Fairchild Semiconductor (NYSE: FCS), the leading global supplier
of power semiconductors, today announced results for the fourth
quarter ended December 25, 2011. Fairchild reported fourth quarter
sales of $339.4 million, down 16 percent from the prior quarter and
15 percent lower than the fourth quarter of 2010.
Fairchild reported fourth quarter net income of $21.3 million or
$0.17 per diluted share compared to $35.8 million or $0.28 per
diluted share in the prior quarter and $51.0 million or $0.40 per
diluted share in the fourth quarter of 2010. Gross margin was 30.0
percent compared to 35.9 percent in the prior quarter and 37.0
percent in the year ago quarter.
Fairchild reported fourth quarter adjusted gross margin of 30.4
percent, down 560 basis points sequentially and 670 basis points
from the fourth quarter of 2010. Adjusted gross margin excludes the
change in retirement plans, accelerated depreciation and inventory
reserve releases/write offs related to fab closures. Adjusted net
income was $19.3 million or $0.15 per diluted share, compared to
$44.5 million or $0.34 per diluted share in the prior quarter and
$57.3 million or $0.45 per diluted share in the fourth quarter of
2010. Adjusted net income excludes amortization of
acquisition-related intangibles, restructuring and impairments,
accelerated depreciation and inventory reserve releases/write offs
related to fab closures, write off of deferred financing fees,
charge for litigation, change in retirement plans, and associated
net tax effects of these items and other acquisition-related
intangibles.
Full year revenues for 2011 were $1.6 billion, roughly flat to
2010. Fairchild reported net income of $146 million or $1.12 per
diluted share in 2011, compared to net income of $153 million or
$1.20 per diluted share in 2010. On an adjusted basis, the company
reported 2011 net income of $170 million or $1.30 per diluted
share, compared to $193 million or $1.51 per diluted share in
2010.
“We reduced our overall inventory dollars in the fourth quarter
despite significantly lower demand,” said Mark Thompson,
Fairchild’s president and CEO. “Distribution sell-through decreased
20 percent sequentially due to lower end market demand and further
downstream inventory reductions in the appliance, consumer,
industrial, solar and computing supply chains. We also experienced
about a 2 to 3 percentage point negative impact to sales due to
supply disruptions related to the flooding in Thailand. Despite the
weak sell-through and supply disruptions, we reduced channel
inventory by 3 percent and internal inventory by 10 percent
sequentially. There were some bright spots in demand as our mobile
analog business posted solid sequential sales growth in the fourth
quarter and our auto sales also held up well. In these times of
uncertain demand, we focus on tightly managing the variables under
our control such as inventories and expenses. We made good progress
reducing inventories and operating expenses in the fourth quarter
and we plan to continue these efforts as we enter 2012.”
Fourth Quarter Financials
“Gross margin decreased primarily due to lower factory loadings
as we tightly controlled our inventory,” said Mark Frey,
Fairchild’s executive vice president and CFO. “Margins were also
reduced due to 8 inch fab start-up costs and normal price
reductions. Adjusted R&D and SG&A expenses were down 4
percent sequentially to $88.4 million due to spending reductions
and lower variable compensation. Free cash flow was $1 million
during the quarter. We decreased internal inventory dollars by 10
percent as we further reduced factory loadings in the fourth
quarter.
Forward Guidance
“We expect sales to be in the range of $340 to 370 million for
the first quarter as we continue to focus on reducing channel
inventory,” said Frey. “Our current scheduled backlog is sufficient
to achieve the low end of this range. This guidance includes about
a 1 percent impact to sales from the flooding in Thailand. We
expect adjusted gross margin to be 29 to 30 percent due to low
factory utilization, especially in January. We anticipate R&D
and SG&A spending to be approximately $96 to 98 million in the
first quarter. The adjusted tax rate is forecast at 15 percent plus
or minus 3 percent for the quarter. Recall that our first quarter
has 14 weeks to again synchronize our fiscal year with the actual
calendar. 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.”
Adjusted gross margin, adjusted R&D and SG&A, adjusted
net income and free cash flow are non-GAAP financial measures and
should not be considered replacements for GAAP results. We exclude
the change in retirement plans, accelerated depreciation and
inventory reserve releases/write offs related to fab closures from
GAAP gross margins to determine adjusted gross margins. To
determine adjusted R&D and SG&A we exclude the change in
retirement plans. To determine adjusted net income/loss, we exclude
amortization of acquisition-related intangibles, restructuring and
impairments, accelerated depreciation and inventory reserve
releases/write offs related to fab closures, write off of deferred
financing fees, charge for litigation, change in retirement plans,
and associated net tax effects 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.
