<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from _______ to _______
Commission File Number
0-17157
Novellus Systems, Inc.
(Exact name of Registrant as specified in its charter)
California 77-0024666
(State or other jurisdiction (I.R.S. Employer
of incorporation of Identification
organization) Number)
4000 North First Street
San Jose, California
(Address of principal 95134
executive offices) (Zip Code)
Registrant's telephone number, including area code:
(408) 943-9700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of October 29, 1999 39,105,864 shares of the Registrant's common stock, no
par value, were issued and outstanding.
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NOVELLUS SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 25, 1999
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I: Financial Information
Item 1: Condensed Consolidated Financial Statements Page
Condensed Consolidated Balance Sheets at
September 25, 1999 and December 31, 1998. 3
Condensed Consolidated Statements of Income
for the three and nine months ended September 25,
1999 and September 26, 1998. 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 25, 1999
and September 26, 1998. 5
Notes to Condensed Consolidated Financial
Statements. 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 9
Item 3: Quantitative and Qualitative Disclosure About
Market Risks. 15
Part II: Other Information
Item 1: Legal Proceedings 16
Item 6: Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
- -------------------------------------------------------------------------------------
September 25, December 31,
1999 1998 (1)
Assets (unaudited)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 112,624 $ 81,224
Short-term investments 241,595 49,594
Accounts receivable, net 184,554 173,364
Inventories 93,849 69,223
Deferred income taxes 18,932 21,003
Prepaid and other current assets 10,062 4,687
-------------------------
Total current assets 661,616 399,095
Property and equipment:
Machinery and equipment 132,149 113,268
Furniture and fixtures 9,758 8,295
Leasehold improvements 53,776 52,237
-------------------------
195,683 173,800
Less accumulated depreciation and amortization 88,944 68,221
-------------------------
106,739 105,579
Deferred income taxes 15,125 17,516
Other assets 49,005 29,749
-------------------------
Total Assets $ 832,485 $ 551,939
=========================
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 53,370 $ 30,966
Accrued payroll and related expenses 16,615 13,138
Accrued warranty 18,825 25,872
Other accrued liabilities 20,788 23,720
Income taxes payable 9,342 4,792
Current obligations under lines of credit 13,213 12,986
-------------------------
Total current liabilities 132,153 111,474
Long-term debt -- 65,000
Commitments and contingencies
Shareholders' equity:
Common stock 455,651 176,140
Retained earnings 245,168 201,581
Accumulated other comprehensive income (487) (2,256)
-------------------------
Total shareholders' equity 700,332 375,465
-------------------------
Total Liabilities and Shareholders' Equity $ 832,485 $ 551,939
=========================
</TABLE>
(1) Derived from the December 31, 1998 audited financial statements. See
accompanying notes.
3
<PAGE> 4
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ -------------------
(in thousands, except per share data) Three Months Ended Nine Months Ended
(unaudited) Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
- ------------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C>
Net sales $154,916 $106,704 $401,025 $412,761
Cost of sales 71,195 50,622 186,588 188,182
-------------------- -------------------
Gross profit 83,721 56,082 214,437 224,579
Operating expenses
Selling, general and administrative 24,549 21,478 71,148 74,577
Research and development 30,567 23,392 87,020 83,047
-------------------- -------------------
Total operating expenses 55,116 44,870 158,168 157,624
-------------------- -------------------
Operating income 28,605 11,212 56,269 66,955
Interest income, net 3,892 342 8,801 759
-------------------- -------------------
Income before income taxes 32,497 11,554 65,070 67,714
Provision for income taxes 10,724 3,931 21,473 23,025
-------------------- -------------------
Net income $21,773 $7,623 $43,597 $44,689
==================== ===================
Basic net income per share $0.56 $0.22 $1.15 $1.32
==================== ===================
Diluted net income per share $0.54 $0.22 $1.10 $1.28
==================== ===================
Shares used in basic calculation 38,941 34,095 37,898 33,948
==================== ===================
Shares used in diluted calculation 40,646 34,659 39,568 34,854
==================== ===================
</TABLE>
See accompanying notes.
4
<PAGE> 5
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(in thousands) Nine Months Ended
(unaudited) Sept. 25, Sept. 26,
1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 43,597 $ 44,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 4,462 (398)
Depreciation and amortization 21,813 17,166
Changes in operating assets and liabilities:
Accounts receivable (11,190) (25,038)
Inventories (23,741) (111)
Prepaid and other current assets (5,375) 6,657
Accounts payable 22,404 4,336
Accrued payroll and related expenses 3,477 (11,474)
Accrued warranty (7,047) (7,406)
Other accrued liabilities (2,932) (6,821)
Income taxes payable 10,867 19,422
------------------------
Total adjustments 12,738 (3,667)
------------------------
Net cash provided by operating activities 56,335 41,022
------------------------
Cash flows from investing activities:
Maturities and sales (purchases) of available-for-sale
debt securities, net (192,001) (5,713)
Capital expenditures (21,939) (28,840)
Increase in other assets (19,405) (8,834)
------------------------
Net cash used for investing activities (233,345) (43,387)
------------------------
Cash flows from financing activities:
Payments on lines of credit, net 227 (334)
Repayment on long-term debt (65,000) --
Repurchase of common stock (11) (161)
Proceeds from sale of common stock 273,194 10,352
------------------------
Net cash provided by financing activities 208,410 9,857
------------------------
Net increase in cash and cash equivalents 31,400 7,492
Cash and cash equivalents at the beginning of the period 81,224 59,265
------------------------
Cash and cash equivalents at the end of the period $ 112,624 $ 66,757
========================
Supplemental Disclosures Cash paid during the period for:
Interest $ 1,461 $ 3,493
Income taxes $ 999 $ 500
Other noncash charges:
Income tax benefits from employee stock plans $ 6,318 $ 1,087
</TABLE>
See accompanying notes.
5
<PAGE> 6
NOVELLUS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended
September 25, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Sept. 25, 1999 Dec. 31, 1998
- ----------------------------------------------------------------
<S> <C> <C>
Purchased parts $66,770 $50,591
Work-in-process 22,166 13,005
Finished goods 4,913 5,627
-------- ---------
$93,849 $69,223
======== =========
</TABLE>
3. LINES OF CREDIT
The Company has lines of credit with two banks, which expire at various dates
through November 1999 under which the Company can borrow up to $13.2 million at
the banks' prime rate. This facility is available to the Company's Japanese
subsidiary, Nippon Novellus Systems K.K. Borrowings by the subsidiary are at the
banks' offshore reference rate. At September 25, 1999 and December 31, 1998, the
amounts outstanding were $13.2 million and $13.0 million, respectively, at
annual weighted average interest rates of 1.09% and 1.52%, respectively. All
borrowings outstanding under the line of credit were by Nippon Novellus K.K.
4. EARNINGS PER SHARE
In accordance with Statement on Financial Accounting Standards No. 128,
"Earnings per Share," basic earnings per common share is computed based on
weighted average common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average common and dilutive common
equivalent shares outstanding during the period. Stock options are considered
common stock equivalents and are included in the weighted average shares
computation using the treasury stock method.
6
<PAGE> 7
NOVELLUS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
---------------------- ---------------------
Three Months Ended Nine Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
---------------------- ---------------------
<S> <C> <C> <C> <C>
Numerator:
Net income $21,773 $ 7,623 $43,597 $44,689
Denominator:
Denominator for basic earnings per
share-weighted-average shares
outstanding 38,941 34,095 37,898 33,948
Employee stock options 1,705 564 1,670 906
---------------------- ---------------------
Denominator for diluted earnings per
share-adjusted weighted-average shares
outstanding 40,646 34,659 39,568 34,854
====================== =====================
Basic earnings per share $ 0.56 $ 0.22 $ 1.15 $ 1.32
====================== =====================
Diluted earnings per share $ 0.54 $ 0.22 $ 1.10 $ 1.28
====================== =====================
</TABLE>
5. LONG-TERM DEBT
In June 1997, the Company entered into a five year $125 million Senior Credit
Facility structured as an unsecured revolving credit line. The credit line
expires in June 2002. Borrowings, at the option of the Company, bear interest at
either a base rate plus a margin or the London Interbank Offering Rate ("LIBOR")
plus a margin for interest periods of one to six months. As of September 25,
1999, borrowings of $65 million under the revolving line of credit, which were
outstanding at December 31, 1998, were repaid.
The credit facility contains certain restrictive financial covenants. At
September 25, 1999, the Company was in compliance with these covenants.
