Fairchild Semiconductor (NYSE: FCS), a leading global supplier
of high performance products to drive energy-efficiency, today
announced results for the third quarter ended September 27, 2009.
Fairchild reported third quarter sales of $331.8 million, up 19
percent from the prior quarter and 23 percent lower than the third
quarter of 2008.
Fairchild reported third quarter net income of $2.7 million or
$0.02 per diluted share compared to a net loss of $24.9 million or
$0.20 per share in the prior quarter and net income of $26.7
million or $0.21 per diluted share in the third quarter of 2008.
Gross margin was 26.0 percent compared to 23.2 percent in the prior
quarter and 29.9 percent in the year ago quarter. Included in these
results is $3 million of accelerated depreciation and a favorable
$0.1 million inventory reserve release related to previously
announced fab closures.
Fairchild reported third quarter adjusted net income of $14.9
million or $0.12 per diluted share, compared to an adjusted net
loss of $3.5 million or $0.03 per share in the prior quarter and
adjusted net income of $34.0 million or $0.27 per diluted share in
the third quarter of 2008. Adjusted gross margin was 26.9 percent,
up 2 percentage points sequentially and 3 percentage points lower
than in the third quarter of 2008. Adjusted gross margin excludes
accelerated depreciation and inventory write-offs/reserve releases
related to fab closures. Adjusted net income and loss excludes
amortization of acquisition-related intangibles, restructuring and
impairments, gain on sale of equity investment, impairment of
equity investment, gain associated with debt buyback, accelerated
depreciation and inventory write-offs/reserve releases related to
fab closures, and associated net tax benefits of these items and
other acquisition-related intangibles.
“We executed well in the third quarter to post strong sales and
earnings gains while making further progress on inventories,” said
Mark Thompson, Fairchild’s president and CEO. “Our channel
inventories are at record low levels and we are committed to
maintaining a very lean supply chain. We plan to ship much closer
to actual end market consumption rates in the fourth quarter and
will adjust our shipments as required to keep channel inventories
roughly flat to our current levels as we exit the year. As a result
of our disciplined cost control, lower capital spending and
effective management of inventory and working capital, our free
cash flow generation in the first three quarters of 2009 is greater
than our free cash flow generation for any full year in our
history. Our guidance for the fourth quarter reflects the
significant leverage in our business model that enables us to
deliver higher margins, earnings and cash flow at much lower
revenue levels than in the past.”
End Markets and Channel Activity
“We under-shipped distribution sell-through again in the third
quarter resulting in about an $11 million reduction in channel
inventory,” said Thompson. “Our channel inventory is now at a
record low 9.6 weeks. Order rates were solid throughout the quarter
across a broad range of end markets enabling us to increase our
backlog position from a quarter ago. Overall product pricing in Q3
improved to down about 2 percent sequentially which we believe
marks the inflection point for prices in this cycle. Stronger
demand caused lead times to increase to a more normal range of 6 to
8 weeks during the quarter.”
Third Quarter Financials
“We posted solid financial progress in all major aspects of our
business,” said Mark Frey, Fairchild’s executive vice president and
CFO. “We raised factory loadings throughout the quarter while
maintaining our disciplined cost management to deliver gross
margins at the high end of our guidance range. R&D and SG&A
expenses were better than expected at just over $68 million. Cash
and securities increased $29 million from the prior quarter to $453
million which reflects cash flow from operations of $46 million and
capital spending of $12 million. Through the first three quarters
of 2009 we generated $86 million of free cash flow which is already
higher than any full year results in our history.”
Current Status of Fourth Quarter Business
“Our scheduled backlog for fourth quarter shipments is currently
about $333 million which is roughly $33 million higher than this
point a quarter ago,” said Frey. “Included in this amount is
approximately $20 million of backlog we booked in the first two and
a half weeks of this quarter. Given that bookings typically
moderate after mid-November, and we are focused on maintaining the
current weeks of inventory level in the distribution channel, we
believe sales in the range of $333 to $343 million are possible for
the fourth quarter. For this range of revenue, we anticipate gross
margin to be between 28 percent and 30 percent. We expect R&D
and SG&A spending to be roughly $70 million in Q4. Interest
expense for the fourth quarter is expected to be roughly $4.5
million while our adjusted tax rate should be in the range of 15 to
20 percent. We anticipate recording approximately $3 million in
charges and $2 million of accelerated depreciation in the fourth
quarter associated with previously announced fab closure actions.
As with last quarter, we are not assuming any obligation to update
this information, although we may choose to do so before we
announce fourth quarter results.”
Adjusted gross margin, adjusted net income and loss and free
cash flow are non-GAAP financial measures and should not be
considered replacements for GAAP results. We exclude accelerated
depreciation and inventory write-offs/reserves related to fab
closures from GAAP gross margins to determine adjusted gross
margins. To determine adjusted net income/loss, we exclude
amortization of acquisition-related intangibles, restructuring and
impairments, gain on sale of equity investment, impairment of
equity investment, gain associated with debt buyback, accelerated
depreciation and inventory write-offs/ reserve releases related to
fab closures, and associated net tax benefits of these items and
other acquisition-related intangibles from GAAP net income/loss. To
determine free cash flow, we subtract capital expenditures from
GAAP cash provided by operating activities. 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, non-cash 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, including the one headed “Current
Status of Fourth Quarter Business,” contain forward-looking
statements that are based on management’s assumptions and
expectations and 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:
failure to maintain order rates at expected levels; failure to
achieve expected savings from cost reduction actions or other
adverse results from those actions; 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 at competitive prices; 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 or the
SEC’s web site at www.sec.gov.
