SAN JOSE, Calif., Oct. 15, 2015 (GLOBE NEWSWIRE) — Fairchild (NASDAQ:FCS), a leading global supplier of power semiconductors, today announced results for the third quarter ended September 27, 2015. Fairchild reported third quarter sales of $342.1 million, down 4 percent from the prior quarter and 10 percent from the third quarter of 2014.
Fairchild reported a third quarter net loss of $8.2 million or $0.07 per diluted share compared to a net loss of $0.9 million or $0.01 per diluted share in the prior quarter and a net loss of $1.0 million or $0.01 per diluted share in the third quarter of 2014. Gross margin was 33.6 percent compared to 30.9 percent in the prior quarter and 34.8 percent in the year-ago quarter. Included in the third quarter 2015 results were $27.7 million of restructuring and other expenses.
Fairchild reported third quarter adjusted gross margin of 34.1 percent, up 90 basis points from the prior quarter and 120 basis points lower than the third quarter of 2014. Adjusted gross margin excludes accelerated depreciation and inventory write-offs related to factory closures. Adjusted net income was $23.3 million or $0.20 per diluted share, compared to $13.9 million or $0.12 per diluted share in the prior quarter and $34.4 million or $0.28 per diluted share in the third quarter of 2014. See the Reconciliation of Net Income (Loss) to Adjusted Net Income exhibit included in this press release for more details on the other adjustment items.
“We increased sales for our mobile, enterprise computing and telecom products during the quarter while reducing our distribution channel inventory dollars sequentially,” said Mark Thompson, Fairchild’s chairman, president and CEO. “Demand was in line with our revised guidance during the third quarter reflecting weakness from Asia and especially China in the industrial, appliance and consumer markets. Sales for our automotive products were seasonally lower in the third quarter but are still on track for another year of solid growth. We completed the remaining factory closures during the third quarter to improve our manufacturing cost structure. Also during the quarter, we streamlined our leadership structure which we expect will reduce operating expenses by $30 to $34 million annually. We believe these actions will significantly improve earnings and cash flow even at these lower revenue levels.”
Third Quarter Financials
“Adjusted gross margin increased about a point sequentially due primarily to lower manufacturing costs and improved product mix,” said Mark Frey, Fairchild’s executive vice president and CFO. “R&D and SG&A expenses were $88.3 million, down 12 percent from the prior quarter due to spending controls, seasonal factors and the impact of the expense reduction program we announced in the quarter. Internal inventory increased by about 5 percent sequentially to 123 days as we reduced our shipments plan late in the quarter and built inventory to support higher mobile demand. Free cash flow was negative $9 million due to restructuring expenses and the increase in internal inventory. We repurchased 2.4 million shares of our stock for $35.2 million during the quarter and reduced our share count 5 percent from the year ago quarter. We ended the third quarter with total cash and securities exceeding our debt by $47 million.”
Forward Guidance
“We expect sales to be in the range of $320 to $335 million for the fourth quarter,” said Frey. “We expect adjusted gross margin to be 32.5 to 33.5 percent due primarily to lower factory utilization and sales partially offset by improved manufacturing costs. We anticipate R&D and SG&A spending to be $88 to $90 million due primarily to normal seasonality and the impact of the previously announced operating expense reduction program. The adjusted tax rate is forecast at 12 percent plus or minus 3 percentage points for the quarter. Consistent with our usual practices, 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 free cash flow are non-GAAP financial measures and should not be considered replacements for GAAP results. See additional information on our non-GAAP financial measures and reconciliations to the most comparable GAAP measures in the appropriate reconciliation exhibit included in this press release as well as our SEC filings related to this announcement.
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 lower 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’s web site at investor.fairchildsemi.com or the SEC’s web site at www.sec.gov.
About Fairchild Semiconductor:
Fairchild Semiconductor (NASDAQ: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.
