Fairchild Semiconductor Reports Results for the Third Quarter of 2005
October 13 2005 - 7:30AM
Business Wire
Fairchild Semiconductor (NYSE: FCS): -- Record Bookings for Video
Filters and Analog Switches -- Cash and Marketable Investments Top
$500 Million -- Distribution Inventories Decrease More Than a Week
on Higher Re-Sales -- Internal Inventory Turns at Highest Level in
More Than a Year Fairchild Semiconductor (NYSE: FCS), the leading
global supplier of power semiconductors, today announced results
for the third quarter ended September 25, 2005. Fairchild reported
third quarter sales of $345.5 million, flat from the prior quarter
and 16% lower than the third quarter of 2004. Fairchild reported a
third quarter net loss of $20.8 million or $0.17 per share compared
to a net loss of $205.3 million or $1.71 per share in the prior
quarter and net income of $13.4 million or $0.11 per diluted share
in the third quarter of 2004. Included in the third quarter loss
was $4.2 million of restructuring expenses related to employee
severance and certain asset impairments. Gross margin was 20.8%, 90
basis points higher sequentially and 950 basis points lower than
the third quarter of 2004. Fairchild reported a third quarter pro
forma net loss of $3.0 million or $0.03 per share, compared to a
pro forma net loss of $2.2 million or $0.02 per share in the prior
quarter and pro forma net income of $32.0 million or $0.26 per
diluted share in the third quarter of 2004. The pro forma net
income (loss) excludes amortization of acquisition-related
intangibles, restructuring and impairments, the non-cash charge to
reserve the deferred tax asset, lawsuit settlement gains and other
items. "Demand has been seasonally stronger, distribution re-sales
increased again in the third quarter and we're executing our plan
to reduce inventories very effectively," said Mark Thompson,
Fairchild's president and CEO. "We announced in June of this year
our plan to increase the quality of our business by focusing on
analog and more integrated power solutions while reducing
inventories both internally and in the distribution channel. In the
last two quarters, we've reduced channel inventories by more than
four weeks and internal inventories by about 16% through a
disciplined approach to loading our factories and our focus on
channel sell-through. Our efforts to increase channel sell-through
during the quarter were effective in driving about a 3% sequential
increase in re-sales. We increased gross margins in the third
quarter slightly more than expected due primarily to lower
depreciation expenses. We expect that these actions will ultimately
allow us to achieve a level of profitability that is commensurate
with our leadership positions in our chosen markets. End Markets
and New Products "We've experienced broad-based, seasonally
stronger demand from the start of the third quarter," explained
Thompson. "Order rates have been particularly robust for products
supporting the computing and consumer end markets, driving a solid
increase in our backlog. Within the computing end market, demand
for products in notebook applications has been very strong, driving
more than a 20% increase in sales in the third quarter over the
first half run rate. "We continue to see strong demand for a number
of our leadership new products," said Thompson. "We booked a record
volume of orders for our proprietary, high margin video filter and
analog switch product lines, driving a significant increase in
backlog. This higher backlog is giving us great demand visibility
and allowed us to increase our third quarter shipments of analog
switches by more than 40% sequentially. Third Quarter Financials
"We increased gross margins in the third quarter even as we reduced
internal inventories by more than 11% sequentially and reduced
channel inventories to below 13 weeks," said Thompson. "Our blended
factory utilization rate and lead times increased slightly as we
began to ramp production to support higher seasonal demand. "We
continue to improve our balance sheet, growing our cash and
marketable investments by $43.1 million in the third quarter to
$504.6 million," stated Thompson. "Our capital spending for the
quarter was only $16.2 million, which we believe will keep us well
within our capital spending model of 6 to 8% of sales for the year.
We continue to tightly manage factory loadings to optimize mix and
reduce inventories, allowing us to improve inventory turns to
greater than 5 times, the highest level in more than a year. Fourth
Quarter Guidance "In the fourth quarter, we expect revenue to
increase about 5% sequentially as we complete our current efforts
to adjust inventories," said Thompson. "We also forecast gross
margins to increase 200 - 300 basis points sequentially, benefiting
from higher factory loadings, lower depreciation expense, and
better product mix. We have a higher starting backlog position than
a quarter ago and are focused on managing product mix and factory
loadings to support this higher demand, especially in analog and
low power switches. "I'm confident that the actions we're taking at
Fairchild are laying the foundation for improved performance in the
future," stated Thompson. "Our channel re-sales are at the highest
levels we've seen in well over a year, which is helping us to
approach best-in-class inventory turns in our supply chain. We have
a great line up of exciting new products that are starting to fill
up our factories as we shift our business to a richer product mix.
