-- Fourth Quarter Sales Increase More than 7% Sequentially -- Gross
Margins Exceed Forecast, Up 340 Basis Points Sequentially --
Internal and Channel Inventories are at the Lowest Level in More
than Two Years -- Strong Backlog Position and Low Inventories Drive
Above-seasonal First Quarter Guidance Fairchild Semiconductor
(NYSE: FCS), the leading global supplier of power semiconductors,
today announced results for the fourth quarter and full year ended
December 25, 2005. Fairchild reported fourth quarter sales of
$370.8 million, a 7% increase from the prior quarter and 2% lower
than the fourth quarter of 2004. Fairchild reported a fourth
quarter net loss of $4.7 million or $0.04 per share compared to a
net loss of $20.8 million or $0.17 per share in the prior quarter
and net income of $15.8 million or $0.13 per diluted share in the
fourth quarter of 2004. Gross margin was 24.2%, 340 basis points
higher sequentially and 140 basis points lower than in the fourth
quarter of 2004. Included in the net loss for the quarter was $14.5
million of tax expense related to the repatriation of foreign
earnings under the American Jobs Creation Act (AJCA) of 2004. We
recorded $3.4 million of impairments for certain manufacturing
assets in our Mountain Top, Pennsylvania fab and $1.3 million in
restructuring charges primarily for employee severance. Finally, we
recorded $17.6 million of net proceeds from the previously
announced settlement of our lawsuit against Sumitomo Bakelite, as
well as an increase of $6.9 million in our reserve for related
customer claims, resulting in a $10.7 million favorable net impact
for the quarter. Fairchild reported fourth quarter pro forma net
income of $13.6 million or $0.11 per diluted share, significantly
better than the pro forma net loss of $3.0 million or $0.03 per
share in the prior quarter and lower than the pro forma net income
of $24.8 million or $0.21 per diluted share in the fourth quarter
of 2004. Pro forma net income (loss) excludes amortization of
acquisition-related intangibles, restructuring and impairments,
litigation settlement proceeds, charges for potential settlement
losses, impact of tax repatriation and other items. Full year
revenues for 2005 were $1,425.1 million, a decrease of 11% compared
to $1,603.1 million in 2004. Fairchild reported a net loss of
$241.2 million or $2.01 per share in 2005, compared to net income
of $59.2 million or $0.48 per diluted share in 2004. On a pro forma
basis, the company reported 2005 net income of $20.9 million or
$0.17 per diluted share, compared to $109.9 million or $0.89 per
diluted share in 2004. "We had a strong finish to 2005, a year of
major transition for Fairchild, by delivering solid fourth quarter
sales and gross margin growth," said Mark Thompson, Fairchild's
president and CEO. "During 2005, we improved the management of our
distribution supply chain by focusing primarily on channel
sell-through, which has helped us to reduce internal inventories by
more than 20% and channel inventories about 16% compared to 2004.
Our tighter management of the channel has allowed us to increase
sell-through approximately 4% sequentially in the fourth quarter,
to the highest level in more than four years. Inventories entering
2006 are now at or below our targets with internal inventories at
about 9 weeks of supply and channel inventories at approximately 11
weeks. We also significantly reduced our capital expenditures
during 2005 to $97 million, or slightly less than 7% of sales, well
below the $190 million or 12% of sales we spent in 2004. "We enter
2006 with great momentum and a clear strategy to succeed,"
explained Thompson. "We're focused on improving gross margins by
increasing the mix of our leadership new products while we use our
lean capital budget to drive a disciplined approach to reduce the
mix of our lower margin products. The recently announced sale of
our lower margin LED lamps and display product line is also
indicative of our commitment to divest, harvest or exit businesses
that are non-core, and we expect to continue this effort in 2006.
It's an exciting time at Fairchild as we enter the new year with a
very lean supply chain, better channel management, compelling new
products and a disciplined approach to improving our product mix."
End Markets "Sales were solid across all the end markets with
particular strength in products supporting computing, consumer and
industrial applications," said Thompson. "Bookings outpaced even
our strong sales growth during the fourth quarter driven by a
combination of broad end market demand and longer lead times. In
addition to higher order rates for products supporting notebook and
desktop applications, bookings for products serving the display end
market increased significantly. Order rates were strong for our
products across virtually all segments of the consumer and
industrial end markets. Booking levels in the other end markets
were generally higher than a quarter ago." Design Wins and New
Products "We won a number of key designs in a variety of fast
growing end markets during the fourth quarter," stated Thompson.
