Fairchild Semiconductor (NYSE: FCS), a leading global supplier
of high performance power and mobile products, today announced
results for the fourth quarter and full year ended December 26,
2010. Fairchild reported fourth quarter sales of $397.7 million,
down 4 percent from the prior quarter and 12 percent higher than
the fourth quarter of 2009.
Fairchild reported fourth quarter net income of $51.0 million or
$0.40 per diluted share compared to $35.8 million or $0.28 per
diluted share in the prior quarter and $13.1 million or $0.10 per
diluted share in the fourth quarter of 2009. Gross margin was 37.0
percent compared to 36.4 percent in the prior quarter and 29.7
percent in the year ago quarter.
Fairchild reported fourth quarter adjusted gross margin of 37.1
percent, up 60 basis points sequentially and 680 basis points
higher than in the fourth quarter of 2009. Adjusted gross margin
excludes accelerated depreciation and inventory reserve releases
related to fab closures. Adjusted net income was $57.3 million or
$0.45 per diluted share, compared to $52.8 million or $0.42 per
diluted share in the prior quarter and $29.9 million or $0.23 per
diluted share in the fourth 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 impact of these items and other acquisition-related
intangibles.
Full year revenues for 2010 were $1.6 billion, an increase of 35
percent compared to 2009. Fairchild reported net income of $153
million or $1.20 per diluted share in 2010, compared to a net loss
of $60 million or $0.49 per share in 2009. On an adjusted basis,
the company reported 2010 net income of $193 million or $1.51 per
diluted share, compared to $1 million or $0.01 per diluted share in
2009.
“We increased adjusted gross margin percent to a record high in
the fourth quarter as we continued our steady improvement in
product mix,” said Mark Thompson, Fairchild’s Chairman, CEO and
president. “We grew sales in our higher margin mobile power, switch
and high performance MOSFET businesses targeted to the handset and
tablet market. Our high voltage product sales also remained strong.
We tightly controlled shipments into the distribution channel
during the quarter to hold inventory roughly flat at 8 weeks which
is the lowest level we have ever achieved exiting a year.
“For the full year 2010, we grew sales by 35 percent and
increased adjusted gross margin by more than 10 percentage points
compared to 2009. We generated record free cash flow of $175
million and paid off $152 million of our term loan to reduce our
debt level to a record low $321 million. Our net cash and
securities position at the end of 2010 was also a record high at
$114 million. 2010 was a break out year for Fairchild and as our
first quarter guidance indicates, we expect to build on this
momentum in 2011.”
End Markets and Channel Activity
“Demand was generally in-line with expectations for all segments
except the computing end market which was slightly weaker due to
greater than normal inventory reductions,” stated Thompson. “We
decreased sales into distribution in line with the reduction in
sell through. This enabled us to hold channel days of inventory at
a record low for the fourth quarter and positions us well for
Q1.”
Fourth Quarter Financials
“We increased adjusted gross margin percent for the seventh
consecutive quarter as our product mix continues to improve,” said
Mark Frey, Fairchild’s executive vice president and CFO. “R&D
and SG&A expenses were $87.4 million and adjusted tax expense
was $1.6 million or 3 percent of adjusted income before taxes,
which was lower than expected due primarily to tax benefits related
to higher R&D spending in Korea. We generated $26.7 million of
free cash flow during the quarter and paid $11 million to acquire
an early stage MEMS company. At the end of the quarter, total cash
and securities exceeded our debt by a record high $114 million. We
grew internal inventory dollars by about 6 percent to 83 days to
prepare for higher sales in the first half of 2011.”
Forward Guidance
“We expect sales to be $405 to $420 million in the first
quarter,” said Frey. “Our current scheduled backlog is sufficient
to achieve this range. We expect gross margin to be flat to down
100 basis points sequentially due primarily to the impact of lower
utilization in the fourth quarter as well as modest seasonal
increases in costs. We anticipate R&D and SG&A spending of
$94 to $96 million in the first quarter as we modestly ramp up our
investment in new product development. Net interest expense is
expected to be roughly $2 million per quarter going forward. The
adjusted tax rate is forecast at 15 percent plus or minus 3 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 first quarter results.”
Litigation Update
Separately, the company announced a recent court ruling in its
six-year-old patent litigation with Power Integrations. The court
denied Power Integrations' request for attorneys' fees and triple
damages, and instead doubled the damage award from approximately
$6.1 million to approximately $12.2 million. The amount is fully
reserved and the decision will have no effect on Fairchild's
business operations.
