FAIRCHILD SEMICONDUCTOR INTERNATIONAL INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER: 001-15181

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 04-3363001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

82 RUNNING HILL ROAD
SOUTH PORTLAND, MAINE 04106
(Address of principal executive offices, including zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(207) 775-8100

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The number of shares outstanding of the issuer's classes of common stock as
of the close of business on September 29, 2002:

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

See accompanying notes to unaudited condensed consolidated financial statements.

2

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements.

3

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
(UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements.

4

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements.

5

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements of
Fairchild Semiconductor International, Inc. (the Company) have been prepared in
conformity with accounting principles generally accepted in the United States,
consistent in all material respects with those applied in the company's Annual
Report on Form 10-K for the year ended December 30, 2001. The interim financial
information is unaudited, but reflects all normal adjustments, which are, in the
opinion of management, necessary to provide a fair statement of results for the
interim periods presented. The interim financial statements should be read in
connection with the financial statements in the company's Annual Report on Form
10-K for the year ended December 30, 2001. Certain amounts for prior periods
have been reclassified to conform to the current presentation.

NOTE 2 -- INVENTORIES

The components of inventories are as follows:

NOTE 3 -- COMPUTATION OF NET INCOME (LOSS) PER SHARE

Basic net income (loss) per common share is computed using the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per common share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Potentially dilutive common equivalent shares consist of stock options and
shares obtainable upon the conversion of the convertible senior subordinated
notes.

As a result of the net losses reported for the nine months ended September
29, 2002 and the three and nine months ended September 30, 2001, approximately
4.3 million, 4.0 million and 2.9 million common equivalent shares, respectively,
have been excluded from the calculation of diluted loss per common share because
their effect would have been anti-dilutive. In addition, $1.8 million and $5.4
million was not included in the computation of net loss for the three and nine
months ended September 29, 2002, respectively, and 6.7 million potential common
shares were not included in the computation of diluted earnings per share as a
result of the assumed conversion of the convertible senior subordinated notes
because the effect would have been anti-dilutive.

NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION

6

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- ACQUISITIONS AND DIVESTITURES

On March 20, 2002, the Company completed its acquisition of the cross-point
switch product line and associated intellectual property of I-Cube, Inc.
(I-Cube) for approximately $1.0 million in cash. Cross-point switch products are
critical to Internet infrastructure, data communications, telecommunications,
broadcast video, test equipment and digital signal processing. The transaction
was accounted for as a purchase and the acquired product line's results of
operation since the date of acquisition have been included in the accompanying
statement of operations. The purchase price was allocated entirely to in-process
research and development.

On March 20, 2002, the Company sold its military and space-related discrete
power product line to International Rectifier Corporation for approximately
$29.6 million in cash. As a result of the sale, the Company recorded a gain of
$20.5 million, which was net of the assets acquired by International Rectifier,
transaction fees and other exit costs associated with the sale.

On March 25, 2002, the Company completed its acquisition of the assets of
Signal Processing Technologies, Inc. (SPT), a wholly-owned subsidiary of Toko,
Inc., for approximately $4.0 million in cash. The acquired business, located in
Colorado Springs, Colorado, markets high performance analog-to-digital and
digital-to-analog converters and comparators for the consumer, communications
and industrial markets. The purchase also includes a design center in Horten,
Norway. The transaction was accounted for as a purchase and the acquired
business's results of operations since the date of acquisition have been
included in the accompanying statement of operations. In connection with the SPT
purchase, the Company recorded a non-recurring charge of $0.7 million for
in-process research and development. The remaining purchase price was allocated
to various tangible and identifiable intangible assets, which will be amortized
over their useful lives of 5 years.

NOTE 6 -- GOODWILL

Effective December 31, 2001 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, which addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Goodwill and other
intangibles with indefinite lives are no longer amortized. Instead, the Company
will perform an annual test during the fourth quarter for impairment of these
assets.

A summary of acquired intangible assets as of September 29, 2002 is as
follows:

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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The carrying amount of goodwill by reporting unit for the quarter ended
September 29, 2002 is as follows:

During the quarter, there were no changes to the carrying amount of
goodwill due to acquisitions. In addition, the initial test for impairment of
goodwill as required by SFAS No. 142 was completed during the first quarter. No
impairment was indicated. The fair value of the reporting units for purposes of
the annual impairment test were estimated using discounted future cash flows.
Identified reporting units which carry goodwill include domestic analog,
discrete power products, which are included in the Analog and Discrete segments,
respectively, and Optoelectronics, which does not meet the requirements of a
reportable segment as defined in SFAS No. 131.

For comparative purposes, net loss before goodwill amortization net of tax
and related per share amounts for the Company for the three and nine months
ended September 30, 2001 are as follows (in millions, except per share amounts):

The estimated amortization expense for the remainder of Fiscal 2002 and for
each of the five succeeding fiscal years is as follows:

8

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- SEGMENT INFORMATION

The Company is currently organized into three reportable segments: the
Analog and Mixed Signal Products Group (Analog), the Discrete Products Group
(Discrete) and the Interface and Logic Products Group (Interface and Logic). The
operating results for the product line acquired from I-Cube are included in the
Interface and Logic reporting segment. The operating results for the business
acquired from SPT are included in the Analog reporting segment.

The Company has determined that its Memory (formerly referred to as
Configurable Products) business unit and its Optoelectronics Group do not meet
the threshold for a separate reportable segment under SFAS No. 131, and
accordingly these segments' results are included as part of the "Other" category
for all periods presented. The Company's contract manufacturing business is not
a separate reportable segment and its results are also recorded in the "Other"
category. Management evaluates the contract manufacturing business differently
than its other operating segments due in large part to the fact that it is
predominantly driven by contractual agreements for limited time periods entered
into with National Semiconductor Corporation and Samsung Electronics Co., Ltd in
connection with acquisitions from those companies.

Selected operating segment financial information for the three and nine
months ended September 29, 2002 and September 30, 2001 is as follows:

9

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- RESTRUCTURING AND IMPAIRMENTS

During the nine months ended September 29, 2002, the Company recorded a
pre-tax restructuring charge of $3.6 million, which occurred in the first
quarter. The restructuring charge consisted of employee separation costs
relating primarily to severance and other costs associated with approximately
150 salaried and hourly employees severed in the United States, Europe, Japan
and Malaysia.

During the three and nine months ended September 30, 2001, the Company
recorded pre-tax restructuring and impairment charges of $0.8 million and $14.2
million, respectively. In the third quarter of 2001, the charge was due to
employee separation costs related to severance and other benefits associated
with work force reduction actions in the United States and France. For the nine
months ended September 30, 2001, these charges also included $8.3 million for
asset impairments relating to the consolidation of the five-inch wafer
fabrication line in South Portland, Maine, $1.2 million for employee separation
costs recorded in the first quarter and $3.9 million for employee separation
costs recorded in the second quarter. These aforementioned workforce reduction
actions affected approximately 750 employees primarily in the United States, the
Philippines and Malaysia.

The following table summarizes the activity in the Company's accrual for
restructuring and impairment costs for the nine months ended September 29, 2002
(in millions):

Accrual balance as of December 30, 2001..................... $ 1.3
Accrual................................................... 3.6
Cash payments............................................. (3.1)
Non-cash items............................................ (0.3)
-----
Accrual balance as of March 31, 2002........................ 1.5
Cash payments............................................. (0.9)
-----
Accrual balance as of June 30, 2002......................... 0.6
-----
Cash payments............................................. (0.2)
-----
Accrual balance as of September 29, 2002.................... $ 0.4
=====

The Company expects that all amounts will be substantially paid before the
end of the year.

NOTE 9 -- FOLLOW-ON OFFERING AND REDEMPTION OF 10 1/8% SENIOR SUBORDINATED NOTES

On May 30, 2002, the Company completed a follow-on public offering of
20,000,000 shares of its Class A Common Stock at a price to the public of $25.65
per share. On June 20, 2002, the underwriters executed their option to cover
over-allotments and purchased a further 2,219,196 shares. The underwriting
discount was $1.09 per share. The total of 22,219,196 shares included 16,219,196
newly issued shares sold by the Company and 6,000,000 shares sold by an existing
stockholder. The Company did not receive any proceeds from shares sold by the
existing stockholder. The net proceeds to the Company after the underwriting
discount and other related expenses were approximately $397.7 million.

On June 28, 2002, the Company used some of the proceeds raised in the
follow-on offering to redeem all $285.0 million of its 10 1/8% senior
subordinated notes that were due in March 2007, at a price of 105.063% of face
value. In connection with the redemption, the company had one-time charges
totaling $22.1 million, including $14.5 million for the call premium and other
transaction fees and a $7.6 million non-cash write-off of deferred financing
fees associated with the original bond offering.

