8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 16, 2014

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-15181	04-3363001
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

3030 Orchard Parkway

San Jose, CA 95134

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (408) 822-2000

Check the appropriate box below if the form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On October 16, 2014, we announced consolidated financial results for the quarter ended September 28, 2014. The press release announcing the results is included as Exhibit 99.1 to this report. Additional information about non-GAAP financial measures included in the press release is included in Exhibit 99.2. Each exhibit is incorporated herein by reference.

Item 9.01 Exhibits

Exhibit 99.1	Press Release of the Company, dated October 16, 2014.
Exhibit 99.2	Additional information.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Fairchild Semiconductor International, Inc.
Date: October 16, 2014	/s/ Mark S. Frey
	Mark S. Frey
	Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Accounting Officer and Duly Authorized Officer)

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated October 16, 2014 announcing financial results for the quarter ended September 28, 2014.
99.2	Additional information about non-GAAP financial measures included in the press release.

EX-99.1

Exhibit 99.1

Fairchild Reports Results for the Third Quarter 2014

Fairchild (NASDAQ: FCS), a leading global supplier of power semiconductors, today announced results for the third quarter ended September 28, 2014. Fairchild reported third quarter sales of $381.1 million, up 3 percent from the prior quarter and 5 percent higher than the third quarter of 2013.

Fairchild reported a third quarter net loss of $1.0 million or $0.01 per diluted share compared to net income of $17.8 million or $0.14 per diluted share in the prior quarter and $12.1 million or $0.09 per diluted share in the third quarter of 2013. There were $31.7 million in restructuring expenses and other charges related to Fairchild’s manufacturing footprint consolidation included in the third quarter of 2014 results. Gross margin was 34.8 percent compared to 33.4 percent in the prior quarter and 31.5 percent in the year-ago quarter.

Fairchild reported third quarter adjusted gross margin of 35.3 percent, up 190 basis points from the prior quarter and 320 basis points higher than the third quarter of 2013. Adjusted gross margin excludes accelerated depreciation related to manufacturing line closures. Adjusted net income was $34.4 million or $0.28 per diluted share, compared to adjusted net income of $25.2 million or $0.20 per diluted share in the prior quarter and $21.4 million or $0.17 per diluted share in the third quarter of 2013. See the Reconciliation of Net Income to Adjusted Net Income exhibit included in this press release for more details on the other adjustment items.

“We executed well in the third quarter to deliver strong financial results,” said Mark Thompson, Fairchild’s chairman and CEO. “Sales were up seasonally and we reported solid improvements in our gross and operating margins. We posted record sales into the automotive market which were up 16% from the year ago quarter. We also maintained distribution channel inventory at a healthy level of less than 10 weeks. Fairchild generated strong cash flow in the third quarter and further improved our balance sheet.”

“Looking forward to the fourth quarter, our guidance reflects the impact of lower demand from two large customers as well as some latitude to adjust shipments to keep distribution channel inventory flat in dollars exiting this year,” said Thompson. “One large mobile and consumer-products customer is reducing demand again to exit the year with lower inventories. Another large consumer-products customer is significantly decreasing demand for a game platform now that they have the components they need for holiday builds. The impact of these two customers accounts for roughly half of the sequential sales decline we are guiding.”

Third Quarter Financials

“Adjusted gross margin increased 2 points sequentially due to better product mix and higher factory loadings in the prior quarter,” said Mark Frey, Fairchild’s executive vice president and CFO. “R&D and SG&A expenses were $95.4 million, down 3 percent sequentially, due primarily to seasonally higher vacations, lower travel expenses and ongoing cost controls. Free cash flow was a positive $41.6 million for the third quarter. We ended the third quarter with total cash and securities exceeding our debt by $137 million which was up $17 million from the prior quarter despite repurchasing $25 million in stock.”

