Fairchild Semiconductor Reports Results for the Second Quarter 2006
July 20 2006 - 7:00AM
Business Wire
Fairchild Semiconductor -- Average Daily Sales Rate Increases More
than 6% Sequentially -- Gross Margins Up 90 Basis Points from the
Prior Quarter -- Channel and Internal Inventories Remain Lean
Fairchild Semiconductor (NYSE: FCS), the leading global supplier of
power semiconductors, today announced results for the second
quarter ended July 2, 2006. Fairchild reported second quarter sales
of $406.3 million, a 1% decrease from the prior quarter and 17%
more than the second quarter of 2005. Fairchild's second quarter
returned to the normal 13 week duration compared to the first
quarter of 2006 that included 14 weeks. Fairchild reported second
quarter net income of $23.0 million or $0.18 per diluted share
compared to a net income of $26.6 million or $0.21 per diluted
share in the prior quarter and a net loss of $205.3 million or
$1.71 per share in the second quarter of 2005. Gross margin was
30.8%, 90 basis points higher sequentially and 10.9 percentage
points higher than in the second quarter of 2005. Included in the
second quarter 2006 results is $7.6 million in total equity-based
compensation in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123(R) Share Based Payment. Fairchild reported
second quarter adjusted net income of $28.8 million or $0.23 per
diluted share compared to adjusted net income of $25.6 million or
$0.21 per diluted share in the prior quarter and an adjusted net
loss of $2.2 million or $0.02 per share in the second quarter of
2005. Adjusted net income (loss) excludes amortization of
acquisition-related intangibles, restructuring and impairments, net
gain on the sale of the LED lamps and displays product line,
associated net tax benefits of these items and other
acquisition-related intangibles, the impact of reserving the
deferred tax asset and other items. Adjusted results include
equity-based compensation expense in 2006. "We continued our steady
improvement in gross margins and delivered significant year over
year earnings growth during the second quarter," said Mark
Thompson, Fairchild's president and CEO. "We increased our average
daily sales rate by more than 6% sequentially in the second
quarter, keeping in mind that we returned to a normal 13 week
fiscal second quarter from the 14 week first quarter. Our gross
margin improvement was a result of this higher daily sales rate and
a richer product mix partially offset by increases in certain raw
material costs." End Markets and Channel Activity "Sales and order
rates were solid in most end markets with particular strength in
products supporting industrial applications," said Thompson.
"Demand remains healthy and we enter the second half of 2006 with a
strong backlog position. "I'm particularly pleased with our growth
in channel sell-through," stated Thompson. "Channel re-sales were
up more than 3% sequentially in the second quarter and 9% higher
than a year ago. We tightly controlled our sales into the channel
to track this increase in re-sales, which allowed us to hold
channel inventory flat from the prior quarter at about 11 weeks of
supply." Utilization and Lead Times "Overall blended utilization
rates remained roughly at our target levels during the second
quarter," stated Thompson. "We continue to selectively add capacity
to support growth and to maintain more stable lead times for higher
margin analog and functional power products. Lead times did
increase a few weeks during the middle of the quarter, but we were
able to manage them back down to the 10 to 12 week range by the end
of the second quarter." Second Quarter Financials "Good gross
margin performance and disciplined spending allowed us to expand
operating margins and earnings during the second quarter," said
Mark Frey, Fairchild's executive vice president and CFO. "R&D
and SG&A spending were roughly flat with the prior quarter as
increased equity compensation and salary expense offset the impact
of fewer days in the quarter. The combination of higher margins and
controlled spending enabled us to deliver a very healthy 13%
sequential increase in second quarter adjusted earnings. "Turning
to the balance sheet, internal inventories increased in line with
our higher shipping rate, leaving weeks of supply roughly flat with
the prior quarter at about 10 weeks," stated Frey. "During the
quarter we generated $62.9 million in cash from operations, paid
off $50 million in debt and favorably refinanced our credit
facility, leaving us with $522.9 million in cash and marketable
securities at the end of the second quarter." Third Quarter
Guidance "We expect third quarter revenues to be roughly flat and
gross margins to be flat to up 50 basis points sequentially," said
Frey. "We have more than 90% of our guided sales booked and
scheduled to ship within the quarter so we're comfortable with our
guidance for what is typically a seasonally slower quarter. We
expect R&D and SG&A spending, including equity-based
compensation, to remain at about 21.0% to 21.5% of sales for the
third quarter. Equity-based compensation expense is expected to be
between $6 million to $7 million and we expect the effective tax
rate to be approximately 15% in the third quarter. "The transition
to higher value continues and Fairchild is committed to delivering
financial results that reflect our leadership position in the
fast-growing power management market," stated Frey. This press
release includes references to adjusted net income (loss) (which
excludes amortization of acquisition-related intangibles,
restructuring and impairments, net gain on the sales of the LED
lamps and displays product line, associated net tax benefits of
these items and other acquisition-related intangibles, the impact
of reserving the deferred tax asset 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 adjusted net income (loss)
to GAAP net income (loss). GAAP and adjusted results both include
equity-based compensation expense. Adjusted results are not meant
as a substitute for GAAP, but are included solely for informational
and comparative purposes. Fairchild presents adjusted results
because its management uses them as additional measures of the
company's operating performance, and management believes adjusted
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 adjusted 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; changes in tax
regulations or the migration of profits from low tax jurisdictions
to higher tax jurisdictions; 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.