10

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- DERIVATIVES

The Company uses derivative instruments to manage exposures to foreign
currencies. In accordance with SFAS No. 133, the fair value of these hedges is
recorded on the balance sheet. Certain forecasted transactions are exposed to
foreign currency risks. The Company monitors its foreign currency exposures to
maximize the overall effectiveness of its foreign currency hedge positions.
Principal currencies hedged include the euro and the Japanese yen. The Company's
objectives for holding derivatives are to minimize the risks using the most
effective methods to eliminate or reduce the impacts of these exposures.

Changes in the fair value of derivative instruments related to time value
are included in the assessment of hedge effectiveness. Hedge ineffectiveness,
determined in accordance with SFAS No. 133 and SFAS No. 138, had no impact on
earnings for the nine months ended September 29, 2002. No cash flow hedges were
derecognized or discontinued for the nine months ended September 29, 2002.

Derivative gains and losses included in other comprehensive income (OCI)
are reclassified into earnings at the time the forecasted transaction revenue is
recognized. The Company estimates that the entire $0.8 million of net unrealized
derivative loss included in OCI will be reclassified into earnings within the
next twelve months.

NOTE 11 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company operates through its wholly owned subsidiary Fairchild
Semiconductor Corporation and other indirect wholly-owned subsidiaries.
Fairchild Semiconductor International, Inc. and certain of Fairchild
Semiconductor Corporation's subsidiaries are guarantors under Fairchild
Semiconductor Corporation's 10 3/8% and 10 1/2% Senior Subordinated Notes and
its 5% Convertible Senior Subordinated Notes. These guaranties are full and
unconditional. In addition, all guaranties are joint and several. Accordingly,
the interim condensed consolidating financial statements are presented below.

11

CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)

12

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

13

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(UNAUDITED)

14

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)

15

CONDENSED CONSOLIDATING BALANCE SHEET

16

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(UNAUDITED)

17

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

18

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

UNLESS OTHERWISE INDICATED, REFERENCES IN THIS MD&A TO "WE", "OUR" AND THE
"COMPANY" REFER TO FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND ITS
SUBSIDIARIES TAKEN AS A WHOLE. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON FORWARD-LOOKING STATEMENTS IN THIS REPORT. SEE "OUTLOOK" AND "BUSINESS RISKS"
BELOW.

OVERVIEW

We are one of the largest independent semiconductor companies focused
solely on developing, manufacturing and selling high performance semiconductors
critical to multiple end markets. We design, develop and market analog,
discrete, interface and logic, non-volatile memory and optoelectronic
semiconductors. Within our broad product portfolio, we focus on providing
discrete and analog power management and interface solutions. Nearly two-thirds
of our trade sales in the first nine months of 2002 were from discrete and
analog products used directly in power applications such as voltage conversion,
power regulation, power distribution, and power and battery management. With the
acquisition in 2001 of the discrete power products business from Intersil
Corporation, which we refer to as DPP, we believe that we are now the world's
leading supplier of combined power analog and power discrete products. Our
products are used as building block components in a wide variety of electronic
applications, including sophisticated computers and internet hardware;
communications; networking and storage equipment; industrial power supply and
instrumentation equipment; portable digital consumer cameras, displays,
audio/video devices, household appliances; and automotive ignition applications.
Because of their basic functionality, our products provide customers with
greater design flexibility than more highly integrated products and improve the
performance of more complex devices or systems. Given these characteristics, our
products have a wide range of applications. Our products are sold to customers
in the personal computer, industrial, communications, consumer electronics and
automotive markets.

On March 20, 2002, we acquired the cross-point switch product line and
associated intellectual property of I-Cube, Inc. (I-Cube) for approximately $1.0
million in cash, including related acquisition costs. Cross-point switches are
critical to Internet infrastructure, data communications, telecommunications,
broadcast video, test equipment and digital signal processing.

On March 20, 2002, we sold our military and space-related discrete power
product line to International Rectifier Corporation for approximately $29.6
million in cash.

On March 25, 2002, we acquired Signal Processing Technologies, Inc. (SPT),
the data conversion business and related design center of Toko, Inc. for
approximately $4.0 million in cash, including related acquisition costs. The
acquired business has added leading-edge converter products to our analog and
mixed signal product offering.

RESULTS OF OPERATIONS

We generated net income (losses) of $4.3 million and $(6.0) million in the
third quarter and first nine months of 2002, respectively, compared to net
losses of $19.1 million and $25.5 million in the comparable periods of 2001.
During the first quarter of 2002, amortization of goodwill was stopped in
accordance with SFAS No. 142. Had goodwill not been amortized in the third
quarter and first nine months of 2001, net losses

20

would have been $16.0 million and $17.6 million, respectively. Excluding unusual
(gains) charges and amortization of acquisition-related intangibles, pro forma
net income (loss) was as follows:

Restructuring and impairments in the first nine months of 2002 include $3.6
million recorded in the first quarter associated with workforce reduction
actions. Restructuring and impairments in the third quarter and first nine
months of 2001 include $0.8 million recorded in the third quarter for employee
severance and benefit costs associated with workforce reduction actions, $3.9
million recorded in the second quarter for employee severance and benefit costs
associated with workforce reduction actions, $8.3 million recorded in the first
quarter for asset impairment charges related to the consolidation of the
five-inch wafer fabrication line in South Portland, Maine and $1.2 million
recorded in the first quarter for employee severance and benefit costs
associated with workforce reduction actions.

Purchased in-process research and development was recorded in the first
quarter of 2002 in connection with our acquisitions of I-Cube ($1.0 million) and
SPT ($0.7 million). Purchased in-process research and development was recorded
in connection with our acquisitions of Impala in the third quarter of 2001 ($1.0
million), and DPP in the first quarter of 2001 ($12.8 million).

Operating income (loss) was $24.2 million and $61.5 million in the third
quarter and first nine months of 2002, respectively, compared to $(5.7) million
and $24.5 million in the third quarter and first nine months of 2001. Excluding
restructuring and impairments, purchased in-process research and development,
amortization of acquisition related intangibles and other unusual (gains)
charges, pro forma operating income was $33.7 million and $95.1 million in the
third quarter and first nine months of 2002, respectively, compared to $10.2
million and $93.7 million in the third quarter and first nine months of 2001.
The increase in pro forma operating income in the third quarter of 2002 as
compared to the third quarter of 2001 is due to higher revenue and gross profit
and lower selling, general and administrative ("SG&A") expenses as a percent of
revenue, resulting from cost reduction actions undertaken. The increase in pro
forma operating income for the first nine months of 2002 compared to the first
nine months of 2001 is due to lower research and development expenses ("R&D")
and SG&A, offset by lower gross margins, primarily in the first quarter of 2002.

On a segment basis, Analog had operating income of $11.9 million and $30.5
million for the third quarter and first nine months of 2002, respectively,
compared to $3.7 million and $10.7 million in the comparable periods of 2001.
The increases in Analog's operating income were primarily due to increases in
revenues and gross margins as well as decreases in selling, general and
administrative expenses. Discrete had operating income of $20.3 million and
$52.5 million in the third quarter and first nine months of 2002, respectively,
compared to $3.4 million and $36.9 million in the comparable periods of 2001.
The increases in Discrete's

21

operating income were primarily due to an increase in gross margins, primarily
in the third quarter of 2002. Interface and Logic had an operating income (loss)
of $(1.9) million and $2.9 million in the third quarter and first nine months of
2002 compared to operating income (loss)of $(2.8) million and $27.6 million in
the comparable periods of 2001. The decreases in Interface and Logic's operating
income in the third quarter and first nine months of 2002 were the result of
decreases in revenues and gross margins partially offset by decreases in
research and development and selling, general and administrative expenses.

Excluding depreciation and amortization of $42.9 million and $125.8 million
in the third quarter and first nine months of 2002, respectively, and $45.3
million and $133.3 million in the comparable periods of 2001, restructuring and
impairments, purchased in-process research and development and other unusual
(gains) charges, earnings before interest, taxes depreciation and amortization
(EBITDA) were $67.1 million and $192.6 million in the third quarter and first
nine months of 2002, respectively, compared to $41.4 million and $188.3 million
in the comparable periods of 2001. EBITDA is presented because we believe that
it is a widely accepted financial indicator of an entity's ability to incur and
service debt. Pro forma net income and pro forma operating income are presented
because we use them as additional measures of our operating performance. EBITDA,
pro forma net income, and pro forma operating income should not be considered as
alternatives to net income, operating income, or other 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.

REVENUES

Our revenues consist of trade sales to unaffiliated customers (96.1% and
96.4% of total revenues in the third quarter and first nine months of 2002,
respectively, and 93.2% and 94.7% of total revenues in the comparable periods of
2001) and revenues from contract manufacturing services provided to National
Semiconductor and Samsung Electronics (3.9% and 3.6% of total revenues in the
third quarter and first nine months of 2002, respectively, and 6.8% and 5.3% of
total revenues in the comparable periods of 2001).

