OREANDA-NEWS. Fairchild Semiconductor (NASDAQ:FCS), a leading global supplier of power semiconductors, today announced results for the second quarter ended June 26, 2016. Fairchild reported second quarter sales of $350.0 million, up 7 percent from the prior quarter and 1 percent lower than the second quarter of 2015.

Fairchild reported second quarter net income of $6.9 million or $0.06 per diluted share compared to $14.8 million or $0.13 per diluted share in the prior quarter and a net loss of $0.9 million or $0.01 per diluted share in the second quarter of 2015. Gross margin was 29.5 percent compared to 30.6 percent in the prior quarter and 30.9 percent in the year-ago quarter.

Fairchild reported second quarter adjusted gross margin of 29.9 percent, down 120 basis points from the prior quarter and 330 basis points from the second quarter of 2015. Adjusted gross margin excludes accelerated depreciation, inventory write-offs related to factory closures and acquisition-related costs. Adjusted net income was $15.6 million or $0.13 per diluted share, compared to $11.6 million or $0.10 per diluted share in the prior quarter and $13.9 million or $0.12 per diluted share in the second quarter of 2015. See the Reconciliation of Net Income (Loss) to Adjusted Net Income in the tables below for more details on the other adjustment items.

“We grew sales strongly across a broad range of end markets in the second quarter,” said Mark Thompson, Fairchild’s chairman, president and CEO. “Sell through in our distribution channel was up 13% sequentially. Our starting backlog is higher than a quarter ago which should enable us to grow sales seasonally in the third quarter. We saw solid demand growth for our products serving the mobile, appliance, enterprise computing and industrial end markets. We expect demand in the mobile sector to be particularly strong in the third quarter as new models and additional design wins drive higher sales. We expect normal seasonal demand trends to continue in our other major end markets.”

Second Quarter Financials

“Adjusted gross margin decreased sequentially as we continued to reduce inventory and recognize underutilization costs from the prior quarter,” said Mark Frey, Fairchild’s executive vice president and CFO. “We increased factory utilization in the second quarter in response to higher demand and expect gross margin to improve significantly in the third quarter. R&D and SG&A expenses, excluding acquisition-related costs, were roughly flat sequentially at $85 million as the impact of lower headcount and other cost reductions offset our merit increase and seasonally higher compensation expenses. Cash flow from operations and proceeds from the sale of property plant and equipment, less capital expenditures, was $58.3 million for the second quarter due primarily to higher net income and favorable changes in working capital. At the end of the second quarter our total cash and securities exceeded debt by $132 million.”

Pending Acquisition Update

  • As previously announced on November 18, 2015, Fairchild entered into an Agreement and Plan of Merger with ON Semiconductor, under which a wholly owned subsidiary of ON Semiconductor agreed to acquire all of the outstanding shares of Fairchild common stock for $20.00 per share in cash.
  • As previously disclosed, Fairchild expects ON Semiconductor will dispose of its ignition IGBT business (which had 2015 revenues of less than $25 million) in order to satisfy remaining regulatory concerns.
  • Fairchild and ON Semiconductor continue to work cooperatively and expeditiously to obtain remaining required regulatory approvals from the U.S. and China in connection with the transaction, which is expected to close around the end of August.

Given the current acquisition process, Fairchild has discontinued its practice of providing detailed forward guidance and conducting an earnings conference call to discuss its financial results.

 
 
Fairchild Semiconductor International, Inc.
Consolidated Statements of Operations
(In millions, except per share and percent data)
(Unaudited)
                     
    Three Months Ended   Six Months Ended
    June 26,   March 27,   June 28,   June 26,   June 28,
    2016   2016   2015   2016   2015
                     
Total revenue   $ 350.0     $ 327.0     $ 355.2     $ 677.0     $ 710.9  
Cost of sales (1)   246.9     226.9     245.4     473.8     493.1  
Gross margin   103.1     100.1     109.8     203.2     217.8  
Gross margin %   29.5 %   30.6 %   30.9 %   30.0 %   30.6 %
                     