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. -0- *T Fairchild Semiconductor
International, Inc. Consolidated Balance Sheets (In millions)
(Unaudited) July 2, April 2, December 25, 2006 2006 2005 ---------
--------- --------- ASSETS Current assets: Cash and cash
equivalents $ 349.9 $ 335.6 $ 330.7 Short-term marketable
securities 164.3 186.3 182.5 Receivables, net 161.3 148.5 128.6
Inventories (1) 230.7 213.6 200.5 Other current assets 39.8 38.2
29.6 --------- --------- --------- Total current assets 946.0 922.2
871.9 Property, plant and equipment, net 641.6 630.1 635.0
Intangible assets, net 115.4 120.2 126.1 Goodwill 229.9 229.9 229.9
Long-term marketable securities 8.7 13.7 32.7 Other assets 33.2
30.9 30.1 --------- --------- --------- Total assets $ 1,974.8 $
1,947.0 $ 1,925.7 ========= ========= ========= LIABILITIES,
TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt $ 2.8 $ 3.4 $ 5.6 Accounts
payable 121.7 103.3 95.2 Accrued expenses and other current
liabilities 123.1 105.4 128.9 --------- --------- --------- Total
current liabilities 247.6 212.1 229.7 Long-term debt, less current
portion 591.6 641.0 641.0 Other liabilities 51.0 47.7 49.1
--------- --------- --------- Total liabilities 890.2 900.8 919.8
Temporary equity - deferred stock units 1.4 2.2 - Total
stockholders' equity 1,083.2 1,044.0 1,005.9 --------- ---------
--------- Total liabilities, temporary equity and stockholders'
equity $ 1,974.8 $ 1,947.0 $ 1,925.7 ========= ========= =========
(1) For the quarter ended July 2, 2006 and April 2, 2006, includes
$0.9 and $0.8 million, respectively of equity compensation
capitalized cost. Fairchild Semiconductor International, Inc.
Consolidated Statements of Operations (In millions, except per
share amounts) (Unaudited) Three Months Ended Six Months Ended
--------------------------------------------- July 2, April 2, June
26, July 2, June 26, 2006 2006 2005 2006 2005 ------- -------
------- ------- ------- Total revenue $ 406.3 $ 409.5 $ 346.0 $
815.8 $ 708.8 Cost of sales (1) 281.3 287.0 277.1 568.3 556.1
------- ------- ------- ------- ------- Gross profit 125.0 122.5
68.9 247.5 152.7 ------- ------- ------- ------- ------- Gross
profit % 30.8% 29.9% 19.9% 30.3% 21.5% Operating expenses: Research
and development (2) 26.3 26.2 19.5 52.5 38.5 Selling, general and
administrative (3) 60.3 60.0 47.5 120.3 94.9 Amortization of
acquisition-related intangibles 5.8 5.9 6.1 11.7 12.2 Restructuring
and impairments - - 3.9 - 8.0 Gain on sale of product line, net
(1.7) (3.2) - (4.9) - ------- ------- ------- ------- ------- Total
operating expenses 90.7 88.9 77.0 179.6 153.6 ------- -------
------- ------- ------- Operating income 34.3 33.6 (8.1) 67.9 (0.9)
Interest expense, net 5.5 5.9 5.9 11.4 16.0 Other expense 0.1 - -
0.1 23.9 ------- ------- ------- ------- ------- Income (loss)
before income taxes 28.7 27.7 (14.0) 56.4 (40.8) Provision for
income taxes 5.7 1.1 191.3 6.8 174.9 ------- ------- -------
------- ------- Net income (loss) $ 23.0 $ 26.6 $(205.3) $ 49.6
$(215.7) ======= ======= ======= ======= ======= Net income (loss)
per common share: Basic $ 0.19 $ 0.22 $ (1.71) $ 0.41 $ (1.80)
======= ======= ======= ======= ======= Diluted $ 0.18 $ 0.21 $
(1.71) $ 0.40 $ (1.80) ======= ======= ======= ======= =======
Weighted average common shares: Basic 122.2 121.4 119.8 121.9 119.8
======= ======= ======= ======= ======= Diluted 124.6 123.9 119.8
124.3 119.8 ======= ======= ======= ======= ======= (1) Includes
$1.7 million and $2.4 million of equity compensation expense for
the three and six months ended July 2, 2006, respectively. (2)
Includes $1.3 million and $2.3 million of equity compensation
expense for the three and six months ended July 2, 2006,
respectively. (3) Includes $4.6 million and $8.2 million of equity
compensation expense for the three and six months ended July 2,
2006, respectively. Fairchild Semiconductor International, Inc.