Trade sales increased 14.2% and decreased 0.6% to $346.4 million and
$1,019.4 million in the third quarter and first nine months of 2002,
respectively, compared to $303.4 million and $1,025.7 million for the comparable
periods of 2001. The increase in trade sales in the third quarter resulted
primarily from higher unit volumes offset somewhat by lower average selling
prices, while the decrease in the first nine months of 2002 was primarily the
result of lower average selling prices on flat to slightly higher unit volumes.

Analog revenues increased 26.6% and 9.8% to $89.1 million and $248.7
million in the third quarter and first nine months of 2002, respectively, from
$70.4 million and $226.5 million in the comparable periods of 2001. The
increases are a result of higher sales for power switches and motor drivers,
predominantly into consumer and industrial markets. Discrete revenues increased
18.1% and 12.2% to $188.3 million and $553.7 million in the third quarter and
first nine months of 2002, respectively, compared to $159.4 million and $493.7
million in the comparable periods of 2001. The increase in the third quarter is
the result of stronger sales of high and low power MOSFET's into virtually all
end markets. The increase for the first nine months of 2002 was due to higher
sales of low power MOSFET's into the computing and communications markets and a
full nine months of revenue for our DPP acquisition, which occurred late in the
first quarter of 2001. Interface and Logic revenues decreased 14.1% and 32.0% to
$44.9 million and $148.3 million in the third quarter and first nine months of
2002, respectively, from $52.3 million and $218.0 million in the comparable
periods of 2001. The decreases are due to price competition in our mature logic
products and the impact of the wireline communications market slowdown on our
interface product lines.

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As a percentage of trade sales, geographic trade sales for North America,
Europe, Asia/Pacific (which for our geographic reporting purposes excludes
Korea) and Korea were as follows for the three and nine months ended September
29, 2002 and September 30, 2001:

North American revenues decreased 2% and 25% in the third quarter and first
nine months of 2002, respectively, compared to the same periods of 2001. The
North American sales region has been impacted by a shrinking market due to the
continued migration of component manufacturing offshore. All market segments are
exhibiting weakness except for small improvements in automotive. European
revenues decreased 9% and 22% in the third quarter and first nine months of
2002, respectively, compared to the same periods of 2001. They have been
impacted by the same factors affecting North America, with particular weakness
in the communications market. Revenues in our Asia/Pacific sales region
increased 27% and 11% in the third quarter and first nine months of 2002,
respectively, compared to the same periods of 2001. The year over year increases
in Asia/Pacific are due in part to the continued migration of electronics
production into the region as well as strength in industrial and computing
markets. Sales in our Korean region increased 14% both in the third quarter and
first nine months of 2002, compared to the same periods of 2001. This increase
was primarily due to strong demand from our largest customer, Samsung
Electronics, particularly for products directed towards consumer and computing
markets.

Contract manufacturing revenues decreased 35.5% and 32.8% to $14.2 million
and $38.6 million in the third quarter and first nine months of 2002 compared to
$22.0 million and $57.4 million in the third quarter and first nine months of
2001. The decrease in contract manufacturing revenue resulted from diminishing
demand from both National Semiconductor and Samsung Electronics.

GROSS PROFIT

Gross profit was as follows for the three and nine months ended September
29, 2002 and September 30, 2001:

Excluding non-recurring charges in the first nine months of 2001 associated
with an inventory charge as a result of the discontinuance of the digitizer
product line in our Analog group ($2.5 million), total gross profit was $278.2
million (25.7%).

The increase in gross profit for the third quarter of 2002 compared to the
third quarter of 2001 is a result of increased revenues and better factory
utilization as well as the effect of cost reductions undertaken. The decrease in
gross profit for the first nine months of 2002 compared to the first nine months
of 2001 is a result of lower gross profit from contract manufacturing due to
reduced demand. Trade gross profit is up slightly on a

23

year to date basis as cost reduction actions and increased factory utilization,
particularly in the second and third quarters, have offset price erosion.

RESEARCH AND DEVELOPMENT

R&D expenses were $20.0 million, or 5.8% of trade sales, in the third
quarter of 2002, compared to $19.1 million, or 6.3% of trade sales, in the third
quarter of 2001. The increase in the third quarter of 2002 reflects increased
R&D spending focused on our interface and power analog products. On a
year-to-date basis, R&D was $62.5 million, or 6.1% of trade sales, compared to
$64.4 million, or 6.3% of trade sales for the comparable period of 2001. The
decrease in the first nine months of 2002 as compared to the first nine months
of 2001 was due to spending reductions in response to softer market conditions,
offset by increased R&D as a result of a full nine months of R&D expenses in
2002 from our DPP acquisition.

SELLING, GENERAL AND ADMINISTRATIVE

SG&A were $36.4 million, or 10.5% of trade sales, in the third quarter of
2002, compared to $35.8 million, or 11.8% of trade sales, in the third quarter
of 2001. The increase in the third quarter of 2002 is a result of higher selling
expenses on increased revenues offset by cost reductions. On a year-to-date
basis, SG&A expenses were $108.5 million, or 10.6% of trade sales, compared to
$120.1 million, or 11.7% of trade sales, for the comparable period of 2001. In
the first nine months of 2002, we have offset incremental SG&A from our acquired
businesses with spending reductions in response to softer market conditions.

AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES

Amortization of acquisition-related intangibles was $9.5 million in the
third quarter of 2002, compared to $14.1 million in the third quarter of 2001.
The increase in the third quarter of 2002 is a result of higher selling expenses
on increased revenue, offset by cost reductions. On a year-to-date basis,
amortization of acquisition related intangibles was $28.3 million, compared to
$38.7 million for the comparable period of 2001. The decreases in amortization
are due to our adoption of SFAS No. 142 offset by an increase in amortization,
particularly in the first nine months of 2002 as compared to the comparable
period of 2001, due to a full nine months of amortization of intangibles
acquired as part of DPP acquisition, our Impala acquisition in the latter part
of 2001 and the acquisition of SPT in March of 2002.

INTEREST EXPENSE

Interest expense was $21.1 million and $78.3 million in the third quarter
and first nine months of 2002, respectively, compared to $25.8 million and $76.4
million in the comparable periods of 2001. The decrease in interest expense in
the third quarter was principally the result of expense associated with the
$200.0 million of 5% Convertible Senior Subordinated Notes we sold in the fourth
quarter of 2001, offset by the redemption of $285.0 million of 10 1/8% senior
subordinated notes that occurred on June 28, 2002. Year-to-date interest expense
increased, impacted by additional expense on the $350.0 million of 10 1/2%
Senior Subordinated Notes we sold in the first quarter of 2001.

INTEREST INCOME

Interest income was $3.6 million and $9.2 million in the third quarter and
first nine months of 2002, respectively, compared to $2.2 million and $12.7
million in the comparable periods of 2001. The increase in interest income in
the third quarter of 2002 as compared to the third quarter of 2001 is primarily
due to interest recognized on an income tax refund and higher average cash
balances offset by lower rates of return on our short-term investments. The
decrease in interest income for the first nine months of 2002 compared to the
comparable periods of 2001 was due to lower rates of return.

OTHER EXPENSE, NET

During the first nine months of 2002, we recorded other expense, net of
$1.6 million. In the second quarter, $22.1 million was recorded for costs
associated with the redemption of our 10 1/8% senior subordinated

24

notes. These costs included $14.5 million for the call premium and other
transaction fees and a $7.6 million non-cash write-off of deferred financing
fees associated with the original bond offering. The year to date expense
includes these costs offset by a gain of $20.5 million related to the sale of
our military and space-related discrete power product line recorded in the first
quarter of 2002.

INCOME TAXES

Income tax provision (benefit) was $2.4 million and $(3.2) million for the
third quarter and first nine months of 2002, respectively, compared to $(10.2)
million and $(13.7) million for the third quarter and first nine months of 2001.
The effective tax rate for the third quarter and first nine months of 2002 was
35.8% and 34.8%, respectively, compared to 34.8% and 34.9% for the third quarter
and first nine months of 2001.

LIQUIDITY AND CAPITAL RESOURCES

We have a borrowing capacity of $300.0 million on a revolving basis for
working capital and general corporate purposes, including acquisitions, under
our senior credit facility. At September 29, 2002, adjusted for outstanding
letters of credit, we had $299.2 million available under this senior credit
facility. At September 29, 2002, we had additional outstanding letters of credit
and guarantees totaling $5.0 million that were issued on behalf of unaffiliated
companies with which we currently have a strategic investment or relationship.
These amounts outstanding do not impact available borrowings under the senior
credit facility.

