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Sunday, November 17th, 2019

Fairchild Semiconductor Intl : INTERNATIONAL INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Closed
by August 10, 2016 General

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes of this quarterly report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 27, 2015.Introduction
This discussion and analysis of our financial condition and results of
operations is intended to provide investors with an understanding of our past
performance, financial condition and prospects. We will discuss and provide our
analysis of the following:

• Overview

• Results of Operations

• Liquidity and Capital Resources

• Forward Looking Statements

OverviewFairchild sales for the second quarter were up 7 percent sequentially and 1 percent lower than the year ago quarter. Sales were largely as expected with normal seasonal demand patterns evident across all our end markets.
Demand growth was seasonally strong for our products serving the mobile,
appliance, enterprise computing and industrial end markets. We expect this
strength to continue in the third quarter. In the mobile sector, orders were
particularly strong as new models and additional design wins are expected to
drive robust sales growth in the third quarter. We expect normal seasonal demand
trends to continue in the other major end markets.

We strive to keep inventory as lean as possible while maintaining high customer
service levels. We prefer to maintain maximum flexibility by adjusting internal
inventories in response to higher demand before adding more inventory to our
distribution channels. Correspondingly, we reduced internal inventory by $11
million sequentially to 102 days. Inventory dollars in the distribution channel
increased modestly but we decreased to 10 weeks supply on hand due to the 13
percent sequential growth in distribution sell through.

19——————————————————————————–Table of ContentsResults of OperationsThe following table summarizes certain information relating to our operating results as derived from our unaudited consolidated financial statements, including results as a percent of revenue.

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 2016 2015
(Dollars in millions) (Dollars in millions)
Total revenues $ 350.0 100.0 % $ 355.2 100.0 % $ 677.0 100.0 % $ 710.9 100.0 %
Gross margin 103.1 29.5 % 109.8 30.9 % 203.2 30.0 % 217.8 30.6 %

Operating expenses:
Research and development 41.6 11.9 % 42.3 11.9 % 81.7 12.1 % 84.0 11.8 % Selling, general and administrative 47.7 13.6 % 57.816.3 % 96.3 14.2 % 110.5 15.5 % Amortization of acquisition-related intangibles 1.9 0.5 % 2.1 0.6 % 3.8 0.6 % 4.2 0.6 %
Restructuring, impairments, and other
costs 0.6 0.2 % 4.2 1.2 % (10.3 ) -1.5 % 8.9 1.3 %
Charge for litigation 0.5 0.1 % – 0.0 % 0.5 0.1 % – 0.0 %
Goodwill impairment charge – 0.0 % – 0.0 % – 0.0 % 0.6 0.1 %

Total operating expenses 92.3 26.4 % 106.4 30.0 % 172.0 25.4 % 208.2 29.3 %

Operating income 10.8 3.1 % 3.4 1.0 % 31.2 4.6 % 9.6 1.4 %

Other expense, net 1.2 0.3 % 1.6 0.5 % 2.8 0.4 % 2.8 0.4 %

Income before income taxes 9.6 2.7 % 1.8 0.5 % 28.4 4.2 % 6.8 1.0 %

Provision for income taxes 2.7 0.8 % 2.7 0.8 % 6.7 1.0 % 6.6 0.9 %

Net income (loss) $ 6.9 2.0 % $ (0.9 ) -0.3 % $ 21.7 3.2 % $ 0.2 0.0 %

Adjusted net income and adjusted gross margin are also included in the table
below. These are non-GAAP financial measures and should not be considered a
replacement for GAAP results. We present adjusted results because 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. Our criteria for adjusted results
may differ from methods used by other companies and may not be comparable and
should not be considered as alternatives to net income or loss, gross margin, or
other measures of consolidated operations and cash flow data prepared in
accordance with U.S. GAAP as indicators of our operating performance or as
alternatives to cash flow as a measure of liquidity.

