Novellus Systems (NVLS) 8-K Novellus Systems Reports Third Quarter 2006 Results

Exhibit 99.1

Contacts:	William H. Kurtz	Robin Yim
	Executive Vice President and Chief Financial Officer	Investor Relations
	Novellus Systems, Inc.	Novellus Systems, Inc.
	Phone: (408) 943-9700	Phone: (408) 943-9700

FOR IMMEDIATE RELEASE

NOVELLUS SYSTEMS REPORTS THIRD QUARTER 2006 RESULTS

SAN JOSE, Calif., October 17, 2006—Novellus Systems, Inc. (NASDAQ: NVLS) today reported net sales and results of operations for its third quarter ended September 30, 2006. Net sales for the third quarter were $444.0 million, up $34.0 million or 8.3 percent from second quarter 2006 net sales of $410.1 million, and up $105.2 million or 31.0 percent from third quarter 2005 net sales of $338.9 million. Net income for the third quarter was $70.0 million, or $0.57 per diluted share, up $17.3 million or 32.9 percent from second quarter 2006 net income of $52.7 million, and up $46.6 million or 199.0 percent from third quarter 2005 net income of $23.4 million.

The third quarter 2006 results did not include any unusual charges or benefits. The third quarter 2005 net income would have been $28.7 million, or $0.21 per diluted share, excluding any unusual charges or benefits. The third quarter 2005 results included a pre-tax inventory write-down of $5.2 million within cost of goods sold and $6.3 million of other pre-tax costs associated with the restructuring, partially offset by a pre-tax reversal of $3.0 million of a previously recorded restructuring accrual. A reconciliation of pro forma operating results and U.S. generally accepted accounting principals (“GAAP”) results is included in the financial statements below.

Bookings in the third quarter were $470.3 million, up 2.8 percent over second quarter 2006 bookings of $457.5 million. Shipments of $414.2 million in the third quarter represent a decrease of $43.1 million or 9.4 percent from $457.3 million reported for the second quarter 2006. Deferred revenue at the end of the third quarter was $148.6 million, a decrease of $29.8 million or 16.7 percent from $178.5 million at the end of the second quarter of 2006.

The financial measures set forth above that present net income excluding certain charges and benefits, revenue on a shipments basis and bookings, are not in accordance with GAAP. The Company believes that these non-GAAP financial measures provide further insight into the results of operations and enhance the comparability of those results to results in prior periods because they assist shareholder understanding of the effects of certain charges and benefits on the quarter’s results.

Cash, cash equivalents, restricted cash and short-term investments as of September 30, 2006 were $807.6 million, an increase of $136.6 million or 20.3 percent from the second quarter of 2006 ending balance of $671.1 million.

“We are pleased with our continued progress to improve our operational and financial results in the third quarter,” said Richard S. Hill, chairman of the board and CEO. “Our reported Net Profit after Tax in the third quarter has exceeded our target model of 15%, resulting from the initiatives we have taken to strengthen our product portfolio and improve our financial operating model.”

“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 continued progress to improve our operational and financial results and (ii) our initiatives to strengthen our product portfolio and improve our financial operating model, as well as other matters discussed in this news release that are not purely historical data, are forward-looking statements. 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, inaccurate assessment of the performance metrics’ usefulness in understanding the Company’s ongoing operations; quarterly fluctuations in customer demand and the timing and volume of orders and shipments, whether due to economic and geopolitical conditions, competition, pricing pressures, or other factors; inaccurate projections regarding future capacity expansion in the semiconductor industry; unanticipated economic downturns; weakening demand for our products; failure of our products to effectively and timely respond to industry developments and customer demands, and other risks indicated in our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2005, our Quarterly Reports on Form 10-Q for the quarters ended April 1, 2006 and July 1, 2006 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, Calif. with subsidiary offices across the globe. For more information please visitwww.novellus.com

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended									Nine Months Ended
(In thousands, except per share amounts)	September 30			July 1			October 1			September 30			October 1
(Unaudited)	2006			2006			2005			2006			2005
Net sales	$	444,032		$	410,073		$	338,878		$	1,220,011		$	1,008,203
Cost of sales		217,507			205,309			191,684			621,182			549,578
Gross profit		226,525			204,764			147,194			598,829			458,625
%		51.0	%		49.9	%		43.4	%		49.1	%		45.5	%
Operating expenses:
Selling, general and administrative		67,664			66,311			53,365			192,457			155,450
Research and development		60,645			63,298			61,263			187,726			186,823
Restructuring and other charges (benefits)		—			—			3,361			12,629			3,287
Legal settlement		—			—			—			3,250			—
Total operating expenses		128,309			129,609			117,989			396,062			345,560
%		28.9	%		31.6	%		34.8	%		32.5	%		34.3	%
Income from operations		98,216			75,155			29,205			202,767			113,065
%		22.1	%		18.3	%		8.6	%		16.6	%		11.2	%
Other income, net		9,574			7,611			2,405			23,264			9,548
Income before income taxes and cumulative effect of a change in accounting principle		107,790			82,766			31,610			226,031			122,613
Provision for income taxes		37,770			30,061			8,195			79,537			35,496
Income before cumulative effect of a change in accounting principle		70,020			52,705			23,415			146,494			87,117
Cumulative effect of a change in accounting principle, net of tax		—			—			—			948			—
Net income	$	70,020		$	52,705		$	23,415		$	147,442		$	87,117
Net income per share:
Basic
Income before cumulative effect of a change in accounting principle	$	0.57		$	0.42		$	0.17		$	1.16		$	0.63
Cumulative effect of a change in accounting principle, net of tax		—			—			—			0.01			—
Basic net income per share	$	0.57		$	0.42		$	0.17		$	1.17		$	0.63
Diluted
Income before cumulative effect of a change in accounting principle	$	0.57		$	0.42		$	0.17		$	1.15		$	0.62
Cumulative effect of a change in accounting principle, net of tax		—			—			—			0.01			—
Diluted net income per share	$	0.57		$	0.42		$	0.17		$	1.16		$	0.62
Shares used in basic per share calculation		122,150			125,124			137,848			126,125			138,602
Shares used in diluted per share calculation		123,357			125,910			138,895			127,177			139,646