Our senior credit facility, the indentures governing our 10 3/8% Senior
Subordinated Notes, 10 1/2% Senior Subordinated Notes and 5.0% Convertible
Senior Subordinated Notes and other debt instruments we may enter into in the
future may impose various restrictions and covenants on us which could
potentially limit our ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities. The restrictive covenants include limitations on consolidations,
mergers and acquisitions, restrictions on creating liens, restrictions on paying
dividends or making other similar restricted payments, restrictions on asset
sales, restrictions on capital expenditures and limitations on incurring
indebtedness, among other restrictions. The covenants in the senior credit
facility relating to financial ratios also include a minimum interest coverage
ratio and a maximum senior leverage ratio. Provided there are no further
outstanding balances under the senior credit facility, compliance with these
ratios is not required until March 31, 2003. The senior credit facility also
limits our ability to modify our certificate of incorporation and bylaws, or
enter into shareholder agreements, voting trusts or similar arrangements. Under
our debt instruments, the subsidiaries of Fairchild Semiconductor Corporation
cannot be restricted, except to a limited extent, from paying dividends or
making advances to Fairchild Semiconductor Corporation. We believe that funds
generated from operations, together with existing cash, will be sufficient to
meet our debt obligations over the next twelve months. We expect that existing
cash and available funds from our senior credit facility and funds generated
from operations will be sufficient to meet our anticipated operating
requirements and to fund our research and development and planned capital
expenditures for the remainder of the year and for the next twelve months. We
intend to invest approximately $125.0 to $135.0 million in 2002 on capital
expenditures, including the $88.0 million we have spent through September 29,
2002. This capital primarily will be spent to expand capacity in support of
in-sourcing of assembly and test capacity, including construction of our new
facility in Suzhou, China, and our e-business initiatives. 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. The sale of additional equity or convertible
securities could result in additional dilution to our stockholders. Additional
borrowing or equity investment may be required to fund future acquisitions.

On May 30, 2002, the Company completed a follow-on public offering of
20,000,000 shares of its Class A Common Stock at a price to the public of $25.65
per share. On June 20, 2002, the underwriters of the offering executed their
option to cover over-allotments and purchased a further 2,219,196 shares. The
underwriting discount was $1.09 per share. The total of 22,219,196 shares
included 16,219,196 newly issued shares sold by the Company and 6,000,000 shares
sold by an existing stockholder. The Company did not receive any proceeds from
shares sold by the existing stockholder. The net proceeds to the Company after
the underwriting discount and other related expenses were approximately $397.7
million.

25

On June 28, 2002, the Company used some of the proceeds raised in the
follow-on offering to redeem all $285.0 million of its 10 1/8% senior
subordinated notes that were due in March 2007, at a price of 105.063% of face
value. In connection with the redemption, the company had one-time charges
totaling $22.1 million, including $14.5 million for the call premium and other
transaction fees and a $7.6 million non-cash write-off of deferred financing
fees associated with the original bond offering.

As of September 29, 2002, our cash and cash equivalents balance was $632.4
million, an increase of $128.0 million from December 30, 2001, and an increase
of $19.0 million from June 30, 2002.

During the first nine months of 2002, our operations provided $74.6 million
in cash compared to $116.9 million of cash in the first nine months of 2001. The
decrease in cash provided by operating activities reflects a decrease in the
first nine months of 2002 in net income adjusted for non-cash items of $18.7
million and a decrease in cash flows from changes in operating assets and
liabilities of $23.6 million as compared to the first nine months of 2001. Cash
used in investing activities during the first nine months of 2002 totaled $66.3
million, compared to $451.3 million in the first nine months of 2001. The
decrease primarily results from a net cash inflow for acquisitions and
divestitures of $23.9 million in the first nine months of 2002 versus a net cash
outflow in the first nine months of 2001 for acquisitions and divestitures of
$343.1 million. Cash provided by financing activities of $119.7 million for the
first nine months of 2002 was primarily from proceeds from the follow on
offering and issuance of common stock upon the exercise of options offset by the
cash used to redeem the 10 1/8% senior subordinated notes. Cash provided by
financing activities of $218.0 million in the first nine months of 2001 was due
primarily to proceeds from the issuance of the 10 1/2% Senior Subordinated
Notes, net of debt issuance costs, offset by cash used to repay the outstanding
balance on our Senior Credit Facility.

It is customary practice in the semiconductor industry to enter into
guaranteed purchase commitments or "take or pay" arrangements for purchases of
certain equipment and raw materials. At September 29, 2002, obligations under
these arrangements were not material to our consolidated financial statements.
The table below summarizes aggregate maturities of long-term debt and future
minimum lease payments under noncancelable operating leases as of September 29,
2002.

LIQUIDITY AND CAPITAL RESOURCES OF FAIRCHILD INTERNATIONAL, EXCLUDING
SUBSIDIARIES

Fairchild Semiconductor International, Inc. is a holding company, the
principal asset of which is the stock of its wholly owned subsidiary, Fairchild
Semiconductor Corporation. Fairchild Semiconductor International on a
stand-alone basis had no cash flow from operations in the first nine months of
2002, nor in the first nine months of 2001. Fairchild Semiconductor
International on a stand-alone basis has no cash requirements for the next
twelve months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. The U.S. Securities and Exchange Commission has defined critical
accounting policies as those that are both most important to the portrayal of
our financial condition and results and which require our most difficult,
complex or subjective judgments or estimates. Based on this definition, we
believe our critical accounting policies include the policies of revenue
recognition,

26

sales reserves, inventory valuation and the impairment of long-lived assets. For
all financial statement periods presented, there have been no material
modifications to the application of these critical accounting policies.

On an ongoing basis, we evaluate the judgments and estimates underlying all
of our accounting policies, including those related to customer sales
allowances, product returns, bad debts, inventories, impairment of long-lived
assets, deferred tax valuation allowances, restructuring reserves and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Materially different results in the amount and timing of our
actual results for any period could occur if our management made different
judgements or utilized different estimates.

Revenue from the sale of semiconductor products is recognized when title
transfers to the customer, including distributors, which is generally upon
shipment. No revenue is recognized unless there is persuasive evidence of an
arrangement, the price to the buyer is fixed or determinable, and the
collectibility of the sales price is reasonably assured. Contract manufacturing
revenues are recognized upon completion of the contracted service.

Sales reserves generally fall into four categories: customer material
return reserves, distributor contract sales debit reserves, prompt payment
discount reserves, and other distribution reserves. Customer material returns
result from product quality, administrative or other defect issues. Distributor
contract sales debits are credits given to distributors to ensure distributor
profitability on individual resale transactions. Prompt payment discounts are
enticements given to customers to ensure payment is made in a timely manner.
Customer material reserves, distributor contract sales debit reserves and prompt
payment discount reserves are based upon historical rates of return or claims
and any known, specifically identified unusual returns. Other sales reserves are
recorded based upon individual contracts with distributors that may call for
reimbursement of product scrapped or reimbursement of price changes that affect
the distributors inventory carrying value. Historically, we have not experienced
material differences between our estimated sales reserves and actual results.

In determining the net realizable value of our inventories, we review the
valuations of inventory considered excessively old and therefore subject to
obsolescence and inventory in excess of customer backlog. We also adjust the
valuation of inventory when estimated actual cost is significantly different
than standard cost and to value inventory at the lower of cost or market.

We assess the impairment of long-lived assets on an ongoing basis and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable based upon an estimate of future undiscounted cash flows.
Factors we consider that could trigger an impairment review include the
following:

- significant underperformance relative to expected historical or projected
future operating results

- significant changes in the manner of our use of the acquired assets or
the strategy for our overall business

- significant negative industry or economic trends

- significant decline in our stock price for a sustained period

- our market capitalization relative to net book value

- significant technological changes, which would render equipment and
manufacturing process, obsolete.

When we determine that the carrying value of any long-lived asset may not
be recoverable based upon the existence of one or more of the above indicators
of impairment, we measure impairment based on the difference between an asset's
carrying value and an estimate of fair value, which may be determined based upon
quotes or a projected discounted cash flow, using a discount rate determined by
our management to be commensurate with our cost of capital and the risk inherent
in our current business model.

27

FORWARD LOOKING STATEMENTS

This quarterly report includes "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. For example, the Outlook section below
contains numerous forward-looking statements. All forward-looking statements in
this quarterly report are made based on management's current expectations and
estimates, which involve risks and uncertainties, including those described
below and more specifically in the Business Risks section below. Among these
factors are the following: changes in regional or global economic or political
conditions (including as a result of terrorist attacks and responses to them);
changes in demand for our products; changes in inventories at our customers and
distributors; technological and product development risks; availability of
manufacturing capacity; availability of raw materials; competitors' actions;
loss of key customers; 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 Business Risks section in the
quarterly and annual reports we file with the Securities and Exchange
Commission. 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 in this
quarterly report.