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
impact 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 Twelve Months Ended
December 26, September 26, December 27, December 26, December 27,
2010
2010
2009
2010
2009
Total revenue $ 397.7 $ 414.4 $ 354.5 $ 1,599.7 $ 1,187.5
Cost of sales (1)
250.5
263.5 249.1
1,036.7 897.2 Gross
margin
147.2 150.9
105.4 563.0
290.3 Gross margin % 37.0 % 36.4
% 29.7 % 35.2 % 24.4 % Operating expenses: Research and
development (2) 32.2 30.5 25.4 120.2 99.7 Selling, general and
administrative (3) 55.2 57.3 47.5 220.8 179.3 Amortization of
acquisition-related intangibles 5.7 5.5 5.6 22.4 22.3 Restructuring
and impairments 3.3 1.3 5.8 7.0 27.9 Charge for litigation
- 8.0
6.0 8.0
6.0 Total operating expenses
96.4 102.6
90.3 378.4
335.2 Operating income (loss) 50.8 48.3
15.1 184.6 (44.9 ) Other expense, net
1.1
3.8 3.0
9.9 18.4
Income (loss) before income taxes 49.7 44.5 12.1 174.7 (63.3
) Provision (benefit) for income taxes
(1.3 ) 8.7
(1.0 ) 21.5
(3.1 ) Net income (loss)
$ 51.0 $
35.8 $ 13.1
$ 153.2 $
(60.2 ) Net income (loss) per
common share: Basic
$ 0.41
$ 0.29 $
0.11 $ 1.23
$ (0.49 ) Diluted
$ 0.40 $
0.28 $ 0.10
$ 1.20 $
(0.49 ) Weighted average common shares:
Basic
124.0 124.5
124.0 124.6
123.8 Diluted
128.0 127.1
127.6 128.0
123.8 (1) Equity compensation
expense included in cost of sales $ 0.9 $ 0.9 $ 2.6 $ 5.7 $ 5.8 (2)
Equity compensation expense included in research and development $
0.9 $ 1.0 $ 1.2 $ 4.1 $ 3.8 (3) Equity compensation expense
included in selling, general and administrative $ 2.7 $ 2.8 $ 2.0 $
11.1 $ 7.9
Fairchild Semiconductor International,
Inc. Reconciliation of Net Income (Loss) To Adjusted Net
Income (In millions) (Unaudited)
Three Months Ended Twelve Months Ended
December 26, September 26, December 27, December 26, December 27,
2010
2010
2009
2010
2009
Net income (loss) $ 51.0 $ 35.8 $ 13.1 $ 153.2 $
(60.2 ) Adjustments to reconcile net income (loss) to adjusted net
income (loss): Restructuring and impairments 3.3 1.3 5.8 7.0 27.9
Net impairment/gain on equity investments (1) - - - - 2.1 Gain
associated with debt buyback (1) - - (1.2 ) - (2.0 ) Accelerated
depreciation on assets related to fab closure (2) 0.2 0.5 2.1 2.9
8.8 Write-off of deferred financing fees (1) - 2.1 - 2.1 - Charge
for litigation - 8.0 6.0 8.0 6.0 Inventory write off/release
associated with fab closure (2) - (0.1 ) (0.1 ) (0.2 ) 0.4
Amortization of acquisition-related intangibles 5.7 5.5 5.6 22.4
22.3 Associated net tax effects of the above and other
acquisition-related intangibles
(2.9
) (0.3 )
(1.4 ) (2.2
) (4.1 ) Adjusted net
income (loss)
$ 57.3
$ 52.8 $
29.9 $ 193.2
$ 1.2 Adjusted net income
(loss) per common share: Basic
$ 0.46
$ 0.42 $
0.24 $ 1.55
$ 0.01 Diluted
$
0.45 $ 0.42
$ 0.23 $
1.51 $ 0.01
(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 Twelve Months
Ended December 26, September 26, December 27, December 26, December
27,
2010
2010
2009
2010
2009
Gross margin $ 147.2 $ 150.9 $ 105.4 $ 563.0 $ 290.3
Adjustments to reconcile gross margin to adjusted gross margin:
Accelerated depreciation on assets related to fab closure 0.2 0.5
2.1 2.9 8.8 Inventory write off/release associated with fab closure
- (0.1
) (0.1 )
(0.2 ) 0.4
Adjusted gross margin
$ 147.4
$ 151.3 $
107.4 $ 565.7
$ 299.5 Adjusted gross