20——————————————————————————– Table of Contents
Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 2016 2015
(Dollars in millions) (Dollars in millions)
Unaudited non-GAAP measures
Adjusted net income $ 15.6$ 13.9$ 27.2$ 27.2
Adjusted gross margin $ 104.8$ 117.9$ 206.4$ 230.4
Adjusted gross margin % 29.9 % 33.2 % 30.5 % 32.4 %

Reconciliation of Net Income (Loss) to
Adjusted Net Income
Net income (loss) $ 6.9$ (0.9 )$ 21.7$ 0.2
Adjustments to reconcile net income
(loss) to adjusted net income:
Restructuring, impairments, and other
costs 0.6 4.2 2.0 8.9
Gain on disposal of held for sale assets – – (12.3 ) –
Charge for litigation 0.5 – 0.5 –
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 5.9 – 11.4 –
Goodwill impairment charge – – – 0.6
Amortization of acquisition-related
intangibles 1.9 2.1 3.8 4.2
Associated tax effects of the above and
other acquisition-related intangibles (0.2 ) 0.4 0.1 0.7

Adjusted net income $ 15.6$ 13.9$ 27.2$ 27.2

Reconciliation of Gross Margin to
Adjusted Gross Margin
Gross margin $ 103.1$ 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 – 3.2 –

Adjusted gross margin $ 104.8$ 117.9$ 206.4$ 230.4

Total Revenues

Three Months Ended Six Months Ended
June 26, June 28, $ Change % Change June 26, June 28, $ Change % Change
2016 2015 Inc (Dec) Inc (Dec) 2016 2015 Inc (Dec) Inc (Dec)
(Dollars in millions) (Dollars in millions)
Total revenues $ 350.0$ 355.2$ (5.2 ) (1.5 )% $ 677.0$ 710.9$ (33.9 ) (4.8 )%

Revenue was 1.5% lower in the second quarter of 2016 compared to the same period
a year ago due primarily to pricing impacts, partially offset by increased
product volume. Revenue was 4.8% lower in the first six months of 2016 compared
to the same period a year ago due primarily to pricing impacts.

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Geographic revenue information is based on the customer location within the
indicated geographic region. The following table presents, as a percentage of
sales, geographic revenue for the second quarter and first six months of 2016
and the same periods in the prior year.

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 2016 2015
Percent of total revenue:
U.S. 9 % 8 % 9 % 8 %
Other Americas 1 1 1 1
Europe 16 16 17 16
China 44 42 43 42
Taiwan 8 9 8 10
Korea 4 7 5 6
Other Asia/Pacific (1) 18 17 17 17

Total 100 % 100 % 100 % 100 %

(1) For our geographic reporting purposes includes Japan and Singapore.

Revenue trends by geographic region were relatively stable in the three and six
month horizons. China was modestly higher while Taiwan and Korea were lower due
to an ongoing shift of market share in the mobile and appliance end markets.

Gross Margin

Three Months Ended Six Months Ended
June 26, June 28, $ Change % Change June 26, June 28, $ Change % Change
2016 2015 Inc (Dec) Inc (Dec) 2016 2015 Inc (Dec) Inc (Dec)
(Dollars in millions) (Dollars in millions)
Gross Margin $ $ 103.1$ 109.8$ (6.7 ) (6.1 )% $ 203.2$ 217.8$ (14.6 ) (6.7 )%
Gross Margin % 29.5 % 30.9 % 30.0 % 30.6 %

Gross margin decreased $6.7 million in the second quarter of 2016 compared to
the same period a year ago due primarily to pricing impacts, increased global
operations and other manufacturing period expenses and recognition of prior
period manufacturing inefficiencies, partially offset by improved product mix,
as well as a reduction in accelerated depreciation and inventory write-off costs
due to factory closures in 2015. Gross margin decreased $14.6 million in the
first six months of 2016 compared to the same period a year ago due primarily to
pricing impacts and acquisition-related costs, partially offset by improved
product mix and a reduction in accelerated depreciation and inventory write-off
costs due to factory closures in 2015.

