Q3 2009 Earning Report of Fairchild Semiconductor International, Inc.

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Q3 2009 Earning Report of Fairchild Semiconductor International, Inc.

  1. 1. FAIRCHILD SEMICONDUCTOR INTERNATIONAL INC FORM 8-K (Current report filing) Filed 10/15/09 for the Period Ending 10/15/09 Address 82 RUNNING HILL RD SOUTH PORTLAND, ME 04106 Telephone 2077758100 CIK 0001036960 Symbol FCS SIC Code 3674 - Semiconductors and Related Devices Industry Semiconductors Sector Technology Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2009, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
  2. 2. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): October 15, 2009 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 001-15181 04-3363001 (State or other jurisdiction of (Commission File (I.R.S. Employer incorporation or organization) Number) Identification No.) 82 Running Hill Road South Portland, Maine 04106 (Address of principal executive offices, including zip code) Registrant’s telephone number, including area code: (207) 775-8100 Check the appropriate box below if the form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
  3. 3. Item 2.02 Results of Operations and Financial Condition On October 15, 2009, we announced consolidated financial results for the quarter ended September 27, 2009. The press release announcing the results is included as Exhibit 99.1 to this report. Additional information about non-GAAP financial measures included in the press release is included in Exhibit 99.2. Each exhibit is incorporated herein by reference. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Fairchild Semiconductor International, Inc. Date: October 15, 2009 /s/ Robin A. Sawyer Robin A. Sawyer Vice President, Corporate Controller (Principal Accounting Officer and Duly Authorized Officer)
  4. 4. EXHIBIT INDEX Exhibit No. Description 99.1 Press release dated October 15, 2009 announcing financial results for the quarter ended September 27, 2009. 99.2 Additional information about non-GAAP financial measures included in the press release.
  5. 5. Exhibit 99.1 Fairchild Semiconductor Reports Results for the Third Quarter of 2009 • Order Rates Remain Solid Across Broad Range of End Markets and Regions • Combined Channel and Internal Inventories Down $26 Million from the Prior Quarter, Channel Weeks of Inventory at Record Low • $86 Million Free Cash Flow Through First Three Quarters of 2009 is Already at Record Annual Level 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% from the prior quarter and 23% 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% compared to 23.2% in the prior quarter and 29.9% 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%, 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 an approximately $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.
  6. 6. 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 that 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% 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%. 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 at investor.fairchildsemi.com or the SEC’s web site at www.sec.gov.
  7. 7. 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 Resource SM . Please contact us on the web at www.fairchildsemi.com.
  8. 8. 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
  9. 9. 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.
  10. 10. Fairchild Semiconductor International, Inc. Consolidated Balance Sheets (In millions) (Unaudited) September 27, December 28, June 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
  11. 11. 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
  12. 12. Editorial Contacts: Fairchild Semiconductor: Fairchild Semiconductor: Agency Contact: Patti Olson Dan Janson Topaz Partners Corporate Communications Investor Relations Paul R. Hughes (800) 341-0392 X 8728 (207) 775-8660 (781) 404-2416 Email: patti.olson@fairchildsemi.com Email: investor@fairchildsemi.com phughes@topazpartners.com
  13. 13. Exhibit 99.2 Information About Our Non-GAAP Financial Measures Regulation G and other provisions of the securities laws regulate the use of financial measures that are not prepared in accordance with generally accepted accounting principles (we refer to such measures as “non-GAAP financial measures”). In the press release included in this current report on Form 8-K, we provide information on “free cash flow”, “adjusted net income”, the related “adjusted earnings per share” (or “adjusted EPS”), “adjusted gross margin” and the related “adjusted gross margin percent,” each of which is a non-GAAP financial measure. We believe these measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that – when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide in our press releases – provide a more complete understanding of factors and trends affecting our business. We strongly encourage you to review all of our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. For information about our financial results as reported in accordance with GAAP, see Item 8 of Part II, “Consolidated Financial Statements and Supplementary Data” in our annual report on Form 10-K for the year ended December 28, 2008. For a quantitative reconciliation of our non- GAAP financial measures to the most comparable GAAP measures, see “Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)”, “Reconciliation of Gross Margin to Adjusted Gross Margin” and “Reconciliation of Cash Provided by Operating Activities to Free Cash Flow” in Exhibit 99.1 included in this current report on Form 8-K. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. Items That We Exclude In the Calculation of Adjusted Net Income (Loss) Adjusted net income (loss), which we reconcile to net income (loss), excludes the following items: • restructuring and impairments, • costs associated with redemption of convertible debt, • amortization of acquisition-related intangibles, • gain on sale of equity investment, • impairment of equity investment, • gain associated with debt buyback, • accelerated depreciation and inventory write-off (release) associated with fab closure, • the tax effects associated with the above and other acquisition-related intangibles, and • tax effects from finalized tax filings and positions. Not all of these items are necessarily included in the calculation of net income (loss) each quarter. To understand which of the above items are included in the calculation of net income (loss), and excluded from the calculation of adjusted net income (loss), see the reconciliation data in Exhibit 99.1 included in this current report on Form 8-K.
  14. 14. Adjusted EPS is derived from adjusted net income (loss), using the same measures of outstanding shares as are used to calculate net income (loss) per share in accordance with GAAP. Items That We Exclude In the Calculation of Adjusted Gross Margin Adjusted gross margin, which we reconcile to gross margin, excludes accelerated depreciation and inventory write-off (release) associated with fab closure. Adjusted gross margin percent is derived from adjusted gross margin using the same measures of revenue as are used to calculate gross margin percent in accordance with GAAP. We use adjusted net income and adjusted gross margin to manage and evaluate our business operations and overall financial performance because they exclude some cash and non-cash items that are either beyond our immediate control or are not characteristic of our underlying business operations for the periods in which they are recorded, or both. Items That We Exclude In the Calculation of Free Cash Flow Free cash flow, which we reconcile to cash provided by operating activities, excludes capital expenditures. Free cash flow is not intended as an alternative measure of cash flows provided by operating activities, as determined in accordance with GAAP. We exclude these items for the following reasons: • We believe such charges do not reflect results of our ongoing operations. • We believe that, since such charges are not recorded in all periods, excluding them provides better comparability of our results of operations from period-to-period. • Adjusted results provide an additional measure that our stockholders and debtholders have requested and expect as a means to project future results of operations. • Although, for the reasons given above, our adjusted results may not be directly comparable with those of other companies, we believe they provide an additional point of comparison (particularly when viewed in the context of the reconciling data that we also provide) that investors may use to compare us with other companies in our industry, many of which also provide non-GAAP financial measures or highlight certain charges in their GAAP presentations. • For comparison and projection purposes, GAAP measures alone may not provide all information that an investor may wish to consider. For example, amortization of acquisition-related intangibles, included in the GAAP measure, would be higher for a company that has grown through acquisitions than for a company that has grown internally. Excluding and explaining such charges as part of the presentation of the non-GAAP financial measure provides additional information for an investor to use, together with the GAAP measure, in comparing the performance of the two companies.

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