Fairchild Semiconductor (NYSE: FCS), the leading global supplier
of power and mobile products, today announced results for the third
quarter ended September 26, 2010. Fairchild reported third quarter
sales of $414.4 million, up one percent from the prior quarter and
25 percent higher than the third quarter of 2009.
Fairchild reported third quarter net income of $35.8 million or
$0.28 per diluted share compared to $43.8 million or $0.34 per
diluted share in the prior quarter and $2.7 million or $0.02 per
diluted share in the third quarter of 2009. Gross margin was 36.4
percent compared to 35.0 percent in the prior quarter and 26.0
percent in the quarter one year ago.
Fairchild reported third quarter adjusted gross margin of 36.5
percent, up 130 basis points sequentially and 960 basis points
higher than in the third quarter of 2009. Adjusted gross margin
excludes accelerated depreciation and inventory reserve releases
related to fab closures. Adjusted net income was $52.8 million or
$0.42 per diluted share, compared to $51.3 million or $0.40 per
diluted share in the prior quarter and $14.9 million or $0.12 per
diluted share in the third quarter of 2009. Adjusted net income
excludes amortization of acquisition-related intangibles,
restructuring and impairments, gain associated with debt buyback,
net impairment/gain on equity investments, accelerated depreciation
and inventory reserve releases related to fab closures, write-off
of deferred financing fees, charge for litigation, and associated
net tax benefits of these items and other acquisition-related
intangibles.
“We generated solid gross margin and earnings growth in the
third quarter due to continued improvements in product mix,” said
Mark Thompson, Fairchild’s president and CEO. “Our mix benefited
from stronger sales of our mobile power and switch products as well
as many of our high voltage products and we expect these trends to
continue in the fourth quarter. We grew sales 1 percent
sequentially as we reduced days of inventory in the distribution
channel to a historic low for us. We delivered an adjusted gross
margin of 36.5 percent and expect to increase this level again in
Q4 to a record high.”
End Markets and Channel Activity
“Demand was generally in-line with expectations for all segments
except the computing and consumer end markets,” stated Thompson.
“Our sales into the OEM channel were up 10 percent sequentially to
support our key customers’ continued growth, especially in the
mobile segment. We continue to closely manage distribution and
reduced our shipments into the channel by 3 percent in Q3 even as
sell-through increased 3 percent from the prior quarter. This
resulted in a 1 percent reduction in channel inventory dollars or
roughly a 2 day decrease to a very lean 7.7 weeks. Recall that our
target for distribution inventory is between 7.5 to 8.5 weeks and
we plan to exit the year at the low end of this range.”
Third Quarter Financials
“We delivered another quarter of strong financial results as we
continue to ship a richer mix of analog and power management
products,” said Mark Frey, Fairchild’s executive vice president and
CFO. “We increased adjusted gross margin for the sixth quarter in a
row and our backlog indicates further margin expansion in Q4 on the
strength of higher new product sales. R&D and SG&A expenses
were $87.8 million and adjusted tax expense was $9 million or 15
percent of adjusted income before taxes, both in line with
expectations. We paid off $123 million in debt and repurchased $8
million in stock while generating $58 million of free cash flow. At
the end of the quarter, total cash and securities exceeded our debt
by a record high $93 million. We grew internal inventory 4 days to
just under 75 days.”
Forward Guidance
“We expect sales to be $390 to $410 million in the fourth
quarter,” said Frey. “Our current scheduled backlog is sufficient
to achieve this range but we expect to manage distribution backlog
lower to maintain our very lean channel. We expect to increase
gross margin another 50 to 100 basis points due primarily to
continued improvements in product mix. We anticipate R&D and
SG&A spending of $85 to $87 million in the fourth quarter. Net
interest expense is expected to be roughly $2 million per quarter
going forward. The adjusted tax rate is forecast at 15 to 20
percent for the quarter. 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 associated with debt buyback, net impairment/gain
on equity investments, accelerated depreciation and inventory
reserve releases related to fab closures, write-off of deferred
financing fees, charge for litigation, and associated net tax
benefits of these items and other acquisition-related intangibles.
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 “Forward
Guidance,” 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 at
investor.fairchildsemi.com or the SEC’s web site at
www.sec.gov.