| Fairchild Semiconductor International, Inc. | |||||
| Consolidated Statements of Operations | |||||
| (In millions, except per share and percent data) | |||||
| (Unaudited) | |||||
| Three Months Ended | Nine Months Ended | ||||
| September 27, | June 28, | September 28, | September 27, | September 28, | |
| 2015 | 2015 | 2014 | 2015 | 2014 | |
| Total revenue | $ 342.1 | $ 355.2 | $ 381.1 | $ 1,053.0 | $ 1,096.8 |
| Cost of sales (1) | 227.1 | 245.4 | 248.3 | 720.2 | 735.6 |
| Gross margin | 115.0 | 109.8 | 132.8 | 332.8 | 361.2 |
| Gross margin % | 33.6% | 30.9% | 34.8% | 31.6% | 32.9% |
| Operating expenses: | |||||
| Research and development (2) | 40.4 | 42.3 | 41.6 | 124.4 | 125.7 |
| Selling, general and administrative (3) | 47.9 | 57.8 | 53.8 | 158.4 | 164.3 |
| Amortization of acquisition-related intangibles | 1.9 | 2.1 | 2.1 | 6.1 | 8.5 |
| Restructuring, impairments, and other costs | 27.7 | 4.2 | 31.7 | 36.6 | 42.5 |
| Goodwill impairment charge | — | — | — | 0.6 | — |
| Charge for litigation | — | — | — | — | 4.4 |
| Total operating expenses | 117.9 | 106.4 | 129.2 | 326.1 | 345.4 |
| Operating income (loss) | (2.9) | 3.4 | 3.6 | 6.7 | 15.8 |
| Other expense, net | 1.4 | 1.6 | 1.5 | 4.2 | 5.2 |
| Income (loss) before income taxes | (4.3) | 1.8 | 2.1 | 2.5 | 10.6 |
| Provision for income taxes | 3.9 | 2.7 | 3.1 | 10.5 | 3.1 |
| Net income (loss) | $ (8.2) | $ (0.9) | $ (1.0) | $ (8.0) | $ 7.5 |
| Net income (loss) per common share: | |||||
| Basic | $ (0.07) | $ (0.01) | $ (0.01) | $ (0.07) | $ 0.06 |
| Diluted | $ (0.07) | $ (0.01) | $ (0.01) | $ (0.07) | $ 0.06 |
| Weighted average common shares: | |||||
| Basic | 114.6 | 116.1 | 119.5 | 116.0 | 122.5 |
| Diluted | 114.6 | 116.1 | 119.5 | 116.0 | 124.4 |
| (1) Equity compensation expense included in cost of sales | $ 1.4 | $ 1.5 | $ 1.5 | $ 4.2 | $ 4.0 |
| (2) Equity compensation expense included in research and development | $ 1.9 | $ 2.8 | $ 2.2 | $ 6.7 | $ 6.3 |
| (3) Equity compensation expense included in selling, general and administrative | $ 3.7 | $ 5.5 | $ 4.7 | $ 12.7 | $ 14.7 |
| Fairchild Semiconductor International, Inc. | |||||
| Reconciliation of Net Income (Loss) To Adjusted Net Income | |||||
| (In millions) | |||||
| (Unaudited) | |||||
| Three Months Ended | Nine Months Ended | ||||
| September 27, | June 28, | September 28, | September 27, | September 28, | |
| 2015 | 2015 | 2014 | 2015 | 2014 | |
| Net income (loss) | $ (8.2) | $ (0.9) | $ (1.0) | $ (8.0) | $ 7.5 |
| Adjustments to reconcile net income (loss) to adjusted net income: | |||||
| Restructuring, impairments, and other costs | 27.7 | 4.2 | 31.7 | 36.6 | 42.5 |
| Gain from sale of equity investment | — | — | — | — | (1.4) |
| Loss on disposal of property, plant and equipment | — | — | — | — | 1.9 |
| Accelerated depreciation on assets related to factory closures (1) | 0.8 | 3.5 | 1.8 | 8.8 | 1.8 |
| Inventory write-offs associated with factory closures (1) | 1.0 | 4.6 | — | 5.6 | — |
| Charge for litigation | — | — | — | — | 4.4 |
| Goodwill impairment charge | — | — | — | 0.6 | — |
| Amortization of acquisition-related intangibles | 1.9 | 2.1 | 2.1 | 6.1 | 8.5 |
| Associated tax effects of the above and other acquisition-related intangibles | 0.1 | 0.4 | (0.2) | 0.8 | (0.7) |
| Adjusted net income | $ 23.3 | $ 13.9 | $ 34.4 | $ 50.5 | $ 64.5 |
| Adjusted net income per common share: | |||||
| Basic | $ 0.20 | $ 0.12 | $ 0.29 | $ 0.44 | $ 0.53 |
| Diluted | $ 0.20 | $ 0.12 | $ 0.28 | $ 0.43 | $ 0.52 |
| (1) 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, | |
| 2015 | 2015 | 2014 | 2015 | 2014 | |
| Gross margin | $ 115.0 | $ 109.8 | $ 132.8 | $ 332.8 | $ 361.2 |
| Adjustments to reconcile gross margin to adjusted gross margin: | |||||
| Accelerated depreciation on assets related to factory closures | 0.8 | 3.5 | 1.8 | 8.8 | 1.8 |
| Inventory write-offs associated with factory closures | 1.0 | 4.6 | — | 5.6 | — |
| Adjusted gross margin | $ 116.8 | $ 117.9 | $ 134.6 | $ 347.2 | $ 363.0 |
| Adjusted gross margin % | 34.1% | 33.2% | 35.3% | 33.0% | 33.1% |
| Fairchild Semiconductor International, Inc. | |||
| Consolidated Balance Sheets | |||