6. COMMITMENTS
The Company has lease agreements on twelve properties. The agreements are for
five years each with the option to extend for an additional two years at an
interest rate that approximates LIBOR. The lease terms expire at various dates
beginning on June 2002 through August 2003. At current interest rates the annual
lease payments total approximately $15.8 million. During the term of the leases,
the Company may elect to purchase the properties for an amount that approximates
the lessor's cost of the property and any current rent due and payable. The
guaranteed residual amount under the lease agreement is approximately $219.9
million.
These leases contain certain restrictive financial covenants. At September 25,
1999, the Company was in compliance with these covenants.
7
<PAGE> 8
NOVELLUS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
7. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Statement on Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires unrealized gains
or losses on the Company's available-for-sale securities and foreign currency
translation adjustments to be included in other comprehensive income. Prior to
adoption, unrealized gains or losses related to foreign currency translation
adjustments were reported as a separate component of shareholders' equity.
The following are the components of comprehensive income:
<TABLE>
<CAPTION>
---------------------- -----------------------
Three Months Ended Nine Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
---------------------- -----------------------
<S> <C> <C> <C> <C>
Net income $21,773 $ 7,623 $43,597 $ 44,689
Foreign currency translation
adjustment 1,999 (410) 1,769 (975)
---------------------- -----------------------
Comprehensive income $23,772 7,213 $45,366 $ 43,714
====================== =======================
</TABLE>
The component of accumulated other comprehensive income (loss), net of related
tax is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Sept. 25, 1999 Dec. 31, 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustment $(487) $(2,256)
===== =======
</TABLE>
8. LITIGATION
See Part II, Item - Legal Proceedings
8
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three and nine months ended September 25, 1999 were $154.9
million and $401.0 million respectively, compared with $130.9 million for the
immediately preceding quarter. Net sales for the three and nine months ended
September 25, 1999 were $106.7 million and $412.8 million, respectively. The
increase in net sales from the same quarter in the previous year and immediately
preceding quarter reflect the strengthening of the semiconductor industry as it
appears to be in the early stages of a broad-based recovery. The increase in net
sales is attributable to both capacity and technology purchases. Consistent with
the current industry environment, bookings for the third quarter of 1999
exceeded a one to one book-to-bill ratio. The Company anticipates sequential
revenue growth and the book-to-bill ratio to exceed one to one in the fourth
quarter of 1999.
International net sales (including export sales) for the three and nine months
ended September 25, 1999, were 62.0% and 64.4%, respectively, as a percentage of
total net sales, which compares to the same periods in the prior year of 48.5%
and 51.8%, respectively, and 70.7% for the immediately preceding quarter. The
increase from the same periods in the previous year relates to higher net sales
in Europe, Korea and the Pacific Rim.
Gross profit as a percentage of net sales for the three and nine months ended
September 25, 1999 were 54.0% and 53.5%, respectively, compared with 52.6% and
54.4% for the comparable year-ago periods and 53.2% for the immediately
preceding quarter. The increase in gross profit during the third quarter, as
compared to the preceding quarter and year-ago period, was due mainly to
increased shipments and richer product mix. The increased shipment volume
resulted in higher absorption of fixed manufacturing overhead costs.
Selling, general, and administrative expenses for the three and nine months
ended September 25, 1999 were $24.5 million and $71.1 million, respectively,
compared with $21.5 million and $74.6 million, respectively, in the comparable
year-ago periods, and $24.7 million in the immediately preceding quarter.
Selling, general, and administrative expenses as a percentage of net sales for
the three and nine months ended September 25, 1999 were 15.8% and 17.7%,
respectively, compared with 20.1% and 18.1%, respectively, for the comparable
year-ago periods, and 18.9% for the immediately preceding quarter. The decrease
in selling, general, and administrative expenses as a percentage of net sales
from the comparable year-ago periods and immediately preceding quarter are due
to the Company's ongoing efforts to control and minimize selling, general and
administrative costs.
Research and development expenses for the three and nine months ended September
25, 1999 were $30.6 million and $87.0 million, respectively, compared with $23.4
million and $83.0 million for the comparable year-ago periods and $29.9 million
for the immediately preceding quarter. Research and development expenses as a
percentage of net sales for the three and nine months ended September 25, 1999
were 19.7% and 21.7%, respectively, compared with 21.9% and 20.1% for the
comparable year-ago periods, and 22.9% for the immediately preceding quarter.
The increases in research and development expenses in absolute dollars from the
comparable and immediately preceding quarter reflects the Company's continued
commitment to the development of new products, including additional Concept Two
modules, advanced PVD systems, advanced "gap fill" technology, primary conductor
metals, low K dielectric materials and additional advanced technologies for the
next generation of smaller geometry fabrication lines, as well as equipment to
process 300mm
9
<PAGE> 10
wafers. However, as the Company continues to experience growth in net sales,
research and development expenses as a percentage of revenues have declined
compared to the immediately preceding and year-ago quarter.
Net interest income for the three and nine months ended September 25, 1999 was
$3.9 million and $8.8 million, respectively, compared with $342,000 and
$759,000, respectively, for the comparable year-ago periods, and $3.6 million
for the immediately preceding quarter. The increase in net interest income
compared with the comparable year-ago periods is primarily due to increased
average cash and short-term investment balances over the past year. In February
1999, the Company completed a secondary public offering of 3.86 million shares
of common stock, resulting in net proceeds to the Company of $255.3 million. In
addition, long-term borrowings of $65 million were repaid subsequent to the
stock offering, which resulted in a reduction of interest expense.
The Company's effective tax rate for the three and nine months ended September
25, 1999 was 33% compared with 34% for the comparable year-ago periods. The
decrease in the effective tax rate from the comparable year-ago periods is due
to reduced state taxes and increased benefit from the foreign sales corporation
for 1999.
Deferred tax assets were $48.1 million and $49.2 million net of valuation
allowances of $14.6 million and $16.9 million at September 25, 1999 and December
31, 1998, respectively. The Company believes that it is more likely than not
that these assets will be realized by an offset against the recognized tax
liability of $14.0 million and $11.1 million at September 25, 1999 and December
31, 1998, respectively, and by future taxable income.
Net income for the three and nine months ended September 25, 1999 was $21.8
million and $43.6 million or $0.54 and $1.10 per share, respectively, compared
with net income of $7.6 million and $44.7 million or $0.22 and $1.28 per share
for the comparable year-ago periods, and net income of $12.4 million or $0.31
per share for the immediately preceding quarter.
The number of shares used in the per share calculations for the three and nine
months ended September 25, 1999 was 40.6 million and 39.6 million, respectively,
compared with 34.7 million and 34.9 million for the comparable year-ago periods
and 40.3 million for the immediately preceding period. The increase in shares
used compared to the comparable year-ago periods is primarily due to an
increased number of common stock outstanding resulting from the common stock
offering of 3.86 million shares in February 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital resources
through cash flow from operations, sales of equity securities and borrowings.
The Company's primary sources of funds at September 25, 1999 consisted of $354.2
million of cash, cash equivalents and short-term investments. This amount
represents an increase of $223.4 million from the December 31, 1998 balance of
$130.8 million. During the first quarter of 1999, the Company completed a
secondary public offering of 3.86 million shares of common stock that resulted
in net proceeds to the Company of $255.3 million. During the second quarter of
1997, the Company entered into a five year $125 million Senior Credit Facility
structured as an unsecured revolving credit line. The borrowings, at the option
of the Company, bear interest at either a base rate plus a margin or LIBOR plus
a margin for interest periods of one to six months. During March 1999, total
borrowings of $65 million under the Senior Credit Facility were repaid. The
Senior Credit Facility requires the Company to be in compliance with certain
financial covenants. At September 25, 1999, the Company was in compliance with
these financial covenants. In addition, at September 25, 1999, there was $13.7
million available under bank lines of credit that expire at various dates
through November 1999. At September 25,
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<PAGE> 11
1999, approximately $13.2 million was outstanding under these bank lines of
credit, which bear interest at the banks' prime lending rates or offshore
reference rates.
During the nine months ended September 25, 1999, the Company's cash and cash
equivalents increased $31.4 million to $112.6 million from $81.2 million at
December 31, 1998. Net cash provided by operating activities during the first
nine months of 1999 was $56.3 million, due primarily to net income of $43.6
million, non-cash depreciation and amortization charges of $21.8 million, and
increases in accounts payable and income taxes payable of $22.4 million and
$10.9 million, respectively. These amounts were partially offset by increases in
inventories and accounts receivable of $11.2 million and $23.7 million,
respectively and a decrease in accrued warranty of $7.0 million. The increases
in inventories and accounts receivable were the result of increasing net sales
volume, coupled with additions to spare parts inventory to support new sites,
new systems at existing sites and new products in the Company's growing
installed base.