Adjusted Gross Margin

Three Months Ended Six Months Ended
June 26, June 28, $ Change % Change June 26, June 28, $ Change % Change
2016 2015 Inc (Dec) Inc (Dec) 2016 2015 Inc (Dec) Inc (Dec)
(Dollars in millions) (Dollars in millions)
Adjusted Gross Margin $ $ 104.8$ 117.9$ (13.1 ) (11.1 )% $ 206.4$ 230.4$ (24.0 ) (10.4 )%
Adjusted Gross Margin % 29.9 % 33.2 % 30.5 % 32.4 %

Adjusted gross margin does not include accelerated depreciation and inventory
write-offs due to factory closures and acquisition-related costs. See
reconciliation of gross margin to adjusted gross margin above for explanation of
changes.

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Operating Expenses

Three Months Ended Six Months Ended
June 26, June 28, $ Change % Change June 26, June 28, $ Change % Change
2016 2015 Inc (Dec) Inc (Dec) 2016 2015 Inc (Dec) Inc (Dec)
(Dollars in millions) (Dollars in millions)
Research and development $ 41.6$ 42.3$ (0.7 ) (1.7 )% $ 81.7$ 84.0$ (2.3 ) (2.7 )%
Selling, general and administrative $ 47.7$ 57.8 $ (10.1 ) (17.5 )% $ 96.3$ 110.5$ (14.2 )(12.9 )%

Research and development expenses decreased 1.7% in the second quarter of 2016
compared to the same period a year ago due primarily to selectivity in funding
various programs and other spending reductions, partially offset by
acquisition-related costs. Selling, general and administrative expenses
decreased 17.5% in the second quarter of 2016 compared to the same period a year
ago due primarily to cost savings attributable to the restructuring actions
announced in the third quarter of 2015, as well as reduced selling costs,
partially offset by acquisition-related costs. Research and development expenses
and selling, general and administrative expenses decreased 2.7% and 12.9%,
respectively, in the first six months of 2016 compared to the same period a year
ago due primarily to the reasons described in the second quarter.

Restructuring, Impairments and Other Costs
During the three months ended June 26, 2016 and June 28, 2015, we recorded
restructuring, impairments and other costs of $0.6 million and $4.2 million,
respectively. During the six months ended June 26, 2016 and June 28, 2015, we
recorded restructuring, impairments and other costs of $(10.3) million and $8.9
million, respectively. Please refer to Item 1. Note 9 Restructuring, Impairments
and Other Costs to our unaudited consolidated financial statements included
within this report for further details regarding this matter.

Goodwill Impairment ChargeIn the first quarter of 2015, we incurred a $0.6 million goodwill impairment charge as a result of the impairment test performed in conjunction with our operating segment reorganization.Other Expense, net
During the three months ended June 26, 2016 and June 28, 2015, we recorded other
expense, net of $1.2 million and $1.6 million, respectively. During the six
months ended June 26, 2016 and June 28, 2015, we recorded other expense, net of
$2.8 million and $2.8 million, respectively. Please refer to Item 1. Note
5 Financial Statement Details to our unaudited consolidated financial statements
included within this report for further details regarding this matter.

Income Taxes

Three Months Ended Six Months Ended
June 26, June 28, $ Change % Change June 26, June 28, $ Change % Change
2016 2015 Inc (Dec) Inc (Dec) 2016 2015 Inc (Dec) Inc (Dec)
(Dollars in millions) (Dollars in millions)Income before income taxes $ 9.6$ 1.8$ 7.8433.3 % $ 28.4$ 6.8$ 21.6 317.6 % Provision for income taxes $ 2.7$ 2.7 $ – – % $ 6.7$ 6.6$ 0.11.5 %

The effective tax rate for the second quarter of 2016 was 28.4% compared to
149.6% for the second quarter of 2015. The effective tax rate for the first six
months of 2016 was 23.5% compared to 96.8% for the first six months of 2015. The
change in the effective rate was primarily driven by losses incurred in the U.S.
during the second quarter of 2015 for which no rate benefit was recorded due to
a full valuation allowance against our net U.S. deferred tax assets and
non-deductible expenses incurred during the second quarter of 2015 related to
the closure of our Malaysia manufacturing facility. We are currently under tax
audit in Korea for years 2011 through 2015. The audit commenced during the
second quarter of 2016.