Fairchild Semiconductor International, Inc. Consolidated
Statements of Operations (In millions, except per share
amounts) (Unaudited)
Three Months Ended Twelve Months Ended
December 25, September 25, December 26, December 25, December 26,
2011
2011
2010
2011
2010
Total revenue $ 339.4 $ 403.2 $ 397.7 $ 1,588.8 $ 1,599.7
Cost of sales (1)
237.7
258.4 250.5
1,029.6 1,036.7 Gross margin
101.7 144.8
147.2 559.2
563.0 Gross margin % 30.0 % 35.9 % 37.0 % 35.2 % 35.2
% Operating expenses: Research and development (2) 38.8 37.8
32.2 153.4 120.2 Selling, general and administrative (3) 50.6 54.4
55.2 218.4 220.8 Amortization of acquisition-related intangibles
4.7 4.7 5.7 19.7 22.4 Restructuring and impairments (6.7 ) 4.1 3.3
2.8 7.0 Charge for litigation
-
- - -
8.0 Total operating expenses
87.4
101.0 96.4
394.3 378.4 Operating
income 14.3 43.8 50.8 164.9 184.6 Other expense, net
1.4 1.4 $
1.1 7.2 9.9
Income before income taxes 12.9 42.4 49.7 157.7 174.7
Provision (benefit) for income taxes
(8.4
) 6.6 (1.3
) 12.2 21.5
Net income
$ 21.3 $
35.8 $ 51.0 $
145.5 $ 153.2 Net
income per common share: Basic
$ 0.17
$ 0.28 $ 0.41
$ 1.15 $ 1.23
Diluted
$ 0.17 $
0.28 $ 0.40 $
1.12 $ 1.20 Weighted average
common shares: Basic
126.0
126.9 124.0
126.7 124.6 Diluted
128.8 129.9 $
128.0 130.3
128.0 (1) Equity compensation expense
included in cost of sales $ 1.1 $ 1.2 $ 0.9 $ 4.3 $ 5.7 (2) Equity
compensation expense included in research and development $ 1.3 $
1.3 $ 0.9 $ 4.8 $ 4.1 (3) Equity compensation expense included in
selling, general and administrative $ 3.4 $ 3.5 $ 2.7 $ 15.7 $ 11.1
Fairchild Semiconductor International, Inc.
Reconciliation of Net Income To Adjusted Net Income (In
millions) (Unaudited) Three Months Ended Twelve
Months Ended December 25, September 25, December 26, December 25,
December 26,
2011
2011
2010
2011
2010
Net income $ 21.3 $ 35.8 $ 51.0 $ 145.5 $ 153.2
Adjustments to reconcile net income to adjusted net income:
Restructuring and impairments (6.7 ) 4.1 3.3 2.8 7.0 Accelerated
depreciation on assets related to fab closure (1) - 0.2 0.2 0.7 2.9
Write-off of deferred financing fees - - - 2.1 2.1 Charge for
litigation - - - - 8.0 Inventory write off/release associated with
fab closure (1) (0.2 ) - - (0.2 ) (0.2 )
Change in retirement plans
2.7 - - 2.7 - Amortization of acquisition-related intangibles 4.7
4.7 5.7 19.7 22.4 Associated net tax effects of the above and other
acquisition-related intangibles
(2.5
) (0.3 )
(2.9 ) (3.6
) (2.2 ) Adjusted net
income
$ 19.3 $
44.5 $ 57.3 $
169.7 $ 193.2
Adjusted net income per common share: Basic
$
0.15 $ 0.35 $
0.46 $ 1.34 $
1.55 Diluted
$ 0.15
$ 0.34 $ 0.45
$ 1.30 $ 1.51
(1) 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 25,
September 25, December 26, December 25, December 26,
2011
2011
2010
2011
2010
Gross margin $ 101.7 $ 144.8 $ 147.2 $ 559.2 $ 563.0
Adjustments to reconcile gross margin to adjusted gross margin:
Change in retirement plans
1.7 - - 1.7 - Accelerated depreciation on assets related to fab
closure - 0.2 0.2 0.7 2.9 Inventory write off/release associated
with fab closure
(0.2 )
- -
(0.2 ) (0.2
) Adjusted gross margin
$
103.2 $ 145.0 $
147.4 $ 561.4 $
565.7 Adjusted gross margin % 30.4 % 36.0 %
37.1 % 35.3 % 35.4 %
Fairchild
Semiconductor International, Inc. Reconciliation of R&D
and SG&A to Adjusted R&D and SG&A (In
millions) (Unaudited) Three Months Ended Twelve
Months Ended December 25, September 25, December 26, December 25,