POLICY ON BUSINESS OUTLOOK DISCLOSURE AND QUIET PERIODS

It is our current policy to update our business outlook at least twice each
quarter. The first update is near the beginning of each quarter, within the
press release that announces the previous quarter's results. The business
outlook below is consistent with the outlook included in our October 17, 2002
press release announcing third quarter results. The second update is within a
press release issued approximately two months into each quarter. The current
business outlook is accessible at the Investor Relations section of our website
at www.investor.fairchildsemi.com. Toward the end of each quarter, and until
that quarter's results are publicly announced, we observe a "quiet period," when
the outlook is not updated to reflect management's current expectations. The
quiet period for the fourth quarter of 2002 will be from December 14, 2002 to
January 16, 2003, when we plan to release our fourth quarter and full year 2002
results. Except during quiet periods, the business outlook posted on our website
reflects current guidance unless and until updated through a press release, SEC
filing or other public announcement. During quiet periods, our business outlook,
as posted on our website, announced in press releases and provided in quarterly,
annual and special reports or other filing with the SEC, should be considered to
be historical, speaking as of prior to the quiet period only and not subject to
update by the company. During quiet periods, Fairchild Semiconductor
representatives will not comment about the business outlook of the company's
financial results or expectations.

OUTLOOK

We expect revenues in the fourth quarter of 2002 to be down 4-6% from the
third quarter of 2002, as a result of a lower quarter-entering backlog. If our
turns business (which consists of orders that are received and shipped during
the same quarter) is stronger than anticipated, revenues could be as high as
sequentially flat from the third quarter. We expect the pricing environment to
remain very competitive and aggressive, especially on turns business. Due to
additional depreciation from the start-up of our 6-inch wafer fab in Bucheon,
Korea, we anticipate our gross margins to be down roughly 50 basis points in the
fourth quarter of 2002, compared to the third quarter.

For the fourth quarter of 2002, we expect our research and development and
selling, general and administrative expenses (excluding amortization of
intangibles) to be lower than the third quarter, resulting in operating income
as a percentage of sales roughly flat with third quarter levels. We expect
interest expense, net, to be approximately $18.5 million in the fourth quarter.

For purposes of computing earnings before interest, taxes, depreciation and
amortization (EBITDA), pro forma net income and net income per share, we expect
that depreciation and amortization will be roughly

28

$37 million and amortization of acquisition-related intangibles to be
approximately $9.5 million for the fourth quarter of 2002. Finally, we expect an
outstanding diluted share count of approximately 118 million shares for the
fourth quarter of 2002.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In April 2002 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB
Statement No's. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections, effective for fiscal years beginning May 15, 2002 or later. It
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements
and SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. We do not believe the impact of adopting SFAS No. 145 will have a
material impact on our financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement is
effective for fiscal years beginning after December 31, 2002. We do not believe
the impact of adopting SFAS No. 146 will have a material impact on our financial
statements.

BUSINESS RISKS

Our business is subject to a number of risks and uncertainties, which could
cause actual results to differ materially from those expressed in
forward-looking statements. The risks described below are not the only ones
facing our company. Additional risks not currently known to us or that we
currently deem immaterial also may impair our business operations:

DOWNTURNS IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY OR CHANGES IN END
USER MARKET DEMANDS COULD REDUCE THE VALUE OF OUR BUSINESS.

The semiconductor industry is highly cyclical, and the value of our
business may decline during the "down" portion of these cycles. During 1998 and
into 1999, we, as well as many others in our industry, experienced significant
declines in the pricing of our products as customers reduced demand forecasts
and manufacturers reduced prices to keep capacity utilization high. We believe
these trends were due primarily to the Asian financial crisis during that period
and excess personal computer inventories. Beginning in the fourth quarter of
2000 and throughout 2001, we and the rest of the semiconductor industry
experienced backlog cancellations and reduced demand for our products, resulting
in significant revenue declines, due to excess inventories at computer and
telecommunications equipment manufacturers and general economic conditions,
especially in the technology sector. We may experience renewed, possibly more
severe and prolonged, downturns in the future as a result of such cyclical
changes. Even as demand increases following such downturns, our profitability
may not increase because of price competition that historically accompanies
recoveries in demand. In addition, we may experience significant changes in our
profitability as a result of variations in sales, changes in product mix,
changes in end user markets and the costs associated with the introduction of
new products. The markets for our products depend on continued demand for
personal computers, cellular telephones and consumer electronics and automotive
and industrial goods, and these end user markets may experience changes in
demand that will adversely affect our prospects.

WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS TO SATISFY CHANGES IN CONSUMER
DEMANDS.

Our failure to develop new technologies, or react to changes in existing
technologies, could materially delay development of new products, which could
result in decreased revenues and a loss of market share to our competitors.
Rapidly changing technologies and industry standards, along with frequent new
product

29

introductions, characterize the semiconductor industry. Our financial
performance depends on our ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. We may not successfully identify new product opportunities
and develop and bring new products to market in a timely and cost-effective
manner. Products or technologies developed by other companies may render our
products or technologies obsolete or noncompetitive. A fundamental shift in
technologies in our product markets could have a material adverse effect on our
competitive position within our industry.

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY
AFFECT OUR FUTURE PERFORMANCE AND GROWTH.

Failure to protect our existing intellectual property rights may result in
the loss of valuable technologies or having to pay other companies for
infringing on their intellectual property rights. We rely on patent, trade
secret, trademark and copyright law to protect such technologies. Some of our
technologies are not covered by any patent or patent application, and we cannot
assure that:

- the patents owned by us or numerous other patents which third parties
license to us will not be invalidated, circumvented, challenged or
licensed to other companies;

- any of our pending or future patent applications will be issued within
the scope of the claims sought by us, if at all.

In addition, effective patent, trademark, copyright and trade secret protection
may be unavailable, limited or not applied for in some foreign countries.

We also seek to protect our proprietary technologies, including
technologies that may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventors' rights agreements with our
collaborators, advisors, employees and consultants. We cannot assure you that
these agreements will not be breached, that we will have adequate remedies for
any breach or that such persons or institutions will not assert rights to
intellectual property arising out of such research. Some of our technologies
have been licensed on a non-exclusive basis from National Semiconductor, Samsung
Electronics and other companies which may license such technologies to others,
including, in the case of National Semiconductor, commencing on March 11, 2002,
our competitors. In addition, under a technology licensing and transfer
agreement, National Semiconductor has limited royalty-free, worldwide license
rights (without right to sublicense) to some of our technologies. If necessary
or desirable, we may seek licenses under patents or intellectual property rights
claimed by others. However, we cannot assure you that we will obtain such
licenses or that the terms of any offered licenses will be acceptable to us. The
failure to obtain a license from a third party for technologies we use could
cause us to incur substantial liabilities and to suspend the manufacture or
shipment of products or our use of processes requiring the technologies.

OUR FAILURE TO OBTAIN OR MAINTAIN THE RIGHT TO USE CERTAIN TECHNOLOGIES MAY
NEGATIVELY AFFECT OUR FINANCIAL RESULTS.

Our future success and competitive position depend in part upon our ability
to obtain or maintain proprietary technologies used in our principal products,
which is achieved in part by defending claims by competitors and others of
intellectual property infringement. The semiconductor industry is characterized
by claims of and litigation regarding patent and other intellectual property
rights. We receive direct, and indirect claims, (including offers to sell us
licenses), have been involved in lawsuits, and could become subject to other
lawsuits, in which it is alleged that we have infringed upon the patent or other
intellectual property rights of other companies. Our involvement in existing and
future intellectual property litigation, or the costs of avoiding litigation by
purchasing licenses rights or by other means, could result in significant
expense to our company, adversely affecting sales of the challenged product or
technologies and diverting the efforts of our

30

technical and management personnel, whether or not such litigation is resolved
in our favor. In the event of an adverse outcome as a defendant in any such
litigation, we may be required to:

- pay substantial damages;

- indemnify our customers for damages they might suffer if the products
they purchase from us violate the intellectual property rights of others;

- stop our manufacture, use, sale or importation of infringing products;

- expend significant resources to develop or acquire non-infringing
technologies;

- discontinue processes; or

- obtain licenses to the intellectual property we are found to have
infringed.

We cannot assure you that we would be successful in such development or
acquisition or that such licenses would be available under reasonable terms. Any
such development, acquisition or license could require the expenditure of
substantial time and other resources.

WE MAY NOT BE ABLE TO CONSUMMATE FUTURE ACQUISITIONS OR SUCCESSFULLY
INTEGRATE ACQUISITIONS INTO OUR BUSINESS.

We have made nine acquisitions since we became an independent company in
1997 and we plan to pursue additional acquisitions of related businesses. We
believe the semiconductor industry is going through a period of consolidation,
and we expect to participate in this development. The expense incurred in
consummating the future acquisition of related businesses, or our failure to
integrate such businesses successfully into our existing businesses, could
result in our company incurring unanticipated expenses and losses. In addition,
we may not be able to identify or finance additional acquisitions or realize any
anticipated benefits from acquisitions we do complete.