Deferred taxes have not been provided on undistributed earnings of foreign
subsidiaries which are reinvested indefinitely. Certain non-U.S. earnings, which
have been taxed in the U.S. but earned offshore, have and continue to be part of
our repatriation plan. As of June 26, 2016, a deferred tax liability of $4.4
million has been recorded, with no impact to the consolidated statement of
operations due to having a full valuation allowance against our net U.S.
deferred tax assets.

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——————————————————————————–Table of ContentsForeign Currency Exchange Risk
Our results of operations are subject to foreign currency exchange rate
fluctuations due to the global nature of our operations. We have operations or
maintain distribution relationships in the U.S., Europe, Asia/Pacific, Japan and
Korea. As a result, our financial position, results of operations and cash flows
can be affected by market fluctuations in foreign exchange rates, primarily with
respect to the Euro and South Korean won. Fluctuations in the foreign currency
exchange rates of the countries in which we do business will affect our
operating results, often in ways that are difficult to predict. In particular,
as the U.S. dollar strengthens versus other currencies the value of the non-U.S.
revenue will decline when reported in U.S. dollars. The impact to net income as
a result of a U.S. dollar strengthening will be partially mitigated by the value
of non-U.S. expense which will also decline when reported in U.S. dollars. As
the U.S. dollar weakens versus other currencies the value of the non-U.S.
revenue and expenses will increase when reported in U.S. dollars. We may
establish revenue and expense hedging and balance sheet risk management programs
to protect against short term volatility of future foreign currency cash flows
and changes in fair value caused by volatility in foreign exchange rates.

Reportable SegmentsThe following table represents comparative disclosures of revenue, gross margin and operating income (loss) of our reportable segments.

Three Months Ended
June 26, 2016 June 28, 2015
% of Gross Gross Operating % of Gross Gross Operating
Revenue Total Margin Margin % Income (Loss) Revenue Total Margin Margin % Income (Loss)
(Dollars in millions) (Dollars in millions)
SPS $ 211.8 60.5 % $ 63.0 29.7 % $ 41.4 $ 210.3 59.2 % $ 71.8 34.1 % $ 50.6
APSS 91.3 26.1 % 30.7 33.6 % 9.6 96.6 27.2 % 35.3 36.5 % 11.4
SPG 46.9 13.4 % 11.1 23.7 % 10.0 48.3 13.6 % 10.8 22.4 % 9.4
Corporate (1,2) – – % (1.7 ) – % (50.2 ) – – % (8.1 ) – % (68.0 )

Total $ 350.0 100.0 % $ 103.1 29.5 % $ 10.8 $ 355.2 100.0 % $ 109.8 30.9 % $ 3.4

Six Months Ended
June 26, 2016 June 28, 2015
% of Gross Gross Operating % of Gross Gross Operating
Revenue Total Margin Margin % Income (Loss) Revenue Total Margin Margin % Income (Loss)
(Dollars in millions) (Dollars in millions)
SPS $ 417.5 61.6 % $ 125.1 30.0 % $ 83.1 $ 421.5 59.3 % $ 135.0 32.0 % $ 93.4
APSS 167.7 24.8 % 59.2 35.3 % 17.7 192.9 27.1 % 72.0 37.3 % 22.9
SPG 91.8 13.6 % 22.1 24.1 % 19.9 96.5 13.6 % 23.4 24.2 % 20.6
Corporate (1,2) – – % (3.2 ) – % (89.5 ) – – % (12.6 ) – % (127.3 )

Total $ 677.0 100.0 % $ 203.2 30.0 % $ 31.2 $ 710.9 100.0 % $ 217.8 30.6 % $ 9.6

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Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 2016 2015
(In millions) (In millions)
(1) 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 ) – (3.2 ) –

Corporate gross margin total $ (1.7 )$ (8.1 )$ (3.2 )$ (12.6 )