Net cash flows used for investing activities were $233.3 million during the
first nine months of 1999. During this period, the Company had net purchases of
$192.0 million of available-for-sale debt securities. In addition, the Company
had capital expenditures of $21.9 million and an increase in other assets of
$19.4 million. During July 1999, the Company acquired certain assets,
technology, and contract obligations from Fairchild Technologies USA, Inc. for
$7.6 million. The purchase price consisted of $1.1 million of assets and $6.5
million of acquired technology. The $6.5 million of acquired technology was
capitalized as an intangible asset in July 1999.
During the first nine months of 1999, net cash provided by financing activities
was $208.4 million due primarily to $273.2 million of proceeds from the sale of
common stock, the exercise of employee stock options, and the purchase of common
stock under the Company's employee stock purchase plan. Of this total, $255.3
million resulted from the secondary public offering of 3.86 million shares of
common stock in February 1999. These amounts were partially offset by a decrease
in long-term debt of $65.0 million, which was repaid from the proceeds of the
common stock offering during the first three months of 1999.
The Company expects investments in property and equipment in the current fiscal
year to approximate $42.0 million of which $21.9 million has been incurred as of
September 25, 1999. The Company intends to finance these investments from
existing cash balances and cash flows from operations.
The Company believes that its current cash position and cash generated through
operations, if any, will be sufficient to meet the Company's needs through at
least the next twelve months.
Year 2000
The Company is aware of the issues associated with the operation of information
technology ("IT") and non-information technology ("Non-IT") systems as the
millennium (year 2000) approaches. The "Year 2000" problem is pervasive and
complex, with the possibility to affect many IT and Non-IT systems, as the
result of the rollover of the two digit year value from "99" to "00". The
concern is whether such systems will properly recognize data sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or fail. In addition to
the Company's own systems, the Company relies, directly and indirectly, on
external systems of its customers, suppliers, creditors, financial
organizations, utilities providers and governmental entities, both domestic and
internationally (collectively, "Third Parties"). Consequently, the Company could
be affected through disruptions in the operations of the Third Parties with
which the Company interacts. Furthermore, the purchasing
11
<PAGE> 12
frequency and volume of customers or potential customers may be affected by Year
2000 issues as companies expend significant resources to make their current
systems Year 2000 ready.
The Company is utilizing both internal and external resources to address (a) the
Company's state of readiness (including the readiness of Third Parties, with
which the Company interacts) with respect to the Year 2000 problem, (b) the
costs to the Company to address Year 2000 issues related to internal IT and
Non-IT systems, which, if uncorrected, could have a material adverse effect on
the business, financial condition or results of operations of the Company, (c)
the known risks related to the consequences of any failure to correct any Year
2000 problems identified by the Company, and (d) what contingency plans, if any,
should be adopted by the Company should any identified Year 2000 problems not be
corrected.
State of Readiness.
The following discussion broadly addresses the Company's efforts to identify and
address the Company's and applicable Third Parties' Year 2000 problems with
respect to (a) the Company's products, (b) the Company's information technology
systems, including facilities and infrastructure, and (c) the Company's
suppliers. However, it would be impracticable for the Company to attempt to
address all Year 2000 problems of Third Parties that have been or may in the
future be identified. Specifically, Year 2000 problems have been or may in the
future be identified with respect to the IT and Non-IT systems of Third Parties
having widespread national and international interactions with persons and
entities generally (for example, certain IT and Non-IT systems of governmental
agencies, utilities and telecommunications, information and financial networks)
that, if uncorrected, could have a material adverse impact on the Company's
business, financial condition or results of operations. Notwithstanding anything
set forth below, the Company is not in a position to address any such Year 2000
problems.
(a) The Company's products.
The Company has completed a Year 2000 evaluation of all of its products
utilizing testing guidelines prepared by SEMATECH, a consortium of
suppliers to the worldwide semiconductor manufacturers that assists its
members with strategic marketing opportunities. It is the Company's plan to
comply with SEMATECH's guidelines for Year 2000. The Company's new products
are designed to be Year 2000 ready. However, some of the Company's older
products will require upgrades for Year 2000 readiness. At this time,
software upgrades have been or will be provided to all Novellus customers
products free of charge. Any hardware needed to achieve Year 2000 on out of
warranty systems will need to be purchased from Novellus. However,
notwithstanding such efforts, any failure of the Company's products to
perform, including system malfunctions due to the onset of Year 2000, could
result in claims against the Company, which could have a material adverse
effect on the Company's business, results of operations or financial
condition. Moreover, the Company's customers could choose to convert to
other Year 2000 ready products in order to avoid such malfunctions, which
could have a material adverse effect on the Company's business, financial
condition or results of operations.
In June of 1997, the Company acquired the Thin Films Systems division of
Varian Associates, Inc. (TFS). During the Company's evaluation of Year 2000
readiness for its products, it was determined that some of the TFS products
acquired from Varian Associates, Inc. are not, and will not be Year 2000
ready prior to December 31, 1999. The Company has undertaken measures to
inform by letter its applicable customers of that fact. The Company
currently anticipates that the failure of such products to be Year 2000
ready will not have a material adverse effect on the Company's business,
results of operations or financial condition.
12
<PAGE> 13
(b) Information technology systems including facilities and infrastructure.
The Company currently uses standard mass-market vendor supplied software on
its desktop systems and laptops. These standard software applications limit
the number of information technology vendors that Novellus must work with
to ensure Year 2000 readiness. Many of these vendors are still implementing
their Year 2000 programs. Novellus maintains maintenance contracts with all
information technology vendors and will implement the Year 2000 ready
versions of hardware and/or software as required when those solutions are
available. Novellus believes that its mass-market vendor supplied software
is Year 2000 ready for all of Novellus' business applications. Novellus
also uses a third party service provider to provide electronic exchange of
data (EDI). Novellus believes the vendor software to be Year 2000 ready,
therefore, we do not believe we face any significant EDI Year 2000 issues.
Novellus believes the Company's hardware for workstations, servers, and
network routers are Year 2000 ready. However, no assurance can be provided
that all such programs will be implemented in a timely manner or that the
failure to so implement such programs will not have a material adverse
effect on the Company's business, results of operations or financial
condition.
The Company has already assessed its Year 2000 risk with respect to
internal building automation systems, electronic security systems, utility
and water systems. Formal queries to landlords, local fire departments,
water and utility providers for the Company's domestic and international
locations were sent in March of 1999. Novellus believes that the Company's
internal building automation systems, electronic security systems, utility
and water systems are or will be Year 2000 ready. However, no assurance can
be provided that all such programs will be implemented in a timely manner
or that the failure to so implement such programs will not have a material
adverse effect on the Company's business, results of operations or
financial condition.
(c) Suppliers.
Novellus has contacted those critical suppliers that could have a material
adverse impact on Novellus' ability to provide uninterrupted service to its
customers should the IT or Non-IT systems of such suppliers have
uncorrected Year 2000 problems.
In March of 1999, these suppliers had documentation with respect to their
Year 2000 readiness on file with Novellus. However, such documentation does
not assure Year 2000 readiness of the IT and Non-IT systems used by such
suppliers, but instead provides only a description of their relevant
systems and the status of efforts, if any, by such suppliers to make such
systems Year 2000 ready. Accordingly, no assurance can be provided that (a)
the IT and Non-IT systems of Company suppliers (including those suppliers
who have provided documentation to the Company regarding their Year 2000
efforts) will be Year 2000 ready, (b) that such documentation accurately
and fully reflects the Year 2000 readiness status of such suppliers'
systems, or (c) that the failure by any such suppliers' systems to be Year
2000 ready will not have a material adverse effect on the Company's
business, results of operations or financial condition.
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<PAGE> 14
Costs to Address Year 2000 Issues.
The Company currently expects to incur total software, hardware and
systems-related costs of approximately $1.7 million in connection with
remediations of Year 2000 readiness issues. Of the estimated total costs,
approximately $1.6 million has been incurred to date. There can be no assurance
that the cost estimates associated with the Company's Year 2000 issues will
prove to be accurate or that the actual costs will not have a material adverse
effect on the Company's business, results of operations or financial condition.
Known Risks.
