<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment #1 to Current Report
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 7, 1997
NOVELLUS SYSTEMS, INC.
-------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA
---------------------------------------
(State or Other Jurisdiction of Incorporation)
000-1757 77-0024666
------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
3970 North First Street, San Jose, CA 95134
----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(408) 943-9700
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
INFORMATION TO BE INCLUDED IN REPORT
This Form 8-K/A amends Item 7 of that certain Form 8-K filed with the
Securities and Exchange Commission on July 7, 1997 (the "Original Form 8-K") by
including the financial information referred to below.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The audited financial statements of the Thin Film Systems Business of
Varian Associates, Inc. as of and for the year ended September 27,
1996. The unaudited financial statements of the Thin Film Systems
Business of Varian Associates, Inc. for the six months ended March 28,
1997.
(b) Pro Forma Financial Information
The unaudited pro forma financial information of Novellus Systems, Inc.
and the Thin Film Systems Business of Varian Associates, Inc.
(c) Exhibits
The Exhibit Index appearing on page 24 is incorporated herein by
reference.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVELLUS SYSTEMS, INC.
By: /s/ ROBERT H. SMITH
---------------------------------------
Robert H. Smith
Executive Vice President Finance and
Administration, Chief Financial Officer
and Secretary
Dated: September 5, 1997
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Varian Associates, Inc.:
We have audited the accompanying balance sheet of the Thin Film Systems Business
of Varian Associates, Inc. as of September 27, 1996 and the related statements
of operations, business equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Business' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Thin Film Systems Business
of Varian Associates, Inc. as of September 27, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
August 27, 1997
<PAGE> 5
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 28, September 27,
1997 1996
------------- -------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Accounts receivable - trade $ 24,304 $ 40,526
Inventories 43,861 50,163
Other current assets 2,785 694
------------- -------------
Total current assets 70,950 91,383
Property, plant, and equipment, net 18,752 19,161
Other assets 644 467
------------- -------------
Total assets $ 90,346 $ 111,011
============= =============
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable - trade $ 3,909 $ 5,304
Accrued expenses 23,029 32,072
Advance payments from customers 9,765 6,951
------------- -------------
Total current liabilities 36,703 44,327
Business Equity 53,643 66,684
------------- -------------
Total liabilities and
business equity $ 90,346 $ 111,011
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 28, September 27,
1997 1996
------- --------
(unaudited)
<S> <C> <C>
Sales $81,645 $204,667
------- --------
Operating costs and expenses:
Cost of sales 54,096 126,027
Research and development 12,832 28,385
Marketing 8,959 20,528
General and administrative 7,426 13,817
------- --------
Total operating costs and expenses 83,313 188,757
------- --------
Earnings (loss) before taxes (1,668) 15,910
Provision for (benefit from) income taxes (584) 5,648
------- --------
Net earnings (loss) $(1,084) $ 10,262
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
STATEMENTS OF BUSINESS EQUITY
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
Balance, September 30, 1995 $ 50,892
Net earnings for the year 10,262
Advances from (to) Varian Associates, Inc., net 5,530
----------
Balance, September 27, 1996 66,684
Net loss for the period (unaudited) (1,084)
Advances from (to) Varian Associates, Inc., net (unaudited) (11,957)
----------
Balance, March 28, 1997 (unaudited) $ 53,643
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
March 28, September 27,
1997 1996
------- -------
Cash flows from operating activities: (unaudited)
<S> <C> <C>
Net earnings (loss) $ (1,084) $10,262
Reconciling adjustments:
Loss on disposal of property, plant, and equipment 121 118
Depreciation and amortization 2,668 3,996
Changes in assets and liabilities:
Accounts receivable 16,222 (8,065)
Inventories 6,302 (9,890)
Other assets (2,268) (51)
Accounts payable and accrued expenses (10,438) 7,138
Advance payments from customers 2,814 216
-------- --------
Net cash provided by operating activities 14,337 3,724
-------- --------
Cash flows from investing activities:
Acquisition of property, plant, and equipment (2,380) (9,538)
Proceeds from disposal of property, plant, and equipment -- 284
-------- --------
Net cash used in investing activities (2,380) (9,254)
-------- --------
Cash flows from financing activities:
Advances from (to) Varian Associates, Inc., net (11,957) 5,530
------- -------
Net cash provided by (used in) financing activities (11,957) 5,530
------- -------
Net change in cash and cash equivalents -- --
Cash and cash equivalents, beginning of period -- --
-------- -------
Cash and cash equivalents, end of period $ -- $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Nature of Operations:
Pursuant to the Asset Purchase Agreement dated May 7, 1997, as amended June
20, 1997 (the Agreement), between Varian Associates, Inc. (Varian) and
Novellus Systems, Inc. (Novellus), Varian sold certain net assets of its
Thin Film Systems Business (the Business) to Novellus. Accordingly, the
accompanying financial statements include the assets, liabilities,
revenues, and costs applicable to the Thin Film Systems Business on a
carve-out basis of presentation.
