of the second quarter.

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Cash, cash equivalents and short-term investments as of September 27, 2003 were $977.5 million, an increase of $26.8 million, or 2.8 percent, from the second quarter 2003 ending balance of $950.7 million.

“The pace of both the recovery in the semiconductor equipment industry and the crossover to 300 millimeter tool sets required us to restructure the company in the third quarter. We believe our actions will improve our earnings performance as the industry upturn continues to firm,” said Richard S. Hill, chairman and chief executive officer of Novellus Systems, Inc. “With only modestly improved macroeconomic conditions, semiconductor manufacturers are continuing to invest in the most advanced 300 millimeter copper technology to improve chip performance and reduce manufacturing costs. Novellus’ product portfolio is solidly positioned to benefit from this trend and our market penetration in copper continues to strengthen,” said Hill.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995:

The statements regarding (i) the positive impact of the Company’s restructuring activities on its future earnings performance, (ii) continued firming of the industry upturn, (iii) continued investment by semiconductor manufacturers in the most advanced 300 millimeter copper technology, (iv) the solid position of the Company’s product portfolio with regard to the most advanced 300 millimeter copper technology, (v) the continued strengthening of the Company’s market penetration in copper, as well as other matters discussed in this news release that do not concern purely historical data, are forward-looking statements. The forward-looking statements involve risks and uncertainties, including, but not limited to, unexpected difficulties caused by the Company’s restructuring activities, a slowdown in the rate of capital investment by semiconductor manufacturers, a shift in demand from expensive high-performance products to lower priced products, competitor product introductions that undermine the Company’s position in advanced 300 millimeter copper technology and the Company’s lack of success in selecting, developing, manufacturing and marketing new products or enhancing existing products in copper, and other risks and uncertainties discussed in our filings with the Securities and Exchange Commission (SEC). Actual results could differ materially. We assume no obligation to update this information. For more details relating to risks and uncertainties that could cause actual results to differ from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2002 and our Quarterly Report on Form 10-Q for the quarter ended June 28, 2003.

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) and a component of the Nasdaq-100 Index®. Additional information about Novellus is available on our home page atwww.novellus.com.

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NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)				Three Months Ended									Nine Months Ended
(Unaudited)
				September 27			June 28			September 28			September 27			September 28
				2003			2003			2002			2003			2002
Net sales				$	221,099		$	239,050		$	230,495		$	698,559		$	622,321
Cost of sales					162,323			133,728			121,113			424,647			339,846
		Gross profit			58,776			105,322			109,382			273,912			282,475
		%			26.6	%		44.1	%		47.5	%		39.2	%		45.4	%
Operating expenses:
		Selling, general and administrative			40,123			44,444			43,143			127,197			117,307
		Research and development			59,858			56,509			58,248			173,374			171,021
		Restructuring and other charges (benefits)			18,529			—			—			18,529			(4,389	)
Total operating expenses					118,510			100,953			101,391			319,100			283,939
		%			53.6	%		42.2	%		44.0	%		45.7	%		45.6	%
Income (loss) from operations					(59,734	)		4,369			7,991			(45,188	)		(1,464	)
		%			-27.0	%		1.8	%		3.5	%		-6.5	%		-0.2	%
Other income (loss), net					2,722			5,537			(8,121	)		13,911			21,396
Income (loss) before income taxes and cumulative effect of a change in accounting principle					(57,012	)		9,906			(130	)		(31,277	)		19,932
Provision for income taxes (benefit)					(22,224	)		2,476			(4,213	)		(15,791	)		—
Income (loss) before cumulative effect of a change in accounting principle					(34,788	)		7,430			4,083			(15,486	)		19,932
Cumulative effect of a change in accounting principle, net of tax					(62,780	)		—			—			(62,780	)		—
Net income (loss)				$	(97,568	)	$	7,430		$	4,083		$	(78,266	)	$	19,932
Net income (loss) per share:
	Basic
		Income (loss) before cumulative effect of a change in accounting principle		$	(0.23	)	$	0.05		$	0.03		$	(0.10	)	$	0.14
		Cumulative effect of a change in accounting principle			(0.41	)		—			—			(0.42	)		—
			Basic net income (loss) per share	$	(0.64	)	$	0.05		$	0.03		$	(0.52	)	$	0.14
	Diluted
		Income (loss) before cumulative effect of a change in accounting principle		$	(0.23	)	$	0.05		$	0.03		$	(0.10	)	$	0.13
		Cumulative effect of a change in accounting principle			(0.41	)		—			—			(0.42	)		—
			Diluted net income (loss) per share	$	(0.64	)	$	0.05		$	0.03		$	(0.52	)	$	0.13
Shares used in basic per share calculation					151,280			149,950			143,691			150,221			144,355
Shares used in diluted per share calculation					151,280			153,034			146,094			150,221			149,257