Reconciliation of Net Income (Loss) To Adjusted Net Income (Loss)
(In millions) (Unaudited) Three Months Ended Six Months Ended
--------------------------------------------- July 2, April 2, June
26, July 2, June 26, 2006 2006 2005 2006 2005 ------- -------
------- ------- ------- Net income (loss) $ 23.0 $ 26.6 $(205.3) $
49.6 $(215.7) Adjustments to reconcile net income (loss) to
adjusted net income (loss): Restructuring and impairments - - 3.9 -
8.0 Costs associated with the redemption of 10 1/2% Notes (4) - - -
- 23.9 Gain on sale of product line, net (1.7) (3.2) - (4.9) -
Amortization of acquisition-related intangibles 5.8 5.9 6.1 11.7
12.2 Associated tax effects of the above and other acquisition
intangibles 1.7 (0.2) (2.2) 1.5 (13.4) Reserve for deferred tax
asset - - 195.3 - 195.3 Tax benefits from finalized tax filings and
audit outcomes - (3.5) - (3.5) - ------- ------- ------- -------
------- Adjusted net income (loss) $ 28.8 $ 25.6 $ (2.2) $ 54.4 $
10.3 ------- ------- ------- ------- ------- Adjusted net income
(loss) per common share: Basic $ 0.24 $ 0.21 $ (0.02) $ 0.45 $ 0.09
======= ======= ======= ======= ======= Diluted $ 0.23 $ 0.21 $
(0.02) $ 0.44 $ 0.08 ======= ======= ======= ======= =======
Adjusted net income (loss) and adjusted 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. Adjusted
consolidated statements of operations are intended to present the
company's operating results, excluding items described above, for
the periods presented. Fairchild Semiconductor International, Inc.
Condensed Consolidated Statements of Cash Flows (In millions)
(Unaudited) Six Months Ended ------------------- July 2, June 26,
2006 2005 -------- -------- Cash flows from operating activities:
Net income (loss) $ 49.6 $ (215.7) Adjustments to reconcile net
income (loss) to cash provided by operating activities:
Depreciation and amortization 57.0 88.6 Non-cash stock-based
compensation expense 12.9 - Non-cash restructuring and impairments
expense - 2.1 Deferred income taxes, net 1.1 175.4 Other (3.2) 10.8
Changes in operating assets and liabilities, net of acquisitions
(51.5) (37.5) -------- -------- Cash provided by operating
activities 65.9 23.7 -------- -------- Cash flows from investing
activities: Capital expenditures (56.6) (55.7) Purchase of
marketable securities (94.6) (401.4) Sale of marketable securities
116.8 663.2 Maturity of marketable securities 19.7 15.5 Other 4.7
(1.0) -------- -------- Cash provided by (used in) investing
activities (10.0) 220.6 -------- -------- Cash flows from financing
activities: Repayment of long-term debt (52.2) (352.0) Issuance of
long-term debt - 154.5 Proceeds from issuance of common stock and
from exercise of stock options, net 20.9 5.7 Other (5.4) (5.0)
-------- -------- Cash used in financing activities (36.7) (196.8)
-------- -------- Net change in cash and cash equivalents 19.2 47.5
Cash and cash equivalents at beginning of period 330.7 146.3
-------- -------- Cash and cash equivalents at end of period $
349.9 $ 193.8 ======== ======== *T
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