Forward Guidance

“We expect sales to be in the range of $340 to $360 million for the fourth quarter,” said Frey. “We expect adjusted gross margin to be 33.0 to 34.0 percent due primarily to lower sales and the impact of reduced factory loadings in the prior quarter. We anticipate R&D and SG&A spending to be $95 to $97 million. 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 (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 28, 2014			June 29, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Total revenue	$	381.1		$	371.6		$	364.6		$	1,096.8		$	1,064.3
Cost of sales (1)		248.3			247.4			249.7			735.6			753.3
Gross margin		132.8			124.2			114.9			361.2			311.0
Gross margin %		34.8	%		33.4	%		31.5	%		32.9	%		29.2	%
Operating expenses:
Research and development (2)		41.6			43.0			42.8			125.7			131.4
Selling, general and administrative (3)		53.8			55.0			52.0			164.3			155.8
Amortization of acquisition-related intangibles		2.1			2.2			3.9			8.5			11.6
Restructuring, impairments, and other costs		31.7			4.7			3.5			42.5			8.1
Charge for (release of) litigation		—			—			—			4.4			(12.6	)
Total operating expenses		129.2			104.9			102.2			345.4			294.3
Operating income		3.6			19.3			12.7			15.8			16.7
Other expense, net		1.5			2.6			1.4			5.2			7.6
Income (loss) before income taxes		2.1			16.7			11.3			10.6			9.1
Provision (benefit) for income taxes		3.1			(1.1	)		(0.8	)		3.1			5.0
Net income (loss)	$	(1.0	)	$	17.8		$	12.1		$	7.5		$	4.1
Net income (loss) per common share:
Basic	$	(0.01	)	$	0.14		$	0.10		$	0.06		$	0.03
Diluted	$	(0.01	)	$	0.14		$	0.09		$	0.06		$	0.03
Weighted average common shares:
Basic		119.5			122.7			127.3			122.5			127.4
Diluted		119.5			123.9			128.4			124.4			128.8
(1)    Equity compensation expense included in cost of sales	$	1.5		$	1.5		$	1.2		$	4.0		$	3.6
(2)    Equity compensation expense included in research and development	$	2.2		$	2.1		$	1.9		$	6.3		$	5.6
(3)    Equity compensation expense included in selling, general and administrative	$	4.7		$	5.2		$	4.0		$	14.7		$	12.1

Fairchild Semiconductor International, Inc.

Reconciliation of Net Income (Loss) To Adjusted Net Income

(In millions)

(Unaudited)

	Three Months Ended									Nine Months Ended
	September 28, 2014			June 29, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Net income (loss)	$	(1.0	)	$	17.8		$	12.1		$	7.5		$	4.1
Adjustments to reconcile net income (loss) to adjusted net income:
Restructuring, impairments, and other costs		31.7			4.7			3.5			42.5			8.1
Write off of equity investments		—			—			—			—			3.0
Accelerated depreciation on assets related to line closure (1)		1.8			—			2.1			1.8			7.5
Write down of asset held for sale		—			1.9			—			1.9			—
Gain on sale of equity investment		—			(1.4	)		—			(1.4	)		—
Charge for (release of) litigation		—			—			—			4.4			(12.6	)
Amortization of acquisition-related intangibles		2.1			2.2			3.9			8.5			11.6
Associated net tax effects of the above and other acquisition-related intangibles		(0.2	)		—			(0.2	)		(0.7	)		(0.6	)
Adjusted net income	$	34.4		$	25.2		$	21.4		$	64.5		$	21.1
Adjusted net income per common share:
Basic	$	0.29		$	0.21		$	0.17		$	0.53		$	0.17
Diluted	$	0.28		$	0.20		$	0.17		$	0.52		$	0.16

(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 28, 2014			June 29, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Gross margin	$	132.8		$	124.2		$	114.9		$	361.2		$	311.0
Adjustments to reconcile gross margin to adjusted gross margin:
Accelerated depreciation on assets related to line closure		1.8			—			2.1			1.8			7.5
Adjusted gross margin	$	134.6		$	124.2		$	117.0		$	363.0		$	318.5
Adjusted gross margin %		35.3	%		33.4	%		32.1	%		33.1	%		29.9	%

Fairchild Semiconductor International, Inc.