Where it was practicable to identify specifically Varian corporate amounts
with the activities of the Business, such amounts have been charged or
credited directly to the Business without allocation or apportionment.
Costs of a wholly corporate nature (i.e., those costs that are considered
to relate purely to the support of Varian's centralized corporate
structure) have not been allocated. Shared or common costs have been
allocated to the Business on the basis which is considered to reflect most
fairly and reasonably the utilization of the services provided to or the
benefit obtained by the Business. Typical measures and activity indicators
used for apportionment purposes include sales revenue, headcount, and
facility area measurements. These allocations are not necessarily
indicative of the amounts that would have been recorded by the Business on
a stand-alone basis.
The Business develops, manufactures, sells, and services products for
physical vapor deposition and chemical vapor deposition of thin films. The
Business markets its products through direct sales personnel to customers
in the United States, Asia, and Europe.
2. Summary of Significant Accounting Policies:
FISCAL YEAR:
The fiscal year reported of the Thin Film Systems Business is the
52-week period ended September 27, 1996.
PRINCIPLES OF REPORTING:
The financial statements include the accounts of the Thin Film Systems
Business, including its foreign operations. Significant intercompany
balances and transactions within the Business have been eliminated.
Continued
<PAGE> 10
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from
those estimates.
CERTAIN RISKS AND UNCERTAINTIES:
Substantially all of the Business' revenues have been attributable to
sales of physical vapor deposition products and, therefore, any material
decline or prolonged lack of growth in the market demand for physical
vapor deposition products, in general, or the Business' products, in
particular, could have a material adverse effect on the Business or its
prospects. The markets for semiconductor manufacturing equipment, in
general, and physical vapor deposition products, in particular, are
highly competitive. In order to build or retain its market share, the
Business must continue to compete successfully in the areas that
influence the purchasing decisions of semiconductor manufacturing
equipment customers, including design, price, quality, technology,
product efficiency and reliability, distribution, marketing, and
customer service.
The Business does not currently have multiple vendors for all parts,
tooling, supplies, or services critical to the Business' manufacturing
processes. Failure of a key supplier to meet the Business' product needs
on a timely basis, loss of a key supplier, or significant disruption in
the Business' production or distribution activities for any other reason
could have a material adverse effect on the Business or its prospects.
While the Business is currently manufacturing its products primarily in
the United States, the semiconductor industry is, and many of the
Business' customers are, highly dependent on manufacturing in overseas
locations. Changes in economic conditions, currency exchange rates,
tariff regulations, local content laws, or other trade restrictions or
political instability (International Conditions) could adversely affect
the cost or availability of products sold by or to the semiconductor
manufacturing equipment industry as a whole and the Business' customers
in particular, any of which could have a material adverse effect on the
Business or its prospects. In addition, insufficient international
consumer demand for semiconductor manufacturing equipment and related
products, including the Business' products, whether due to changes in
International Conditions, consumer preferences, or other factors, could
have a material adverse effect on the Business or its prospects.
Continued
<PAGE> 11
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
FOREIGN CURRENCY TRANSLATION:
For non-U.S. operations, the U.S. dollar is the functional currency.
Monetary assets and liabilities of foreign operations are translated
into U.S. dollars at current exchange rates. Non-monetary assets are
translated at historical rates. Income and expense items are translated
at effective rates of exchange prevailing during the reporting period,
except that inventories and depreciation charged to operations are
translated at historical rates.
Foreign exchange gains and losses are recorded at the Varian corporate
level and have been allocated to the Business' operations based on its
estimated proportionate share of international sales.
REVENUE RECOGNITION:
Revenue from product sales is generally recognized upon shipment.