Operating expenses:                    
Research and development (2)   41.6     40.1     42.3     81.7     84.0  
Selling, general and administrative (3)   47.7     48.6     57.8     96.3     110.5  
Amortization of acquisition-related intangibles   1.9     1.9     2.1     3.8     4.2  
Restructuring, impairments, and other costs   0.6     (10.9 )   4.2     (10.3 )   8.9  
Charge for litigation   0.5     —     —     0.5     —  
Goodwill impairment charge   —     —     —     —     0.6  
Total operating expenses   92.3     79.7     106.4     172.0     208.2  
                     
Operating income   10.8     20.4     3.4     31.2     9.6  
Other expense, net   1.2     1.6     1.6     2.8     2.8  
Income before income taxes   9.6     18.8     1.8     28.4     6.8  
                     
Provision for income taxes   2.7     4.0     2.7     6.7     6.6  
Net income (loss)   $ 6.9     $ 14.8     $ (0.9 )   $ 21.7     $ 0.2  
                     
Net income (loss) per common share:                    
Basic   $ 0.06     $ 0.13     $ (0.01 )   $ 0.19     $ —  
Diluted   $ 0.06     $ 0.13     $ (0.01 )   $ 0.19     $ —  
Weighted average common shares:                    
Basic   114.7     113.8     116.1     114.3     116.7  
Diluted   116.4     116.5     116.1     116.5     119.2  
                     
(1) Equity compensation expense included in cost of sales   $ 1.3     $ 0.7     $ 1.5     $ 2.0     $ 2.8  
(2) Equity compensation expense included in research and development   $ 2.1     $ 2.4     $ 2.8     $ 4.5     $ 4.8  
(3) Equity compensation expense included in selling, general and administrative   $ 3.7     $ 4.4     $ 5.5     $ 8.1     $ 9.0  
 
 
Fairchild Semiconductor International, Inc.
Reconciliation of Net Income (Loss) To Adjusted Net Income
(In millions)
(Unaudited)
                     
    Three Months Ended   Six Months Ended
    June 26,   March 27,   June 28,   June 26,   June 28,
    2016   2016   2015   2016   2015
                     
Net income (loss)   $ 6.9     $ 14.8     $ (0.9 )   $ 21.7     $ 0.2  
Adjustments to reconcile net income (loss) to adjusted net income:                    
Restructuring, impairments, and other costs   0.6     1.4     4.2     2.0     8.9  
Gain on disposal of held for sale assets   —     (12.3 )   —     (12.3 )   —  
Charge for litigation   0.5     —     —     0.5     —  
Acquisition-related costs (2)   5.9     5.5     —     11.4     —  
Accelerated depreciation on assets related to factory closures (1)   —     —     3.5     —     8.0  
Inventory write-offs associated with factory closures (1)   —     —     4.6     —     4.6  
Goodwill impairment charge   —     —     —     —     0.6  
Amortization of acquisition-related intangibles   1.9     1.9     2.1     3.8     4.2  
Associated tax effects of the above and other acquisition-related intangibles   (0.2 )   0.3     0.4     0.1     0.7  
Adjusted net income   $ 15.6     $ 11.6     $ 13.9     $ 27.2     $ 27.2  
                     
Adjusted net income per common share:                    
Basic   $ 0.14     $ 0.10     $ 0.12     $ 0.24     $ 0.23  
Diluted   $ 0.13     $ 0.10     $ 0.12     $ 0.23     $ 0.23  
                     
(1) Recorded in cost of sales                    
(2) Recorded in cost of sales, research and development, and selling, general and administrative                    
 
 
Fairchild Semiconductor International, Inc.
Reconciliation of Gross Margin To Adjusted Gross Margin
(In millions)
(Unaudited)
                     
    Three Months Ended   Six Months Ended
    June 26,   March 27,   June 28,   June 26,   June 28,
    2016   2016   2015   2016   2015
                     
Gross margin   $ 103.1     $ 100.1     $ 109.8     $ 203.2     $ 217.8  
Adjustments to reconcile gross margin to adjusted gross margin:                    
Accelerated depreciation on assets related to factory closures   —     —     3.5     —     8.0  
Inventory write-offs associated with factory closures   —     —     4.6     —     4.6  
Acquisition-related costs   1.7     1.5     —     3.2     —  
Adjusted gross margin   $ 104.8     $ 101.6     $ 117.9     $ 206.4     $ 230.4  
                     