In addition, our balance sheet is very strong with net debt now at
the lowest level in our history as a public company. Fairchild is a
company with tremendous potential, and I'm truly excited about the
changes we're making today to enable us to profitably grow in the
future. About Fairchild Semiconductor: Fairchild Semiconductor
(NYSE: FCS) is the leading global supplier of high performance
power products critical to today's leading electronic applications
in the computing, communications, consumer, industrial and
automotive segments. As The Power Franchise(R), Fairchild offers
the industry's broadest portfolio of components that optimize
system power through minimization, conversion, management and
distribution functions. Fairchild's 9,000 employees design,
manufacture and market power, analog & mixed signal, interface,
logic, and optoelectronics products from its headquarters in South
Portland, Maine, USA and numerous locations around the world.
Please contact us on the web at www.fairchildsemi.com. Special Note
on Pro Forma Statements: This press release is accompanied by
statements of operations prepared in accordance with generally
accepted accounting principles (GAAP), pro forma statements of
operations (which exclude expenses for amortization of
acquisition-related intangibles, restructuring and impairments, the
non-cash charge to reserve the deferred tax asset, lawsuit
settlement gains and other items), and a reconciliation from GAAP
to pro forma results. Pro forma results are not meant as a
substitute for GAAP, but are included solely for informational and
comparative purposes. Fairchild presents the pro forma consolidated
statement of operations because its management uses it as an
additional measure of the company's operating performance, and
management believes pro forma financial information is useful to
investors because it illuminates underlying operational trends by
excluding significant non-recurring or otherwise unusual
transactions. Fairchild's criteria for determining pro forma
results may differ from methods used by other companies, and should
not be regarded as a replacement for corresponding GAAP measures.
Special Note on Forward-Looking Statements: Some of the paragraphs
above contain forward-looking statements that are based on
management's assumptions and expectations and that involve risk and
uncertainty. Other forward-looking statements may also be found in
this news release. Forward-looking statements usually, but do not
always, contain forward-looking terminology such as "we believe,"
"we expect," or "we anticipate," or refer to management's
expectations about Fairchild's future performance. Many factors
could cause actual results to differ materially from those
expressed in forward-looking statements. Among these factors are
the following: changes in overall global or regional economic
conditions; changes in demand for our products; changes in
inventories at our customers and distributors; technological and
product development risks, including the risks of failing to
maintain the right to use some technologies or failing to
adequately protect our own intellectual property against
misappropriation or infringement; availability of manufacturing
capacity; the risk of production delays; availability of raw
materials; competitors' actions; loss of key customers, including
but not limited to distributors; the inability to attract and
retain key management and other employees; order cancellations or
reduced bookings; changes in manufacturing yields or output; risks
related to warranty and product liability claims; risks inherent in
doing business internationally; regulatory risks and significant
litigation. These and other risk factors are discussed in the
company's quarterly and annual reports filed with the Securities
and Exchange Commission (SEC) and available at the Investor
Relations section of Fairchild Semiconductor's web site at
investor.fairchildsemi.com or the SEC's web site at www.sec.gov.
