Fairchild Semiconductor (NYSE: FCS), a leading global supplier
of high performance power and mobile products, today announced
results for the first quarter ended March 27, 2011. Fairchild
reported first quarter sales of $413 million, up 4 percent from the
prior quarter and 9 percent higher than the first quarter of
2010.
Fairchild reported first quarter net income of $43.5 million or
$0.33 per diluted share compared to $51.0 million or $0.40 per
diluted share in the prior quarter and $22.6 million or $0.18 per
diluted share in the first quarter of 2010. Gross margin was 36.8
percent compared to 37.0 percent in the prior quarter and 32.2
percent in the year ago quarter.
Fairchild reported first quarter adjusted gross margin of 36.9
percent, down 20 basis points sequentially and 440 basis points
higher than in the first quarter of 2010. Adjusted gross margin
excludes accelerated depreciation and inventory reserve releases
related to fab closures. Adjusted net income was $51.3 million or
$0.39 per diluted share, compared to $57.3 million or $0.45 per
diluted share in the prior quarter and $31.8 million or $0.25 per
diluted share in the first quarter of 2010. Adjusted net income
excludes amortization of acquisition-related intangibles,
restructuring and impairments, accelerated depreciation and
inventory reserve releases related to fab closures, and associated
net tax impact of these items and other acquisition-related
intangibles.
“We got off to great start for 2011 by delivering strong sales
growth and gross margin at the high end of expectations,” said Mark
Thompson, Fairchild’s Chairman, CEO and president. “We grew PCIA
sales 9 percent sequentially due to the capacity additions we made
to support strong demand from industrial, automotive, appliance and
alternative energy customers. We have excellent backlog visibility
in this business and continue to add capacity to support our
customers’ requirements. We posted 1 percent sequential sales
growth in our MCCC business which is particularly notable given
normal end market seasonality and the weakness seen in the
computing and consumer segments. MCCC sales growth was driven by
further share gains in smart phones, tablets and consumer
applications. Our standard product sales were down sequentially as
we continue to shift capacity to higher margin business. Our core
businesses, which now drive 90 percent of our total sales, are
growing well and we expect to continue this trend as we enter what
is typically the highest demand quarters of the year.”
End Markets and Channel Activity
“Demand was generally in-line with expectations for all segments
except the computing end market which was weaker due to Intel
chipset delays,” stated Thompson. “We saw a solid improvement in
computing orders in March and expect good sales growth from this
segment in Q2. We continue to see robust demand for our high
voltage solutions from the industrial, automotive, appliance and
alternative energy end markets. Distribution sell through was
impacted by the weakness in the computing market but rebounded in
March and is tracking to solid growth in Q2. Channel inventory
remains within our target range.”
First Quarter Financials
“Gross margin came in at the high end of expectations due to
further progress on improving product mix and higher factory
utilization,” said Mark Frey, Fairchild’s executive vice president
and CFO. “R&D and SG&A expenses were $92 million which was
favorable to our guidance range due to lower payroll and variable
compensation expenses. Adjusted tax expense was $7.8 million or 13
percent of adjusted income before taxes. We generated $22.4 million
of free cash flow during the quarter and paid $17 million to
acquire a silicon carbide power transistor company. At the end of
the quarter, total cash and securities exceeded our debt by a
record $136.8 million. We increased internal inventory dollars by 4
percent to hold our days of inventory flat with the prior
quarter.”
Forward Guidance
“We expect sales to be $425 to $435 million in the second
quarter,” said Frey. “Our current scheduled backlog is sufficient
to achieve this range. We expect to increase adjusted gross margin
to 37.0 percent to 37.5 percent due primarily to the impact of
better mix and higher factory utilization in Q1. We anticipate
R&D and SG&A spending of $96 to $98 million in the second
quarter as we increase our investment in new product development
and sales and incur greater equity compensation expenses driven by
our higher stock price. 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 second 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, accelerated depreciation and inventory reserve
releases related to fab closures, 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 March 27, December 26, March 28,
2011 2010 2010 Total
revenue $ 413.0 $ 397.7 $ 378.0 Cost of sales (1)
261.0 250.5
256.4 Gross margin
152.0
147.2 121.6
Gross margin % 36.8 % 37.0 % 32.2 % Operating
expenses: Research and development (2) 36.9 32.2 28.4 Selling,
general and administrative (3) 55.1 55.2 52.3 Amortization of
acquisition-related intangibles 5.6 5.7 5.6 Restructuring and
impairments
2.5
3.3 2.4 Total operating expenses
100.1 96.4
88.7
Operating income
51.9 50.8 32.9 Other expense, net
1.1
1.1 2.4
Income before income taxes
50.8 49.7 30.5 Provision (benefit) for income taxes
7.3 (1.3 )
7.9
Net income
$ 43.5 $
51.0 $ 22.6
Net income per common share:
Basic
$ 0.34 $
0.41 $ 0.18
Diluted
$ 0.33 $
0.40 $ 0.18
Weighted average common shares: Basic
126.1
124.0 124.7
Diluted
130.9
128.0 128.6
(1) Equity compensation expense included in cost of sales $
0.9 $ 0.9 $ 2.3 (2) Equity compensation expense included in
research and development $ 0.9 $ 0.9 $ 1.1 (3) Equity compensation
expense included in selling, general and administrative $ 3.2 $ 2.7
$ 2.4
Fairchild Semiconductor International,
Inc.