margin % 37.1 % 36.5 % 30.3 % 35.4 % 25.2 % 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) December 26, September 26, December 27,
2010
2010
2009
ASSETS Current assets: Cash and cash equivalents $
404.6 $ 384.5 $ 415.8 Short-term marketable securities 0.1 0.1 0.1
Receivables, net 156.4 171.1 134.0 Inventories 232.7 220.1 189.5
Other current assets
49.3
48.7 41.8 Total current assets
843.1 824.5 781.2 Property, plant and equipment, net 689.3
650.8 653.2 Intangible assets, net 69.7 64.4 81.1 Goodwill 164.8
161.3 161.3 Long-term securities 30.3 29.8 35.8 Other assets
51.9 51.3 49.8
Total assets
$ 1,849.1 $
1,782.1 $ 1,762.4
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities: Current portion of long-term debt $ 3.8 $ 3.8
$ 5.3 Accounts payable 139.0 145.1 119.6 Accrued expenses and other
current liabilities
139.2
127.0 70.6 Total current
liabilities 282.0 275.9 195.5 Long-term debt, less current
portion 316.9 317.8 466.9 Other liabilities
71.5 71.1 71.1
Total liabilities 670.4 664.8 733.5 Temporary equity -
deferred stock units 2.4 2.2 2.3 Total stockholders' equity
1,176.3 1,115.1
1,026.6 Total liabilities, temporary equity and
stockholders' equity
$ 1,849.1
$ 1,782.1 $
1,762.4 Fairchild Semiconductor
International, Inc. Condensed Consolidated Statements of
Cash Flows (In millions) (Unaudited)
Three Months Ended Twelve Months Ended
December 26, December 26, December 27,
2010
2010
2009
Cash flows from operating activities: Net income (loss) $ 51.0 $
153.2 $ (60.2 ) Adjustments to reconcile net income (loss) to cash
provided by operating activities: Depreciation and amortization
37.4 156.3 160.4 Non-cash stock-based compensation expense 4.5 20.4
17.5 Non-cash restructuring and impairments expense - - 1.6
Non-cash acquisition tax impact (3.5 ) (3.5 ) - Impairment of
equity investment - - 2.3 Gain on debt buyback - - (2.2 ) Gain on
sale of equity investment - - (0.2 ) Write-off of deferred
financing fees - 2.1 - Deferred income taxes, net (0.9 ) (1.2 )
(8.6 ) Other non-cash items 1.0 1.9 1.9 Changes in operating assets
and liabilities, net of acquisitions
5.7
3.3 75.9 Cash
provided by operating activities
95.2
332.5 188.4
Cash flows from investing activities: Capital expenditures
(68.5 ) (158.0 ) (59.8 ) Purchase, sale, and maturity of marketable
securities - 1.6 0.6 Purchase of equity investment - (3.0 ) -
Acquisitions (11.0 ) (11.0 ) (1.5 ) Other
(0.9
)
(1.8 ) (1.9
) Cash used in investing activities
(80.4 ) (172.2
) (62.6 ) Cash
flows from financing activities: Repayment of long-term debt (0.9 )
(151.5 ) (60.6 ) Proceeds from issuance of common stock and from
exercise of stock options, net 6.2 6.4 - Purchase of treasury stock
- (25.6 ) (0.9 ) Other
-
(0.8 ) - Cash
provided by (used in) financing activities
5.3
(171.5 )
(61.5 ) Net change in cash and
cash equivalents 20.1 (11.2 ) 64.3 Cash and cash equivalents at
beginning of period
384.5
415.8 351.5 Cash and
cash equivalents at end of period
$ 404.6
$ 404.6 $
415.8
Fairchild Semiconductor International, Inc.
Reconciliation of Cash Provided by Operating Activities to Free
Cash Flow (In millions) (Unaudited)
Three Months Ended Twelve Months Ended December 26, December
26, December 27,
2010
2010
2009
Cash provided by operating activities $ 95.2 $ 332.5 $ 188.4
Capital expenditures
(68.5 )
(158.0 ) (59.8
) Free cash flow
$ 26.7
$ 174.5 $
128.6
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