About Fairchild Semiconductor:
Fairchild Semiconductor (NYSE: FCS) – global presence, local
support, smart ideas. Fairchild delivers energy-efficient,
easy-to-use and value-added semiconductor solutions for power and
mobile designs. We help our customers differentiate their products
and solve difficult technical challenges with our expertise in
power and signal path products. Please contact us on the web at
www.fairchildsemi.com.
Follow us on Twitter @ http://twitter.com/FairchildSemi
View product and company videos, listen to podcasts and comment
on our blog @ http://www.fairchildsemi.com/engineeringconnections
Visit us on Facebook @ http://www.facebook.com/FairchildSemiconductor
Fairchild Semiconductor International, Inc. Consolidated
Statements of Operations (In millions, except per share
amounts) (Unaudited)
Three Months Ended Nine Months Ended September 26,
June 27, September 27, September 26, September 27,
2010
2010
2009
2010
2009
Total revenue $ 414.4 $ 409.6 $ 331.8 $ 1,202.0 $ 833.0 Cost
of sales (1)
263.5
266.3 245.5
786.2 648.1 Gross
margin
150.9 143.3
86.3 415.8
184.9 Gross margin % 36.4 % 35.0
% 26.0 % 34.6 % 22.2 % Operating expenses: Research and
development (2) 30.5 29.1 24.9 88.0 74.3 Selling, general and
administrative (3) 57.3 56.0 43.4 165.6 131.8 Amortization of
acquisition-related intangibles 5.5 5.6 5.6 16.7 16.7 Restructuring
and impairments 1.3 - 4.1 3.7 22.1 Charge for litigation
8.0 -
- 8.0
- Total operating expenses
102.6 90.7
78.0 282.0
244.9 Operating income (loss) 48.3 52.6
8.3 133.8 (60.0 ) Other expense, net
3.8
2.6 4.4
8.8 15.4
Income (loss) before income taxes 44.5 50.0 3.9 125.0 (75.4 )
Provision (benefit) for income taxes
8.7
6.2 1.2
22.8 (2.1
) Net income (loss)
$ 35.8
$ 43.8 $
2.7 $ 102.2
$ (73.3 ) Net income
(loss) per common share: Basic
$ 0.29
$ 0.35 $
0.02 $ 0.82
$ (0.59 ) Diluted
$ 0.28 $
0.34 $ 0.02
$ 0.80 $
(0.59 ) Weighted average common shares:
Basic
124.5 125.2
123.9 124.8
123.8 Diluted
127.1 128.1
127.5 128.0
123.8 (1) Equity compensation
expense included in cost of sales $ 0.9 $ 1.6 $ 2.4 $ 4.8 $ 3.2 (2)
Equity compensation expense included in research and development $
1.0 $ 1.1 $ 1.1 $ 3.2 $ 2.6 (3) Equity compensation expense
included in selling, general and administrative $ 2.8 $ 3.2 $ 1.7 $
8.4 $ 5.9
Fairchild Semiconductor International, Inc.
Reconciliation of Net Income (Loss) To Adjusted Net Income
(In millions) (Unaudited)
Three Months Ended Nine Months Ended September
26, June 27, September 27, September 26, September 27,
2010
2010
2009
2010
2009
Net income (loss) $ 35.8 $ 43.8 $ 2.7 $ 102.2 $
(73.3)
Adjustments to reconcile net income (loss)
to adjusted net income (loss):
Restructuring and impairments 1.3 - 4.1 3.7 22.1 Net
impairment/gain on equity investments (1) - - - - 2.1 Gain
associated with debt buyback (1) - - - - (0.8) Accelerated
depreciation on assets related to fab closure (2) 0.5 0.9 3.0 2.7
6.7 Write-off of deferred financing fees (1) 2.1 - - 2.1 - Charge
for litigation 8.0 - - 8.0 - Inventory write off/release associated
with fab closure (2) (0.1) - (0.1) (0.2) 0.5 Amortization of
acquisition-related intangibles 5.5 5.6 5.6 16.7 16.7 Associated
net tax effects of the above and other acquisition-related
intangibles
(0.3) 1.0 (0.4)
0.7 (2.7) Adjusted net income (loss)
$ 52.8 $ 51.3 $ 14.9 $
135.9 $ (28.7) Adjusted net income
(loss) per common share: Basic
$ 0.42 $
0.41 $ 0.12 $ 1.09 $
(0.23) Diluted
$ 0.42 $ 0.40
$ 0.12 $ 1.06 $ (0.23)
(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 26,
June 27, September 27, September 26, September 27,
2010
