Varian Semiconductor Equipment Associates Reports Fiscal 2005 First Qu

    Business Editors/High-Tech Editors

    GLOUCESTER, Mass.--(BUSINESS WIRE)--Jan. 27, 2005--Varian Semiconductor Equipment Associates, Inc. (the "Company") (Nasdaq: VSEA) today announced results for its fiscal 2005 first quarter ended December 31, 2004.
    Revenue for the first quarter of fiscal 2005 totaled $148.4 million, compared to revenue of $101.8 million for the same period a year ago. The Company recorded net income of $28.0 million, or $0.75 per diluted share during the first quarter of fiscal 2005, compared to net income of $4.8 million, or $0.13 per diluted share for the same period a year ago. Gross margin for the first quarter of fiscal 2005 was 51 percent, compared to 42 percent for the same period a year ago.
    As a result of an arbitration ruling, Applied Materials, Inc. ("Applied Materials") (Nasdaq: AMAT) made past due royalties plus interest payments totaling $24.6 million during the first quarter of fiscal 2005. Of the $24.6 million, $18.9 million has been included in royalty revenue and $5.7 million in interest income. Excluding the effect of the non-recurring Applied Materials' income, pro forma revenue, gross margin and net income for the first quarter of fiscal 2005 would have been $129.5 million, 44 percent and $11.0 million, respectively or $0.30 per diluted share.
    Gary E. Dickerson, Varian Semiconductor's chief executive officer, said, "We have received positive responses from our customers relating to the benefits of our single wafer high current tools. Based on this input from customers and the initial response to our new VIISta HC ion implanter, I am optimistic that we will gain market share in 2005."
    Robert J. Halliday, chief financial officer, provided forward guidance, "We currently expect revenue for the second quarter of fiscal 2005 to be between $128 and $138 million and gross margin as a percentage of revenue to be in the low 40's. Earnings per share is anticipated to range from $0.23 to $0.31 per diluted share."
    Halliday further added, "We are investing heavily in our high current and other product development initiatives. The drivers for this spending are the rapidly increasing customer base for these tools and our own accelerating pace of product introductions in response to market opportunities."
    The Company will hold a conference call, broadcast over the Internet, at 5:00 p.m. eastern time today to discuss the Company's operating results and outlook. Access to the call is available through the investor relations page on the Company's website at www.vsea.com. Replays will be available via the website for two weeks after the call.

    About Varian Semiconductor Equipment Associates, Inc.

    The Company is a leading producer of ion implantation equipment used in the manufacture of semiconductors. The Company is headquartered in Gloucester, Massachusetts, and operates worldwide. The Company maintains a website at www.vsea.com. The information contained in the Company's website is not incorporated by reference into this release, and the website address is included in this release as an inactive textual reference only.

    Note: This press release contains forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. For this purpose, statements concerning the industry outlook, the Company's guidance for second quarter fiscal 2005 revenue, gross margin and earnings per share, market share, competitive position, expected second quarter fiscal 2005 product shipments, and any statements using the terms "believes," "anticipates," "will," "expects," "plans" or similar expressions, are forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: volatility in the semiconductor equipment industry; intense competition in the semiconductor equipment industry; the Company's dependence on a small number of customers; fluctuations in the Company's quarterly operating results; the Company's transition to new products; the Company's exposure to risks of operating internationally; uncertain protection of the Company's patent and other proprietary rights; the Company's reliance on a limited group of suppliers; potential environmental liabilities; the Company's ability to manage potential growth, decline and strategic transactions; the Company's reliance on one primary manufacturing facility; the Company's dependence on certain key personnel; and the risk of substantial indemnification obligations under the agreements governing the spin-off of the Company from Varian Associates, Inc. on April 2, 1999. These and other important risk factors that may affect actual results are discussed in detail under the caption "Risk Factors" in the Company's Annual Report on Form 10-K and in other reports filed by the Company with the Securities and Exchange Commission. The Company cannot guarantee any future results, levels of activity, performance or achievement. The Company undertakes no obligation to update any of the forward-looking statements after the date of this release.

VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)

Fiscal Three Months Ended

December 31, January 2, 2004 2004 ----------- ---------- Revenue Product $ 107,088 $ 86,439 Service 19,395 13,310 Royalty 21,942 2,094 ----------- ---------- Total revenue 148,425 101,843 Cost of revenue 72,284 59,461 ----------- ---------- Gross profit 76,141 42,382 ----------- ---------- Operating expenses Research and development 18,653 16,265 Marketing, general and administrative 27,380 19,808 ----------- ---------- Total operating expenses 46,033 36,073 ----------- ---------- Operating income 30,108 6,309 Interest income, net 7,605 856 Other income, net 2,819 3 ----------- ---------- Income before income taxes 40,532 7,168 Provision for income taxes 12,565 2,365 ----------- ---------- Net income $ 27,967 $ 4,803 =========== ========== Weighted average shares outstanding - basic 36,456 35,503 Weighted average shares outstanding - diluted 37,222 36,711 Net income per share - basic $ 0.77 $ 0.14 Net income per share - diluted $ 0.75 $ 0.13

VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

December 31, October 1, 2004 2004 ----------- ------------ ASSETS Current assets Cash and cash equivalents $ 220,614 $ 218,578 Short-term investments 222,745 173,891 Accounts receivable, net 121,633 123,749 Inventories 117,332 104,900 Deferred income taxes 27,729 27,691 Other current assets 12,173 32,938 ----------- ------------ Total current assets 722,226 681,747 Property, plant and equipment, net 55,698 52,344 Other assets 15,527 15,405 ----------- ------------ Total assets $ 793,451 $ 749,496 =========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 4,435 $ 4,170 Accounts payable 46,481 33,980 Accrued expenses 50,075 53,234 Product warranty 8,090 7,841 Deferred revenue 57,089 54,509 ----------- ------------ Total current liabilities 166,170 153,734 Long-term accrued expenses 10,408 10,905 Deferred income taxes 4,615 4,615 Long-term debt 4,059 4,162 ----------- ------------ Total liabilities 185,252 173,416 ----------- ------------

Stockholders' equity Common stock 365 364 Capital in excess of par value 338,144 331,701 Retained earnings 272,287 244,320 Deferred compensation (1,574) (149) Accumulated other comprehensive loss (1,023) (156) ----------- ------------ Total stockholders' equity 608,199 576,080 ----------- ------------ Total liabilities and stockholders' equity $ 793,451 $ 749,496 =========== ============

    Pro forma Financial Information

    Management believes that pro forma financial information provides useful information to aid in understanding operating results. Pro forma revenue, gross profit, gross margin, net income, and diluted earnings per share are prepared by beginning with the Condensed Consolidated Statement of Income, which complies with U.S. Generally Accepted Accounting Principles ("GAAP"), and then excludes the effects of the past due Applied Materials royalty and interest income, which the Company believes is non-recurring.
    The reconciliation of GAAP revenue, gross profit, gross margin, net income, and diluted earnings per share to pro forma revenue, gross profit, gross margin, net income, and diluted earnings per share are as follows:

Fiscal Three Months Ended December 31, 2004 (In thousands, except per share amounts)

Gross Gross Net Earnings Revenue Profit Margin Income per share ---------------------------------------------- As reported $148,425 $76,141 51.3% $27,967 $0.75 Applied Materials past due royalty income (18,950) (18,950) 100.0 (18,950) (0.51) Applied Materials past due interest income - - - (5,655) (0.15) Tax effect - - - 7,628 0.21 ---------------------------=================== Pro forma $129,475 $57,191 44.2% $10,990 $0.30 ==============================================

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CONTACT: Varian Semiconductor Bob Halliday, 978-282-7597 Executive Vice President and Chief Financial Officer bob.halliday@vsea.com or Mary Wright, 978-282-5859 Director, Investor Relations mary.wright@vsea.com

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: HARDWARE SOFTWARE COMPUTERS/ELECTRONICS BANKING MANUFACTURING EARNINGS CONFERENCE CALLS SOURCE: Varian Semiconductor

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