Adjusted gross margin %   29.9 %   31.1 %   33.2 %   30.5 %   32.4 %
 
 
Fairchild Semiconductor International, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)
             
    June 26,   March 27,   December 27,
    2016   2016   2015
             
ASSETS            
Current assets:            
Cash and cash equivalents   $ 329.0     $ 272.0     $ 279.4  
Short-term marketable securities   0.1     0.1     0.2  
Receivables, net   149.2     152.1     132.6  
Inventories   273.2     284.0     304.2  
Other current assets   38.8     36.2     50.5  
Total current assets   790.3     744.4     766.9  
             
Property, plant and equipment, net   525.5     537.1     550.4  
Intangible assets, net   24.0     25.8     27.5  
Goodwill   205.9     205.3     204.5  
Long-term securities   2.0     1.9     2.0  
Other assets   36.9     35.1     34.6  
Total assets   $ 1,584.6     $ 1,549.6     $ 1,585.9  
             
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Accounts payable   $ 99.3     $ 93.3     $ 110.6  
Accrued expenses and other current liabilities   93.1     79.9     115.6  
Total current liabilities   192.4     173.2     226.2  
             
Long-term debt   198.9     198.7     198.4  
Other liabilities   60.8     59.9     58.8  
Total liabilities   452.1     431.8     483.4  
             
Temporary equity - deferred stock units   4.6     6.4     6.3  
Total stockholders' equity   1,127.9     1,111.4     1,096.2  
Total liabilities, temporary equity and stockholders' equity   $ 1,584.6     $ 1,549.6     $ 1,585.9  
 
 
Fairchild Semiconductor International, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
                 
    Three Months Ended   Six Months Ended
    June 26,   June 28,   June 26,   June 28,
    2016   2015   2016   2015
Cash flows from operating activities:                
Net income (loss)   $ 6.9     $ (0.9 )   $ 21.7     $ 0.2  
Adjustments to reconcile net income (loss) to cash provided by operating activities                
Depreciation and amortization   27.4     35.4     55.0     72.0  
Non-cash stock-based compensation expense   7.1     9.8     14.6     16.6  
Goodwill impairment charge   —     —     —     0.6  
Deferred income taxes, net   (0.2 )   (0.3 )   (0.7 )   (0.5 )
Other   0.9     0.9     (11.3 )   0.8  
Changes in operating assets and liabilities, net   29.0     3.6     (7.3 )   (55.8 )
Net cash provided by operating activities   $ 71.1     $ 48.5     $ 72.0     $ 33.9  
                 
Cash flows from investing activities:                
Capital expenditures   $ (13.3 )   $ (14.6 )   $ (25.8 )   $ (29.0 )
Proceeds from the sale of restructuring property, plant and equipment, including held for sale assets   0.5     0.3     15.9     1.6  
Proceeds from the sale of property, plant and equipment   —     0.1     —     0.1  
Maturity of marketable securities   —     —     0.2     0.1  
Other   (0.3 )   (0.3 )   (0.6 )   (0.5 )
Net cash used in investing activities   $ (13.1 )   $ (14.5 )   $ (10.3 )   $ (27.7 )
                 
Cash flows from financing activities:                
Proceeds from issuance of stock for share-based compensation arrangements   $ —     $ 0.5     $ 0.3     $ 1.4  
Purchase of treasury stock   —     (21.3 )   —     (60.5 )
Shares withheld for employees taxes   (1.0 )   (0.8 )   (12.4 )   (9.9 )
Other   —     (0.1 )   —     (0.1 )
Net cash used in financing activities   $ (1.0 )   $ (21.7 )   $ (12.1 )   $ (69.1 )
Net change in cash and cash equivalents   57.0     12.3     49.6     (62.9 )
Cash and cash equivalents at beginning of period   272.0     277.7     279.4     352.9  
Cash and cash equivalents at end of period   $ 329.0     $ 290.0     $ 329.0     $ 290.0