-0- *T Fairchild Semiconductor International, Inc. Consolidated
Statements of Operations (In millions, except per share amounts)
(Unaudited) Three Months Ended Nine Months Ended
--------------------------- ------------------- September June
September September September 25, 26, 26, 25, 26, 2005 2005 2004
2005 2004 ------- -------- ------- --------- --------- Total
revenue $345.5 $346.0 $409.7 $1,054.3 $1,223.7 Cost of sales 273.8
277.1 285.4 829.9 872.7 ------- -------- ------- ---------
--------- Gross profit 71.7 68.9 124.3 224.4 351.0 ------- --------
------- --------- --------- Operating expenses: Research and
development 19.7 19.5 20.6 58.2 62.3 Selling, general and
administrative 51.8 47.5 46.1 146.7 131.9 Amortization of
acquisition-related intangibles 5.9 6.1 6.1 18.1 19.9 Restructuring
and impairments 4.2 3.9 8.2 12.2 16.4 Reserve for potential
settlement losses - - - - 11.0 ------- -------- ------- ---------
--------- Total operating expenses 81.6 77.0 81.0 235.2 241.5
------- -------- ------- --------- --------- Operating income
(loss) (9.9) (8.1) 43.3 (10.8) 109.5 Interest expense, net 6.1 5.9
13.5 22.1 40.8 Other (income) expense (3.4) - 8.4 20.5 8.4 -------
-------- ------- --------- --------- Income (loss) before income
taxes (12.6) (14.0) 21.4 (53.4) 60.3 Provision for income taxes 8.2
191.3 8.0 183.1 16.9 ------- -------- ------- --------- ---------
Net income (loss) $(20.8) $(205.3) $13.4 $(236.5) $43.4 =======
======== ======= ========= ========= Net income (loss) per common
share: Basic $(0.17) $(1.71) $0.11 $(1.97) $0.36 ======= ========
======= ========= ========= Diluted $(0.17) $(1.71) $0.11 $(1.97)
$0.35 ======= ======== ======= ========= ========= Weighted average
common shares: Basic 120.0 119.8 119.5 119.9 119.4 ======= ========
======= ========= ========= Diluted 120.0 119.8 121.7 119.9 123.8
======= ======== ======= ========= ========= Fairchild
Semiconductor International, Inc. Reconciliation of Net Income
(Loss) To Pro Forma Net Income (Loss) (In millions) (Unaudited)
Three Months Ended Nine Months Ended ---------------------------
------------------- September June September September September
25, 26, 26, 25, 26, 2005 2005 2004 2005 2004 ------- --------
------- --------- --------- Net income (loss) $(20.8) $(205.3)
$13.4 $(236.5) $43.4 Adjustments to reconcile net income (loss) to
pro forma net income (loss): Restructuring and impairments 4.2 3.9
8.2 12.2 16.4 Distributor sales reserves associated with product
discontinuations (1) - - (0.2) - (2.1) Inventory charge associated
with restructuring (2) - - (0.6) - 0.3 Costs associated with the
redemption of 10 1/2% Notes (3) - - - 23.9 - Reserve for potential
settlement losses - - - - 11.0 Write off (recovery) of equity
investments (3) (0.7) - 8.4 (0.7) 8.4 Litigation settlement
received, net (3) (2.7) - - (2.7) - Accelerated depreciation on
assets to be abandoned (4) 5.0 - - 5.0 - Amortization of
acquisition- related intangibles 5.9 6.1 6.1 18.1 19.9 Associated
tax effects 6.1 (2.2) (3.3) (7.3) (12.2) Reserve for deferred tax
asset (5) - 195.3 - 195.3 - ------- -------- ------- ---------
--------- Pro forma net income (loss) $(3.0) $(2.2) $32.0 $7.3
$85.1 ------- -------- ------- --------- --------- Fairchild
Semiconductor International, Inc. Pro Forma Consolidated Statements
of Operations (In millions, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended ---------------------------
------------------- September June September September September
25, 26, 26, 25, 26, 2005 2005 2004 2005 2004 ------- --------
------- --------- --------- Pro forma total revenue $345.5 $346.0
$409.5 $1,054.3 $1,221.6 Pro forma cost of sales 273.0 277.1 286.0
829.1 872.4 ------- -------- ------- --------- --------- Pro forma
gross profit 72.5 68.9 123.5 225.2 349.2 ------- -------- -------
--------- --------- Pro Forma Operating expenses: Research and
development 19.7 19.5 20.6 58.2 62.3 Pro forma Selling, general and
administrative 47.6 47.5 46.1 142.5 131.9 ------- -------- -------
--------- --------- Total pro forma operating expenses 67.3 67.0
66.7 200.7 194.2 ------- -------- ------- --------- --------- Pro
forma operating income 5.2 1.9 56.8 24.5 155.0 Interest expense,
net 6.1 5.9 13.5 22.1 40.8 ------- -------- ------- ---------
--------- Pro forma income (loss) before income taxes (0.9) (4.0)
43.3 2.4 114.2 Pro forma provision (benefit) for income taxes 2.1
(1.8) 11.3 (4.9) 29.1 ------- -------- ------- --------- ---------
Pro forma net income (loss) $(3.0) $(2.2) $32.0 $7.3 $85.1 =======
======== ======= ========= ========= Pro forma net income (loss)
per common share: Basic $(0.03) $(0.02) $0.27 $0.06 $0.71 =======
======== ======= ========= ========= Diluted $(0.03) $(0.02) $0.26
$0.06 $0.69 ======= ======== ======= ========= ========= Weighted