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 2016 2015
(In millions) (In millions)
(2) Restructuring, impairments,
and other costs $ (0.6 )$ (4.2 ) $ 10.3 $ (8.9 ) Charge for litigation (0.5 ) – (0.5 ) –
Accelerated depreciation on
assets related to factory
closures – (3.5 ) – (8.0 )
Inventory write-offs
associated with factory
closures – (4.6 ) – (4.6 )
Selling, general and
administrative expense (39.7 ) (51.4 )
(80.5 ) (98.0 ) Acquisition-related costs (5.9 ) – (11.4 ) –
Corporate research and
development expense (3.5 ) (4.3 ) (7.4 ) (7.8 )
Corporate operating loss total $ (50.2 )$ (68.0 )$ (89.5 )$ (127.3 )

Total Revenue

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 % Change 2016 2015 % Change
(Dollars in millions) (Dollars in millions)
SPS $ 211.8$ 210.3 0.7 % $ 417.5$ 421.5 (0.9 )%
APSS 91.3 96.6 (5.5 )% 167.7 192.9 (13.1 )%
SPG 46.9 48.3 (2.9 )% 91.8 96.5 (4.9 )%

Total revenue $ 350.0$ 355.2 (1.5 )% $ 677.0$ 710.9 (4.8 )%

SPS revenue increased 0.7% in the second quarter of 2016 compared to the same
period in the prior year due primarily to increased product volume, partially
offset by pricing impacts. APSS revenue decreased 5.5% in the second quarter of
2016 from the same period in the prior year due primarily to pricing impacts and
reduced demand for power conversion products partially offset by higher demand
from the mobile end market. SPG revenue decreased 2.9% in the second quarter of
2016 from the same period in the prior year due primarily to reduced product
volume.

SPS revenue decreased 0.9% in the first six months of 2016 compared to the same
period in the prior year due primarily to pricing impacts, partially offset by
increased product volume. APSS revenue decreased 13.1% in the first six months
of 2016 compared to the same period in the prior year due primarily to pricing
impacts and reduced product volume, specifically related to weakness for power
conversion products. SPG revenue decreased 4.9% in the first six months of 2016
compared to the same period in the prior year due primarily to the same reasons
discussed in the second quarter.

25——————————————————————————– Table of Contents

Gross Margin

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 % Change 2016 2015 % Change
(Dollars in millions) (Dollars in millions)
SPS $ 63.0$ 71.8 (12.3 )% $ 125.1$ 135.0 (7.3 )%
APSS 30.7 35.3 (13.0 )% 59.2 72.0 (17.8 )%
SPG 11.1 10.8 2.8 % 22.1 23.4 (5.6 )%
Corporate (1) (1.7 ) (8.1 ) (79.0 )% (3.2 ) (12.6 ) (74.6 )%

Total gross margin $ $ 103.1$ 109.8 (6.1 )% $ 203.2$ 217.8 (6.7 )%

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 2016 2015
SPS 29.7 % 34.1 % 30.0 % 32.0 %
APSS 33.6 % 36.5 % 35.3 % 37.3 %
SPG 23.7 % 22.4 % 24.1 % 24.2 %
Total gross margin % 29.5 % 30.9 % 30.0 % 30.6 %

(1) Please refer to Reconciliation of Gross Margin to Adjusted Gross Margin in our Results from Operations for more details.
SPS gross margin decreased 12.3% in the second quarter of 2016 from the same
period in the prior year due primarily to pricing impacts, recognition of prior
period manufacturing inefficiencies, increased global operations and other
manufacturing period expenses and inventory reserves, partially offset by
improved product mix. APSS gross margin decreased 13.0% in the second quarter of
2016 from the same period in the prior year due primarily to pricing impacts,
partially offset by improved product mix. SPG gross margin increased 2.8% in the
second quarter of 2016 from the same period in the prior year due primarily to
improved internal manufacturing utilization.