"We more than doubled the order rate of our analog switches in 2005
which resulted in record sales as we gained important designs in a
variety of handset and ultra-portable applications. We booked
record demand for our highly energy efficient FPS(TM) power
switches during the fourth quarter, driven in part by new design
wins in battery charger, LCD monitor and television applications.
Our latest integrated DC/DC converters and high speed USB switches
also won a number of handset designs during the quarter. We shipped
our first uSerDes(TM) units in the fourth quarter and are ramping
this line of proprietary interface products targeted to clamshell
and slider handset applications in 2006. We have 43 design wins to
date at 20 separate handset and consumer electronics customers and
expect to significantly increase this design-in base throughout
2006. We're building a solid line-up of new products that we expect
will drive higher margins in the future." Fourth Quarter and Full
Year Financials "We delivered improved financial results on the
strength of higher sales and a better product mix in the fourth
quarter," said Thompson. "Analog sales were up more than 12%
sequentially which helped to improve our overall product mix. This
better mix, combined with lower depreciation expenses and higher
factory utilization, helped us to increase overall gross margins
340 basis points from the prior quarter. In our focus business,
analog and power products, gross margins were up a very solid 430
basis points to nearly 26%. "During the fourth quarter we increased
our cash and marketable investments to $545.9 million and generated
$65.6 million in cash flow from operations," stated Thompson. "We
reduced internal inventories another $15.8 million and enter the
new year with a very lean supply chain. "Our full year results
reflect the inventory correction in the industry and the
significant actions we initiated within Fairchild to reduce
inventories and improve our product mix," said Thompson. "Even with
sales down 11% in 2005 compared to 2004, we were still able to
generate $150.7 million in cash flow from operations and reduce our
debt, net of cash and marketable investments, to a record low
$100.7 million." First Quarter and Full Year Guidance "We expect
first quarter revenues to increase 5 - 7% sequentially due to our
higher starting backlog position and our return to shipping at
levels more in line with end market demand," said Thompson. "We
forecast gross margins to increase another 200 - 300 basis points
sequentially, exclusive of stock based compensation expense, as we
benefit from the full effect of lower depreciation expense, higher
factory utilization and better product mix. Our fiscal calendar has
53 weeks in 2006 with the extra week falling in the first quarter.
Our first quarter guidance also does not include any revenue from
our recently divested LED lamp and display business, which was more
than 2% of our fourth quarter 2005 sales, or about $8.0 million.
Beginning in the first quarter of 2006, we are required to expense
stock based compensation in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123R Share Based Payment. We
forecast this expense to be approximately $4.0 - 4.5 million in the
first quarter of 2006. "For our general guidance for the full year
of 2006, we expect sales to grow at or above the market rate for
our analog and power businesses while our standard products will be
roughly flat to down a few percent compared to 2005," stated
Thompson. "We remain committed to our gross margin improvement
goals that have us reaching 30% in 2006 and mid-30% in 2007. We
expect R&D and SG&A expenses, exclusive of stock based
compensation expense, to increase slightly from the 2005 average of
mid-19% of sales to a range of 19.5% - 20.0% of sales in 2006 due
primarily to higher bonus accruals. We forecast capital spending to
be in the 6 - 8% of sales range again in 2006. We also plan on the
effective tax rate remaining at 25% for 2006. Finally, we expect
our stock based compensation expense to remain at roughly the same
quarterly run rate as the first quarter throughout all of 2006. "We
made excellent progress in 2005 by improving our management of the
distribution channel, reducing inventories throughout the supply
chain and reducing our capital spending and ultimately depreciation
expense," said Thompson. "Our focus in 2006 is on improving our
product mix, delivering more new leadership analog and integrated
power products while reducing our exposure to lower margin standard