About Fairchild Semiconductor:
Fairchild Semiconductor (NYSE: FCS) is a global leader
delivering energy-efficient power analog and power discrete
solutions. Fairchild is The Power Franchise®, providing
leading-edge silicon and packaging technologies, manufacturing
strength and system expertise for consumer, communications,
industrial, portable, computing and automotive systems. An
application-driven, solution-based semiconductor supplier,
Fairchild provides online design tools and design centers worldwide
as part of its comprehensive Global Power ResourceSM. Please
contact us on the web at www.fairchildsemi.com.
Fairchild Semiconductor International, Inc. Consolidated
Statements of Operations (In millions, except per share
amounts) (Unaudited)
Three Months Ended Nine Months
Ended September 27, June 28, September 28, September 27, September
28,
2009
2009
2008
2009
2008
Total revenue $ 331.8 $ 277.9 $ 428.3 $ 833.0 $ 1,253.3 Cost
of sales (1)
245.5
213.3 300.1
648.1 883.0 Gross
margin
86.3 64.6
128.2 184.9
370.3 Gross margin % 26.0 % 23.2
% 29.9 % 22.2 % 29.5 % Operating expenses: Research and
development (2) 24.9 25.6 29.1 74.3 89.2 Selling, general and
administrative (3) 43.4 43.7 54.7 131.8 173.4 Amortization of
acquisition-related intangibles 5.6 5.6 5.5 16.7 16.6 Restructuring
and impairments
4.1
11.3 1.8
22.1 13.3 Total
operating expenses
78.0
86.2 91.1
244.9 292.5
Operating income (loss) 8.3 (21.6 ) 37.1 (60.0 ) 77.8 Other
expense, net
4.4 5.7
5.4 15.4
16.9 Income (loss) before income
taxes 3.9 (27.3 ) 31.7 (75.4 ) 60.9 Provision (benefit) for
income taxes
1.2
(2.4 ) 5.0
(2.1 ) 10.2
Net income (loss)
$ 2.7
$ (24.9 ) $
26.7 $ (73.3
) $ 50.7 Net
income (loss) per common share: Basic
$
0.02 $ (0.20
) $ 0.21
$ (0.59 ) $
0.41 Diluted
$ 0.02
$ (0.20 )
$ 0.21 $
(0.59 ) $ 0.40
Weighted average common shares: Basic
123.9 123.9
124.4 123.8
124.6 Diluted
127.5
123.9 125.0
123.8 125.3
(1) Equity compensation expense included in cost of sales $
2.4 $ 0.6 $ 1.3 $ 3.2 $ 3.6 (2) Equity compensation expense
included in research and development $ 1.1 $ 1.2 $ 1.0 $ 2.6 $ 3.2
(3) Equity compensation expense included in selling, general and
administrative $ 1.7 $ 2.1 $ 1.7 $ 5.9 $ 10.0
Fairchild Semiconductor International, Inc.
Reconciliation of Net Income (Loss) To Adjusted Net Income
(Loss) (In millions) (Unaudited) Three
Months Ended Nine Months Ended September 27, June 28, September 28,
September 27, September 28,
2009
2009
2008
2009
2008
Net income (loss) $ 2.7 $ (24.9 ) $ 26.7 $ (73.3 ) $
50.7
Adjustments to reconcile net
income (loss) to adjusted net income (loss):
Restructuring and impairments 4.1 11.3 1.8 22.1 13.3 Gain on sale
of equity investment (1) - (0.2 ) - (0.2 ) - Impairment of equity
investment (1) - 2.3 - 2.3 - Gain associated with debt buyback (1)
- (0.8 ) - (0.8 ) - Accelerated depreciation on assets related to
fab closure (2) 3.0 3.7 - 6.7 - Inventory write-off(release)
associated with fab closure (2) (0.1 ) 0.6 - 0.5 - Costs associated
with the redemption of convertible debt (1) - - - - 0.4
Amortization of acquisition-related intangibles 5.6 5.6 5.5 16.7
16.6 Associated net tax effects of the above and other
acquisition-related intangibles (0.4 ) (1.1 ) - (2.7 ) 0.2 Tax
effects from finalized tax filings and positions
- -
- -
(2.5 ) Adjusted net income (loss)
$ 14.9 $
(3.5 ) $ 34.0
$ (28.7 )
$ 78.7 Adjusted net income
(loss) per common share: Basic
$ 0.12
$ (0.03 )
$ 0.27 $
(0.23 ) $ 0.63
Diluted
$ 0.12
$ (0.03 ) $
0.27 $ (0.23
) $ 0.63 (1)
Recorded in other expense, net (2) Recorded in cost of sales
Fairchild Semiconductor International, Inc.