SPS gross margin decreased 7.3% in the first six months of 2016 from the same
period in the prior year due primarily to pricing impacts, as well as increased
inventory reserves and other manufacturing period expenses, partially offset by
improved product mix. APSS gross margin decreased 17.8% in the first six months
of 2016 from the same period in the prior year due primarily to pricing impacts.
SPG gross margin decreased 5.6% in the first six months of 2016 from the same
period in the prior year due primarily to pricing decreases and product mix
impacts.

Operating Income (Loss)

Three Months Ended Six Months Ended
June 26, June 28, June 26, June 28,
2016 2015 % Change 2016 2015 % Change
(Dollars in millions) (Dollars in millions)
SPS $ 41.4$ 50.6 (18.2 )% $ 83.1$ 93.4 (11.0 )%
APSS 9.6 11.4 (15.8 )% 17.7 22.9 (22.7 )%
SPG 10.0 9.4 6.4 % 19.9 20.6 (3.4 )%
Corporate (50.2 ) (68.0 ) (26.2 )% (89.5 ) (127.3 ) (29.7 )%

Total operating income $ 10.8$ 3.4 217.6 % $ 31.2$ 9.6 225.0 %

Total operating income increased 217.6% in the second quarter of 2016 from the
same period in the prior year due primarily to a reduction in selling, general,
and administrative expenses and restructuring, impairments, and other costs,
partially offset by the reasons described under the heading “Gross Margin”
within this section. SPS operating income decreased 18.2%, and SPG operating
income increased 6.4% in the second quarter of 2016 from the same period in the
prior year due primarily to the reasons described under the heading “Gross
Margin” within this section. APSS operating income decreased 15.8% in the second
quarter of 2016 from the same period in the prior year due primarily to the
reasons described under the heading “Gross Margin” within this section,
partially offset by a reduction in research and development expenses. Corporate
operating loss decreased 26.2% in the second quarter of 2016 from the same
period in the prior year due primarily to a reduction in selling, general and
administrative expenses and accelerated depreciation and inventory write-off
costs due to factory closures in 2015, partially offset by acquisition-related
costs.

26
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Total operating income increased 225.0% in the first six months of 2016 from the
same period in the prior year due primarily to the same reasons described in the
second quarter. SPS, APSS, and SPG operating income decreased 11.0%, 22.7%, and
3.4%, respectively in the first six months of 2016 from the same period in the
prior year due primarily to the same reasons described in the second quarter.
Corporate operating loss decreased 29.7% in the first six months of 2016 from
the same period in the prior year due primarily to a reduction in selling,
general and administrative expenses and accelerated depreciation and inventory
write-off costs due to factory closures in 2015, as well as reduced
restructuring, impairment, and other costs, partially offset by
acquisition-related costs.

Liquidity and Capital Resources
Our main sources of liquidity are our cash flows from operations, cash and cash
equivalents and our revolving credit facility. As of June 26, 2016, $160.0
million of our $331.1 million of cash and marketable securities balance was
located in the U.S. We believe that funds generated from operations, together
with existing cash and funds from our revolving credit facility will be
sufficient to meet our cash needs over the next twelve months.

On September 26, 2014, we entered into our current $400.0 million, five-year
senior secured revolving credit facility. As of June 26, 2016, $200.0 million
was drawn of the $400.0 million credit facility. Please refer to Item 1. Note 7
Indebtedness to our unaudited consolidated financial statements included within
this report for further details regarding this matter.

As of June 26, 2016, we were in compliance with the covenants associated with
the credit facility and we expect to remain in compliance. This expectation is
subject to various risks and uncertainties discussed more thoroughly in Item 1A
Risk Factors included in our Annual Report on Form 10-K filed with the SEC on
February 25, 2016, and include, among others, the risk that our assumptions and
expectations about business conditions, expenses and cash flows for the
remainder of the year may be inaccurate.

While our credit facility places restrictions on the payment of dividends under
certain conditions, it does not restrict the subsidiaries of Fairchild
Semiconductor Corporation, except to a limited extent, from paying dividends or
making advances to Fairchild Semiconductor Corporation. As a result, we believe
that funds generated from operations, together with existing cash and funds from
our credit facility will be sufficient to meet our debt obligations, operating
requirements, capital expenditures and research and development funding needs
over the next twelve months. In the first six months of 2016, we incurred
capital expenditures of $25.8 million.