products. 2006 holds great promise for Fairchild as we execute our
clear strategy to improve the quality of our business and improve
financial results." This press release is accompanied by pro forma
statements of operations (which exclude amortization of
acquisition-related intangibles, restructuring and impairments,
litigation settlement proceeds, charges for potential settlement
losses, impact of tax repatriation and other items), statements of
operations prepared in accordance with generally accepted
accounting principles (GAAP) (which include these expenses and
other items), and a reconciliation from pro forma to GAAP 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. 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. Fairchild's 9,000 employees design,
manufacture and market power, analog & mixed signal, interface,
logic, and optoelectronics products. Please contact us on the web
at www.fairchildsemi.com. 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 Twelve Months Ended
-------------------------- ------------------- December September
December December December 25, 25, 26, 25, 26, 2005 2005 2004 2005
2004 ------- ------- ------- --------- --------- Total revenue
$370.8 $345.5 $379.4 $1,425.1 $1,603.1 Cost of sales 280.9 273.8
282.1 1,110.8 1,154.8 ------- ------- ------- --------- ---------
Gross profit 89.9 71.7 97.3 314.3 448.3 ------- ------- -------
--------- --------- Operating expenses: Research and development
19.4 19.7 19.7 77.6 82.0 Selling, general and administrative 47.8
51.8 44.1 194.5 176.0 Amortization of acquisition-related
intangibles 5.8 5.9 6.1 23.9 26.0 Restructuring and impairments 4.7
4.2 2.2 16.9 18.6 Reserve for potential settlement losses 6.9 - -
6.9 11.0 ------- ------- ------- --------- --------- Total
operating expenses 84.6 81.6 72.1 319.8 313.6 ------- -------
------- --------- --------- Operating income (loss) 5.3 (9.9) 25.2
(5.5) 134.7 Interest expense, net 6.0 6.1 12.7 28.1 53.5 Other
(income) expense (17.6) (3.4) - 2.9 8.4 ------- ------- -------
--------- --------- Income (loss) before income taxes 16.9 (12.6)
12.5 (36.5) 72.8 Provision (benefit) for income taxes 21.6 8.2
(3.3) 204.7 13.6 ------- ------- ------- --------- --------- Net
income (loss) $(4.7) $(20.8) $15.8 $(241.2) $59.2 ======= =======
======= ========= ========= Net income (loss) per common share:
Basic $(0.04) $(0.17) $0.13 $(2.01) $0.50 ======= ======= =======
========= ========= Diluted $(0.04) $(0.17) $0.13 $(2.01) $0.48
======= ======= ======= ========= ========= Weighted average common
shares: Basic 120.3 120.0 119.6 120.2 119.5 ======= ======= =======
========= ========= Diluted 120.3 120.0 122.2 120.2 123.5 =======
======= ======= ========= ========= Fairchild Semiconductor
International, Inc. Reconciliation of Net Income (Loss) To Pro
Forma Net Income (Loss) (In millions) (Unaudited) Three Months
Ended Twelve Months Ended --------------------------
------------------- December September December December December
25, 25, 26, 25, 26, 2005 2005 2004 2005 2004 ------- -------
------- --------- --------- Net income (loss) $(4.7) $(20.8) $15.8
$(241.2) $59.2 Adjustments to reconcile net income (loss) to pro
forma net income (loss): Restructuring and impairments 4.7 4.2 2.2
16.9 18.6 Distributor sales reserves associated with product
discontinuations (1) - - - - (2.1) Inventory charge associated with
restructuring (2) - - - - 0.3 Costs associated with the redemption
of 10 1/2% Notes (3) - - - 23.9 - Reserve for potential settlement
losses 6.9 - - 6.9 11.0 Write off (recovery) of equity investments
(3) - (0.7) - (0.7) 8.4 Litigation settlement received, net (3)
(17.6) (2.7) - (20.3) - Accelerated depreciation on assets to be
abandoned (4) - 5.0 - 5.0 - Amortization of acquisition-related
intangibles 5.8 5.9 6.1 23.9 26.0 Associated tax effects of above
4.0 6.1 0.7 (3.3) (11.5) Reserve for deferred tax asset (5) - - -
195.3 - Repatriation tax effect (5) 14.5 - - 14.5 - ------- -------
------- --------- --------- Pro forma net income (loss) $13.6
$(3.0) $24.8 $20.9 $109.9 ------- ------- ------- ---------
--------- Fairchild Semiconductor International, Inc. Pro Forma
Consolidated Statements of Operations (In millions, except per
share amounts) (Unaudited) Three Months Ended Twelve Months Ended
-------------------------- ------------------- December September
December December December 25, 25, 26, 25, 26, 2005 2005 2004 2005
2004 ------- ------- ------- --------- --------- Pro forma total
revenue $370.8 $345.5 $379.4 $1,425.1 $1,601.0 Pro forma cost of
sales 280.9 273.0 282.1 1,110.0 1,154.5 ------- ------- -------