Reconciliation of Gross Margin To Adjusted Gross Margin
(In millions) (Unaudited) Three Months Ended
Nine Months Ended September 27, June 28, September 28, September
27, September 28,
2009
2009 2008
2009 2008
Gross margin $ 86.3 $ 64.6 $ 128.2 $ 184.9 $ 370.3
Adjustments to reconcile gross
margin to adjusted gross margin:
Accelerated depreciation on assets related to fab closure 3.0 3.7 -
6.7 - Inventory write-off (release) associated with fab closure
(0.1 ) 0.6
- 0.5
- Adjusted gross margin
$
89.2 $ 68.9
$ 128.2 $
192.1 $ 370.3
Adjusted gross margin % 26.9 % 24.8 % 29.9 % 23.1 % 29.5 %
Adjusted net income (loss),
adjusted net income (loss) per share, and adjusted gross margin
should not be considered as alternatives to net income (loss), net
income (loss) per share,gross margin 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.
Fairchild Semiconductor International, Inc.
Consolidated Balance Sheets (In millions)
(Unaudited)
September 27, June 28, December 28,
2009
2009
2008
ASSETS Current assets: Cash and cash equivalents $
416.4 $ 383.6 $ 351.5 Short-term marketable securities 0.7 0.8 0.8
Receivables, net 131.5 115.5 155.6 Inventories 182.6 197.9 231.0
Other current assets
43.1
36.9 40.0 Total current assets
774.3 734.7 778.9 Property, plant and equipment, net 662.7
682.7 731.6 Intangible assets, net 86.7 92.3 102.1 Goodwill 161.3
161.7 161.7 Long-term securities 35.4 39.0 34.6 Other assets
40.9 37.4 40.9
Total assets
$ 1,761.3 $
1,747.8 $ 1,849.8
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities: Current portion of long-term debt $ 5.3 $ 5.3
$ 5.3 Accounts payable 106.8 106.3 94.4 Accrued expenses and other
current liabilities
67.1
60.9 94.4 Total current
liabilities 179.2 172.5 194.1 Long-term debt, less current
portion 511.3 512.6 529.9 Other liabilities
63.4 62.2 65.9
Total liabilities 753.9 747.3 789.9 Temporary equity -
deferred stock units 2.2 2.1 2.8 Total stockholders' equity
1,005.2 998.4
1,057.1 Total liabilities, temporary equity and
stockholders' equity
$ 1,761.3
$ 1,747.8 $
1,849.8 Fairchild Semiconductor
International, Inc. Condensed Consolidated Statements of
Cash Flows (In millions) (Unaudited)
Three
Months Ended Nine Months Ended September 27, September 27,
September 28,
2009
2009
2008
Cash flows from operating activities: Net income (loss) $ 2.7 $
(73.3 ) $ 50.7
Adjustments to reconcile net
income (loss) to cash provided by operating activities:
Depreciation and amortization 41.1 120.7 100.8 Non-cash stock-based
compensation expense 5.2 11.7 16.8 Non-cash restructuring and
impairments expense - 0.8 8.0 Gain on debt buyback - (0.8 ) - Gain
on sale of equity investment - (0.2 ) - Write-off of equity
investment - 2.3 - Deferred income taxes, net (3.9 ) (11.6 ) 2.6
Other 0.4 0.9 2.0
Changes in operating assets and
liabilities, net of acquisitions
0.6 68.4
(10.2 ) Cash provided by operating
activities
46.1
118.9 170.7
Cash flows from investing activities: Capital expenditures (11.6 )
(33.0 ) (133.1 ) Purchase of marketable securities (0.1 ) (0.4 )
(3.8 ) Sale of marketable securities - 0.3 5.0 Maturity of
marketable securities 0.1 0.2 0.2 Other (0.4 ) (1.2 ) (3.0 )
Acquisitions
- (1.5
) - Cash used in investing
activities
(12.0 )
(35.6 ) (134.7
) Cash flows from financing activities:
Repayment of long-term debt (1.3 ) (17.7 ) (203.1 ) Issuance of
long-term debt - - 150.0
Proceeds from issuance of common
stock and from exercise of stock options, net
- - 7.2 Purchase of treasury stock - - (15.9 ) Other
- (0.7 )
(3.4 ) Cash used in financing
activities
(1.3 )
(18.4 ) (65.2
) Net change in cash and cash equivalents 32.8
64.9 (29.2 ) Cash and cash equivalents at beginning of period
383.6 351.5
409.0 Cash and cash equivalents at end
of period
$ 416.4 $
416.4 $ 379.8
Fairchild Semiconductor International,
Inc. Reconciliation of Cash Provided by Operating Activities
to Free Cash Flow (In millions) (Unaudited)
Three Months Ended Nine Months Ended September 27, September
27, September 28,
2009
2009
2008
Cash provided by operating activities $ 46.1 $ 118.9 $ 170.7
Capital expenditures
(11.6 )
(33.0 ) (133.1
) Free cash flow
$ 34.5
$ 85.9 $
37.6
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