Revenue from service contracts is generally recognized ratably during
the service period. The Business accrues for the costs of installation,
warranty, customer accommodation, and other insignificant obligations
upon the recording of revenue.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Business to
concentrations of credit risk consist principally of trade accounts
receivable. Sales are typically made on credit, with terms that vary
depending upon the customer and the nature of the product. The Business
performs ongoing credit evaluations and generally does not require
collateral of its customers. Credit losses have historically been
insignificant. At September 27, 1996, two customers each accounted for
approximately 10% of accounts receivable, and one customer accounted for
approximately 18% of accounts receivable.
INVENTORIES:
Inventories are valued at the lower of cost or market using first-in,
first-out (FIFO) cost. The inventories of the Business include high
technology parts and components that may be specialized in nature or
subject to rapid technological obsolescence. While the Business has
programs to minimize the required inventories on hand and considers
technological obsolescence in estimating the required allowance to
reduce recorded amounts to market values, such estimates could change in
the future.
Continued
<PAGE> 12
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment are stated at cost and are depreciated on
a straight-line basis over estimated useful lives ranging from three to
twenty years. Major improvements are capitalized, while repairs and
maintenance are expensed currently. When assets are retired or otherwise
disposed of, the assets and related accumulated depreciation are removed
from the accounts.
RESEARCH AND DEVELOPMENT:
Business-sponsored research and development costs related to both
present and future products are expensed currently. Costs related to
research and development contracts are included in inventory and charged
to cost of sales upon recognition of related revenue. Total expenditures
on research and development for the fiscal year ended September 27, 1996
were $28,385 thousand, of which $1,066 thousand was funded by customers.
RECENT ACCOUNTING PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS 121), which requires
the Business to review for impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS 121 will become effective for the
Business' 1997 fiscal year. The Business has studied the implications of
this statement, and based on its initial evaluation, does not expect it
to have a material impact on the Business' financial condition or
results of operations.
INTERIM FINANCIAL DATA (UNAUDITED):
The unaudited financial statements for the six months (26 weeks) ended
March 28, 1997 have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of financial position and results of operations and
cash flows in accordance with generally accepted accounting principles.
The results of operations for the six months ended March 28, 1997 are
not necessarily indicative of the results to be expected for a full year
or for any other periods.
Continued
<PAGE> 13
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
INCOME TAXES:
The operating results of the Business are included in consolidated tax
returns filed by Varian. For purposes of these financial statements, the
Business' provision for (benefit from) income taxes and its deferred
income taxes have been prepared on a separate return basis, and all
income tax related balances have been included in business equity in the
accompanying balance sheets. The Business' provision for (benefit from)
income taxes comprises its estimated tax liability currently payable and
the changes in the Business' deferred income taxes. Deferred tax assets
and liabilities are determined based on differences between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the period in which the differences are
expected to affect taxable income. Included in business equity at
September 27, 1996 are a net deferred tax asset of $8,093 thousand and
income taxes payable of $5,664 thousand.
3. Inventories:
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1997 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Raw materials and parts $ 23,797 $ 24,279
Work in progress 12,254 13,544
Finished goods 7,810 12,340
-------------- --------------
$ 43,861 $ 50,163
============== ==============
</TABLE>
Continued
<PAGE> 14
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
4. Property, Plant, and Equipment:
The components of property, plant, and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
September 27,
1996
---------
<S> <C>
Machinery and equipment $ 23,555
Buildings and land improvements 12,775
Office furniture and equipment 5,065
---------
41,395
Accumulated depreciation (22,801)
---------
18,594
Construction in progress 567
---------
$ 19,161
=========
</TABLE>
Depreciation and amortization expense on property, plant, and equipment for
the year ended September 27, 1996 was $3,996 thousand.
5. Accrued Expenses:
The components of accrued expenses are as follows (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1997 1996
-------------- ------------
(unaudited)
<S> <C> <C>
Payroll and employee benefits $ 4,285 $ 5,261
Unearned revenue 1,993 4,003
Product warranty 4,588 4,721
Product retrofit 2,637 2,818
Unfulfilled sales commitments 2,972 3,669
Other 6,554 11,600
-------------- ------------
$ 23,029 $ 32,072
============== ============
</TABLE>
Continued
<PAGE> 15
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
6. Retirement Plans:
The Business participates in defined contribution retirement plans
sponsored by Varian covering substantially all of the Business' domestic
employees. The Business' major obligation is to contribute an amount based
on a percentage of each participant's base pay. The Business also makes a
contribution for its share of Varian's retirement plan profit sharing based
on a percentage of consolidated earnings from continuing operations before
taxes, as adjusted for discretionary items. Participants are entitled, upon
termination or retirement, to their portion of the retirement fund assets,
which are held by a third-party trustee. In addition, a number of the
Business' foreign employees participate in Varian's defined benefit
retirement plans for regular full-time employees. Total pension expense for
all plans for the fiscal year ended September 27, 1996 amounted to $1,974
thousand.