--------- --------- Pro forma gross profit 89.9 72.5 97.3 315.1
446.5 ------- ------- ------- --------- --------- Pro Forma
Operating expenses: Research and development 19.4 19.7 19.7 77.6
82.0 Pro forma selling, general and administrative 47.8 47.6 44.1
190.3 176.0 ------- ------- ------- --------- --------- Total pro
forma operating expenses 67.2 67.3 63.8 267.9 258.0 ------- -------
------- --------- --------- Pro forma operating income 22.7 5.2
33.5 47.2 188.5 Interest expense, net 6.0 6.1 12.7 28.1 53.5
------- ------- ------- --------- --------- Pro forma income (loss)
before income taxes 16.7 (0.9) 20.8 19.1 135.0 Pro forma provision
(benefit) for income taxes 3.1 2.1 (4.0) (1.8) 25.1 ------- -------
------- --------- --------- Pro forma net income (loss) $13.6
$(3.0) $24.8 $20.9 $109.9 ======= ======= ======= =========
========= Pro forma net income (loss) per common share: Basic $0.11
$(0.03) $0.21 $0.17 $0.92 ======= ======= ======= =========
========= Diluted $0.11 $(0.03) $0.21 $0.17 $0.89 ======= =======
======= ========= ========= Weighted average common shares: Basic
120.3 120.0 119.6 120.2 119.5 ======= ======= ======= =========
========= Diluted (6) 122.8 120.0 128.9 122.4 123.5 ======= =======
======= ========= ========= 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
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 months ended September 26, 2004 includes 6.7 million of
common stock equivalents. Fairchild Semiconductor International,
Inc. Consolidated Balance Sheets (In millions) (Unaudited) December
25, September 25, December 26, 2005 2005 2004 --------- ---------
--------- ASSETS Current assets: Cash and cash equivalents $330.7
$334.2 $146.3 Short-term marketable securities 182.5 106.4 422.1
Receivables, net 128.6 140.6 154.0 Inventories 200.5 216.3 253.9
Other current assets 32.2 37.9 56.1 --------- --------- ---------
Total current assets 874.5 835.4 1,032.4 Property, plant and
equipment, net 635.0 635.1 664.1 Intangible assets, net 126.1 131.9
151.6 Goodwill 229.9 229.9 229.9 Long-term marketable securities
32.7 64.0 124.0 Other assets 30.1 31.8 174.5 --------- ---------
--------- Total assets $1,928.3 $1,928.1 $2,376.5 =========
========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Current portion of long- term debt $4.5 $4.5 $3.3
Accounts payable 95.2 96.2 118.2 Accrued expenses and other current
liabilities 128.9 131.1 165.1 --------- --------- --------- Total
current liabilities 228.6 231.8 286.6 Long-term debt, less current
portion 642.1 643.2 845.2 Other liabilities 49.1 44.4 15.6
--------- --------- --------- Total liabilities 919.8 919.4 1,147.4
Total stockholders' equity 1,008.5 1,008.7 1,229.1 ---------
--------- --------- Total liabilities and stockholders' equity
$1,928.3 $1,928.1 $2,376.5 ========= ========= ========= Fairchild
Semiconductor International, Inc. Condensed Consolidated Statements
of Cash Flows (In millions) (Unaudited) Twelve Months Ended
------------------------------ December 25, December 26, 2005 2004
--------------- -------------- Cash flows from operating
activities: Net income (loss) $(241.2) $59.2 Adjustments to
reconcile net income (loss) to cash provided by (used in) operating
activities: Depreciation and amortization 150.2 175.1 Non-cash
restructuring and impairments expense 7.6 0.4 Deferred income
taxes, net 183.7 4.9 Other 12.2 3.6 Changes in operating assets and
liabilities, net of acquisitions 38.2 1.5 ---------------
-------------- Cash provided by operating activities 150.7 244.7
--------------- -------------- Cash flows from investing
activities: Capital expenditures (97.4) (190.3) Purchase of
marketable securities (591.3) (936.2) Sale of marketable securities
899.5 783.9 Maturity of marketable securities 20.6 58.9 Other (2.5)
4.1 =============== ============== Cash provided by (used in)
investing activities 228.9 (279.6) --------------- --------------
Cash flows from financing activities: Repayment of long-term debt
(356.4) (3.4) Issuance of long-term debt 154.5 - Proceeds from
issuance of common stock and from exercise of stock options, net
15.7 24.0 Other (9.0) (8.9) --------------- -------------- Cash
provided by (used in) financing activities (195.2) 11.7
--------------- -------------- Net change in cash and cash
equivalents 184.4 (23.2) Cash and cash equivalents at beginning of
period 146.3 169.5 --------------- -------------- Cash and cash
equivalents at end of period $330.7 $146.3 ===============
============== *T
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