NO VELLUS SYSTEMS, INC.
RECONCILIATION OF THE STATEMENTS OF OPERATIONS
(EXCLUDING CERTAIN CHARGES AND BENEFITS)⁽¹⁾

	Three Months Ended							Nine Months Ended
(In thousands, except per share amounts)	September 30		July 1		October 1			September 30			October 1
(Unaudited)	2006		2006		2005			2006			2005
Net income excluding certain charges and benefits	$	70,020	$	52,705	$	28,686		$	156,260		$	92,336
Charges and benefits:
Cumulative effect of a change in accounting principle		—		—		—			1,542			—
Restructuring and other charges benefits		—		—		(3,361	)		(12,629	)		(3,287	)
Inventory write-down		—		—		(5,250	)		—			(5,250	)
Legal settlement		—		—		—			(3,250	)		—
Total charges and benefits		—		—		(8,611	)		(14,337	)		(8,537	)
Adjustments on provision for income taxes		—		—		3,340			5,519			3,318
Net income	$	70,020	$	52,705	$	23,415		$	147,442		$	87,117
Net income per diluted share excluding certain charges and benefits	$	0.57	$	0.42	$	0.21		$	1.23		$	0.66
Charges and benefits:
Cumulative effect of a change in accounting principle		—		—		—			0.01			—
Restructuring and other charges benefits		—		—		(0.02	)		(0.10	)		(0.02	)
Inventory write-down		—		—		(0.04	)		—			(0.04	)
Legal settlement		—		—		—			(0.03	)		—
Adjustments on provision for income taxes		—		—		0.02			0.05			0.02
Net income per diluted share	$	0.57	$	0.42	$	0.17		$	1.16		$	0.62

(1) The reconciliation of the statements of operations (excluding certain charges and benefits) are intended to present our operating results, excluding certain charges, benefits and related adjustments on provisions for income taxes. The reconciliation of the statements of operations are not in accordance with or an alternative for U.S. generally accepted accounting principles and may be different from similar measures by other companies.

NOVELLUS SYSTEMS, INC.
SCHEDULE OF SHARE-BASED COMPENSATION

(In thousands)	Three Months Ended						Nine Months Ended
	September 30		July 1		October 1		September 30		October 1
(Unaudited)	2006		2006		2005		2006		2005
	(1)		( 3 )		(2)		(1)		( 2 )
Cost of sales	$	400	$	538	$	76	$	1,246	$	472
Selling, general and administrative		5,516		5,590		225		16,545		1,390
Research and development		2,741		2,664		136		8,466		837
Total share-based compensation expenses		8,657		8,792		437		26,257		2,699
Benefit from income taxes		3,333		3,385		168		10,109		1,039
Net share-based compensation expenses	$	5,324	$	5,407	$	269	$	16,148	$	1,660

(1)	Amounts include amortization expense related to stock options of $6.3 million and $19.2 million, employee stock purchase plan of $0.5 million and $1.7 million, and restricted stock awards of $1.7 million and $5.2 million for the three and nine months ended September 30, 2006, respectively.
(2)	Amounts include amortization expense related to restricted stock awards of $0.4 million and $2.7 million for the three and nine months ended October 1, 2005, respectively.
(3)	Amounts include amortization expense related to stock options of $6.5 million, employee stock purchase plan of $0.6 million, and restricted stock awards of $1.7 million.

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2006		2005
(In thousands)	(Unaudited)		*
ASSETS
Current assets:
Cash and short-term investments	$	662,788	$	649,240
Accounts receivable, net		410,512		397,534
Inventories		198,425		193,787
Deferred taxes and other current assets		127,520		122,951
Total current assets		1,399,245		1,363,512
Property and equipment, net		369,839		423,749
Restricted cash		144,857		140,212
Goodwill		259,838		255,584
Intangible and other assets		112,326		107,192
Total assets	$	2,286,105	$	2,290,249
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	268,099	$	253,984
Deferred profit		74,506		68,718
Income taxes payable		7,417		5,898
Current obligations under lines of credit		24,681		15,744
Total current liabilities		374,703		344,344
Long-term debt		127,010		124,858
Other liabilities		43,469		41,764
Total liabilities		545,182		510,966
Shareholders’ equity:
Common stock		1,341,580		1,393,805
Retained earnings and accumulated other comprehensive income		399,343		385,478
Total shareholders’ equity		1,740,923		1,779,283
Total liabilities and shareholders’ equity	$	2,286,105	$	2,290,249

* The December 31, 2005 condensed consolidated balance sheet was derived from our audited consolidated financial statements.