We are constantly pursuing acquisition opportunities and consolidation
possibilities and are in various stages of due diligence or preliminary
discussions with respect to a number of potential transactions, some of which
would be significant. No material potential transactions are subject to a letter
of intent or otherwise so far advanced as to make the transaction reasonably
certain.

Should we successfully acquire another business, the process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties and may require significant financial resources that
would otherwise be available for the ongoing development or expansion of
existing operations. Some of the risks associated with acquisitions include:

- unexpected losses of key employees or customers of the acquired company;

- conforming the acquired company's standards, processes, procedures and
controls with our operations;

- coordinating new product and process development;

- hiring additional management and other critical personnel;

- negotiating with labor unions; and

- increasing the scope, geographic diversity and complexity of our
operations.

In addition, we may encounter unforeseen obstacles or costs in the integration
of other businesses we acquire.

Possible future acquisitions could result in the incurrence of additional
debt, contingent liabilities and amortization expenses related to goodwill and
other intangible assets, all of which could have a material adverse effect on
our financial condition and operating results.

WE DEPEND ON SUPPLIERS FOR TIMELY DELIVERIES OF RAW MATERIALS OF ACCEPTABLE
QUALITY. PRODUCTION TIME AND PRODUCT COSTS COULD INCREASE IF WE WERE TO LOSE A
PRIMARY SUPPLIER OR IF A PRIMARY SUPPLIER INCREASED THE

31

PRICES OF RAW MATERIALS. PRODUCT PERFORMANCE COULD BE AFFECTED AND QUALITY
ISSUES COULD DEVELOP AS A RESULT OF A SIGNIFICANT DEGRADATION IN THE QUALITY OF
RAW MATERIALS WE USE IN OUR PRODUCTS.

Our manufacturing operations depend upon obtaining adequate supplies of raw
materials on a timely basis. Our results of operations could be adversely
affected if we were unable to obtain adequate supplies of raw materials in a
timely manner or if the costs of raw materials increased significantly. Results
could also be adversely affected if there is a significant degradation in the
quality of raw materials used in our products, or if the raw materials give rise
to compatibility or performance issues in our products, any of which could lead
to an increase in customer returns or product warranty claims. Although we
maintain quality rigorous control systems, errors or defects may arise from a
supplied raw material and be beyond our detection or control. We purchase raw
materials such as silicon wafers, lead frames, mold compound, ceramic packages
and chemicals and gases from a limited number of suppliers on a just-in-time
basis. From time to time, suppliers may extend lead times, limit supplies or
increase prices due to capacity constraints or other factors. In addition, we
subcontract a portion of our wafer fabrication and assembly and test operations
to other manufacturers, including Amkor, NS Electronics (Bangkok) Ltd., Samsung
Electronics, Korea Micro Industry, Enoch Semiconductor, SP Semiconductor Company
Ltd. and ChipPAC, Inc. Our operations and ability to satisfy customer
obligations could be adversely affected if our relationships with these
subcontractors were disrupted or terminated.

DELAYS IN BEGINNING PRODUCTION AT NEW FACILITIES, EXPANDING CAPACITY AT
EXISTING FACILITIES, IMPLEMENTING NEW PRODUCTION TECHNIQUES, OR IN CURING
PROBLEMS ASSOCIATED WITH TECHNICAL EQUIPMENT MALFUNCTIONS, ALL COULD ADVERSELY
AFFECT OUR MANUFACTURING EFFICIENCIES.

Our manufacturing efficiency is an important factor in our profitability,
and we cannot assure you that we will be able to maintain our manufacturing
efficiency or increase manufacturing efficiency to the same extent as our
competitors. Our manufacturing processes are highly complex, require advanced
and costly equipment and are continuously being modified in an effort to improve
yields and product performance. Impurities or other difficulties in the
manufacturing process can lower yields.

In addition, we are currently engaged in an effort to expand capacity at
some of our manufacturing facilities. As is common in the semiconductor
industry, we have from time to time experienced difficulty in beginning
production at new facilities or in effecting transitions to new manufacturing
processes. As a consequence, we have suffered delays in product deliveries or
reduced yields. We may experience delays or problems in bringing planned new
manufacturing capacity to full production. We may also experience problems in
achieving acceptable yields, or experience product delivery delays in the future
with respect to existing or planned new capacity as a result of, among other
things, capacity constraints, construction delays, upgrading or expanding
existing facilities or changing our process technologies, any of which could
result in a loss of future revenues. Our operating results could also be
adversely affected by the increase in fixed costs and operating expenses related
to increases in production capacity if revenues do not increase proportionately.

MORE THAN HALF OF OUR SALES ARE MADE BY DISTRIBUTORS WHO CAN TERMINATE
THEIR RELATIONSHIPS WITH US WITH LITTLE OR NO NOTICE. THE TERMINATION OF A
DISTRIBUTOR COULD REDUCE SALES AND RESULT IN INVENTORY RETURNS.

Distributors accounted for 61% of our net trade sales for the nine months
ended September 29, 2002. Our five domestic distributors accounted for 5% of our
net trade sales for the nine months ended September 29, 2002. As a general rule,
we do not have long-term agreements with our distributors and they may terminate
their relationships with us with little or no advance notice. Distributors
generally offer competing products. The loss of one or more of our distributors,
or the decision by one or more of them to reduce the number of our products they
offer or to carry the product lines of our competitors, could have a material
adverse effect on our business, financial condition and results of operations.
The termination of a significant distributor, whether at our or the
distributor's initiative, or a disruption in the operations of one or more of
our distributors, could reduce our net sales in a given quarter and could result
in an increase in inventory returns.

32

THE SEMICONDUCTOR BUSINESS IS VERY COMPETITIVE, ESPECIALLY IN THE MARKETS
WE SERVE, AND INCREASED COMPETITION COULD REDUCE THE VALUE OF AN INVESTMENT IN
OUR COMPANY.

The semiconductor industry is, and the multi-market semiconductor product
markets in particular are, highly competitive. Competitors offer equivalent or
similar versions of many of our products and customers may switch from our
products to competitors' products on the basis of price, delivery terms, product
performance, quality, reliability and customer service or a combination of any
of these factors. Competition is especially intense in the multi-market
semiconductor segment because it is relatively easier for customers to switch
suppliers of more standardized, multi-market products like ours, compared to
suppliers of more highly integrated or customized semiconductor products such as
processors or system-on-a-chip products, which we do not manufacture. Even in
strong markets, price pressures may emerge as competitors attempt to gain a
greater market share by lowering prices. Competition in the various markets in
which we participate comes from companies of various sizes, many of which are
larger and have greater financial and other resources than we have and thus are
better able to pursue acquisition candidates and can better withstand adverse
economic or market conditions. In addition, companies not currently in direct
competition with us may introduce competing products in the future.

WE MAY FACE PRODUCT WARRANTY OR PRODUCT LIABILITY CLAIMS THAT ARE
DISPROPORTIONATELY HIGHER THAN THE VALUE OF THE PRODUCTS INVOLVED.

Our products are typically sold at prices that are significantly lower than
the cost of the equipment or other goods in which they are incorporated. For
example, our products that are incorporated into a personal computer would be
sold for several dollars, whereas the personal computer would be sold by the
computer maker for several hundred dollars. Although we maintain rigorous
quality control systems, we manufacture and sell more than 16 billion units per
year to customers around the world, and in the ordinary course of our business
we receive warranty claims for some of these products that are defective or that
do not perform to published specifications. Since a defect or failure in our
product could give rise to failures in the goods that incorporate them (and
consequential claims for damages against our customers from their customers), we
may face claims for damages that are disproportionate to the revenues and
profits we receive from the products involved. Although we attempt, through our
standard terms and conditions of sale and other customer contracts, to limit our
liability for defective products to obligations to replace the defective goods
or refund the purchase price, we nevertheless receive claims for other charges,
such as for labor and other costs of replacing defective parts, lost profits and
other damages. In addition, our ability to reduce such liabilities may be
limited by the laws or the customary business practices of the countries where
we do business. And, even in cases where we do not believe we have legal
liability for such claims, we may choose to pay for them to retain a customer's
business or goodwill. Our results of operations and business could be adversely
affected as a result of a significant quality or performance issue in our
products, if we are required or choose to pay for the damages that result.

OUR INTERNATIONAL OPERATIONS SUBJECT OUR COMPANY TO RISKS NOT FACED BY
DOMESTIC COMPETITORS.