| (In millions) | |||
| (Unaudited) | |||
| September 27, | June 28, | December 28, | |
| 2015 | 2015 | 2014 | |
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | $ 242.9 | $ 290.0 | $ 352.9 |
| Short-term marketable securities | 0.2 | 0.2 | 0.1 |
| Receivables, net | 157.9 | 154.2 | 124.0 |
| Inventories | 303.8 | 288.3 | 264.9 |
| Other current assets | 60.9 | 43.5 | 43.4 |
| Total current assets | 765.7 | 776.2 | 785.3 |
| Property, plant and equipment, net | 563.3 | 589.9 | 627.7 |
| Intangible assets, net | 30.0 | 31.9 | 37.2 |
| Goodwill | 205.4 | 205.4 | 209.2 |
| Long-term securities | 2.0 | 2.0 | 2.2 |
| Other assets | 24.1 | 24.5 | 27.5 |
| Total assets | $ 1,590.5 | $ 1,629.9 | $ 1,689.1 |
|
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY |
|||
| Current liabilities: | |||
| Accounts payable | $ 121.5 | $ 117.8 | $ 106.2 |
| Accrued expenses and other current liabilities | 112.3 | 112.8 | 129.6 |
| Total current liabilities | 233.8 | 230.6 | 235.8 |
| Long-term debt | 198.0 | 197.7 | 197.1 |
| Other liabilities | 59.2 | 59.2 | 58.1 |
| Total liabilities | 491.0 | 487.5 | 491.0 |
| Temporary equity – deferred stock units | 6.1 | 3.9 | 4.0 |
| Total stockholders’ equity | 1,093.4 | 1,138.5 | 1,194.1 |
| Total liabilities, temporary equity and stockholders’ equity | $ 1,590.5 | $ 1,629.9 | $ 1,689.1 |
| Fairchild Semiconductor International, Inc. | ||||
| Consolidated Statements of Cash Flows | ||||
| (In millions) | ||||
| (Unaudited) | ||||
| Three Months Ended | Nine Months Ended | |||
| September 27, | September 28, | September 27, | September 28, | |
| 2015 | 2014 | 2015 | 2014 | |
| Cash flows from operating activities: | ||||
| Net income (loss) | $ (8.2) | $ (1.0) | $ (8.0) | $ 7.5 |
| Adjustments to reconcile net income (loss) to cash provided by operating activities | ||||
| Depreciation and amortization | 31.0 | 34.5 | 103.0 | 102.5 |
| Non-cash stock-based compensation expense | 7.0 | 8.4 | 23.6 | 25.0 |
| Goodwill impairment charge | — | — | 0.6 | — |
| Gain on sale of equity investment | — | — | — | (1.4) |
| Deferred income taxes, net | 0.2 | (1.2) | (0.3) | (5.9) |
| Charge for litigation | — | — | — | 4.4 |
| Other | 1.8 | 1.3 | 2.6 | 4.3 |
| Changes in operating assets and liabilities, net of acquisitions | (26.0) | 12.0 | (81.8) | 11.0 |
| Net cash provided by operating activities | $ 5.8 | $ 54.0 | $ 39.7 | $ 147.4 |
| Cash flows from investing activities: | ||||
| Capital expenditures | $ (21.8) | $ (12.4) | $ (50.8) | $ (41.3) |
| Proceeds from sale of equity investment | — | — | — | 2.1 |
| Proceeds from the sale of property, plant and equipment, net | 5.4 | — | 7.1 | — |
| Maturity of marketable securities | — | — | 0.1 | — |
| Other | (0.5) | (0.4) | (1.0) | (1.8) |
| Acquisitions and divestitures, net of cash acquired | — | 3.4 | — | (56.6) |
| Net cash used in investing activities | $ (16.9) | $ (9.4) | $ (44.6) | $ (97.6) |
| Cash flows from financing activities: | ||||
| Repayment of long-term debt | $ — | $ (200.0) | $ — | $ (200.0) |
| Issuance of long-term debt | — | 200.0 | — | 200.0 |
| Proceeds from issuance of stock for share-based compensation arrangements | — | 0.7 | 1.4 | 1.4 |
| Purchase of treasury stock | (35.2) | (25.1) | (95.7) | (124.6) |
| Shares withheld for employees taxes | (0.8) | (0.9) | (10.7) | (7.7) |
| Other | — | (1.7) | (0.1) | (1.7) |
| Net cash used in financing activities | $ (36.0) | $ (27.0) | $ (105.1) | $ (132.6) |
| Net change in cash and cash equivalents | (47.1) | 17.6 | (110.0) | (82.8) |
| Cash and cash equivalents at beginning of period | 290.0 | 317.4 | 352.9 | 417.8 |
| Cash and cash equivalents at end of period | $ 242.9 | $ 335.0 | $ 242.9 | $ 335.0 |
| 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 28, | September 27, | September 28, | |
| 2015 | 2014 | 2015 | 2014 | |
| Net cash provided by operating activities | $ 5.8 | $ 54.0 | $ 39.7 | $ 147.4 |
| Capital expenditures | (21.8) | (12.4) | (50.8) | (41.3) |
| Proceeds from the sale of property, plant and equipment, net | 7.1 | — | 7.1 | — |
| Free cash flow | $ (8.9) | $ 41.6 | $ (4.0) | $ 106.1 |
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