7. Commitments and Contingencies:
The Business is not committed to minimum rentals under any significant
noncancelable operating leases. Rental expense for the fiscal year ended
September 27, 1996 amounted to $180 thousand.
Varian is currently a defendant in a number of legal actions relating to
the Thin Film Systems Business and could incur an uninsured liability in
one or more of them. Under the Agreement, Varian has retained the potential
liability for legal actions pending as of the closing date and relating to
Varian's conduct of the Business prior to the closing date specified in the
Agreement. Accordingly, while the ultimate outcome of these matters is not
determinable, in the opinion of management, the resolution of the above
litigation will not have a material adverse effect on the financial
condition or results of operations of the Business.
Continued
<PAGE> 16
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
7. Commitments and Contingencies, continued:
Varian has been named by the U.S. Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended,
at eight sites where Varian is alleged to have shipped manufacturing waste
for recycling or disposal. Varian is also involved in various stages of
environmental investigation and/or remediation under the direction of, or
in consultation with, federal, state and/or local agencies at certain
current or former Varian facilities. The portion of Varian's environmental
accruals allocated to the Business and included in accrued expenses in the
September 27, 1996 balance sheet is $1.1 million. Under the Agreement,
Varian has retained the potential liability arising out of environmental
conditions relating to the Business existing as of the closing date
specified in the Agreement. Accordingly, based on information currently
available to management and its best assessment of the ultimate amount and
timing of environmental related events, Varian's management believes that
the costs of these environmental related matters are not reasonably likely
to have a material adverse effect on the financial condition or results of
operations of the Business.
8. Industry Segments:
The Business operates in one industry segment: the thin film coating class
of the semiconductor manufacturing equipment industry. Two customers
accounted for approximately 35% and 15% of sales for the year ended
September 27, 1996.
International sales based on final destination of products sold are
$103,961 thousand for the fiscal year ended September 27, 1996.
The Business has foreign operations in Europe and Asia. Information
regarding the Business' geographic segments for the year ended September
27, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Sales to
Unaffiliated Pretax Identifiable
Customers Earnings Assets
------------ ----------- -----------
<S> <C> <C> <C>
United States $ 180,705 $ 13,687 $ 93,410
Europe 16,636 392 7,749
Asia 7,326 1,831 9,852
------------ ----------- ------------
$ 204,667 $ 15,910 $ 111,011
============ =========== ============
</TABLE>
Continued
<PAGE> 17
THIN FILM SYSTEMS BUSINESS
OF VARIAN ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
9. Related Party Transactions:
For the fiscal year ended September 27, 1996, the Business made purchases
of $4,952 thousand from other Varian lines of business.
Business equity comprises intercompany balances arising in the ordinary
course of business between the Business and other Varian entities, together
with operating results of the Business, including various allocations
resulting from the carve-out of the Business as presented in these
financial statements.
Allocations of corporate expenses included in the statement of
operations for the fiscal year ended September 27, 1996 were $6,487
thousand.
<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS (CONTINUED)
(b) Pro Forma Financial Information
On June 20, 1997, Novellus Systems, Inc. (the "Company") completed the
acquisition of the Thin Film Systems business("TFS") of Varian Associates
("Varian"). TFS manufactures and markets equipment for physical vapor deposition
("PVD"), a critical technology in the production of advanced semiconductor logic
and memory devices.
The Unaudited Pro Forma Combined Balance Sheet at March 29, 1997 and the
Pro Forma Condensed Combined Statements of Income for the three months ended
March 29, 1997 and the fiscal year ended December 31, 1996, should be read in
conjunction with the consolidated financial statements of the Company, as
previously filed and the Financial Statements of TFS included herein. Those
financial statements are based on the historical financial statements of the
Company and TFS after giving effect to the acquisition under the purchase method
of accounting and the assumptions and adjustments described in the accompanying
Notes to the Unaudited Pro Forma Combined Balance Sheet and the Condensed
Combined Statements of Income. The pro forma information does not purport to be
indicative of the results which would have been reported if the above
transaction had been in effect for the periods presented or which may result in
the future.