2010
2009
2010
2009
Gross margin $ 150.9 $ 143.3 $ 86.3 $ 415.8 $ 184.9
Adjustments to reconcile gross margin to
adjusted gross margin:
Accelerated depreciation on assets related to fab closure 0.5 0.9
3.0 2.7 6.7 Inventory write off/release associated with fab closure
(0.1 ) -
(0.1 )
(0.2 ) 0.5
Adjusted gross margin
$ 151.3
$ 144.2 $
89.2 $ 418.3
$ 192.1 Adjusted gross
margin % 36.5 % 35.2 % 26.9 % 34.8 % 23.1 % Adjusted net
income, adjusted net income 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 26, June 27, December 27,
2010
2010
2009
ASSETS Current assets: Cash and cash equivalents $
384.5 $ 459.7 $ 415.8 Short-term marketable securities 0.1 0.1 0.1
Receivables, net 171.1 173.1 134.0 Inventories 220.1 210.2 189.5
Other current assets
48.7
38.5 41.8 Total current assets
824.5 881.6 781.2 Property, plant and equipment, net 650.8
640.2 653.2 Intangible assets, net 64.4 69.9 81.1 Goodwill 161.3
161.3 161.3 Long-term securities 29.8 36.7 35.8 Other assets
51.3 47.9 49.8
Total assets
$ 1,782.1 $
1,837.6 $ 1,762.4
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities: Current portion of long-term debt $ 3.8 $ 5.3
$ 5.3 Accounts payable 145.1 145.9 119.6 Accrued expenses and other
current liabilities
127.0
98.5 70.6 Total current
liabilities 275.9 249.7 195.5 Long-term debt, less current
portion 317.8 439.3 466.9 Other liabilities
71.1 61.3 71.1
Total liabilities 664.8 750.3 733.5 Temporary equity -
deferred stock units 2.2 2.1 2.3 Total stockholders' equity
1,115.1 1,085.2
1,026.6 Total liabilities, temporary equity and
stockholders' equity
$ 1,782.1
$ 1,837.6 $
1,762.4 Fairchild Semiconductor International,
Inc. Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
Three Months Ended Nine Months Ended September
26, September 26, September 27,
2010
2010
2009
Cash flows from operating activities: Net income (loss) $ 35.8 $
102.2 $ (73.3 )
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 39.2 118.9 120.7 Non-cash stock-based
compensation expense 4.7 15.9 11.7 Non-cash restructuring and
impairments expense - - 0.8 Gain on debt buyback - - (0.8 ) Gain on
sale of equity investment - - (0.2 ) Write-off of equity investment
- - 2.3 Write-off of deferred financing fees 2.1 2.1 Deferred
income taxes, net (3.2 ) (0.3 ) (11.6 ) Other 0.3 0.9 0.9
Changes in operating assets and
liabilities, net of acquisitions
17.3 (2.4
) 68.4 Cash provided by
operating activities
96.2
237.3 118.9
Cash flows from investing activities: Capital expenditures (38.6 )
(89.5 ) (33.0 ) Purchase of marketable securities - - (0.4 ) Sale
of marketable securities 1.5 1.5 0.3 Maturity of marketable
securities - 0.1 0.2 Purchase of equity investment (3.0 ) (3.0 ) -
Other (0.3 ) (0.9 ) (1.2 ) Acquisitions
-
- (1.5
) Cash used in investing activities
(40.4 ) (91.8
) (35.6 ) Cash
flows from financing activities: Repayment of long-term debt (123.0
) (150.6 ) (17.7 )
Proceeds from issuance of common stock and
from exercise of stock options, net
- 0.2 - Purchase of treasury stock (8.0 ) (25.6 ) - Other
- (0.8 )
(0.7 ) Cash used in financing
activities
(131.0 )
(176.8 ) (18.4
) Net change in cash and cash equivalents (75.2
) (31.3 ) 64.9 Cash and cash equivalents at beginning of period
459.7 415.8
351.5 Cash and cash equivalents at end
of period
$ 384.5 $
384.5 $ 416.4
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 26, September 26,
September 27,
2010
2010
2009
Cash provided by operating activities $ 96.2 $ 237.3 $ 118.9
Capital expenditures
(38.6 )
(89.5 ) (33.0
) Free cash flow
$ 57.6
$ 147.8 $
85.9
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