The Company currently anticipates that any identified Year 2000 problem
affecting its own systems or that of its significant customers, suppliers,
creditors, financial organizations and utilities providers will be either
corrected by December 31, 1999 or will not have a material adverse affect on the
Company's business, financial condition or results of operations. Moreover, the
Company is working to minimize any disruption to the business of its vendors and
suppliers due to Year 2000 problems that may have a material adverse affect on
the Company's business, financial condition or results of its operations.
However, notwithstanding the Company's efforts to identify and correct such Year
2000 problems, there can be no assurance that the Company will be successful in
addressing the year 2000 problems as they pertain to its products and its
internal systems, and that the failure to do so would not have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, notwithstanding such efforts, there can be no assurance
that the systems of third parties with which the Company interacts will not
suffer from Year 2000 problems, or that such problems would not have a material
adverse effect on the Company's business, financial condition or results of
operations. In particular, Year 2000 problems that have been or may in the
future be identified with respect to the IT and Non-IT systems of third parties
having widespread national and international interactions with persons and
entities generally (for example, certain IT and Non-IT Systems of governmental
agencies, utilities and information and financial networks) could have a
material adverse impact on the Company's business, results of operations or
financial condition.
Contingency Plans.
The Company has reviewed its Year 2000 readiness plans to determine what
contingency plans are appropriate. The Company will initiate a support team, as
required, to maintain operations during the Year 2000 rollover date. The Company
has substantially completed the preparations for the support team. There can be
no assurance that such measures will prevent the occurrence of Year 2000
problems, which could have a material adverse effect upon the Company's
business, results of operations or financial condition.
EURO CONVERSION
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and adopted
the Euro as their new common legal currency. As of that date, the Euro traded on
currency exchanges and the legacy currencies remain legal tender in the
participating countries for a transition period between January 1, 1999 and
January 1, 2002. During the transition period, noncash payments can be made in
the Euro, and parties can elect to pay for goods and services and transact
business using either the Euro or legacy currency. Between January 1, 1999 and
January 1, 2002 the participating countries will introduce Euro notes and coins
and withdraw all legacy currencies so that they will no longer be available. The
Euro conversion may affect cross-border competition by creating cross-border
transparency. The Company is assessing its pricing/marketing strategy in order
to ensure that it remains competitive in a
14
<PAGE> 15
broader European market. The Company is also assessing its information
technology systems to allow for transactions to take place in both legacy
currencies and the Euro and the eventual elimination of the legacy currencies,
and reviewing whether certain existing contracts will need to be modified. The
Company's currency risk and risk management for operations in participating
countries may be reduced as the legacy currencies are converted to the Euro.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not Applicable.
The statements contained in this Report on Form 10-Q that are not purely
historical in nature are "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21 E of the Securities
Exchange Act of 1934, including without limitation, statements regarding the
Company's estimations, anticipations, determinations, commitments, expectations,
plans, hopes, beliefs, intentions or strategies regarding the future. Forward
looking statements include, without limitation, the statement regarding the
apparent broad-based recovery of the semiconductor industry; the statement
regarding the Company's anticipations as to sequential revenue growth and the
book-to-bill ratio exceeding one to one in the fourth quarter of 1999, the
Company's continuing efforts to control and minimize selling, general and
administrative costs, the Company's belief as to the realization of tax assets,
the Company's expected investment in property and equipment and the Company's
intentions with respect to the financing thereof, the Company's belief that its
current cash position and cash generated through operations will be sufficient
to meet its needs, the Company's plan to comply with SEMATECH's guidelines for
Year 2000, the Company's beliefs and anticipations regarding the Year 2000
status of its products and that the failure of such products to be Year 2000
ready will not materially adversely affect the Company, vendor supplied software
and Company hardware, the Company's belief that its building automation systems,
electronic security systems, will be Year 2000 ready, the Company's expected
cost to remediate Year 2000 readiness issues, and the Company's anticipation
that any identified Year 2000 problems will be either corrected by December 31,
1999 or will not have a material adverse impact on the Company, such statements
appearing under "Part I Financial Information, Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations," the statements regarding, the Company's beliefs as to the
sufficiency of its current cash position to meet the Company's needs, the
Company's expectations as to the amount of its property and equipment
investments in the current fiscal year, and the Company's intention to finance
such investments from existing cash balances and cash flows from operations,
appearing under "Part I Financial Information, Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." These forward-looking statements involve risks and
uncertainties including, but not limited to, unanticipated changes in demand in
the semiconductor industry and domestic and international economic conditions
generally, changes in product demand and industry capacity can affect short term
demand for the Company's products, competitive products and pricing,
manufacturing efficiencies, incurring expenses in anticipation of higher
revenues which do not materialize, future profitability may be inadequate to
permit full enjoyment of deferred tax assets, changes in demand which would
reduce the Company's investment in new assets, unanticipated shortfalls in
projected cash generation from operations, the Company's assessment of its Year
2000 readiness being incorrect based on unanticipated technical problems in the
Company's products or those of vendors to the Company, and other risks indicated
in filings with the Securities and Exchange Commission (SEC). Actual results may
differ materially. Novellus assumes no obligation to update this information.
For more details, please refer to other SEC filings, including the Company's
most recent Annual Report on Form 10-K for the year ended
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<PAGE> 16
December 31, 1998 and Quarterly Reports on Form 10-Q for the quarters ended
March 27, 1999 and June 26, 1999.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Applied Litigation
On July 7, 1997, prior to the consummation of the purchase of TFS from Varian,
Applied filed a complaint (the "Applied Complaint") against Varian in the United
States District Court for the Northern District of California San Jose Division,
Civil Action No. C-97-20523 RMW, alleging, among other things, infringement by
Varian (including the making, using, selling and/or offering for sale of certain
products and systems made by TFS) of United States Patent Nos. 5,171,412,
5,186,718, 5,496,455 and 5,540,821 (the "Applied Patents"), which patents are
owned by Applied.
Immediately after consummation of the TFS purchase, the Company filed a
complaint (the "Company Complaint") against Applied in the same Court, Civil
Action No. C-97-20551 RMW, alleging infringement by Applied (including the
making, using, selling and/or offering for sale of certain products and systems)
of United States Patent Nos. 5,314,597, 5,330,628, and 5,635,036 (the "Company
Patents"), which patents the Company acquired from Varian in the TFS purchase.
In the Company Complaint, the Company also alleged that it is entitled to
declarations from Applied that the Company does not infringe the Applied Patents
and/or that the Applied Patents are invalid and/or unenforceable. Applied has
filed counterclaims alleging that the Company infringes the Applied Patents.
Also after consummation of the TFS purchase, but some time after the Company
filed the Company Complaint, Applied amended the Applied Complaint to add the
Company as a defendant. The Company has requested that the Court dismiss the
Company as a defendant in Applied's lawsuit against Varian. The Court has not
yet required the Company to file an answer to the Applied Complaint.
In addition to a request for a permanent injunction against further
infringement, the Applied Complaint and Applied's counterclaims to the Company
Complaint include requests for damages for alleged prior infringement and treble
damages for alleged "willful" infringement. In connection with the consummation
of the TFS purchase, Varian agreed, under certain circumstances, to reimburse
the Company for certain of its legal and other expenses in connection with the
defense and prosecution of this litigation, and to indemnify the Company for a
portion of any losses incurred by the Company arising from this litigation
(including losses resulting from a permanent injunction). The Company and Varian
believe that there are meritorious defenses to Applied's allegations, including
among other things, that the Company's operations (including TFS products and
systems) do not infringe the Applied Patents and/or that the Applied Patents are
invalid and/or unenforceable. However, the resolution of intellectual property
disputes is often fact intensive and, therefore, inherently uncertain. Although
the Company believes that the ultimate outcome of the dispute with Applied will
not have a material adverse effect on the Company's business, financial
condition or results of operations (taking into account both the defenses
available to the Company and Varian's reimbursement and indemnity obligations),
there can be no assurances that Applied will not ultimately prevail in this
dispute and that, in such an event, Varian's reimbursement and indemnity
obligations will not be sufficient to fully reimburse the Company for its
losses. If Applied were to prevail in this dispute, it could have a material
adverse effect on the Company's business or results of operations.
The Company complaint against Applied also includes requests for damages for
prior infringement and treble damages for "willful" infringement, in addition
16
<PAGE> 17
to a request for a permanent injunction for further infringement. Although the
Company believes that it will prevail against Applied, there can be no assurance
that the Company will prevail in its litigation against Applied. If Applied were
to prevail against the Company Compliant, it will unlikely, but could, have a
material adverse effect on the Company's business, financial condition or
results of operations.