Consolidated Balance Sheets

(In millions)

(Unaudited)

	September 28, 2014		June 29, 2014		December 29, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	335.0	$	317.4	$	417.8
Short-term marketable securities		0.2		0.2		0.1
Receivables, net		142.3		148.6		127.4
Inventories		253.2		234.4		228.1
Other current assets		51.3		50.2		51.2
Total current assets		782.0		750.8		824.6
Property, plant and equipment, net		648.3		674.7		707.9
Intangible assets, net		40.0		42.9		31.7
Goodwill		211.3		213.7		169.3
Long-term securities		2.2		2.2		2.2
Other assets		63.5		63.1		60.3
Total assets	$	1,747.3	$	1,747.4	$	1,796.0
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	110.8	$	125.6	$	95.8
Accrued expenses and other current liabilities		107.4		84.7		88.0
Total current liabilities		218.2		210.3		183.8
Long-term debt, less current portion		200.1		200.1		200.1
Other liabilities		69.3		57.3		48.0
Total liabilities		487.6		467.7		431.9
Temporary equity - deferred stock units		3.7		3.0		3.6
Total stockholders’ equity		1,256.0		1,276.7		1,360.5
Total liabilities, temporary equity and stockholders’ equity	$	1,747.3	$	1,747.4	$	1,796.0

Fairchild Semiconductor International, Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

	Three Months Ended			Nine Months Ended
	September 28, 2014			September 28, 2014			September 29, 2013
Cash flows from operating activities:
Net income (loss)	$	(1.0	)	$	7.5		$	4.1
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		34.5			102.5			109.6
Non-cash stock-based compensation expense		8.4			25.0			21.3
Non-cash restructuring and impairments expense		0.9			1.5			—
Gain on sale of equity investment		—			(1.4	)		—
Deferred income taxes, net		(1.2	)		(5.9	)		(3.0	)
Charge for (release of) litigation		—			4.4			(12.6	)
Other		3.7			6.1			4.6
Changes in operating assets and liabilities, net of acquisitions		8.7			7.7			(44.7	)
Cash provided by operating activities		54.0			147.4			79.3
Cash flows from investing activities:
Capital expenditures		(12.4	)		(41.3	)		(59.2	)
Proceeds from sale of equity investment		—			2.1			—
Maturity of marketable securities		—			—			0.1
Other		(0.4	)		(1.8	)		(1.8	)
Acquisitions, net of cash acquired		3.4			(56.6	)		—
Cash used in investing activities		(9.4	)		(97.6	)		(60.9	)
Cash flows from financing activities:
Repayment of long-term debt		(200.0	)		(200.0	)		(50.0	)
Issuance of long-term debt		200.0			200.0			—
Proceeds from issuance of common stock and from exercise of stock options, net		0.7			1.4			0.9
Purchase of treasury stock		(25.1	)		(124.6	)		(18.2	)
Shares withheld for employees taxes		(0.9	)		(7.7	)		(8.8	)
Other		(1.7	)		(1.7	)		—
Cash used in financing activities		(27.0	)		(132.6	)		(76.1	)
Net change in cash and cash equivalents		17.6			(82.8	)		(57.7	)
Cash and cash equivalents at beginning of period		317.4			417.8			405.9
Cash and cash equivalents at end of period	$	335.0		$	335.0		$	348.2

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 28, 2014			September 28, 2014			September 29, 2013
Cash provided by operating activities	$	54.0		$	147.4		$	79.3
Capital expenditures		(12.4	)		(41.3	)		(59.2	)
Free cash flow	$	41.6		$	106.1		$	20.1

Editorial Contacts:

Fairchild Semiconductor:	Agency Contact:
Dan Janson	Topaz Partners
Investor Relations	Sarah Thomas
(207) 775-8660	(781) 404-2427
Email: investor@fairchildsemi.com	fairchild@topazpartners.com

EX-99.2

Exhibit 99.2

Information About Our Non-GAAP Financial Measures

Regulation G and other provisions of the securities laws regulate the use of financial measures that are not prepared in accordance with generally accepted accounting principles (we refer to such measures as “non-GAAP financial measures”). In the press release included in this current report on Form 8-K, we provide information on “free cash flow”, “adjusted net income”, the related “adjusted earnings per share” (or “adjusted EPS”), “adjusted gross margin” and the related “adjusted gross margin percent,” each of which is a non-GAAP financial measure.