average common shares: Basic 120.0 119.8 119.5 119.9 119.4 =======
======== ======= ========= ========= Diluted (6) 120.0 119.8 128.4
122.6 130.5 ======= ======== ======= ========= ========= Pro forma
consolidated statement of operations is presented because we use it
as an additional measure of our operating performance. Pro forma
net income (loss) and pro forma net income (loss) per share should
not be considered as alternatives to net income (loss), net income
(loss) per share or other measures of consolidated operations and
cash flow data prepared in accordance with accounting principles
generally accepted in the United States of America, as indicators
of our operating performance, or as alternatives to cash flow as a
measure of liquidity. Pro forma consolidated statements of
operations are intended to present the company's operating results,
excluding items described above, for the periods presented. (1)
Recorded in Total revenue (2) Recorded in Cost of sales (3)
Recorded in Other (income) expense (4) $0.8 million recorded in
Cost of sales and $4.2 million recorded in Selling, general and
administrative (5) Recorded in Provision (benefit) for income taxes
(6) The diluted proforma net income per common share calculation
for the three and nine months ended September 26, 2004 includes a
reduction of $1.7 million and $5.1 million, respectively, in
interest expense, net of tax, as if the company's 5.0% convertible
senior subordinated notes had been converted as of the beginning of
the period presented. Accordingly, the diluted weighted average
common shares for the three and nine months ended September 26,
2004 includes 6.7 million of common stock equivalents. Fairchild
Semiconductor International, Inc. Consolidated Balance Sheets (In
millions) (Unaudited) September 25, June 26, December 26, 2005 2005
2004 ------------ ------------ ------------ ASSETS Current assets:
Cash and cash equivalents $334.2 $193.8 $146.3 Short-term
marketable securities 106.4 172.7 422.1 Receivables, net 140.6
143.2 154.0 Inventories 216.3 243.4 253.9 Other current assets 33.5
28.3 56.1 ------------ ------------ ------------ Total current
assets 831.0 781.4 1,032.4 Property, plant and equipment, net 635.1
644.3 664.1 Intangible assets, net 131.9 139.4 151.6 Goodwill 229.9
229.9 229.9 Long-term marketable securities 64.0 95.0 124.0 Other
assets 36.2 37.2 174.5 ------------ ------------ ------------ Total
assets $1,928.1 $1,927.2 $2,376.5 ============ ============
============ LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Current portion of long-term debt $4.5 $4.8 $3.3
Accounts payable 96.2 100.2 118.2 Accrued expenses and other
current liabilities 131.1 112.8 165.1 ------------ ------------
------------ Total current liabilities 231.8 217.8 286.6 Long-term
debt, less current portion 643.2 646.2 845.2 Other liabilities 44.4
40.9 15.6 ------------ ------------ ------------ Total liabilities
919.4 904.9 1,147.4 Total stockholders' equity 1,008.7 1,022.3
1,229.1 ------------ ------------ ------------ Total liabilities
and stockholders' equity $1,928.1 $1,927.2 $2,376.5 ============
============ ============ Fairchild Semiconductor International,
Inc. Condensed Consolidated Statements of Cash Flows (In millions)
(Unaudited) Nine Months Ended --------------------- September
September 25, 26, 2005 2004 ---------- ---------- Cash flows from
operating activities: Net income (loss) $(236.5) $43.4 Adjustments
to reconcile net income (loss) to cash provided by (used in)
operating activities: Depreciation and amortization 121.0 130.6
Non-cash restructuring and impairments expense 4.2 0.3 Deferred
income taxes, net 177.1 5.3 Other 11.4 2.1 Changes in operating
assets and liabilities, net of acquisitions 7.9 (22.5) ----------
---------- Cash provided by operating activities 85.1 159.2
---------- ---------- Cash flows from investing activities: Capital
expenditures (71.9) (144.6) Purchase of marketable securities
(472.1) (720.5) Sale of marketable securities 825.4 577.0 Maturity
of marketable securities 20.6 51.7 Other (1.8) 3.8 ----------
---------- Cash provided by (used in) investing activities 300.2
(232.6) ---------- ---------- Cash flows from financing activities:
Repayment of long-term debt (355.3) (2.5) Issuance of long-term
debt 154.5 - Proceeds from issuance of common stock and from
exercise of stock options, net 10.4 21.6 Other (7.0) (7.0)
---------- ---------- Cash provided by (used in) financing
activities (197.4) 12.1 ---------- ---------- Net change in cash
and cash equivalents 187.9 (61.3) Cash and cash equivalents at
beginning of period 146.3 169.5 ---------- ---------- Cash and cash
equivalents at end of period $334.2 $108.2 ========== ========== *T
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