On July 13, 1999, in the Company lawsuit against Applied where the Company has
alleged that Applied infringes Company patents, the Court ruled on the
interpretation of the claims of the Company patents. On September 20, 1999, in
the Applied lawsuit against Varian and the Company, where Applied has alleged
that Varian and the Company infringe Applied patents, the Court ruled on the
interpretation of the claims of the Applied patents.
Semitool Litigation
On August 10, 1998, Semitool sued the Company for patent infringement in the
United States District Court for the Northern District of California. Semitool
alleges that the Company's SABRE(TM) copper deposition system infringes two
Semitool patents, U.S. Patent No. 5,222,310, issued June 29, 1993, entitled
"Single Wafer Processor with a Frame," and U.S. Patent No. 5,377,708, issued
January 3, 1995, entitled "Multi-Station Semiconductor Processor with
Volatilization." Semitool seeks an injunction against the Company's manufacture
and sale of SABRE(TM) systems, and seeks damages for past infringement. Semitool
also seeks trebled damages for alleged willful infringement. Semitool also seeks
its attorneys' fees and costs, and interest on any judgement.
The Company believes that there are meritorious defenses to Semitool's
allegations, including among other things, that the Company's operations
(including SABRE(TM) products and systems) do not infringe the Semitool Patents
and/or that the Semitool Patents are invalid and/or unenforceable. But the
resolution of intellectual property disputes is often fact intensive and, like
most other litigation matters, inherently uncertain. Although the Company
believes that the ultimate outcome of the dispute with Semitool will not have a
material adverse effect on the Company's business, financial condition or
results of operations (taking into account the defenses available to the
Company), there can be no assurances that Semitool will not ultimately prevail
in this dispute. If Semitool were to prevail in this dispute, it could have a
material adverse effect on the Company's business, financial condition or
results of operations.
On September 24, 1999, the Court ruled on the interpretation of the claims of
the Semitool patents.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.29 Asset Purchase Agreement by and between Fairchild
Technologies USA, Inc. and the Company dated July 29,
1999
27.1 Financial Data Schedule
(b) No reports on Form 8-K have been filed by the Company during the
quarter for which this report was filed.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVELLUS SYSTEMS, INC.
------------------------------
REGISTRANT
/s/ Robert H. Smith
------------------------------
Robert H. Smith
Executive Vice President
Finance and Administration
/s/ Kevin S. Royal
------------------------------
Kevin S. Royal
Corporate Controller
(Chief Accounting Officer)
November 8, 1999
----------------
Date
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.29 Asset Purchase Agreement by and between Fairchild
Technologies USA, Inc. and the Company dated July 29, 1999
27.1 Financial Data Schedule
</TABLE>
19
<PAGE> 1
Exhibit 10.29
AGREEMENT FOR THE SALE AND PURCHASE OF ASSETS
AND THE ASSUMPTION OF CONTRACT OBLIGATIONS
THIS AGREEMENT FOR THE SALE AND PURCHASE OF ASSETS AND THE ASSUMPTION
OF CONTRACT OBLIGATIONS ("AGREEMENT") is entered into as of July _____, 1999 by
and between Fairchild Technologies USA, Inc., a Delaware corporation ("SELLER")
and Novellus Systems, Inc., a California corporation ("PURCHASER").
RECITALS
A. Seller desires to sell and transfer certain assets, rights and
intangible property and contracts to Purchaser on the terms and
conditions set forth in this Agreement.
B. Purchaser desires to purchase or assume, certain assets, rights and
intangible property and contract obligations from Seller on the terms
and conditions set forth in this Agreement.
C. List of attached exhibits:
Exhibit A: Equipment
Exhibit B: Inventory
Exhibit C: Intellectual Property
Exhibit D: Intel Purchase Order
Exhibit E: Sublicense For Low-K and Spin-On-Glass
Exhibit F: Sublicense For Patent Number 5,013,586
Exhibit G: Bill of Sale
Exhibit H: Assignment of Contract
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I: DEFINITIONS
The following terms, as used herein, have the following respective
meanings:
"LIEN" means any mortgage, lien, pledge, charge, security interest,
encumbrance of any kind or any right of any third party.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust, or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"TAX" means with respect to any Person any income, gross receipts,
sales, use, ad valorem, franchise, license, withholding, payroll,
employment, excise, severance, stamp, occupation, or property tax,
custom duty or other tax, fee, assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax
or additional amount imposed by any taxing authority on such Person.
ARTICLE II: SALE AND PURCHASE OF ASSETS
AND ASSUMPTION OF CONTRACT OBLIGATIONS
2.01 ACQUIRED ASSETS.
Subject to the terms and conditions of this Agreement and for the
consideration set forth herein, Seller shall, at the Closing, sell,
convey, assign, transfer and deliver to Purchaser, and Purchaser shall
purchase and acquire from Seller, free and clear of any and all liens,
claims and encumbrances, the following assets of Seller as the same
shall exist at the Closing (but excluding from such assets the assets
described in Section 2.01(c) (collectively, the "ACQUIRED ASSETS"):
(a) The equipment identified on Exhibit A hereto, for the purchase
price of One Million Eighty-Three Thousand Dollars
($1,083,000) (as allocated on Exhibit A);
(b) All of Seller's right, title and interest in and to the
intellectual property set forth in Exhibit C hereto (the
"INTELLECTUAL PROPERTY") for the purchase price of Six Million
Dollars ($6,000,000).
(c) Excluded Assets.
Nothing herein shall give Purchaser the right to use the name
"Fairchild," "Fairchild Technologies," "Falcon," or any other
trade name or trademark.
2
<PAGE> 3
Nothing herein shall be deemed to grant to Purchaser any
ownership rights to information, intellectual property,
obligations or liabilities related to IRSET DUV module at
Intel Corporation. Seller specifically retains all liabilities
and rights to use, sell, distribute, license, sublicense or
otherwise exercise ownership rights with respect to any
information or intellectual property related to IRSET DUV
module.
Except as set forth in Section 4.03 (Title), the Acquired
Assets are sold as is. The parties shall share equally in the
costs of delivery and duties for the Acquired Assets.
2.02 ASSUMPTION OF INTEL PURCHASE ORDER.
The Seller sells, conveys, assigns, transfers and delivers to Purchaser
and the Purchaser hereby accepts the assignment of and assumes all
obligations (other than the obligations relating to the IRSET DUV
module) under the Purchase Order with Intel Corporation, attached
hereto as Exhibit D (the "INTEL PURCHASE ORDER").
Other than the obligations relating to the IRSET DUV module, Purchaser
shall assume the ongoing support and warranty obligations (including
spare parts requirements) under the Intel Purchase Order.
Purchaser shall be entitled to receive and retain the final acceptance
payment from Intel Corporation under the Intel Purchase Order (in the
approximate amount of $256,000). Purchaser acknowledges and agrees that
receipt of payments from Intel is subject to Purchaser's compliance and
fulfillment of the terms, conditions and obligations under the purchase
order, and is subject to Intel Corporation's acceptance of the products
delivered under the Intel Purchase Order.
Purchaser shall hold Seller free and harmless from all liability,
judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Purchaser's failure to comply with or
perform all obligations under the Intel Purchase Order, other than
obligations and liabilities related to IRSET DUV module which shall be
retained by Seller.
Purchaser and Seller acknowledge and agree that the assignment of the
Intel Purchase Order is subject to the written consent of Intel
Corporation. Neither party shall have any obligation to close hereunder
unless such consent is obtained. Seller warrants and represents to
Purchaser that all payments or obligations under the Intel Purchase
Order to be assumed by Purchaser are or will be current as of Closing,
except for having the equipment accepted by Intel Corporation, and
performing such additional work as may be necessary to have the
equipment accepted by Intel Corporation.
3
<PAGE> 4
2.03 PAYMENT TERMS.
The aggregate purchase price of Seven Million Eighty-Three Thousand
Dollars ($7,083,000), as set forth in Section 2.01 (the "PURCHASE
PRICE"), shall be paid at the Closing by wire transfer in immediately
available funds.
2.04 NO OTHER ASSUMED OBLIGATIONS.
Except for the specific obligations and liabilities assumed by
Purchaser pursuant to Section 2.02 hereof, Purchaser is not assuming
any obligations or liabilities of Seller, whether relating to Seller's
operations, Seller's employees, warranty obligations to Seller's
customers, Seller's tax obligations, or otherwise.