We believe these measures provide important supplemental information to investors. 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.

For information about our financial results as reported in accordance with GAAP, see Item 8 of Part II, “Consolidated Financial Statements and Supplementary Data” in our annual report on Form 10-K for the year ended December 29, 2013. For a quantitative reconciliation of our non-GAAP financial measures to the most comparable GAAP measures, see “Reconciliation of Net Income (Loss) to Adjusted Net Income”, “Reconciliation of Gross Margin to Adjusted Gross Margin” and “Reconciliation of Cash Provided by Operating Activities to Free Cash Flow” in Exhibit 99.1 included in this current report on Form 8-K.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names.

Items That We Exclude In the Calculation of Adjusted Net Income (Loss)

Adjusted net income (loss), which we reconcile to net income (loss), excludes the following items:

• restructuring and impairments,

• costs associated with redemption of convertible debt,

• amortization of acquisition-related intangibles,

• gain on sale of equity investment,

• write down of assets held for sale,

• impairment/write-off of equity investment,

• gain associated with debt buyback,

• goodwill impairment loss,

• change in retirement plans,

• impairment of investments,

• loss on sale of securities,

• VAT expense on internal IP sale,

• charge (release) for litigation,

• write-off of deferred financing fees

• accelerated depreciation and inventory write-off (release) associated with fab closure,

• the tax effects associated with the above and other acquisition-related intangibles, and

• tax effects from finalized tax filings and positions.

Not all of these items are necessarily included in the calculation of net income (loss) each quarter. To understand which of the above items are included in the calculation of net income (loss), and excluded from the calculation of adjusted net income (loss), see the reconciliation data in Exhibit 99.1 included in this current report on Form 8-K.

Adjusted EPS is derived from adjusted net income (loss), using the same measures of outstanding shares as are used to calculate net income (loss) per share in accordance with GAAP.

Items That We Exclude In the Calculation of Adjusted Gross Margin

Adjusted gross margin, which we reconcile to gross margin, excludes accelerated depreciation, change in retirement plans, and inventory write-off (release) associated with fab closure.

Adjusted gross margin percent is derived from adjusted gross margin using the same measures of revenue as are used to calculate gross margin percent in accordance with GAAP.

Items That We Exclude In the Calculation of Free Cash Flow

Free cash flow, which we reconcile to cash provided by operating activities, excludes capital expenditures. Free cash flow is not intended as an alternative measure of cash flows provided by operating activities, as determined in accordance with GAAP.

We exclude these items for the following reasons:

• We believe such charges do not reflect results of our ongoing operations.

• We believe that, since such charges are not recorded in all periods, excluding them provides better comparability of our results of operations from period-to-period.

• Adjusted results provide an additional measure that our stockholders and debtholders have requested and expect as a means to project future results of operations.

• Although, for the reasons given above, our adjusted results may not be directly comparable with those of other companies, we believe they provide an additional point of comparison (particularly when viewed in the context of the reconciling data that we also provide) that investors may use to compare us with other companies in our industry, many of which also provide non-GAAP financial measures or highlight certain charges in their GAAP presentations.

• For comparison and projection purposes, GAAP measures alone may not provide all information that an investor may wish to consider. For example, amortization of acquisition-related intangibles, included in the GAAP measure, would be higher for a company that has grown through acquisitions than for a company that has grown internally. Excluding and explaining such charges as part of the presentation of the non-GAAP financial measure provides additional information for an investor to use, together with the GAAP measure, in comparing the performance of the two companies.