Through our subsidiaries we maintain significant operations in the
Philippines, Malaysia and South Korea and also operate facilities in China and
Singapore. We also have sales offices and customers around the world. The
following are risks inherent in doing business on an international level:

- economic and political instability;

- foreign currency fluctuations;

- transportation delays;

- trade restrictions;

- work stoppages; and

- the laws, including tax laws of, and the policies of the United States
toward, countries in which we manufacture our products.

33

THE POWER DEVICE BUSINESS SUBJECTS OUR COMPANY TO RISKS INHERENT IN DOING
BUSINESS IN KOREA, INCLUDING LABOR RISK, POLITICAL RISK AND CURRENCY RISK.

As a result of the acquisition of the power device business in 1999, we
have significant operations in South Korea and are subject to risks associated
with doing business in that country.

In addition to other risks disclosed relating to international operations,
some businesses in South Korea are subject to labor unrest. Also, relations
between South Korea and North Korea have been tense over most of South Korea's
history. We cannot assure you as to whether or when this situation will be
resolved or change abruptly as a result of current or future events. An adverse
change in economic or political conditions in South Korea or in its relations
with North Korea could have a material adverse effect on our Korean subsidiary
and our company.

Our power device business' sales are denominated primarily in U.S. dollars
while a significant portion of its costs of goods sold and its operating
expenses are denominated in South Korean won. Although we have taken steps to
fix the costs subject to currency fluctuations and to balance won revenues and
won costs, a significant change in this balance, coupled with a significant
change in the value of the won relative to the dollar, could have a material
adverse effect on our financial performance and results of operations. In
addition, an unfavorable change in the value of the won could require us to
write down our won-denominated assets.

WE ENTERED INTO A NUMBER OF SUPPLY AND SUPPORT CONTRACTS WITH SAMSUNG
ELECTRONICS IN CONNECTION WITH OUR ACQUISITION OF ITS POWER DEVICE BUSINESS IN
1999, MOST OF WHICH HAVE NOW ENDED. ANY SIGNIFICANT DECREASE IN PURCHASES BY
SAMSUNG ELECTRONICS COULD SUBSTANTIALLY REDUCE OUR FINANCIAL PERFORMANCE.

As a result of the acquisition of Samsung Electronics' power device
business in 1999, we entered into numerous arrangements with Samsung
Electronics, including arrangements relating to product sales, designation as a
vendor to affiliated Samsung companies and other services. Although most of
these arrangements have expired, Samsung Electronics remains a significant
customer, due in part to the historical relationship between the business we
acquired and its former parents and affiliates. There can be no assurances that
these relationships will continue at historical levels. Samsung Electronics
(together with its affiliates) is our largest customer, accounting for more than
11% of total trade sales during the first nine months of 2002. Any material
adverse change in the purchases of Samsung Electronics could have a material
adverse effect on our results of operations. Although the power device business
has historically generated significant revenues from the sale of products to
affiliated Samsung companies, contractual arrangements with Samsung designed to
maintain such revenues have expired and we cannot assure you that we will be
able to sell products to affiliated Samsung companies or that the designation of
the power device business as a vendor to those affiliated Samsung companies will
generate any revenues for our company.

A CHANGE IN FOREIGN TAX LAWS OR A DIFFERENCE IN THE CONSTRUCTION OF CURRENT
FOREIGN TAX LAWS BY RELEVANT FOREIGN AUTHORITIES COULD RESULT IN US NOT
RECOGNIZING THE BENEFITS WE ANTICIPATED IN CONNECTION WITH THE TRANSACTION
STRUCTURE USED TO CONSUMMATE THE ACQUISITION OF THE POWER DEVICE BUSINESS.

The transaction structure we used for the acquisition of the power device
business is based on assumptions about the various tax laws, including
withholding tax, and other relevant laws of foreign jurisdictions. In addition,
our Korean subsidiary was granted a ten-year tax holiday under Korean law in
1999. The first seven years are tax-free, followed by three years of income
taxes at 50% of the statutory rate. In 2000, the tax holiday was extended such
that the exemption amounts were increased to 75% in the eighth year and a 25%
exemption was added to the eleventh year. If our assumptions about tax and other
relevant laws are incorrect, or if foreign taxing jurisdictions were to change
or modify the relevant laws, or if our Korean subsidiary were to lose its tax
holiday, we could suffer adverse tax and other financial consequences or lose
the benefits anticipated from the transaction structure we used to acquire that
business.

WE PLAN TO SIGNIFICANTLY EXPAND OUR MANUFACTURING OPERATIONS IN CHINA AND,
AS A RESULT, WILL BE INCREASINGLY SUBJECT TO RISKS INHERENT IN DOING BUSINESS IN
CHINA, WHICH MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.

We are building the first phase of an 800,000 square foot assembly and test
facility in Suzhou, China, and expect to begin production there in 2003.
Although we expect a significant portion of our production from this

34

new facility will be exported out of China, we are hopeful that a significant
portion of our future revenue will result from the Chinese markets in which our
products are sold, and from demand in China for goods that include our products.
In addition, since 2000 we have operated an optoelectronics manufacturing
facility in Wuxi, China. Our ability to operate in China may be adversely
affected by changes in that country's laws and regulations, including those
relating to taxation, import and export tariffs, environmental regulations, land
use rights, property and other matters. In addition, our results of operations
in China are subject to the economic and political situation there. We believe
that our operations in China are in compliance with all applicable legal and
regulatory requirements. However, there can be no assurance that China's central
or local governments will not impose new, stricter regulations or
interpretations of existing regulations that would require additional
expenditures. Changes in the political environment or government policies could
result in revisions to laws or regulations or their interpretation and
enforcement, increased taxation, restrictions on imports, import duties or
currency revaluations. In addition, a significant destabilization of relations
between China and the United States could result in restrictions or prohibitions
on our operations or the sale of our products in China. The legal system of
China relating to foreign trade is relatively new and continues to evolve. There
can be no certainty as to the application of its laws and regulations in
particular instances. Enforcement of existing laws or agreements may be sporadic
and implementation and interpretation of laws inconsistent. Moreover, there is a
high degree of fragmentation among regulatory authorities resulting in
uncertainties as to which authorities have jurisdiction over particular parties
or transactions.

WE ARE SUBJECT TO MANY ENVIRONMENTAL LAWS AND REGULATIONS THAT COULD AFFECT
OUR OPERATIONS OR RESULT IN SIGNIFICANT EXPENSES.

Increasingly stringent environmental regulations restrict the amount and
types of pollutants that can be released from our operations into the
environment. While the cost of compliance with environmental laws has not had a
material adverse effect on our results of operations historically, compliance
with these and any future regulations could require significant capital
investments in pollution control equipment or changes in the way we make our
products. In addition, because we use hazardous and other regulated materials in
our manufacturing processes, we are subject to risks of liabilities and claims,
regardless of fault, resulting from accidental releases, including personal
injury claims and civil and criminal fines, any of which could be material to
our cash flow or earnings. For example:

- we currently are remediating contamination at some of our operating plant
sites;

- we have been identified as a potentially responsible party at a number of
Superfund sites where we (or our predecessors) disposed of wastes in the
past; and

- significant regulatory and public attention on the impact of
semiconductor operations on the environment may result in more stringent
regulations, further increasing our costs.

Although most of our known environmental liabilities are covered by
indemnities from Raytheon Company, National Semiconductor or Samsung
Electronics, these indemnities are limited to conditions that occurred prior to
the consummation of those transactions with those companies. Moreover, we cannot
assure you that their indemnity obligations to us for the covered liabilities
will be adequate to protect us.

WE MAY NOT BE ABLE TO ATTRACT OR RETAIN THE TECHNICAL OR MANAGEMENT
EMPLOYEES NECESSARY TO REMAIN COMPETITIVE IN OUR INDUSTRY.

Our continued success depends on the retention and recruitment of skilled
personnel, including technical, marketing, management and staff personnel. In
the semiconductor industry, the competition for qualified personnel,
particularly experienced design engineers and other technical employees, is
intense. There can be no assurance that we will be able to retain our current
personnel or recruit the key personnel we require. In addition, we do not have
employment agreements with most members of our senior management team.

A SUBSTANTIAL NUMBER OF SHARES OF OUR COMPANY'S COMMON STOCK ARE OWNED BY A
LIMITED NUMBER OF PERSONS, AND THEIR INTERESTS MAY CONFLICT WITH YOUR INTERESTS.

On September 29, 2002, affiliates of Citigroup Inc., and our directors and
executive officers together owned approximately 19.5% of the outstanding shares
of our Class A Common Stock (including shares

35

underlying vested option held by our directors and executive officers). By
virtue of such stock ownership, such persons have the power to significantly
influence our affairs and are able to influence the outcome of matters required
to be submitted to stockholders for approval, including the election of
directors and the amendment of our corporate charter and bylaws. Such persons
may exercise their influence over us in a manner detriment to the interests of
other stockholders or our bondholders.