ARTICLE III: CLOSING; DELIVERIES
3.01 CLOSING.
The closing (the "CLOSING") of the transactions contemplated herein
shall occur on the date hereof (the "CLOSING DATE"), at the offices of
Morrison & Foerster, LLP, 755 Page Mill Road, Palo Alto, California.
3.02 DELIVERIES BY SELLER AT THE CLOSING.
At the Closing, Seller shall deliver or cause to be delivered to
Purchaser:
(a) An executed Sublicense for Low-K and Spin-On-Glass applications,
substantially in the form of Exhibit E hereof.
(b) An executed Sublicense for Patent Number 5,013,586, substantially
in the form of Exhibit F hereof. (The Sublicenses referenced in
Section 3.02 (a) and (b) are hereafter referred to as the
"SUBLICENSE AGREEMENTS".)
(c) An executed Bill of Sale, substantially in the form of Exhibit G
hereto.
(d) An executed Assignment of Contract, substantially in the form of
Exhibit H hereto, including the consent of Intel Corporation to
such assignment.
(e) A Secretary's Certificate certifying the resolutions of the Board
of Directors of Seller authorizing consummation of the
transactions contemplated by this Agreement, together with a good
standing certificate from the Delaware Secretary of State.
4
<PAGE> 5
3.03 DELIVERIES BY SELLER AFTER THE CLOSING.
Seller shall use reasonable commercial efforts to cause the Acquired
Assets to be promptly delivered to Purchaser after Closing, but in no
event shall such delivery occur more than 30 days after the Closing.
3.04 DELIVERIES BY PURCHASER AT THE CLOSING.
At the Closing, Purchaser shall deliver or cause to be delivered to
Seller:
(a) The Purchase Price, as provided in Section 2.03.
(b) A Secretary's Certificate certifying the resolutions of the Board
of Directors of Purchaser authorizing consummation of the
transactions contemplated by this Agreement, together with a good
standing certificate from the California Secretary of State.
(c) An executed counterpart of the Sublicense Agreements, the Bill of
Sale and the Assignment of Contract referenced in Sections 3.02
(a), (b), (c) and (d).
3.05 CONDITIONS TO OBLIGATIONS OF PURCHASER.
All obligations of Purchaser, at its option, are conditioned upon the
fulfillment, prior to or at the Closing, of all of the following
conditions, any one or more of which may be waived by Purchaser:
(a) All of Seller's warranties and representations shall be true and
accurate as of Closing.
(b) Seller shall have performed all of its obligations hereunder to
be performed prior to or at Closing.
(c) Seller shall have delivered all items referenced in Section 3.02
hereof.
(d) There shall have been no material loss or destruction of the
assets to be transferred hereunder as of Closing.
(e) Seller shall have obtained the written consent of Intel
Corporation to the assignment of the Intel Purchase Order (it
being understood that neither party shall have any further
obligations under this Agreement if such consent is not
obtained).
5
<PAGE> 6
(f) Purchaser shall have entered into employment agreements with the
following individuals:
Tom Batchelder
Hener Meinhold
Wayne Cai
Mark Rea
(g) Seller shall have provided Purchaser the opportunity to conduct
the due diligence on the assets and transfers contemplated hereby
and all aspects of Seller's business which could affect the
representations and warranties or other obligations of Seller
hereunder and shall be satisfied with the results of such
diligence.
(h) Satisfactory amendments shall have been made to the primary
License Agreements sufficient to support the underlying
Sublicense Agreements, including without limitation, extending
the term of the Sublicense Agreement for Patent Number 5,013,586
from June 13, 2006 until the life of the patent.
(i) Purchaser and Seller shall have entered into a Services Agreement
regarding the employees referenced in clause (f) above, in form
and substance acceptable to the parties.
(j) Purchaser will use all reasonable efforts to satisfy all of the
foregoing conditions.
3.06 CONDITIONS TO OBLIGATIONS OF SELLER.
All obligations of Seller, at its option, are conditioned upon the
fulfillment, prior to or at the Closing, of all of the following
conditions, any one or more of which may be waived by Purchaser:
(a) All of Purchaser's warranties and representations shall be true
and accurate as of Closing.
(b) Purchaser shall have performed all of its obligations hereunder
to be performed prior to or at Closing.
(c) Purchaser shall have delivered all items referenced in Section
3.04 hereof.
(d) Seller shall have obtained the written consent of Intel
Corporation to the assignment of the Intel Purchase Order (it
being understood that neither party shall have any further
obligations under this Agreement if such consent is not
obtained).
3.07 FURTHER ASSURANCES.
6
<PAGE> 7
From time to time, each party hereto shall deliver (upon request) such
further assignments, bills of conveyances, assumptions, instruments or
other documents and provide such other cooperation as may be reasonably
required by the other party hereto to further evidence the assignment
of assets (including intellectual property) and assumption of
obligations (including the Intel Purchase Order) intended to be
assigned and/or assumed pursuant to this Agreement and the Exhibits
hereto.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants the following as of the time of signing this
Agreement and as of the Closing Date:
4.01 SELLER'S EXISTENCE AND CORPORATE ORGANIZATION.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The execution,
delivery and performance by Seller of this Agreement are within
Seller's corporate powers and have been duly authorized by all
necessary corporate action.
4.02 CONTRAVENTION; BINDING EFFECT.
The execution, delivery and performance by Seller of this Agreement do
not contravene, or constitute a default under, any provision of
applicable law or regulation or of any agreement, judgment, injunction,
order, decree or other instrument binding upon Seller or result in the
creation of any Lien on any of the Acquired Assets.
This Agreement constitutes a legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms.
4.03 TITLE.
Seller is the owner of, and has good and marketable title to, all of
the Acquired Assets and the Intel Purchase Order to be transferred
under the terms of this Agreement (subject in the case of the Intel
Purchase Order to obtaining consent from Intel Corporation), and will
transfer good title to said assets to Purchaser at Closing free and
clear of all liens, charges, encumbrances and any other rights of third
parties.
7
<PAGE> 8
The use of the Intellectual Property by Seller in the Seller's business
prior to Closing does not, and the use of the Intellectual Property by
Purchaser after Closing in compliance with the terms of the Sublicense
Agreements will not violate any license or other agreement between
Seller and any third party.
Except as disclosed in Exhibit C hereof, Seller has received no written
notice of and has no knowledge of any infringement or any alleged
infringement on the rights of any third party, or of any action or
proceeding pending or threatened, contesting the validity, ownership or
right to use, sell, license or dispose of the Intellectual Property.
To Seller's knowledge, the patents relating to the Sublicense
Agreements are valid based on the prior art of which Seller is aware.
Seller has the right to sublicense the patents as contemplated by the
Sublicense Agreements, and has the right to transfer and assign the
other Intellectual Property to Purchaser hereunder.
4.04 CONSENTS.
Other than Intel Corporation's consent for the assignment of the Intel
Purchase Order, no consents or approvals of any public body or
authority and no consents or waivers from other parties are required
for the lawful consummation of the transactions contemplated hereby.
ARTICLE V: PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants the following as of the time of signing this
Agreement and as of the Closing Date:
5.01 PURCHASER'S EXISTENCE AND CORPORATE ORGANIZATION.
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. The execution,
delivery and performance by Purchaser of this Agreement are within
Purchaser's corporate powers and have been duly authorized by all
necessary corporate action.
5.02 CONTRAVENTION; BINDING EFFECT.
The execution, delivery and performance by Purchaser of this Agreement
do not contravene, or constitute a default under, any provision of
applicable law or regulation or of any agreement, judgment, injunction,
order, decree or other instrument binding upon Purchaser.
This Agreement constitutes a legal, valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms.
8
<PAGE> 9
5.03 CONSENTS.
No consents or approvals of any public body or authority and no
consents or waivers from other parties are required for the lawful
consummation of the transactions contemplated hereby.
5.04 PURCHASER'S KNOWLEDGE OF THE SELLER AND THE ACQUIRED ASSETS.
Purchaser has had access to, and has examined, all materials it has
requested regarding Seller's business and the Acquired Assets.
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NEXT PAGE IS PAGE 10]
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<PAGE> 10
ARTICLE VI: PURCHASER'S COVENANTS
6.01 ASSISTANCE IN CONNECTION WITH THE COLLECTION OF SELLER'S ACCOUNTS
RECEIVABLE.
If any of Seller's accounts receivable are erroneously paid to
Purchaser, Purchaser shall pay over the amounts received to Seller
within 15 days of receipt.
