Fourth quarter net loss was $218.1 million or $1.76 per share, compared to net income of $26.7 million or $0.21 per diluted share in the prior quarter and net income of $34.0 million or $0.27 per diluted share in the fourth quarter of 2007. Included in this net loss are a $203.3 million non-cash goodwill impairment charge, a $19.0 million non-cash impairment of auction rate securities and a $15.9 million charge related to previously announced restructuring actions of which $4.5 million are non-cash asset impairments. In addition, we revised our estimates relating to potential litigation outcomes and released $3.3 million of reserves.
The company reported fourth quarter adjusted net income of $7.7 million or $0.06 per diluted share, compared to adjusted net income of $34.0 million or $0.27 per diluted share in the prior quarter and adjusted net income of $41.8 million or $0.33 per diluted share in the fourth quarter of 2007. Adjusted net income excludes amortization of acquisition-related intangibles, restructuring and asset impairment charges, impairment of investments, goodwill impairments, purchased in-process research and development, charges or releases for potential litigation outcomes, acquisition-related purchase accounting charges, net loss on the sale of product lines, costs associated with the redemption of debt, associated net tax effects of these items and other acquisition-related intangibles and effects of finalized tax filings and positions.
Full year revenues for 2008 were $1.574 billion, a decrease of 5.7 percent compared to $1.670 billion in 2007. Net loss for the year was $167.4 million or $1.35 per share, compared to net income of $64.0 million or $0.51 per diluted share in 2007. On an adjusted basis, the company reported 2008 net income of $86.4 million or $0.69 per diluted share, compared to $113.7 million or $0.90 per diluted share in 2007.
“We responded quickly to the broad-based reduction in orders during the fourth quarter to effectively manage our supply chain and to reduce costs,” said Mark Thompson, president and CEO. “Total supply chain inventories were roughly flat in dollars to the prior quarter. We reduced internal inventory by about $2 million by lowering factory loadings through shutdowns of as much as two weeks during the quarter. Inventory of our products in the distribution channel increased less than $2 million from the prior quarter.
“We accelerated a number of streamlining actions that will significantly reduce our costs while preserving our ability to respond rapidly to future improvements in demand,” said Thompson. “We are encouraged by the recent stabilization of order rates in January and we are now building backlog for Q1. Fairchild is committed to taking advantage of this market to speed improvements and to build a higher value business. We have a strong balance sheet today and expect to maintain this strength throughout 2009.”
Fourth Quarter Financials
"We strictly controlled costs during the quarter, reducing adjusted SG&A and R&D by nearly $16 million sequentially through mandatory time off, headcount reductions, and the elimination of bonus and certain equity grants for 2008,” said Mark Frey, executive vice president and CFO. “In the fourth quarter, gross margins fell 340 basis points sequentially to 26.5 percent, as factory utilization rates dropped to around 70 percent. Capital expenditures for the quarter were $35.6 million, as we completed previously announced package insourcing and 8-inch conversion cost cutting projects. Going forward, we expect to significantly reduce capital expenditures. We continue to maintain a strong balance sheet, with $386.9 million in cash and securities on hand at quarter’s end.
“Considering the decline in Fairchild Semiconductor’s market capitalization, along with other factors, we determined that a non-cash goodwill impairment was necessary under U.S. GAAP,” stated Frey. “We also took a $15.9 million charge related to restructuring initiatives and asset impairments already announced. We reduced our reserves for potential litigation outcomes by $3.3 million based on favorable court rulings during the fourth quarter in ongoing patent litigation. Finally, we recorded a $19.0 million non-cash impairment of auction rate securities. This impairment had previously been recorded on the balance sheet in other comprehensive income.”
Current Status of First Quarter Business
“In light of the level of uncertainty in the current market environment,
measures we typically use to forecast sales such as current backlog and
historical order rates no longer enable accurate guidance,” said Frey.
“Nevertheless, we want to provide current information to investors.
Therefore, we are changing our normal guidance policy until further
notice. Today we are disclosing our current backlog and our view of
first quarter business expectations. However, we are not assuming any
obligation to update this information, although we may choose to do so,
before we announce first quarter results. As of today, we have about
$205 million of backlog for Q1. Based on order patterns observed so far
in January, we should post additional turns business in the quarter.
Assuming we continue to record positive fill, we presently expect
first-quarter sales to be between $220 and $245 million. Based on our
distributors’ forecasts for sell-through, this amount of revenue would
result in a significant channel inventory reduction. Assuming this level
of business, gross margin would be between 14 and 18 percent. Operating
expenses for the quarter are currently estimated to be in the range of
$73 to $76 million. We expect to incur an additional cash restructuring
charge of about $8 million in connection with staffing reductions
announced last quarter. Capital expenditures are expected to be limited
to about $60 million for all of 2009. Interest expense for the first
quarter is projected to be between $4 and $5 million, while our tax
expense is anticipated to be around zero. We reiterate that, although
this information reflects our best available information as of today, it
should not be viewed as equivalent to guidance we have historically
given.”