Reconciliation of Net Income To
Adjusted Net Income
(In millions) (Unaudited) Three Months Ended
March 27, December 26, March 28,
2011
2010 2010
Net income
$ 43.5 $ 51.0 $ 22.6
Adjustments to reconcile net income
to adjusted net income:
Restructuring and impairments 2.5 3.3 2.4 Accelerated depreciation
on assets related to fab closure (1) 0.2 0.2 1.3 Inventory write
off/release associated with fab closure (1) - - (0.1 ) Amortization
of acquisition-related intangibles 5.6 5.7 5.6 Associated net tax
effects of the above and other acquisition-related intangibles
(0.5 ) (2.9
) -
Adjusted net income
$ 51.3 $
57.3 $ 31.8
Adjusted net income per common share:
Basic
$ 0.41 $
0.46 $ 0.26
Diluted
$ 0.39 $
0.45 $ 0.25
(1) Recorded in cost of sales
Fairchild Semiconductor International, Inc.
Reconciliation of Gross Margin To Adjusted Gross Margin
(In millions) (Unaudited) Three Months Ended
March 27, December 26, March 28,
2011
2010 2010 Gross margin $
152.0 $ 147.2 $ 121.6 Adjustments to reconcile gross margin to
adjusted gross margin: Accelerated depreciation on assets related
to fab closure 0.2 0.2 1.3 Inventory write off/release associated
with fab closure
- -
(0.1 ) Adjusted gross
margin
$ 152.2 $
147.4 $ 122.8
Adjusted gross margin % 36.9 % 37.1 % 32.5 % 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) March
27, December 26,
2011 2010
ASSETS Current assets: Cash and cash equivalents $ 425.5 $
404.6 Short-term marketable securities 0.1 0.1 Receivables, net
152.6 156.4 Inventories 241.4 232.7 Other current assets
47.3 49.3 Total current assets
866.9 843.1 Property, plant and equipment, net 704.2 689.3
Intangible assets, net 79.5 69.7 Goodwill 169.4 164.8 Long-term
securities 31.0 30.3 Other assets
53.8
51.9 Total assets
$ 1,904.8
$ 1,849.1 LIABILITIES,
TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt $ 3.8 $ 3.8 Accounts payable
153.9 139.0 Accrued expenses and other current liabilities
108.9 139.2 Total current
liabilities 266.6 282.0 Long-term debt, less current portion
316.0 316.9 Other liabilities
78.1
71.5 Total liabilities 660.7 670.4 Temporary
equity - deferred stock units 2.5 2.4 Total stockholders' equity
1,241.6 1,176.3 Total
liabilities, temporary equity and stockholders' equity
$ 1,904.8 $
1,849.1 Fairchild Semiconductor
International, Inc. Condensed Consolidated Statements of
Cash Flows (In millions) (Unaudited)
Three Months Ended March 27,
March 28,
2011 2010 Cash flows from
operating activities:
Net income
$ 43.5 $ 22.6
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 38.3 40.3 Non-cash stock-based
compensation expense 5.0 5.3 Deferred income taxes, net (1.8 ) 2.0
Other 0.6 0.4
Changes in operating assets and
liabilities, net of acquisitions
(28.9 ) (17.1
) Cash provided by operating activities
56.7 53.5
Cash flows from investing activities: Capital expenditures (34.3 )
(17.8 ) Maturity of marketable securities 0.1 0.1 Other (0.8 ) (0.3
)
Acquisitions, net of cash acquired
(16.5 ) -
Cash used in investing activities
(51.5
) (18.0 ) Cash
flows from financing activities: Repayment of long-term debt (0.9 )
(1.3 )
Proceeds from issuance of common stock and
from exercise of stock options, net
25.9 - Purchase of treasury stock - (7.6 ) Shares withheld for
employees taxes
(9.3 )
- Cash provided by (used in) financing
activities
15.7 (8.9
) Net change in cash and cash equivalents 20.9
26.6 Cash and cash equivalents at beginning of period
404.6 415.8 Cash and
cash equivalents at end of period
$ 425.5
$ 442.4
Fairchild Semiconductor International, Inc.
Reconciliation of Cash Provided by Operating Activities to Free
Cash Flow (In millions) (Unaudited) Three
Months Ended March 27, March 28,
2011
2010 Cash provided by operating activities $
56.7 $ 53.5 Capital expenditures
(34.3
) (17.8 ) Free cash
flow
$ 22.4 $
35.7
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