We frequently evaluate opportunities to sell additional equity or debt
securities, obtain credit facilities from lenders or restructure our long-term
debt to further strengthen our financial position. Additional borrowing or
equity investment may be required to fund future acquisitions. The sale of
additional equity securities could result in additional dilution to our
stockholders. On May 20, 2015, the board of directors authorized the additional
repurchase of up to $150.0 million of the company’s common stock. This amount is
in addition to the authorization of $100.0 million disclosed in May 2014.

Cash FlowsOur cash flows for each period were as follows:

Six Months Ended
June 26, June 28,
2016 2015
(In millions)Net cash provided by operating activities $ 72.0$ 33.9 Net cash used in investing activities (10.3 ) (27.7 ) Net cash used in financing activities (12.1 ) (69.1 )Net change in cash and cash equivalents $ 49.6$ (62.9 )

Operating Activities

Operating cash flows represent the cash receipts and disbursements related to
all of our activities other than investing and financing activities. Operating
cash flow is derived by adjusting our net income for non-cash operating items,
such as depreciation and amortization, impairment charges and stock-based
compensation expense; and changes in operating assets and liabilities which
reflect timing differences between the receipt and payment of cash associated
with transactions and when they are recognized in our results of operations.

27
——————————————————————————–Table of ContentsCash provided by operating activities in the first six months of 2016 increased by $38.1 million compared to the same period a year ago due primarily to a reduction in inventory levels and other changes in working capital.Investing ActivitiesInvesting cash flows consist primarily of capital expenditures; investment purchases, sales, maturities, and disposals; as well as proceeds from divestitures and cash used for acquisitions.
Cash used in investing activities in the first six months of 2016 decreased by
$17.4 million compared to the same period a year ago due primarily to proceeds
from the disposal of held for sale assets.

Financing Activities
Financing cash flows consist primarily of repurchases of common stock, issuance
and repayment of long-term debt, and proceeds from the sale of shares of common
stock through employee equity incentive plans.

Cash used in financing activities in the first six months of 2016 decreased by $57.0 million compared to the same period a year ago due primarily to the repurchase of treasury stock in the first six months of 2015.New Accounting Standards
For a discussion of new accounting standards, please refer to Item 1. Note 12
Recent Accounting Standards to our unaudited consolidated financial statements
included within this report for further details regarding this matter.

Forward Looking Statements
This quarterly report contains “forward-looking statements” as that term is
defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements can be identified by the use of forward-looking terminology such as
“we believe,” “we expect,” “we intend,” “may,” “will,” “should,” “seeks,”
“approximately,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the
negative of those terms or other comparable terms, or by discussions of our
strategy, plans or future performance. All forward-looking statements in this
report are made based on management’s current expectations and estimates, which
involve risks and uncertainties, including those described above and more
specifically in the Risk Factors section included in our Annual Report on Form
10-K. Among these factors are the following: the announcement and pendency of
our agreement to be acquired by ON Semiconductor may have a material adverse
effect on our business and our stock price; the failure of our pending
acquisition by ON Semiconductor to be completed on the terms contemplated or at
all may materially and adversely affect our business and our stock price;
economic uncertainty, including disruptions in the credit markets, as well as
future economic conditions; changes in demand for our products; changes in
inventories at our customers and distributors; changes in regional or global
economic or political conditions (including as a result of terrorist attacks and
responses to them); 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 internal and external manufacturing capacity; the
risk of production delays; the inability to attract and retain key management
and other employees; 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;
availability and cost of raw materials; competitors’ actions; loss of key
customers, including but not limited to distributors; order cancellations or
reduced bookings; changes in manufacturing yields or output; and significant
litigation. Factors that may affect our operating results are described in the
Risk Factors section in the Annual Reports we file with the SEC. Such risks and
uncertainties could cause actual results to be materially different from those
in the forward-looking statements. Readers are cautioned not to place undue
reliance on the forward-looking statements.

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