WE ARE A LEVERAGED COMPANY WITH A DEBT TO EQUITY RATIO OF APPROXIMATELY 0.7
TO 1, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND LIMIT OUR ABILITY TO
GROW AND COMPETE.

At September 29, 2002, we had total long-term debt of $853.2 million and a
ratio of debt to equity of approximately 0.7 to 1.

Our substantial indebtedness could have important consequences. For
example, it could

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;

- increase the amount of our interest expense, because certain of our
borrowings (namely borrowings under our senior credit facility, which is
currently undrawn) are at variable rates of interest, which, if interest
rates increase, could result in higher interest expense;

- increase our vulnerability to general adverse economic and industry
conditions;

- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- restrict us from making strategic acquisitions, introducing new
technologies or exploiting business opportunities;

- make it more difficult for us to satisfy our obligations with respect to
the instruments governing our indebtedness;

- place us at a competitive disadvantage compared to our competitors that
have less indebtedness; and

- limit, along with the financial and other restrictive covenants in our
debt instruments, among other things, our ability to borrow additional
funds, dispose of assets or pay cash dividends. Failing to comply with
those covenants could result in an event of default which, if not cured
or waived, could have a material adverse effect on our business,
financial condition and results of operations.

DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR
SUBSTANTIALLY MORE INDEBTEDNESS. INCURRING MORE INDEBTEDNESS COULD EXACERBATE
THE RISKS DESCRIBED ABOVE.

We may be able to incur substantial additional indebtedness in the future.
The indenture governing Fairchild Semiconductor Corporation's outstanding 5%
Convertible Senior Subordinated Notes Due 2008 does not limit the amount of
additional debt that we may incur. Although the terms of the indentures
governing Fairchild Semiconductor Corporation's outstanding 10 3/8% Senior
Subordinated Notes, its outstanding 10 1/2% Senior Subordinated Notes and the
credit agreement relating to the senior credit facility contain restrictions on
the incurrence of additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions and, under certain circumstances,
additional indebtedness incurred in compliance with these restrictions could be
substantial. The senior credit facility permits borrowings of up to $300.0
million. As of September 29, 2002 we had $299.2 million available under this
revolving credit facility. If new debt is added to our subsidiaries' current
debt levels, the substantial risks described above would intensify.

36

WE MAY NOT BE ABLE TO GENERATE THE NECESSARY AMOUNT OF CASH TO SERVICE OUR
INDEBTEDNESS, WHICH MAY REQUIRE US TO REFINANCE OUR INDEBTEDNESS OR DEFAULT ON
OUR SCHEDULED DEBT PAYMENTS. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.

Our historical financial results have been, and our future financial
results are anticipated to be, subject to substantial fluctuations. We cannot
assure you that our business will generate sufficient cash flow from operations,
that currently anticipated cost savings and operating improvements will be
realized on schedule or at all, or that future borrowings will be available to
us under our senior credit facility in an amount sufficient to enable us to pay
our indebtedness or to fund our other liquidity needs. In addition, because our
senior credit facility has variable interest rates, the cost of those borrowings
will increase if market interest rates increase. If we are unable to meet our
expenses and debt obligations, we may need to refinance all or a portion of our
indebtedness on or before maturity, sell assets or raise equity. We cannot
assure you that we would be able to refinance any of our indebtedness, sell
assets or raise equity on commercially reasonable terms or at all, which could
cause us to default on our obligations and impair our liquidity.

RESTRICTIONS IMPOSED BY THE CREDIT AGREEMENT RELATING TO OUR SENIOR CREDIT
FACILITY, THE INDENTURES GOVERNING FAIRCHILD SEMICONDUCTOR CORPORATION'S 10 3/8%
SENIOR SUBORDINATED NOTES AND ITS 10 1/2% SENIOR SUBORDINATED NOTES RESTRICT OR
PROHIBIT OUR ABILITY TO ENGAGE IN OR ENTER INTO SOME BUSINESS OPERATING AND
FINANCING ARRANGEMENTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO TAKE
ADVANTAGE OF POTENTIALLY PROFITABLE BUSINESS OPPORTUNITIES.

The operating and financial restrictions and covenants in most of our debt
instruments, such as the credit agreement relating to our senior credit
facility, the indenture governing Fairchild Semiconductor Corporation's 10 1/2%
Senior Subordinated Notes and the indenture governing its 10 3/8% Senior
Subordinated Notes may limit our ability to finance our future operations or
capital needs or engage in other business activities that may be in our
interests. These debt instruments impose significant operating and financial
restrictions on us that affect our ability to incur additional indebtedness or
create liens on our assets, pay dividends, sell assets, engage in mergers or
acquisitions, make investments or engage in other business activities. These
restrictions could place us at a disadvantage relative to competitors not
subject to such limitations.

In addition, the credit agreement governing our senior credit facility
contains other and more restrictive covenants and limits us from prepaying our
other indebtedness. The senior credit facility also requires us to maintain
specified financial ratios. These financial ratios become more restrictive over
the life of the senior credit facility. Our ability to meet those financial
ratios can be affected by events beyond our control, and we cannot assure you
that we will meet those ratios. Provided there are no further outstanding
balances under our senior credit facility, compliance with these covenants in
the credit agreement is not required until March 31, 2003. After that date, or
earlier if we borrow money under the credit facility, a breach of any of these
covenants, ratios or restrictions could result in an event of default under the
senior credit facility. Upon the occurrence of an event of default under the
senior credit facility, the lenders could elect to declare all amounts
outstanding under the senior credit facility, together with accrued interest, to
be immediately due and payable. If we were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure the
indebtedness. If the lenders under the senior credit facility accelerate the
payment of the indebtedness, we cannot assure you that our assets would be
sufficient to repay in full that indebtedness and our other indebtedness.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosure about Market Risk, in Fairchild Semiconductor International's annual
report on Form 10-K for the year ended December 30, 2001 and under the
subheading "Quantitative and Qualitative Disclosures about Market Risk" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 48 of the 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Under new Securities
and Exchange Commission (SEC) regulations implementing portions of the
Sarbanes-Oxley Act of 2002, our chief executive officer

37

and our chief financial officer are required to certify in this quarterly report
their responsibility for establishing and maintaining disclosure controls and
procedures designed to ensure that material information relating to our company
is made known to them. Our CEO and CFO are also required to certify that they
have evaluated the effectiveness of our disclosure controls and procedures as of
a date within 90 days prior to the filing of this report, and that they have
presented in this report their conclusions about the effectiveness of the
disclosure controls and procedures as a result of the evaluation. Based on their
evaluation, our CEO and CFO have concluded that our disclosure controls and
procedures are effective, providing them with material information relating to
the company as required to be disclosed in the reports we file with the SEC on a
timely basis.

(b) Changes in internal controls. There were no significant changes in the
company's internal controls or in other factors that could significantly affect
the company's disclosure controls and procedures subsequent to the date of the
CEO and CFO's evaluation discussed in paragraph (a) above, nor were there any
significant deficiencies or material weaknesses in the company's internal
controls.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are involved in actual or threatened legal proceedings
in the ordinary course of business. We believe that there is no such ordinary
course litigation pending or threatened that could have, individually or in the
aggregate, a material adverse effect on our business, financial condition,
results of operations or cash flows.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(b) Reports on Form 8-K

On July 24, 2002, we filed a current report on Form 8-K relating to financial
information for the three and six months ended June 30, 2002 and forward-looking
statements relating to the third quarter of 2002 as announced in a press release
issued July 23, 2002. The press release is incorporated in, and filed as an
exhibit to, the current report.

On August 13, 2002, we filed a current report on Form 8-K relating to the
August 12, 2002 submission of sworn statements by Kirk P. Pond, Chairman,
President and Chief Executive Officer, and Joseph R. Martin, Executive Vice
President and Chief Financial Officer, pursuant to Securities and Exchange
Commission Order No. 4-460. Copies of the sworn statements were filed as
exhibits to the current report.

On September 6, 2002, we filed a current report on Form 8-K relating to the
update of our forward-looking guidance for the third quarter of 2002, as
announced in a press release dated September 3, 2002. The press release is
incorporated in, and filed as an exhibit to, the current report.

ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

38

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.

By: /s/ DAVID A. HENRY
------------------------------------
David A. Henry
Vice President, Corporate Controller
(Principal Accounting Officer)

Date: November 13, 2002

39

ANNUAL AND QUARTERLY CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Kirk P. Pond, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fairchild
Semiconductor International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

By: /s/ KIRK P. POND
------------------------------------
Kirk P. Pond
Chairman, President and Chief
Executive Officer

Date: November 13, 2002

40

ANNUAL AND QUARTERLY CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Joseph R. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Fairchild
Semiconductor International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

By: /s/ JOSEPH R. MARTIN
------------------------------------
Joseph R. Martin
Executive Vice President and
Chief Financial Officer

Date: November 13, 2002

41