Fairchild Semiconductor Reports Results for the First Quarter of 2010

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, charge/release for litigation, 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. 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.

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Fairchild Semiconductor International, Inc.
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
       
Three Months Ended
March 28, December 27, March 29,
  2010     2009     2009  
 
Total revenue $ 378.0 $ 354.5 $ 223.3
Cost of sales (1)   256.4     249.1     189.3  
Gross margin   121.6     105.4     34.0  
Gross margin % 32.2 % 29.7 % 15.2 %
 
Operating expenses:
Research and development (2) 28.4 25.4 23.8
Selling, general and administrative (3) 52.3 47.5 44.7
Amortization of acquisition-related intangibles 5.6 5.6 5.5
Restructuring and impairments 2.4 5.8 6.7
Charge for litigation   -     6.0     -  
Total operating expenses   88.7     90.3     80.7  
 
Operating income (loss) 32.9 15.1 (46.7 )
Other expense, net   2.4     3.0     5.3  
Income (loss) before income taxes 30.5 12.1 (52.0 )
 
Provision (benefit) for income taxes   7.9     (1.0 )   (0.9 )
Net income (loss) $ 22.6   $ 13.1   $ (51.1 )
 
Net income (loss) per common share:
Basic $ 0.18   $ 0.11   $ (0.41 )
Diluted $ 0.18   $ 0.10   $ (0.41 )
Weighted average common shares:
Basic   124.7     124.0     123.6  
Diluted   128.6     127.6     123.6  
 
 
(1) Equity compensation expense included in cost of sales $ 2.3 $ 2.6 $ 0.2
(2) Equity compensation expense included in research and development $ 1.1 $ 1.2 $ 0.3
(3) Equity compensation expense included in selling, general and administrative $ 2.4 $ 2.0 $ 2.1
Fairchild Semiconductor International, Inc.
Reconciliation of Net Income (Loss) To Adjusted Net Income
(In millions)
(Unaudited)
       
Three Months Ended
March 28, December 27, March 29,
2010 2009 2009
 
 
Net income (loss) $ 22.6 $ 13.1 $ (51.1 )
Adjustments to reconcile net income (loss)
to adjusted net income (loss):
Restructuring and impairments 2.4 5.8 6.7
Gain associated with debt buyback (1) - (1.2 ) -
Accelerated depreciation on assets related to fab closure (2) 1.3 2.1 -
Charge for litigation - 6.0 -
Inventory release associated with fab closure (2) (0.1 ) (0.1 ) -
Amortization of acquisition-related intangibles 5.6 5.6 5.5
Associated net tax effects of the above and other acquisition-related intangibles   -     (1.4 )   (1.2 )
Adjusted net income (loss) $ 31.8   $ 29.9   $ (40.1 )
 
Adjusted net income (loss) per common share:
Basic $ 0.26   $ 0.24   $ (0.32 )
Diluted $ 0.25   $ 0.23   $ (0.32 )
 
 
(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
March 28, December 27, March 29,
2010 2009 2009
 
 
Gross margin $ 121.6 $ 105.4 $ 34.0
Adjustments to reconcile gross margin
to adjusted gross margin:
Accelerated depreciation on assets related to fab closure 1.3 2.1 -
Inventory release associated with fab closure   (0.1 )   (0.1 )   -  
Adjusted gross margin $ 122.8   $ 107.4   $ 34.0  
 
Adjusted gross margin % 32.5 % 30.3 % 15.2 %
 
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)
     
March 28, December 27,
2010 2009
 
ASSETS
Current assets:
Cash and cash equivalents $ 442.4 $ 415.8
Short-term marketable securities 0.1 0.1
Receivables, net 151.8 134.0
Inventories 198.1 189.5
Other current assets   40.2   41.8
Total current assets 832.6 781.2
 
Property, plant and equipment, net 635.1 653.2
Intangible assets, net 75.5 81.1
Goodwill 161.3 161.3
Long-term securities 38.7 35.8
Other assets   51.7   49.8
Total assets $ 1,794.9 $ 1,762.4
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5.3 $ 5.3
Accounts payable 127.3 119.6
Accrued expenses and other current liabilities   80.2   70.6
Total current liabilities 212.8 195.5
 
Long-term debt, less current portion 465.6 466.9
Other liabilities   62.1   71.1
Total liabilities 740.5 733.5
 
Temporary equity - deferred stock units 2.5 2.3
Total stockholders' equity   1,051.9   1,026.6
Total liabilities, temporary equity and stockholders' equity $ 1,794.9 $ 1,762.4
Fairchild Semiconductor International, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
     
 
Three Months Ended
March 28, March 29,
2010 2009
Cash flows from operating activities:
Net income (loss) $ 22.6 $ (51.1 )
Adjustments to reconcile net income (loss) to cash provided by operating activities:
 
Depreciation and amortization 40.3 37.6
Non-cash stock-based compensation expense 5.3 2.6
Deferred income taxes, net 2.0 (3.6 )
Other 0.4 0.2
Changes in operating assets and liabilities, net of acquisitions
  (17.1 )   32.9  
Cash provided by operating activities   53.5     19.4  
 
Cash flows from investing activities:
Capital expenditures (17.8 ) (14.9 )
Purchase of marketable securities - (0.2 )
Sale of marketable securities - 0.3
Maturity of marketable securities 0.1 0.1
Other (0.3 ) (0.6 )
Acquisitions   -     (1.5 )
Cash used in investing activities   (18.0 )   (16.8 )
 
Cash flows from financing activities:
Repayment of long-term debt (1.3 ) (1.3 )
Purchase of treasury stock   (7.6 )   -  
Cash used in financing activities   (8.9 )   (1.3 )
 
Net change in cash and cash equivalents 26.6 1.3
Cash and cash equivalents at beginning of period   415.8     351.5  
Cash and cash equivalents at end of period $ 442.4   $ 352.8  
Fairchild Semiconductor International, Inc.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow
(In millions)
(Unaudited)
       
Three Months Ended
March 28, March 29,

2010

2009
 
Cash provided by operating activities $ 53.5 $ 19.4
Capital expenditures   (17.8 )   (14.9 )
Free cash flow $ 35.7   $ 4.5  




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