The Unaudited Pro Forma Condensed Combined Statements of Income are presented as
if the operations of the Company and TFS had been combined as of January 1,
1996. The Unaudited Pro Forma Combined Balance Sheet presents the combined
financial position of the Company as of March 29, 1997, with the acquired assets
of TFS as of the acquisition date (June 20, 1997). The Company retained
independent valuation professionals to assist in the determination of the value
to be assigned to the acquired assets, including intangibles and in-process
research and development. The Unaudited Condensed Combined Statement of Income
for the year ended December 31, 1996, gives effect to the combination of the
Company and TFS by combining the results of operations of the Company for the
year ended December 31, 1996 with the results of operations of TFS for the year
ended September 27, 1996. The Unaudited Condensed Combined Statement of Income
for the quarter ended March 29, 1997, gives effect to the combination of the
Company and TFS by combining the results of operations of the Company for the
three months ended March 29, 1997 with the results of operations of TFS for the
three months ended March 28, 1997.
<PAGE> 19
NOVELLUS SYSTEMS, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
Assets March 29, 1997
Pro Forma Pro Forma Pro Forma
Novellus Adjustments Note Combined
--------------------------------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 47,109 $ -- $ 47,109
Short-term investments 136,357 (80,500) (1) 55,857
Accounts receivable, net 129,108 14,016 (2) 143,124
Inventories 57,507 22,862 (2) 80,369
Prepaids and other current assets 22,046 421 (2) 22,467
---------------------- ---------
Total current assets 392,127 (43,201) 348,926
Net property, equipment, and leasehold
improvements 67,394 18,498 (2) 85,892
Other assets 18,488 35,951 (2),(3) 54,439
---------------------- ---------
Total assets 478,009 11,248 489,257
====================== =========
Liabilities and Stockholders' Equity
Current liabilities:
Current obligations under lines of
credit 12,220 -- 12,220
Accounts payable 26,230 8,112 (2) 34,342
Accrued payroll and related benefits 10,043 -- 10,043
Accrued warranty 18,938 13,719 (2) 32,657
Other accrued liabilities 14,733 20,410 (1),(2) 35,143
---------------------- ---------
Total current liabilities 82,164 42,241 124,405
Long-term debt -- 65,000 (1) 65,000
Commitments and contingencies
Shareholders' equity:
Common stock 135,764 -- 135,764
Retained earnings 260,591 (95,993) (3) 164,598
Cumulative translation adjustment (510) -- (510)
---------------------- ---------
Total stockholders' equity 395,845 (95,993) 299,852
---------------------- ---------
Total liabilities and stockholders'
equity $ 478,009 $ 11,248 $ 489,257
====================== =========
</TABLE>
See Notes To The Pro Forma Financial Statements
<PAGE> 20
NOVELLUS SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Novellus TFS Adjustments Note Combined
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 461,736 $ 204,667 $ -- $666,403
Cost of Sales 197,162 126,027 1,005 (4),(5) 324,194
--------- --------- --------- --------
Gross profit 264,574 78,640 (1,005) 342,209
Operating expenses
Research and development 53,902 28,385 (703) (5) 81,584
Selling, general and administrative 74,419 34,345 (6,788) (5),(6) 101,976
--------- --------- --------- --------
Total operating expenses 128,321 62,730 (7,491) 183,560
Operating income (loss) 136,253 15,910 6,486 158,649
Interest income (expense), net 8,407 0 (8,575) (7) (168)
--------- --------- --------- --------
Income (loss) before income taxes 144,660 15,910 (2,089) 158,481
Provision (benefit) for income taxes 50,631 5,648 (811) (8) 55,468
--------- --------- --------- --------
Net income (loss) $ 94,029 $ 10,262 $ (1,278) $103,013
========= ========= ======== ========
Net income (loss) per share $ 5.70 $ 6.24
========= ========
Shares used in per share calculations 16,509 16,509
========= ========
</TABLE>
See Notes To The Pro Forma Financial Statements
<PAGE> 21
NOVELLUS SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 29, 1997
Novellus TFS Adjustments Note Combined
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 101,628 $ 35,357 $ -- $ 136,985
Cost of Sales 45,732 23,427 251 (4),(5) 69,410
---------------------------------- ---------
Gross profit 55,896 11,930 (251) 67,575
Operating expenses
Research and development 16,842 5,557 (176) (5) 22,223
Selling, general and administrative 17,531 7,096 (1,195) (5),(6) 23,432
---------------------------------- ---------
Total operating expenses 34,373 12,653 (1,371) 45,655
Operating income expense (loss) 21,523 (723) 1,120 21,920
Interest income, net 2,133 -- (2,144) (7) (11)