6.02 SELLER'S PRODUCT WARRANTY OBLIGATIONS.
Other than warranty obligations under the Intel Purchase Order (which
are assumed by Purchaser, as provided in Section 2.02 hereof),
Purchaser shall not assume, nor have any obligations to provide
assistance for, any product warranty obligations.
6.03 OBLIGATION TO PURCHASE INVENTORY.
Purchaser shall purchase the inventory identified on Exhibit B hereto
(the "INVENTORY"), which is valued at approximately $29,000. Seller
shall use its best efforts to cause the Inventory to be promptly
delivered to Purchaser after Closing. Seller shall invoice Purchaser
for the Inventory, and Purchaser shall pay such invoice within thirty
(30) days after its receipt. The parties shall share equally in the
costs of delivery and duties for the Inventory.
ARTICLE VII: TAXES
7.01 TRANSFER TAXES.
All transfer and similar taxes or duties, including but not limited to
sales or use tax or stamp duties payable in connection with the
transfer and conveyance of the Acquired Assets, shall be the
responsibility of and shall be paid by the Purchaser.
7.02 TAX INFORMATION.
Each party to this Agreement shall provide the other party with access
to all relevant documents, data and other information that may be
reasonably required by the other party for the purpose of preparing tax
returns and responding to any audit by any governmental agency. Each
party to this Agreement shall cooperate with all reasonable requests of
the other party made in connection with resisting or contesting the
imposition of taxes. Notwithstanding anything to the contrary in this
Agreement, neither party to this Agreement shall be required at any
time to disclose to the other income tax returns or other confidential
tax information.
10
<PAGE> 11
ARTICLE VIII: SURVIVAL; INDEMNIFICATION
8.01 SURVIVAL OF REPRESENTATIONS; REMEDY FOR BREACH.
The representations and warranties of the parties contained herein
shall survive until January 1, 2005; provided that: (i) the
representations made in Article VII (Taxes) shall survive until such
time as claims by third parties, including the competent fiscal
authorities, are barred by the relevant statute of limitations; and
(ii) the representations made in Section 4.03 (Title) shall survive for
the life of the patents sublicensed under the Sublicense Agreements.
Seller and Purchaser agree to use reasonable efforts to mitigate any
loss or damage for which they may seek indemnification under this
Article 8.
8.02 INDEMNIFICATION BY SELLER.
Seller shall indemnify Purchaser against and agrees to hold it harmless
from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and attorneys'
fees and expenses in connection with any action, suit or proceeding
brought against Purchaser or its affiliates) incurred or suffered by
Purchaser arising out of any misrepresentation, breach of warranty or
breach of covenant made by Seller pursuant to this Agreement or any of
the agreements entered in connection herewith.
8.03 INDEMNIFICATION BY PURCHASER.
Purchaser shall indemnify Seller against and agrees to hold it harmless
from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and attorneys'
fees and expenses in connection with any action, suit or proceeding
brought against Seller or its affiliates) incurred or suffered by
Seller arising out of any misrepresentation, breach of warranty or
breach of covenant made by Purchaser pursuant to this Agreement or any
of the agreements entered in connection herewith.
8.04 NOTICE AND PROCEDURE FOR INDEMNIFICATION.
A party seeking indemnification pursuant to this Article 8 (an
"INDEMNIFIED PARTY") shall give prompt written notice to the party from
whom such indemnification is sought (the "INDEMNIFYING PARTY") of the
assertion of any claim, or the commencement of any action, suit or
proceeding, in respect of which indemnity may be sought hereunder and
will give the indemnifying party such information with respect thereto
as the indemnifying party may reasonably request, but no failure to
give such notice shall relieve the indemnifying party of any liability
hereunder. The indemnifying party may, at its expense, participate in
or assume the defense of any such action, suit or proceeding involving
a third party. In such case the indemnified party shall have the right
(but not the duty) to participate in the defense thereof, and to employ
counsel, as its own expense,
11
<PAGE> 12
separate from counsel employed by the indemnifying party in any such
action and to participate in the defense thereof.
ARTICLE IX: MISCELLANEOUS
9.01 NOTICES.
All notices, consents, requests, instructions, approvals and other
communications required or authorized to be given by either party to
the other under this Agreement shall be made in writing and shall be
deemed to have been given or submitted (i) when delivered by hand, (ii)
on the same day if communicated by fax, and (iii) five (5) days after
the date deposited in the mail in registered form, first class, airmail
postage prepaid, addressed as follows :
if to Purchaser: if to Seller:
Novellus Systems, Inc. Fairchild Technologies USA, Inc.
4000 North First Street c/o Fairchild Legal Department
San Jose, CA 95134 45025 Aviation Drive, Suite 400
Attention: Mr. Robert H. Smith Dulles, Virginia 20166
Executive Vice President and CFO Attention: General Counsel
Fax: 408-943-3422 Fax: 703-478-5767
Telephone: 408-943-9700 Telephone: 703-478-5800
or to such other address as either party hereto may hereafter specify
from time to time by notice to the other party.
9.02 NON-WAIVER OF DEFAULT
Any failure by either party, at any time, or from time to time, to
enforce and require the strict keeping and performance of any of the
terms and conditions of this Agreement shall not constitute a waiver of
any such terms and conditions at any future time and shall not prevent
such party from insisting on the strict keeping and performance of such
terms and conditions at any later time.
9.03 INTERPRETATION.
Should a provision of this Agreement require judicial interpretation,
it is agreed that the judicial body interpreting or construing the same
shall not apply the assumption that the terms hereof shall by more
strictly construed against one party by reason of the rule of
construction that an instrument is to be construed more strictly
against the party who
12
<PAGE> 13
itself or through its agents prepared the same, it being agreed that
the agents of both parties have participated in the preparation hereof
equally.
9.04 AMENDMENT OR RESCISSION.
This Agreement shall not be modified or rescinded except by written
instruments signed by authorized representatives of both parties
hereto.
9.05 ENTIRE AGREEMENT.
This Agreement and the related agreements specifically referred to
herein embody the entire agreement of the parties hereto with respect
to the subject matter hereof and supersede all prior agreements with
respect thereto.
9.06 CAPTIONS.
Captions herein are inserted for convenience of reference only and
shall be ignored in the construction or interpretation of this
Agreement. Unless the context requires otherwise, all references herein
to Articles and Sections are to the articles and sections of this
Agreement.
9.07 GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by
the laws of the State of California. Non-exclusive place of
jurisdiction and venue shall be in the State of California.
9.08 ATTORNEY'S FEES.
If any party named herein brings an action or proceeding to enforce the
terms hereof or to declare rights hereunder, the prevailing party in
any such action or proceeding shall be entitled to its reasonable
attorney's fees to be paid by the other party.
9.09 COUNTERPART SIGNATURES / FACSIMILE DELIVERY.
This Agreement may be signed in counterparts and delivered by
facsimile.
9.10 BROKERS.
None of the parties has employed a broker or finder with respect to the
transactions contemplated by this Agreement. Each party holds all
others harmless and agrees to indemnify them against claims made by any
broker or finder resulting from acts or representations of the
indemnifying party.
13
<PAGE> 14
9.11 BULK TRANSFER ACT.
The parties hereto acknowledge that they have waived compliance with
the California Bulk Transfers Act. Seller shall indemnify Purchaser for
any action against Purchaser by Seller's creditors (or the creditors of
prior owners of Seller's business and assets) to recover debts of the
Seller (or such prior owners) for any reason whatsoever, including
noncompliance with the California Bulk Transfers Act. This provision
shall survive indefinitely.
[Remainder of page left intentionally blank; signatures appear on
following page.]
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
Seller Purchaser
FAIRCHILD TECHNOLOGIES USA, INC. NOVELLUS SYSTEMS, INC.