December 26,
2011
2011
2010
2011
2010
R&D and SG&A $ 89.4 $ 92.2 $ 87.4 $ 371.8 $
341.0 Adjustments to reconcile R&D and SG&A to adjusted
R&D and SG&A:
Change in retirement plans
(1.0 ) -
- (1.0 )
- Adjusted R&D and SG&A
$
88.4 $ 92.2 $
87.4 $ 370.8 $
565.7 Fairchild Semiconductor International,
Inc. Consolidated Balance Sheets (In millions)
(Unaudited)
December 25, September 25, December 26,
2011
2011
2010
ASSETS Current assets: Cash and cash equivalents $ 423.3 $
433.4 $ 404.6 Short-term marketable securities 0.2 0.2 0.1
Receivables, net 142.9 148.7 156.4 Inventories 234.2 259.6 232.7
Other current assets
52.4
57.7 49.3 Total current assets
853.0 899.6 843.1 Property, plant and equipment, net 765.4
746.7 689.3 Intangible assets, net 65.4 70.1 69.7 Goodwill 169.3
169.3 164.8 Long-term securities 32.3 31.5 30.3 Other assets
51.5 52.8 51.9
Total assets
$ 1,936.9 $
1,970.0 $ 1,849.1
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities: Current portion of long-term debt $ - $ - $
3.8 Accounts payable 132.5 140.3 139.0 Accrued expenses and other
current liabilities
125.7
149.3 139.2 Total current
liabilities 258.2 289.6 282.0 Long-term debt, less current
portion 300.1 300.1 316.9 Other liabilities
54.1 75.5 71.5
Total liabilities 612.4 665.2 670.4 Temporary equity -
deferred stock units 2.3 2.1 2.4 Total stockholders' equity
1,322.2 1,302.7
1,176.3 Total liabilities, temporary equity and
stockholders' equity
$ 1,936.9
$ 1,970.0 $
1,849.1 Fairchild Semiconductor
International, Inc. Condensed Consolidated Statements of
Cash Flows (In millions) (Unaudited)
Three Months Ended Twelve Months Ended
December 25,
December 25, December 26,
2011
2011
2010
Cash flows from operating activities: Net income $ 21.3 145.5 $
153.2 Adjustments to reconcile net income to cash provided by
operating activities: Depreciation and amortization 37.0 150.5
156.3 Non-cash stock-based compensation expense 5.8 24.8 20.4
Deferred income taxes, net (4.9 ) (12.5 ) (1.2 ) Other 0.8 4.4 0.5
Changes in operating assets and liabilities, net of acquisitions
(14.2 ) (44.2
) 3.3 Cash provided by operating
activities
45.8 268.5
332.5 Cash flows from investing
activities: Capital expenditures (44.8 ) (186.4 ) (158.0 ) Purchase
of marketable securities - (0.1 ) 1.6 Purchase of Equity Investment
- - (3.0 ) Maturity of marketable securities - 0.1 - Other (1.5 )
(3.5 ) (1.8 ) Acquisitions, net of cash acquired
- (16.5 )
(11.0 ) Cash used in investing activities
(46.3 ) (206.4
) (172.2 )
Cash flows from financing activities: Repayment of long-term debt -
(320.6 ) (151.5 ) Issuance of long-term debt - 300.0 - Proceeds
from issuance of common stock and from exercise of stock options,
net 0.1 35.5 6.4 Purchase of treasury stock (9.2 ) (42.3 ) (25.6 )
Shares withheld for employees taxes (0.5 ) (10.8 ) (0.8 ) Other
- (5.2 )
- Cash provided by (used in) financing
activities
(9.6 )
(43.4 ) (171.5
) Net change in cash and cash equivalents (10.1
) 18.7 (11.2 ) Cash and cash equivalents at beginning of period
433.4 404.6
415.8 Cash and cash equivalents at end of period
$ 423.3 $ 423.3
$ 404.6 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 25, December 25, December 26,
2011
2011
2010
Cash provided by operating activities $ 45.8 $ 268.5 $ 332.5
Capital expenditures
(44.8 )
(186.4 )
(158.0 ) Free cash flow
$
1.0 $ 82.1 $
174.5
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