---------------------------------- ---------
Income (loss) before income taxes 23,656 (723) (1,024) 21,909
Provision (benefit) for income taxes 8,043 (254) (340) (8) 7,449
---------------------------------- ---------
Net income (loss) $ 15,613 ($469) ($684) $ 14,460
================================== =========
Net income per share $ 0.91 $ 0.84
========= =========
Shares used in per share calculations 17,137 17,137
========= =========
</TABLE>
See Notes To The Pro Forma Financial Statements
<PAGE> 22
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Note (A) The Acquisition of TFS
The total purchase price is approximately $148.3 million and consists of the
following:
<TABLE>
(In thousands)
<S> <C>
Cash paid to Varian $145,500
Related acquisition expenses 2,825
--------
Total purchase price $148,325
========
</TABLE>
The preliminary allocation of the purchase price based on the fair value of net
assets acquired is as follows:
(In thousands)
<TABLE>
<S> <C>
Current assets acquired $ 37,299
Property, plant and equipment 18,498
Intangibles, primarily developed technology 12,698
Current liabilities assumed (39,416)
Acquired in-process research & development 119,246
---------
Total purchase price $ 148,325
=========
</TABLE>
The purchase price allocation is preliminary and is dependent on the Company's
completion of the opening balance sheet audit of TFS.
Note (B) Pro Forma Adjustments
The pro forma adjustments to account for the purchase of the assets are
referenced below.
(1) Cash payments, (funded $80.5 million from the Company's short-term
investments and $65 million from Long-term debt) and related acquisition
expenses, as described in Note (A) above.
(2) Fair value of the assets acquired, as of June 20, 1997, the date of
acquisition, as described in Note (A) above.
(3) Write off of the in-process technology, net of tax effect to retained
earnings. Since the amount is a non-recurring charge, it has not been
included as a pro forma adjustment to the Pro Forma Condensed Combined
Statements of Income for the year ended December 31, 1996, and for the
three months ended March 29, 1997.
<PAGE> 23
(4) Adjustment for the amortization of (i) the assembled workforce over 3 years
and (ii) of the developed technology, which the Company will amortize over
7 years. The adjustment assumes the acquisition took place on January 1,
1996, based upon an independent valuation.
(5) Adjustment to reflect the depreciation that would have been recorded if the
transaction had occurred on January 1, 1996, assuming current fair values,
which were lower than the historical net book value.
(6) Varian Associates and its subsidiaries' corporate staff performed work for
TFS. Corporate administrative expense incurred was invoiced on a monthly
basis. The invoice represented the estimated cost of services performed
based primarily on estimated hours spent by corporate employees.
Accordingly, Selling, General and Administration expenses have been reduced
by these corporate administrative charges which amounted to $1.1 million
and $6.5 million, for the three months ended March 29, 1997, and the year
ended December 31, 1996, respectively. It is not anticipated that
additional material corporate expenses will be incurred by Novellus in
relation to the TFS business.
(7) Interest income has been reduced in the Pro Forma Condensed Combined
Statements of Income to reflect the reduced cash balances that would have
been available to invest had the transaction occurred at the beginning of
the period in question combined with the interest expense associated with
the long-term debt used to finance the acquisition. These reductions were
$2.1 million, and $8.6 million for the three months ended March 29, 1997,
and the year ended December 31, 1996, respectively.
(8) The results of the adjusted Pro Forma Condensed Combined Statements of
Income for the Company and TFS has been adjusted to reflect the Company's
effective tax rate for each of the respective periods.
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
<S> <C> <C>
2.1 Asset Purchase Agreement by and between
Varian Associates, Inc. and Novellus
Systems, Inc.*
2.2 First Amendment to Asset Purchase
Agreement by and between Varian
Associates, Inc. and Novellus Systems,
Inc.*
2.3 Assignment and Assumption of Lessee's
Interest in Lease (Units 8 and 9, Palo
Alto) and Covenants, Conditions and
Restrictions on Leasehold Interests
(Units 1-12, Palo Alto)*
2.4 Sublease (Portion of Unit 9, Palo Alto)*
2.5 Shared Use Agreement*
2.6 Environmental Agreement*
2.7 Cross-License Agreement between Varian
Associates, Inc. and Novellus Systems,
Inc.*
2.8 Parts Supply Agreement*
</TABLE>
- ----------
* Incorporated herein by reference to the Company's Form 8-K filed on
July 7, 1997.