By: __________________________
By: _________________________
Its
Its
15
<PAGE> 16
EXHIBIT A
EQUIPMENT
<TABLE>
<S> <C>
LK 800 low k system (Beta 1) installed in lab in Fremont $ 340,000
LK 800E low k system (Beta 2) (needs some upgrading),
installed in Fremont 625,000
Additional Low Oxygen cure module
(located in Fremont 140,000
Nanospec 4150 (located in Fremont) 122,000
Tencor P10 (located in Fremont) 98,000
Microscope (located in Fremont) 2,500
----------
Total Book Value $1,327,500
Purchase Discount 50%
----------
Purchase Price $ 664,000
========================================================================
LK 800 low k system
(crated and ready to ship, in Germany) $ 419,000
========================================================================
Total: $1,083,000
</TABLE>
16
<PAGE> 17
EXHIBIT B
INVENTORY
(ATTACHED)
<PAGE> 18
EXHIBIT C
INTELLECTUAL PROPERTY
1. All of Seller's intellectual property (other than trade names and
trademarks), including any Tangible Embodiments (as defined below)
thereof, related to Low-K Spin-On Dielectrics, including without
limitation the following intellectual property noted in Tom
Batchelder's memo to Jim Moriarty dated June 1, 1999 (attached):
(a) Open closed/spinning bowl
(b) Environmentally controlled hot plate oven
(c) Vacuum cure/aging module (Nanoporisity module)
(d) Twin spin module
(e) Process proprietary knowledge
and also including:
(f) LK 800 and LK 800E systems
(g) All documentation, drafts, papers, schematics, diagrams,
prototypes, materials, software, databases, designs, works of
authorship, compositions of matter, manufacturing drawings, bills of
materials, books, records, logs, plans, specifications, blueprints,
data, operating manuals, drawings, sketches, marketing materials and
other reports or documents (collectively, the "TANGIBLE EMBODIMENTS")
relating to the foregoing items (a) through (f).
2A. All of Seller's rights under certain patents in accordance with the
terms of the Sublicense for Low-K and Spin-On-Glass applications,
attached hereto as Exhibit E, and
2B. All of Seller's rights under US Patent 5,013,586 in accordance with the
Sublicense for Patent Number 5,013,586, attached hereto as Exhibit F.
3. All of Seller's sales, marketing, product development and technology
plans and information relating exclusively to Seller's Low-K and
Spin-On-Glass business.
4. All of Seller's rights to build, use, distribute, sell, license,
sublicense or otherwise exercise ownership rights to the Falcon
Platform, including all Tangible Embodiments related thereto, for Low-K
and Spin-On-Glass applications only.
The Falcon Platform includes:
1. Wafer handling system, including
a. input/output modules
b. linear robot
c. buffer station
d. main atmospheric robot
2. System mainframe
<PAGE> 19
3. System mainframe control system, including
a. computer
b. user interface
c. support electronics
d. all interfaces
4. Power distribution and safety system
5. Scheduling Software/GUI
5. Purchaser acknowledges and agrees that Seller has previously
transferred certain drawings, technical data, information and know how
with respect to the Falcon Platform (collectively, the "Falcon
Information") to Suss Micro Tec, AG ("Suss"), that Suss has developed
an independent Low-K and Spin-on-Glass business and may use the Falcon
Information in connection with such business, and that Suss has the
exclusive right to use the Falcon Information in connection with the
photo-resist business that Seller previously sold to Suss. However,
Seller acknowledges, agrees and confirms that Suss may not use any of
the intellectual property acquired by (or licensed to) Purchaser
pursuant to paragraphs 1 or 2A above in connection with its independent
Low-K and Spin-on-Glass business. With respect to the intellectual
property licensed to Purchaser pursuant to paragraph 2B above,
Purchaser acknowledges, agrees and confirms that such license is
non-exclusive, and that Suss retains all rights to use, license,
sublicense, or otherwise exploit such intellectual property.
Nothing herein shall be deemed to grant to Purchaser any rights to the
name "Falcon" or any rights to the Falcon Platform for applications
other than Low-K and Spin-On-Glass.
6. Disclosure of Alleged Infringement:
In the past, Suss MicroTec AG (the Licensor for the patents that are
the subject of the Sublicense Agreements) has claimed that Seller has
infringed on certain Suss MicroTec AG patents. Pursuant to Article 7 of
the License Agreement for Patent No. 5,013,586 between Suss MicroTec AG
and Seller, Suss MicroTec AG waived any such further claims.
<PAGE> 20
EXHIBIT D
INTEL PURCHASE ORDER
(ATTACHED)
<PAGE> 21
EXHIBIT E
SUBLICENSE FOR LOW-K AND SPIN-ON-GLASS
<PAGE> 22
EXHIBIT F
SUBLICENSE FOR PATENT NUMBER 5,013,586
<PAGE> 23
EXHIBIT G
BILL OF SALE
This Bill of Sale is made as of July ___, 1999 (the "Closing Date"),
by and between Fairchild Technologies USA, Inc., a Delaware corporation
("Seller"), and Novellus Systems, Inc., a California corporation ("Purchaser").
Capitalized terms used without definitions herein shall have the same meanings
ascribed to such terms in the Agreement for the Sale and Purchase of Assets and
the Assumption of Contract Obligations by and between Purchaser and Seller dated
____, 1999 (the "Purchase Agreement").
1. SALE OF ASSETS. In accordance with and subject to the terms and
conditions set forth in the Purchase Agreement, for good and valuable
consideration, the receipt of which is hereby acknowledged, Seller does hereby
sell, convey, assign, transfer and deliver (collectively, "sell") to Purchaser
all of Seller's right, title and interest in and to the Acquired Assets.
2. NON-CONTRAVENTION. To the extent that any Acquired Assets may not be
sold to Purchaser without the consent of a third party, this Bill of Sale shall
not constitute a sale or attempted sale thereof. Such sale shall occur
immediately after receipt of the applicable consent.
3. EFFECT OF SALE. Nothing in this Bill of Sale shall, or shall be
deemed to, modify or otherwise affect any provisions of the Purchase Agreement
or affect the rights of the parties under the Purchase Agreement. In the event
of any conflict between the provisions hereof and the provisions of the Purchase
Agreement, the provisions of the Purchase Agreement shall govern and control.
4. EXECUTION IN COUNTERPARTS; FACSIMILE DELIVERY. For the convenience
of the parties, this Bill of Sale may be executed in one or more counterparts
and delivered by facsimile, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
5. AMENDMENT; WAIVER. Any term or provision of this Bill of Sale may be
amended only by a writing signed by Seller and Purchaser. The observance of any
term or provision of this Bill of Sale may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound by such waiver. No waiver by a party of any
breach of this Bill of Sale will be deemed to constitute a waiver of any other
breach or any succeeding breach.
6. GOVERNING LAW. This Bill of Sale shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed in the State of California by California
residents.
<PAGE> 24
IN WITNESS WHEREOF, Seller and Purchaser have caused this Bill of Sale
to be executed on the date first written above.
FAIRCHILD TECHNOLOGIES USA, INC.
By: ____________________________
Its
NOVELLUS SYSTEMS, INC.
By: ________________________
Its
<PAGE> 25
EXHIBIT H
ASSIGNMENT OF CONTRACT
THIS ASSIGNMENT OF CONTRACT (this "Assignment") is made and entered
into as of July____, 1999, by Fairchild Technologies USA, Inc., a Delaware
corporation ("Assignor"), and Novellus Systems, Inc., a California corporation
("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor and Assignee are parties to that certain Agreement
for the Sale and Purchase of Assets and the Assumption of Contract Obligations
dated as of July _____, 1999 (the "Agreement") pursuant to which Assignor has
agreed to sell certain of Assignor's assets to Assignee. Capitalized terms used
but not otherwise defined herein shall have the respective meanings assigned
thereto in the Agreement; and
WHEREAS, Assignor has agreed to execute and deliver this Assignment
pursuant to the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby sells, grants,
conveys, transfers, assigns and delivers to Assignee, and Assignee accepts from
Assignor the interests, rights and benefits accruing to the Seller under the
Intel Purchase Order, attached hereto as Exhibit A, other than the obligations
and liabilities related to IRSET DUV module which shall be retained by Assignor.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement
as of the day and year first above written.
FAIRCHILD TECHNOLOGIES USA, INC.
By: ____________________________
Its
NOVELLUS SYSTEMS, INC.
By: ________________________
Its
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-25-1999
<CASH> 112,624
<SECURITIES> 241,595
<RECEIVABLES> 188,125
<ALLOWANCES> 3,571
<INVENTORY> 93,849
<CURRENT-ASSETS> 661,616
<PP&E> 195,683
<DEPRECIATION> 88,944
<TOTAL-ASSETS> 832,485
<CURRENT-LIABILITIES> 132,153
<BONDS> 0
0
0
<COMMON> 455,651
<OTHER-SE> 244,681
<TOTAL-LIABILITY-AND-EQUITY> 832,485
<SALES> 401,025
<TOTAL-REVENUES> 401,025
<CGS> 186,588
<TOTAL-COSTS> 158,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,461
<INCOME-PRETAX> 65,070
<INCOME-TAX> 21,473
<INCOME-CONTINUING> 43,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,597
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.10
</TABLE>