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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
(Unaudited)
			September 27			June 28			September 28			September 27			September 28
			2003			2003			2002			2003			2002
Net sales			$	221,099		$	239,050		$	230,495		$	698,559		$	622,321
Cost of sales				118,371			133,728			121,113			380,695			339,846
		Gross profit		102,728			105,322			109,382			317,864			282,475
		%		46.5	%		44.1	%		47.5	%		45.5	%		45.4	%
Operating expenses:
		Selling, general and administrative		40,123			44,444			43,143			127,197			117,307
		Research and development		59,858			56,509			58,248			173,374			171,021
Total operating expenses				99,981			100,953			101,391			300,571			288,328
		%		45.2	%		42.2	%		44.0	%		43.0	%		46.3	%
Income (loss) from operations				2,747			4,369			7,991			17,293			(5,853	)
		%		1.2	%		1.8	%		3.5	%		2.5	%		-0.9	%
Other income, net				2,722			5,537			8,926			13,911			33,840
Income before income taxes				5,469			9,906			16,917			31,204			27,987
Provision for income taxes (benefit)				(668	)		2,476			776			5,765			3,101
Net income			$	6,137		$	7,430		$	16,141		$	25,439		$	24,886
Net income per share:
		Basic net income (loss) per share	$	0.04		$	0.05		$	0.11		$	0.17		$	0.17
		Diluted net income (loss) per share	$	0.04		$	0.05		$	0.11		$	0.17		$	0.17
Shares used in basic per share calculation				151,280			149,950			143,691			150,221			144,355
Shares used in diluted per share calculation				155,452			153,034			146,094			153,572			149,257
A reconciliation of our net income excluding certain unusual charges and benefits to our net income under accounting principles generally accepted in the United States of America is presented below:
Net income excluding unusual charges and benefits			$	6,137		$	7,430		$	16,141		$	25,439		$	24,886
Unusual (charges) benefits:
	Cumulative effect of a change in accounting principle			(62,780	)		—			—			(62,780	)		—
	Inventory write-down			(43,952	)		—			—			(43,952	)		—
	Write-off of fixed assets			(2,739	)		—			—			(2,739	)		—
	Facilities charges			(4,088	)		—			—			(4,088	)		—
	Write-off of purchased technology			(5,204	)		—			—			(5,204	)		—
	Write-off debt issuance costs			—			—			(17,047	)		—			(17,047	)
	Bad debt recovery (write-off)			—			—			—			—			7,662
	Severance charges			(3,807	)		—			—			(3,807	)		(3,273	)
	Legal settlements			(2,691	)		—			—			(2,691	)		—
	Gain on a sale of investment			—			—						—			4,603
		Total charges		(125,261	)		—			(17,047	)		(125,261	)		(8,055	)
	Adjustments on provision for income taxes			21,556			—			4,989			21,556			3,101
Net income			$	(97,568	)	$	7,430		$	4,083		$	(78,266	)	$	19,932

(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 accounting principles generally accepted in the United States of America and may be different from similar measures presented by other companies.

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NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 27, 2003

(In thousands, except per share amounts)								Unusual Charges (Benefits)
(Unaudited)								Cumulative
								effect of a							Adjustments
					Q3 2003			change in				Restructuring			on Provision
					NON-			accounting		Inventory		and other			for income			Q3 2003
					GAAP (1)			principle		Write-down		Charges (2)			taxes			GAAP
Net sales					$	221,099												$	221,099
Cost of sales						118,371					43,952								162,323
	Gross Profit					102,728													58,776
	%					46.5	%												26.6	%
Operating expenses:
	Selling, general and administrative					40,123													40,123
	Research and development					59,858													59,858
	Restructuring and other charges (benefits)					—							(18,529	)					18,529
Total operating expenses						99,981													118,510
	%					45.2	%												53.6	%
Income (loss) from operations						2,747													(59,734	)
	%					1.2	%												-27.0	%
Other income, net						2,722													2,722
Income (loss) before income taxes and cumulative effect of a change in accounting principle						5,469													(57,012	)
Provision for income taxes (benefit)						(668	)									(21,556	)		(22,224	)
Income (loss) before cumulative effect of a change in accounting principle						6,137													(34,788	)
Cumulative effect of a change in accounting principle, net of tax						—			62,780										(62,780	)
Net income (loss)					$	6,137												$	(97,568	)
Net income (loss) per share:
	Basic
		Income (loss) before cumulative effect of a change in accounting principle			$	0.04												$	(0.23	)
		Cumulative effect of a change in accounting principle				—													(0.41	)
				Basic net income (loss) per share	$	0.04												$	(0.64	)
	Diluted
		Income (loss) before cumulative effect of a change in accounting principle			$	0.04												$	(0.23	)
		Cumulative effect of a change in accounting principle				—													(0.41	)
			Diluted net income (loss) per share		$	0.04												$	(0.64	)
Shares used in basic per share calculation						151,280													151,280
Shares used in diluted per share calculation						155,452													151,280

(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 accounting principles generally accepted in the United States of America and may be different from similar measures presented by other companies.

(2)

Restructing and other charges:

Write-off of fixed assets		(2,739	)
Facilities Charges		(4,088	)
Write-off of purchased technology		(5,204	)
Severance Charge		(3,807	)
Legal Settlements		(2,691	)
	Total	(18,529	)

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NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)					September 27		December 31
					2003		2002
					(Unaudited)		*
			ASSETS
Current assets:
		Cash and short-term investments			$	977,513	$	1,019,652
		Accounts receivable, net				221,308		192,862
		Inventories				200,773		257,358
		Deferred taxes and other current assets				174,793		164,062
				Total current assets		1,574,387		1,633,934
Property and equipment, net						513,241		179,926
Notes receivable						—		397,429
Goodwill						172,893		163,136
Intangible and other assets						57,315		119,569
Total assets					$	2,317,836	$	2,493,994
	LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
		Accounts payable and accrued liabilities			$	181,909	$	192,691
		Deferred profit				40,477		55,613
		Income taxes payable				8,731		14,070
		Short-term obligations				3,164		2,799
		Convertible subordinated debentures				—		116,437
				Total current liabilities		234,281		381,610
Deferred income tax liabilities						—		19,502
Other liabilities						48,251		37,194
Total liabilities						282,532		438,306
Shareholders’ equity:
		Common stock				1,543,604		1,487,281
		Retained earnings and accumulated other comprehensive income				491,700		568,407
				Total shareholders’ equity		2,035,304		2,055,688
Total liabilities and shareholders’ equity					$	2,317,836	$	2,493,994

*     The December 31, 2002 condensed consolidated balance sheet was derived from our audited consolidated financial statements.

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